NATIONAL STEEL CORP, S-3/A, 1994-11-18

NATIONAL STEEL CORP
S-3/A, 1994-11-18
STEEL WORKS, BLAST FURNACES & ROLLING MILLS (COKE OVENS)

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 18, 1994

REGISTRATION NO. 33-55989
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

----------------

AMENDMENT NO. 1

TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

----------------

NATIONAL STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

----------------

DELAWARE 25-0687210
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)

4100 EDISON LAKES PARKWAY
MISHAWAKA, INDIANA 46545-3440
(219) 273-7000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

----------------

ROBERT M. GREER
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
NATIONAL STEEL CORPORATION
4100 EDISON LAKES PARKWAY
MISHAWAKA, INDIANA 46545-3440
(219) 273-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)

----------------

COPIES TO:
CHARLES W. MULANEY, JR. RICHARD J. SANDLER
SKADDEN, ARPS, SLATE, DAVIS POLK & WARDWELL
MEAGHER & FLOM 450 LEXINGTON AVENUE
333 WEST WACKER DRIVE NEW YORK, NEW YORK 10017
CHICAGO, ILLINOIS 60606 (212) 450-4000
(312) 407-0700

----------------

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]

----------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>

EXPLANATORY NOTE

This Registration Statement contains two forms of prospectuses: one to be used
in connection with a United States and Canadian offering (the "U.S.
Prospectus") and one to be used in a concurrent offering outside the United
States and Canada (the "International Prospectus"). The U.S. Prospectus and the
International Prospectus are identical except for the front cover page. The
alternate page for the International Prospectus included herein is labeled
"Alternate Cover Page for International Prospectus."
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS
SUBJECT TO COMPLETION DATED NOVEMBER 18, 1994
6,000,000 Shares

LOGO

CLASS B COMMON STOCK
(PAR VALUE $.01 PER SHARE)

All of the shares of Class B Common Stock, par value $.01 per share (the "Class
B Common Stock"), of National Steel Corporation, a Delaware corporation (the
"Company"), offered hereby are being sold by the Company. Of the 6,000,000
shares of Class B Common Stock offered hereby, 4,800,000 shares initially are
being offered in the United States and Canada by the U.S. Underwriters (the
"U.S. Underwriters") and 1,200,000 shares initially are being offered outside
the United States and Canada by the International Managers (the "International
Managers" and, together with the U.S. Underwriters, the "Underwriters").

NKK Corporation owns 22,100,000 shares of the Company's Class A Common Stock,
par value $.01 per share (the "Class A Common Stock"), which, after completion
of the Offering, will represent approximately 68.6% of the combined voting
power of the outstanding Class A Common Stock and Class B Common Stock (collec-
tively, the "Common Stock") (assuming the Underwriters' over-allotment options
are not exercised).

The Class B Common Stock is substantially identical to the Class A Common Stock
except with respect to voting power and, except as otherwise required by law,
will vote together with the Class A Common Stock as one class on all matters
submitted to a vote of stockholders, including the election of directors. The
Class A Common Stock is entitled to two votes per share and the Class B Common
Stock is entitled to one vote per share.

The Class B Common Stock is listed on the New York Stock Exchange under the
trading symbol "NS." On November 16, 1994, the closing price for the Class B
Common Stock, as reported on the New York Stock Exchange Composite Tape, was
$16.

SEE "RISK FACTORS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE IN-
VESTORS.

- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- -------------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- -------------------------------------------------------
Total (3) $ $ $
- -------------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the Underwriters against certain lia-
bilities, including liabilities under the Securities Act of 1933, as amend-
ed. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the U.S. Underwriters and the International Manag-
ers options, exercisable within 30 days after the date of this Prospectus,
to purchase up to an additional 720,000 and 180,000 shares of Class B Com-
mon Stock, respectively, on the same terms as set forth above, solely to
cover over-allotments, if any. If such over-allotment options are exercised
in full, the total Price to Public, Underwriting Discount and Proceeds to
Company will be $ , $ and $ , respectively.
See "Underwriting."

The Class B Common Stock offered by this Prospectus is being offered by the
U.S. Underwriters, subject to prior sale, when, as and if delivered to and ac-
cepted by the U.S. Underwriters, and subject to approval of certain legal mat-
ters by Davis Polk & Wardwell, counsel for the Underwriters. It is expected
that delivery of the certificates representing the shares of Class B Common
Stock will be made against payment therefor on or about , 1994 at the
offices ofJ.P. Morgan Securities Inc., 60 Wall Street, New York, New York
10260.
J.P. MORGAN SECURITIES INC.
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC

, 1994
<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
[ALTERNATE COVER PAGE FOR INTERNATIONAL PROSPECTUS]

PROSPECTUS SUBJECT TO COMPLETION
6,000,000 Shares
DATED NOVEMBER 18, 1994

LOGO
CLASS B COMMON STOCK
(PAR VALUE $.01 PER SHARE)

All of the shares of Class B Common Stock, par value $.01 per share (the "Class
B Common Stock"), of National Steel Corporation, a Delaware corporation (the
"Company"), offered hereby are being sold by the Company. Of the 6,000,000
shares of Class B Common Stock offered hereby, 1,200,000 shares initially are
being offered outside the United States and Canada by the International Manag-
ers (the "International Managers") and 4,800,000 shares initially are being of-
fered in the United States and Canada by the U.S. Underwriters (the "U.S. Un-
derwriters" and, together with the International Managers, the "Underwriters").

SEE "RISK FACTORS" FOR INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE IN-
VESTORS.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT (1) COMPANY (2)
- ----------------------------------------------------
<S> <C> <C> <C>
Per Share $ $ $
- ----------------------------------------------------
Total (3) $ $ $
- ----------------------------------------------------
</TABLE>
(1) The Company has agreed to indemnify the International Managers and U.S. Un-
derwriters against certain liabilities, including liabilities under the Secu-
rities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the International Managers and the U.S. Underwrit-
ers options, exercisable within 30 days after the date of this Prospectus, to
purchase up to an additional 180,000 and 720,000 shares of Class B Common
Stock, respectively, on the same terms as set forth above, solely to cover
over-allotments, if any. If such over-allotment options are exercised in full,
the total Price to Public, Underwriting Discount and Proceeds to Company will
be $ , $ and $ , respectively. See "Underwrit-
ing."

The Class B Common Stock offered by this Prospectus is being offered by the In-
ternational Managers, subject to prior sale, when, as and if delivered to and
accepted by the International Managers, and subject to approval of certain le-
gal matters by Davis Polk & Wardwell, counsel for the Underwriters. It is ex-
pected that delivery of the certificates representing the shares of Class B
Common Stock will be made against payment therefor on or about , 1994
at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260.
J.P. MORGAN SECURITIES LTD.
PAINEWEBBER INTERNATIONAL
SALOMON BROTHERS INTERNATIONAL LIMITED

, 1994
<PAGE>

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMPANY'S
CLASS B COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE,
IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED,
MAY BE DISCONTINUED AT ANY TIME.

NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, THE
CLASS B COMMON STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF.

NO ACTION HAS BEEN OR WILL BE TAKEN IN ANY JURISDICTION BY THE COMPANY OR BY
ANY UNDERWRITER THAT WOULD PERMIT A PUBLIC OFFERING OF THE CLASS B COMMON STOCK
OR POSSESSION OR DISTRIBUTION OF THIS PROSPECTUS IN ANY JURISDICTION WHERE
ACTION FOR THAT PURPOSE IS REQUIRED, OTHER THAN IN THE UNITED STATES. PERSONS
INTO WHOSE POSSESSION THIS PROSPECTUS COMES ARE REQUIRED BY THE COMPANY AND THE
UNDERWRITERS TO INFORM THEMSELVES ABOUT AND TO OBSERVE ANY RESTRICTIONS AS TO
THE OFFERING OF THE CLASS B COMMON STOCK AND THE DISTRIBUTION OF THIS
PROSPECTUS.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, which have been filed by the Company with the
Securities and Exchange Commission (the "Commission"), are hereby incorporated
by reference in this Prospectus: (i) Quarterly Report on Form 10-Q for the
quarter ended September 30, 1994; (ii) Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994; (iii) Current Report on Form 8-K, filed with the
Commission on June 27, 1994; (iv) Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994; (v) Current Report on Form 8-K, filed with the Commission
on January 10, 1994; (vi) Annual Report on Form 10-K for the year ended
December 31, 1993; and (vii) the description of the Class B Common Stock
contained in the Registration Statement on Form 8-A filed with the Commission
on February 22, 1993. All documents filed by the Company with the Commission
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), subsequent to the date of this
Prospectus and prior to the termination of the Offering shall be deemed to be
incorporated by reference into this Prospectus and to be a part hereof from the
respective dates of filing of such documents. Any statement contained herein or
in a document incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained in any subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus.

The Company will provide without charge to each person to whom this Prospectus
is delivered, on the written or oral request of any such person, a copy of any
or all of the documents incorporated herein by reference (other than exhibits,
unless such exhibits are specifically incorporated by reference in such
documents). Written requests for such copies should be directed to: Joseph A.
Rainis, Director, Investor Relations, National Steel Corporation, 4100 Edison
Lakes Parkway, Mishawaka, Indiana 46545-3440, telephone (219) 273-7158.

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Incorporation of Certain Documents by
Reference............................. 2
Prospectus Summary..................... 3
The Company............................ 8
Risk Factors........................... 10
Use of Proceeds........................ 16
Price Range of Class B Common Stock and
Dividend
Policy................................ 16
Dilution............................... 17
Capitalization......................... 17
Selected Financial Information......... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................ 19
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Business................................ 29
Management.............................. 49
Certain Relationships and Related
Transactions........................... 52
Description of Capital Stock............ 55
Certain United States Tax Consequences
to Non-United States Holders........... 59
Underwriting............................ 61
Legal Matters........................... 63
Experts................................. 63
Additional Information.................. 64
Index to Financial Statements........... F-1
</TABLE>

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus.
Unless the context requires otherwise, the "Company" refers to National Steel
Corporation, a Delaware corporation, and its consolidated subsidiaries. Except
where specifically stated otherwise, all information contained in this
Prospectus relating to the Company's capital stock assumes no exercise of the
Underwriters' over-allotment option.

THE COMPANY

The Company is the fourth largest integrated steel producer in the United
States as measured by production and is engaged in the manufacture and sale of
a wide variety of flat rolled carbon steel products, including hot rolled, cold
rolled, galvanized, tin and chrome plated steels. The Company targets high
value added applications of flat rolled carbon steel for sale to the
automotive, metal buildings and container markets. Since 1984, the Company has
invested $2 billion in capital improvements to enhance the Company's
competitive position and penetrate growing segments of these markets. The
Company operates two integrated steel plants, a finishing mill and an iron ore
pelletizing plant and participates in two joint ventures that produce coated
products.

On June 1, 1994, the Board of Directors replaced certain members of the
Company's senior management for the purpose of improving operating performance
and achieving sustained profitability. V. John Goodwin, who has twenty seven
years of experience in the steel industry, was appointed President and Chief
Operating Officer and Robert M. Greer, who has thirty three years of steel
industry and related business experience, was appointed Senior Vice President
and Chief Financial Officer. Four other managers experienced in the areas of
quality control, primary steel production and finishing and human resources
joined the remaining members of management. Mr. Goodwin and the other new
members of the Company's management are credited with substantially improving
operating performance and labor relations and reducing production costs in
their previous employment.

The Company's mission is to achieve sustained profitability, thereby enhancing
stockholder value, by reducing the costs of production and improving
productivity and product quality. Management has developed a number of
strategic initiatives designed to achieve the Company's goals. These
initiatives focus on:

. Reducing the cost of hot rolled bands, the largest component of the
Company's finished product cost;

. Reducing the cost of poor quality, which currently results in the sale of
non-prime products at lower prices and requires substantial reprocessing
costs;

. Installing a predictive maintenance program which is designed to maximize
production and the useful life of equipment while minimizing unscheduled
equipment outages;

. Increasing steel production capabilities by identifying and eliminating
manufacturing bottlenecks;

. Enhancing the Company's cooperative partnership with the United
Steelworkers of America (the "USWA") by increasing employee participation
at all levels of the production process; and

. Improving information and cost control systems to enable management to
exercise greater control over production costs.

In addition, the Company plans to more fully utilize its alliance with its
principal stockholder, NKK Corporation (collectively, with its subsidiaries,
hereinafter referred to as "NKK"), and its partnership with customers and to
better utilize equipment and facilities, many of which have been enhanced by
the Company's $2 billion capital investment program.

3
<PAGE>

As a first step in implementing its strategy, management negotiated with the
USWA the reopening of the Company's iron ore mine and pelletizing plant,
National Steel Pellet Company ("NSPC"), which had been temporarily idled due to
a strike that began in August 1993. Management also successfully negotiated new
agreements with public utilities, transportation companies, property owners and
others, the effect of which will be a $4 per gross ton savings in the cost of
delivered pellets from the Company's pre-strike costs. Based upon NSPC's
estimated production of 5 million tons of pellets per year, this will result in
a savings of $20 million annually compared to the Company's pre-strike costs.
Additionally, by taking this action, management reaffirmed the importance of
the Company's cooperative partnership with labor.

The Company operates in an industry whose fundamentals are currently favorable.
Demand for steel from the Company's principal markets--automotive, metal
buildings and container--is strong, and management believes that demand will
remain strong through 1995. Strengthening demand resulted in an industry
capacity utilization rate for the first six months of 1994 of approximately
89.1%, the highest level since 1988. As a result of more favorable market
conditions, the industry and the Company have been able to realize a series of
price increases that began in certain of the Company's markets in January 1993.

4
<PAGE>

THE OFFERING

<TABLE>
<S> <C>
Common Stock Offered:
U.S. Offering............ 4,800,000 shares of Class B Common Stock
International Offering... 1,200,000 shares of Class B Common Stock
Total Offering......... 6,000,000 shares of Class B Common Stock
Common Stock Outstanding
after the Offering........ 22,100,000 shares of Class A Common Stock
20,276,156 shares of Class B Common Stock
Total Shares Outstand-
ing................... 42,376,156 shares of Common Stock
Use of Proceeds............ The Company will use substantially all of the net
proceeds of the Offering for debt reduction. See
"Use of Proceeds."
Voting Rights; Conversion.. Each share of Class B Common Stock is entitled to
one vote and each share of Class A Common Stock is
entitled to two votes. Except as otherwise
required by law, the Class A Common Stock and
Class B Common Stock will vote together on all
matters submitted to a vote of stockholders,
including the election of directors. Following the
Offering, the outstanding shares of Class B Common
Stock will represent approximately 31.4% of the
combined voting power of the outstanding Common
Stock (32.4% if the Underwriters' over-allotment
options are exercised in full). Each share of
Class A Common Stock is convertible into Class B
Common Stock on a one-to-one basis at any time at
the option of the holder thereof and in certain
other circumstances. See "Description of Capital
Stock."
Cash Dividends on Common The Company is currently prohibited from paying
Stock..................... cash dividends on its Common Stock by covenants
contained in certain of the Company's financing
arrangements. Class A Common Stock and Class B
Common Stock will be entitled to share ratably, as
a single class, in any dividends declared by the
Company on the Common Stock. See "Certain
Considerations--Certain Factors Relating to the
Class B Common Stock," "Price Range of Class B
Common Stock and Dividend Policy" and "Description
of Capital Stock."
New York Stock Exchange
Trading Symbol............ "NS"
</TABLE>

5
<PAGE>

RISK FACTORS

Prospective purchasers should consider carefully the factors discussed under
the heading "Risk Factors" relating to an investment in the Company, including
the following:

. The Company has reported net operating losses for the past three years.

. The Company is subject to stringent federal, state and local laws and
regulations relating to the protection of human health and the environ-
ment which may result in substantial expenditures by the Company for com-
pliance with these laws and regulations.

. Following the Offering, NKK will continue to exercise control over the
business of the Company by virtue of its ability to elect all the members
of the Board of Directors and its majority voting power. Additionally,
the Company's Certificate of Incorporation contains provisions recogniz-
ing that conflicts of interest may arise between the Company and NKK, and
NKK has no duty to communicate to the Company potential transactions or
matters that may be corporate opportunities for both the Company and NKK.
NKK will not be liable for breach of any fiduciary duty as a stockholder
for failure to present a corporate opportunity to the Company. The Cer-
tificate of Incorporation also provides that any person acquiring shares
of Common Stock will be deemed to have consented to such provisions re-
lating to conflicts of interest.

. Domestic steel producers, including the Company, face significant compe-
tition from foreign steel producers, many of which are owned, controlled
or subsidized by their governments.

. The domestic steel industry is highly competitive and continues to be ad-
versely affected by excess world capacity. Additionally, the Company com-
petes with a number of domestic steel producers that have gone through
bankruptcy reorganization. These proceedings have resulted in reduced op-
erating costs and have enabled such producers to price their products be-
low levels that could otherwise be maintained by them and at which it
would be profitable for the Company to sell its products.

. The steel industry is highly cyclical in nature. While a recovery in
steel markets is currently underway and is expected by management to con-
tinue into 1995, there can be no assurance as to the extent of any future
improvement in domestic industry earnings.

. The Company recently announced a plan that will result in the reduction
of the Company's salaried non-represented workforce. The plan is expected
to be finalized and implemented late in the fourth quarter of 1994. Based
upon currently available information, the Company estimates that a
workforce reduction of approximately 400 employees is likely. Such a re-
duction will result in an unusual charge ranging from approximately $30
to $40 million, which will be recorded in the fourth quarter of 1994.

. Certain risk factors with respect to the Class B Common Stock include the
potential adverse effect on the market price of Class B Common Stock as a
result of the sale of substantial amounts of Class B Common Stock in the
public market following the Offering and restrictions on the payment of
Common Stock dividends contained in certain of the Company's financing
arrangements.

6
<PAGE>

SUMMARY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ----------------------------
1994 1993 1993 1992 1991
------ ------------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AND PER
TON DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................. $1,957 $1,833 $ 2,419 $ 2,373 $ 2,330
Cost of products sold..... 1,739 1,700 2,254 2,107 2,103
Depreciation, depletion
and amortization......... 104 102 137 115 117
------ ------ -------- -------- --------
Gross profit.............. 114 31 27 152 110
Selling, general and ad-
ministrative............. 101 103 137 133 139
Unusual charges (credits). (170) 3 111 37 111
Income (loss) from opera-
tions.................... 182 (74) (218) (12) (131)
Net income (loss) applica-
ble to Common Stock...... 133 (131) (272) (66) (207)
Per share data applicable
to Common Stock:
Income (loss) before ex-
traordinary items and
cumulative effect of
accounting changes...... 3.66 (3.46) (7.55) (3.61) (8.11)
Net income (loss)........ 3.66 (3.96) (8.04) (2.58) (8.11)
<CAPTION>
AS OF AS OF DECEMBER 31,
SEPTEMBER 30, ----------------------------
1994 1993 1992 1991
------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........... $ 162 $ 27 $ 74 $ 120
Net property, plant and
equipment................ 1,406 1,399 1,395 1,249
Total assets.............. 2,425 2,304 2,189 1,986
Long term obligations and
related party indebted-
ness
(including current por-
tion).................... 725 702 695 518
Redeemable Preferred
Stock--Series B.......... 67 68 138 141
Stockholders' equity...... 323 190 327 393
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- ----------------------------
1994 1993 1993 1992 1991
------ ------------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Shipments (net tons, in
thousands)............... 3,824 3,846 5,005 4,974 4,906
Effective capacity utili-
zation................... 91.5% 100.0% 100.0% 100.5% 92.5%
Continuously cast percent-
age...................... 100.0% 100.0% 100.0% 100.0% 99.8%
Liquid steel to finished
prime product yield...... 80.3% 79.3% 79.6% 80.0% 79.6%
Manhours per net ton
shipped.................. 3.79 3.85 3.96 4.03 4.27
Number of employees (end
of period)............... 9,686 10,109 10,069 10,299 11,176
Capital investments....... $ 113 $ 112 $ 161 $ 284 $ 178
Operating profit (loss)
per net ton shipped ex-
cluding unusual items.... $ 3 $ (18) $ (21) $ 5 $ (4)
EBITDA(1)................. $ 115 $ 66 $ 180 $ 157 $ 112
</TABLE>
- --------

(1) EBITDA represents the earnings of the Company before income taxes, net
interest expense, depreciation, depletion and amortization and other non-
cash charges reducing net income. The Company has included EBITDA, which is
not a measure of financial performance under generally accepted accounting
principles, because such data is used by certain investors.

7
<PAGE>

THE COMPANY

. Reducing the cost of hot rolled bands, the largest component of the
Company's finished product cost;

. Reducing the cost of poor quality, which currently results in the sale of
non-prime products at lower prices and requires substantial reprocessing
costs;

. Installing a predictive maintenance program which is designed to maximize
production and the useful life of equipment while minimizing unscheduled
equipment outages;

. Increasing steel production capabilities by identifying and eliminating
manufacturing bottlenecks;

. Enhancing the Company's cooperative partnership with the USWA by
increasing employee participation at all levels of the production
process; and

. Improving information and cost control systems to enable management to
exercise greater control over production costs.

In addition, the Company plans to more fully utilize its alliance with its
principal stockholder, NKK, and its partnership with customers and to better
utilize equipment and facilities, many of which have been enhanced by the
Company's $2 billion capital investment program.

As a first step in implementing its strategy, management negotiated with the
USWA the reopening of the Company's iron ore mine and pelletizing plant, NSPC,
which had been temporarily idled due to a strike that began in August 1993.
Management also successfully negotiated new agreements with public utilities,
transportation companies, property owners and others, the effect of which will
be a $4 per gross ton savings in the cost of delivered pellets from the
Company's pre-strike costs. Based upon NSPC's estimated production of 5 million
tons of pellets per year, this will result in a savings of $20 million annually
compared to the Company's pre-strike costs. Additionally, by taking this
action, management reaffirmed the importance of the Company's cooperative
partnership with labor.

The Company operates three principal facilities: two integrated steel plants,
one near Detroit, the other near St. Louis, and a finishing facility near
Chicago. Annual effective steelmaking capacity is approximately

8
<PAGE>

6 million net tons, all of which is continuously cast. The Company also
operates NSPC, an iron ore mine and pelletizing facility in Keewatin,
Minnesota, with a current annual capacity of 5 million tons. The Company
closely coordinates the operations of these facilities in order to maintain
high operating rates throughout its processing facilities and to minimize
redundant capital investments.

In order to improve the Company's penetration of growing segments of the
automotive and metal buildings markets, the Company has entered into two joint
ventures to construct and operate processing lines for coated steel. Both of
these joint ventures are operational. The Company's share of the combined
output of these facilities will represent approximately 320,000 tons of
galvanized and Galvalume(R) steel coating capacity when both facilities are
fully operational in 1995, an increase from the current level of 230,000 tons.
The Company also sells hot and cold rolled steel to a wide variety of other
users including the pipe and tube industry and independent steel service
centers.

Major projects of the Company's recently completed ten year, $2 billion capital
investment program included an electrolytic galvanizing line, a continuous
caster, a ladle metallurgy station, a vacuum degasser, a complete coke oven
battery rebuild and a high speed pickle line, each of which services the
Company's plant near Detroit, and a continuous caster and a ladle metallurgy
station, each of which services its plant near St. Louis. Major improvements at
its finishing facility near Chicago include the installation of process control
equipment to upgrade its finishing capabilities.

The Company has a strong alliance with its principal stockholder, NKK, the
second largest steel company in Japan and the fifth largest in the world as
measured by production. NKK is also engaged in the shipbuilding and engineering
industries, among others. Since 1984, the Company has had access to a wide
range of NKK's steelmaking, processing and applications technology. In
addition, NKK has provided financial assistance to the Company in the form of
investments, loans and introductions to Japanese financial institutions and
trading companies.

The Company was formed through the merger of Great Lakes Steel, Weirton Steel
and Hanna Iron Ore Company and was incorporated in Delaware on November 7,
1929. The Company built a finishing facility, now the Midwest Division, in 1961
and in 1971 purchased Granite City Steel Corporation, now the Granite City
Division. On September 13, 1983, the Company became a wholly owned subsidiary
of National Intergroup, Inc., which in October 1994 changed its name to
Foxmeyer Health Corporation (collectively, with its subsidiaries, hereinafter
referred to as "NII"), through a restructuring. On January 11, 1984, the
Company sold the principal assets of its Weirton Steel Division and retained
certain liabilities related thereto. On August 31, 1984, NKK purchased a 50%
equity interest in the Company from NII. On June 26, 1990, NKK purchased an
additional 20% equity interest in the Company from NII. In April 1993, the
Company completed an initial public offering of its Class B Common Stock. In
October 1993, NII converted all of its shares of Class A Common Stock to an
equal number of shares of Class B Common Stock, resulting in NKK having a 75.6%
voting interest in the Company. NII sold substantially all of its shares of
Class B Common Stock in the market in January 1994. See "Certain Relationships
and Related Transactions" for a more detailed description of these
transactions, including a description of certain ongoing indemnity obligations
of NII arising out of the disposition of the Weirton Steel Division. The
Company's ability to fully realize the benefits of NII's indemnification
obligations is necessarily dependent upon NII's financial condition at the time
of any claim with respect to such obligations.

The Company's principal executive offices are located at 4100 Edison Lakes
Parkway, Mishawaka, Indiana 46545-3440; telephone (219) 273-7000.

9
<PAGE>

RISK FACTORS

Prospective investors should consider carefully, in addition to the other
information contained in this Prospectus, the following considerations and risk
factors before purchasing the Class B Common Stock offered hereby:

CERTAIN FACTORS RELATING TO THE COMPANY

Recent Losses

The Company reported a net loss of $258.9 million and a net loss applicable to
Common Stock of $272.2 million for the year ended December 31, 1993. This net
loss included a net charge of $94.4 million related to the temporary idling of
the Company's pellet operations. For the year ended December 31, 1992, the
Company reported a net loss of $48.4 million and a net loss applicable to
Common Stock of $65.9 million.

The Company achieved income from operations of $12.3 million for the nine
months ended September 30, 1994, exclusive of unusual credits aggregating
$170.1 million. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." The ability of the Company to sustain
profitability is dependent upon several managerial and operational changes
designed to reduce costs, improve productivity and product quality and achieve
an improved product mix, as well as various factors outside the Company's
control, including the level of steel prices, domestic steel demand and the
level of the U.S. dollar. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." For a discussion of competitive
and other factors affecting the steel industry in general, see "Certain Factors
Relating to the Steel Industry" below.

Business Subject to Stringent Environmental Regulation

Domestic steel producers, including the Company, are subject to stringent
federal, state and local laws and regulations relating to the protection of
human health and the environment. Domestic producers have expended, and can be
expected to expend in the future, substantial amounts for compliance with these
environmental laws and regulations. The Company currently estimates that
capital expenditures in connection with matters relating to environmental
control will be approximately $7.9 million and $13.6 million for 1994 and 1995,
respectively. In addition, the Company expects to record expenses for
environmental compliance, including depreciation, in the amount of
approximately $70 million and $73 million for 1994 and 1995, respectively.
Since environmental laws are becoming increasingly stringent, the Company's
environmental capital expenditures and costs for environmental compliance may
increase in the future. In addition, due to the possibility of future
unanticipated factual or regulatory developments, the amount and timing of
future environmental expenditures could vary substantially from those currently
anticipated. The Company is currently involved in a number of environmental
proceedings, and the outcomes of such proceedings, to the extent that they
exceed any applicable reserves, could have a material adverse effect on the
Company's results of operations for the applicable period. The costs for
environmental compliance may also place domestic steel producers, including the
Company, at a competitive disadvantage with respect to foreign steel producers,
as well as manufacturers of steel substitutes, that are subject to less
stringent environmental requirements. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Environmental," "Business--
Environmental Matters" and "Certain Relationships and Related Transactions."

Since 1989, the United States Environmental Protection Agency (the "EPA") and
the eight Great Lakes states have been developing guidance for discharge
standards in the Great Lakes Basin that are even more stringent than the best
available technology standards currently being enforced (the "Great Lakes
Initiative"). As required under section 118 of the Clean Water Act, as amended,
which is intended to codify the efforts of the EPA and such states under the
Great Lakes Initiative, on April 16, 1993, the EPA published the proposed
"Water Quality Guidance for the Great Lakes System" (the "Guidance Document").
Once finalized, the Guidance Document will establish minimum water quality
standards and other pollution control policies and procedures for waters within
the Great Lakes System. The EPA is

10
<PAGE>

required to publish the final Guidance Document by March 1995. Preliminary
studies conducted by the American Iron and Steel Institute (the "AISI") prior
to publication of the proposed Guidance Document estimated that the potential
capital cost for a fully integrated steel mill to comply with draft standards
under the Great Lakes Initiative could range from approximately $50 million to
$175 million and the potential annual operating and maintenance cost would be
approximately 15% of the estimated capital cost. Until the Guidance Document is
finalized and corresponding state laws and regulations are promulgated, the
Company is unable to determine whether such estimates are accurate and whether
the Company's actual costs for compliance will be comparable. Although the
Company believes only the Great Lakes Division would be required to incur
significant costs for compliance, there can be no assurances that compliance
with the Great Lakes Initiative will not have a material adverse effect on the
Company's financial condition or results of operations. See "Business--
Environmental Matters."

Charges and Liabilities Related to Pensions and Other Postretirement Benefits

The Company has substantial financial obligations related to its employee
postretirement benefit plans for pensions and postretirement benefits other
than pensions ("OPEB"). As of December 31, 1993, the Company's consolidated
balance sheet reflects liabilities of $299.7 million and $157.4 million for
pensions and OPEB, respectively. The calculation of these obligations for
active employees assumes continued employment with projections for retirements,
deaths, resignations and discharges. If the actual retirement of active
employees is significantly earlier than projected (for plant closings or other
reasons), the obligations would increase substantially. The recording of these
charges could result in a material adverse effect on the Company's financial
condition and results of operations because of the increase in recorded
liabilities, decrease in stockholders' equity and increases in required
contributions to the pension fund.

As a result of a decline in long term interest rates in the United States, at
December 31, 1993, the Company reduced the discount rate used to calculate the
actuarial present value of its accumulated benefit obligation for OPEB by 100
basis points to 7.75% and for pensions by 125 basis points to 7.50%, from the
rate used at December 31, 1992. This decline in the discount rate used to
calculate its pension obligation increased the minimum pension liability
recorded on the Company's balance sheet to $134.7 million and increased the
related intangible asset to $128.8 million, with the remaining $5.9 million
charged to stockholders' equity. If interest rates at December 31, 1994 are
significantly different from December 31, 1993, the Company will be required to
change the discount rate used to calculate the actuarial present value of its
pension obligation. An increase in such discount rate could reduce the recorded
pension liability and eliminate the current charge to stockholders' equity,
depending on the then market value of its pension trust fund assets. While the
same reduction in the discount rate as of December 31, 1993 and potential
future reductions also apply to the actuarial present value of the Company's
OPEB obligation, such reductions do not result in any increase in the recorded
liability or potential charge to equity because of different required
accounting principles.

Potential Charges

The Company recently announced a plan that will result in the reduction of the
Company's salaried non-represented workforce. This plan is expected to be
finalized and implemented late in the fourth quarter of 1994. Based upon
currently available information, the Company estimates that a workforce
reduction of approximately 400 employees is likely. Such a reduction will
result in an unusual charge ranging from approximately $30 to $40 million,
which will be recorded in the fourth quarter of 1994. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

Management is continually evaluating alternatives to improve the competitive
position of the Company and, although it has no current plans to do so, the
Company may implement other restructurings of businesses and operations in the
future. Any such restructuring could result in substantial charges. The
recording of these charges could have a material adverse effect on the
Company's financial condition and results of operations because of the increase
in recorded liabilities and decrease in stockholders' equity.

