-----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, NcCNnstFJibsHN/jQYyiQ2e2e2SuZwyCdl7DwHFA5mn8Q87bo9ZTbnMWvBAIoZsa GLhsn0SNQoXixcNtya4A5A== 0000950137-99-002184.txt : 19990621 0000950137-99-002184.hdr.sgml : 19990621 ACCESSION NUMBER: 0000950137-99-002184 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990618 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-Q SEC ACT: SEC FILE NUMBER: 000-05485 FILM NUMBER: 99648840 BUSINESS ADDRESS: STREET 1: 6855 W. 65TH ST. CITY: CHICAGO STATE: IL ZIP: 60638 BUSINESS PHONE: 7084964200 FORMER COMPANY: FORMER CONFORMED NAME: ENVIRODYNE INDUSTRIES INC DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: MGN INC DATE OF NAME CHANGE: 19790425 10-Q 1 QUARTERLY REPORT DATED 3/31/199 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 __ FORM 10-Q [ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1999 -------------------------- OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to ____________ Commission file number 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.) 6855 W. 65th Street, Chicago, Illinois 60638 - -------------------------------------- ------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (708) 496-4200 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 --- --- 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 May 15, 1999, there were 14,879,707 shares outstanding of the registrant's Common Stock, $.01 par value. Page 1 of 33 Pages 2 INDEX TO FINANCIAL STATEMENTS VISKASE COMPANIES, INC. AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at March 31, 1999 (unaudited) and December 31, 1998 4 Unaudited consolidated statements of operations for the three months ended March 31, 1999 and March 26, 1998 5 Unaudited consolidated statements of cash flows for the three months ended March 31, 1999 and March 26, 1998 6 Notes to consolidated financial statements 7
VISKASE HOLDING CORPORATION AND SUBSIDIARIES UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets at March 31, 1999 (unaudited) and December 31, 1998 21 Unaudited consolidated statements of operations for the three months ended March 31, 1999 and March 26, 1998 22 Unaudited consolidated statements of cash flows for the three months ended March 31, 1999 and March 26, 1998 23 Notes to consolidated financial statements 24
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS The financial information included in this quarterly report has been prepared in conformity with the accounting principles and practices reflected in the financial statements included in the annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998 (1998 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1998 Form 10-K. The accompanying financial information, which is unaudited, reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The condensed consolidated balance sheet as of December 31, 1998 was derived from the audited consolidated financial statements in the Company's annual report on Form 10-K. Reported interim results of operations are based in part on estimates which may be subject to year-end adjustments. In addition, these quarterly results of operations are not necessarily indicative of those expected for the year. 3 4 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1999 1998 ---- ---- (unaudited) (in thousands) ASSETS Current assets: Cash and equivalents $ 10,699 $ 9,028 Receivables, net 47,902 47,718 Inventories 94,871 93,228 Other current assets 21,598 15,337 -------- -------- Total current assets 175,070 165,311 Property, plant and equipment, including those under capital leases 475,582 475,525 Less accumulated depreciation and amortization 153,771 145,680 -------- -------- Property, plant and equipment, net 321,811 329,845 Deferred financing costs, net 946 1,198 Other assets 33,896 34,715 Excess reorganization value, net -------- -------- Total assets $531,723 $531,069 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligations under capital leases $ 17,420 $ 16,120 Accounts payable 35,122 36,337 Accrued liabilities 63,702 62,319 Current deferred income taxes 8,810 8,810 -------- -------- Total current liabilities 125,054 123,586 Long-term debt including obligations under capital leases 404,032 388,880 Accrued employee benefits 48,146 48,115 Deferred and noncurrent income taxes 23,316 26,395 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,869,087 shares issued and outstanding at March 31, 1999 and 14,859,467 shares at December 31, 1998 149 149 Paid in capital 136,754 136,715 Accumulated (deficit) (208,790) (197,454) Cumulative foreign currency translation adjustments 3,062 4,693 Unearned restricted stock issued for future service (10) -------- -------- Total stockholders' equity (deficit) (68,825) (55,907) -------- -------- Total liabilities and stockholders' equity $531,723 $531,069 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 4 5 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Three Months Ended March Ended March 31, 1999 26, 1998 -------- -------- (in thousands, except for number of shares and per share amounts) NET SALES $ 92,067 $101,277 COSTS AND EXPENSES Cost of sales 69,382 74,261 Selling, general and administrative 20,277 21,378 Amortization of intangibles and excess reorganization value 1,250 3,468 -------- -------- OPERATING INCOME 1,158 2,170 Interest income 103 185 Interest expense 10,333 13,475 Other expense, net 3,084 789 -------- -------- (LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES (12,156) (11,909) Income tax (benefit) (820) (726) -------- -------- NET (LOSS) FROM CONTINUING OPERATIONS (11,336) (11,183) DISCONTINUED OPERATIONS: (Loss) from discontinued operations net of income taxes (Note 5) (207) -------- -------- NET (LOSS) (11,336) (11,390) Other comprehensive (loss) income, net of tax: Foreign currency translation adjustments (995) 331 -------- -------- COMPREHENSIVE LOSS $(12,331) $(11,059) ======== ======== WEIGHTED AVERAGE COMMON SHARES - BASIC AND DILUTED 14,867,057 14,773,346 ========== ========== PER SHARE AMOUNTS: EARNINGS (LOSS) PER SHARE - basic and diluted Continuing operations $(.76) $(.76) Discontinued operations: (Loss) from discontinued operations (.01) ----- ----- NET (LOSS) $(.76) $(.77) ===== =====
The accompanying notes are an integral part of the consolidated financial statements. 5 6 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended --------------------------- March 31, March 26, 1999 1998 --------- --------- (in thousands) Cash flows from operating activities: Net (loss) $(11,336) $(11,390) Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: Depreciation and amortization under capital lease 10,120 11,556 Amortization of intangibles and excess reorganization value 1,250 3,801 Amortization of deferred financing fees and discount 286 428 (Decrease) in deferred and noncurrent income taxes (2,030) (1,582) Foreign currency transaction loss (gain) 43 (106) Loss on disposition of assets 24 103 Bad debt provision 233 248 Changes in operating assets and liabilities: Receivables (967) 7,377 Inventories (2,859) (14,581) Other current assets (6,509) (6,545) Accounts payable and accrued liabilities 1,582 2,132 Other 1,525 590 -------- -------- Total adjustments 2,698 3,421 -------- -------- Net cash (used in) operating activities (8,638) (7,969) Cash flows from investing activities: Capital expenditures (5,997) (15,081) Proceeds from disposition of assets 12 37 -------- -------- Net cash (used in) investing activities (5,985) (15,044) Cash flows from financing activities: Issuance of common stock 49 307 Deferred financing costs (26) (4) Proceeds from revolving loan and long-term borrowings 30,134 20,069 Repayment of revolving loan, long-term borrowings and capital lease obligation (13,353) (9,994) -------- -------- Net cash provided by financing activities 16,804 10,378 Effect of currency exchange rate changes on cash (510) (58) -------- -------- Net increase (decrease) in cash and equivalents 1,671 (12,693) Cash and equivalents at beginning of period 9,028 24,407 -------- -------- Cash and equivalents at end of period $ 10,699 $ 11,714 ======== ======== - ---------------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 10,616 $ 11,773 Income taxes paid $ 631 $ 574
