EXHIBIT 10-R
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AGREEMENT
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BY AND AMONG
AVATEX CORPORATION,
NKK CORPORATION,
NKK U.S.A. CORPORATION
and NATIONAL STEEL CORPORATION
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Dated as of November 25, 1997
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AGREEMENT (this "Agreement"), dated as of November 25, 1997, by and among
AVATEX CORPORATION, a corporation organized and existing under the laws of the
State of Delaware ("Avatex"), NKK CORPORATION, a corporation organized and
existing under the laws of Japan ("NKK"), NKK U.S.A. CORPORATION, a wholly owned
subsidiary of NKK organized and existing under the laws of the State of Delaware
("NAC"), and NATIONAL STEEL CORPORATION, a corporation organized and existing
under the laws of the State of Delaware ("NSC"),
W I T N E S S E T H T H A T
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WHEREAS,
1. Pursuant to a Stock Purchase Agreement and related documents
dated as of August 22, 1984 (the "1984 Stock Purchase Agreement"), NKK
Corporation ("NKK") acquired 50% of the outstanding capital stock of National
Steel Corporation ("NSC") from National Intergroup, Inc. ("NII"). As a condition
to such purchase, NKK required NII to indemnify it and NSC and hold it and NSC
harmless against certain existing and contingent obligations and liabilities of
NSC relating to NSC's former Weirton Steel Division ("Weirton") which had been
sold by NSC (the "Weirton Sale") prior thereto and certain other liabilities of
NSC not related to its ongoing business. Accordingly, pursuant to the 1984 Stock
Purchase Agreement and the Weirton Liabilities Agreement (the "Weirton
Liabilities Agreement") dated as of August 22, 1984 and entered into by and
between NSC and NII, NII agreed to indemnify and hold NKK and NSC harmless from
and against these liabilities (the "Weirton Liabilities") which consist of,
among other things, pension, life, health insurance and other benefits for
employees and former employees of Weirton (the "Weirton Employee Related
Liabilities") as more specifically described in the Weirton Liabilities
Agreements (as defined herein) and certain environmental liabilities (the
"Indemnified Environmental Liabilities") as more specifically described in the
Weirton Liabilities Agreements.
2. NII established, and on December 24, 1985 transferred to, NII
Capital Corporation, a wholly-owned subsidiary of NII ("NCC"), its 50% interest
in the then outstanding capital stock of NSC and as a condition to such
transfer, NII and NCC entered into, with NKK and NSC, the NSC Stock Transfer
Agreement dated as of December 24, 1985 (the "Stock Transfer Agreement"),
pursuant to which NII and NCC agreed to be jointly and severally liable for the
Weirton Liabilities.
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3. NII, NCC, NKK, NAC and NSC entered into the Stock Purchase and
Recapitalization Agreement dated June 26, 1990 (the "1990 Stock Purchase
Agreement"). Pursuant thereto, among other things, ( NSC released NII from
indemnification of $146.6 million aggregate present value (the "Notional
Amount") of certain Weirton Employee Related Liabilities, ( NII exchanged a
portion of its NSC Common Stock for a new issue of Series B Preferred Stock (the
"B Preferred Stock"), (iii) the parties thereto agreed that, under the
circumstances and at the time specified therein either (a) NSC would pay to NCC
an amount equal to the excess, if any, of (i) the excess, if any, of (A) the
Notional Amount (adjusted as set forth in the 1990 Stock Purchase Agreement) (as
so adjusted, the "Adjusted Notional Amount") over (B) the then present value
(determined under the 1990 Stock Purchase Agreement) of certain amounts paid by
NSC in respect of the Weirton Employee Related Liabilities (the "Employee
Related Liabilities Payments") over (ii) the amount determined in accordance
with the 1990 Stock Purchase Agreement to be the then present value of the
remaining Weirton Employee Related Liabilities (the "Remaining Employee Related
Liabilities") or (b) NII and NCC would pay to NSC an amount equal to the excess,
if any, of (i) the Remaining Employee Related Liabilities over (ii) the excess,
if any, of (A) the Adjusted Notional Amount over (B) the Employee Related
Liabilities Payments and (iv) NII, NCC and NSC entered into the Amended and
Restated Weirton Liabilities Agreement and NCC, NAC and NSC entered into a put
agreement (the "Put Agreement"). The amount determined pursuant to clause
(iii)(a) or (iii)(b) of the preceding sentence is hereinafter referred to as the
RRCEO.
4. In 1993, NSC effected an initial public offering of its equity
securities (the "IPO"). Prior thereto, NII, NCC, NSC, NKK and NAC entered into
an agreement, dated February 3, 1993 (the "1993 Agreement"), pursuant to which,
among other things, NCC paid to NSC $10 million as a prepayment for the
Indemnified Environmental Liabilities. NSC also contributed approximately $68
million of the IPO proceeds to Plan 056 (as defined in the Weirton Liabilities
Agreement), thereby reducing the underfunding of Plan 056 and causing a portion
of NII's and NCC's indemnity obligations, in the amount of $68 million, to
become due and owing. NSC then redeemed 50% of the B Preferred Stock held by NCC
and paid the re-
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demption amount in the form of a release of NII and NCC from $68 million of
their indemnity obligations to NSC in respect of the Weirton Employee Related
Liabilities.
5. On October 28, 1993, NCC merged with NII, with NII being the
surviving entity. On October 12, 1994, NII changed its name to FoxMeyer Health
Corporation ("FoxMeyer").
6. On January 31, 1997, FoxMeyer changed its name to Avatex Corporation
("Avatex").