Limitation on Utilization of Net Operating Loss Carryforwards

If an "ownership change" within the meaning of Section 382 of the Internal
Revenue Code of 1986, as amended (the "Code"), were to occur with respect to
the Company as a result of the Offering, the

11
<PAGE>

Company's ability to utilize its net operating loss carryforwards ("NOLs") to
offset its taxable income would be severely limited. The Company believes that
the Offering will not cause the Company to undergo an ownership change but
that, immediately following the Offering, the Company will be within
approximately one percentage point of an ownership change. Because certain
events beyond the Company's control, as well as future primary stock offerings
and other events, could cause the Company to undergo an ownership change, there
can be no assurance that such an ownership change will not occur in the future.
Events beyond the Company's control that could cause the Company to undergo an
ownership change include acquisitions and dispositions of Company stock by
stockholders who own or owned 5% or more of the Company's stock and certain
transactions by 5% or more stockholders (or their stockholders) with respect to
their own stock (including issuances of securities, redemptions, and
recapitalizations). Additionally, due to certain ambiguities in the regulations
under Section 382, there can be no assurance that the Internal Revenue Service
would not challenge the Company's position that no ownership change will occur
as a result of the Offering or that such a challenge, if asserted, would not be
sustained by a court of law.

Significance of the Automotive Industry

Demand for the Company's products is affected by, among other things, the
relative strength or weakness of the domestic automotive industry. Shipments to
General Motors Corporation ("General Motors"), the Company's largest customer,
accounted for approximately 11%, 12% and 12% of net sales in each of 1993, 1992
and 1991, respectively. There can be no assurance that future sales to General
Motors will equal historical levels. Sales of the Company's products to the
automotive market accounted for approximately 29%, 27% and 26% of the Company's
total net sales in 1993, 1992 and 1991, respectively.

Control by and Alliance with NKK

Following the Offering, approximately 68.6% of the combined voting power of the
Company's outstanding capital stock will be held by NKK. As a result, NKK will
continue to exercise control over the business of the Company by virtue of its
ability to elect all the members of the Board of Directors (and, consequently,
the ability to cause, among other things, the Company to redeem shares of
Series A Preferred Stock (as defined herein) owned by NKK or issue additional
capital stock of the Company or repay certain indebtedness owed by the Company
to an affiliate of NKK) and its majority voting power with respect to actions
requiring stockholder approval. If NKK were to cease to own a majority of the
combined voting power of the outstanding capital stock of the Company, an event
of default would occur under certain of the Company's financing arrangements.
See "Certain Relationships and Related Transactions."

In connection with the Company's relationship with NKK, NKK has provided
financial assistance to the Company in the form of investments, loans and
introductions to Japanese financial institutions and trading companies. No
assurances can be given with respect to the extent of NKK's future financial
support beyond existing contractual commitments. See "Business--Strategy."

Conflicts of Interest

The nature of the respective businesses of the Company and NKK is such as to
give rise to conflicts of interest between the two companies. The Company's
Restated Certificate of Incorporation (the "Certificate of Incorporation")
contains provisions recognizing that NKK may engage in business activities
similar to those of the Company and shall have no duty to communicate to the
Company, may pursue and acquire for itself, or may direct to another person
potential transactions or matters which may be corporate opportunities for both
NKK and the Company. The Certificate of Incorporation provides that NKK will
not be liable to the Company or its stockholders for breach of any fiduciary
duty as a stockholder of the Company by reason of the fact that NKK pursues or
acquires such corporate opportunity for itself, directs such corporate
opportunity to another person or does not present the corporate opportunity to
the Company. Consequently, certain corporate opportunities which may have been
made available to the Company, instead may be available only to NKK. The
Certificate of Incorporation also provides that any person purchasing or
otherwise acquiring any interest in shares of Common Stock will be deemed to
have notice of and to have consented to the provisions of the Certificate of
Incorporation relating to conflicts of

12
<PAGE>

interest, which may limit the ability of stockholders to successfully challenge
these provisions in a court of law or otherwise. See "Description of Capital
Stock--Certain Provisions of the Certificate of Incorporation Relating to
Corporate Opportunities."

Significant Amount of Financial Leverage

Upon consummation of the Offering, the Company will continue to have
outstanding substantial indebtedness which could affect its ability to service
its indebtedness, which in turn could limit its ability to make certain capital
investments or take advantage of certain business opportunities or could force
it to restructure or refinance its indebtedness or seek additional equity
capital. See "Management's Discussion and Analysis of Results of Operations--
Liquidity and Sources of Capital."

Ability to Fully Realize the Benefits of NII's Indemnification Obligations

On August 31, 1984, NKK purchased 50% of the capital stock of the Company from
NII. Pursuant to the terms of that transaction, NII agreed with the Company to
provide funds to the Company for the payment of, and to indemnify the Company
against, claims and litigation arising out of the operation of its former
Weirton Steel Division ("Weirton") prior to May 1, 1983 (the "Weirton
Liabilities"). NII also agreed to indemnify the Company for certain other
environmental liabilities related to the former operations of the Hanna Furnace
Corporation, a subsidiary of the Company, and the Donner Hanna Coke Joint
Venture, a joint venture of the Hanna Furnace Corporation and LTV Steel
Company, Inc. The Company's ability to fully realize the benefits of NII's
indemnification obligations is necessarily dependent upon NII's financial
condition at the time of any claim with respect to such obligations. The
failure of NII to satisfy any of such indemnity obligations could have a
material adverse effect on the Company's liquidity. In January 1994, the
Company received $10 million from NII as an unrestricted prepayment for
environmental obligations which may arise after such prepayment and for which
NII has previously agreed to indemnify the Company. The Company is required to
repay to NII portions of the $10 million to the extent the Company's
expenditures for such environmental liabilities do not meet specified levels by
certain dates over a twenty year period. The Company recorded a liability of
$10 million after receipt of the prepayment from NII. See "Certain
Relationships and Related Transactions."

Preferences of Preferred Stock and Certain Related Matters

Pursuant to the Certificate of Incorporation, the Board of Directors is
authorized to establish and designate one or more series of Preferred Stock,
without further authorization of the Company's stockholders, and to fix the
number of shares, the dividend and the relative rights, preferences and
limitations of any such series. The Company's Series A Preferred Stock and the
Series B Preferred Stock are entitled to certain preferences upon liquidation
and the payment of dividends. As a result of NKK's control over the business of
the Company by virtue of its ability to elect all of the members of the Board
of Directors, NKK may cause the Company to redeem the Series A Preferred Stock
and cause the issuance of additional preferred stock which may have superior
voting rights to the Common Stock.

CERTAIN FACTORS RELATING TO THE STEEL INDUSTRY

Cyclicality

The domestic steel industry is highly cyclical in nature. Domestic integrated
steel producers suffered substantial losses in the first half of the 1980s as a
result of a number of factors, including recessionary conditions, a high level
of steel imports, the strength of the United States dollar against other
currencies, worldwide production overcapacity, increased domestic and
international competition, high labor cost and inefficient plants. During the
second half of the 1980s, domestic steel producers benefited from improved
industry conditions as steel demand increased substantially, the value of the
dollar declined against other currencies, the level of steel imports receded,
excess capacity was reduced through restructurings, and facilities were
modernized. These favorable conditions reached their peak in 1988 when domestic
industry earnings reached record levels. Steel demand and pricing began to
decline in the latter half of 1989 and the

13
<PAGE>

domestic industry has reported substantial losses, including restructuring and
other charges, during recent years. While a recovery in steel markets is
currently under way and is expected by management to continue into 1995, there
can be no assurance as to the extent of any future improvement in domestic
industry earnings.

Overcapacity

Annual United States raw steel production capability has been reduced from 154
million tons in 1982 to 110 million tons in 1993. This reduction has resulted
in higher utilization rates. Average utilization of domestic industry
capability improved from 60% in the 1982-1986 period to 82% in 1987-1992 period
and more than 89% in 1993. Despite these improvements, steel consumption in the
United States has not grown with the overall economy in recent years and excess
production capacity continues to exist in certain product lines in domestic
markets and, to a greater extent, worldwide. Production capacity has been
increased by most integrated producers, including the Company, in certain
higher value-added product lines. With further increases in production capacity
currently under way and anticipated, overcapacity could arise in certain of
these product lines.

Competition

Imports. Domestic steel producers face significant competition from foreign
producers and have been adversely affected by unfairly traded imports. Imports
of finished steel products accounted for approximately 18% of the domestic
market for the first nine months of 1994, approximately 14% of the domestic
market in 1993 and approximately 15% of the domestic market in 1992 and 1991.
Many foreign steel producers are owned, controlled or subsidized by their
governments. Decisions by these foreign producers with respect to production
and sales may be influenced to a greater degree by political and economic
policy considerations than by prevailing market conditions.

In 1992, the Company and eleven other domestic steel producers filed unfair
trade cases with the United States Department of Commerce (the "Commerce
Department") and the United States International Trade Commission (the "ITC")
against foreign steel producers covering imports of flat rolled carbon steel
products. In June 1993, the Commerce Department imposed final antidumping and
subsidy margins averaging 37% for all products under review. In July 1993, the
ITC made final determinations that material injury had occurred in cases
representing an estimated 51% of the dollar value and 42% of the volume of all
flat rolled carbon steel imports under investigation. In the four product
categories, injury was found in cases relating to 97% of the volume of plate
steel, 92% of the volume of higher value-added corrosion resistant steel and
36% of the volume of cold rolled steel. No injury was found with respect to hot
rolled steel products. For the first nine months of 1994, approximately 41% of
the Company's shipments consisted of hot rolled steel, while approximately 31%
consisted of corrosion resistant steel, 16% consisted of cold rolled steel and
less than 1% consisted of plate steel. Imports of products not covered by
affirmative ITC injury determinations have increased and may continue to
increase, which may have an adverse effect on the Company's shipments of these
products and the prices it realizes for such products. The Company and the
other domestic producers who filed these cases have appealed the negative
decisions of the ITC and are defending appeals brought by foreign producers
involving decisions favorable to domestic producers. These appeals are
proceeding before the Court of International Trade in New York and, in the case
of Canada, before Binational Dispute Panels under the U.S.-Canada Free Trade
Agreement. Decisions from the Court of International Trade are expected in the
first half of 1995. Separate Binational Dispute Panels upheld the ITC's injury
determination in November 1994 and the majority of the Commerce Department's
dumping margin determination in October 1994. Certain aspects of the margin
calculation were remanded to the Commerce Department, but the remand results
are not expected to substantially affect the final margins for most
respondents. Future increases in other steel imports are also possible,
particularly if the value of the dollar should rise in relation to foreign
currencies or if legislation implementing the recently concluded GATT Uruguay
Round agreements is enacted in a form which substantially weakens United States
trade laws.

14
<PAGE>

production facilities through bankruptcy reorganization procedures, thereby
perpetuating overcapacity in certain industry product lines. Overcapacity is
also caused by the continued operation of marginal steel production facilities
that have been sold by integrated steel producers to new owners, who operate
such facilities with a lower cost structure.

Mini-mills. Domestic integrated producers, such as the Company, have lost
market share in recent years to domestic mini-mills. Mini-mills provide
significant competition in certain product lines, including hot rolled and cold
rolled sheets, which represented, in the aggregate, approximately 60% of the
Company's shipments in 1993. Mini-mills are relatively efficient, low-cost
producers of steel from scrap in electric furnaces, have lower employment and
environmental costs and target regional markets. Thin slab casting technologies
have allowed mini-mills to enter certain sheet markets which have traditionally
been supplied by integrated producers such as the Company. One mini-mill has
constructed two such plants and announced its intention to start a third.
Certain companies have begun construction of, announced plans for, or have
indicated that they are evaluating whether to construct additional mini-mill
plants for sheet products in the United States or to increase capacity at
existing plants, which would result in increased competition for the Company.

Steel Substitutes. In the case of many steel products, there is substantial
competition from manufacturers of other products, including plastics, aluminum,
ceramics, glass, wood and concrete. Conversely, the Company and certain other
manufacturers of steel products have begun to compete in recent years in
markets not traditionally served by steel producers.

CERTAIN FACTORS RELATING TO THE CLASS B COMMON STOCK

Potential Adverse Market Price Effect of Future Sales of Common Stock

Sales of substantial amounts of Class B Common Stock in the public market
following the Offering could adversely affect the market price of the Class B
Common Stock. In addition to the shares of Class B Common Stock offered hereby,
22,100,000 additional shares of Class B Common Stock (issuable upon conversion
of outstanding shares of Class A Common Stock held by NKK) are eligible for
immediate resale in the public market subject to certain volume and other
restrictions set forth in Rule 144 under the Securities Act of 1933, as amended
(the "Securities Act"). The Company, NKK and each of the current directors and
executive officers of the Company have agreed with the Underwriters, however,
not to sell any shares of Common Stock until 90 days after the date of this
Prospectus without the prior written consent of J.P. Morgan Securities Inc. NKK
has informed the Company that NKK has no present intention to dispose of any
shares of Common Stock. NKK has also been granted certain registration rights
by the Company with respect to its shares of Common Stock. See "Certain
Relationships and Related Transactions" and "Underwriting."

Restrictions on the Payment of Common Stock Dividends

15
<PAGE>

USE OF PROCEEDS

The net proceeds from the Offering (based on an assumed offering price of
$16.00 per share and after deduction of estimated underwriting discounts and
commissions and expenses associated with the Offering) are expected to be
approximately $91 million ($105 million if the Underwriters' over-allotment
options are exercised in full). The Company will use substantially all of the
net proceeds of the Offering to repay all or a portion of one or more of the
following borrowings (amounts outstanding are as of September 30, 1994): the
Vacuum Degassing Facility Loan, of which $37.8 million is outstanding, the
Continuous Caster Facility Loan, of which $126.6 million is outstanding, the
8.375% First Mortgage Bonds, of which $90.4 million is outstanding, and a
$117.0 million tranche of the Coke Battery Loan, which was obtained from an
affiliate of NKK (see "Certain Relationships and Related Transactions").
Borrowings under the Vacuum Degassing Facility Loan, the Continuous Caster
Facility Loan, the First Mortgage Bond and the Coke Battery Loan tranche
currently bear interest at the rate of 10.336%, 10.057%, 8.375% and 8.022%,
respectively. The aforementioned borrowings mature in the years 2000, 2007,
2006 and 2008, respectively. Certain of the above financings involve either a
breakage gain or loss upon prepayment. The Company is engaged in discussions
with lenders to obtain the highest possible effective interest rate benefit
from any such prepayment, and the specific amounts of debt to be reduced will
be determined based upon the outcome of these discussions and market and other
conditions at the time of the consummation of the Offering and thereafter. The
above list indicates the possible debt reduction alternatives currently under
consideration. Pending such utilization, the Company intends to invest the net
proceeds of the Offering in short-term investment grade instruments.

PRICE RANGE OF CLASS B COMMON STOCK AND DIVIDEND POLICY

The Class B Common Stock is listed on the New York Stock Exchange (the "NYSE")
and traded under the symbol "NS." The following table sets forth for the
periods indicated the high and low sales prices of the Class B Common Stock as
reported on the NYSE Composite Tape. Prior to March 30, 1993, the Company did
not have any publicly traded shares.

<TABLE>
<CAPTION>
SALE PRICE
--------------
HIGH LOW
------- ------
<S> <C> <C>
Year Ended December 31, 1993
First Quarter............................................ $15 3/8 $14
Second Quarter........................................... 20 3/8 14
Third Quarter............................................ 20 5/8 10 7/8
Fourth Quarter........................................... 13 3/8 10 3/8
Year Ended December 31, 1994
First Quarter............................................ 17 11 1/2
Second Quarter........................................... 16 1/2 11 3/4
Third Quarter............................................ 22 7/8 15 3/8
Fourth Quarter (through November 16, 1994)............... 20 1/4 15 7/8
</TABLE>

See the cover page of this Prospectus for a recent closing price of Class B
Common Stock on the NYSE.

As of September 30, 1994, there were approximately 88 registered holders of
Class B Common Stock.

The Company has not paid dividends on its Common Stock since 1984, with the
exception of an aggregate dividend payment of $6.7 million in 1989. The Company
is currently prohibited from paying cash dividends on its Common Stock,
including the Class B Common Stock, by covenants contained in certain of the
Company's financing arrangements. In the event the payment of dividends is not
prohibited in the future by such covenants, the decision whether to pay
dividends on the Common Stock will be determined by the Board of Directors in
light of the Company's earnings, cash flows, financial condition, business
prospects and other relevant factors. Holders of Class A Common Stock and Class
B Common Stock will be entitled to share ratably, as a single class, in any
dividends paid on the Common Stock. In addition, dividends with respect to the
Common Stock are subject to the prior payment of cumulative dividends on any
outstanding series of Preferred Stock, including the Series A Preferred Stock
and Series B Preferred Stock, and must be matched by an equal payment into the
Voluntary Employee Benefit Association Trust (the "VEBA Trust"), until the
asset value of the VEBA Trust exceeds $100 million, under the terms of the
cooperative labor agreement between the Company and the USWA effective August
1, 1993 (the "1993 Settlement Agreement"). See "Description of Capital Stock--
Preferred Stock."

16
<PAGE>

DILUTION

The net tangible book value of the Company at September 30, 1994 was $5.35 per
share of Common Stock. Pro forma net tangible book value per share after giving
effect to the Offering represents the amount of total tangible assets of the
Company less the amount of total liabilities, divided by the number of shares
of Common Stock outstanding, after giving effect to the proposed sale by the
Company of six million shares of Class B Common Stock in the Offering at an
estimated offering price of $16.00 per share (calculated after deduction of
estimated underwriting discounts and commissions and estimated expenses
associated with the Offering and based on the closing price of Class B Common
Stock on November 16, 1994, as reported on the NYSE Composite Tape). The pro
forma net tangible book value of the Common Stock on September 30, 1994 after
giving effect to the Offering would have been $6.74 per share. This represents
an immediate increase in net tangible book value of $1.39 per share of Common
Stock and an immediate dilution of $9.26 per share of Common Stock to the
purchasers of the Class B Common Stock. "Dilution" per share is determined by
subtracting net tangible book value per share from the estimated amount to be
paid for a share of Class B Common Stock in the Offering.

The following table illustrates the calculation of the per share dilution
described above:

<TABLE>
<S> <C> <C>
Offering Price.................................................... $16.00
Net tangible book value per share prior to the Offering........... $5.35
Increase in net tangible book value per share attributable to the
Offering......................................................... 1.39
-----
Pro forma net tangible book value per share after giving effect to
the Offering..................................................... 6.74
------
Dilution to purchasers of Class B Common Stock in the Offering.... $ 9.26
======
</TABLE>

CAPITALIZATION

The following table sets forth the consolidated capitalization of the Company
at September 30, 1994 and as adjusted to give effect to the sale of the Class B
Common Stock offered hereby and the application of the estimated net proceeds
thereof (assuming the Underwriters' over-allotment options are not exercised
and based on an assumed offering price of $16.00 per share and after deduction
of estimated underwriting discounts and commissions and expenses associated
with the Offering).

<TABLE>
<CAPTION>
AS ADJUSTED
FOR THE
ACTUAL OFFERING
-------- -----------
(DOLLARS IN
MILLIONS)
<S> <C> <C>
Long term obligations and related party indebtedness
due within one year................................. $ 35.6 $ 35.6
Long term obligations and related party indebtedness. 689.7 598.5
Redeemable Preferred Stock........................... 66.9 66.9
-------- --------
Total Debt and Redeemable Preferred Stock........ 792.2 701.0
-------- --------
Stockholders' equity
Preferred Stock--Series A.......................... 36.7 36.7
Common Stock--Class A.............................. .2 .2
Common Stock--Class B.............................. .1 .2
Additional paid-in capital......................... 360.5 451.6
Retained earnings (deficit)........................ (74.2) (74.2)
-------- --------
Total Stockholders' Equity....................... 323.3 414.5
-------- --------
Total Capitalization............................. $1,115.5 $1,115.5
======== ========
</TABLE>

17
<PAGE>

SELECTED FINANCIAL INFORMATION

The following consolidated summary of financial information presents certain
financial data for the three years ended December 31, 1993 and for the nine
months ended September 30, 1994 and 1993 and should be read in conjunction with
the Consolidated Financial Statements and the related notes. The Statement of
Operations Data for each of the years in the three year period ended December
31, 1993 and the Balance Sheet Data as of December 31, 1993 and 1992 have been
derived from the Consolidated Financial Statements included herein, which have
been audited by Ernst & Young LLP, the Company's independent auditors. The
Balance Sheet Data as of December 31, 1991 have been derived from separate
audited consolidated financial statements of the Company. The Statement of
Operations Data for the nine month periods ended September 30, 1994 and 1993
and the Balance Sheet Data as of September 30, 1994 are unaudited and include
all adjustments, consisting of normal recurring accruals, which the Company
considers necessary for a fair presentation of the financial position and
results of operations for these periods. Operating results for the nine months
ended September 30, 1994 are not necessarily indicative of the results for the
entire year ending December 31, 1994.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------------
1994 1993 1993 1992 1991
------ ------ ------ ------ ------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AND PER TON DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $1,957 $1,833 $2,419 $2,373 $2,330
Cost of products sold.................. 1,739 1,700 2,254 2,107 2,103
Depreciation, depletion and amortiza-
tion.................................. 104 102 137 115 117
------ ------ ------ ------ ------
Gross profit........................... 114 31 27 152 110
Selling, general and administrative.... 101 103 137 133 139
Unusual charges (credits).............. (170) 3 111 37 111
Income (loss) from operations.......... 182 (74) (218) (12) (131)
Financing costs (net).................. 44 47 62 62 59
Income (loss) before income taxes, ex-
traordinary items and cumulative
effect of accounting changes.......... 138 (121) (280) (75) (189)
Extraordinary charge................... - - - (50) -
Cumulative effect of accounting
changes............................... - (16) (16) 76 -
Net income (loss) applicable to Common
Stock................................. 133 (131) (272) (66) (207)
Per share data applicable to Common
Stock:
Income (loss) before extraordinary
items and cumulative effect of ac-
counting changes..................... 3.66 (3.46) (7.55) (3.61) (8.11)
Net income (loss)(1).................. 3.66 (3.96) (8.04) (2.58) (8.11)
</TABLE>

<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, AS OF DECEMBER 31,
------------- --------------------
1994 1993 1992 1991
------------- ------ ------ ------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................... $ 92 $ 5 $ 55 $ 64
Working capital............................. 162 27 74 120
Net property, plant and equipment........... 1,406 1,399 1,395 1,249
Total assets................................ 2,425 2,304 2,189 1,986
Long term obligations and related party in-
debtedness due within one year............. 36 28 33 32
Long term obligations and related party in-
debtedness................................. 690 674 662 486
Redeemable Preferred Stock--Series B........ 67 68 138 141
Stockholders' equity........................ 323 190 327 393
</TABLE>

<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEARS ENDED
SEPTEMBER 30, DECEMBER 31,
-------------- ----------------------
1994 1993 1993 1992 1991
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Shipments (net tons, in thousands)..... 3,824 3,846 5,005 4,974 4,906
Raw steel production (net tons, in
thousands)............................ 4,106 4,118 5,551 5,380 5,247
Effective capacity utilization......... 91.5% 100.0% 100.0% 100.5% 92.5%
Continuously cast percentage........... 100.0% 100.0% 100.0% 100.0% 99.8%
Liquid steel to finished prime product
yield................................. 80.3% 79.3% 79.6% 80.0% 79.6%
Manhours per net ton shipped........... 3.79 3.85 3.96 4.03 4.27
Number of employees (end of period).... 9,686 10,109 10,069 10,299 11,176
Capital investments.................... $113 $112 $161 $284 $178
Operating profit (loss) per net ton
shipped excluding unusual items....... $3 $(18) $(21) $5 $(4)
EBITDA(2).............................. $115 $66 $180 $157 $112
Total debt and redeemable preferred
stock as a percentage of total capi-
talization............................ 71.0% 68.7% 80.2% 71.8% 62.6%
Common shares outstanding at end of pe-
riod (in thousands)................... 36,376 36,361 36,361 25,500 25,500
</TABLE>
- -------
(1) No cash dividends were paid by the Company during the periods presented.

(2) EBITDA represents the earnings of the Company before income taxes, net
interest expense, depreciation, depletion and amortization and other non-
cash charges reducing net income. The Company has included EBITDA, which is
not a measure of financial performance under generally accepted accounting
principles, because such data is used by certain investors.

18
<PAGE>

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

On June 1, 1994, the Board of Directors replaced certain members of the
Company's senior management for the purpose of improving operating performance
and achieving sustained profitability. V. John Goodwin, who has twenty seven
years of experience in the steel industry, was appointed President and Chief
Operating Officer and Robert M. Greer, who has thirty three years of steel
industry and related business experience, was appointed Senior Vice President
and Chief Financial Officer. Four other managers experienced in the areas of
quality control, primary steel production and finishing, and human resources
joined the remaining members of management. Mr. Goodwin and the other new
members of the Company's management are credited with substantially improving
operating performance and labor relations and reducing production costs in
their previous employment.

During 1994, the Company has successfully implemented price increases for flat
rolled products sold to spot market customers. These increases of $15 per ton
on January 1 and $10 per ton on July 1 were implemented on approximately 55% of
total shipments. The Company is currently negotiating price increases with the
Company's contract buyers, which represent approximately 45% of total
shipments. Management is optimistic about the Company's ability to achieve
these price increases, the majority of which will be effective January 1, 1995.
Additionally, the Company has announced a $30 per ton increase for January 2,
1995, to be implemented in the spot market segment. The Company's ability to
successfully implement such price increases is subject to, among other things,
the strength of the Company's principal customer markets and general economic
conditions. To the extent that the Company is successful in implementing the
announced price increases, such increases will not be reflected in sales made
pursuant to contracts prior to the expiration of such contracts.

Restructuring of Non-Represented Workforce

Management is currently in the process of evaluating alternatives to improve
the competitive position of the Company. As a part of this analysis, management
has embarked upon a plan that will result in the reduction of the Company's
salaried non-represented workforce. The results of this plan are expected to be
finalized and implemented late in the fourth quarter of 1994. Because the plan
has not been finalized and certain employee benefit related costs are sensitive
to the number of affected employees, as well as their age and years of service,
the Company is presently unable to estimate the exact amount of the charge.
However, based upon currently available information, the Company estimates the
charge to be approximately $30 to $40 million based on a workforce reduction of
400 employees. Management expects to record this as an unusual charge during
the fourth quarter of 1994.

RESULTS OF OPERATIONS--COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30,
1994 AND 1993

Net Sales

Net sales for the first nine months of 1994 totaled $2.0 billion, a 6.7%
increase when compared to 1993. This increase was attributable to both an
increase in realized selling prices, as well as an improvement in product mix
to higher margin coated products and from lower margin secondary products.
Steel shipments for the first nine months of 1994 were 3,824,000 tons, a slight
decrease from the 3,846,000 tons shipped during the same period in 1993.
Management believes this change is due primarily to customer requests to
accelerate shipments during 1993 prior to the July 31 expiration of a number of
labor contracts within the steel industry. This decrease in volume was more
than offset by the improvement in product mix and selling prices. Raw steel
production was 4,106,000 tons, a slight decrease from the 4,118,000 tons
produced during the nine month period ended September 30, 1993.

Cost of Products Sold

Cost of products sold as a percentage of net sales decreased to 88.8% in the
first nine months of 1994 from 92.7% for the same period in 1993. This decrease
is primarily the result of improvements in realized selling prices, product mix
and performance yields, as well as a reduction in product costs, and offset an
increase

19
<PAGE>

in labor costs of approximately $13 million resulting from the negotiation of
the 1993 Settlement Agreement.

Unusual Items

During the nine months ended September 30, 1994, the Company recorded unusual
credits aggregating $170.1 million as discussed below.

On January 24, 1994, the United States Supreme Court denied the Bessemer & Lake
Erie Railroad's (the "B&LE") petition to hear the appeal in the Iron Ore
Antitrust Litigation, thus sustaining the judgment in favor of the Company
against the B&LE. On February 11, 1994 in satisfaction of this judgment, the
Company received approximately $111 million, including interest, which was
recognized as an unusual gain. The Company utilized a portion of the proceeds
from this judgment to repurchase $25.2 million aggregate principal amount of
its outstanding 8.375% First Mortgage Bonds. Pursuant to the 1993 Settlement
Agreement, approximately $11 million of the proceeds will be deposited into the
VEBA Trust.

The Company did not recognize any income taxes associated with these proceeds,
other than alternative minimum taxes of $3.1 million, as regular federal income
tax expense was offset by the utilization of previously reserved tax assets.

In June 1994, in an effort to reduce delivered iron ore pellet costs and
improve pellet mix, as well as to strengthen the cooperative partnership
approach to labor relations, management considered the feasibility of reopening
the NSPC facility. They determined that if a total reduction of $4 per gross
ton in delivered pellet costs from pre-strike costs could be achieved, NSPC
could be reopened on a cost effective basis. After a series of negotiations, a
labor agreement was reached between the USWA and NSPC (the "NSPC Labor
Agreement"). The NSPC Labor Agreement led to negotiations with other
stakeholders such as public utilities, transportation companies, property
owners and suppliers and resulted in the achievement of the requisite $4 per
gross ton savings in delivered pellet costs and the reopening of the facility
in August 1994. Based upon NSPC's estimated production of 5 million tons of
pellets per year, this will result in a savings of $20 million annually
compared to the Company's pre-strike costs.

The reopening of NSPC eliminated the need to maintain the entire $108.6 million
reserve recorded during 1993 related to the temporary idling of the facility.
Additionally, as 149 employees had accepted a one month pension window offered
by NSPC during the third quarter of 1994, the Company was able to finalize the
accounting for the charges relating to pensions and OPEBs. Accordingly,
approximately $59.1 million of the 1993 unusual charge, consisting of $39.1
million related to pensions and OPEBs and $20.0 million of accrued idle
expenses, was reversed during the third quarter of 1994. The reversal totaled
$49.0 million net of the applicable income tax effect. Additionally, startup
expenses totaling $4.4 million and certain expenses related to the NSPC labor
agreement totaling $2.1 million were charged to cost of products sold during
the third quarter of 1994.

Income Taxes

During the first nine months of 1994, the Company recognized income tax credits
of $16.6 million. These credits were offset by $3.1 million in alternative
minimum tax expense related to the receipt of the B&LE proceeds and a $10.0
million deferred tax charge reflecting the reversal of a portion of the tax
benefit recorded in 1993 related to the temporary idling of NSPC, resulting in
a net income tax credit of $3.5 million for the nine months ended September 30,
1994.

Comparability of Earnings Per Share

While the Company has chosen to amortize its transition obligation under
Statement of Financial Accounting Standards No. 106, "Accounting for
Postretirement Benefits Other Than Pensions" ("SFAS 106") over twenty years,
most of the Company's competitors have chosen to immediately recognize their
respective SFAS 106 transition obligations. As a result, any earnings per share
("EPS") comparison between the Company and these competitors should be adjusted
for the per share adverse impact of this amortization. The Company's after tax
EPS was negatively impacted by $.33 for the nine months ended September 30,
1994.

20
<PAGE>

RESULTS OF OPERATIONS--COMPARISON OF THE YEARS ENDED DECEMBER 31, 1993 AND 1992

Net Sales

Net sales for 1993 increased by 1.9% to $2.42 billion, due primarily to
increases in volume and realized selling prices, coupled with a favorable shift
in product mix. Steel shipments in 1993 were 5,005,000 tons, a slight increase
from 4,974,000 tons in 1992. Raw steel production increased to 5,551,000 tons,
a 3.2% increase from the 5,380,000 tons produced in 1992.