The accompanying notes are an integral part of the consolidated financial statements. 6 7 VISKASE COMPANIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVENTORIES (dollars in thousands) Inventories consisted of: March December 31, 1999 31, 1998 -------- -------- Raw materials $ 10,043 $ 10,500 Work in process 37,012 38,291 Finished products 47,816 44,437 -------- -------- $ 94,871 $ 93,228 ======== ======== Approximately 59% of the inventories at March 31, 1999 were valued at Last-In, First-Out (LIFO). These LIFO values exceeded current manufacturing cost by approximately $4.6 million at March 31, 1999. 2. DEBT OBLIGATIONS (dollars in thousands) As discussed in Subsequent Events (refer to Note 9), the Company entered into a $100,000 Senior Secured Credit Facility and $35,000 of Junior Term Loans in June 1999. The proceeds were used to redeem the 12% Senior Secured Notes and the existing Revolving Credit Facility. The 12% Senior Secured Notes and existing Revolving Credit Facility have been reclassified to long-term debt based upon the Company's refinancing of obligations on a long-term basis. Outstanding short-term and long-term debt consisted of: March December 31, 1999 31, 1998 -------- -------- Short-term debt, current maturity of long-term debt, and capital lease obligation: Current maturity of Viskase Capital Lease Obligation 14,377 $ 13,031 Current maturity of Viskase Limited Term Loan (3.2%) 1,651 1,742 Other 1,392 1,347 -------- -------- Total short-term debt $ 17,420 $ 16,120 ======== ======== 7 8 Long-term debt: Secured Revolver $ 30,000 12% Senior Secured Notes due 1999 55,000 $ 55,000 10.25% Senior Notes due 2001 219,262 219,262 Viskase Capital Lease Obligation 97,466 111,842 Viskase Limited Term Loan (3.2%) 815 868 Other 1,489 1,908 -------- -------- Total long-term debt $404,032 $388,880 ======== ======== On August 24, 1998, the Company redeemed $105,000 of the aggregate principal amount of its 12% Senior Secured Notes using proceeds from the Clear Shield National, Inc. (Clear Shield) divestiture. The notes were redeemed at approximately 108.5% of principal amount, plus accrued interest to the date of redemption. The Company recognized an extraordinary after-tax loss of $6,800 on the partial redemption of its 12% Senior Secured Notes. The extraordinary loss is comprised of $8,900 of yield maintenance premiums and $2,200 write-off of deferred debt issuance costs; net of a $4,300 income tax benefit. The remaining $55,000 of principal outstanding on the 12% Senior Secured Notes is due and payable at par on June 15, 1999. (Refer to Note 9) As of March 31, 1999, the Company is in compliance with the amended covenants under the Indenture and Amended and Restated Credit Agreement. 3. CONTINGENCIES (dollars in thousands) In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two different very low density polyethylene plastic resins in the manufacture of ANC's multi-layer barrier shrink film products was infringing various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. In November 1996, after a three-week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. The Court also entered an order permanently enjoining ANC from making or selling infringing products. In September 1997, the Court set aside the jury verdict in part and ordered a retrial on certain issues. The Court upheld the jury finding on the validity of all of Viskase's patents and the jury finding that ANC had willfully infringed Viskase's patents by ANC's use of Dow Chemical Company's "Attane" brand polyethylene plastic resin in ANC's products. However, the Court ordered a new trial on the issue of whether ANC's use of Dow Chemical Company's "Affinity" brand polyethylene plastic resin infringed Viskase's patents and whether such conduct was willful. Because the jury rendered one general damage verdict, the Court ordered a retrial of all damage issues. By operation of the Court's order, the injunction in respect of ANC's future use of the "Affinity" brand resin was removed. On August 19, 1998, the Court granted Viskase's motion for partial summary judgment finding that ANC's use of the "Affinity" brand resin infringed Viskase's patents. The Court also reinstated the permanent injunction. Patent validity and infringement having been established, the remaining issues for trial are whether ANC willfully infringed Viskase's patents by using "Affinity" brand resin and the determination of the amount of compensatory damages. Viskase filed a motion to have the jury verdict as to 8 9 compensatory damages reinstated. ANC filed a motion to dismiss the lawsuit claiming that Viskase's patents are invalid and Viskase failed to join an indispensable party to the lawsuit. On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. In addition, ANC has challenged two of the five Viskase patents in suit by filing requests for reexamination with the United States Patent and Trademark Office (USPTO). With respect to the challenge of the first patent, on September 25, 1998, the USPTO, after initially rejecting Viskase's claims, gave notice of its intent to reissue Viskase's patent in its entirety. ANC filed another request for reexamination of the patent, which has the effect of staying the reissuance. The USPTO initially rejected Viskase's claims to which Viskase is preparing its response. With respect to the challenge of the second patent, the USPTO, after initially rejecting Viskase's claims, withdrew the rejection in view of Viskase's response and raised new grounds of rejection. Viskase is preparing a response to the new grounds of rejection. If the USPTO ultimately disallows the claims of the second Viskase patent, the effect upon the Court action will not be significant. If Viskase's motion to reinstate the damages is denied, Viskase expects the trial on damages to occur during the second half of 1999 or early 2000. On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that Viskase's second patent is invalid. ANC also filed a motion to consolidate the new action with the existing suit. Viskase is preparing an answer to ANC's complaint and has filed its response to ANC's motion to consolidate. The Company expects ANC to vigorously contest these matters in the Court and the USPTO and to appeal any final judgment. No part of the pending claims has been recorded in the Company's financial statements. Through March 31, 1999, $4,651 in patent defense costs had been accrued and capitalized. In March 1997 Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. Viskase Corporation is cooperating fully with the investigation. The Company and its subsidiaries are involved in various legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. 4. UNUSUAL CHARGE (dollars in millions) During the third quarter of 1998, due to the business conditions leading to the Viskase plan of restructuring, the Company evaluated the recoverability of long-lived assets including property, plant and equipment, patents and excess reorganization on a consolidated basis. Based upon the analysis, the Company recognized an impairment because the estimated consolidated undiscounted future cash flows derived from long-lived assets were determined to be less than their carrying value. The amount of the impairment was calculated using the present value of the Company's estimated future net cash flows to determine the assets' fair value. Based on this analysis, an impairment charge of $91.2 million for excess reorganization and $4.3 million for the write-down of the Chicago facility was taken. In addition, the Viskase plan of restructuring included charges for the decommissioning of the Chicago plant and the decommissioning of some of its foreign operations. 9 10 During the first quarter of 1999 and accumulated to date, cash payments against the reserve were $1.2 million and $7.7 million, respectively. A remaining restructuring reserve of $4.8 is included in accrued liabilities on the balance sheet. 5. DISCONTINUED OPERATIONS (dollars in thousands) In June 1998 the Company's Board of Directors agreed to sell the Clear Shield and Sandusky Plastics, Inc. (Sandusky) subsidiaries. Sandusky was sold on June 11, 1998 and Clear Shield was sold on July 23, 1998. Accordingly, the operating results from both subsidiaries have been segregated from continuing operations and reported as a separate line item, Results of Discontinued Operations, on the Statements of Operations. Operating results from discontinued operations are as follows: Three Months Ended March 26, 1998 ------------ Net sales $27,378 Costs and expenses Cost of sales 22,305 Selling, general and administrative 4,297 Amortization of intangibles and excess reorganization value 333 ------- Operating income 443 Interest expense 22 Other expense, net 544 ------- (Loss) from discontinued operations before taxes (123) Income tax provision 84 ------- Net (loss) from discontinued operations $ (207) ======= 6. COMPREHENSIVE INCOME (dollars in thousands) During 1998 the Company adopted the Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income," which requires the Company to disclose comprehensive income in addition to net income. Comprehensive income includes all other non-shareholder changes in equity. All such changes in equity resulted from changes in foreign currency translation adjustments. 10 11 The following sets forth the components of other comprehensive income (loss) and the related income tax provision (benefit):
Three Months Ended Three Months Ended March 31, March 26, 1999 1998 --------- --------- Foreign currency translation adjustment (1) $(995) $331
(1) Net of related tax (benefit) provision of $(636) and $211 for the first quarter ended 1999 and 1998, respectively. 7. EARNINGS PER SHARE In February 1997 the Financial Accounting Standards Board issued Statement No. 128, "Earnings Per Share," which became effective for both interim and annual financial statement periods ending after December 15, 1997. As required by this Statement, the Company adopted the new standards for computing and presenting earnings per share (EPS) in fiscal 1997, and for all period earnings per share data presented. Following are the reconciliations of the numerators and denominators of the basic and diluted EPS.