7. The Parties desire to provide for the resolution of all claims
against each other arising from the ownership by Avatex of the B Preferred
Stock, the Weirton Liabilities and the Indemnified Environmental Liabilities on
the terms and conditions hereinafter set forth, and deem such settlement to be
fair, reasonable and adequate and in the best interests of the Parties.
NOW, THEREFORE, on the basis of the representations, warranties, covenants
and agreements contained in this Agreement, and subject to the terms and
conditions of this agreement, it is hereby agreed as follows:
1. Definitions
Unless the context otherwise requires and unless otherwise defined herein,
terms used herein which are defined in the Weirton Liabilities Agreements are
used herein with the meanings therein described. As used herein, the following
terms shall have the meanings herein specified unless the context otherwise
requires. Defined terms in this Agreement shall include in the singular number
the plural and in the plural number the singular.
"Agreement" shall mean this Settlement Agreement as the same may from time
to time hereafter be modified, supplemented or amended.
"Avatex" shall mean Avatex Corporation, a Delaware corporation.
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"Avatex Group" shall mean (i) Avatex, (ii) Bull Moose Tube Company and
other former Subsidiaries of NSC which became Avatex's (but not NSC's)
Subsidiaries in the reorganization pursuant to which Avatex (then known as NII)
became the parent of NSC and (iii) any of Avatex's current Subsidiaries.
"Avatex Release" shall have the meaning set forth in Section 2.4 of this
Agreement.
"Avatex Releasees" shall have the meaning set forth in Section 2.4 of this
Agreement.
"Business Day" shall mean any day excluding Saturday, Sunday and any day
which shall be in New York City a legal holiday or a day on which banking
institutions are authorized or required by law or other government actions to
close.
"Claims" shall have the meaning set forth in Section 2.4 of this Agreement.
"Closing" shall have the meaning set forth in Section 6 of this Agreement.
"Closing Date" shall be the date of this Agreement.
"Consolidated Net Worth" shall mean, at any time, the sum of the amount by
which the total consolidated assets of Avatex and its Subsidiaries exceeds the
total consolidated liabilities of Avatex and its Subsidiaries at such time, as
determined in accordance with GAAP; it being agreed that the First Series
Cumulative Convertible Preferred Stock, stated price per share $50 (the "First
Series Preferred Stock"), and the Cumulative Exchangeable Series A Preferred
Stock, par value $5 per share (the "Series A Preferred Stock"), of Avatex and
all accrued dividends thereon shall not be deemed liabilities for purposes of
this definition.
"Damages" shall have the meaning set forth in Section 2.6(a) of this
Agreement.
"Environmental Insurance Claims" shall have the meaning set forth in
Section 2.5(a) of this Agreement.
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"Financial Advisor" shall mean The Gordian Group, L.P.
"GAAP" shall mean United States generally accepted accounting principles as
in effect on the date hereof.
"Indemnifiable Claims" shall have the meaning set forth in Section 2.6(a).
"Indemnified Party" shall have the meaning set forth in Section 2.6(b).
"Indemnified Environmental Liabilities" shall have the meaning set forth in
the whereas clause, paragraph one, of this Agreement.
"Material Adverse Effect" shall mean a material adverse effect upon (i) the
business, operations, properties, assets, prospects or condition (financial or
otherwise) of Avatex and its Subsidiaries, taken as a whole, or (ii) the ability
of Avatex to perform any of its obligations hereunder as they become due.
"NAC" shall mean NKK U.S.A. Corporation, a Delaware corporation.
"NKK" shall mean NKK Corporation, a Japan corporation.
"NSC" shall mean National Steel Corporation, a Delaware corporation.
"NKK, NAC, NSC Release" shall have the meaning set forth in Section 2.4 of
this Agreement.
"NSC Releasees" shall have the meaning set forth in Section 2.4 of this
Agreement.
"Person" shall mean and include any individual, partnership, joint venture,
firm, corporation, association, trust or other enterprise or any government or
political subdivision or agency, department or instrumentality thereof.
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"Released Avatex Liabilities" shall have the meaning set forth in Section
2.4 of this Agreement.
"Subsidiary" of any Person shall mean and include (i) any corporation 50%
or more of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such Person, directly or indirectly through
Subsidiaries, is either a general partner or has a 50% or more equity interest
at the time; provided, however, that Riverside Insurance Company Ltd.
("Riverside") shall not be considered a Subsidiary of Avatex.
"Weirton Liabilities Agreements" shall mean the 1984 Stock Purchase
Agreement, the Weirton Liabilities Agreement, the 1990 Stock Purchase Agreement,
the Amended and Restated Weirton Liabilities Agreement, the Stock Transfer
Agreement, the Put Agreement, the 1993 Agreement and all other agreements
entered into between one or more of the parties hereto in connection therewith.
2. Agreements
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2.1. Notwithstanding any contrary provision in the Certificate of
Designation of the B Preferred Stock ("Certificate of Designation"), NSC shall
redeem, and Avatex shall surrender to NSC, on the Closing Date, all B Preferred
Stock held by Avatex at such place as is designated by NSC, and Avatex shall not
be entitled to, as of or following the Closing Date, any dividends on the B
Preferred Stock, declared, accrued or otherwise, or any other payment in respect
of the redemption other than the Settlement Payment.