Cost of Products Sold

Cost of products sold as a percentage of net sales increased from 88.8% in 1992
to 93.2% in 1993. Cost of products sold increased approximately $147 million
primarily as the result of significant operating problems, including an
explosion and fire at the Company's electrolytic galvanizing line, difficulties
in achieving on-time deliveries for ultra-low carbon steel as a result of a
rapid increase in demand which led to operating inefficiencies and production
of non-prime products, which totalled approximately $47 million, together with
increased costs totaling approximately $6 million resulting from the
negotiation of the 1993 Settlement Agreement and increased non-cash OPEB
expenses of approximately $59 million resulting from the Company's
implementation of SFAS 106, effective January 1, 1993. Finally, approximately
$25 million of present value interest relating to postretirement benefit
liabilities and certain Weirton Benefit Liabilities, previously recorded for
facility sales and restructurings and charged to interest expense, was charged
to cost of products sold.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by 2.9% from $132.8
million in 1992, to $136.7 million in 1993, primarily due to legal costs
incurred in pursuing unfair trade litigation.

Depreciation, Depletion and Amortization

Depreciation expense for 1993 increased by $22.6 million, or 19.7% as compared
to 1992, primarily as a result of the completion of the rebuild of the No. 5
coke oven battery at the Great Lakes Division in November 1992.

Unusual Items Related to the Temporary Idling of NSPC

NSPC was temporarily idled in October 1993, following a strike by the USWA on
August 1, 1993, and the subsequent decision to satisfy the Company's iron ore
pellet requirements from external sources. At December 31, 1993, it was the
previous management's intention to externally satisfy its iron ore pellet
requirements for a period in excess of two years, which would have caused NSPC
to remain idle for that period. In connection with the temporary idling of the
facility, the Company recorded an unusual charge of $108.6 million during the
fourth quarter of 1993. This charge was primarily comprised of employee
benefits such as pensions and OPEB costs, along with expenses relating to the
temporary idling of the facility.

Financing Costs

Net financing costs decreased by $0.3 million from 1992 to 1993. Interest
expense associated with the financing of the No. 5 coke oven battery rebuild
was $25.1 million in 1993. However, this was largely offset by a $20.5 million
reduction in financing costs for present value interest expense attributable to
postretirement benefits which are now being charged to cost of products sold.

Income Taxes

The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"), at December 31, 1992. At that time,
available tax planning strategies served as the only basis for determining the
amount of the net deferred tax asset to be recognized. As a result, a full

21
<PAGE>

valuation allowance was recorded, except for the $43 million recognized
pursuant to a tax planning strategy based upon the Company's ability to change
the method of valuing the Company's inventories from LIFO to FIFO. In 1993, the
Company determined it was more likely than not that sufficient future taxable
income would be generated to justify increasing the net deferred tax asset
after valuation allowance to $80.6 million. Accordingly, the Company recognized
an additional deferred tax asset of $37.6 million in 1993 based upon future
projections of income, which had the effect of decreasing the Company's net
loss by a like amount.

Cumulative Effect of Accounting Change

During the fourth quarter of 1993, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employer's Accounting for Postemployment
Benefits" ("SFAS 112"), which requires accrual accounting for benefits payable
to inactive employees who are not retired. The cumulative effect as of January
1, 1993 of this change was to decrease net income by $16.5 million or $.49 per
share. The results of operations for the first quarter of 1993 have been
restated to reflect the effect of adopting SFAS 112 at January 1, 1993. The
effect of the change on 1993 income before the cumulative effect of the change
was not material; therefore, the remaining quarters of 1993 have not been
restated.

Adoption of SFAS 106

During the first quarter of 1993, the Company adopted SFAS 106, which requires
the accrual of retiree medical and life insurance costs as these benefits are
earned, rather than recognition of these costs as claims are paid. At January
1, 1993, the Company calculated its transition obligation to be $622.1 million
with $66.1 million recorded prior to implementation of SFAS 106 in connection
with facility sales and restructurings. The Company has elected to amortize its
transition obligation over a period of 20 years. Total postretirement benefit
cost in 1993 was $123.7 million, or $85.6 million excluding the $38.1 million
of curtailment charges related primarily to the idling of NSPC. Excluding these
curtailment charges, the excess of postretirement benefit expense recorded
under SFAS 106 over the Company's former method of accounting for these
benefits was $59.5 million, or $1.08 per share net of tax.

Discount Rate Assumptions

As a result of a decline in long term interest rates in the United States, at
December 31, 1993, the Company reduced the discount rate used to calculate the
actuarial present value of its accumulated benefit obligation for OPEB by 100
basis points to 7.75% and for pensions by 125 basis points to 7.50%, from the
rate used at December 31, 1992. The effect of these changes did not impact 1993
expense. However, this decline in the discount rate used to calculate the
pension obligation increased the minimum pension liability recorded on the
Company's balance sheet to $134.7 million and increased the related intangible
asset to $128.8 million, with the remaining $5.9 million charged to
stockholders' equity. While the same reduction in the discount rate as of
December 31, 1993 also applies to the actuarial present value of the Company's
OPEB obligation, such reductions do not result in any increase in the recorded
liability or potential charge to equity because of different required
accounting principles.

Comparability of Earnings Per Share

Any EPS comparison between the Company and its competitors should be adjusted
for the impact of the Company's amortization of its SFAS 106 transition
obligation over twenty years. The Company's after tax EPS was negatively
impacted by $0.51 for the year ended December 31, 1993.

Adoption of SFAS 115

In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" ("SFAS 115"). Beginning in 1994, SFAS 115 requires
certain investments to be recorded at fair value rather than cost basis. The
Company's investments consist of short term liquid investments whose cost
approximates fair value and, therefore, SFAS 115 will not have any financial
impact.

22
<PAGE>

USWA Agreement

On August 27, 1993, the 1993 Settlement Agreement between the Company and the
USWA was ratified by union members of the Company's three steel divisions and
corporate headquarters. The 1993 Settlement Agreement, effective August 1, 1993
through July 31, 1999, protects the Company and the USWA from a strike or
lockout for the duration of the agreement. Either the Company or the USWA may
reopen negotiations, except with respect to pensions and certain other matters,
after three years, with any unresolved issues subject to binding arbitration.
The Company estimates the additional annual cost resulting from the 1993
Settlement Agreement to be approximately $25 million per year through 1996.
However, there is the potential that these higher costs may be reduced by
productivity gains which are difficult to quantify. The Company is unable to
estimate the impact of the 1993 Settlement Agreement beyond 1996 since it then
may be reopened as discussed above.

RESULTS OF OPERATIONS--COMPARISON OF THE YEARS ENDED DECEMBER 31, 1992 AND 1991

Net Sales

Net sales for 1992 increased by 1.9% to $2,373.3 million, due primarily to a
shift in product mix from lower priced export, secondary and slab sales to
higher priced coated products, coupled with an increase in steel shipments. A
general decline in selling prices was partially offset by an improvement in
product mix. Steel shipments in 1992 were 4,974,000 tons, up 1.4% from
4,906,000 tons in 1991. The increase in shipments reflected modest improvements
in the domestic steel market in 1992. Raw steel production increased to
5,380,000 tons, a 2.5% increase from the 5,247,000 tons produced in 1991.

Cost of Products Sold

The Company's cost of products sold as a percentage of net sales decreased from
90.2% in 1991 to 88.8% in 1992. This decrease was primarily the result of a
Company-wide emphasis on cost-reduction programs which began in the second
quarter of 1991 and continued throughout 1992 and was achieved despite an
average $.50 per hour wage increase which became effective January 1, 1992
under the Company's prior labor agreement with the USWA and the continuing
escalation in health care costs.

Selling, General and Administrative Expenses

Selling, general and administrative expenses decreased by 4.7% from $139.3
million in 1991 to $132.8 million in 1992 primarily as a result of the
Company's cost reduction programs.

Unusual Items

In 1992, the Company recorded unusual charges aggregating $37.0 million
relating principally to a pension window and the Company's decision to exit the
coal mining business. A charge of $13.3 million was recognized relating to a
1992 pension window as part of the consolidation of certain staff functions and
the relocation of the Company's corporate offices to Mishawaka, Indiana from
Pittsburgh, Pennsylvania. The decision to relocate was made in order to be
closer to the Company's customer base, to consolidate certain staff functions
and to be closer to the Company's steel plants. As a result of management's
decision to exit the coal mining business, an unusual charge of $24.9 million
was recognized in the fourth quarter to reduce certain coal properties to net
realizable value and record postretirement, environmental and other
liabilities.

During 1991, the Company recorded unusual charges which totalled $110.7
million. A charge of $41.5 million was recognized for the estimated costs to be
incurred in conjunction with the consolidation of certain staff functions and
relocation in 1992 of the Company headquarters as described above. A charge of
$25.5 million was recognized relating to the Company's decision to permanently
idle its Mathies coal mine after efforts to obtain third party financing to
reopen the mine after a fire were unsuccessful. Concurrently, the Company
undertook an evaluation of its other coal properties and operations. While no
decision was made during 1991 as to the disposition of these properties, the
net book value of certain of the assets exceeded their net realizable value.
Therefore, a charge of $43.7 million was recognized to reduce certain coal
properties to net realizable value and to recognize postemployment,
environmental and other liabilities.

23
<PAGE>

Financing Costs

Interest and other financial income decreased to $2.0 million, a decrease of
$4.1 million. This decrease was attributable to lower interest rates coupled
with lower average balances of cash and cash equivalents. Interest and other
financial expense was $64.0 million in 1992 compared to $64.8 million in 1991.

Extraordinary Item

During 1992, the Company recorded a charge of $50 million, representing
management's best estimate of the Company's liability for United Mine Workers
of America ("UMWA") beneficiaries under the Rockefeller Amendment. Based upon
preliminary assignments from the Secretary of Health and Human Services in
1993, the Company believes this reserve is adequate. Since the Company notified
the UMWA that it did not intend to renew its labor contract which expired
February 1, 1993, thereby ending the Company's active involvement in the coal
industry, the $50 million charge was recorded as an extraordinary item in
accordance with accounting guidance provided by the Emerging Issues Task Force.
No deferred tax benefits were recognized relating to the $50 million charge
generated by the Rockefeller Amendment. Based upon preliminary assignments from
the Secretary of Health and Human Services received during 1993, the Company
believes this reserve is adequate.

Cumulative Effect of Accounting Change

During the fourth quarter of 1992, the Company adopted SFAS 109. The Company
formerly accounted for income taxes under the provisions of Accounting
Principles Board Opinion No. 11, "Accounting for Income Taxes." As permitted
under SFAS 109, the Company elected not to restate the financial statements of
prior years. The effect of adopting SFAS 109 as of January 1, 1992 was recorded
as a cumulative effect of a change in accounting method and reduced the
Company's net loss by $76.3 million, or $2.99 per share. The previously
reported net loss for the first quarter of 1992 has been restated and reduced
by $76.3 million. The change did not have an impact on the remaining quarters
of 1992.

LIQUIDITY AND SOURCES OF CAPITAL

The Company's liquidity needs arise primarily from capital investments,
principal and interest payments on its indebtedness and working capital
requirements. The Company has satisfied these liquidity needs over the last
three years primarily with funds provided by long-term borrowings, cash
provided by operations and proceeds of the Company's initial public offering
(the "IPO") of Class B Common Stock in 1993. The Company's available sources of
liquidity include a new $180 million receivables purchase agreement (the
"Receivables Purchase Agreement") and $15 million in an uncommitted, unsecured
line of credit (the "Uncommitted Line of Credit"). Prior to entering into the
Receivables Purchase Agreement, the Company had satisfied its liquidity needs
with a $100 million revolving secured credit arrangement (the "Revolver") and a
$150 million subordinated loan agreement (the "Subordinated Loan Agreement"),
both of which have been terminated at the Company's request. The Company is
currently in compliance with all material covenants of, and obligations under,
the Receivables Purchase Agreement, Uncommitted Line of Credit and other debt
instruments. The Company has satisfied its liquidity needs with minimal use of
its credit facilities.

Cash and cash equivalents totaled $92.4 million and $5.3 million as of
September 30, 1994 and December 31, 1993, respectively. This increase is
primarily the result of the receipt on February 11, 1994 of approximately $111
million, including interest, in satisfaction of the judgment in favor of the
Company against the B&LE, net of certain uses of the B&LE proceeds. The Company
used a portion of the proceeds to repurchase $25.2 million aggregate principal
amount of the Company's 8.375% First Mortgage Bonds on March 31, 1994 and will
contribute approximately $11 million to the VEBA Trust after it has been
established. The remaining B&LE proceeds will be used for further debt
reduction, none of which will be related party indebtedness, working capital
and general corporate purposes.

24
<PAGE>

Cash Flows from Operating Activities

For the nine months ended September 30, 1994, cash provided from operating
activities increased by $174.4 million compared to the same 1993 period. This
increase was primarily attributable to the receipt of approximately $111
million of proceeds from the satisfaction of the judgment in favor of the
Company against the B&LE, along with an improvement in operating results.

For the year ended December 31, 1993, cash provided from operating activities
decreased by $73.2 million compared to 1992, due to the effect of working
capital items, along with a reduction in net income after adjusting for the
effect of noncash items on operations. Changes in working capital items reduced
cash flows by $27.2 million during 1993, as a substantial decrease in accounts
payable was combined with the smaller negative effects of accounts receivable
and accrued liabilities changes. In 1992, working capital items had a $36.0
million favorable impact on cash flows from operations, due primarily to the
timing of cash disbursement clearings.

Cash Flows from Investing Activities

Capital investments for the first nine months of 1994 and 1993 amounted to
$112.6 million and $112.1 million, respectively. The 1994 spending was largely
attributable to the completion of a pickle line servicing the Great Lakes
Division, which was financed under a turnkey contract and did not become the
property of the Company until completion and acceptance of the facility during
the first quarter of 1994. The 1993 spending was mainly related to the rebuild
of the No. 5 coke oven battery servicing the Great Lakes Division and the
relining of a blast furnace at the same location. The Company plans to invest
approximately $46 million during the remainder of 1994 for capital
expenditures.

Capital investments for the years ended December 31, 1993 and 1992 amounted to
$160.7 million and $283.9 million, respectively, which included $31.9 million
and $198.4 million related to the complete rebuild of the No. 5 coke oven
battery at the Great Lakes Division. Additionally, in 1993, the Company spent
$58.9 million on the relining of a blast furnace servicing the same division.

Budgeted capital investments approximating $346.1 million, of which $92.5
million is committed at December 31, 1993, are expected to be made during 1994
and 1995, primarily for the completion in 1994 of a pickle line servicing the
Great Lakes Division and the relining in 1995 of a blast furnace servicing the
Granite City Division.

Cash Flows from Financing Activities

Financing activities included borrowings for the first nine months of 1994 and
1993 of $88.0 million and $40.6 million, respectively, representing primarily
the commencement of the permanent financing for the pickle line servicing the
Great Lakes Division and the remaining financing commitment for the rebuild of
the No. 5 coke oven battery at the Great Lakes Division, respectively. This
increase in borrowings was largely offset by the repurchase of $25.2 million
aggregate principal amount of the Company's 8.375% First Mortgage Bonds and
$14.0 million aggregate principal amount of Series 1985 River Rouge Pollution
Control Bonds during the first half of 1994.

In April 1993, the Company completed its IPO of 10,861,100 shares of its Class
B Common Stock, at an offering price of $14 per share, which generated net
proceeds to the Company of approximately $141.4 million. On May 4, 1993, the
Company utilized $67.8 million of the IPO proceeds to fund the early redemption
of 10,000 shares of the Series B Preferred Stock held by NII. An additional $20
million of the IPO proceeds were used to reduce the amount of construction
financing outstanding and the permanent financing commitment for a pickle line
servicing the Great Lakes Division, and the remaining proceeds were used for
general working capital purposes.

25
<PAGE>

Total borrowings for the years ended December 31, 1993 and 1992 amounted to
$40.6 million and $209.7 million, respectively, primarily representing the
remaining financing from a subsidiary of NKK related to the rebuild of the No.
5 coke oven battery at the Great Lakes Division. Correspondingly, cash basis
interest expense increased by $19.7 million from 1992 to 1993 as a result of
the completion of, and commencement of permanent financing for, the No. 5 coke
oven battery.

Sources of Financing

Effective May 16, 1994, the Company entered into a Purchase and Sale Agreement
with National Steel Funding Corporation ("NSFC"), a newly created wholly owned
subsidiary. Effective on that same date, NSFC entered into the Receivables
Purchase Agreement with a group of twelve banks. The total commitment of the
banks is $180 million, including up to $150 million in letters of credit. To
implement the arrangement, the Company sold substantially all of its accounts
receivable, and will sell additional receivables as they are generated, to
NSFC. NSFC will finance its ongoing purchase of receivables from a combination
of cash received from receivables already in the pool, short-term intercompany
notes and the cash proceeds derived from selling interests in the receivables
to the participating banks from time to time.

The Certificates of Participation sold to the banks by NSFC have been rated AAA
by Standard & Poor's Corporation, resulting in lower borrowing costs to the
Company. As of September 30, 1994 no funded participation interests had been
sold under the facility, although $89.0 million in letters of credit had been
issued. With respect to the pool of receivables at September 30, 1994, after
reduction for letters of credit outstanding, the amount of participating
interests eligible for sale was $91.0 million. During the period May 16, 1994
through September 30, 1994, the eligible amount ranged from $69.5 million to
$91.0 million. The banks' commitments are currently scheduled to expire on May
16, 1997. The Company will continue to act as servicer of the assets sold into
the program and will continue to make billings and collections in the ordinary
course of business according to established practices.

The Company terminated the Revolver, which included a letter of credit facility
on May 16, 1994. On that same date, the Company also terminated the
Subordinated Loan Agreement.

No borrowings were outstanding under the Revolver from 1987 until its
termination. At December 31, 1993 and 1992, letters of credit outstanding under
the Revolver totaled $113.7 million and $113.6 million, respectively. On
February 7, 1994, the Company borrowed $20 million under the Subordinated Loan
Agreement, all of which was repaid on February 17, 1994. Prior to this, the
last borrowing under the Subordinated Loan Agreement occurred in 1991, when the
Company borrowed $50 million, all of which was repaid later in that year.

The Uncommitted Line of Credit permits the Company to borrow up to $15 million
on an unsecured, short-term basis for periods of up to thirty days. This
arrangement has no fixed expiration date but may be withdrawn at any time
without notice. During 1993, the Company borrowed a maximum of $7.7 million
under its Uncommitted Line of Credit, which was repaid the following day. No
borrowings were outstanding at December 31, 1993 and 1992. However, in February
1994, the Company borrowed a maximum of $5.0 million under the Uncommitted Line
of Credit which was repaid later in the month.

During 1993, the Company utilized $20 million of the proceeds from the IPO to
reduce the amount of construction financing outstanding and the permanent
financing commitment for a pickle line servicing the Great Lakes Division to
$90 million. As of December 31, 1993, the construction financing was being
provided by the contractor and was not a liability of the Company. In January
1994, upon completion and acceptance of the pickle line pursuant to the
construction contract, the permanent financing commenced with repayment
scheduled to occur over a fourteen-year period. The pickle line is not subject
to the lien securing the Company's First Mortgage Bonds, but is subject to a
first mortgage in favor of the lender.

Weirton Liabilities and Preferred Stock

In connection with the Company's June 1990 recapitalization, the Company
received $146.6 million from NII in cash and recorded a net present value
equivalent liability with respect to certain released Weirton

26
<PAGE>

Benefit Liabilities, primarily healthcare and life insurance. As a result of
this transaction, the Company's future cash flow will decrease as the released
Weirton Benefit Liabilities are paid. During 1993, such cash payments were
$20.0 million compared to $15.3 million during 1992.

On October 28, 1993, NII converted all of its 3,400,000 shares of Class A
Common Stock to an equal number of shares of Class B Common Stock. During
January 1994, NII sold substantially all of such shares of Class B Common
Stock. As previously agreed, the Company received $10 million of proceeds from
the sale of such shares from NII as an unrestricted prepayment for
environmental obligations which may arise after such prepayment and for which
NII has previously agreed to indemnify the Company. The Company is required to
repay to NII portions of the $10 million to the extent the Company's
expenditures for such environmental liabilities do not reach specified levels
by certain dates over a twenty year period. Since NII retains responsibility to
indemnify the Company for remaining environmental liabilities arising after
such prepayment and in excess of $10 million (as reduced by any above described
repayments to NII), these environmental liabilities are not expected to have a
material adverse effect on the Company's liquidity. However, the failure of NII
to satisfy any such indemnity obligations could have a material adverse effect
on the Company's liquidity.

In connection with the June 1990 recapitalization, the Series B Preferred Stock
was issued to NII. On May 4, 1993, the Company redeemed 10,000 shares of Series
B Preferred Stock held by NII. These shares were subject to mandatory
redemption on August 5, 1995. Pursuant to the terms of the Series B Preferred
Stock and certain other agreements between the Company and NII, the Company
paid the redemption amount directly to a pension trustee and released NII from
a corresponding amount of NII's indemnification obligations with respect to
certain employee benefit liabilities of the Company retained in connection with
the sale of its Weirton Steel Division.

At December 31, 1993, there were 10,000 remaining shares of Series B Preferred
Stock issued and outstanding, all of which were held by NII. The Series B
Preferred Stock carries annual cumulative dividend rights of $806.30 per share,
which equates to approximately an 11% yield. At December 31, 1993 and 1992,
$68.0 million and $137.8 million, respectively, of the Series B Preferred Stock
was outstanding.

Dividends on the Series B Preferred Stock are cumulative and payable quarterly
in the form of a release of NII from its obligation to indemnify the Company
for a corresponding amount of the remaining unreleased portion of the Weirton
Benefit Liabilities to the extent such liabilities are due and owing, with the
balance, if any, payable in cash. The Series B Preferred Stock dividend
permitted release and payment of $10.6 million and $15.4 million of previously
unreleased Weirton Benefit Liabilities during 1993 and 1992, respectively, and
cash dividends of $1.4 million and $.8 million during 1993 and 1992,
respectively, to reimburse NII for an obligation previously incurred in
connection with the Weirton Benefit Liabilities.

The remaining Series B Preferred Stock is presently subject to mandatory
redemption by the Company on August 5, 2000 at a redemption price of $58.3
million and may be redeemed beginning January 1, 1998 without the consent of
NII at a redemption price of $62.2 million. Based upon the Company's actuarial
analysis, the unreleased Weirton Benefit Liabilities approximate the aggregate
remaining dividend and redemption payments with respect to the Series B
Preferred Stock and accordingly, such payments are expected to be made in the
form of releases of NII from its obligations to indemnify the Company for
corresponding amounts of the remaining unreleased Weirton Benefit Liabilities.
See "Description of Capital Stock--Preferred Stock." Dividend and redemption
payments with respect to the Series B Preferred Stock reduce the Company's cash
flow, even though they are paid in the form of a release of NII from such
obligations, because the Company is obligated, subject to certain limited
exceptions, to pay such amounts to the trustee of the pension plan included in
the Weirton Benefit Liabilities.

27
<PAGE>

benefits of NII's indemnification obligations is necessarily dependent upon
NII's financial condition at the time of any claim with respect to such
obligations. See "Certain Relationships and Related Transactions."

The June 1990 recapitalization agreement also created the Series A Preferred
Stock which carries annual cumulative dividend rights of $806.30 per share,
which equates to an 11% yield. The Series A Preferred Stock is held by NKK and
$36.7 million was outstanding at December 31, 1993 and 1992. Dividends on the
Series A Preferred Stock are paid quarterly in cash and totalled $4 million in
each of the years ended December 31, 1993, 1992 and 1991.

Miscellaneous

At September 30, 1994, obligations guaranteed by the Company approximated $42.9
million, compared to $41.0 million at December 31, 1993. This increase in 1994
is primarily due to additional borrowings of the Double G Coatings, L.P. joint
venture, 50% of which are separately guaranteed by the Company. See "Business--
Double G Coatings, L.P."

Total debt and redeemable preferred stock as a percentage of total
capitalization improved to 71.0% at September 30, 1994 as compared to 80.2% at
December 31, 1993, primarily as a result of the receipt of approximately $111
million of proceeds from the satisfaction of the judgment in favor of the
Company against the B&LE, along with an improvement in operating results.

ENVIRONMENTAL

The Company's operations are subject to numerous laws and regulations relating
to the protection of human health and the environment. The Company will incur
significant capital expenditures in connection with matters relating to
environmental control and will also be required to expend additional amounts in
connection with ongoing compliance with such laws and regulations, including,
without limitation, the Clean Air Act amendments of 1990. Proposed regulations
establishing standards for corrective action under the Resource Conservation
and Recovery Act of 1976, as amended ("RCRA"), and the Guidance Document
published pursuant to the Great Lakes Initiative may also require further
significant expenditures by the Company in the future. Additionally, the
Company is currently one of many potentially responsible parties at a number of
sites requiring remediation. The Company has estimated that it will incur
capital expenditures for matters relating to environmental control of
approximately $7.9 million and $13.6 million for 1994 and 1995, respectively.
In addition, the Company expects to record expenses for environmental
compliance, including depreciation, in the amount of approximately $70 million
and $73 million for 1994 and 1995, respectively. Since environmental laws are
becoming increasingly stringent, the Company's environmental capital
expenditures and costs for environmental compliance may increase in the future.
See "Business--Environmental Matters."

28
<PAGE>

BUSINESS

INTRODUCTION

STRATEGY

. Reducing the cost of hot rolled bands, the largest component of the
Company's finished product cost;

. Reducing the cost of poor quality, which currently results in the sale of
non-prime products at lower prices and requires substantial reprocessing
costs;

. Installing a predictive maintenance program which is designed to maximize
production and the useful life of equipment while minimizing unscheduled
equipment outages;

. Increasing steel production capabilities by identifying and eliminating
manufacturing bottlenecks;

. Enhancing the Company's cooperative partnership with the USWA by increas-
ing employee participation at all levels of the production process; and

. Improving information and cost control systems to enable management to
exercise greater control over production costs.

Strategic Initiatives

Reduction in Production Costs. Management's primary focus is to reduce the
costs of producing hot rolled bands, the largest component of the Company's
finished product cost. Reducing all costs associated with the production
process is essential to the Company's overall cost reduction program. As a
first step in this process, management has achieved a $4 per gross ton savings
in delivered iron ore pellet costs at NSPC compared to pre-strike costs. Based
upon NSPC's estimated production of 5 million tons of pellets per year, this
will result in savings of $20 million annually compared to the Company's pre-
strike costs. Management intends to reduce production costs by better utilizing
existing equipment, improving productivity, involving labor in improving
operating practices and by the cost efficient use of steelmaking inputs. In
addition, the Company's facility engineers, who have access to a wide range of
NKK process technologies, analyze and implement innovative steelmaking and
processing methods on an ongoing basis.

Quality Improvement. An important element of the Company's strategy is to
reduce the cost of poor quality, which currently results in the sale of non-
prime products at lower prices and requires substantial reprocessing costs. In
particular, management believes a significant opportunity exists to increase
the yield of liquid steel to finished prime product above the Company's 1993
yield level of 79.6% percent. The Company will seek to achieve this increase by
improving process control, utilizing employee based problem solving methods,
eliminating dependence on final inspection and reducing internal rejections and
extra processing. In addition, in June 1994, the Company created a new senior
management position with responsibility solely for quality assurance and
customer satisfaction.

29
<PAGE>

New Maintenance Program. Management is installing a predictive maintenance
program designed to maximize production and equipment life while minimizing
unscheduled equipment outages. This program should improve operations stability
through improved equipment reliability, which is expected to result in improved
productivity and reduced costs. Although the Company believes this system will
result in certain immediate improvements, the full benefits of this system will
not be realized until the system is fully implemented in approximately two to
three years.

Elimination of Manufacturing Bottlenecks. Manufacturing bottlenecks result in,
among other things, reduced production, delays in customer shipments and
increased costs due to operating inefficiencies. Management has initially
identified three major manufacturing bottlenecks: the Granite City Division
caster, the Great Lakes Division melt shop and the Midwest Division pickle
line. The Company is presently negotiating with state environmental authorities
in order to permit higher production levels at the caster at the Granite City
Division. The Company has received a temporary waiver of existing production
limits at the Granite City facility to allow the Company to compensate for
production lost as a result of a planned blast furnace outage in 1995. The
Company also intends to increase the number of heats per day at its Great Lakes
facility through improved maintenance and equipment reliability, material
handling and logistics and refinement of operating practices. This initiative
should result in increased steelmaking production. Finally, the Company intends
to increase the steel throughput of the pickle line at the Midwest Division
through improved welder performance, implementation of a large coil program and
more effective crew training.

Cooperative Employee Partnership. Since 1986, the Company has had cooperative
labor agreements with the USWA, which represents approximately 77% of the
Company's employees. The Company entered into a new six year cooperative labor
agreement with the USWA effective as of August 1, 1993. The cooperative labor
agreement with the USWA entered into with respect to the reopening of NSPC runs
concurrently with the 1993 Settlement Agreement. The employment security
provisions contained in the Company's labor agreements were the first in the
domestic steel industry and have provided the Company with increased
flexibility to improve productivity and consolidate job functions. These labor
agreements, in combination with retirements and attrition, have also allowed
the Company to reduce the number of employees and achieve productivity gains
while increasing the percentage of employee compensation which is productivity
based.

Management believes that greater emphasis on labor cooperation as well as
employee involvement in identifying and solving problems in all areas of
production and delivery present significant opportunities to lower production
costs and improve quality. One immediate result of this emphasis was the
reopening of NSPC in August 1994. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."

Improve Information and Cost Control Systems. Management intends to enhance its
current information systems in order to exercise greater control over
production costs, as well as to provide access to profitability analysis by
customer and product line. To attain greater control over production costs, the
Company plans to install an actual cost system to replace the current standard
cost system.

Alliance with NKK

The Company has a strong alliance with its principal stockholder, NKK, the
second largest steel company in Japan and the fifth largest in the world as
measured by production. Since 1984, the Company has had access to a wide range
of NKK's steelmaking, processing and applications technology. The Company's
engineers include approximately 40 engineers transferred from NKK, who now
serve primarily at the Company's Divisions. These engineers, as well as
engineers and technical support personnel at NKK's facilities in Japan, assist
in improving operating practices and developing new manufacturing processes.
This support also includes providing input on ways to improve raw steel to
finished product yields.

30
<PAGE>

In addition, NKK has provided financial assistance to the Company in the form
of investments, loans and introductions to Japanese financial institutions and
trading companies. While no assurances can be given with respect to the extent
of NKK's future financial support beyond existing contractual commitments, NKK
has indicated that it presently plans to continue to provide technical support
and research and development services of the nature and to the extent currently
provided to the Company.

Customer Partnership

The Company's customer partnership enables the Company to differentiate its
products through superior quality and service. Management believes it is able
to differentiate the Company's products and promote customer loyalty by
establishing close relationships through early customer involvement, providing
technical services and support and utilizing its Product Application Center and
Technical Research Center facilities.

The Company operates a research and development facility near its Great Lakes
Division to develop new products, improve existing products and develop more
efficient operating procedures to meet the constantly increasing demands of the
automotive, container and metal buildings markets. The research center employs
approximately 55 chemists, physicists, metallurgists and engineers. The
research center is responsible for, among other things, the development of five
new high strength steels for automotive weight reduction and a new galvanized
steel for the metal buildings market. In addition, the Company operates a
Product Application Center near Detroit dedicated to providing product and
technical support to customers. The Product Application Center assists
customers with application engineering (selecting optimum metal and
manufacturing methods), application technology (evaluating product performance)
and technical developments (performing problem solving at plants). The Company
spent $9.4 million, $9.5 million and $8.8 million for research and development
in 1993, 1992 and 1991, respectively. In addition, the Company participates in
various research efforts through the AISI.

Marketing Strategy

The Company's marketing strategy has concentrated on increasing the level of
sales of higher value added products to the automotive, metal buildings and
container markets. These segments demand high quality products, on-time
delivery and effective and efficient customer service. This strategy is
designed to increase margins, reduce competitive threats and maintain high
capacity utilization rates by shifting the Company's product mix to higher
quality products and providing superior customer service.