Three Months Three Months Ended March Ended March 31, 1999 26, 1998 ----------- ----------- (in thousands, except for weighted average shares outstanding) NUMERATOR: Net (loss) available to common stockholders: From continuing operations: $(11,336) $(11,183) Discontinued operations: (Loss) from discontinued operations (207) -------- -------- Net loss available to common stockholders for basic and diluted EPS $(11,336) $(11,390) ======== ======== DENOMINATOR: Weighted average shares outstanding for basic EPS 14,867,057 14,773,346 Effect of dilutive securities 0 0 ---------- ---------- Weighted average shares outstanding for diluted EPS 14,867,057 14,773,346 ========== ==========
Common stock equivalents are excluded from the loss per share calculations as the result is antidilutive since the numerator is a loss from continuing operations. 11 12 8. ACCOUNTING STANDARDS The Company will implement the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), which will be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires recognition of all derivative instruments as either assets or liabilities in the statement of financial condition and the measurement of those instruments at fair value. Management believes the adoption of SFAS No. 133 will not have a significant effect on the Company's financial statements. 9. SUBSEQUENT EVENTS On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. During June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior revolving credit facility, including a $26 million sublimit for issuance of letters of credit (Senior Revolving Credit Facility), a $50 million senior term facility (Senior Term Facility), collectively the "Senior Secured Credit Facility," and $35 million of junior secured term loans (Junior Term Loans). The proceeds of the Senior Secured Credit Facility and the Junior Term Loans were used to repay the $55 million Senior Secured Notes outstanding and obligations outstanding under the Company's existing Revolving Credit Facility. The Senior Secured Credit Facility and the Junior Term Loans have a maturity date of June 30, 2001. The Senior Secured Credit Facility is guaranteed by Viskase Companies, Inc. and Viskase Holding Corporation and is secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property and intangible assets; (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Viskase Companies, Inc.'s significant domestic subsidiaries and 65% of the capital stock of Viskase Europe Limited and Viskase Brazil. Borrowings under the Senior Revolving Credit Facility bear interest either at the bank's prime interest rate plus a margin of 75 basis points or the London Interbank Offered Rate (LIBOR) plus a margin of 275 basis points. The Senior Term Facility bears interest at either the bank's prime interest rate plus a margin of 125 basis points or LIBOR plus a margin of 325 basis points. Fees on the outstanding amount of standby letters of credit are 2.25% per annum, with an issuance fee of 0.5% on the face amount of the letter of credit. The unused commitment fee for the Senior Revolving Credit Facility is 0.5% per annum. The Senior Term Facility is payable in six equal quarterly principal payments of $1.786 million beginning on January 4, 2000. The remaining principal balance outstanding under the Senior Term Facility is payable on the June 30, 2001 maturity date. In the event the Company has Surplus Cash (as defined) in any year, the Company is required to use an amount equal to 50% of the Surplus Cash to redeem Senior Term Facility obligations at par. The Company may elect, at its option, to prepay amounts due under the Senior Term Facility; such prepayments may be subject to a prepayment premium of 25 to 100 basis points of the principal amount redeemed depending on the source of funds used for such prepayment. 12 13 The $35 million of Junior Term Loans bear interest at an initial rate of 14% per annum, and increase .5% every six months thereafter, and mature on June 30, 2001. The Junior Term Loans are collateralized by the Collateral Pool for the Senior Secured Credit Facility; however, the Junior Term Loans are subordinated to the obligations outstanding under the Senior Secured Credit Facility. D.P. Kelly and Associates L.P., which owns approximately 13% of the outstanding common stock of Viskase Companies, Inc. is a lender under the Junior Term Loans. The Company's Senior Secured Credit Facility and Junior Term Loans contain a number of financial covenants that, among other things, require the maintenance of a minimum level of tangible net worth, a minimum fixed charge coverage ratio and a minimum leverage ratio of total liabilities to earnings before depreciation, interest, amortization and taxes (EBDIAT) and a limitation on capital expenditures. 10. SUBSIDIARY GUARANTORS The Company's payment obligations under the Senior Secured Notes are fully and unconditionally guaranteed on a joint and several basis (collectively, Subsidiary Guarantees) by Viskase Corporation, Viskase Holding Corporation, Viskase Sales Corporation, and Viskase Films, Inc., each a direct or indirect wholly owned subsidiary of Viskase Companies, Inc. and each a "Guarantor." These subsidiaries represent substantially all of the operations of Viskase Companies, Inc. conducted in the United States. The remaining subsidiaries of Viskase Companies, Inc. generally are foreign subsidiaries or otherwise relate to foreign operations. The obligations of each Guarantor under its Subsidiary Guarantee are the senior obligation of such Guarantor, and are collateralized, subject to certain permitted liens, by substantially all of the domestic assets of the Guarantor and, in the case of Viskase Holding Corporation, by a pledge of 65% of the capital stock of Viskase Europe Limited. The Subsidiary Guarantees and security are shared with the lenders under the Amended and Restated Credit Agreement on a pari passu basis and are subject to the priority interest of the holders of obligations under the Letter of Credit Facility, each pursuant to an intercreditor agreement. The following consolidating condensed financial data illustrate the composition of the combined Guarantors. No single Guarantor has any significant legal restrictions on the ability of investors or creditors to obtain access to its assets in the event of default on the Subsidiary Guarantee other than its subordination to senior indebtedness described above. Separate financial statements of the Guarantors are not presented because management has determined that these would not be material to investors. Based on the book value and the market value of the pledged securities of Viskase Corporation, Viskase Sales Corporation and Viskase Films, Inc., these Subsidiary Guarantors do not constitute a substantial portion of the collateral and, therefore, the separate financial statements of these subsidiaries have not been provided. Separate unaudited interim financial statements of Viskase Holding Corporation are being filed within this report. Investments in subsidiaries are accounted for by the parent and Subsidiary Guarantors on the equity method for purposes of the supplemental consolidating presentation. Earnings of subsidiaries are therefore reflected in the parent's and Subsidiary Guarantors' investment accounts and earnings. The principal elimination entries eliminate investments in subsidiaries and intercompany balances and transactions. 13 14 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS MARCH 31, 1999 (unaudited)
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total ------ ------------ ------------ ------------ ----- ASSETS (in thousands) Current assets: Cash and equivalents $ 6,042 $ 263 $ 4,394 $ 10,699 Receivables and advances, net 138,764 46,623 38,792 $(176,277) 47,902 Inventories 55,700 40,191 (1,020) 94,871 Other current assets 395 13,576 7,627 21,598 -------- -------- -------- --------- -------- Total current assets 145,201 116,162 91,004 (177,297) 175,070 Property, plant and equipment including those under capital lease 149 320,754 154,679 475,582 Less accumulated depreciation and amortization 149 102,867 50,755 153,771 -------- -------- -------- --------- -------- Property, plant and equipment, net 0 217,887 103,924 321,811 Deferred financing costs 710 236 946 Other assets 31,545 2,351 33,896 Investment in subsidiaries (141,742) 82,894 58,848 -------- -------- -------- --------- -------- Total assets $ 4,169 $448,488 $197,515 $(118,449) $531,723 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 14,377 $ 3,043 $ 17,420 Accounts payable and advances $ 122 162,421 48,856 $(176,277) 35,122 Accrued liabilities 12,613 35,516 15,573 63,702 Current deferred taxes (39) 9,000 (151) 8,810 -------- -------- -------- --------- -------- Total current liabilities 12,696 221,314 67,321 (176,277) 125,054 Long-term debt including obligation under capital lease 304,262 97,466 2,304 404,032 Accrued employee benefits 45,584 2,562 48,146 Deferred and noncurrent income taxes 30,091 (27,434) 20,659 23,316 Intercompany loans (274,055) 265,000 9,055 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,869,087 shares issued and outstanding 149 1 32,609 (32,610) 149 Paid in capital 136,754 79,734 88,359 (168,093) 136,754 Accumulated earnings (deficit) (208,790) (236,179) (28,356) 264,535 (208,790) Foreign currency translation adjustments 3,062 3,002 3,002 (6,004) 3,062 -------- -------- -------- --------- -------- Total stockholders' equity (deficit) (68,825) (153,442) 95,614 57,828 (68,825) -------- -------- -------- --------- -------- Total liabilities and stockholders' equity $ 4,169 $448,488 $197,515 $(118,449) $531,723 ======== ======== ======== ========= ========
(1) Elimination of intercompany receivables, payables and investment accounts. 14 15 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING BALANCE SHEETS DECEMBER 31, 1998