2.2. On the terms and subject to the conditions hereof, (i) at the
Closing, NSC shall pay to Avatex $59 million in cash payable by wire transfer or
delivery of other immediately available funds, and (ii) on each of the same day
as the Closing Date in the 3rd, 6th and 12th month after the Closing Date (if
not a Business Day, the
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immediately following day which is a Business Day) (each, a "Payment Date"), NSC
shall pay to Avatex an additional $2.5 million on the Payment Date in the 3rd
and 6th months after the Closing Date and $5 million on the Payment Date in the
12th month after the Closing Date (each, an "Additional Payment" and, together
with the $59 million payment, the "Settlement Payment"), in cash by wire
transfer or delivery of other immediately available funds. If Avatex is in
breach of its obligations set forth in Section 5.2 below and such breach shall
remain uncured for 30 days from the date such breach occurs, the Additional
Payments shall be reduced to $5,000,000 (the "Reduction") and, if all the
Additional Payments have been paid, Avatex shall pay to NSC in cash by wire
transfer or delivery of other immediately available funds on such 30th day
$5,000,000 (together with the Reduction, "Liquidated Damages"). The parties
acknowledge that if Avatex breaches Section 5.2 below, it would be difficult, if
not impossible to prove the amount of the damages to NSC and the parties hereto
agree that the Liquidated Damages constitute a fair and reasonable amount of
compensation, and is agreed to as a reasonable forecast of probable or actual
loss and not as a penalty.
2.3. At the Closing, NSC, Avatex and NAC agree that a number of Put
Consideration Shares (as defined in the Put Agreement) as calculated pursuant to
Section 3(d) of the Put Agreement shall be deemed to have been transferred, in
turn, from NSC to NAC to Avatex, and from Avatex to NSC for retirement in
partial consideration for the Settlement Payment.
2.4. At the Closing, in consideration of the Settlement Payment, Avatex
shall execute a release in the form annexed hereto as Exhibit A ("NKK, NAC, NSC
Release"), pursuant to which it shall release NKK, NAC, NSC and their respective
Subsidiaries, officers, directors and employees (the "NSC Releasees") from any
and all claims, causes of action or obligations (collectively, "Claims") owed to
Avatex by the NSC Releasees, whether known or presently unknown, foreseen or
presently unforeseen, asserted or not yet asserted, of any kind or character,
including and not limited to any Claims relating to the ownership by Avatex of
any securities of NSC or the Weirton Liabilities Agreements, including the
RRCEO, the Weirton Liabilities and any amounts that have or may
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become payable to Avatex pursuant to the 1993 Agreement in connection with NSC's
Recapitalization (as defined therein); provided, however, that NSC shall not be
released from the claims identified in Schedule 1 to Exhibit A hereto. NKK, NAC
and NSC shall execute a release in the form annexed hereto as Exhibit B (the
"Avatex Release"), pursuant to which they shall release Avatex, its
Subsidiaries, officers, directors and employees (the "Avatex Releasees") from
any and all obligations (the "Released Avatex Liabilities"), owed by the Avatex
Releasees to NKK, NAC and NSC, whether known or presently unknown, foreseen or
presently unforeseen, asserted or not yet asserted, of any kind or character,
including and not limited to any and all Claims arising out of the ownership by
NKK and/or NAC of any securities of NSC or the Weirton Liabilities Agreements,
including the RRCEO, the Weirton Liabilities and the Indemnified Environmental
Liabilities other than obligations identified in the Avatex Release.
Notwithstanding the foregoing, Avatex shall not be released from any claims
against Avatex and its Subsidiaries for contribution or joint liability that (a)
arise not from contract but from federal, state or local environmental laws and
regulations, (b) do not relate to an Indemnified Environmental Liability and (c)
relate to: (i) any site that is or was owned or operated by any member of the
Avatex Group or (ii) any off-site disposal by any member of the Avatex Group of
materials at any site owned or operated by a third party.
2.5. (a) Avatex hereby surrenders and assigns to NSC all rights it has
under any insurance policy incepting prior to January 1, 1987 with respect to
Environmental Insurance Claims. Environmental Insurance Claims shall mean claims
made under any such insurance policy, including but not limited to the
Indemnified Environmental Liabilities, for property damage or personal injury
caused or allegedly caused by the discharge of pollutants.
(b) (1) Avatex hereby surrenders and assigns to NSC all rights that it may
have to settlement proceeds under the Allocation Agreement dated September 26,
1997 (the "Allocation Agreement"), including but not limited to rights to
payments under settlements concluded with Continental Casualty Company, Evanston
Insurance Company, London Market Insurers, Fireman's Fund Insurance Company,
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Yasuda Fire & Marine Insurance Company of Europe, Ltd., and Ludgate Insurance
Company. Avatex further agrees that to the extent that the Allocation Agreement
calls for certain settlement funds received from insurance carriers to be paid
into a joint escrow account for the benefit of NSC and Avatex, that any such
funds received after the Closing Date shall be paid directly to NSC. Nothing in
this agreement shall affect any rights that Southwire Company ("Southwire") may
have under the Allocation Agreement or under any individual settlement agreement
with an insurance carrier.
(2) Avatex hereby surrenders and assigns to NSC all rights that it may
have to funds placed in an escrow account (the "Escrow Account") under the
Escrow Agreement dated August 20, 1997 (the "Escrow Agreement"), except that NSC
agrees that Avatex may authorize the payment of all of Avatex's outstanding
legal fees, disbursements, expert witness fees and other professional service
fees incurred in connection with National Steel Corp. v. Continental Casualty
Co., ▇▇-▇-▇▇▇ (▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇) (the "WVA
Litigation"), as of the Closing Date, from the Escrow Account in accordance with
paragraph 3 of the Escrow Agreement. After the Closing Date, NSC shall be solely
responsible for any outstanding WVA Litigation Expenses and Avatex and NSC
hereby authorize Weil, Gotshal & ▇▇▇▇▇▇ LLP, as escrow agent, to pay the balance
of the Escrow Account to NSC.