To enable the Company to more efficiently meet the needs of its target markets
and focus on higher value added products, the Company has entered into two
separate joint ventures to build hot dip galvanizing facilities. One joint
venture is with NKK and an unrelated third party and has been built to service
the automotive industry. The second joint venture has been built to service the
construction industry. See "Operations--DNN Galvanizing Limited Partnership"
and "--Double G Coatings, L.P."

Capital Investment Program

Since 1984, the Company has invested $2 billion in capital improvements aimed
at upgrading the Company's steelmaking and finishing operations to meet its
customers' demanding requirements for higher quality products and to reduce
production costs. As described above, one of the Company's strategic
initiatives is to more effectively utilize these substantial capital
improvements. Major projects include an electrolytic galvanizing line, a
continuous caster, a ladle metallurgy station, a vacuum degasser, a complete
coke oven battery rebuild and a high speed pickle line, each of which services
the Great Lakes Division (located near Detroit, Michigan), and a continuous
caster and a ladle metallurgy station, each of which services the Granite City
Division (located near St. Louis, Missouri). Major improvements at the Midwest
Division (located near Chicago, Illinois) include the installation of process
control equipment to upgrade its finishing capabilities. Management believes
that the completion of this $2 billion capital investment program will
substantially reduce the amount of capital investments in the future. Capital
investments for each of 1993, 1992 and 1991 were $160.7 million, $283.9 million
and $178.2 million, respectively. Capital

31
<PAGE>

investments for 1994 are expected to total approximately $159 million. In early
1991, the Company became the first major integrated U.S. steel producer to
continuously cast 100% of its raw steel production.

CUSTOMERS

The Company is a major supplier of hot and cold rolled steel and galvanized
coils to the automotive industry, one of the most demanding steel consumers.
Car and truck manufacturers require wide sheets of steel, rolled to exact
dimensions. In addition, formability and defect-free surfaces are critical. The
Company has been able to successfully meet these demands. Its steels have been
used in a variety of automotive applications including exposed and unexposed
panels, wheels and bumpers.

The Company is a leading supplier of steel to the domestic metal buildings
market. Roof and building panels are the principal applications for galvanized
and Galvalume(R) steel in this market. Management believes that demand for
Galvalume(R) steel will exhibit strong growth for the next several years
partially as a result of a trend away from traditional building products and
that the Company is well positioned to profit from this growth as a result of
both its position in this market and the additional capacity referred to above.

The Company produces chrome and tin plated steels to exact tolerances of gauge,
shape, surface flatness and cleanliness for the container industry. Tin and
chrome plated steels are used to produce a wide variety of food and non-food
containers. In recent years, the market for tin and chrome plated steels has
been both stable and profitable for the Company.

The Company also supplies the pipe and tube and service center markets with hot
rolled, cold rolled and coated sheet. The Company is a key supplier to
transmission pipeline, downhole casing and structural pipe producers. Service
centers generally purchase steel coils from the Company and may process them
further or sell them directly to third parties without further processing.

The following table sets forth the percentage of the Company's revenues from
various markets for the past three years.

<TABLE>
<CAPTION>
1993 1992 1991
----- ----- -----
<S> <C> <C> <C>
Automotive................................................. 28.9% 27.2% 25.8%
Metal buildings............................................ 14.3 12.8 11.2
Container.................................................. 13.3 14.9 15.6
Pipe and Tube.............................................. 8.2 9.4 8.0
Service Centers............................................ 15.5 13.6 10.7
All Other.................................................. 19.8 22.1 28.7
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

Shipments to General Motors, the Company's largest customer, accounted for
approximately 11%, 12% and 12% of net sales in each of 1993, 1992 and 1991,
respectively. Export sales accounted for approximately .1% of revenue in 1993,
.5% in 1992 and 4.5% in 1991. The Company's products are sold through the
Company's six sales offices located in Chicago, Detroit, Houston, Kansas City,
Pittsburgh and St. Louis. Substantially all of the Company's net revenues are
based on orders for short-term delivery. Accordingly, backlog is not meaningful
when assessing future results of operations.

Although the Company experienced delivery and customer service problems in
1993, the Company has continued to receive numerous quality awards. In 1993,
the Company received the prestigious General Motors Mark of Excellence award.
Additionally, the Company received a supplier award from Diamond Star Motors in
recognition of quality, delivery and performance. The Company also achieved its
quality objectives at Toyota and was recognized by Toyota as the only supplier
to attain its target levels four times in the last five years.

32
<PAGE>

OPERATIONS

The Company operates three principal facilities: two integrated steel plants,
the Great Lakes Division in Ecorse and River Rouge, Michigan, near Detroit and
the Granite City Division in Granite City, Illinois, near St. Louis and a
finishing facility, the Midwest Division in Portage, Indiana, near Chicago. The
Company's centralized corporate structure, the close proximity of the Company's
principal steel facilities and the complementary balance of processing
equipment shared by them, enable the Company to closely coordinate the
operations of these facilities in order to maintain high operating rates
throughout its processing facilities and to maximize the return on its capital
investments.

The following table details effective steelmaking capacity, actual production,
effective capacity utilization and percentage of steel continuously cast for
the Company and the domestic steel industry for the years indicated.

RAW STEEL PRODUCTION DATA

<TABLE>
<CAPTION>
EFFECTIVE PERCENT
EFFECTIVE ACTUAL CAPACITY CONTINUOUSLY
CAPACITY PRODUCTION UTILIZATION CAST
--------- ---------- ----------- ------------
(000'S OF NET TONS) (%) (%)
<S> <C> <C> <C> <C>
THE COMPANY
1993............................. 5,550 5,551 100.0 100.0
1992............................. 5,355 5,380 100.5 100.0
1991............................. 5,670 5,247 92.5 99.8
DOMESTIC STEEL INDUSTRY*
1993............................. 109,900 97,877 89.1 85.7
1992............................. 113,100 92,949 82.2 79.3
1991............................. 117,700 87,896 74.7 75.8
</TABLE>
- --------
*Information as reported by the AISI.

The Company's effective capacity varies annually due to planned blast furnace
outages for maintenance purposes. The effective capacity of the Company
decreased to 5,355 net tons in 1992 as a result of a scheduled blast furnace
reline. Effective capacity utilization fell to 92.5% in 1991 due, in part, to
an unusually high level of inventory carried forward from 1990, along with
scheduled maintenance outages at major finishing units and a low demand for
steel products during the first half of the year.

The Granite City Division

The Granite City Division, located in Granite City, Illinois, has an effective
steelmaking capacity of 2.4 million tons. With the start-up of a second
continuous caster in early 1991, all steel at this Division is now produced by
continuous casting. The Granite City Division also uses ladle metallurgy to
refine the steel chemistry to enable it to meet the exacting specifications of
its customers. The Division's ironmaking facilities consist of two coke
batteries and two blast furnaces. Finishing facilities include an 80 inch hot
strip mill, a continuous pickler and two hot dip galvanizing lines. The Granite
City Division ships approximately 20% of its total production to the Midwest
Division for finishing. Principal products of the Granite City Division include
hot rolled, cold rolled, hot dipped galvanized, grain bin and high strength,
low alloy steels.

The Granite City Division is located on 1,540 acres and employs approximately
2,950 people. The Division's proximity to the Mississippi River and other
interstate transit systems, both rail and highway, provides easy accessibility
for receiving raw materials and supplying finished steel products to customers.

33
<PAGE>

The Great Lakes Division

The Great Lakes Division, located in Ecorse and River Rouge, Michigan, is an
integrated facility engaged in steelmaking primarily for use in the automotive
market with an effective steelmaking capacity of 3.6 million tons. With the
start-up of a second continuous caster in late 1987, all steel at this Division
is now produced by continuous casting. The Division's ironmaking facilities
consist of a recent 85-oven coke battery rebuild and three blast furnaces. The
Division also operates steelmaking facilities consisting of a vacuum degasser
and a ladle metallurgy station. Finishing facilities include a hot strip mill,
a skinpass mill, a shear line, a new high speed pickle line, a tandem mill, a
batch annealing station, two temper mills and two customer service lines, and
an electrolytic galvanizing line. The Great Lakes Division ships approximately
40% of its production to the Midwest Division for finishing. Principal products
of the Great Lakes Division include hot rolled, cold rolled, electrolytic
galvanized, and high strength, low alloy steels.

The Great Lakes Division is located on 1,100 acres and employs approximately
3,750 people. The Division is strategically located with easy access to lake,
rail and highway transit systems for receiving raw materials and supplying
finished steel products to customers.

The Midwest Division

The Midwest Division, located in Portage, Indiana, finishes hot rolled bands
produced at the Granite City and Great Lakes Divisions primarily for use in the
automotive, metal buildings and container markets. The Division's facilities
include a continuous pickling line, two cold reduction mills and two continuous
galvanizing lines, a 48 inch wide line which can produce galvanized or
Galvalume(R) steel products and which services the metal buildings markets, and
a 72 inch wide line which services the automotive market; finishing facilities
for cold rolled products consisting of a batch annealing station, a sheet
temper mill and a continuous stretch leveling line; and an electrolytic
cleaning line, a continuous annealing line, two tin temper mills, two tin
recoil lines, an electrolytic tinning line and a chrome line which services the
container markets. Principal products of the Midwest Division include tin mill
products, hot dipped galvanized and Galvalume(R) steel, cold rolled, and
electrical lamination steels.

The Midwest Division is located on 1,100 acres in Portage, Indiana and employs
approximately 1,400 people. Its location provides excellent access to rail,
water and highway transit systems for receiving raw materials and supplying
finished steel products to customers.

National Steel Pellet Company

NSPC, located on the western end of the Mesabi Iron Ore Range in Keewatin,
Minnesota, mines, crushes, concentrates and pelletizes low grade taconite ore
into iron ore pellets. NSPC operations include two primary crushers, ten
primary mills, five secondary mills, a concentrator and a pelletizer. The
facility has a current annual effective iron ore pellet capacity of 5 million
gross tons and has a combination of rail and vessel access to the Company's
integrated steel mills.

DNN Galvanizing Limited Partnership

As part of its strategy to focus its marketing efforts on high quality steels
for the automotive industry, the Company has entered into an agreement with NKK
and Dofasco Inc., a large Canadian steel producer ("Dofasco"), to build and
operate DNN, a 400,000 ton per year, hot dip galvanizing facility in Windsor,
Ontario, Canada. This facility incorporates state-of-the-art technology to
galvanize steel for critically exposed automotive applications. The facility is
modeled after NKK's Fukuyama Works Galvanizing Line that has provided high
quality galvanized steel to the Japanese automotive industry for several years.
The Company is committed to utilize 50% of the available line time of the
facility and pay a tolling fee designed to cover fixed and variable costs with
respect to 50% of the available line time, whether or not such line time is
utilized. The plant began production in January 1993 and is currently operating
at full capacity. The Company's steel substrate requirements are provided to
DNN by the Great Lakes Division.

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Certain types of galvanized steel coated for the Company by DNN and shipped to
the United States are subject to an anti-dumping duty order and to cash
deposits of estimated anti-dumping duties. Dofasco has requested an
administrative review of the duty calculation, which could result in a change
in the amount of cash deposits being paid by the Company. The Company does not
believe that the costs associated with the anti-dumping duty order and cash
deposits will have a material adverse effect on the Company's financial
condition. See "Competition--Imports."

Double G Coatings, L.P.

To continue to meet the needs of the growing metal buildings market, the
Company and an unrelated party formed a joint venture to build and operate
Double G Coatings, L.P. ("Double G"), a 270,000 ton per year hot dip
galvanizing and Galvalume(R) steel facility near Jackson, Mississippi. The
facility is capable of coating 48 inch wide steel coils with zinc to produce a
product known as galvanized steel and a zinc and aluminum coating to produce a
product known as Galvalume(R) steel. Double G will primarily serve the metal
buildings segment of the construction market in the south central United
States. The Company is committed to utilize and pay a tolling fee in connection
with 50% of the available line time at the facility. The joint venture
commenced production in the second quarter of 1994 and is expected to reach
full operating capacity in 1995. The Company's steel substrate requirements
will be provided to Double G by the Great Lakes and Midwest Divisions.

ProCoil Corporation

ProCoil Corporation ("ProCoil"), a joint venture among the Company, Marubeni
Corporation, Mitsubishi Corporation and NKK, located in Canton, Michigan,
operates a steel processing facility which began operations in 1988 and a
warehousing facility which began operations in 1992. Each of the Company and
Marubeni Corporation owns a 44% equity interest in ProCoil. ProCoil blanks,
slits and cuts steel coils to desired lengths to service automotive market
customers. In addition, ProCoil warehouses material to assist the Company in
providing just-in-time delivery to customers.

For a description of the Company's other properties see "--Other Properties"
below.

RAW MATERIALS

Iron ore. The metallic iron requirements of the Company are supplied primarily
from iron ore pellets that are produced from a concentration of low grade ores.
The Company, directly through NSPC and through an affiliate, has reserves of
iron ore adequate to produce approximately 500 million gross tons of iron ore
pellets. The Company's iron ore reserves are located in Minnesota, Michigan and
Quebec, Canada. Excluding the effects of the temporary idling of NSPC from
October 1993 through August 1994, a significant portion of the Company's
average annual consumption of iron ore pellets was obtained from the deposits
of the Company or those of its affiliate during the last five years. The
remaining iron ore pellets consumed by the Company were purchased from third
parties. Agreements reached with the USWA and other suppliers to NSPC in 1994
have resulted in a $4 per gross ton reduction in delivered pellet costs, making
the cost of NSPC pellets competitive with market prices. Iron ore pellets
available to the Company from its own deposits, its affiliate and outside
suppliers are sufficient to meet the Company's total iron ore requirements for
the foreseeable future.

Coal. In 1992, the Company decided to exit the coal mining business. At that
time, the Company owned underground coal properties in Pennsylvania, Kentucky
and West Virginia as well as undeveloped coal reserves in Pennsylvania and West
Virginia. During 1993, the Pennsylvania and Kentucky properties were sold
except for the coal reserves which were leased on a long term basis.
Negotiations are in process for the sale and/or lease of the West Virginia
properties. While the undeveloped coal reserves are for sale, there are

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no interested parties at the present time. The remaining coal assets totaling
$43.7 million are included in the assets of the Company and constitute less
than 2% of the Company's total assets. Adequate supplies of coal are readily
available at competitive market prices.

Coke. The Company operates two efficient coke oven batteries servicing the
Granite City Division and the newly rebuilt No. 5 coke oven battery at the
Great Lakes Division. The No. 5 coke battery enhances the quality and stability
of the Company's coke supply, and incorporates state-of-the-art technology
while meeting the requirements of the Clean Air Act. With the No. 5 coke
battery rebuild, the Company has significantly improved its self-sufficiency
and can supply approximately 60% of its annual coke requirements. The remaining
coke requirements are met through competitive market purchases.

Limestone. The Company, through an affiliated company, has limestone reserves
of approximately 80 million gross tons located in Michigan. During the last
five years, approximately 59% of the Company's average annual consumption of
limestone was derived from these reserves. The Company's remaining limestone
requirements were purchased.

Scrap and Other Materials. Supplies of steel scrap, tin, zinc, and other
alloying and coating materials are readily available at competitive market
prices.

PATENTS AND TRADEMARKS

The Company has the patents and licenses necessary for the operation of its
business as now conducted. The Company does not consider its patents and
trademarks to be material to the business of the Company.

EMPLOYEES

As of September 30, 1994, the Company employed 9,686 people. Approximately
7,500 (77%) of the Company's employees are represented by the USWA. The Company
believes that its relationships with its collective bargaining units are good.

On August 27, 1993, the 1993 Settlement Agreement between the Company and the
USWA was ratified by USWA members at the Company's three steel divisions and
corporate headquarters. The new agreement, effective August 1, 1993 through
July 1, 1999, protects the Company and the USWA from a strike or lockout for
the duration of the agreement. Either the Company or the USWA may reopen
negotiations after three years, except with respect to pensions and certain
other matters, with any unresolved issues subject to binding arbitration. Under
the 1993 Settlement Agreement, represented employees will receive improved
pension benefits, bonuses to be paid over the term of the agreement, a $.50 per
hour wage increase effective in August 1995, and an additional paid holiday for
the years 1994, 1995 and 1996. The 1993 Settlement Agreement provides for the
establishment of a VEBA Trust to which the Company has agreed to contribute a
minimum of $10 million annually and, under certain circumstances, additional
amounts calculated as set forth in the 1993 Settlement Agreement. The Company
has agreed to grant to the VEBA Trust a second mortgage on the No. 5 coke oven
battery at the Great Lakes Division. The 1993 Settlement Agreement also
provides for opportunities to reduce health care costs and for flexible work
practices and opportunities to reduce manning levels through attrition. In
addition, the 1993 Settlement Agreement grants the USWA the right to nominate a
candidate, subject to the approval of the Company's Board of Directors and
stockholders, for a seat on the Company's Board of Directors. The Company
estimates the additional annual cost resulting from the 1993 Settlement
Agreement to be approximately $25 million per year through 1996. However, there
is the potential that these higher costs may be reduced by productivity gains
which are difficult to quantify. The Company is unable to estimate the impact
of the 1993 Settlement Agreement beyond 1996 since it then may be reopened as
discussed above.

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In July 1994, a labor agreement was reached between NSPC and the USWA. The NSPC
Labor Agreement, which has been ratified by the USWA and is pending approval by
the Board of Directors, is effective July 1, 1994 through July 31, 1999. The
NSPC Labor Agreement provides for a wage increase of approximately 3% over
three years and modest increases in benefits, while simultaneously providing
for work rule changes designed to increase productivity levels and operational
efficiencies. With the agreement, and the subsequent reopening of the facility,
all labor disputes between the Company, NSPC and the USWA regarding the idling
of the NSPC facility were resolved. The NSPC Labor Agreement may be reopened in
three years along with the 1993 Settlement Agreement.

OTHER PROPERTIES

Generally, the Company's properties are well maintained, considered adequate
and being utilized for their intended purposes. The Company's corporate
headquarters is located in Mishawaka, Indiana.

Except as stated below, the steel production facilities are owned in fee by the
Company. A continuous caster and related ladle metallurgy facility and an
electrolytic galvanizing line, which each service the Great Lakes Division, and
a coke battery, which services the Granite City Division, are operated pursuant
to the terms of operating leases with third parties and are not subject to a
lien securing the Company's First Mortgage Bonds. The electrolytic galvanizing
line lease, the coke battery lease and the continuous caster and related
metallurgy facility lease are scheduled to expire in 2001, 2004 and 2008,
respectively. Upon expiration, the Company has the option to extend the
respective lease or purchase the facility at fair market value.

All land (excluding certain unimproved land), buildings and equipment
(excluding, generally, mobile equipment) that are owned in fee by the Company
at the Great Lakes Division, Granite City Division and Midwest Division are
subject to a lien securing the First Mortgage Bonds, with certain exceptions,
including a vacuum degasser and a pickle line which service the Great Lakes
Division, a continuous caster which services the Granite City Division and the
corporate headquarters in Mishawaka, Indiana. Additionally, the Company has
agreed to grant to the VEBA Trust a second mortgage on the No. 5 coke oven
battery at the Great Lakes Division.

For a description of certain properties related to the Company's production of
raw materials, see "Raw Materials."

COMPETITION

The Company is in direct competition with domestic and foreign flat rolled
carbon steel producers and producers of plastics, aluminum and other materials
which can be used in place of flat rolled carbon steel in manufactured
products. Price, service and quality are the primary types of competition
experienced by the Company. The Company believes it is able to differentiate
its products from those of its competitors by, among other things, providing
technical services and support and utilizing its Product Application Center and
Technical Research Center facilities and by its focus on improving product
quality through, among other things, capital investment and research and
development, as described above.

In 1992, the Company and eleven other domestic steel producers filed unfair
trade cases with the Commerce Department and the ITC against foreign steel
producers covering imports of flat rolled carbon steel products. In June 1993,
the Commerce Department imposed final antidumping and subsidy margins

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averaging 37% for all products under review. In July 1993, the ITC made final
determinations that material injury had occurred in cases representing an
estimated 51% of the dollar value and 42% of the volume of all flat rolled
carbon steel imports under investigation. In the four product categories,
injury was found in cases relating to 97% of the volume of plate steel, 92% of
the volume of higher value-added corrosion resistant steel and 36% of the
volume of cold rolled steel. No injury was found with respect to hot rolled
steel products. For the first nine months of 1994, approximately 41% of the
Company's shipments consisted of hot rolled steel, while 31% consisted of
corrosion resistant steel, 16% consisted of cold rolled steel and less than 1%
consisted of plate steel. Imports of products not covered by affirmative ITC
injury determinations have increased and may continue to increase, which may
have an adverse effect on the Company's shipments of these products and the
prices it realizes for such products. The Company and the other domestic
producers who filed these cases have appealed the negative decisions of the ITC
and are defending appeals brought by foreign producers involving decisions
favorable to domestic producers. These appeals are proceeding before the Court
of International Trade in New York and, in the case of Canada, before
Binational Dispute Panels under the U.S.-Canada Free Trade Agreement. Decisions
from the Court of International Trade are expected in the first half of 1995.
Separate Binational Dispute Panels upheld the ITC's injury determination in
November 1994 and the majority of the Commerce Department's dumping margin
determination in October 1994. Certain aspects of the Margin calculation were
remanded to the Commerce Department, but the remand results are not expected to
substantially effect the final margins for most respondents. Future increases
in other steel imports are also possible, particularly if the value of the
dollar should rise in relation to foreign currencies or if legislation
implementing the recently concluded GATT Uruguay Round agreements is enacted in
a form which substantially weakens United States trade laws.

Reorganized/Reconstituted Mills. The intensely competitive conditions within
the domestic steel industry have been exacerbated by the continued operation,
modernization and upgrading of marginal steel production facilities through
bankruptcy reorganization procedures, thereby perpetuating overcapacity in
certain industry product lines. Overcapacity is also caused by the continued
operation of marginal steel production facilities that have been sold by
integrated steel producers to new owners, who operate such facilities with a
lower cost structure.

Mini-mills. Domestic integrated producers, such as the Company, have lost
market share in recent years to domestic mini-mills. Mini-mills provide
significant competition in certain product lines, including hot rolled and cold
rolled sheets, which represented, in the aggregate, approximately 60% of the
Company's shipments in 1993. Mini-mills are relatively efficient, low-cost
producers which produce steel from scrap in electric furnaces, have lower
employment and environmental costs and target regional markets. Thin slab
casting technologies have allowed mini-mills to enter certain sheet markets
which have traditionally been supplied by integrated producers. One mini-mill
has constructed two such plants and announced its intention to start a third in
a joint venture with another steel producer. Certain companies have announced
plans for, or have indicated that they are currently considering, additional
mini-mill plants for sheet products in the United States.

ENVIRONMENTAL MATTERS

The Company's operations are subject to numerous laws and regulations relating
to the protection of human health and the environment. The Company currently
estimates that it will incur capital expenditures in connection with matters
relating to environmental control of approximately $7.9 million and $13.6
million for 1994 and 1995, respectively. In addition, the Company expects to
record expenses for environmental compliance, including depreciation, of
approximately $70 million and $73 million for 1994

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and 1995, respectively. Since environmental laws and regulations are becoming
increasingly stringent, the Company's environmental capital expenditures and
costs for environmental compliance may increase in the future. In addition, due
to the possibility of future factual or regulatory developments, the amount and
timing of future environmental expenditures could vary substantially from those
currently anticipated. The costs for environmental compliance may also place
the Company at a competitive disadvantage with respect to foreign steel
producers, as well as manufacturers of steel substitutes, that are subject to
less stringent environmental requirements.

In 1990, Congress passed amendments to the Clean Air Act which impose more
stringent standards on air emissions. The Clean Air Act amendments will
directly affect the operations of many of the Company's facilities, including
its coke ovens. Under such amendments, coke ovens generally will be required to
comply with progressively more stringent standards over the next thirty years.
The Company believes that the costs for complying with the Clean Air Act
amendments will not have a material adverse effect, on an individual site basis
or in the aggregate, on the Company's financial condition, results of
operations or liquidity.

In 1990, the EPA released a proposed rule which establishes standards for the
implementation of a corrective action program under RCRA. The corrective action
program requires facilities that are operating under a permit, or are seeking a
permit, to treat, store or dispose of hazardous wastes to investigate and
remediate environmental contamination. Currently, the Company is conducting an
investigation at its Midwest Division facility. The Company estimates that the
potential capital costs for implementing corrective actions at such facility
will be approximately $8 million payable over the next several years. At the
present time, the Company's other facilities are not subject to corrective
action.

Since 1989, the EPA and the eight Great Lakes states have been developing the
Great Lakes Initiative, which will impose standards that are even more
stringent than the best available technology standards currently being
enforced. As required under section 118 of the Clean Water Act, as amended,
which is intended to codify the efforts of the EPA and such states under the
Great Lakes Initiative, on April 16, 1993, the EPA published the proposed
Guidance Document. Once finalized, the Guidance Document will establish minimum
water quality standards and other pollution control policies and procedures for
waters within the Great Lakes System. The EPA is required to publish the final
Guidance Document by March 1995. Preliminary studies conducted by the AISI
prior to publication of the proposed Guidance Document estimated that the
potential capital cost for a fully integrated steel mill to comply with draft
standards under the Great Lakes Initiative could range from approximately $50
million to $175 million and the potential annual operating and maintenance cost
would be approximately 15% of the estimated capital cost. Until the Guidance
Document is finalized and corresponding state laws and regulations are
promulgated, the Company is unable to determine whether such estimates are
accurate and whether the Company's actual costs for compliance will be
comparable. Although the Company believes only the Great Lakes Division would
be required to incur significant costs for compliance, there can be no
assurances that compliance with the Great Lakes Initiative will not have a
material adverse effect, on an individual site basis or in the aggregate, on
the Company's financial condition, results of operations or liquidity.

The Company has recorded the reclamation and costs to restore its coal and iron
ore mines at its shut down locations to their original and natural state, as
required by various federal and state mining statutes.

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these sites, any remediation costs incurred by the Company would be satisfied
by NII's $10 million prepayment, and any costs in excess of $10 million would
constitute Weirton Liabilities for which NII is required to indemnify the
Company or other environmental liabilities for which NII has agreed to
indemnify the Company.

Ilada Energy Company Site. The Company and certain other PRPs have performed a
removal action pursuant to an order issued by the EPA under Section 106 of
CERCLA at this waste oil/solvent reclamation site located in East Cape
Girardeau, Illinois. The Company received a special notice of liability with
respect to this site on December 21, 1988. The Company believes that there are
approximately sixty-three PRPs identified at such site. Pursuant to an
Administrative Order of Consent ("AOC"), the Company and other PRPs are
currently performing a remedial investigation and feasibility study at such
site to determine whether the residual levels of contamination of soil and
groundwater remaining after the removal action pose any threat to either human
health or the environment and therefore whether or not the site will require
further remediation. During the remedial investigation and feasibility study, a
floating layer of material, which the Company believes to be aviation fuel, was
discovered above the groundwater. The Company does not know the extent of this
contamination. Furthermore, the Company believes that this material is not
considered to be a hazardous substance as defined under CERCLA. To date,
neither the Company nor the other PRPs have agreed to remediate or take any
action with respect to this material. Due to legal and factual uncertainties
remaining at this site, the Company is unable to estimate its ultimate
potential liability. To date, the Company has paid approximately $2 million for
work and oversight costs.

Buck Mine Complex. This is a proceeding involving a large site, called the Buck
Mine Complex, two discrete portions of which were formerly owned or operated by
a subsidiary of the Company. This subsidiary was subsequently merged into the
Company. The Company received a notice of potential liability from the MDNR
with respect to this site on June 24, 1992. The Company's subsidiary had
conducted mining operations at only one of these two parcels and had leased the
other parcel to a mining company for numerous years. The MDNR alleges that this
site discharged and continues to discharge heavy metals into the environment,
including the Iron River. Because the Company and approximately eight other
PRPs have declined to undertake a remedial investigation and feasibility study,
the MDNR has advised the Company that it will undertake the investigation at
this site and charge the costs thereof to those parties ultimately held
responsible for the cleanup. The Company has received advice from various
sources that the cost of the remedial investigation and feasibility study and
the remediation at this site will be in the range of $250,000 to $400,000,
which cost will be allocated among the parties ultimately held responsible. The
Company does not have complete information regarding the relationship of the
other PRPs to the site, does not know the extent of the contamination or of any
cleanup that may be required and, consequently, is unable to estimate its
potential liability, if any, in connection with this site.

Port of Monroe Site. In February 1992, the Company received a notice of
potential liability from the MDNR as a generator of waste materials at this
landfill. The Company believes that there are approximately 80 other PRPs
identified at this site. The Company's records indicate that it sent some
material to the landfill. A draft remedial investigation/feasibility study
("RI/FS") for remediation work has been prepared by the owner/operator PRPs and
submitted to the MDNR for its approval. The cost of this RI/FS was
approximately $280,000. In March 1994, the MDNR demanded reimbursement from the
PRPs for its past and future response costs. The MDNR has since agreed to
accept $500,000 as reimbursement for its past response costs incurred through
October 1993. This settlement will be embodied in a consent decree, the terms
of which have been finalized. The owner/operators of this site and certain of
the generator/transporter PRPs (including the Company) have reached an
agreement regarding an interim allocation that will generate sufficient funds
to satisfy the PRPs' obligations under the above-described settlement with the
MDNR. The Company's share under this interim allocation is approximately
$50,000, which amount has been paid to the state. The owner/operator PRPs have
advised the Company orally that the overall cost of the remedy for the site is
expected to be less than $10 million. However, the Company does not yet have
sufficient information regarding the nature and extent of contamination at the
site and the nature and extent of the wastes that the other PRPs have sent to
the site to determine whether the $10

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million estimate is accurate. Based on currently available information, the
Company believes that its proportionate share of the ultimate liability at this
site will be no more than 10% of the total costs and has accrued for this
exposure.

Hamtramck Site. In January 1993, the City of Hamtramck filed a complaint
against the Sherwin-Williams Company and six other defendants seeking
contribution of costs incurred in connection with the remediation of certain
property located in Hamtramck, Michigan. In February 1993, the Sherwin-Williams
Company filed a third party complaint against the Company and seven other third
party defendants seeking contribution in connection with the site. The
complaint alleges that the Company's Great Lakes Division engaged a third party
waste oil hauler and processor that operated a tank farm at the site, to haul
and/or treat some of the Division's waste oil. The Company entered into an
agreement with the City of Hamtramck in 1983 pursuant to which the Company,
without admitting liability, contributed to the funding of the cleanup of the
tank farm, in return for which the City agreed to indemnify the Company for any
releases. The Company has notified the City of this proceeding, and the City
has agreed to defend and indemnify the Company in this matter. On June 8, 1994,
a judicially-mandated mediation hearing took place for purposes of allocating
costs incurred as of the date of the mediation hearing. The mediation panel
issued a non-binding decision that the Company's apportioned liability for all
response costs incurred as of June 8, 1994 in connection with this site is
zero. The Company believes that it is not likely to have any liability for past
or future response costs with respect to this site, and further believes that
if any liability for such costs is ultimately assessed against the Company, it
will be paid for by the City of Hamtramck.

Martha C. Rose Chemicals Superfund Site. This proceeding involves a former PCB
storage, processing and treatment facility located in Holden, Missouri. The
Company received an initial request for information with respect to this site
on December 2, 1986. The Company believes that there are over 700 PRPs
identified at this site. The Company believes that it sent only one empty PCB
transformer there. In July 1988, the Company entered into a Consent Party
Agreement with the other PRPs and paid $48,134 in connection with the
remediation of such site. A record of decision selecting the final remedial
action and an order pursuant to Section 106 of CERCLA requiring certain PRPs,
not including the Company, to implement the final remedy have been issued by
the EPA. Completion of construction of the remedy is scheduled for December
1994. To date, the PRP steering committee has raised approximately $35 million
to pay for past removal actions, the remedial investigation and feasibility
study and the final remedial action. The remediation project manager for the
PRP group has advised that the final cost of the remedy will be less than $35
million.