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations (1) Total ------ ------------ ------------ ------------ ----- ASSETS (in thousands) Current assets: Cash and equivalents $ 1,675 $ 97 $ 7,256 $ 9,028 Receivables and advances, net 105,652 45,155 36,328 $(139,417) 47,718 Inventories 53,790 40,256 (818) 93,228 Other current assets 530 6,466 8,341 15,337 -------- -------- -------- --------- -------- Total current assets 107,857 105,508 92,181 (140,235) 165,311 Property, plant and equipment including those under capital lease 149 315,315 160,061 475,525 Less accumulated depreciation and amortization 147 96,212 49,321 145,680 -------- -------- -------- --------- -------- Property, plant and equipment, net 2 219,103 110,740 329,845 Deferred financing costs 920 278 1,198 Other assets 32,363 2,352 34,715 Investment in subsidiaries (129,351) 88,324 41,027 -------- -------- -------- --------- -------- Total assets $(20,572) $445,298 $205,551 $ (99,208) $531,069 ======== ======== ======== ========= ======== LIABILITIES & STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 13,031 $ 3,089 $ 16,120 Accounts payable and advances $ 60 128,436 47,258 $(139,417) 36,337 Accrued liabilities 5,340 40,495 16,484 62,319 Current deferred taxes (39) 9,000 (151) 8,810 -------- -------- -------- --------- -------- Total current liabilities 5,361 190,962 66,680 (139,417) 123,586 Long-term debt including obligation under capital lease 274,262 111,842 2,776 388,880 Accrued employee benefits 45,510 2,605 48,115 Deferred and noncurrent income taxes 30,602 (26,762) 22,555 26,395 Intercompany loans (1) (274,890) 264,999 9,891 Commitments and contingencies Stockholders' equity: Preferred stock, $.01 par value; none outstanding Common stock, $.01 par value; 14,859,467 shares issued and outstanding 149 1 32,609 (32,610) 149 Paid in capital 136,715 79,734 88,359 (168,093) 136,715 Accumulated earnings (deficit) (197,454) (225,621) (24,557) 250,178 (197,454) Foreign currency translation adjustment 4,693 4,633 4,633 (9,266) 4,693 Unearned restricted stock issued for future services (10) (10) -------- -------- -------- --------- -------- Total stockholders' equity (deficit) (55,907) (141,253) 101,044 40,209 (55,907) -------- -------- -------- --------- -------- Total liabilities and stockholders' equity (deficit) $(20,572) $445,298 $205,551 $ (99,208) $531,069 ======== ======== ======== ========= ========
(1) Elimination of intercompany receivables, payables and investment accounts. 15 16 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 31, 1999 (unaudited)
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total ------ ------------ ------------ ------------ ----- (in thousands) NET SALES $ 55,783 $ 46,911 $(10,627) $ 92,067 COSTS AND EXPENSES Cost of sales 42,534 37,273 (10,425) 69,382 Selling, general and administrative $ 648 10,474 9,155 20,277 Amortization of intangibles and excess reorganization value 1,250 1,250 -------- -------- -------- -------- -------- OPERATING INCOME (LOSS) (648) 1,525 483 (202) 1,158 Interest income 33 8 62 103 Interest expense 7,786 2,230 317 10,333 Intercompany interest expense (income) (7,533) 6,666 867 Management fees (income) (251) 251 Other expense (income), net 76 38 2,970 3,084 Equity loss (income) in subsidiary 10,760 3,799 (14,559) -------- -------- -------- -------- -------- INCOME (LOSS) BEFORE INCOME TAXES (11,704) (10,949) (3,860) 14,357 (12,156) Income tax provision (benefit) (368) (391) (61) (820) -------- -------- -------- -------- -------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS (11,336) (10,558) (3,799) 14,357 (11,336) DISCONTINUED OPERATIONS: Income from operations, net of an income tax -------- -------- -------- -------- -------- NET INCOME (LOSS) (11,336) (10,558) (3,799) 14,357 (11,336) Other comprehensive (loss) income, net of tax Foreign currency translation adjustments (995) (995) (995) 1,990 (995) -------- -------- -------- -------- -------- COMPREHENSIVE (LOSS) INCOME $(12,331) $(11,553) $ (4,794) $ 16,347 $(12,331) ======== ======== ======== ======== ========
16 17 ENVIRODYNE INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATING STATEMENTS OF OPERATIONS FOR THREE MONTHS ENDED MARCH 26, 1998
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total ------ ------------ ------------ ------------ ------------ (in thousands) NET SALES $61,375 $47,879 $(7,977) $101,277 COSTS AND EXPENSES Cost of sales 46,887 35,617 (8,243) 74,261 Selling, general and administrative $ 989 10,681 9,708 21,378 Amortization of intangibles and excess reorganization value 2,714 754 3,468 -------- -------- ---------- ------- -------- OPERATING INCOME (LOSS) (989) 1,093 1,800 266 2,170 Interest income 139 46 185 Interest expense 10,921 2,207 347 13,475 Intercompany interest expense (income) (9,667) 9,359 308 Management fees (income) (1,184) 867 317 Other expense (income), net (80) 67 802 789 Equity loss (income) in subsidiary 10,878 677 (11,555) -------- -------- ---------- ------- -------- INCOME (LOSS) BEFORE INCOME TAXES (11,718) (12,084) 72 11,821 (11,909) Income tax provision (benefit) (328) (1,147) 749 (726) -------- -------- ---------- ------- -------- NET INCOME (LOSS) FROM CONTINUING OPERATIONS (11,390) (10,937) (677) 11,821 (11,183) DISCONTINUED OPERATIONS Income from operations net of an income tax provision of $84 (207) (207) -------- -------- ---------- ------- -------- NET (LOSS) INCOME (11,390) (11,144) (677) 11,821 (11,390) Other comprehensive (loss) income, net of tax Foreign currency translation adjustments 331 331 331 (662) 331 -------- -------- ---------- ------- -------- COMPREHENSIVE (LOSS) INCOME $(11,059) $(10,813) $ (346) $11,159 $(11,059) ======== ======== ========== ======= ========
17 18 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THREE MONTHS ENDED MARCH 31, 1999 (unaudited)
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------- ------------ ------------ (in thousands) Net cash provided by (used in) operating activities $(26,491) $18,602 $ (749) $(8,638) Cash flows from investing activities: Capital expenditures (5,410) (587) (5,997) Proceeds from disposition of assets 5 7 12 -------- -------- ------ ---------- -------- Net cash provided by (used in) investing activities (5,405) (580) (5,985) Cash flows from financing activities: Issuance of common stock 49 49 Proceeds from revolving loan and long-term borrowings 30,000 134 30,134 Deferred financing costs (26) (26) Repayment of revolving loan, long-term borrowings and capital lease obligations (13,031) (322) (13,353) Increase (decrease) in Viskase Companies, Inc. loan 835 (835) -------- -------- ------ ---------- -------- Net cash provided by (used in) financing activities 30,858 (13,031) (1,023) 16,804 Effect of currency exchange rate changes on cash (510) (510) -------- -------- ------ ---------- ------- Net (decrease) in cash and equivalents 4,367 166 (2,862) 1,671 Cash and equivalents at beginning of period 1,675 97 7,256 9,028 -------- ------- ------- --------- ------- Cash and equivalents at end of period $ 6,042 $ 263 $ 4,394 $10,699 ======== ======= ======= ========= =======
18 19 VISKASE COMPANIES, INC. AND SUBSIDIARIES CONSOLIDATING CASH FLOWS FOR THREE MONTHS ENDED MARCH 26, 1998
Guarantor Nonguarantor Consolidated Parent Subsidiaries Subsidiaries Eliminations Total -------- ------------ ------------ ------------ - ----------- (in thousands) Net cash provided by (used in) operating activities $(32,409) $ 21,873 $ 2,567 $ (7,969) Cash flows from investing activities: Capital expenditures (4) (12,805) (2,272) (15,081) Proceeds from disposition of assets 34 3 37 -------- -------- ------- --------- --------- Net cash provided by (used in) investing activities (4) (12,771) (2,269) (15,044) Cash flows from financing activities: Issuance of common stock 307 307 Proceeds from revolving loan and long-term borrowings 20,000 69 20,069 Deferred financing costs (4) (4) Repayment of revolving loan, long-term borrowings and capital lease obligations (9,814) (180) (9,994) Increase (decrease) in Viskase Companies, Inc. loan 603 (603) -------- -------- ------- --------- --------- Net cash provided by (used in) financing activities 20,906 (9,814) (714) 10,378 Effect of currency exchange rate changes on cash (58) (58) -------- -------- ------- --------- --------- Net (decrease) in cash and equivalents (11,507) (712) (474) (12,693) Cash and equivalents at beginning of period 19,004 865 4,538 24,407 -------- -------- ------- --------- --------- Cash and equivalents at end of period $ 7,497 $ 153 $ 4,064 $ 11,714 ======== ======== ======= ========= =========
19 20 VISKASE HOLDING CORPORATION AND SUBSIDIARIES The financial information included in this quarterly report has been prepared in conformity with the accounting principles and practices reflected in the financial statements included in the annual report on Form 10-K filed with the Securities and Exchange Commission for the year ended December 31, 1998 (1998 Form 10-K). These quarterly financial statements should be read in conjunction with the financial statements and the notes thereto included in the 1998 Form 10-K. The accompanying financial information, which is unaudited, reflects all adjustments which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The condensed consolidated balance sheet as of December 31, 1998 was derived from the audited Viskase Holding Corporation's consolidated financial statements included in Viskase Companies, Inc.'s annual report on Form 10-K. Reported interim results of operations are based in part on estimates which may be subject to year-end adjustments. In addition, these quarterly results of operations are not necessarily indicative of those expected for the year. 20 21 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
March 31, December 31, 1999 1998 ----------- ------------ (unaudited) (in thousands) ASSETS Current assets: Cash and equivalents $ 4,394 $ 7,256 Receivables, net 29,727 30,462 Receivables, affiliates 55,390 51,906 Inventories 40,191 40,256 Other current assets 7,627 8,341 --------- --------- Total current assets 137,329 138,221 Property, plant and equipment including those under capital lease 154,679 160,061 Less accumulated depreciation and amortization 50,755 49,321 --------- --------- Property, plant and equipment, net 103,924 110,740 Deferred financing costs 236 278 Other assets 2,350 2,351 --------- --------- Total assets $ 243,839 $ 251,590 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Short-term debt including current portion of long-term debt and obligation under capital lease $ 3,043 $ 3,089 Accounts payable 14,277 13,998 Accounts payable and advances, affiliates 38,578 37,956 Accrued liabilities 15,573 16,484 Current deferred income taxes (151) (151) --------- --------- Total current liabilities 71,320 71,376 Long-term debt 2,304 2,776 Accrued employee benefits 2,562 2,605 Deferred and noncurrent income taxes 20,659 22,555 Intercompany loans 47,065 47,901 Commitments and contingencies Stockholders' equity: Common stock, $1.00 par value, 1,000 shares authorized; 100 shares issued and outstanding Paid in capital 103,463 103,463 Accumulated (deficit) (6,572) (3,755) Foreign currency translation adjustments 3,038 4,669 --------- --------- Total stockholders' equity 99,929 104,377 --------- --------- Total liabilities and stockholders' equity $ 243,839 $ 251,590 ========= =========