(3) NSC hereby agrees that as of the Closing Date, Avatex shall have no
further obligation to pay legal and other expenses in connection with the WVA
Litigation. NSC shall assume Avatex's obligations to pay the legal and other
expenses of the action under cost sharing arrangements with LTV Steel Company
and with Southwire. Avatex shall remain a plaintiff in the action and shall
cooperate with NSC in the prosecution of the lawsuit.
(4) NSC, Avatex, and Southwire are in the process of negotiating a
settlement agreement with Insurance Company of North America ("INA") a/k/a The
Cigna Companies. Under the terms of the proposed settlement agreement, INA would
make two initial payments and would make certain additional payments thereafter
up to a limited amount, contingent upon certain events, and may agree to
reimburse Riverside, an Avatex subsidiary, those
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amounts which Riverside had paid to INA. In the event INA does not agree to so
reimburse Riverside, Avatex shall not make any claim to the monies otherwise
payable by INA under the proposed or any other settlement agreement (the "INA
Agreement"). Avatex hereby surrenders and assigns to NSC its rights to payment
under the INA Agreement (other than any reimbursement monies to Riverside) which
does not increase in any material respect the liabilities of Avatex hereunder.
Avatex also will sign the INA Agreement negotiated with INA and release all
Environmental Insurance Claims against INA under policies incepting prior to
January 1, 1987.
(5) NSC, Avatex and Southwire are in the process of negotiating a
settlement agreement with Everest Reinsurance Company ("Everest"). Avatex hereby
surrenders and assigns to NSC its rights to payment under the proposed or any
other settlement agreement (the "Everest Agreement") which does not increase in
any material respect the liabilities of Avatex hereunder. Avatex also will sign
the Everest Agreement negotiated with Everest and release all claims with
respect to policies issued by Prudential Reinsurance Company (Everest's
predecessor in interest) to NSC in 1978 and 1979.
(6) NSC, Avatex and Southwire are in the process of negotiating a
settlement agreement with Lexington Insurance Company ("Lexington"). Avatex
hereby surrenders and assigns to NSC its rights to payment under the proposed or
any other settlement agreement (the "Lexington Agreement") which does not
increase in any material respect the liabilities of Avatex hereunder. Avatex
also will sign the Lexington Agreement negotiated with Lexington and release all
claims with respect to policies issued by Lexington to Avatex or NSC prior to
January 1, 1987.
(7) NSC, Avatex and Southwire are in the process of negotiating a
settlement agreement with International Insurance Company ("International").
Avatex hereby agrees to surrender and assign to NSC its rights to payment under
the proposed or any other settlement agreement (the "International Agreement")
which does not increase in any material respect the liabilities of Avatex
hereunder. Avatex also will sign the International Agreement negotiated with
International and release all claims with respect to policies issued by
International to Avatex prior to January 1, 1987.
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(8) NSC, Avatex and Southwire are in the process of negotiating a
settlement agreement with National Union Fire Insurance Company ("National
Union"). Avatex hereby surrenders and assigns to NSC its rights to payment under
the proposed or any other settlement agreement (the "National Union Agreement")
which does not increase in any material respect the liabilities of Avatex
hereunder. Avatex also will sign the National Union Agreement negotiated with
National Union and release Environmental Insurance Claims against National Union
with respect to a specific excess policy issued to Avatex in 1984.
(9) Avatex shall cooperate with NSC in NSC's efforts to negotiate
settlements of Environmental Insurance Claims with the outstanding defendants in
the WVA Litigation, and with any excess insurance carriers. Avatex will sign all
necessary settlement agreements and release all carriers from Environmental
Insurance Claims, as may be reasonably requested by NSC. NSC agrees that if NSC
(i) asserts any environmental or related claim against any insurer which has a
potential reinsurance claim against Riverside and (ii) recovers any amounts on
such claim, whether by settlement, judgment or otherwise, then (x) if such
recovery is obtained through settlement or other consensual means, NSC shall
obtain the insurer's agreement to waive any reinsurance claim against Riverside
or pay through Avatex to Riverside Sufficient funds with which to pay the
reinsurance claim, or (y) if such recovery is otherwise obtained, NSC shall pay
through Avatex to Riverside sufficient funds with which to pay the reinsurance
claim.
(c) As between Avatex and NSC, NSC shall be solely responsible for payment
and discharge for: (i) any claims made by any insurer for indemnification
pursuant to indemnities made by NSC and Avatex in the settlement agreements
referenced in Section 2.5(b) above or in any future settlement agreements with
insurers regarding Environmental Insurance Claims, except for indemnification
claims relating to Bull Moose Tube Company, for which Avatex shall be solely
responsible; (ii) any claims against NSC for breach of any provision of the
settlement
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agreements referenced in Section 2.5(b) above or any future settlement
agreements with insurers regarding Environmental Insurance Claims; and (iii) any
counterclaims, arising out of acts or omissions of NSC, asserted against NSC or
Avatex in any action in or relating to the WVA Litigation or any action to
enforce any of the settlement agreements referenced in Section 2.5(b) above or
any future settlement agreements with insurers regarding Environmental Insurance
Claims; provided, however, with respect to each of Section 2.5(c)(i) and (ii),
NSC shall be liable only to the extent of any net proceeds received under such
settlement agreements.
(d) NSC acknowledges that, as between Avatex and NSC, NSC and its
Subsidiaries will be solely liable for paying and discharging any environmental
claims in connection with (i) any of the Indemnified Environmental Liabilities,
(ii) any site owned or operated by NSC, which has not been owned or operated by
any member of the Avatex Group, or (iii) any site receiving any off-site
disposal of materials from NSC, but in the case of subsection (iii) only with
respect to off-site disposal of materials received by such site from NSC. NSC
will support the dismissal of Avatex and its Subsidiaries from any legal action
involving any of the Indemnified Environmental Liabilities or any of the sites
described in clauses (i) or (ii) above except with respect to a site at which
Avatex or its Subsidiaries has disposed materials. For the purpose of the
foregoing two sentences, NSC shall mean NSC and its Subsidiaries, other than any
member of the Avatex Group.