Springfield Township Site. This is a proceeding involving a disposal site
located in Springfield Township, Davisburg, Michigan in which approximately
twenty-two PRPs have been identified. The Company received a general notice of
liability with respect to this site on January 23, 1990. The Company and eleven
other PRPs have entered into AOCs with the EPA for the performance of partial
removal actions at such site and reimbursement of past response costs to the
EPA. The Company's share of costs under the AOCs was $48,000. The PRPs are
currently negotiating with the EPA regarding the final remedial action at such
site. The EPA and the PRP steering committee have estimated the cost to
implement the final remedy at approximately $33 million and $20 million,
respectively, depending upon the final remedy. The Company is currently
negotiating with the other PRPs with respect to its share of such cost and has
offered to pay $175,000 in connection with the final remedy. On November 10,
1993, the EPA issued a unilateral order pursuant to Section 106 of CERCLA
requiring the PRP steering committee to implement the groundwater portion of
the final remedy. The members of the PRP steering committee have entered into
an agreement among themselves for the implementation of the groundwater portion
of the final remedy. Subject to a final determination by the EPA as to what
must be included, a preliminary estimate by the PRP steering committee of the
cost of such work is approximately $300,000. Additionally, in response to a
demand letter from the MDNR, the PRP steering committee and the MDNR have
negotiated an AOC pursuant to which

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the MDNR will be reimbursed approximately $700,000 for its past response costs
incurred through July 1993. The Company has paid its share of this settlement
amount, which was approximately $11,000. The Company has recorded its overall
estimated liability for this matter, which totals approximately $175,000.

Rasmussen Site. The Company and nine other PRPs have entered into a Consent
Decree with the EPA in connection with this disposal site located in
Livingston, Michigan. The Company received a general notice of liability with
respect to this site on September 27, 1988. The Company believes that there are
approximately twenty-three PRPs at this site. A record of decision selecting
the final remedial action for this site was issued by the EPA in March 1991.
The PRP steering committee has estimated that remediation costs are
approximately $18.5 million. Pursuant to a participation agreement among the
PRPs, the Company's share of such costs is approximately $420,000, which has
been accrued by the Company, of which $294,000 remains to be paid. To date the
Company has paid approximately $126,000.

Berlin and Farro Liquid Incineration Site. The Company has been identified as a
generator of small amounts of hazardous materials allegedly deposited at this
industrial waste facility located in Swartz Creek, Michigan. The Company
received an initial request for information with respect to this site on
September 19, 1983. The Company believes that there are approximately 125 PRPs
at this site. A record of decision selecting the final remedial action for this
site was issued by the EPA in September 1991. The EPA and the PRP steering
committee have estimated the cost of the selected remedy at approximately $8
million and $10.5 million, respectively. A third-party complaint has been filed
against the Company by three PRPs for recovery of the EPA's past and future
response costs. The Company has entered into a consent decree with the EPA,
which was lodged with the court on February 25, 1994. Pursuant to such consent
decree the Company's share of liability for past and future response costs and
natural resource damages is $105,000, which amount has been paid. The terms of
the proposed consent decree provide that settling defendants who are plaintiffs
in the above-referenced cost recovery action will execute and file a dismissal
with prejudice as to their claims against the de minimis settling defendants,
including the Company. In addition, the MDNR has demanded that the Company
reimburse the state for its past response costs incurred at this site. In July
1993, the MDNR offered and the Company accepted a "de minimis" buyout
settlement of the state's claims for approximately $1,500, which amount has
been paid.

Iron River (Dober Mine) Site. On July 15, 1994, the State of Michigan served
M.A. Hanna Company ("M.A. Hanna") with a complaint seeking response costs in
the amount of approximately $365,000, natural resource damages in the amount of
approximately $2 million and implementation of additional response activities
related to an alleged discharge to the Iron and Brule Rivers of acid mine
drainage. M.A. Hanna operated the Dober Mine pursuant to a management agreement
with the Company. M.A. Hanna has requested that the Company defend and
indemnify it and the Company has undertaken the defense of the State's claim.
The Company, however, reserved the right to terminate such defense. The Company
filed on behalf of M.A. Hanna an answer to the complaint denying liability at
this site. The Company is unable to estimate its potential liability, if any,
at this site because it does not have information concerning the nature and
extent of the contamination at this site, the involvement of other PRPs and the
nature of the remedy to be implemented.

Conservation Chemical Company Site. In a General Notice of Potential Liability
letter dated September 28, 1994, the EPA advised that it has information that
the Company's Midwest Division is a PRP with respect to the Conservation
Chemical Company site located in Gary, Indiana. The letter further advised that
EPA plans to implement a removal action at the site. Attached to the General
Notice Letter was a list of the PRPs which received the letter. That list
consists of 225 entities. On November 10, 1994, a meeting was held at which the
EPA provided the PRPs with information concerning the proposed removal action.
At that meeting, the EPA advised that its estimate of the cost of this removal
action would be in the range of $6 to $10 million (this estimate does not
include the cost of groundwater remediation, if any is determined to be
necessary). Additionally, the EPA advised that it had incurred response and
oversight costs of approximately $2.8 million through August 1994. Based upon
preliminary information, it appears that PRPs who sent less than 300,000
gallons of material to the site would be considered "de minimis." Because

42
<PAGE>

the Company's Midwest Division sent approximately 10,000 gallons of material to
this site, it is likely that the Company will qualify for participation in the
"de minimis" group. The EPA has advised that it would expect to have an
administrative order on consent in place by February 1995 pursuant to which the
PRPs will perform the removal action.

NII Sites.

Remediation costs incurred by the Company at the following sites constitute
Weirton Liabilities or other environmental liabilities for which NII has agreed
to indemnify the Company: the Swissvale Site, Swissvale, Pennsylvania; Buckeye
Site, Bridgeport, Ohio; Lowry Landfill, Aurora, Colorado; and Weirton Steel
Corporation Site, Weirton, West Virginia. The Company was notified of potential
liability with respect to each of these sites as follows: the Swissvale Site--
February 1985; Buckeye Site--September 1991; Lowry Landfill--December 1990; and
Weirton Steel Corporation Site--January 1993. In accordance with the terms of
an agreement between the Company and NII, in January 1994, NII paid the Company
$10 million as an unrestricted prepayment for environmental obligations which
may arise after such prepayment and for which NII has previously agreed to
indemnify the Company. Since NII retains responsibility to indemnify the
Company for any remaining environmental liabilities arising before such
prepayment or arising after such prepayment and in excess of $10 million, these
environmental liabilities are not expected to have a material adverse effect on
the Company's liquidity. However, the failure of NII to satisfy any such
indemnity obligations could have a material adverse effect on the Company's
liquidity. The Company's ability to fully realize the benefits of NII's
indemnification obligation is necessarily dependent upon NII's financial
condition at the time of any claim with respect to such obligations. NII is
subject to the informational requirements of the Exchange Act and, in
accordance therewith, files reports and other information with the Commission.
See "Certain Relationships and Related Transactions."

The Company, Earth Sciences, Inc. and Southwire Company are general partners in
the Alumet Partnership ("Alumet"), which has been identified by the EPA as one
of approximately 260 PRPs at the Lowry Landfill Superfund Site. In the August
1993 proposed plan, the EPA has estimated the overall discounted costs for
implementing the selected remedial action to be approximately $98 million.
Based on information received by the Company, it appears that Alumet may have
contributed approximately 3.8% of the overall volume of industrial materials
sent to this site. Alumet has presented information to the EPA in support of
its position that the material it sent to this site is not a hazardous
substance. To date, however, the EPA has rejected this position, and on
November 15, 1993, Alumet received a demand letter from the EPA requesting
approximately $15.3 million for its past response costs incurred as of the date
of the letter. The Company believes that the same demand letter was sent to all
PRPs that sent over 300,000 gallons of waste to the site. The Company does not
have sufficient information to estimate its portion of any liability resulting
from the $15.3 million demand. The owners and operators of the Lowry Landfill--
the City and County of Denver, Waste Management of Colorado, Inc. and Chemical
Waste Management, Inc.--are performing the remediation activities at the site.
The City and County of Denver (the "Plaintiffs") in December 1991 filed a
complaint against 40 of the PRPs seeking reimbursement for past and future
response costs incurred by the Plaintiffs at the Lowry Landfill site.
Subsequently, the Plaintiffs reached a confidential settlement agreement with
Earth Sciences, Inc. and unsuccessfully attempted to add Alumet as a third-
party defendant. In June 1993, Alumet received a settlement demand from the
owners and operators of the Lowry Landfill for response costs associated with
Alumet's wastes that were not covered by the earlier confidential settlement
agreement. On May 11, 1994, the EPA issued a Special Notice Letter to Alumet
alleging that Alumet is a PRP under CERCLA for cleanup of the Lowry Landfill
Site and demanding payment of the EPA's past and future response costs. In July
1994, the City and County of Denver, Waste Management of Colorado, Inc. and
Chemical Waste Management filed a complaint against multiple entities,
including Alumet, NII, the Company and Southwire. The complaint alleges that
Alumet, NII, Southwire and the Company are liable under CERCLA for the costs of
cleaning up the Lowry Landfill Site. The Company believes that whatever
liability it may be ultimately assessed will be covered by NII's indemnity
obligations. Because this is a complex site with numerous operable units, PRPs
and

43
<PAGE>

different types of wastes, and because remediation activities at this site are
occurring in various stages, the Company is unable to estimate its potential
liability at this site.

In connection with the Buckeye Site, the Company and thirteen other PRPs have
entered into an AOC with the EPA to perform a remedial design. The Company's
allocated share for the remedial design, as established by a participation
agreement for the remedial design executed by the PRPs, is 4.63% for the

first $1.6 million and 5.05% thereafter. The EPA and the PRP steering committee
have estimated the cost for the remedial design to be approximately $3 million.
The EPA and the PRP steering committee have estimated the total cost for
remediation activities at this site at approximately $50 million and $35
million, respectively. The PRPs are currently negotiating with the EPA to
reduce the scope of the remediation activities at the site and, therefore, the
ultimate cost of remediation at this site is not estimable. Additionally, the
Company and the other thirteen PRPs are discussing an additional participation
agreement and allocation governing the costs of the final remedial action and
are continuing to identify other PRPs. The Company believes that its share of
the final remedial action costs will not exceed 5.05%. On March 30, 1994, the
Company was served with a complaint filed by Consolidation Coal Company, a
former owner and operator of the site. Among other claims, the Complaint seeks
participation from the Federal Abandoned Mine Reclamation Fund, joinder of
certain public entities, one of which delivered waste to the site, and damages
and indemnity from current owners of the site. One count of the Complaint names
the Company and nine other industrial PRPs and seeks a determination of the
allocation of responsibility among the alleged industrial generators involved
with the site. The Company is reviewing the complaint and intends to defend all
claims against it. Because this litigation is in the early stages, the Company
is unable to estimate what liability, if any, it may have to the plaintiff.

In January 1993, the Company was notified that the West Virginia Division of
Environmental Protection (the "WVDEP") had conducted an investigation at a site
in Weirton, West Virginia which was formerly owned by the Company's Weirton
Steel Division and is currently owned by Weirton Steel Corporation. The WVDEP
alleged that samples taken from four groundwater monitoring wells located at
this site contained elevated levels of contamination. Weirton Steel Corporation
has agreed to cooperate with the WVDEP with respect to conducting a ground
water monitoring program at the site. Because there has been no activity on
this matter since the samples were taken, the Company does not have sufficient
information to estimate its potential liability, if any, at this site.

The Company has been named as a third-party defendant in a governmental action
for reimbursement of the EPA's response costs in connection with the Swissvale
Site. The Company understands that on December 2, 1993, the EPA and the
original defendants reached a tentative settlement agreement regarding the
EPA's cost recovery claim for $4.5 million. Pursuant to that tentative
settlement agreement, the original defendants will pay a total of $1.5 million.
The original defendants have requested that the eighteen third-party
defendants, including the Company, pay a total of $375,000. The Company has
made a settlement offer and believes that its share should be less than
$20,000.

Other

The Company and its subsidiaries have been conducting steel manufacturing and
related operations at numerous locations, including their present facilities,
for over sixty years. Although the Company believes that it has utilized
operating practices that were standard in the industry at the time, hazardous
materials may have been released on or under these currently- or previously-
owned sites. Consequently, the Company potentially may also be required to
remediate contamination at some of these sites. The Company does not have
sufficient information to estimate its potential liability in connection with
any potential future remediation. However, based on its past experience and the
nature of environmental remediation proceedings, the Company believes that if
any such remediation is required, it will occur over an extended period of
time. In addition, the Company believes that many of these sites may also be
subject to indemnities by NII to the Company.

In addition to the aforementioned proceedings, the Company is or may be
involved in proceedings with various regulatory authorities which may require
the Company to pay various fines and penalties relating to

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<PAGE>

violations of environmental laws and regulations, comply with applicable
standards or other requirements or incur capital expenditures to add or change
certain pollution control equipment or processes.

During 1992, the Wayne County Air Pollution Control Department (the "WCAPCD")
issued approximately 36 notices of violation to the Company in connection with
particulate emissions at the basic oxygen furnace shop and the ladle metallurgy
facility servicing the Great Lakes Division. In 1993, the

WCAPCD issued approximately 39 additional notices of violation to the Company
in connection with alleged exceedances of particulate emissions standards
covering various process and fugitive emissions sources and as of September,
1994 the WCAPCD had issued approximately 14 additional notices of violation.
The WCAPCD has agreed to settle all of these claims in exchange for the payment
by the Company of a $227,250 penalty and the implementation by the Company of
an environmental credit program valued at $227,250. Settlement documentation is
currently being negotiated.

In connection with certain outfalls located at the Great Lakes Division
facility, including the outfall at the 80-inch hot strip mill, the U.S. Coast
Guard (the "USCG") issued certain penalty assessments in 1992. All of these
assessments have been settled. Additionally, the USCG issued one new penalty
assessment in 1994, which the Company has settled for $6,000. The USCG has also
advised the Company that it may assess two additional penalties totaling
$18,000. The Company has proposed settling these two additional potential
matters for a total of $5,000. The MDNR, in April 1992, also notified the
Company of a potential enforcement action alleging approximately 63 exceedances
of limitations at the outfall at the 80-inch hot strip mill. The Company
requested the MDNR to provide more information concerning these exceedances. In
April 1993, the MDNR identified the dates of the alleged exceedances, but no
further action has taken place. Additionally, in July 1994, the MDNR requested
that the Company submit a comprehensive plan for addressing oil discharges from
the 80-inch hot strip mill. The Company submitted the proposed plan in August
1994. In the event the Company is unable to maintain compliance with the terms
and conditions of its National Pollution Discharge Elimination System permit
through the implementation of its comprehensive plan, it may have to install
additional control systems that could cost approximately $13 million.

The Coke Oven By-Products Plant at the Great Lakes Division currently
discharges wastewater to the Detroit Water and Sewerage Department ("DWSD")
treatment facility pursuant to a permit issued by the DWSD. The DWSD treats the
Company's wastewater along with large volumes of wastewater from other sources
and discharges such treated wastewaters to the Detroit River. The Company has
appealed the total cyanide limit in the permit and has requested that the DWSD
issue to the Company a variance from the cyanide limit. The DWSD denied the
Company's request for a variance in April 1994, and the Company subsequently
filed a timely petition for reconsideration. The Company and the DWSD are
currently involved in technical discussions regarding the cyanide limit. In the
event that the DWSD denies the Company any relief from the challenged cyanide
limit, the Company likely will be required to install its own treatment
facility at an estimated cost of approximately $8 million.

In connection with certain of these proceedings, the Company has only commenced
investigation or otherwise does not have sufficient information to estimate its
potential liability, if any. Although the outcomes of the proceedings described
above or any fines or penalties that may be assessed in any such proceedings,
to the extent that they exceed any applicable reserves, could have a material
adverse effect on the Company's results of operations and liquidity for the
applicable period, the Company has no reason to believe that any such outcomes,
fines or penalties, whether considered individually or in the aggregate, will
have a material adverse effect on the Company's financial condition. The
Company's accrued environmental liabilities at September 30, 1994 and December
31, 1993 and 1992 were $13.0 million, $11.7 million and $15.5 million,
respectively. Additionally, the Company has recorded a $10 million liability to
offset the $10 million prepayment received by NII in January 1994 for certain
NII sites.

LEGAL PROCEEDINGS

In addition to the matters specifically discussed below, the Company is
involved in various legal proceedings occurring in the normal course of its
business. In the opinion of the Company's management, adequate provision has
been made for losses which are likely to result from these actions. To the
extent that

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<PAGE>

such reserves prove to be inadequate, the Company would incur a charge to
earnings, which could have a material adverse effect on the Company's results
of operations for the applicable period. The outcome of these proceedings,
however, is not expected to have a material adverse effect on the financial
condition of the Company. For a description of certain environmental matters
involving the Company, see "Environmental Matters" above.

Baker's Port, Inc. v. National Steel Corporation

On July 1, 1988, Baker's Port, Inc. ("BPI") and Baker Marine Corporation
("BMC") filed a lawsuit in the District Court for San Patricio County, Texas
against the Company, two of its subsidiaries, NS Land Company ("NS Land") and
Natland Corporation ("Natland"), and several other defendants, alleging breach
of their general warranty of title, violation of the Texas Deceptive Trade
Practice Act (the "DTPA") and fraud, in connection with the sale by Natland to
BPI in 1981 of approximately 3,000 acres of land near Corpus Christi, Texas.
Approximately $24.7 million of the purchase price was in the form of a note
(the "Note") secured by a Deed of Trust (mortgage) and BMC's guarantee. BPI and
BMC sought actual damages in excess of $55 million, or, alternatively,
rescission of the sale, and exemplary damages in excess of $155 million, as
well as treble damages under the DTPA. Natland counterclaimed for the amount
defaulted on by BPI under the Note which totaled approximately $19 million at
the time of trial. The State of Texas also claimed the rights to certain
riparian lands. On September 7, 1990, after trial, a judgment was entered,
holding, among other things, (i) that the affirmative claims of BPI and BMC
were barred, except that the finding of $22 million in damages for fraud could
be used as a setoff against the Note and except as set forth in (iii) below,
(ii) that recovery by Natland on the Note was barred due to the setoff referred
to in (i) above, (iii) that BPI was entitled to approximately $.4 million plus
pre-judgment interest thereon in the sum of approximately $.5 million, plus
post-judgment interest thereon and (iv) that Natland's Deed of Trust lien on
the property was fully released and discharged. On June 30, 1993, the Court of
Appeals issued an opinion generally in favor of the Company and its
subsidiaries. The Court of Appeals affirmed in part and reversed and remanded
in part the judgment of the trial court. Specifically, the Court of Appeals (i)
affirmed the dismissal by the trial court of the title claims brought by the
State of Texas, (ii) reversed the finding by the trial court of $22 million of
damages for fraud, which had been applied to offset the entire amount then
owing on the Note, (iii) reversed the trial court's award of approximately $.4
million plus pre-judgment interest thereon in the amount of approximately $.5
million plus post-judgment interest and (iv) remanded the case for a new trial
on one remaining title claim. All parties filed appeals with the Texas Supreme
Court which subsequently declined to hear them. As a result, the appellate
rights available to the parties have been exhausted, and the case has been
remanded for a new trial on limited issues. A trial date has not yet been set
by the court, but a pretrial conference on the matter has been scheduled for
November 21, 1994. As of December 31, 1993, approximately $13.3 million in
principal and $10.8 million in interest was due under the Note. The Company has
reserved the entire amount owing under the Note and an additional $.9 million
in its financial statements.

Detroit Coke Corporation v. NKK Chemical USA, Inc.

On October 4, 1991, Detroit Coke Corporation ("Detroit Coke") filed a lawsuit
against NKK Chemical USA, Inc. ("NKK Chemical") and the Company in the United
States District Court for the Eastern District of Michigan, Southern Division,
alleging damages in excess of $160 million arising under coal and coke purchase
and sale agreements among the parties and a subsidiary of the Company. Detroit
Coke alleges that the defendants supplied it with defective coal and coal
blends, which caused damage to its coke making facility and environmental
problems, thereby forcing the shutdown of its facility. On July 2, 1992, the
action was transferred to the United States District Court for the Western
District of Pennsylvania. In October 1992, Detroit Coke added a new defendant,
Trans-Tech Corporation, and claimed an additional $1.4 million allegedly due
for coke and coke oven gas sales. In August 1994, Detroit Coke filed a motion
for leave to amend its complaint to clarify its theories of relief, alleging
that certain coal and coke purchase and sale agreements among the parties were
one integrated transaction and that it has suffered damages it

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<PAGE>

believes exceed $150 million. The Company has previously denied all of the
allegations of Detroit Coke and is defending this action. The Company will file
a response to Detroit Coke's motion to file a second amended complaint and file
an answer to the second amended complaint if Detroit Coke's motion is granted.
Discovery has been completed and all parties have filed pretrial statements.
All defendants have filed Motions for Summary Judgment. No decisions have been
rendered to any of these Motions, and this matter will not reach the trial
stage before January 1995. In connection with the Detroit Coke litigation, the
Company has agreed to limited indemnification of NKK Chemical and Trans-Tech
Corporation and to reimburse such parties for a portion of their legal fees in
connection with this matter.

Donner-Hanna Coke Joint Venture

Hanna Furnace Corporation ("Hanna"), a wholly-owned subsidiary of the Company,
was a 50% participant, along with LTV Steel Company, Inc. ("LTV"), in the
Donner-Hanna Coke Joint Venture ("Donner-Hanna") which ceased its coke making
operations in 1982. LTV filed a petition in July 1986 with the United States
Bankruptcy Court for the Southern District of New York for relief under Chapter
11 of the Bankruptcy Code, and, with the approval of the Bankruptcy Court,
rejected the Donner-Hanna-Coke Joint Venture Agreement. As a result of LTV's
actions, Donner-Hanna has failed to make its annual minimum pension
contributions to the trustee of its salaried and hourly pension plans (the
"Plans") for each of the plan years 1985 through 1992 in the aggregate amount
of approximately $7.2 million. The Company estimates the 1993 minimum
contribution to be $.7 million, which also has not been made. The Company has
fully reserved for these amounts at December 31, 1993. The total unfunded
liability of the Plans was determined to be $15.5 million on May 20, 1993, for
purposes of settling Hanna's bankruptcy claim against LTV. Since July 1991, the
Pension Benefit Guaranty Corporation (the "PBGC") has funded the monthly
pension benefits under the hourly pension plan. On August 13, 1993, the
Internal Revenue Service assessed Hanna, as a general partner of Donner-Hanna,
approximately $2.7 million for excise taxes (including interest through August
31, 1993) and penalties for plan years 1985 through 1991 arising from the
failure to meet minimum funding standards for the Plans. In November 1993,
Hanna contributed approximately $1.2 million to the salaried plan, representing
proceeds from the sale of LTV stock received for Hanna's claim in the LTV
bankruptcy proceeding. On December 30, 1993, the Pension Benefit Guarantee
Corporation ("PBGC") notified Hanna and the Pension Committee for the Plans
that the PBGC was terminating the hourly plan retroactive to July 1, 1991, and
was terminating the salaried plan as of December 31, 1993. In February 1994,
the PBGC submitted a proposed Termination Agreement to the Company for review.
The PBGC and the Pension Committee for the Plans did not reach agreement on the
PBGC's proposed Termination Agreement, and, on July 8, 1994, the PBGC filed an
application in the United States District Court for the Western District of New
York to terminate Donner-Hanna's hourly pension plan retroactively to July 1,
1991 and the salaried plan retroactively to December 31, 1993. The Court has
ordered that the Plans be terminated no later than the dates requested by the
PBGC. Hanna has been granted leave to intervene in this proceeding for the
purpose of contending that the Plans should be deemed to have been terminated
as of an earlier date. Hanna is liable to the PBGC for the underfunding of the
Plans. Depending upon the date the Plans are deemed to have been terminated,
Hanna's liability is estimated to range from $12.3 million to $16.9 million.
The Company has accrued the maximum amount in this range. There has been no
funding in 1994 of either of the Plans. The PBGC has indicated that it may seek
to hold the Company liable for the unfunded liability of the Plans. Although
the Company believes that under applicable law Hanna is solely liable and the
Company has valid defenses to any such action by the PBGC, the Company is
unable to predict with certainty the final outcome of any such action by the
PBGC.

USX Corporation v. National Steel Corporation

In June of 1994, USX Corporation ("USX") sued the Company, three of its
directors, six other individuals who became officers of the Company on June 1,
1994 and NKK Corporation in Indiana State Court, alleging that the defendants
misappropriated trade secrets and other confidential information of U.S.
Steel's

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<PAGE>

Gary Works, interfered with USX's relationship with its former employees, and
engaged in corporate raiding and unfair trade practices involving USX's tin
plate and automotive business with the intent to cause injury. The core of the
claims is that the Company had hired five management employees and one former
management employee of Gary Works who had signed confidentiality agreements
while employees of USX. None of the six former USX employees had signed
employment agreements or covenants not to compete. USX requested injunctive
relief and unspecified monetary damages. Following a hearing on the
request for the preliminary injunction, the Indiana trial court in June of 1994
denied USX's preliminary injunction request, holding that there had been no
showing that any of the six former USX employees had misappropriated USX trade
secrets or had engaged in any illegal conduct. USX's claims for a permanent
injunction and monetary relief remain pending. No material developments have
occurred in the litigation since the denial of the request for a preliminary
injunction.

Management believes that the final disposition of the Baker's Port, Detroit
Coke, Donner-Hanna Coke and USX Corporation matters will not have a material
adverse effect, either individually or in the aggregate, on the Company's
financial condition or results of operations, but could have a material adverse
effect on liquidity.

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<PAGE>

MANAGEMENT

The following table sets forth, as of October 1, 1994, certain information with
respect to the executive officers of the Company:

<TABLE>
<CAPTION>
EXECUTIVE
NAME (AGE) OFFICER SINCE POSITION
- ---------- ------------- --------
<S> <C> <C>
Osamu Sawaragi (65)..... 1990 Chairman of the Board
V. John Goodwin (50).... 1994 President and Chief Operating Officer
Robert M. Greer (58).... 1994 Senior Vice President and Chief Financial Officer
Keisuke Murakami (55)... 1991 Vice President--Administration
Hiroshi Matsumoto (43).. 1994 Vice President and Assistant to the President
David L. Peterson (44).. 1994 Vice President and General Manager--Great Lakes
Division
Kenneth J. Leonard (45). 1993 Vice President and General Manager--Granite City
Division
Robert G. Pheanis (58).. 1994 Vice President and General Manager--Midwest
Division
William E. Goebel (55).. 1993 Vice President--Marketing and Sales
David A. Pryzbylski
(45)................... 1994 Vice President--Human Resources and Secretary
George D. Lukes (48).... 1994 Vice President--Quality Assurance and Customer
Satisfaction
David A. Chatfield (54). 1987 Vice President--Diversified Businesses, Services
and Support
Richard S. Brzenk (52).. 1987 Vice President--Information Systems
James L. Wainscott (37). 1991 Treasurer and Assistant Secretary
Carl M. Apel (38)....... 1992 Corporate Controller, Accounting and Assistant
Secretary
Milan J. Chestovich
(52)................... 1985 Assistant Secretary
</TABLE>

Biographical information concerning certain of the Company's senior executive
officers is presented below.

V. John Goodwin, President and Chief Operating Officer. Mr. Goodwin joined the
Company as President and Chief Operating Officer in June 1994. Mr. Goodwin was
formerly employed by U.S. Steel Corporation ("U.S. Steel") for twenty seven
years beginning in 1967 and held a variety of operating assignments at its
Fairless Works. He became general foreman of the facility's hot strip mill in
1976 and division superintendent of Rolling Operations in 1981. In 1984, Mr.
Goodwin was promoted to general manager of U.S. Steel's Mon Valley Works. In
1987, he was named general manager of U.S. Steel's Gary Works, the country's
largest steel plant ("Gary Works").

Robert M. Greer, Senior Vice President and Chief Financial Officer. Mr. Greer
joined the Company as Senior Vice President and Chief Financial Officer in June
1994. Mr. Greer was formerly employed by U.S. Steel for thirty three years in a
variety of financial assignments pertaining to steel operations, raw materials
and both international and Great Lakes shipping. Prior to retiring in April
1994, he had been plant controller at the Gary Works. Mr. Greer was involved at
U.S. Steel in a number of cost improvement activities, negotiations with
suppliers and other steel companies and other projects involving asset
redeployments.

Keisuke Murakami, Vice President--Administration. Mr. Murakami joined the
Company in 1991 as vice president--technical and management coordination and
assumed his present responsibilities the following year. Previously, Mr.
Murakami had served since 1962 in various positions with NKK. He has had

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<PAGE>

experience in corporate planning through service as general manager--operations
scheduling at NKK's Fukuyama Works facility and later as general manager--
corporate planning for Toshin Steel Corporation, a major NKK subsidiary. Before
transferring to the Company, he had been serving as general manager--business
and product development at NKK's headquarters.

Hiroshi Matsumoto, Vice President and Assistant to the President. Mr. Matsumoto
joined the Company in June 1994, following eighteen years with NKK. Mr.
Matsumoto served as manager of NKK's corporate planning department from 1982 to
1986. For the following three years, he was a guest fellow at The Brookings
Institution, lecturing on "The Trade Balance Between Japan and the United
States--Problems and Solutions." In 1989 he was appointed to serve as the first
senior representative in the Washington, D.C. office of its American
subsidiary, NKK America Inc.

David L. Peterson, Vice President and General Manager--Great Lakes Division.
Mr. Peterson joined the Company in June 1994 as Vice President and General
Manager--Great Lakes Division. Mr. Peterson had formerly been employed by U.S.
Steel since 1971. He was promoted to the plant manager level at U.S. Steel in
1988 and directed all operating functions from cokemaking to sheet and tin
products. In 1988 he was named plant manager--primary operations at the Gary
Works. He is credited with the transition at the Gary Works to 100% continuous
casting of all sheet, tin and plate products.

Kenneth J. Leonard, Vice President and General Manager--Granite City Division.
Mr. Leonard began his career with the Company in 1983 as assistant engineering
manager--primary facilities at the Company's headquarters, following work with
several construction and manufacturing companies. A year later he was promoted
to project manager--major projects. Late in 1984 Mr. Leonard moved to the
Company's Granite City Division as manager--engineering, subsequently being
promoted to director--ironmaking and assistant general manager--administration.
He was promoted to his present position in 1993.

Robert G. Pheanis, Vice President and General Manager--Midwest Division. Mr.
Pheanis joined the Company in June 1994 as Vice President and General Manager--
Midwest Division. Mr. Pheanis formerly served in various management positions
at U.S. Steel at the Gary Works for 35 years and in 1992 was named its plant
manager--finishing operations, with responsibility for its total hot rolled,
sheet and tin operations.

William E. Goebel, Vice President--Marketing and Sales. Mr. Goebel joined the
Company in 1968 following employment with Morgan Guaranty Trust Company and
Bethlehem Steel Corporation. After assignments in the Company's New York and
Philadelphia district sales offices, he moved to the Great Lakes Division as a
product manager--cold rolled in 1979. He transferred to the corporate marketing
and sales department in 1981, holding a succession of management posts before
assuming the Company's top marketing and sales post in 1993.