The accompanying notes are an integral part of the consolidated financial statements. 21 22 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Three Months Ended March Ended March 31, 1999 26, 1998 ------------- ------------- (in thousands) NET SALES $ 46,911 $ 47,879 COSTS AND EXPENSES Cost of sales 37,273 35,617 Selling, general and administrative 7,515 8,365 Amortization of intangibles and excess reorganization value 754 -------- -------- OPERATING INCOME 2,123 3,143 Interest income 62 46 Interest expense 317 347 Intercompany interest expense 867 308 Management fees 251 317 Other expense, net 2,970 802 -------- -------- (LOSS) INCOME BEFORE INCOME TAXES (2,220) 1,415 Income tax provision 597 1,278 -------- -------- NET (LOSS) INCOME (2,817) 137 -------- -------- Other comprehensive (loss) income, net of tax Foreign currency translation adjustments (995) 331 -------- -------- COMPREHENSIVE (LOSS) INCOME $ (3,812) $ 468 ======== ========
The accompanying notes are an integral part of the consolidated financial statements. 22 23 VISKASE HOLDING CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months Ended ------------------------------ March 31, March 26, 1999 1998 ----------- ---------- (in thousands) Cash flows from operating activities: Net (loss) income $(2,817) $ 137 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 3,438 2,834 Amortization of intangibles and excess reorganization value 754 Amortization of deferred financing fees and discount 50 48 (Decrease) in deferred and noncurrent income taxes (990) (191) Loss on disposition of assets 110 Bad debt provision 84 80 Changes in operating assets and liabilities: Receivables (89) 1,383 Receivables, affiliates (6,159) (3,223) Inventories (954) (772) Other current assets 677 1,809 Accounts payable and accrued liabilities (223) (5,430) Accounts payable and advances, affiliates 6,234 5,028 ------- ------- Total adjustments 2,068 2,430 ------- ------- Net cash provided by (used in) operating activities (749) 2,567 Cash flows from investing activities: Capital expenditures (587) (2,272) Proceeds from disposition of assets 7 3 ------- ------- Net cash (used in) investing activities (580) (2,269) Cash flows from financing activities: Proceeds from revolving loan and long-term borrowings 134 69 Repayment of revolving loan and long-term borrowings (322) (180) (Decrease) in Viskase Companies, Inc. loan and advances (835) (603) ------- ------- Net cash (used in) financing activities (1,023) (714) Effect of currency exchange rate changes on cash (510) (58) ------- ------- Net (decrease) in cash and equivalents (2,862) (474) Cash and equivalents at beginning of period 7,256 4,538 ------- ------- Cash and equivalents at end of period $ 4,394 $ 4,064 ======= ======= - -------------------------------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 25 $ 40 Income taxes paid $ 479 $ 407
The accompanying notes are an integral part of the consolidated financial statements. 23 24 VISKASE HOLDING CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. INVENTORIES (dollars in thousands) Inventories consisted of: March 31, December 31, 1999 1998 --------- ------------ Raw materials $ 3,121 $ 3,347 Work in process 13,046 14,302 Finished products 24,024 22,607 ------- ------- $40,191 $40,256 ======= ======= 2. CONTINGENCIES (dollars in thousands) In late 1993, Viskase commenced a legal action against American National Can Company (ANC) in Federal District Court for the Northern District of Illinois, Eastern Division, 93C7651. Viskase claimed that ANC's use of two different very low density polyethylene plastic resins in the manufacture of ANC's multi-layer barrier shrink film products was infringing various Viskase patents relating to multi-layer barrier plastic films used for fresh red meat, processed meat and poultry product applications. In November 1996, after a three-week trial, a jury found that ANC had willfully infringed Viskase's patents and awarded Viskase $102.4 million in compensatory damages. The Court also entered an order permanently enjoining ANC from making or selling infringing products. In September 1997, the Court set aside the jury verdict in part and ordered a retrial on certain issues. The Court upheld the jury finding on the validity of all of Viskase's patents and the jury finding that ANC had willfully infringed Viskase's patents by ANC's use of Dow Chemical Company's "Attane" brand polyethylene plastic resin in ANC's products. However, the Court ordered a new trial on the issue of whether ANC's use of Dow Chemical Company's "Affinity" brand polyethylene plastic resin infringed Viskase's patents and whether such conduct was willful. Because the jury rendered one general damage verdict, the Court ordered a retrial of all damage issues. By operation of the Court's order, the injunction in respect of ANC's future use of the "Affinity" brand resin was removed. On August 19, 1998, the Court granted Viskase's motion for partial summary judgment finding that ANC's use of the "Affinity" brand resin infringed Viskase's patents. The Court also reinstated the permanent injunction. Patent validity and infringement having been established, the remaining issues for trial are whether ANC willfully infringed Viskase's patents by using "Affinity" brand resin and the determination of the amount of compensatory damages. Viskase filed a motion to have the jury verdict as to compensatory damages reinstated. ANC filed a motion to dismiss the lawsuit claiming that Viskase's patents are invalid and Viskase failed to join an indispensable party to the lawsuit. On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. 24 25 In addition, ANC has challenged two of the five Viskase patents in suit by filing requests for reexamination with the United States Patent and Trademark Office (USPTO). With respect to the challenge of the first patent, on September 25, 1998, the USPTO, after initially rejecting Viskase's claims, gave notice of its intent to reissue Viskase's patent in its entirety. ANC filed another request for reexamination of the patent, which has the effect of staying the reissuance. The USPTO initially rejected Viskase's claims to which Viskase is preparing its response. With respect to the challenge of the second patent, the USPTO, after initially rejecting Viskase's claims, withdrew the rejection in view of Viskase's response and raised new grounds of rejection. Viskase is preparing a response to the new grounds of rejection. If the USPTO ultimately disallows the claims of the second Viskase patent, the effect upon the Court action will not be significant. If Viskase's motion to reinstate the damages is denied, Viskase expects the trial on damages to occur during the second half of 1999 or early 2000. On May 3, 1999, ANC commenced legal action in the Federal District Court for the Northern District of Illinois seeking declaratory relief that Viskase's second patent is invalid. ANC also filed a motion to consolidate the new action with the existing suit. Viskase is preparing an answer to ANC's complaint and has filed its response to ANC's motion to consolidate. The Company expects ANC to vigorously contest these matters in the Court and the USPTO and to appeal any final judgment. No part of the pending claims has been recorded in the Company's financial statements. Through March 31, 1999, $4,651 in patent defense costs had been accrued and capitalized. In March 1997 Viskase Corporation received a subpoena from the Antitrust Division of the United States Department of Justice relating to a grand jury investigation of the sausage casings industry. Viskase Corporation is cooperating fully with the investigation. The Company and its subsidiaries are involved in various legal proceedings arising out of their business and other environmental matters, none of which is expected to have a material adverse effect upon results of operations, cash flows or financial position. 3. ACCOUNTING STANDARDS The Company will implement the provisions of Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS No. 133), which will be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires recognition of all derivative instruments as either assets or liabilities in the statement of financial condition and the measurement of those instruments at fair value. Management believes the adoption of SFAS No. 133 will not have a significant effect on the Company's financial statements. 4. SUBSEQUENT EVENTS On May 10, 1999, the Court granted Viskase's motion to have the jury verdict as to the compensatory damages reinstated. Viskase filed its memorandum in support of enhanced damages and ANC is expected to file its response to Viskase's memorandum by June 18, 1999. During June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior revolving credit facility, including a $26 million 25 26 sublimit for issuance of letters of credit (Senior Revolving Credit Facility), a $50 million senior term facility (Senior Term Facility), collectively the "Senior Secured Credit Facility," and $35 million of junior secured term loans (Junior Term Loans). The proceeds of the Senior Secured Credit Facility and the Junior Term Loans were used to repay the $55 million Senior Secured Notes outstanding and obligations outstanding under the Company's existing Revolving Credit Facility. The Senior Secured Credit Facility and the Junior Term Loans have a maturity date of June 30, 2001. The Senior Secured Credit Facility is guaranteed by Viskase Companies, Inc. and Viskase Holding Corporation and is secured by a collateral pool (Collateral Pool) comprised of: (i) all domestic accounts receivable (including intercompany receivables) and inventory; (ii) all patents, trademarks and other intellectual property and intangible assets; (iii) substantially all domestic fixed assets (other than assets subject to a lease agreement with General Electric Capital Corporation); and (iv) a senior pledge of 100% of the capital stock of Viskase Companies, Inc.'s significant domestic subsidiaries and 65% of the capital stock of Viskase Europe Limited and Viskase Brazil. Borrowings under the Senior Revolving Credit Facility bear interest either at the bank's prime interest rate plus a margin of 75 basis points or the London Interbank Offered Rate (LIBOR) plus a margin of 275 basis points. The Senior Term Facility bears interest at either the bank's prime interest rate plus a margin of 125 basis points or LIBOR plus a margin of 325 basis points. Fees on the outstanding amount of standby letters of credit are 2.25% per annum, with an issuance fee of 0.5% on the face amount of the letter of credit. The unused commitment fee for the Senior Revolving