2.6. (a) NSC shall in accordance with the provisions of this Section 2.6,
indemnify and hold harmless Avatex, against any and all losses, liabilities,
damages, demands, claims, actions, judgments or causes of action, assessments,
costs and expenses, including, without limitation, interest, penalties and
reasonable attorneys' fees (collectively, "Damages"), asserted against,
resulting to, imposed upon or incurred or suffered by Avatex (whether originally
asserted against or imposed on Avatex, by a third party or originally resulting
to, incurred or suffered by NSC, and asserted by NSC directly against Avatex),
if such Damages arise by reason of a breach by NSC of the agreements made by it
in Section 2.5 of this Agreement ("Indemnifiable Claims").
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(b) Avatex, when seeking indemnification under this Section 2.6 (the
"Indemnified Party") with respect to Indemnifiable Claims resulting from the
assertion of liability by third parties shall give notice to NSC within 20 days
of becoming aware of any such Indemnifiable Claim; provided, however, any delay
in such notice shall not release NSC from any of its obligations hereunder,
except where failure to give timely notice results in actual prejudice to the
rights of NSC hereunder. In case any such liability is asserted against Avatex,
and it accordingly notifies NSC thereof, NSC will promptly assume the defense
thereof with counsel reasonably satisfactory to Avatex.
(c) In the event that NSC, within twenty (20) days after receipt of a
notice pursuant to Section 2.6(b) of an Indemnifiable Claim, fails to assume the
defense of Avatex against such Indemnified Claim, Avatex shall have the right to
undertake the defense, compromise or settlement of such Indemnifiable Claim on
behalf of and for the account and risk of NSC.
2.7. Effective as of the Closing Date, Avatex shall cause the members of
the Pension Committee and the Investment Committee (as each such term is defined
in Section 3 of the Amended and Restated Weirton Liabilities Agreement) under
Plan 056 who are appointed by Avatex to resign from such committees. From and
after the Closing Date, NSC shall appoint, in its sole discretion, such
individuals to the Pension Committee and the Investment Committee as it shall
deem appropriate.
2.8. Immediately after the Closing Date, NSC shall pay to Avatex
$12,522.54 on account of the legal bills previously paid by Avatex. In addition,
NSC shall pay directly, in the ordinary course of NSC's business, any legal
bills properly payable for (a) "Weirton Liabilities Monitoring" services
performed by ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ and (b) "NSC Workers' Compensation"
services performed by ▇▇▇▇▇▇▇▇▇▇▇ & Anetakis, whether such services were
performed before or after the Closing Date.
3. Representations and Warranties of Avatex
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Avatex represents and warrants to each of NSC, NKK and NAC as follows:
3.1. Organization. It is a corporation duly organized, validly existing
and in good standing, under the laws of Delaware.
3.2. Authority. It has all requisite corporate power and authority to
execute, deliver, and perform this Agreement and all other agreements,
instruments, and documents being or to be delivered by it hereunder or in
connection herewith. All necessary corporate proceedings have been duly taken to
authorize the execution, delivery, and performance by it of this Agreement. This
Agreement has been duly authorized, executed, and delivered by it and, assuming
due execution and delivery by all other parties thereto, upon execution and
delivery by it as contemplated hereby, will be its legal, valid, and binding
obligation, in each case enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the rights of creditors generally and the availability of
equitable remedies (regardless of whether enforcement is sought in a proceeding
at law or in equity).
3.3. No Violation. Neither the execution and delivery of this Agreement
and all other agreements to be delivered hereunder, nor the consummation of the
transactions contemplated hereby nor its compliance with the terms hereof will
(i) violate any provision of its certificate of incorporation or bylaws; (ii)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to it, or any of its properties or assets; or
(iii) violate, conflict with, result in a breach of any of the provisions of,
result in the loss of any material benefit under, constitute a default (or an
event which, with notice or lapse of time or both, would constitute a default)
under or give rise to any right of termination, acceleration or cancellation
with respect to, or result in the creation or imposition of any security
interest, lien, charge or other encumbrance upon any of its property or assets
under, any note, bond, loan, mortgage, indenture, obligation, deed of trust,
license, lease, agreement, permit, concession, grant, franchise, judgment,
injunction, order, decree or any security issued by it or any other instrument
to which it is a party or by which it or any of its properties or assets may be
bound or affected either directly or indirectly.
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3.4. Consents and Approvals of Governmental Authorities. It has complied
and will comply with all applicable laws and all applicable rules and
regulations of any governmental authority in connection with the execution and
delivery of this Agreement and all other agreements to be delivered hereunder.
It has obtained all governmental authorizations and approvals required with
respect to the execution and delivery of this Agreement and all other agreements
to be delivered hereunder and the consummation of the transactions contemplated
hereby or thereby. It is not required to submit any notice, report or other
filing with any governmental authority or to seek governmental authorization or
approval and no consent, approval or authorization of any governmental or
regulatory authority is required to be obtained by it, in either case.
3.5. Consents. Other than consents which have been obtained and are in
full force and effect, no consent of any Person or any group is necessary to the
consummation of the transactions contemplated by this Agreement and all other
agreements to be delivered hereunder, including, without limitation, consents
from parties to or beneficiaries of, loans, mortgages, notes, indentures,
material contracts, loan guarantees, material leases or other material
agreements, including pension agreements, collective bargaining agreements and
any other material agreements.