David A. Pryzbylski, Vice President--Human Resources and Secretary. Mr.
Pryzbylski joined the Company in June 1994 as Vice President--Human Resources
and Secretary. Mr. Pryzbylski was employed by U.S. Steel for fifteen years,
serving since 1987 as the senior employee relations executive at the Gary
Works. He was active in implementing a health care cost control strategy,
developed a technical training program that enabled the plant to become the
first steel mill to receive the National Maintenance Excellence Award and
negotiated a productivity improvement plan with the USWA.

George D. Lukes, Vice President--Quality Assurance and Customer Satisfaction.
Mr. Lukes joined the Company in June 1994 to fill the newly created position of
Vice President--Quality Assurance and Customer Satisfaction. Mr. Lukes had
previously been employed by U.S. Steel since 1968. He served in a succession of
process, product and administrative metallurgical posts before being appointed
manager--quality assurance at the Fairless Works in 1983. Four years later he
moved to the Gary Works in a similar capacity and is credited with being
instrumental in the mill's receipt of thirty seven quality recognition awards,
including those of the nation's "Big 3" auto companies.

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David A. Chatfield, Vice President--Diversified Businesses, Services and
Support. Dr. Chatfield joined the Company's research & development department
in 1965. He held management posts in that department before moving to the
Midwest Division, where he ultimately became operating superintendent for its
tin finishing and galvanizing facilities. He then served as director--quality
control for the Granite City Division before returning to the Midwest Division
as vice president and general manager in 1984. He moved to corporate
headquarters in 1987 as vice president--technology and was named vice
president--engineering and diversified businesses in 1992. He was named vice
president and general manager of the Great Lakes Division in 1993 and assumed
his present duties in June 1994.

Richard S. Brzenk, Vice President--Information Systems. Mr. Brzenk joined the
Company as a programmer at its Granite City Division in 1965. Following several
supervisory and management assignments at that division, he moved to corporate
headquarters as general manager--data center operations and program support, in
1976. He returned to the Granite City Division in 1982 as manager--process
control and later was promoted to director--information systems of the division
in 1983. He returned to headquarters and was promoted to his present position
in 1987.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Summarized below are certain transactions and arrangements that exist among the
Company, NKK and NII.

As previously stated, on September 13, 1983, the Company became a wholly-owned
subsidiary of NII. On January 11, 1984, the Company sold the principal assets
of its Weirton Steel Division to Weirton Steel Corporation, a corporation owned
by an employee stock ownership trust. In connection with the sale, the Company
retained liability for the Weirton Liabilities, including certain existing and
contingent environmental and other liabilities and liabilities for certain
employee benefits for Weirton employees, including, principally, pension
benefits for active employees based on service prior to the sale and pension
benefits, life insurance and health care obligations for the then retired
employees (the "Weirton Benefit Liabilities").

On August 31, 1984, NKK purchased 50% of the capital stock of the Company from
NII. Pursuant to the terms of that transaction, NII agreed with the Company to
provide funds to the Company for the payment of, and to indemnify the Company
against, the Weirton Liabilities. NII also agreed to indemnify the Company for
certain other environmental liabilities related to the former operations of The
Hanna Furnace Corporation, a subsidiary of the Company, and the Donner Hanna
Coke Joint Venture, a joint venture of The Hanna Furnace Corporation and LTV
Steel Company, Inc. See "Business--Legal Proceedings."

On June 26, 1990, NKK, NII and the Company executed a Stock Purchase and
Recapitalization Agreement (the "Recapitalization Agreement") that resulted in
changes to the capital structure of the Company and the relative percentage
ownership positions of NKK and NII in the Company. Pursuant to the terms of the
Recapitalization Agreement, in exchange for a portion of the Common Stock held
by NII, the Company issued to NII the Series A Preferred Stock and the Series B
Preferred Stock. At that same time, NKK purchased from NII the Series A
Preferred Stock and additional shares of Common Stock held by NII, representing
in the aggregate an additional 20% of the capital stock of the Company, in
exchange for $146.6 million in cash and the Put Right (as defined below),
resulting in NKK obtaining a 70% ownership and voting interest in the Company
and in NII's ownership and voting interest in the Company decreasing to 30%.
NII transferred to the Company the $146.6 million received from NKK in this
transaction in exchange for the Company releasing NII from a net present value
equivalent amount of NII's indemnification obligations with respect to a
portion of the Weirton Benefit Liabilities (the "released Weirton Benefit
Liabilities"). At December 31, 1993, the released Weirton Benefit Liabilities
(including current and long-term portions) totalled $140.1 million. NII
continues to be obligated to indemnify the Company for all other Weirton
Liabilities, including the remaining unreleased Weirton Benefit Liabilities.
Based upon the Company's actuarial analysis, the amount of the unreleased
Weirton Benefit Liabilities at September 30, 1994 and December 31, 1993
approximate the aggregate remaining dividend and redemption payments of $106.8
million and $112.7 million, respectively, applicable to the Series B Preferred
Stock. The remaining Weirton Liabilities, including possible environmental
liabilities relating to certain matters occurring or existing prior to the sale
of the Weirton Steel Division by the Company in January 1984, are not currently
estimable primarily due to the possibility of future factual or regulatory
developments with respect to environmental matters. See, for example,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Environmental" for a discussion of the proposed regulations
establishing standards for corrective action under RCRA which may require
indeterminable expenditures for environmental remediation in the future and
"Business--Environmental Matters" for a discussion of the difficulties
associated with estimating remediation costs at certain of the sites for which
NII is required to indemnify the Company.

In October 1993 NII converted on a share for share basis all of its Class A
Common Stock to Class B Common Stock, resulting in NKK having a 75.6% voting
interest in the Company. NII sold all but 70,000 of its shares of Class B
Common Stock in the market in January 1994.

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Dividend payments on the Series B Preferred Stock are payable quarterly
generally in the form of a release of NII from its obligation to indemnify the
Company for a corresponding amount of the remaining unreleased portion of the
Weirton Benefit Liabilities to the extent such liabilities are due and owing,
with the balance, if any, payable in cash. For the period ending December 31,
1993, Series B Preferred Stock dividends totaling $12.0 million were paid
through the release of NII from and payment to the pension trustee of $10.6
million of previously unreleased Weirton Benefit Liabilities, and a cash
dividend of $1.4 million to reimburse NII for an obligation incurred in
connection with the Weirton Benefit Liabilities. Also in 1993, the Company used
approximately $68 million of the net proceeds of the IPO to redeem 50% of the
outstanding shares of Series B Preferred Stock held by NII. Pursuant to the
terms of the Series B Preferred Stock and certain other agreements between the
Company and NII, the Company paid the redemption amount directly to the pension
trustee referred to below and released NII from a corresponding portion of
NII's indemnification obligations with respect to certain Weirton Benefit
Liabilities.

Ten thousand shares of Series B Preferred Stock are presently subject to
mandatory redemption by the Company in August 2000 at a redemption price of
$58.3 million. At December 31, 1993, the redemption value for such shares was
approximately $62.2 million. Based upon the Company's actuarial analysis,
redemption of these shares will be made in the form of a release of NII from
its obligation to indemnify the Company for a corresponding amount of the
remaining unreleased Weirton Benefit Liabilities. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Sources of Capital" and "Description of Capital Stock--Preferred Stock."

Dividend and redemption payments with respect to the Series B Preferred Stock
reduce the Company's cash flow, even though they are paid in the form of a
release of NII from such obligations, because the Company is obligated, subject
to certain limited exceptions, to pay such amounts to the trustee of the
pension plan included in the Weirton Benefit Liabilities.

If any dividend or redemption payment otherwise required pursuant to the terms
of the Series B Preferred Stock is less than the amount required to satisfy
NII's then current indemnification obligation, NII would be required to pay
such shortfall in cash to the Company. The Company's ability to fully realize
the benefits of NII's indemnification obligations is necessarily dependent upon
NII's financial condition at the time of any claim with respect to such
obligations. NII is subject to the informational requirements of the Exchange
Act and, in accordance therewith, files reports and other information with the
Commission. The Annual Report on Form 10-K for the fiscal year ended March 31,
1993 of NII and other reports and other information filed by NII with the
Commission can be inspected and copied at, and copies of such material can be
obtained from, the public reference facilities maintained by the Commission,
and such material can be inspected at the offices of the NYSE.

The Recapitalization Agreement also created the Series A Preferred Stock which
carries annual cumulative dividend rights of $806.30 per share, which equates
to an 11% yield. The Series A Preferred Stock is held by NKK and $36.7 million
was outstanding at December 31, 1993, 1992 and 1991. Dividends on the Series A
Preferred Stock are paid quarterly in cash and totalled $4 million in each of
the years ended December 31, 1993 and 1992.

Upon the occurrence of certain events detailed in the Recapitalization
Agreement, prior to or coincident with the final redemption of the Series B
Preferred Stock, the released Weirton Benefit Liabilities will be recalculated
by an independent actuary. Any adjustment to bring the balances of the released
Weirton Benefit Liabilities to such recalculated amount will be reflected in
the Series B Preferred Stock redemption proceeds and, if necessary, additional
payment by NII. If the Company does not meet the Series B Preferred Stock
dividend and redemption obligations when due, NII has the right to cause NKK to
purchase NII's Series B Preferred Stock dividend and redemption rights (the
"Put Right").

The Company has granted to NKK, pursuant to the Recapitalization Agreement, the
right, subject to certain conditions and exceptions, to include all or any
portion of each of its shares of Common Stock in

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certain registration statements covering offerings of Common Stock by the
Company. The Company has agreed to pay all of the costs associated with the
inclusion of any such shares in the Company's registration statements, except
underwriting discounts and commissions. In any such case, the Company has
agreed to indemnify NKK and its subsidiaries and affiliates and its officers,
directors and controlling persons against certain liabilities in respect of any
registration of its shares covered by the above provisions.

As of February 3, 1993, NKK, NII and the Company entered into a definitive
agreement (the "Agreement") which amends in certain respects the terms and
conditions of the Recapitalization Agreement. Among other things, the Agreement
provides that NII must pay to the Company, from a portion of the proceeds of
any sale of its shares of Common Stock, up to $10 million as a prepayment to
the Company to pay environmental liabilities which may arise after such
prepayment and for which NII has previously agreed to indemnify the Company. As
described above, in January 1994, NII sold substantially all of its shares of
Class B Common Stock and, pursuant to the Agreement, paid to the Company the
$10 million prepayment. The Agreement provides that if the Company does not
have to make certain levels of expenditures by certain dates (up to $10 million
over a 20 year period) to pay environmental liabilities indemnified by NII, the
difference between the amount spent by the Company and $10 million will be paid
by the Company to NII as provided by the terms of the Agreement. Under the
Agreement, NII would continue to be obligated to indemnify the Company for all
other liabilities for which NII has previously agreed to indemnify the Company,
including any environmental liabilities arising after such prepayment and in
excess of $10 million (as reduced by any above described repayments to NII).
The Agreement also provides that the Company will not, prior to 1998, exercise
its option, without NII's consent, to redeem early the 10,000 shares of Series
B Preferred Stock subject to mandatory redemption in August 2000. In addition,
the registration rights provisions contained in the Recapitalization Agreement
would continue to apply for the benefit of NKK but with respect to Class B
Common Stock.

The above descriptions of the Recapitalization Agreement and the Agreement
provide a summary of the material terms of such agreements. The
Recapitalization Agreement and the Agreement have been filed with the
Commission as exhibits to the Company's Annual Report on Form 10-K for the year
ended December 31, 1993.

The Company had borrowings with an affiliate of NKK for the years ended
December 31, 1993 and 1992 in amounts totaling $343.3 million and $309.5
million, respectively, related to the financing of the rebuild of the No. 5
Coke Oven Battery servicing the Great Lakes Division. The Company may use a
portion of the net proceeds of the Offering to repay all or a portion of a
$117.0 million tranche of the Coke Battery Loan. See "Use of Proceeds."

Natcoal, Inc., a wholly owned subsidiary of the Company, sold coal to and the
Company purchased coke from a subsidiary of NKK in 1991 in amounts totaling
$7.5 million and $22.5 million, respectively. There were no such coal sales or
coke purchases of this type subsequent to 1991. Accounts receivable and
accounts payable relating to these transactions totaled $3.2 million and $2.5
million, respectively, at September 30, 1994 and December 31, 1993 and 1992.
During the first nine months of 1994, the Company purchased approximately $21
million of slabs produced by NKK, with such purchases made from trading
companies in arms' length transactions and on terms no less favorable than
those available to the Company from unaffiliated parties. Accounts payable
relating to these purchases totaled approximately $11 million on September 30,
1994.

The Company's selling, general and administrative expenses for the years ended
December 31, 1992 and 1991 included charges of $2.2 million and $3.9 million,
respectively, for facilities provided and direct services performed by NII for
the benefit of the Company, all of which arrangements have expired or have been
terminated.

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DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 30,000,000 shares of
Class A Common Stock, par value $.01 per share, 65,000,000 shares of Class B
Common Stock, par value $.01 per share, and 5,000,000 shares of Preferred
Stock, par value $1.00 per share (the "Preferred Stock"), issuable in series.
The Board of Directors has designated a series of 5,000 shares as Series A
Preferred Stock, and a series of 20,000 shares as Series B Preferred Stock. The
following summary description of the capital stock of the Company is qualified
in its entirety by reference to the Certificate of Incorporation and the Bylaws
of the Company, copies of which have been filed as exhibits to the Registration
Statement of which this Prospectus is a part.

COMMON STOCK

Dividends

The holders of Common Stock will be entitled to receive dividends when and as
dividends are declared by the Board of Directors of the Company out of funds
legally available therefor, provided that, if any shares of Preferred Stock are
at the time outstanding, the payment of dividends on the Common Stock or other
distributions may be subject to the declaration and payment of full cumulative
dividends on outstanding shares of Preferred Stock. Payment of dividends on the
Common Stock is currently prohibited by certain provisions in the Company's
financing arrangements. Holders of Class B Common Stock and Class A Common
Stock will be entitled to share ratably, as a single class, in any dividends
paid on the Common Stock. No dividend may be declared or paid in cash,
property, Common Stock or Preferred Stock convertible into Common Stock on
either the Class A Common Stock or Class B Common Stock unless a corresponding
dividend is paid simultaneously on the other class of Common Stock. If stock
dividends are declared, holders of Class A Common Stock will receive shares of
Class A Common Stock and holders of Class B Common Stock will receive shares of
Class B Common Stock. See "Dividend Policy."

Voting Rights

Except for matters where applicable law requires the approval of one or both
classes of Common Stock voting as separate classes and as otherwise described
below, holders of Class A Common Stock and Class B Common Stock vote as a
single class on all matters submitted to a vote of the stockholders, including
the election of directors. Holders of Class B Common Stock are entitled to one
vote per share and holders of Class A Common Stock are entitled to two votes
per share. Under Delaware law, the affirmative vote of the holders of a
majority of the outstanding shares of Class B Common Stock would be required to
approve, among other matters, an adverse change in the powers, preferences or
special rights of the shares of Class B Common Stock. For so long as NKK
(including entities in which NKK holds a majority of the economic and voting
interest) owns Common Stock representing a majority of the combined voting
power of the outstanding capital stock of the Company, any proposed amendment
to the terms of the Common Stock, in addition to any vote required by law
(including the affirmative vote of the holders of a majority of the combined
voting power of the outstanding shares of Common Stock), will require the
approval of the holders of a majority of the shares of Class B Common Stock not
owned by NKK or NII (including entities in which NKK or NII, respectively,
holds a majority of the economic and voting interest) and voting on such
proposed amendment provided that a majority of the shares of Class B Common
Stock not owned by NKK or NII (including entities in which NKK or NII,
respectively, holds a majority of the economic and voting interest) vote on
such proposed amendment.

Conversion Rights

Shares of Class A Common Stock are convertible into Class B Common Stock on a
one-to-one basis at any time at the option of the holders thereof. See "--
Transferability" and "Underwriting." In addition, in the event that any share
of Class A Common Stock ceases to be owned by NKK or entities in which NKK
holds a majority of the economic and voting interest, then, without any action
on the part of the holder

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<PAGE>

thereof, each such share of Class A Common Stock will automatically convert
into a share of Class B Common Stock. In the event that, at any time, NKK
(including entities in which NKK holds a majority of the economic and voting
interest) shall own Common Stock representing less than a majority of the
combined voting power of the then-outstanding capital stock of the Company,
then, without any action on the part of the holders thereof, each outstanding
share of Class A Common Stock will automatically convert into a share of Class
B Common Stock.

Liquidation Rights

Upon any liquidation, dissolution or winding up of the affairs of the Company,
whether voluntary or involuntary, any assets remaining after the satisfaction
in full of the prior rights of creditors, and the aggregate liquidation
preference of any Preferred Stock then outstanding will be distributed to the
holders of Class A Common Stock and Class B Common Stock, ratably as a single
class in proportion to the number of shares held by them.

Reorganization, Consolidation or Merger

In the event of a reorganization, consolidation or merger of the Company, each
holder of a share of Class A Common Stock shall be entitled to receive the same
kind and amount of property receivable by a holder of a share of Class B Common
Stock and each holder of a share of Class B Common Stock shall be entitled to
receive the same kind and amount of property receivable by a holder of Class A
Common Stock.

Repurchases of Common Stock

In the event the Company makes an offer to NKK to purchase any of its shares of
Class A Common Stock or to exchange shares of Class A Common Stock for other
securities of the Company, the Company is required to make an offer to purchase
or exchange Class B Common Stock on identical terms to holders of Class B
Common Stock on a ratable basis.

No Preemptive Rights

The holders of Class B Common Stock and Class A Common Stock are not entitled
to preemptive or subscription rights.

Transferability

There is no restriction on the transfer of Class B Common Stock, subject to the
agreement of NKK with the Underwriters that, until 90 days from the date of
this Prospectus, NKK will not, without the prior written consent of J.P. Morgan
Securities Inc., sell or contract to sell or otherwise dispose of any shares of
capital stock of the Company, including the Common Stock. Shares of Class A
Common Stock may be converted into shares of Class B Common Stock and sold at
any time provided that either such shares have been registered in accordance
with the Securities Act or are sold pursuant to an applicable exemption from
the registration requirements of the Securities Act. See "Underwriting" and "--
Conversion Rights." The Company has granted NKK certain registration rights
with respect to their shares of Common Stock. See "Certain Relationships and
Related Transactions." NKK has informed the Company that NKK has no present
intention to dispose of any shares of its Common Stock.

Transfer Agent and Registrar of Class B Common Stock

The transfer agent and registrar for the Class B Common Stock is Mellon
Securities Trust Company, a subsidiary of Mellon Bank Corporation.

PREFERRED STOCK

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fix the number of shares, the dividend and the relative rights, preferences and
limitations of any such series. Thus, any series may, if so determined by the
Board of Directors, have full voting rights with the Class A Common Stock or
Class B Common Stock or superior or limited voting rights, be convertible into
Class A Common Stock or Class B Common Stock or another security of the
Company, and have such other relative rights, preferences and limitations as
the Board of Directors shall determine. As a result, any class or series of
Preferred Stock could have rights which would adversely affect the voting power
of the Class B Common Stock. The shares of any class or series of Preferred
Stock need not be identical. As of December 31, 1993, there were 5,000 shares
of Series A Preferred Stock and 10,000 shares of Series B Preferred Stock
issued and outstanding.

The Series A Preferred Stock is entitled to annual cumulative cash dividends of
$806.30 per share, payable quarterly. At the option of the Company, the Series
A Preferred Stock is redeemable, in whole or in part, at any time or from time
to time, at a redemption price equal to $7,330.04 per share, together with
accrued and unpaid dividends; provided, however, that shares of Series A
Preferred Stock may be redeemed only to the extent that a like percentage of
outstanding shares of Series B Preferred Stock are, or have been, redeemed.
Except as otherwise required by law, the Series A Preferred Stock does not have
any voting rights. Upon any voluntary or involuntary liquidation, dissolution
or winding up of the Company, holders of Series A Preferred Stock are entitled
to an amount equal to $7,330.04 for each share of Series A Preferred Stock then
outstanding, together with all accrued and unpaid dividends to the date of such
liquidation, dissolution or winding up. The Series A Preferred Stock ranks on a
parity with the Series B Preferred Stock with respect to dividends and
distributions, including the distribution of assets upon liquidation. Holders
of the Series A Preferred Stock are not entitled to preemptive rights. The
Series A Preferred Stock is transferable.

The Series B Preferred Stock is entitled to annual cumulative cash dividend
rights of $806.30 per share payable quarterly generally in the form of a
release of NII from its obligation to indemnify the Company for a corresponding
amount of the remaining unreleased portion of the Weirton Benefit Liabilities
to the extent such liabilities are due and owing, with the balance, if any,
payable in cash. See "Certain Relationships and Related Transactions" for a
more complete description of the Series B Preferred Stock and the relationship
between the payment of dividends thereunder and the satisfaction of NII's
indemnification obligations with respect to the unreleased Weirton Liabilities
and other unreleased obligations.

The Series B Preferred Stock is subject to mandatory redemption on August 5,
2000, at a redemption price of $58.3 million. The Series B Preferred Stock is
also subject to optional redemption but may not be redeemed prior to January 1,
1998 without the consent of NII. See "Certain Relationships and Related
Transactions."

Except as otherwise required by law, the Series B Preferred Stock does not have
any voting rights. Upon any voluntary or involuntary liquidation, dissolution
or winding up of the Company, holders of Series B Preferred Stock are entitled
to an amount equal to the amount for which the Series B Preferred Stock could
be redeemed at the option of the Company on the date of such liquidation,
dissolution or winding up, together with all accrued and unpaid dividends to
such date. The Series B Preferred Stock ranks on a parity with the Series A
Preferred Stock with respect to dividends and distributions, including the
distribution of assets upon liquidation. Holders of the Series B Preferred
Stock are not entitled to preemptive rights. The Series B Preferred Stock is
non-transferable.

CERTAIN PROVISIONS OF THE CERTIFICATE OF INCORPORATION RELATING TO CORPORATE
OPPORTUNITIES

In order to address certain potential conflicts of interest between the Company
and NKK, the Certificate of Incorporation contains provisions regulating and
defining the conduct of certain affairs of the Company as they may involve NKK
and its officers and directors, and the powers, rights, duties and liabilities
of the

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Company and its officers, directors and stockholders in connection therewith.
In general, these provisions recognize that from time to time the Company and
NKK may engage in the same or similar activities or lines of business and have
an interest in the same areas of corporate opportunities. The Certificate of
Incorporation provides that NKK shall have no duty to refrain from engaging in
business activities or lines of business the same as or similar to those of the
Company and neither NKK nor any officer or director of NKK (except as provided
in the following paragraph) will be liable to the Company or to its
stockholders for breach of any fiduciary duty by reason of any such activities
of NKK or of such persons' participation therein. The Certificate of
Incorporation provides that NKK is not under any duty to present any corporate
opportunity to the Company which may be a corporate opportunity for both NKK
and the Company and NKK will not be liable to the Company or its stockholders
for breach of any fiduciary duty as a stockholder of the Company by reason of
the fact that NKK pursues or acquires such corporate opportunity for itself,
directs such corporate opportunity to another person or does not present the
corporate opportunity to the Company.

Where corporate opportunities are offered to persons who are directors or
officers of both the Company and NKK, the Certificate of Incorporation provides
that such director or officer of the Company shall have fully satisfied his or
her fiduciary duty to the Company and its stockholders with respect to such
corporate opportunity and will have no liability to the Company or its
stockholders if such person acts in a manner consistent with the Company's
policy. Generally, a corporate opportunity belongs to NKK unless such person is
an officer of the Company but not an officer of NKK, in which case such
opportunity belongs to the Company; provided that in any case when a corporate
opportunity is offered to a director or officer of the Company who is also a
director or officer of NKK, in writing, solely in his designated capacity with
one of the two companies, such opportunity shall belong to whichever company is
so designated. Pursuant to the provisions of the Certificate of Incorporation,
the Chairman and Vice-Chairman of the Company are not deemed to be "officers"
of the Company for purposes of the foregoing provisions if they are not full-
time employees of the Company. Under the Certificate of Incorporation, any
person purchasing or otherwise acquiring any interest in shares of Common Stock
will be deemed to have notice of and to have consented to the provisions of the
Certificate of Incorporation described above.

BUSINESS COMBINATION STATUTE

Section 203 of the Delaware General Corporation Law ("DGCL") prohibits certain
transactions between a Delaware corporation and an "interested stockholder,"
which is defined as a person who, together with any affiliates and/or
associates of such person, beneficially owns, directly or indirectly, 15% or
more of the outstanding voting shares of a Delaware corporation. Because of the
timing of ownership of the Company's securities by NKK, NKK will not be an
"interested stockholder" under Section 203. This provision prohibits certain
business combinations (defined broadly to include mergers, consolidations,
sales or other dispositions of assets having an aggregate value in excess of
10% of the consolidated assets of the corporation, and certain transactions
that would increase the interested stockholder's proportionate share ownership
in the corporation) between an interested stockholder and a corporation for a
period of three years after the date the interested stockholder acquired its
stock, unless (i) the business combination is approved by the corporation's
board of directors prior to the date the interested stockholder acquired
shares; (ii) the interested stockholder acquired at least 85% of the voting
stock of the corporation in the transaction in which it became an interested
stockholder; or (iii) the business combination is approved by a majority of the
board of directors and by the affirmative vote of two-thirds of the votes
entitled to be cast by disinterested stockholders at an annual or special
meeting.

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CERTAIN UNITED STATES TAX CONSEQUENCES TO

NON-UNITED STATES HOLDERS

Skadden, Arps, Slate, Meagher & Flom, special counsel to the Company, is of the
opinion that the following discussion is an accurate description, under
currently applicable law, of the material U.S. federal income and estate tax
consequences likely to apply to Non-U.S. purchasers of the Class B Common
Stock. The following is a discussion of certain U.S. federal income and estate
tax consequences of the acquisition, ownership and disposition of Class B
Common Stock by a holder that, for U.S. federal income tax purposes, is a "Non-
U.S. Holder." A "Non-U.S. Holder" is a person or entity that, for U.S. federal
income tax purposes, is a nonresident alien individual, a foreign corporation
or foreign partnership or a nonresident alien or foreign fiduciary of a foreign
estate or trust. The term Non-U.S. Holder does not include Holders who were
U.S. citizens within the ten year period immediately preceding the date of this
Prospectus and whose loss of U.S. citizenship had as one of its principal
purposes the avoidance of U.S. taxes. This discussion does not address all
aspects of U.S. federal income and estate tax that may be relevant to Non-U.S.
Holders in light of their specific circumstances and is based on the Code, as
amended, and administrative interpretations as of the date hereof, all of which
may be changed either retroactively or prospectively. Prospective investors are
urged to consult their own tax advisors with respect to the particular tax
consequences to them of acquiring, holding and disposing of Class B Common
Stock, as well as any tax consequences that may arise under the laws of any
foreign, state, local or other taxing jurisdiction.

DIVIDENDS

In general, dividends paid to a Non-U.S. Holder will be subject to U.S.
withholding tax at a 30% rate (or a lower rate prescribed by an applicable tax
treaty). In determining the applicability of a tax treaty providing for a lower
rate of withholding, dividends paid to an address in a foreign country are
presumed under current Treasury regulations to be paid to a resident of that
country, absent definite knowledge that such presumption is not warranted.
Treasury regulations proposed in 1984, which have not been finally adopted,
however, would require Non-U.S. Holders to file certain forms to obtain the
benefit of any applicable tax treaty providing for a lower rate of withholding
tax on dividends. Such forms would contain the holder's name and address and
other pertinent information, to be certified by such holder under penalties of
perjury, and an official statement by the competent authority (as defined in
the applicable treaty) in the foreign country attesting to the holder's status
as a resident thereof. In general, dividends paid to a Non-U.S. Holder will not
be subject to U.S. withholding tax if the dividends are either (i) effectively
connected with a trade or business carried on by the Non-U.S. Holder within the
United States or (ii) if an income tax treaty applies, attributable to a U.S.
permanent establishment maintained by the Non-U.S. Holder. Dividends
effectively connected with such trade or business or attributable to such
permanent establishment generally will not be subject to withholding (if the
Non-U.S. Holder files certain forms, including Internal Revenue Service Form
4224, with the payor of the dividend) and generally will be subject to U.S.
federal income tax at regular rates. In the case of a Non-U.S. Holder that is a
corporation, such effectively connected income may also be subject to an
additional "branch profits tax" at a rate of 30% (or such lower rate as may be
specified by an applicable treaty) of its effectively connected earnings and
profits, subject to certain adjustments.

DISPOSITION OF CLASS B COMMON STOCK

Generally, a Non-U.S. Holder will not be subject to U.S. federal income tax on
any gain recognized upon the disposition of its Class B Common Stock unless (i)
the Company is or has been a "U.S. real property holding corporation" for
federal income tax purposes (which the Company may be or become), and in the
event that the Class B Common Stock is considered "regularly traded" (within
the meaning of applicable Treasury regulations) (which the Company expects to
be the case), the Non-U.S. Holder held directly or indirectly at any time
during the five-year period ending on the date of disposition more than 5% of
the

59
<PAGE>

Class B Common Stock; (ii) the gain is effectively connected with a trade or
business carried on by the Non-U.S. Holder within the United States or,
alternatively, if a tax treaty applies, attributable to a United States
permanent establishment maintained by the Non-U.S. Holder; or (iii) in the case
of a Non-U.S. Holder who is a nonresident alien individual and holds shares of
stock as a capital asset, such individual is present in the United States for
183 days or more in the taxable year of disposition, and either (a) such
individual has a "tax home" (as defined for U.S. federal income tax purposes)
in the United States, or (b) the gain is attributable to an office or other
fixed place of business maintained by such individual in the United States.

FEDERAL ESTATE TAX

Class B Common Stock owned or treated as owned by an individual who is not a
citizen or resident (as defined for U.S. federal estate tax purposes) of the
United States at the time of death will be includible in the individual's gross
estate for U.S. federal estate tax purposes, unless an applicable tax treaty
provides otherwise. Such individual's estate may be subject to U.S. federal
estate tax on the property includible in the estate for U.S. federal estate tax
purposes.

BACKUP WITHHOLDING, INFORMATION REPORTING AND OTHER REPORTING REQUIREMENTS

The Company must report annually to the Internal Revenue Service and to each
Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. Holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
These information returns may also be made available under the provisions of a
specific treaty or agreement with the tax authorities in the country in which
the Non-U.S. Holder resides. U.S. backup withholding tax (which generally is a
withholding tax imposed at the rate of 31% on certain payments to persons that
fail to furnish the information required under the U.S. information reporting
requirements) generally will not apply to dividends paid on Class B Common
Stock to a Non-U.S. Holder at an address outside the United States.

The payment of the proceeds from the disposition of Class B Common Stock to or
through a U.S. office of a broker will be subject to information reporting and
backup withholding, at a rate of 31% of the gross proceeds, unless the owner
certifies under penalties of perjury, among other things, its status as a Non-
U.S. Holder or otherwise establishes an exemption. The payment of the proceeds
from the disposition of Class B Common Stock to or through a non-U.S. office of
a non-U.S. broker generally will not be subject to backup withholding and
information reporting, except as noted below. In the case of proceeds from a
disposition of Class B Common Stock paid to or through a non-U.S. office of a
broker that is (i) a U.S. person, (ii) a "controlled foreign corporation" for
U.S. federal income tax purposes or (iii) a foreign person 50% or more of whose
gross income for certain periods is effectively connected with a U.S. trade or
business, (a) backup withholding will apply if such broker has actual knowledge
that the owner is not a Non-U.S. Holder, and (b) information reporting will
apply unless the broker has documentary evidence in its files that the owner is
a Non-U.S. Holder (and the broker has no actual knowledge to the contrary).

Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.

The backup withholding and information reporting rules are currently under
review by the Treasury Department, and their application to the Class B Common
Stock is subject to change.