Credit Facility is 0.5% per annum. The Senior Term Facility is payable in six equal quarterly principal payments of $1.786 million beginning on January 4, 2000. The remaining principal balance outstanding under the Senior Term Facility is payable on the June 30, 2001 maturity date. In the event the Company has Surplus Cash (as defined) in any year, the Company is required to use an amount equal to 50% of the Surplus Cash to redeem Senior Term Facility obligations at par. The Company may elect, at its option, to prepay amounts due under the Senior Term Facility; such prepayments may be subject to a prepayment premium of 25 to 100 basis points of the principal amount redeemed depending on the source of funds used for such prepayment. The $35 million of Junior Term Loans bear interest at an initial rate of 14% per annum, and increase .5% every six months thereafter, and mature on June 30, 2001. The Junior Term Loans are collateralized by the Collateral Pool for the Senior Secured Credit Facility; however, the Junior Term Loans are subordinated to the obligations outstanding under the Senior Secured Credit Facility. D.P. Kelly and Associates L.P., which owns approximately 13% of the outstanding common stock of Viskase Companies, Inc. is a lender under the Junior Term Loans. The Company's Senior Secured Credit Facility and Junior Term Loans contain a number of financial covenants that, among other things, require the maintenance of a minimum level of tangible net worth, a minimum fixed charge coverage ratio and a minimum leverage ratio of total liabilities to EBDIAT and a limitation on capital expenditures. 26 27 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations The Company's net sales from continuing operations for the first quarter of 1999 were $92.1 million, which represented a decrease of 9.1% from the comparable period of 1998. The decline in domestic net sales is partially due to the Company's 1998 second quarter strategy to increase casing prices. Additionally, both the domestic and European casing markets are experiencing competitive pricing pressures. European sales have been affected by the adverse economic conditions in the Russian market and were also negatively affected by foreign currency translation due to the strengthening of the U.S. dollar. Brazil's sales have increased over prior year due to significant volume gains in both the casing and films product lines offset by the translation effect of the strengthening of the U.S. dollar against the real. Operating income from continuing operations for the first quarter of 1999 was $1.2 million representing a decrease of 46.6% from the comparable period of 1998. The decrease in operating income resulted primarily from declines in sales and gross margins caused by continued price competition in the U.S. and in Europe. Net interest expense from continuing operations for the three month period totaled $10.2 million representing a decrease of $3.1 million from the first three months of 1998. The decrease is primarily due to interest savings from the redemption of $105 million of the 12% Senior Secured Notes. Other expense from continuing operations of approximately $3.1 million and $0.8 million for the first three months of 1999 and 1998, respectively, consists principally of foreign exchange losses. The Company uses foreign exchange forward contracts to hedge some of its non-functional currency receivables and payables which are denominated in major currencies that can be traded on open markets. This strategy is used to reduce the overall exposure to the effects of currency fluctuations on cash flows. The Company's policy is not to speculate in financial instruments. Receivables and payables which are denominated in non-functional currencies are translated to the functional currency at month end and the resulting gain or loss is taken to other income/expense on the income statement. Gains and losses on hedges of receivables and payables are marked to market. The result is recognized in other net expense on the income statement. The tax benefit for the first three months of 1999 resulted from the benefit of US losses partially offset by the provision related to income from foreign subsidiaries. Due to the permanent differences in the US resulting from foreign losses for which no tax benefit is provided, a benefit of $.8 million was provided on a loss from continuing operations of $12.2 million. The US tax benefit is recorded as a reduction of the deferred tax liability and does not result in a refund of income taxes. Discontinued operations On June 8, 1998, the Company's Board of Directors approved the sale of two of the Company's subsidiaries, Clear Shield and Sandusky. Accordingly, the operating results of the two subsidiaries have been segregated from continuing operations and reported as a separate line item on the 27 28 income statement under the heading Discontinued Operations. The Company has restated its prior financial statements to present the operating results as discontinued operations. The sales of Sandusky and Clear Shield were completed on June 11, 1998 and July 23, 1998, respectively. A $39.1 million combined gain, net of taxes, was recognized on these sales. Other In September 1997 the Company retained Donaldson, Lufkin and Jenrette Securities Corporation to assist the Board of Directors in evaluating the Company's strategic alternatives. Such alternatives included, among other things, sale of the entire company, sale of business units or recapitalization. In June 1998, the Company sold its wholly owned subsidiary Sandusky, and in July 1998 the Company sold its wholly owned subsidiary Clear Shield. The Company is still reviewing strategic and recapitalization alternatives available. The Company will implement the provisions of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which will be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires recognition of all derivative instruments as either assets or liabilities in the balance sheet and the measurement of those instruments at fair value. Management believes the adoption of SFAS No. 133 will not have a significant effect on the Company's financial statements. Liquidity and Capital Resources Cash and equivalents increased by $1.7 million during the three months ended March 31, 1999. Cash flows provided by financing activities of $16.8 million exceeded funds used in operating activities of $8.6 million and investing activities of $6.0 million. Cash flows used in operating activities were principally attributable to the Company's loss from operations and an increase in working capital usage offset by the effect of depreciation and amortization. Cash flows provided by financing activities were principally due to a $30 million draw under the Company's domestic revolving credit facility (Revolving Credit Facility) offset by a $13 million principal repayment under the GECC lease. Cash flows used in investing activities consist principally of capital expenditures for property, plant and equipment. During June 1999, Viskase Corporation and Viskase Sales Corporation entered into two-year secured credit agreements consisting of a $50 million senior revolving credit facility, including a $26 million sublimit for issuance of letters of credit (Senior Revolving Credit Facility), a $50 million senior term facility (Senior Term Facility), collectively the "Senior Secured Credit Facility," and $35 million of junior secured term loans (Junior Term Loans). The proceeds of the Senior Secured Credit Facility and the Junior Term Loans were used to repay the $55 million Senior Secured Notes outstanding and obligations outstanding under the Company's existing Revolving Credit Facility. The Senior Secured Credit Facility has a maturity date of June 30, 2001. The Company finances its working capital needs through a combination of internally generated cash from operations and borrowings under its $50 million Senior Revolving Credit Facility entered into in June 1999. The availability of funds under the Senior Revolving Credit Facility is subject to the Company's compliance with certain covenants, borrowing base limitations measured by accounts receivable and inventory of the Company and reserves that may be established at the discretion of the lenders. There is approximately $9.4 million outstanding under the Senior Revolving Credit Facility at June 15, 1999. 28 29 The Company's Senior Secured Credit Facility contains a number of financial covenants that, among other things, require the maintenance of a minimum level of tangible net worth, a minimum fixed charge coverage ratio and minimum leverage ratio of total liabilities to EBDIAT and a limitation on capital expenditures. Currently, the Company is in compliance with the amended covenants under the Indenture and Amended and Restated Credit Agreement. As of March 31, 1999, the Company is in compliance with the amended covenants under the Indenture and Amended and Restated Credit Agreement. The Company anticipates that its current cash position, its operating cash flows and the availability under its credit agreement will be sufficient to meet its operating expenses and debt service requirements. The Company's 10.25% Notes, of which $219.3 million principal amount is outstanding, will mature in December 2001. The Company anticipates it will refinance the 10.25% Notes or seek alternative strategies including, but not limited to, selling additional equity capital. Capital expenditures for continuing operations for the first three months of 1999 and 1998 totaled $6.0 million and $10.0 million, respectively. Capital expenditures for discontinued operations for the first three months of 1998 totaled $5.0 million. Significant 1999 and 1998 capital expenditures for continuing operations included a new information technology system at Viskase, costs associated with the Nucel(R) project, and additional production capacity for specialty films. Capital expenditures for discontinued operations included the construction of Clear Shield's Twin Falls, Idaho facility. Capital expenditures for continuing operations for 1999 are expected to be approximately $27 million. Capital expenditures for continuing operations for 2000 are expected to be $13 million. The Company has spent approximately $7 million annually on research and development programs, including product and process development, and on new technology development during each of the past three years. The 1999 research and development and product introduction expenses are expected to be in the $9 million range. Among the projects included in the current research and development efforts is the application of certain patents and technology licensed by Viskase to the manufacture of cellulosic casings under the Nucel(R) process. The commercialization of these applications and the related fixed asset expense associated with such commercialization may require substantial financial commitments in future periods. Year 2000 The Year 2000 (Y2K) issue concerns the inability of information systems to properly recognize and process date-sensitive information beyond January 1, 2000. Businesses are at risk for possible miscalculations or systems failures that may disrupt their business operations due to the Year 2000 issue. In order to address the Y2K issue, the Company has formed a Year 2000 committee (Y2K Committee) that has separated the Company's risk into three categories: significant business information technology (IT) systems, internal non-information technology (Non-IT) systems and external readiness by customers and vendors. 