3.6. Solvency. Avatex is, and upon and after giving effect to
transactions to take place at the Closing shall be, Solvent. "Solvent" means
that: (a) Avatex's assets exceed its liabilities, at a fair valuation; it being
agreed that the First Series Preferred Stock and the Series A Preferred Stock
and all accrued dividends thereon shall not be deemed liabilities for purposes
of this section 3.6; (b) the present fair saleable value of Avatex's assets
exceeds the amount that will be required to pay its probable liability on its
existing debts as they become absolute and matured; (c) Avatex does not have
unreasonably small capital for the
16
businesses in which it is engaged; and (d) Avatex has not incurred and does not
intend to incur obligations beyond its ability to pay as they mature.
3.7. Financial Statements. (a) Attached hereto as Exhibit C-1 are the
following financial statements (collectively the "Financial Statements"): (i)
audited consolidated balance sheets for the fiscal years ended March 31, 1996
and 1997 and statements of income, changes in stockholders' equity, and cash
flow as of and for the fiscal years ended March 31, 1995, 1996, and 1997 for
Avatex and its Subsidiaries; (ii) unaudited consolidated balance sheets and
statements of income and cash flow (the "Most Recent Financial Statements") as
of and for the six months ended September 30, 1997 (the "Most Recent Fiscal
Month End") for Avatex and its Subsidiaries and (iii) a pro forma consolidated
balance sheet of Avatex and its Subsidiaries, dated as of September 30, 1997,
giving effect to the transactions contemplated hereby and giving effect to the
settlement of the claims made against Avatex in the bankruptcy proceeding
involving certain Subsidiaries of Avatex, certified by the principal financial
officer of Avatex. The Financial Statements (including the notes thereto) have
been prepared in accordance with GAAP applied on a consistent basis throughout
the periods covered thereby and present fairly the financial condition of Avatex
and its Subsidiaries as of such dates and the results of operations of Avatex
and its Subsidiaries for such periods; in the case of the Most Recent Financial
Statements, subject to year-end and audit adjustments.
(b) Attached hereto as Exhibit C-2 are projections prepared by Avatex
demonstrating the projected cash flow of Avatex and its Subsidiaries after
giving effect to the transactions contemplated hereby, for the 12 month period
subsequent to the Closing Date, which projections are accompanied by a written
statement of the assumptions underlying the projections. Such projections have
been prepared on the basis of the assumptions accompanying them, and such
projections and assumptions, as of the date of preparation and as of the Closing
Date, are reasonable and represent Avatex's good faith estimate of its future
cash flow, it being understood that nothing contained in this Section 3.7(b)
shall be construed as a representation or warranty that such future cash flow
will in fact be achieved.
17
3.8. Indebtedness; Liabilities; No Undisclosed Liabilities. Set forth in
Schedule 3.8 is a full and complete list of all indebtedness of Avatex for money
borrowed. Except as set forth in Schedule 3.8, Avatex is not in default in
respect of any agreement or instrument evidencing borrowed money and has not
requested any deferral of the payment of interest or principal due in respect
thereof. Neither Avatex nor any of its Subsidiaries has any liabilities or
obligations (absolute, accrued, contingent or otherwise) as of the date hereof
which are required by GAAP to be reflected but which are not reflected in the
Financial Statements, except for liabilities and obligations incurred in the
ordinary course of business and consistent with past practice.
3.9. Events Subsequent to Most Recent Fiscal Month End. Since September
30, 1997, there has not been any change that has resulted in a Material Adverse
Effect compared with the comparable prior period. Without limiting the
generality of the foregoing, since that date Avatex has not engaged in any
practice, taken any action, or entered into any transaction outside the ordinary
course of business.
3.10. Good Title to B Preferred Stock. Upon surrender of the B Preferred
Stock by Avatex pursuant to Section 2.1 above, NSC shall have reacquired the B
Preferred Stock free and clear of all claims, liens, charges, encumbrances,
pledges, options, security interests, shareholders' agreements and voting
trusts.
3.11. Absence of Litigation. There is not (i) any preliminary or
permanent injunction issued by any federal or state court of competent
jurisdiction or by any governmental or other regulatory or administrative agency
or commission or (ii) any litigation instituted by any federal agency or
administrative authority or any governmental authority which would, if
successful, enjoin or prohibit the consummation of the transactions contemplated
hereby or require rescission of this Agreement or any such transactions.
18
3.12. Reports. Avatex has filed all required forms, reports and documents
with the Securities and Exchange Commission ("SEC") since January 1, 1997, all
of which are complete and complied and shall continue to comply in all material
respects with applicable requirements of the Securities Act of 1934, as amended
(the "1934 Act"). None of such forms, reports or documents, including without
limitation any financial statements or schedules included therein, contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
4. Representations and Warranties of NSC, NAC and NKK
Except as to Section 4.6, each of NSC, NAC and NKK represents and warrants
to Avatex as follows:
4.1. Organization. It is a corporation duly organized, validly existing
and in good standing, under the laws of Delaware, in the case of NSC and NAC,
and duly organized and validly existing under the laws of Japan, in the case of
NKK.
4.2. Authority. It has all requisite corporate power and authority to
execute, deliver, and perform this Agreement and all other agreements,
instruments, and documents being or to be delivered by it hereunder or in
connection herewith. All necessary corporate proceedings have been duly taken to
authorize the execution, delivery, and performance by it of this Agreement. This
Agreement has been duly authorized, executed, and delivered by it and, assuming
due execution and delivery by all other parties thereto, upon execution and
delivery by it as contemplated hereby, will be its legal, valid, and binding
obligation, in each case enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium, or
similar laws affecting the rights of creditors generally and the availability of
equitable remedies (regardless of whether enforcement is sought in a proceeding
at law or in equity).