60
<PAGE>

UNDERWRITING

Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1994 (the "Underwriting Agreement"), the U.S.
underwriters named below (the "U.S. Underwriters"), for whom J.P. Morgan
Securities Inc., PaineWebber Incorporated and Salomon Brothers Inc are acting
as representatives (the "U.S. Representatives"), have severally agreed to
purchase, and the Company has agreed to sell to them, and the international
managers named below (the "International Managers"), for whom J.P. Morgan
Securities Ltd., PaineWebber International (U.K.) Ltd. and Salomon Brothers
International Limited are acting as representatives (the "International
Representatives"), have severally agreed to purchase, and the Company has
agreed to sell to them, the respective numbers of shares of Class B Common
Stock set forth opposite their names below. The U.S. Underwriters and the
International Managers are collectively referred to as the "Underwriters."
Under the terms and conditions of the Underwriting Agreement, the Underwriters
are obligated to take and pay for all such shares of Class B Common Stock if
any are taken. Under certain circumstances, the commitments of nondefaulting
Underwriters may be increased as set forth in the Underwriting Agreement.

<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITERS OF SHARES
----------------- ---------
<S> <C>
J.P. Morgan Securities Inc...........................................
PaineWebber Incorporated.............................................
Salomon Brothers Inc.................................................
---------
Subtotal.........................................................
---------
<CAPTION>
INTERNATIONAL MANAGERS
----------------------
<S> <C>
J.P. Morgan Securities Ltd...........................................
PaineWebber International (U.K.) Ltd.................................
Salomon Brothers International Limited...............................
---------
Subtotal.........................................................
---------
Total............................................................
=========
</TABLE>

61
<PAGE>

The U.S. Underwriters and the International Managers have entered into an
Intersyndicate Agreement which provides for the coordination of their
activities. Pursuant to the Intersyndicate Agreement, sales may be made between
the U.S. Underwriters and the International Managers of such number of shares
as they may mutually agree. The price of any shares so sold shall be the
offering price, less such amount as may be mutually agreed upon by the U.S.
Representatives and the International Representatives, but not exceeding the
selling concession to dealers applicable to such shares.

Pursuant to the Intersyndicate Agreement, each U.S. Underwriter has represented
and agreed that (i) it is not purchasing any Class B Common Stock for the
account of anyone other than a United States or Canadian Person and (ii) it has
not offered or sold, and will not offer or sell, directly or indirectly, any
Class B Common Stock or distribute any prospectus relating to the Offering in
the United States and Canada to any person outside the United States or Canada
or to anyone other than a United States or Canadian Person. Pursuant to the
Intersyndicate Agreement, each International Manager has represented and agreed
that (i) it is not purchasing Class B Common Stock for the account of any
United States or Canadian Person and (ii) it has not offered or sold, and will
not offer or sell, directly or indirectly, any Class B Common Stock or
distribute any prospectus relating to the Offering outside the United States
and Canada to any person within the United States or Canada or to any United
States or Canadian Person. The foregoing limitations do not apply to certain
transactions specified in the Intersyndicate Agreement, including stabilization
transactions and transactions between the U.S. Underwriters and the
International Managers pursuant to the Intersyndicate Agreement. As used
herein, "United States or Canadian Person" means any individual who is resident
in the United States or Canada, or any corporation, pension, profit-sharing or
other trust or other entity organized under or governed by the laws of the
United States or Canada or any political subdivision thereof (other than a
branch located outside the United States or Canada), and includes any United
States or Canadian branch of a person who is otherwise not a United States or
Canadian Person.

Pursuant to the Intersyndicate Agreement, each U.S. Underwriter has represented
that it has not offered or sold, and agreed not to offer or sell, any Class B
Common Stock, directly or indirectly, in Canada in contravention of the
securities laws of Canada or any province or territory thereof and, has
represented that any offer of Class B Common Stock in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Class B Common Stock a notice stating in substance that, by purchasing
such Class B Common Stock, such dealer represents and agrees that it has not
offered or sold, and will not offer or sell, directly or indirectly, any of
such Class B Common Stock in Canada or to, or for the benefit of, any resident
of Canada in contravention of the securities laws of Canada or any province or
territory thereof and that any offer of Class B Common Stock in Canada will be
made only pursuant to an exemption from the requirement to file a prospectus in
the province of Canada in which such offer is made, and that such dealer will
deliver to any other dealer to whom it sells any of such Class B Common Stock a
notice containing substantially the same statement as is contained in this
sentence.

Pursuant to the Intersyndicate Agreement, each International Manager has also
represented and agreed that (i) it has not offered or sold and will not offer
or sell any Class B Common Stock in the United Kingdom, by means of any
document, other than to persons whose ordinary business it is to buy or sell
shares or debentures, whether as principal or agent, or in circumstances which
do not constitute an offer to the public within the meaning of the Companies
Act 1985; (ii) it has complied and will comply with all applicable provisions
of the Financial Services Act 1986 with respect to anything done by it in
relation to the Class B Common Stock in, from or otherwise involving the United
Kingdom; and (iii) it has only issued or passed on and will only issue or pass
on in the United Kingdom any document received by it in connection with the
issue of the Class B Common Stock to any person who is of a kind described in
Article 9(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1988 or is a person to whom the document may otherwise
lawfully be issued or passed on.

62
<PAGE>

The Underwriters propose initially to offer the Class B Common Stock directly
to the public at the price set forth on the cover page of this Prospectus and
to certain dealers at such price less a concession not in excess of $. per
share. The Underwriters may allow, and such dealers may reallow, a concession
not in excess of $. per share to certain other dealers.

The Company has granted to the U.S. Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to
purchase up to 720,000 additional shares of Class B Common Stock at the initial
public offering price, less the underwriting discount. The U.S. Underwriters
may exercise such option solely for the purpose of covering over-allotments, if
any. If the U.S. Underwriters exercise their option, each U.S. Underwriter will
have a firm commitment, subject to certain conditions, to purchase
approximately the same number of option shares as the number of shares of Class
B Common Stock to be purchased by that U.S. Underwriter shown in the foregoing
table bears to the total number of shares of Class B Common Stock initially
offered by the U.S. Underwriters hereby.

The Company has granted to the International Managers an option, expiring on
the 30th day after the date of this Prospectus, to purchase up to 180,000
additional shares of Class B Common Stock to cover over-allotments, if any, on
terms similar to those granted to the U.S. Underwriters.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

Each of the Company, NKK and the Company's current directors and executive
officers have agreed not to, for a period of 90 days after the date of this
Prospectus, offer, sell, contract to sell or otherwise dispose of, any shares
of Common Stock or any securities convertible into or exchangeable or
exercisable for any such shares, without the prior written consent of J.P.
Morgan Securities Inc., with certain limited exceptions.

The Class B Common Stock is listed on the NYSE under the trading symbol "NS."

Each of the U.S. Representatives and the International Representatives and/or
certain of their affiliates maintain ongoing business relationships with the
Company and/or NKK and in connection therewith provide investment banking
and/or investment advisory services for which they receive customary fees.
Affiliates of J.P. Morgan Securities Inc. provide commercial banking services
to the Company and NKK and an affiliate of J.P. Morgan Securities Inc. acts as
agent bank for the Company's Receivables Purchase Agreement.

LEGAL MATTERS

The validity of the Class B Common Stock and certain other legal matters in
connection with the Offering will be passed upon for the Company by Skadden,
Arps, Slate, Meagher & Flom, Chicago, Illinois. Certain legal matters in
connection with the Class B Common Stock offered hereby will be passed upon for
the Underwriters by Davis Polk & Wardwell, New York, New York. Skadden, Arps,
Slate, Meagher & Flom has from time to time represented, and continues to
represent, the Company and/or NKK Corporation in connection with certain other
matters.

EXPERTS

The consolidated financial statements of the Company at December 31, 1993 and
1992, and for each of the three years in the period ended December 31, 1993,
appearing in this Prospectus and the Registration Statement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their reports
thereon appearing elsewhere herein. The financial statements referred to above
are included in this Prospectus and the Registration Statement in reliance upon
such reports given upon the authority of such firm as experts in accounting and
auditing.

63
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Commission in Washington, D.C., a Registration
Statement on Form S-3 under the Securities Act with respect to the Class B
Common Stock to be sold in the Offering. For the purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. This Prospectus, which constitutes a part of the
Registration Statement, does not contain all the information set forth in the
Registration Statement and the exhibits and schedules thereto, to which
reference is hereby made. Statements made in this Prospectus as to the contents
of any contract, agreement or other document are not necessarily complete; with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement, reference is made to the exhibit for a more
complete description of the matter involved.

The Company is subject to the informational requirements of the Exchange Act,
and, in accordance therewith, files reports, proxy and information statements
and other information with the Commission. The Registration Statement and
exhibits and schedules thereto and the reports, proxy and information
statements and other information filed by the Company with the Commission can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven
World Trade Center, 13th Floor, New York, New York 10048 and the Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of
such material can be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Such reports, proxy and information statements
and other information regarding the Company may also be inspected and copied at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.

64
<PAGE>

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP Independent Auditors......................... F-2
Statements of Consolidated Income--Years Ended December 31, 1993, 1992
and 1991 and for the Nine Months Ended September 30, 1994 and 1993 (un-
audited)................................................................ F-3
Consolidated Balance Sheets--December 31, 1993 and 1992 and September 30,
1994 (unaudited)........................................................ F-4
Statements of Consolidated Cash Flows--Years Ended December 31, 1993,
1992 and 1991 and for the Nine Months Ended September 30, 1994 and 1993
(unaudited)............................................................. F-5
Statements of Changes in Consolidated Stockholders' Equity and Redeemable
Preferred Stock--Series B--Years Ended December 31, 1993, 1992 and 1991
and for the Nine Months Ended September 30, 1994 (unaudited)............ F-6
Notes to Consolidated Financial Statements............................... F-7
</TABLE>

F-1
<PAGE>

REPORT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS

Board of Directors
National Steel Corporation

We have audited the accompanying consolidated balance sheets of National Steel
Corporation and subsidiaries (the "Company") as of December 31, 1993 and 1992,
and the related statements of consolidated income, cash flows, and changes in
stockholders' equity and redeemable preferred stock--Series B for each of the
three years in the period ended December 31, 1993. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of the
Company at December 31, 1993 and 1992, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1993, in conformity with generally accepted accounting principles.

As discussed in Note A to the Consolidated Financial Statements, in 1993 the
Company changed its method of accounting for postretirement and postemployment
benefits, and in 1992 the Company changed its method of accounting for income
taxes.

Ernst & Young LLP

Fort Wayne, Indiana

January 26, 1994, except for the second paragraph of Note J, as to which the
date is February 11, 1994

F-2
<PAGE>

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED INCOME

(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------
1993
1994 (RESTATED) 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES............... $1,956,966 $1,833,354 $2,418,800 $2,373,317 $2,329,815
Cost of products sold... 1,738,542 1,700,418 2,253,972 2,106,743 2,102,520
Selling, general and ad-
ministrative........... 101,490 102,975 136,656 132,801 139,345
Depreciation, depletion
and amortization....... 104,259 102,229 137,500 114,880 117,008
Equity (income) loss of
affiliates............. 384 (1,336) (2,160) (5,600) (9,063)
Unusual charge (credit). (170,073) 3,294 110,966 36,984 110,700
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) FROM OPER-
ATIONS................. 182,364 (74,226) (218,134) (12,491) (130,695)
Financing costs
Interest and other fi-
nancial income....... (2,618) (1,489) (1,862) (1,995) (6,128)
Interest and other fi-
nancial expense...... 47,111 48,508 63,647 64,031 64,830
---------- ---------- ---------- ---------- ----------
44,493 47,019 61,785 62,036 58,702
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE IN-
COME TAXES,
EXTRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES..... 137,871 (121,245) (279,919) (74,527) (189,397)
Income tax provision
(credit)............... (3,464) (17,638) (37,511) 156 118
---------- ---------- ---------- ---------- ----------
INCOME (LOSS) BEFORE EX-
TRAORDINARY ITEM AND
CUMULATIVE EFFECT OF
ACCOUNTING CHANGES..... 141,335 (103,607) (242,408) (74,683) (189,515)
Extraordinary item...... -- -- -- (50,000) --
Cumulative effect of ac-
counting changes..... -- (16,453) (16,453) 76,251 --
---------- ---------- ---------- ---------- ----------
NET INCOME (LOSS)....... 141,335 (120,060) (258,861) (48,432) (189,515)
Less: preferred stock
dividends.............. (8,220) (10,607) (13,364) (17,449) (17,257)
---------- ---------- ---------- ---------- ----------
Net income (loss)
applicable to
Common Stock....... $ 133,115 $ (130,667) $ (272,225) $ (65,881) $ (206,772)
========== ========== ========== ========== ==========

PER SHARE DATA APPLICABLE TO COMMON STOCK:

Income (loss) before ex-
traordinary item and
cumulative effect of
accounting changes..... $ 3.66 $ (3.46) $ (7.55) $ (3.61) $ (8.11)
Extraordinary item...... -- -- -- (1.96) --
Cumulative effect of ac-
counting changes....... -- (.50) (.49) 2.99 --
---------- ---------- ---------- ---------- ----------
Net income (loss) appli-
cable to Common Stock.. $ 3.66 $ (3.96) $ (8.04) $ (2.58) $ (8.11)
========== ========== ========== ========== ==========
Weighted average shares
outstanding
(in thousands)......... 36,364 33,052 33,879 25,500 25,500
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, ----------------------
1994 1993 1992
------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS:
Current assets
Cash and cash equivalents............... $ 92,419 $ 5,322 $ 55,220
Receivables, less allowances (1994--
$17,653; 1993--$21,380; 1992--$26,385). 280,308 224,709 218,082
Inventories:
Finished and semi-finished products... 236,904 246,285 239,459
Raw materials and supplies............ 94,226 124,812 132,367
---------- ---------- ----------
331,130 371,097 371,826
---------- ---------- ----------
Total current assets................ 703,857 601,128 645,128
Investments in affiliated companies....... 57,383 58,278 56,409
Property, plant and equipment
Land and land improvements.............. 179,312 221,224 219,593
Buildings............................... 259,037 259,037 291,460
Machinery and equipment................. 2,949,281 2,816,531 2,775,090
---------- ---------- ----------
3,387,630 3,296,792 3,286,143
Less: Allowance for depreciation, deple-
tion and amortization.................. 1,981,138 1,898,055 1,890,676
---------- ---------- ----------
Net property, plant and equipment... 1,406,492 1,398,737 1,395,467
Deferred income taxes..................... 87,340 80,600 43,000
Intangible pension asset.................. 128,765 128,765 12,100
Other assets.............................. 41,095 36,692 36,412
---------- ---------- ----------
TOTAL ASSETS........................ $2,424,932 $2,304,200 $2,188,516
========== ========== ==========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY:
Current liabilities
Accounts payable........................ $ 205,641 $ 242,294 $ 257,217
Salaries and wages...................... 46,724 49,602 47,950
Withheld and accrued taxes.............. 61,193 74,444 72,672
Pension and other employee benefits..... 106,003 69,679 70,643
Other accrued liabilities............... 83,834 107,556 86,403
Income taxes............................ 3,274 2,700 2,972
Long term obligations and related party
indebtedness due within one year....... 35,588 28,257 33,468
---------- ---------- ----------
Total current liabilities........... 542,257 574,532 571,325
Long term obligations..................... 379,321 344,096 352,265
Long term indebtedness to related parties. 310,409 329,995 309,500
Long term pension liability............... 297,423 288,793 120,219
Postretirement benefits other than pen-
sions.................................... 147,449 157,435 66,116
Other long term liabilities............... 357,880 351,357 304,598
Commitments and contingencies
Redeemable Preferred Stock--Series B...... 66,905 68,030 137,802
Stockholders' equity
Common Stock, par value $.01:
Class A--authorized 30,000,000 shares;
issued and outstanding 22,100,000
shares in 1994 and 1993 and
25,500,000 shares in 1992............ 221 221 255
Class B--authorized 65,000,000 shares;
issued and outstanding 14,276,156
shares in 1994 and 14,261,100 in
1993................................. 143 143 --
Preferred Stock--Series A............... 36,650 36,650 36,650
Additional paid-in capital.............. 360,525 360,314 218,991
Retained earnings (deficit)............. (74,251) (207,366) 70,795
---------- ---------- ----------
Total stockholders' equity............ 323,288 189,962 326,691
---------- ---------- ----------
TOTAL LIABILITIES, REDEEMABLE PRE-
FERRED STOCK AND STOCKHOLDERS' EQ-
UITY............................... $2,424,932 $2,304,200 $2,188,516
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.

F-4
<PAGE>

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

STATEMENTS OF CONSOLIDATED CASH FLOWS

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, YEARS ENDED DECEMBER 31,
--------------------- -------------------------------
1993
1994 (RESTATED) 1993 1992 1991
--------- ---------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income (loss).... $ 141,335 $(120,060) $(258,861) $ (48,432) $(189,515)
Adjustments to
reconcile net income
(loss) to net cash
provided by
operating
activities:
Depreciation,
depletion and
amortization...... 104,259 102,229 137,500 114,880 117,008
Carrying charges
related to
facility sales and
plant closings.... 23,819 26,597 35,597 30,832 21,511
Unusual items
(excluding
pensions and
OPEB)............. (19,847) -- 37,900 23,739 107,127
Equity (income)
loss of
affiliates........ 384 (1,336) (2,160) (5,600) (9,063)
Dividends from
affiliates........ 900 900 5,765 6,738 10,144
Long-term pension
liability......... 8,630 (11,372) 51,909 17,443 14,624
Postretirement
benefits.......... (9,986) 46,004 97,562 -- --
Extraordinary item. -- -- -- 50,000 --
Deferred income
taxes............. (6,740) (17,700) (37,600) -- --
Cumulative effect
of accounting
changes........... -- 16,453 16,453 (76,251) --
Cash provided (used)
by working capital
items:
Receivables........ (55,599) (22,140) (6,627) (4,239) (17,220)
Inventories........ 39,967 34,289 729 (8,120) 49,947
Accounts payable... (36,653) (52,601) (14,923) 72,726 (28,071)
Accrued
liabilities....... (3,252) 21,340 (6,336) (24,365) (1,967)
Other................ 10,995 1,199 2,063 (17,193) (4,367)
--------- --------- --------- --------- ---------
NET CASH PROVIDED
(USED) BY
OPERATING
ACTIVITIES...... 198,212 23,802 58,971 132,158 70,158
CASH FLOWS FROM
INVESTING ACTIVITIES:
Purchases of
property, plant and
equipment........... (112,558) (112,071) (160,708) (283,941) (178,225)
Proceeds from sale of
assets.............. 783 139 7,182 860 486
--------- --------- --------- --------- ---------
NET CASH USED BY
INVESTING
ACTIVITIES...... (111,775) (111,932) (153,526) (283,081) (177,739)
CASH FLOWS FROM
FINANCING ACTIVITIES:
Exercise of Stock
Options............. 211 -- -- -- --
Issuance of Class B
Common Stock........ -- 141,432 141,432 -- --
Redemption of
Preferred Stock--
Series B............ -- (67,804) (67,804) -- --
Debt repayments...... (64,980) (26,086) (33,469) (32,450) (121,410)
Borrowings........... 87,950 63 84 12,150 4,513
Borrowings from
related parties..... -- 40,500 40,500 197,500 162,000
Payment of released
Weirton Benefit
Liabilities......... (13,475) (15,054) (20,001) (15,340) (17,689)
Payment of unreleased
Weirton Liabilities
and their release in
lieu of cash
dividends on
Preferred Stock--
Series B............ (5,943) (8,564) (10,594) (15,356) (16,125)
Dividend payments on
Preferred Stock--
Series A............ (3,016) (3,014) (4,030) (4,033) (4,031)
Dividend payments on
Preferred Stock--
Series B............ (87) (1,457) (1,461) (777) --
--------- --------- --------- --------- ---------
NET CASH PROVIDED
BY FINANCING
ACTIVITIES...... 660 60,016 44,657 141,694 7,258
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS........... 87,097 (28,114) (49,898) (9,229) (100,323)
Cash and cash
equivalents, beginning
of the period......... 5,322 55,220 55,220 64,449 164,772
--------- --------- --------- --------- ---------
CASH AND CASH
EQUIVALENTS, END OF
THE PERIOD............ $ 92,419 $ 27,106 $ 5,322 $ 55,220 $ 64,449
========= ========= ========= ========= =========
SUPPLEMENTAL CASH
PAYMENT INFORMATION:
Interest and other
financing costs paid
(net of amounts cap-
italized)........... $ 53,703 $ 44,465 $ 51,886 $ 32,224 $ 43,493
Income taxes paid.... 3,136 71 72 130 1,257
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY AND REDEEMABLE
PREFERRED STOCK--SERIES B

(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
COMMON REDEEM-
STOCK ABLE
-- COMMON PREFERRED ADDITIONAL RETAINED TOTAL STOCK- PREFERRED
CLASS STOCK-- STOCK-- PAID-IN EARNINGS HOLDERS' STOCK--
A CLASS B SERIES A CAPITAL (DEFICIT) EQUITY SERIES B
------ ------- --------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1991................... $ 75 $-- $36,650 $219,171 $343,448 $599,344 $144,802
Restatement for 340 for
1 stock split effected
in the form of a stock
dividend............... 180 (180)
Net loss................ (189,515) (189,515)
Amortization of excess
of book value over
redemption value of
Redeemable Preferred
Stock--Series B........ 3,500 3,500 (3,500)
Cumulative dividends on
Preferred Stocks--
Series A and B......... (20,757) (20,757)
---- ---- ------- -------- -------- -------- --------
BALANCE AT DECEMBER 31,
1991................... 255 -- 36,650 218,991 136,676 392,572 141,302
Net loss................ (48,432) (48,432)
Amortization of excess
of book value over
redemption value of
Redeemable Preferred
Stock--Series B........ 3,500 3,500 (3,500)
Cumulative dividends on
Preferred Stocks--
Series A and B......... (20,949) (20,949)
---- ---- ------- -------- -------- -------- --------
BALANCE AT DECEMBER 31,
1992................... 255 -- 36,650 218,991 70,795 326,691 137,802
Net loss................ (258,861) (258,861)
Redemption of Redeemable
Preferred Stock--Series
B...................... (67,804)
Amortization of excess
of book value over
redemption value of
Redeemable Preferred
Stock--Series B........ 1,968 1,968 (1,968)
Cumulative dividends on
Preferred Stocks--
Series A and B......... (15,332) (15,332)
Issuance of Common
Stock-- Class B........ 109 141,323 141,432
Conversion of 3,400,000
shares of NII Common
Stock--Class A to
Common Stock--Class B.. (34) 34
Minimum pension
liability.............. (5,936) (5,936)
---- ---- ------- -------- -------- -------- --------
BALANCE AT DECEMBER 31,
1993................... 221 143 36,650 360,314 (207,366) 189,962 68,030
Net income (unaudited).. 141,335 141,335
Amortization of excess
of book value over
redemption value of
Redeemable Preferred
Stock--Series B
(unaudited)............ 1,125 1,125 (1,125)
Cumulative dividends on
Preferred Stocks--
Series A and B
(unaudited)............ (9,345) (9,345)
Exercise of Stock
Options (unaudited).... 211 211
---- ---- ------- -------- -------- -------- --------
BALANCE AT SEPTEMBER 30,
1994 (UNAUDITED)....... $221 $143 $36,650 $360,525 $(74,251) $323,288 $ 66,905
==== ==== ======= ======== ======== ======== ========
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION WITH RESPECT TO THE NINE MONTHS ENDED SEPTEMBER 30, 1994 AND 1993
IS UNAUDITED)

NOTE A--SIGNIFICANT ACCOUNTING POLICIES

Interim Financial Statements: The consolidated financial statements for the
nine months ended September 30, 1994 and 1993 are unaudited. However, in the
opinion of management, such statements include all adjustments necessary for a
fair presentation of the results for the periods indicated. All such
adjustments made, except for the unusual items which are discussed in Note J,
were of a normal recurring nature. The financial results presented for the nine
months ended September 30, 1994 and 1993 are not necessarily indicative of
results of operations for the full year. The following footnotes to the
financial statements have been updated to reflect significant unaudited interim
events, after January 26, 1994, except for the first paragraph of Note J, as to
which the date is February 11, 1994, reported in the Company's September 30,
1994, June 30, 1994 and March 31, 1994 reports on Form 10-Q and, therefore, do
not represent full financial statement disclosures for the interim periods
presented.

Financial information for the first nine months of 1993 has been retroactively
restated to reflect the implementation of Statement of Financial Accounting
Standards No. 112, "Employer's Accounting for Postemployment Benefits," which
the Company adopted during the fourth quarter of 1993.

Principles of Consolidation: The consolidated financial statements include the
accounts of National Steel Corporation and its majority owned subsidiaries (the
"Company").

Cash Equivalents: Cash equivalents are short-term investments which consist
principally of time deposits at cost which approximates market. These
investments have maturities of three months or less at the time of purchase.

Inventories: Inventories are stated at the lower of last-in, first-out ("LIFO")
cost or market. If the first-in, first-out ("FIFO") cost method of inventory
accounting had been used, inventories would have been approximately $169.5
million and $141.3 million higher than reported at December 31, 1993 and 1992,
respectively. During each of the last three years certain inventory quantity
reductions caused liquidations of LIFO inventory values. These liquidations
decreased net income for the quarters and years ended December 31, 1993 and
1992, by $3.0 million and $3.4 million, respectively, and increased net income
for the quarter and year ended December 31, 1991 by approximately $10.9
million.

Investments: Investments in affiliated companies (corporate joint ventures and
20% to 50% owned companies) are stated at cost plus equity in undistributed
earnings since acquisition. Undistributed earnings of affiliated companies
included in retained earnings at December 31, 1993 and 1992 amounted to $7.2
million and $11.3 million, respectively.

Property, Plant and Equipment: Property, plant and equipment are stated at cost
and include certain expenditures for leased facilities. Interest costs
applicable to facilities under construction are capitalized. Capitalized
interest amounted to $5.8 million in 1993, $14.4 million in 1992 and $4.5
million in 1991. Amortization of capitalized interest amounted to $5.7 million
in 1993, $4.6 million in 1992 and $4.5 million in 1991.

Depreciation, Depletion and Amortization: Depreciation of production facilities
and amortization related to capitalized lease obligations are generally
provided by charges to income computed by the straight-line method. Provisions
for depreciation and depletion of certain raw material facilities and furnace
relinings are computed on the basis of tonnage produced in relation to
estimated total production to be obtained from such facilities.

F-7
<PAGE>

Environmental: Estimated losses from environmental contingencies are accrued
and charged to income when it is probable that a liability has been incurred
and the amount of loss can be reasonably estimated. (See Note L--Environmental
Liabilities.)

Research and Development: Research and development costs are expensed when
incurred and are charged to cost of products sold. Expenses for 1993, 1992 and
1991 amounted to approximately $9.4 million, $9.5 million and $8.8 million,
respectively.

Income Taxes: Effective January 1, 1992, the Company adopted Statement of
Financial Accounting Standards No. 109 "Accounting for Income Taxes" ("SFAS
109"), whereby deferred items are determined based on differences between the
financial reporting and tax basis of assets and liabilities, and are measured
using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. Prior to 1992, the Company accounted for
income taxes under Accounting Principles Board Opinion No. 11 ("APB 11").

Financial Instruments: The Company's financial instruments, as defined by
Statement of Financial Accounting Standards No. 107, consist of cash and cash
equivalents, long-term obligations (excluding capitalized lease obligations),
and the Series B Preferred Stock (defined below). The Company's estimate of the
fair value of these financial instruments approximates their carrying amounts
at December 31, 1993.

Accounting Changes: During 1993, the Company adopted two new Financial
Accounting Standards Board Statements, "Accounting for Postretirement Benefits
Other Than Pensions" ("SFAS 106" or "OPEB") and SFAS 112. (See Note E--
Postretirement Benefits Other Than Pensions and Note F--Postemployment
Benefits.)

Adoption of SFAS 115: In May 1993, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"). Beginning in
1994, SFAS 115 requires certain investments to be recorded at fair value rather
than cost basis. The Company's investments consist of short term liquid
investments whose cost approximates fair value and, therefore, SFAS 115 will
not have any financial impact.

Earnings per Share: Earnings (loss) per share of Common Stock ("EPS") is
computed by dividing net income or loss applicable to common stockholders by
the sum of the weighted average of the shares of common stock outstanding
during the period plus common stock equivalents, if dilutive.

Business Segment: The Company is engaged in a single line of business, the
production and processing of steel. The Company targets high value added
applications of flat rolled carbon steel for sale to the automotive, metal
buildings and container markets. The Company also sells hot and cold rolled
steel to a wide variety of other users including the pipe and tube industry and
independent steel service centers. In 1993, a single customer accounted for
approximately 11% of net sales and approximately 12% of net sales in 1992 and
1991. Sales of the Company's products to the automotive market accounted for
approximately 29%, 27% and 26% of the Company's total net sales in 1993, 1992
and 1991, respectively. Concentration of credit risk related to the Company's
trade receivables is limited due to the large numbers of customers in differing
industries and geographic areas.

Reclassifications: Certain items in prior years have been reclassified to
conform with the current year presentation.

NOTE B--CAPITAL STRUCTURE AND INITIAL PUBLIC OFFERING OF COMMON STOCK

In April 1993, the Company completed an initial public offering (the "IPO") of
10,861,100 shares of its Class B Common Stock, par value $.01 per share (the
"Class B Common Stock"), at an offering price of $14 per share, which generated
net proceeds to the Company of approximately $141.4 million.

F-8
<PAGE>

In connection with the IPO, 30,000,000 shares of Class A Common Stock, par
value $.01 per share (the "Class A Common Stock"), were authorized and the then
outstanding 75,000 shares of existing Common Stock received a 340 for 1 stock
split effectuated in the form of a stock dividend and the common stock was
automatically converted to Class A Common Stock. Stockholders' equity at
December 31, 1991 has been retroactively adjusted to reflect this stock
dividend. As a result of the IPO, all preferred stock outstanding became non-
voting.

On October 28, 1993, National Intergroup, Inc., which in October 1994 changed
its name to Foxmeyer Health Corporation (collectively with its subsidiaries,
"NII"), converted each of its 3,400,000 shares of Class A Common Stock to
3,400,000 shares of Class B Common Stock, bringing the total number of
outstanding shares of Class A and Class B Common Stock to 22,100,000 and
14,261,100, respectively, at December 31, 1993.

Ownership. At December 31, 1993, 75.6% of the combined voting power of the
Company's 36,361,100 outstanding shares of Common Stock was held by NKK
Corporation (collectively with its subsidiaries "NKK"). The majority of this
control has been acquired since 1984 from NII which held 5.8% of the combined
voting power of the Company's Common Stock at December 31, 1993. During January
1994, NII sold substantially all of its 3,400,000 shares of Class B Common
Stock in the market, increasing public ownership of the Company's common stock
to 24.4% of the combined voting power of the Common Stock.

At December 31, 1993 the Company's capital structure was as follows:

Series A Preferred Stock

At December 31, 1993, there were 5,000 shares of Series A Preferred Stock, par
value $1.00 per share (the "Series A Preferred Stock"), issued and outstanding.
Annual dividends of $806.30 per share on the Series A Preferred Stock are
cumulative and payable quarterly. The Series A Preferred Stock is not subject
to mandatory redemption by the Company and is non-voting.

Series B Redeemable Preferred Stock

On May 4, 1993, the Company redeemed 10,000 shares of the Series B Redeemable
Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock"),
held by NII. These shares were subject to mandatory redemption on August 5,
1995. The cost of the redemption totaled $67.8 million and was funded from
proceeds received in connection with the IPO. If the redemption of these shares
had occurred at the beginning of the year, EPS for 1993 would have increased by
$.06. Pursuant to the terms of the Series B Preferred Stock and certain other
agreements between the Company and NII, the Company paid the redemption amount
directly to a pension trustee and released NII from a corresponding amount of
NII's indemnification obligations with respect to certain employee benefit
liabilities of the Company retained in connection with the sale of its Weirton
Steel Division. (See Note I--Weirton Liabilities.)