29 30 Significant Business Information Technology Systems In January 1996, the Company began a system conversion which incorporated Y2K readiness. The following table shows the status of the business system conversions by country: Country Implementation Date Status ------- ------------------- ------ United States January 1, 1998 Complete France October 1, 1998 Complete United Kingdom January 1, 1999 Complete Brazil January 1, 1998 Complete Canada October 1, 1999 Planned completion The Company's significant business IT system is run on servers and a wide-area network outsourced to IBM Global Services. IBM has been certified Y2K compliant for all its system components. All of the Company's personal computers, network server hardware and software are being checked for Y2K compatibility with the vendors. The targeted completion date is June 30, 1999. The expenditures for the European implementation totaled approximately $4.9 million in 1998 and the first quarter of 1999. The Company has capitalized the costs necessary to upgrade its significant business systems. Internal Non-IT Systems The Non-IT systems consist primarily of PC-based manufacturing systems and process control units. The Y2K Committee has designated a member at each plant to inventory its systems and determine the status of its Y2K readiness. This process is ongoing and the plan is to have these systems tested for compliance by June 30, 1999. The Company has estimated the cost of Y2K readiness to be approximately $.4 million for its non-financial systems. If the Company is unable to achieve Y2K readiness for its major Non-IT systems, the Y2K issue could have a material impact on the operations of the Company. A contingency plan will be in place by June 30, 1999. Y2K Compliance by Customers and Vendors The Y2K Committee mailed a questionnaire to material third party vendors in January 1999 to address material third party readiness with Y2K. Responses to the questionnaires have been received from most key suppliers. Those failing to respond to the questionnaire have been contacted. To date, no significant compliance issues have been uncovered. Should responses to the questionnaires indicate that suppliers, service providers or contractors are not Y2K ready, the Company will change to those vendors who have demonstrated Y2K readiness. The Company cannot be assured that it will be successful in finding such alternative suppliers, service providers and contractors. 30 31 Forward-looking Statements Forward-looking statements in this report are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results and Company plans and objectives to differ materially from those projected. Such risks and uncertainties include, but are not limited to, general business and economic conditions; competitive pricing pressures for the Company's products; changes in other costs; and opportunities that may be presented to and pursued by the Company; determinations by regulatory and governmental authorities; and the ability to achieve synergistic and other cost reductions and efficiencies. 31 32 PART II. OTHER INFORMATION Item 1 - Legal Proceedings For a description of pending litigation and other contingencies, see Part 1, Note 3, Contingencies in Notes to Consolidated Financial Statements for Viskase Companies, Inc. and Subsidiaries. Item 2 - Changes in Securities No reportable events occurred during the quarter ended March 31, 1999. Item 3 - Defaults Upon Senior Securities None. Item 4 - Submission of Matters to a Vote of Security Holders None. Item 5 - Other Information None. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 4.14 Fifth Supplemental Indenture, dated as of March 17, 1999, between the Company and State Street Bank and Trust Company of Connecticut, N.A. (formerly Fleet National Bank Connecticut and previously Shawmut Bank Connecticut, National Association), as Trustee. 10.22 Amendment No. 3 dated March 17, 1999, to the Amended and Restated Credit Agreement, dated June 1, 1999, among the Company, the Lenders identified therein, and BT 10.23 Viskase Companies, Inc. Corporate Office Management Incentive Plan for Fiscal Year 1999. 27 Financial Data Schedules. (b) Reports on Form 8-K (1) On February 4, 1999, the Company filed a Form 8-K to report that the Board of Directors of Viskase Companies, Inc. approved the change of Viskase's fiscal year end and quarter end to December 31 each year and the last day of each calendar quarter, respectively, beginning January 1, 1999. 32 33 SIGNATURES Pursuant to the requirements 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/ Gordon S. Donovan ---------------------- Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer (Duly authorized officer and principal financial officer of the registrant) Date: June 17, 1999 33 EX-4.14 2 FIFTH SUPPLEMENTAL INDENTURE 1 Exhibit 4.14 FIFTH SUPPLEMENTAL INDENTURE THIS FIFTH SUPPLEMENTAL INDENTURE, dated as of ______________ (this "Supplemental Indenture"), between VISKASE COMPANIES, INC., a Delaware corporation formerly known as Envirodyne Industries, Inc. (the "Company"), and STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, N.A. (formerly Fleet National Bank Connecticut and previously Shawmut Bank Connecticut, National Association), as trustee (the "Trustee"), under the Indenture, dated as of June 20, 1995 and amended by the First Supplemental Indenture, dated as of October 13, 1995, the Second Supplemental Indenture, dated as of September 2, 1997, the Third Supplemental Indenture, dated as of July 2, 1998, and the Fourth Supplemental Indenture, dated as of October 26, 1998, between the Company and the Trustee (the "Indenture"). WHEREAS, the Company has issued, the Trustee has authenticated and there have been delivered pursuant to the Indenture $160,000,000 aggregate principal amount of the Company's First Priority Senior Secured Notes due 2000 (the "Securities"), $55,000,000 of which are currently outstanding; WHEREAS, the Company desires, by this Supplemental Indenture to amend certain minimum ratios in the Fixed Charge Coverage Ratio covenant set forth in the Indenture and the minimum notice requirements with respect to an optional redemption of the Securities (collectively, the "Amendment"); WHEREAS, Section 8.02 of the Indenture provides that the Company and the Trustee may enter into a supplemental indenture, with the consent of the holders of not less than a majority in aggregate principal amount of the then outstanding Securities (as defined therein), for the purpose of changing any provisions of the Indenture except as otherwise set forth therein; WHEREAS, the holders of not less than a majority in principal amount of the Securities outstanding, as of 5:00 p.m., New York City time, on March 10, 1999, the record date for such purpose, have consented to the Amendment; and WHEREAS, the Company is legally empowered and has been duly authorized by the necessary corporate action to make, execute and deliver this Supplemental Indenture, and all acts and things whatsoever necessary to make this Supplemental Indenture, when executed and delivered by the Company and the Trustee, a valid, binding and legal instrument have been taken. NOW, THEREFORE, each party agrees as follows for the benefit of the other party and for the equal and ratable benefit of the holders of the Securities: 2 ARTICLE 1 DEFINITIONS All terms used in this Supplemental Indenture which are defined in the Indenture shall have the meanings assigned to them in the Indenture. ARTICLE 2 AMENDMENT OF INDENTURE 2.1 Section 4.01(b) of the Indenture is amended to delete the last two entries in the schedule of "Ratios" and "Periods" contained in such section and to replace such entries with the following two entries: "1.35:1 March 27, 1998 through September 24, 1998 1.20:1 December 31, 1998 and thereafter." 2.2 Section 9.01(b)(iii) of the Indenture is amended by deleting such section in its entirety and substituting in lieu thereof the following: "(iii) The Company shall give notice to the Trustee by an Officers' Certificate certifying resolutions of its Board of Directors authorizing the Optional Redemption and that such redemption is being made in accordance with this Indenture and the Securities. The Company shall give such notice at least ten (10) days, but not more than sixty (60) days before the Optional Redemption Date (unless a shorter notice shall be satisfactory to the Trustee)." ARTICLE 3 MISCELLANEOUS 3.1 This Supplemental Indenture may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original, and all of such counterparts shall together constitute one and the same instrument. 3.2 The internal laws of the State of New York shall govern this Supplemental Indenture without regard to principles of conflicts of law. 3.3 All provisions of this Supplemental Indenture shall be deemed to be incorporated in, and made a part of, the Indenture; and the Indenture, as amended and supplemented by this Supplemental Indenture, shall be read, taken and construed as one and the same instrument. 2 3 3.4 The provisions of the Indenture, as amended by Article 2 of this Supplemental Indenture, shall be deemed effective for all purposes as of the date hereof. 