4.3. No Violation. Neither the execution and delivery of this Agreement
and all other agreements to be
19
delivered hereunder, nor the consummation of the transactions contemplated
hereby nor its compliance with the terms hereof will (i) violate any provision
of its certificate of incorporation or bylaws, in the case of NSC and NAC, or
certificate of incorporation (teikan), in the case of NKK; (ii) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to it, or any of its properties or assets; or (iii)
violate, conflict with, result in a breach of any of the provisions of, result
in the loss of any material benefit under, constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under
or give rise to any right of termination, acceleration or cancellation with
respect to, or result in the creation or imposition of any security interest,
lien, charge or other encumbrance upon any of its property or assets under any
note, bond, loan, mortgage, indenture, obligation, deed of trust, license,
lease, agreement, permit, concession, grant, franchise, judgment, injunction,
order, decree or any security issued by it or any other instrument to which it
is a party or by which it or any of its properties or assets may be bound or
affected either directly or indirectly.
4.4. Consents and Approvals of Governmental Authorities. It has
complied and will comply with all applicable laws and all applicable rules and
regulations of any governmental authority in connection with the execution and
delivery of this Agreement and all other agreements to be delivered hereunder.
It has obtained all governmental authorizations and approvals required with
respect to the execution and delivery of this Agreement and all other agreements
to be delivered hereunder and the consummation of the transactions contemplated
hereby or thereby. It is not required to submit any notice, report or other
filing with any governmental authority or to seek governmental authorization or
approval and no consent, approval or authorization of any governmental or
regulatory authority is required to be obtained by it, in either case.
4.5. Consents. Other than consents which have been obtained and are
in full force and effect, no consent of any Person or any group is necessary to
the consummation of the transactions contemplated by this Agreement and all
other agreements to be delivered hereunder,
20
including, without limitation, consents from parties to or beneficiaries of,
loans, mortgages, notes, indentures, material contracts, loan guarantees,
material leases or other material agreements, including pension agreements,
collective bargaining agreements and any other material agreements.
4.6. Events Subsequent to Most Recent Fiscal Month End. NSC
represents and warrants that since September 30, 1997, there has not been any
change that has resulted in a material adverse effect upon (i) the business,
operations, properties, assets, prospects or condition (financial or otherwise)
of NSC and its Subsidiaries, taken as a whole or (ii) the ability of NSC to
perform any of its obligations hereunder as they become due, compared with the
comparable prior period. Without limiting the generality of the foregoing, since
that date NSC has not engaged in any practice, taken any action, or entered into
any transaction outside the ordinary course of business.
4.7. Absence of Litigation. There is not (i) any preliminary or
permanent injunction issued by any federal or state court of competent
jurisdiction or by any governmental or other regulatory or administrative agency
or commission or (ii) any litigation instituted by any federal agency or
administrative authority or any governmental authority which would, if
successful, enjoin or prohibit the consummation of the transactions contemplated
hereby or require rescission of this Agreement or any such transactions.
5. Covenants
Avatex covenants and agrees that on and after the Closing Date and
until the same day as the day of the Closing Date in the 15th month after the
month in which the Closing Date occurs:
5.1. Information Covenants. Avatex will furnish to NSC:
(a) Quarterly Financial Statements. Within 45 days after the
close of each quarterly accounting period in each fiscal year of Avatex, the
consolidated balance sheet of Avatex and its Subsidiaries, as at
21
the end of such quarterly period and the related consolidated statements of
income, cash flow and retained earnings for such quarterly period and for the
elapsed portion of the fiscal year ended with the last day of such quarterly
period, and in each case setting forth comparative figures for the related
periods in the prior fiscal year.
(b) Annual Financial Statements. Within 90 days after the close
of each fiscal year of Avatex, the consolidated balance sheet of Avatex and its
Subsidiaries, as at the end of such fiscal year, and the related consolidated
statements of income, cash flow and retained earnings for such fiscal year,
setting forth comparative figures for the preceding fiscal year and certified by
its independent certified public accountants.
(c) Management Letters. Promptly after Avatex's receipt
thereof, a copy of any "management letter" or other material report received by
Avatex from its certified public accountants.
(d) Dividends and Stock Payments. No less than 15 days prior
thereto, notification of any action to be voted upon by the Board of Directors
of Avatex to declare or pay any cash dividend on or cause to be purchased for
cash by Avatex or any of its Subsidiaries any capital stock of Avatex.
(e) Officer's Certificates. At the time of the delivery of the
financial statements under clauses (a) and (b) above, a certificate of the chief
financial officer of Avatex which certifies (x) that such financial statements
fairly present the financial condition and the results of operations of Avatex
and its Subsidiaries on the dates and for the periods indicated, subject, in the
case of interim financial statements, to normally recurring year-end adjustments
and (y) that such officer has reviewed the terms of this Agreement and has made,
or caused to be made under his or her supervision, a review in reasonable detail
of the business and condition of Avatex and its Subsidiaries during the
accounting period covered by such financial statements, and that as a result of
such review such officer has concluded that no breach of any covenant hereunder
has occurred during the
22
period commencing at the beginning of the accounting period covered by the
financial statements accompanied by such certificate and ending on the date of
such certificate or, if any breach of any covenant hereunder has occurred,
specifying the nature and extent thereof and, if continuing, the action Avatex
proposes to take in respect thereof.
(f) Notice of Breach or Litigation. Promptly and in any event within ten
Business Days after Avatex or any of its Subsidiaries obtains knowledge thereof,
notice of (i) the occurrence of any breach of this Section 5 and (ii) any
litigation or governmental proceeding pending or threatened against Avatex or
any of its Subsidiaries which would be likely to result in a Material Adverse
Effect.