3.5 The recitals to this Supplemental Indenture shall not be construed as representations of the Trustee and the Trustee makes no representation as to the accuracy of such recitals. IN WITNESS WHEREOF, the parties have caused this Fifth Supplemental Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. VISKASE COMPANIES, INC. By: Gordon S. Donovan Vice President, Chief Financial Officer and Treasurer Attest: Stephen M. Schuster Vice President and Secretary STATE STREET BANK AND TRUST COMPANY OF CONNECTICUT, N.A. By: Name: Title: Attest: By: Name: Title: 3 EX-10.22 3 AMENDMENT #3 DATED 3/17/99 1 Exhibit 10.22 AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT WITH VISKASE COMPANIES, INC. THIS AMENDMENT NO. 3 TO CREDIT AGREEMENT ("AMENDMENT") is dated as of March 17, 1999, by and between VISKASE COMPANIES, INC., a Delaware corporation formerly known as Envirodyne Industries, Inc. ("BORROWER") and BT COMMERCIAL CORPORATION, a Delaware corporation, individually and as agent (in such capacity, the "AGENT") for the "LENDERS" under and as defined in the Credit Agreement referred to below. Capitalized terms used herein but not otherwise defined herein shall have the respective meanings assigned to such terms in the Credit Agreement. WITNESSETH: WHEREAS, Borrower, Agent and Lenders have entered into that certain Amended and Restated Credit Agreement dated as of June 1, 1998, as amended (the "CREDIT AGREEMENT"), pursuant to which Lenders have agreed to make certain loans and other financial accommodations to or for the account of Borrower; WHEREAS, Borrower has requested that Agent and Lenders further amend the Credit Agreement; and WHEREAS, Lenders and Agent have agreed to further amend the Credit Agreement on the terms and subject to the conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises set forth above, the terms and conditions contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the respective parties hereto hereby agree as follows: 1. AMENDMENT TO CREDIT AGREEMENT. Effective as of the date hereof, upon satisfaction of the conditions precedent set forth in SECTION 2 below, and in reliance upon the representations and warranties of Borrower set forth herein, the Credit Agreement is hereby amended as follows: 1.1 SECTION 8.1(b) of the Credit Agreement is hereby deleted in its entirety and the following language is hereby substituted therefor: (b) FIXED CHARGE COVERAGE RATIO. The Borrower covenants that it will not cause or permit the ratio of 2 (i) Consolidated Cash Flow for the twelve month period ending at the end of any fiscal quarter of the Borrower to (ii) Consolidated Fixed Charges for each such twelve month period to be less than the ratio set forth below for the period set forth below in which such fiscal quarter ends: RATIO PERIOD --------- ---------------------------- 1.45:1 Original Closing Date through December 26, 1996 1.50:1 December 27, 1996 through March 26, 1998 1.35:1 March 27, 1998 through September 24, 1998 1.20:1 December 31, 1998 and thereafter provided, however, for purposes of determining Consolidated Cash Flow for the calculation of the Fixed Charge Coverage Ratio only and notwithstanding any tax effect of such restructuring charges, restructuring charges in amounts not to exceed $25,000,000 shall be added back to the calculation of the Consolidated Net Worth and Consolidated Net Income to the extent previously deducted therefrom. 2. CONDITIONS PRECEDENT. This Amendment shall become effective as of the date hereof, upon satisfaction of each of the following conditions: (a) As of the date first above written (after giving effect to this Amendment) no Default or Event of Default shall have occurred and be continuing. (b) Agent shall have received two (2) copies of this Amendment duly executed by Borrower. (c) Agent shall have received evidence reasonably satisfactory to Agent that the Third Supplemental Indenture to the First Priority Notes Indenture substantially in the form of EXHIBIT A hereto shall have been executed and delivered by Borrower and prior to or concurrently with the effectiveness of this Amendment shall have become effective pursuant to the respective terms thereof. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. 3.1 Borrower hereby represents and warrants to the Agent and each of the Lenders that: (a) this Amendment, and the Credit Agreement as amended hereby, constitute legal, valid and binding obligations of 3 Borrower and are enforceable against Borrower in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency or similar laws relating to creditors' rights generally and by general principles of equity (regardless of whether enforcement is sought in equity or at law); (b) after giving effect to this Amendment, no Default or Event of Default has occurred and is continuing; and (c) the execution and delivery by Borrower of this Amendment does not require the consent or approval of any Person, except such consents and approvals as shall have been obtained. 4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS. 4.1 Upon the effectiveness of this Amendment, each reference in the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import, and each reference in each of the other Credit Documents to the "Credit Agreement," shall in each case mean and be a reference to the Credit Agreement as amended hereby. 4.2 Except as expressly set forth herein, (i) the execution and delivery of this Amendment shall in no way affect any right, power or remedy of Agent or any of the Lenders with respect to any Event of Default nor constitute a waiver of any provision of the Credit Agreement or any of the other Credit Documents and (ii) all terms and conditions of the Credit Agreement, the other Credit Documents and all other documents, instruments, amendments and agreements executed and/or delivered by the Borrower pursuant thereto or in connection therewith shall remain in full force and effect and are hereby ratified and confirmed in all respects. The execution and delivery of this Amendment by Agent and each of the Lenders shall in no way obligate Agent or any of the Lenders, at any time hereafter, to consent to any other amendment or modification of any term or provision of the Credit Agreement or any of the other Credit Documents, whether of a similar or different nature. 5. GOVERNING LAW. The validity, interpretation and enforcement of this Amendment and any dispute arising out of or in connection with this Amendment, whether sounding in contract, tort, equity or otherwise, shall be governed by the internal laws (as opposed to the conflicts of laws provisions) and decisions of the State of Illinois. 6. HEADINGS. Section headings in this Amendment are 4 included herein for convenience of reference only and shall not constitute a part of this Amendment for any other purpose. 7. COUNTERPARTS. This Amendment may be executed in any number of counterparts and by the different parties hereto in separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 5 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the date first set forth above. BORROWER: VISKASE COMPANIES, INC. By: ------------------------ Name: ------------------------ Title: ------------------------ AGENT: BT COMMERCIAL CORPORATION, as Agent By: ------------------------ Name: ------------------------ Title: ------------------------ LENDERS: BT COMMERCIAL CORPORATION, in its individual capacity By: -------------------------- Name: -------------------------- Title: -------------------------- 6 EXHIBIT A TO AMENDMENT NO. 3 DATED AS OF MARCH __, 1999 FORM OF AMENDMENT TO FIRST PRIORITY NOTES INDENTURE Attached EX-10.23 4 OFFICE MANAGEMENT INCENTIVE PLAN 1 Exhibit 10.23 VISKASE WORLDWIDE MANAGEMENT INCENTIVE PLAN FISCAL YEAR 1999 I. Purpose The Viskase Worldwide Management Incentive Plan (MIP) has been established for Fiscal Year 1999 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. 2 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 in the attached Exhibit C. 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 and can range from minimum (95% of target) to maximum (125% of target), with full attainment of the financial goals equating to target for each measure as set forth in the business plan. The target/maximum range for each participant is a function of management level slotting (See Exhibit C). The relationship of actual achievement to the performance range will be determined by using straight-line interpolation for achievement between the target and the maximum of the payout range as applicable (see Exhibit B). 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%. 3 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 3 4 - - 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 President of the Company, 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 in Exhibit C. 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. 4 5 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, 5 6 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 6 7 participant's employment at any time. The Company is under no obligation to continue the Plan in future Fiscal Years. XIV. Amendment or Termination The Company may at any time, or from time to time, (a) amend, alter or modify the provisions of this Plan, (b) terminate this Plan, or (c) terminate the participation of an employee or group of employees in this Plan; provided, however, that in the event of the termination of this Plan or a termination of participation, the Company shall provide the partial awards to the affected participant(s) for the portion of the Fiscal Year during which such employee(s) were participants in this Plan, in a manner in which the Company, in its sole judgment, determines to be equitable to such participants and the Company. XV. General Provisions (a) No right under the Plan shall be assignable, either voluntarily or involuntarily by way of encumbrance, pledge, attachment, level or charge of any nature (except as may be required by state or federal law). (b) Nothing in the Plan shall require the Company to segregate or set aside any funds or other property for the purpose of paying any portion of an award. No participant, beneficiary or other person shall have any right, title or interest in any amount awarded under the Plan prior to the close of the Fiscal Year, or in any property of the Company or its subsidiaries. --------------------- ---------------------------- Final Approval Date Chairman of the Board and Chief Executive Officer ---------------------------- Vice President Administration 7 EX-27 5 FDS
5 This schedule contains summary financial information extracted from the consolidated balance sheets and the consolidated statement of operations and is qualified in its entirety by reference to such financial statements. 3-MOS MAR-31-1999 DEC-31-1998 10,699,000 0 49,022,000 (1,120,000) 94,871,000 175,070,000 475,582,000 153,771,000 531,723,000 155,054,000 374,032,000 0 0 149,000 (72,036,000) 531,723,000 92,067,000 92,067,000 69,382,000 69,382,000 0 233,000 10,333,000 (12,156,000) (820,000) (11,336,000) 0 0 0 (11,366,000) (0.76) (0.76)
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