(g) SEC Filings. Promptly upon filing thereof, copies of all regular and
periodic financial information, proxy materials and other information and
reports, if any, which Avatex shall file with the SEC or any governmental
agencies substituted therefor or which Avatex shall send to its stockholders.
(h) Other Information. From time to time, such other information or
documents (financial or otherwise) as NSC, NKK or NAC may reasonably request.
5.2. Other Covenants
Consolidated Net Worth. The Consolidated Net Worth of Avatex shall at all
times be greater than or equal to $15,000,000.
6. The Closing
6.1. Obligations of All Parties. Simultaneous with the execution of this
Agreement, the following documents were delivered:
(a) Solvency Opinion. The solvency opinion by the Financial Advisor,
satisfactory to all parties hereto, was duly executed and delivered by the
Financial Advisor.
23
(b) Opinions. NSC, NKK and NAC received the written opinion, dated the
Closing Date, of ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, special counsel to Avatex, in the form
set forth in Exhibit D-1 hereto, and of the general counsel to Avatex, in the
form set forth in Exhibit D-2 hereto.
(c) Opinions. Avatex received the written opinions, dated the Closing
Date, of Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP, counsel to NKK and NAC, in
the form set forth in Exhibit E hereto, and of general counsel of NSC, in the
form set forth in Exhibit F hereto.
7. Miscellaneous.
7.1. Further Actions. At any time and from time to time each party
agrees, at its expense, to take such actions and to execute and deliver such
documents as may be reasonably necessary to effectuate the purposes of this
Agreement.
7.2 Submission to Jurisdiction. Solely for the purposes of disputes
among the parties hereto, the parties hereby consent and submit to personal
jurisdiction of the Federal District Court in the State of Delaware and of any
other court in Delaware having jurisdiction over any controversy, and to service
of process upon them in accordance with the rules and statutes governing service
of process, solely in connection with actions or proceedings involving the
parties to and relating to this Agreement. Each of the parties hereto appoints
CT Corporation Systems as its agent for the purpose of receiving and accepting
service of process on its behalf.
7.3. Survival. Except for Section 3.10 of this Agreement, which shall
survive the Closing Date and continue in full force and effect without time
limit, all representations, warranties, covenants and agreements made by the
parties hereto shall survive the Closing Date for a period of 15 months. There
are no representations, warranties, covenants or agreements by or among the
parties and relating to the subject matter of this Agreement, except as
contained in this Agreement.
7.4. Entire Agreement; Modification. This Agreement, and the exhibits
and schedules hereto, set forth the entire understanding of the parties with
24
respect to the subject matter hereof, supersede all existing agreements and
understandings among them concerning such subject matter, and may be modified
only by a written instrument duly executed by each party. With respect to the
recitals, to the extent that there are inconsistencies between the description
of the terms of any of the Weirton Liabilities Agreements with the actual
Weirton Liabilities Agreements, the Weirton Liabilities Agreements shall govern.
The Weirton Liabilities Agreements shall not survive the execution and delivery
of this Agreement.
7.5 Notices. Any notice or other communication required or
permitted to be given hereunder shall be in writing and shall be mailed by
certified mail, return receipt requested, or delivered against receipt to the
party to whom it is to be given at the address of such party set forth below:
If to NSC:
National Steel Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Senior Vice President and
General Counsel; and
Vice President-Finance,
Fax: ▇▇▇-▇▇▇-▇▇▇▇
with a copy to:
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Fax: ▇▇▇-▇▇▇-▇▇▇▇
If to Avatex:
Avatex Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Senior Vice President, Chief
Financial Officer,
General Counsel and Secretary
Fax: ▇▇▇-▇▇▇-▇▇▇▇
25
with a copy to ▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
Fax: ▇▇▇-▇▇▇-▇▇▇▇
If to NKK:
NKK Corporation
▇-▇-▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇-▇▇
▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇
Attention: Assistant General Manager
North American Business
Steel Division
Fax: ▇▇▇-▇▇-▇-▇▇▇▇-▇▇▇▇
with a copy to Skadden, Arps, Slate,
▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
at the address set forth above
If to NAC:
NKK U.S.A. Corporation
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇ ▇▇▇▇▇
Attention: Secretary
with a copy to:
NKK and
Skadden, Arps, Slate, ▇▇▇▇▇▇▇ & ▇▇▇▇ LLP
at the addresses set forth above
7.6. Waiver. Any waiver by any party of a breach of any provision of
this Agreement must be in writing and shall not operate as or be construed to be
a waiver of any other breach of such provision or of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term of
this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement.
26
7.7. Binding Effect; Assignment. The provisions of this Agreement
shall be binding upon and inure to the benefit of the parties hereto and the
respective successors and assigns of the parties hereto. No party may assign or
otherwise transfer any of its rights under this Agreement without the written
consent of all other parties hereto.
7.8. No Third Party Beneficiaries. This Agreement does not create,
and shall not be construed as creating, any rights enforceable by any person not
a party to this Agreement.
7.9. Severability. If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
7.10. Headings. The headings in this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
7.11. Counterparts; Governing Law. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of Delaware,
without giving effect to its principles of conflict of laws.
7.12. Expenses. Except as otherwise provided herein, each party
hereto shall pay its own costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby.
27
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
AVATEX CORPORATION
By:___________________________
Name:
Title:
NKK CORPORATION
By:___________________________
Name:
Title:
NKK U.S.A. CORPORATION
By:___________________________
Name:
Title:
NATIONAL STEEL CORPORATION
By:___________________________
Name:
Title:
28