At December 31, 1993 there were 10,000 remaining shares of Series B Preferred
Stock issued and outstanding and held by NII. Annual dividends of $806.30 per
share on the Series B Preferred Stock are cumulative and payable quarterly.
Dividends and redemption proceeds, to the extent required by the Stock Purchase
and Recapitalization Agreement (the "Recapitalization Agreement"), are used to
release NII from its indemnification obligations with respect to the remaining
unreleased liabilities for certain employee benefits for the employees of its
former Weirton Steel Division ("Weirton") employees (the "Weirton Benefit
Liabilities"). (See Note I--Weirton Liabilities.) The Series B Preferred Stock
dividend permitted release and payment of $10.6 million and $15.3 million of
previously unreleased Weirton Benefit Liabilities during 1993 and 1992,
respectively, and a cash dividend of $1.4 million and $.8 million during 1993
and 1992, respectively, to reimburse NII for an obligation previously incurred
in connection with the Weirton Benefit Liabilities. Upon the occurrence of
certain events detailed in the Recapitalization Agreement, prior to or
coincident with the Series B Preferred Stock final redemption, the released
Weirton Benefit Liabilities will be recalculated by an independent actuary. Any
adjustment to bring the balances of the released Weirton Benefit Liabilities to
such recalculated amount will be dealt with in the Series B Preferred Stock

F-9
<PAGE>

redemption proceeds or otherwise settled. If the Company does not meet its
preferred stock dividend and redemption obligations when due, NII has the right
to cause NKK to purchase the Company's preferred stock dividend and redemption
obligations. The Series B Preferred Stock is nontransferable and nonvoting.

The remaining Series B Preferred Stock is subject to mandatory redemption on
August 5, 2000 at a redemption price of $58.3 million and may not be redeemed
prior to January 1, 1998 without the consent of NII. On January 1, 1998, the
redemption price for the Series B Preferred Stock would be $62.2 million.

Periodic adjustments are made to consolidated retained earnings for the excess
of the book value of the Series B Preferred Stock at the date of issuance over
the redemption value. Based upon the Company's actuarial analysis, the
unreleased Weirton Benefit Liabilities approximate the aggregate remaining
dividend and redemption payments with respect to the Series B Preferred Stock
and accordingly, such payments are expected to be made in the form of releases
of NII from its obligations to indemnify the Company for corresponding amounts
of the remaining unreleased Weirton Benefit Liabilities. At that time, the
Company will be required to deposit cash equal to the redemption amount in the
Weirton Retirement Trust, thus leaving the Company's net liability position
unchanged. The Series B Preferred Stock, with respect to dividend rights and
rights on liquidation, ranks senior to the Company's common stock and equal to
the Series A Preferred Stock.

Class A Common Stock

At December 31, 1993, the Company had 30,000,000 shares of $.01 par value Class
A Common Stock authorized, of which 22,100,000 shares were issued and
outstanding and owned by NKK. Each share of Class A Common Stock is entitled to
two votes. No cash dividends were paid in 1993, 1992 or 1991.

Class B Common Stock

At December 31, 1993, the Company had 65,000,000 shares of $.01 par value Class
B Common Stock authorized. Of the 14,261,100 shares issued and outstanding,
3,400,000 were owned by NII and the remaining 10,861,100 shares were publicly
traded. No cash dividends were paid in 1993. Subsequent to NII's January 1994
sale of substantially all of its 3,400,000 shares of Class B Common Stock,
substantially all of the issued and outstanding shares of Class B Common Stock
became publicly traded.

The Company is restricted from paying cash dividends on Common Stock by various
debt covenants. (See Note C--Long-Term Obligations and Related Party
Indebtedness.)

F-10
<PAGE>

NOTE C--LONG TERM OBLIGATIONS AND RELATED PARTY INDEBTEDNESS

Long term obligations and related party indebtedness were as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
SEPTEMBER 30, -----------------
1994 1993 1992
------------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
First Mortgage Bonds, 8.375% Series due August
1, 2006, with general first liens on princi-
pal plants, properties, certain subsidiaries,
and an affiliated company.................... $ 90,387 $115,587 $115,587
Convertible Subordinated Debentures, 4.625%
payable annually through 1994, convertible
into NII common stock at $59.37 per share.... -- 2,311 3,977
Vacuum Degassing Facility Loan, 10.336% fixed
rate due in semi-annual installments through
2000, with a first mortgage in favor of the
lenders...................................... 37,769 42,661 47,090
Continuous Caster Facility Loan, 10.057% fixed
rate to 2000 when the rate will be reset to a
current rate. Equal semi-annual payments due
through 2007, with a first mortgage in favor
of the lenders............................... 126,645 128,859 132,946
Coke Battery Loan, 7.615% fixed rate with
semi-annual payments due through 2008. Lend-
ers are wholly-owned subsidiaries of NKK and
are unsecured................................ 329,995 343,332 309,500
Headquarters Building Loan, current interest
rate 5.067%, reset semi-annually through
1999, with a first mortgage in favor of the
lender....................................... 7,846 8,923 10,000
Pickle Line Loan, 7.726% fixed rate due in
equal semi-annual installments through 2008,
with a first mortgage in favor of the lender. 90,000 2,049 --
Unsecured project financing................... -- -- 13,540
Capitalized lease obligations................. 31,055 32,806 34,371
Other......................................... 11,621 25,820 28,222
-------- -------- --------
Total long term obligations and related party
indebtedness................................. 725,318 702,348 695,233
Less long term obligations due within one
year......................................... 35,588 28,257 33,468
-------- -------- --------
Long term obligations and related party in-
debtedness................................... $689,730 $674,091 $661,765
======== ======== ========
</TABLE>

Future minimum payments for all long-term obligations and leases as of December
31, 1993 are as follows:

<TABLE>
<CAPTION>
OTHER
CAPITALIZED OPERATING LONG-TERM
LEASES LEASES OBLIGATIONS
----------- --------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
1994................................... $ 5,491 $ 58,577 $ 26,506
1995................................... 6,101 58,087 40,143
1996................................... 6,712 54,922 59,891
1997................................... 6,712 52,090 47,093
1998................................... 6,712 48,719 48,425
After 1998............................. 20,136 263,548 447,484
------- -------- --------
Total payments......................... 51,864 $535,943 $669,542
------- -------- --------
Less amount representing interest.... 19,058
Less current portion of obligation
under capitalized lease............. 1,751
-------
Long-term obligation under capital-
ized lease.......................... $31,055
=======
</TABLE>

Operating leases include a coke battery facility which services the Granite
City Division and expires in 2004, a continuous caster and the related ladle
metallurgy facility which services the Great Lakes Division and expires in
2008, and an electrolytic galvanizing facility which services the Great Lakes
Division (the "EGL") and expires in 2001. Upon expiration, the Company has the
option to extend the leases or purchase the equipment at fair market value.

F-11
<PAGE>

The Company's remaining operating leases cover various types of properties,
primarily machinery and equipment, which have lease terms generally for periods
of 2 to 20 years, and which are expected to be renewed or replaced by other
leases in the normal course of business. Rental expense under operating leases
totaled $70.7 million in 1993, $79.8 million in 1992 and $81.2 million in 1991.

During 1993, the Company borrowed $40.5 million from a United States subsidiary
of NKK, thereby completing the $350.0 million construction period financing for
the No. 5 coke oven battery rebuild at the Great Lakes Division. Later in 1993,
the Company paid $6.7 million in principal, and recorded $25.1 million in
interest expense on the coke battery loan. Accrued interest on the loan as of
December 31, 1993 was $10.5 million. Additionally, deferred financing costs
related to the loan were $4.5 million and $4.2 million, respectively, as of
December 31, 1993 and 1992.

In March 1992, a wholly-owned subsidiary of the Company finalized a turnkey
contract for the construction and permanent financing of a pickle line (the
"Pickle Line") servicing the Great Lakes Division. The total financing
commitment amounted to $110 million, of which $20 million was prepaid using
proceeds from the Company's 1993 initial public stock offering, reducing the
amount of construction borrowings outstanding and the total commitment to $90
million. As of December 31, 1993, the construction period financing was being
provided by the contractor and was not a liability of the Company. In January
1994, upon completion and acceptance of the Pickle Line, the permanent
financing commenced with repayment to occur over a fourteen-year period. The
Pickle Line is not subject to the lien securing the Company's First Mortgage
Bonds, but is subject to a first mortgage in favor of the lender.

On March 31, 1994, the Company utilized a portion of the proceeds from the
judgment in favor of the Company against the Bessemer & Lake Erie Railroad
("B&LE") to repurchase $25.2 million aggregate principal amount of its
outstanding 8.375% First Mortgage Bonds. See Note J--Unusual Items.

Credit Arrangements

At December 31, 1993 the Company's credit arrangements included a $100 million
revolving secured credit arrangement (the "Revolver"), a $150 million
subordinated loan agreement (the "Subordinated Loan Agreement") and $25 million
in uncommitted, unsecured lines of credit (the "Uncommitted Lines of Credit").
The Revolver and the Subordinated Loan Agreement were terminated on May 16,
1994 in connection with the Receivables Purchase Agreement discussed below.

The Revolver was amended and restated in December 1992 to extend the expiration
date to December 31, 1994. The Revolver permitted the Company to borrow up to
$100 million on a short term basis, and provided the Company with the ability
to issue up to $150 million in letters of credit. The Revolver was secured by
the accounts receivable and inventories of the Company. This arrangement had
interest rates which approximated current market rates for periods of one, two,
three or six months. At December 31, 1993 and 1992, no borrowings were
outstanding and letters of credit outstanding amounted to $113.7 million and
$113.6 million, respectively, under the Revolver.

The Subordinated Loan Agreement, which was entered into in May 1991 with a
United States subsidiary of NKK, was also extended in December 1992 to an
expiration date of April 1, 1995. This arrangement had interest rates which
approximated current market rates for periods from one month to six months and
permitted the Company to borrow up to $150 million on an unsecured, short term
basis. The Revolver required that the first $50 million in borrowings by the
Company in excess of thirty days must come from the Subordinated Loan
Agreement. Additional amounts borrowed would alternate between the Revolver and
the Subordinated Loan Agreement up to $25 million in each increment. There were
no borrowings under the Subordinated Loan Agreement during 1993 or 1992. In
February 1994, the Company borrowed $20 million, all of which was repaid within
the same month.

The Uncommitted Lines of Credit permitted the Company to borrow up to $25
million on an unsecured, short-term basis for periods of up to thirty days. One
of these arrangements ($10 million) expired on March 31, 1994, while the other
($15 million) has no fixed expiration date and may be withdrawn at any time
without notice. During 1993, the Company borrowed a maximum of $7.7 million
under its Uncommitted Lines of Credit, which was repaid the next day. No
borrowings were outstanding at June 30, 1994, December 31, 1993 or 1992.

F-12
<PAGE>

Effective May 16, 1994, the Company entered into a Purchase and Sale Agreement
with National Steel Funding Corporation ("NSFC"), a newly created wholly-owned
subsidiary. Effective on that same date, NSFC entered into a Receivables
Purchase Agreement with a group of twelve banks. The total commitment of the
banks is $180 million, including up to $150 million in letters of credit. To
implement the arrangement, the Company sold substantially all of its accounts
receivable, and will sell additional receivables as they are generated, to
NSFC. NSFC will finance its ongoing purchase of receivables from a combination
of cash received from receivables already in the pool, short-term intercompany
notes and the cash proceeds derived from selling interests in the receivables
to the participating banks from time to time.

At December 31, 1993 the Company was prohibited from paying cash dividends on
Common Stock by various common stock dividend covenants. The most restrictive
dividend covenant is contained in the EGL lease agreement. The Company is not
restricted from paying its annual Series A and B Preferred Stock dividend
obligations.

NOTE D--PENSIONS

The Company has various non-contributory defined benefit pension plans covering
substantially all employees. Benefit payments for salaried employees are based
upon a formula which utilizes employee age, years of credited service and the
highest five consecutive years of pensionable earnings during the last ten
years preceding normal retirement. Benefit payments to most hourly employees
are the greater of a benefit calculation utilizing fixed rates per year of
service or the highest five consecutive years of pensionable earnings during
the last ten years preceding retirement, with a premium paid for years of
service in excess of thirty years. The Company's funding policy is to
contribute, at a minimum, the amount necessary to meet minimum funding
standards as prescribed by applicable law. The Company utilizes a long-term
rate of return of 9.0% for funding purposes. The Company's pension
contributions for the 1993 and 1992 plan years were $30.8 million and $28.0
million, respectively.

Pension cost and related actuarial assumptions utilized are summarized below:

<TABLE>
<CAPTION>
1993 1992 1991
--------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Assumptions:
Discount rate............................. 8.75% 8.75% 8.75%
Return on assets.......................... 9.50% 9.50% 9.50%
Average rate of compensation increase..... 5.50% 5.50% 5.50%
Pension cost:
Service cost.............................. $ 21,537 $ 18,924 $ 19,302
Interest cost............................. 100,783 96,004 92,719
Actual return on plan assets.............. (160,561) (58,772) (170,534)
Net amortization and deferral............. 89,567 (13,860) 108,196
--------- -------- ---------
Net pension expense....................... 51,326 42,296 49,683
Curtailment and special termination
charges.................................. 35,005 12,656 1,627
Other..................................... 169 577 191
--------- -------- ---------
Total pension cost...................... $ 86,500 $ 55,529 $ 51,501
========= ======== =========
</TABLE>

F-13
<PAGE>

In connection with the temporary idling of National Steel Pellet Company
("NSPC"), a wholly-owned subsidiary of the Company, special termination
benefits of $31.9 million related to hourly NSPC plan participants were
recorded at December 31, 1993 and included in total pension cost above. (See
Note O--Temporary Idling of National Steel Pellet Company.)

The funded status of the Company's plans at year end along with the actuarial
assumptions utilized are as follows:

<TABLE>
<CAPTION>
1993 1992
---------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Assumptions:
Discount rate..................................... 7.50% 8.75%
Average rate of compensation increase............. 4.40% 5.50%
Funded status:
Accumulated benefit obligations ("ABO") including
vested benefits of $1,280,360 and $944,913 for
1993 and 1992, respectively...................... $1,345,592 $1,006,769
Effect of future pensionable earnings increases... 90,589 152,640
---------- ----------
Projected benefit obligations ("PBO")............. 1,436,181 1,159,409
Plans' assets at fair market value................ 1,089,273 990,217
---------- ----------
PBO in excess of plan assets at fair market value. 346,908 169,192
Unrecognized transition obligation................ (80,197) (85,415)
Unrecognized net gain............................. 24,107 59,332
Unrecognized prior service cost................... (125,788) (28,479)
Adjustment required to recognize minimum pension
liability........................................ 134,691 12,100
---------- ----------
Total pension liability............................. 299,721 126,730
Less pension obligation due within one year......... 10,928 6,511
---------- ----------
Long-term pension liability..................... $ 288,793 $ 120,219
========== ==========
</TABLE>

As a result of a decline in long term interest rates in the United States at
December 31, 1993, the Company reduced the discount rate used to calculate the
actuarial present value of its accumulated benefit obligation from 8.75% to
7.50%. On that same date, the Company reduced the average rate of compensation
increase from 5.50% to 4.40% to more appropriately reflect expected future
compensation increases.

The adjustment required to recognize the minimum pension liability of $134.7
million in 1993 represents the excess of the ABO over the fair value of plan
assets in underfunded plans, and is primarily the result of the 1.25% decrease
in the discount rate, as well as increased pension benefits resulting from the
July 31, 1993 settlement agreement (the "1993 Settlement Agreement") between
the Company and the United Steelworkers of America ("USWA"). The unfunded
liability in excess of the unrecognized prior service cost of $5.9 million was
recorded as a reduction in stockholders' equity at December 31, 1993. The
remaining portion of the unfunded liability of $128.8 million was offset by an
intangible pension asset.

At December 31, 1993, the Company's pension plans' assets were comprised of
approximately 50.0% equity investments, 39.9% fixed income investments, 4.1%
cash and 6.0% in other investments including real estate and venture capital.

NOTE E--POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

Effective January 1, 1993, the Company implemented SFAS 106 which requires
accrual of retiree medical and life insurance benefits as these benefits are
earned rather than recognition of these costs as claims are paid. In 1993, the
excess of total postretirement benefit expense recorded under SFAS 106 over the
Company's former method of accounting for these benefits was $97.6 million, or
$59.5 million excluding curtailment charges, or $1.77 and $1.08 per share net
of tax, respectively. In 1993 the Company's cash OPEB payments were
approximately $32 million. In 1992 and 1991, prior to the adoption of SFAS 106,
the

F-14
<PAGE>

Company recorded OPEB expense on the former "pay as you go" method of $26.8
million and $29.4 million, respectively. The Company provides health care and
life insurance benefits for certain retirees and their dependents. Generally,
employees are eligible to participate in the medical benefit plans if they
retired under one of the Company's pension plans on other than a deferred
vested basis, and at the time of retirement had at least 15 years of continuous
service. However, salaried employees hired after January 1, 1993 are not
eligible to participate in the plans. The Company's medical benefit plans are
contributory. Health care benefits are funded as claims are paid; thus adoption
of SFAS 106 has no impact on the cash flows of the Company. However, as
discussed below, the Company will begin prefunding the OPEB obligation for USWA
represented employees in 1994. The Company elected to amortize the unrecognized
transition obligation, which was calculated to be $556.0 million at January 1,
1993, over a period of 20 years, in part to continually focus the attention of
its employees on the magnitude of its rising health care costs. Amortization of
the transition obligation will adversely impact EPS on an after tax basis by
approximately $.45 per year for the next 19 years based upon shares of common
stock outstanding at December 31, 1993.

The components of postretirement benefit cost and related actuarial assumptions
for 1993 were as follows:

<TABLE>
<CAPTION>
(DOLLARS IN
THOUSANDS)
<S> <C>
Assumptions:
Discount rate.................................................. 8.75%
Health care trend rate......................................... 11.20%
Postretirement benefit cost:
Service cost................................................... $ 12,912
Interest cost.................................................. 52,811
Amortization of transition obligation.......................... 28,071
Gains.......................................................... (8,176)
--------
Net periodic benefit cost...................................... 85,618
Curtailment charges............................................ 38,061
--------
Total postretirement benefit cost............................ $123,679
========
</TABLE>

In connection with the temporary idling of NSPC, curtailment charges of $36.7
million related to hourly NSPC plan participants were recorded at December 31,
1993 and included in total postretirement benefit cost at December 31, 1993.
(See Note O--Temporary Idling of National Steel Pellet Company.)

The following represents the plans' funded status reconciled with amounts
recognized in the Company's balance sheet and related actuarial assumptions:

<TABLE>
<CAPTION>
1993
----------------------
DECEMBER 31 JANUARY 1
----------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Assumptions:
Discount rate............. 7.75% 8.75%
Health care trend rate.... 10.30% 11.20%
Accumulated postretirement
benefit obligation
("APBO"):
Retirees.................. $ 457,295 $ 431,683
Fully eligible active par-
ticipants................ 99,773 95,384
Other active participants. 117,765 95,054
---------- ---------
Total................... 674,833 622,121
Plan assets at fair value... -- --
---------- ---------
APBO in excess of plan as-
sets....................... 674,833 622,121
Unrecognized transition ob-
ligation................... (503,683) (556,005)
Unrecognized net loss....... (13,715) --
---------- ---------
Postretirement benefit
liability.............. $ 157,435 $ 66,116
========== =========
</TABLE>

F-15
<PAGE>

The assumed health care cost trend rate of 10.3% in 1994 decreases gradually to
the ultimate trend rate of 5.0% in 2002 and thereafter. A 1.0% increase in the
assumed health care cost trend rate would have increased the APBO at December
31, 1993 and postretirement benefit cost for 1993 by $26.7 million and $3.3
million, respectively.

Differences between January 1, 1993 SFAS 106 disclosures at December 31, 1993
and in the Company's March 31, 1993 Form 10-Q reflect the fact that the
adoption amounts disclosed in interim reports were based upon preliminary
claims data through December 31, 1992, whereas the year end disclosure was
based upon final data. In addition, the Company utilized a flat 8.75% discount
rate at January 1, 1993 versus an initial rate of 6.0% which was to gradually
increase to a 9.0% rate in 1996, as discussed in the March 31, 1993 Form 10-Q.

In connection with the 1993 Settlement Agreement between the Company and the
USWA, the Company will begin prefunding the OPEB obligation with respect to
USWA represented employees in 1994. Under the terms of the 1993 Settlement
Agreement, a Voluntary Employee Benefit Association trust (the "VEBA Trust")
will be established to which the Company has agreed to contribute a minimum of
$10 million annually and, under certain circumstances, additional amounts
calculated as set forth in the 1993 Settlement Agreement. The Company has
agreed to grant to the VEBA Trust a second mortgage on the No. 5 coke oven
battery at the Great Lakes Division.

NOTE F--POSTEMPLOYMENT BENEFITS

During the fourth quarter of 1993, the Company adopted SFAS 112 which requires
accrual accounting for benefits payable to inactive employees who are not
retired. Among the more significant benefits included are worker's
compensation, long-term disability and continued medical coverage for disabled
employees and surviving spouses. The Company previously followed the practice
of accruing for many of these benefits, but did not base these accruals on
actuarial analyses.

Prior year financial statements have not been restated to reflect the change in
accounting method. The cumulative effect as of January 1, 1993 of this change
was to increase the net loss by $16.5 million or $.49 per share. The results of
operations for the first quarter have been restated to reflect the effect of
adopting SFAS 112 at January 1, 1993. The effect of the change on 1993 income
before the cumulative effect of the change was not material, therefore the
remaining quarters of 1993 have not been restated.

NOTE G--OTHER LONG TERM LIABILITIES

Other long term liabilities at December 31, 1993 and 1992 consisted of the
following:

<TABLE>
<CAPTION>
1993 1992
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred gain on sale leasebacks.......................... $ 29,032 $ 31,281
Insurance and employee benefits (excluding pensions and
OPEB).................................................... 97,442 88,925
Plant closings............................................ 74,127 45,780
Released Weirton Benefit Liabilities...................... 122,137 125,981
Other..................................................... 28,619 12,631
-------- --------
Total other long term liabilities......................... $351,357 $304,598
======== ========
</TABLE>

NOTE H--INCOME TAXES

Effective January 1, 1992, the Company changed its method of accounting for
income taxes from the deferred method to the liability method as required by
SFAS 109. As permitted under the new pronouncement, prior years' financial
statements were not restated. The cumulative effect of adopting SFAS 109, as of
January 1, 1992, was to decrease the net loss for 1992 by $76.3 million.

F-16
<PAGE>

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities at December 31, 1993 and
1992 are as follows:

<TABLE>
<CAPTION>
1993 1992
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Reserves............................................. $ 180,600 $ 204,900
Employee benefits.................................... 120,600 44,200
Net operating loss carryforwards..................... 189,600 138,100
Leases............................................... 24,200 23,500
Deferred gain........................................ 8,500 9,100
Federal tax credits.................................. 5,200 5,200
Other................................................ 18,400 4,700
--------- ---------
Total deferred tax assets.......................... 547,100 429,700
Valuation allowance.................................... (263,200) (189,100)
--------- ---------
Deferred tax assets net of valuation allowance....... 283,900 240,600
--------- ---------
Deferred tax liabilities:
Book basis of property in excess of tax basis........ (151,900) (148,100)
Excess tax LIFO over book............................ (31,000) (29,400)
Other................................................ (20,400) (20,100)
--------- ---------
Total deferred tax liabilities..................... (203,300) (197,600)
--------- ---------
Net deferred tax asset after valuation allowance..... $ 80,600 $ 43,000
========= =========
</TABLE>

In 1992, available tax planning strategies served as the only basis for
determining the amount of the net deferred tax asset to be recognized. As a
result, a full valuation allowance was recorded, except for the $43.0 million
recognized pursuant to a tax planning strategy based upon the Company's ability
to change the method of valuing inventories from LIFO to FIFO. In 1993, the
Company determined that it was more likely than not that sufficient future
taxable income would be generated to justify increasing the net deferred tax
asset after valuation allowance as presented above. Accordingly, the Company
recognized an additional deferred tax asset of $37.6 million in 1993 based upon
these projections of income, which had the effect of decreasing the Company's
net loss by a like amount, bringing the net deferred tax asset to $80.6 million
at December 31, 1993.

Significant components of the provision for income taxes are as follows:

<TABLE>
<CAPTION>
LIABILITY DEFERRED
METHOD METHOD
-------------- --------
1993 1992 1991
-------- ---- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Current: state and foreign........................... $ 89 $156 $118
Deferred............................................. (37,600) -- --
-------- ---- ----
Total tax provision (credit)..................... $(37,511) $156 $118
======== ==== ====
</TABLE>

F-17
<PAGE>

The reconciliation of the income tax computed at the U.S. federal statutory tax
rates to income tax expense is:

<TABLE>
<CAPTION>
DEFERRED
LIABILITY METHOD METHOD
------------------- --------
1993 1992 1991
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Tax at U.S. statutory rates..................... $(103,700) $(25,300) $(64,400)
Extraordinary item.............................. -- (17,000) --
Net operating loss carryforward for which no
benefit was recognized......................... 51,500 35,856 35,020
Temporary deductible differences for which no
benefit was recognized (net)................... 22,600 10,400 33,798
State and foreign income taxes, net of federal
benefit........................................ 100 100 100
Depletion....................................... -- (2,300) (2,000)
Dividend exclusion.............................. (1,600) (1,600) (2,400)
Other........................................... (6,411) -- --
--------- -------- --------
Total tax provision......................... $ (37,511) $ 156 $ 118
========= ======== ========
</TABLE>

At December 31, 1993, the Company had unused net operating loss ("NOL")
carryforwards of approximately $525.3 million which expire as follows: $30.7
million in 1998, $78.1 million in 2000, $71.3 million in 2001, $108.0 million
in 2006, $99.4 million in 2007 and $137.8 million in 2008. Tax benefits
relating to NOL carryforwards were not recorded in 1991 in accordance with APB
11. During the first quarter of 1994, the Company recorded an unusual gain of
$111 million related to the receipt of proceeds from a judgment in favor of the
Company against the B&LE. The Company did not recognize any income taxes
associated with the receipt of these proceeds, other than alternative minimum
tax of $3.1 million, as the regular federal income tax liability was offset by
the utilization of previously reserved tax assets. During the third quarter of
1994, the Company recorded an unusual gain of $59.1 million related to the
decision to reopen NSPC. This gain resulted in a deferred tax charge of $10.0
million, representing the reversal of a portion of the tax benefit recorded in
1993 relating to the temporary closing of the facility. (See Note J--Unusual
Items.)

To date, the Company believes that it has not undergone an ownership change for
federal income tax purposes, however, there can be no assurance that the
Company will not undergo such a change in the future. Future events, some of
which may be beyond the Company's control, could cause an ownership change. An
ownership change may substantially limit the Company's ability to offset future
taxable income with its net operating loss carryforwards.

At December 31, 1993, the Company had unused alternative minimum tax credit
carryforwards of approximately $3.2 million which may be applied to offset its
future regular federal income tax liabilities. These tax credits may be carried
forward indefinitely.

NOTE I--WEIRTON LIABILITIES

On January 11, 1984, the Company completed the sale of substantially all of the
assets of its Weirton Steel Division ("Weirton") to Weirton Steel Corporation.
In connection with the sale of Weirton, the Company retained certain existing
and contingent liabilities (the "Weirton Liabilities") including the Weirton
Benefit Liabilities, which consist of, among other things, pension benefits for
the then active employees based on service prior to the sale, and pension, life
and health insurance benefits for the then retired employees and certain
environmental liabilities.

As part of the 1984 sale of a 50% interest in the Company to NKK, NII agreed,
as between NII and the Company, to provide in advance sufficient funds for
payment and discharge of, and to indemnify the

F-18
<PAGE>

Company against, all obligations and liabilities of the Company, whether
direct, indirect, absolute or contingent, incurred or retained by the Company
in connection with the sale of Weirton. As part of the 1990 ownership
transaction whereby NKK purchased an additional 20% ownership in the Company,
the Company released NII from indemnification of $146.6 million of certain
defined Weirton Benefit Liabilities. NII also reaffirmed its agreement to
indemnify the Company for Weirton environmental liabilities as to which the
Company is obligated to Weirton Steel Corporation. On May 4, 1993, the Company
released NII from an additional $67.8 million of previously unreleased Weirton
Benefit Liabilities in connection with the early redemption of 10,000 shares of
Series B Preferred Stock. During January 1994, NII sold substantially all of
its 3,400,000 shares of Class B Common Stock. In connection with the IPO, the
Company entered into a definitive agreement (the "Agreement") with NII and NKK
which amends certain terms and conditions of the Recapitalization Agreement.
Pursuant to the Agreement, NII paid the Company $10 million as an unrestricted
prepayment for environmental obligations which may arise after such prepayment
and for which NII has previously agreed to indemnify the Company. The Company
is required to repay to NII portions of $10 million to the extent the Company's
expenditures for such environmental liabilities do not reach specified levels
by certain dates over a twenty year period. NII retains responsibility to
indemnify the Company for remaining environmental liabilities arising after
such prepayment and in excess of $10 million (as reduced by any above described
repayments to NII).

At December 31, 1993, the net present value of the released Weirton Benefit
Liabilities, based upon a discount factor of 12.0% per annum, is $140.1
million. NII continues to indemnify the Company for the remaining unreleased
Weirton Benefit Liabilities and other liabilities. Since the Company is
indemnified by NII for such remaining liabilities, they are not recorded in the
Company's consolidated balance sheet. Such Weirton Liabilities are comprised of
(i) the unreleased Weirton Benefit Liabilities, the amount of which, based on
the Company's actuarial analysis, approximates the aggregate remaining dividend
and redemption payments of $112.7 million with respect to the Series B
Preferred Stock and (ii) other contingent liabilities, such as environmental
liabilities, that are not currently estimable.

NOTE J--UNUSUAL ITEMS

During the nine months ended September 30, 1994, the Company recorded unusual
gains aggregating $170.1 million relating to the receipt of proceeds from an
antitrust lawsuit with the B&LE and the decision to reopen NSPC. (See Note O--
Temporary Idling of National Steel Pellet Company, regarding the reopening of
NSPC.)

On January 24, 1994, the United States Supreme Court denied the B&LE petition
to hear the appeal in the Iron Ore Antitrust Litigation, thus sustaining the
judgment in favor of the Company against the B&LE. On February 11, 1994, the
Company received $111.0 million, including interest, in satisfaction of this
judgment, which was recorded as an unusual gain during the first quarter of
1994. Pursuant to the terms of the 1993 Settlement Agreement, approximately $11
million of the proceeds will be deposited into a VEBA Trust established to
prefund the Company's retiree OPEB obligation with respect to USWA represented
employees.

During 1993, the Company recorded unusual charges which totaled $111.0 million,
primarily relating to the temporary idling of NSPC. (See Note O--Temporary
Idling of National Steel Pellet Company.) A fourth quarter charge of $108.6
million was recorded to recognize various liabilities incurred in connection
with the idling, most notably pensions and postemployment benefits.
Additionally, the Company recorded a charge of $4.5 million relating to the
acceptance by represented office and technical employees of a voluntary pension
window offered by the Company as a part of its functional consolidation and
reorganization plan.

F-19
<PAGE>

management's decision to exit the coal mining business, an unusual charge of
$24.9 million was recognized during the fourth quarter to reduce certain coal
properties to net realizable value and record postemployment, environmental and
other liabilities.

During 1991, the Company recorded unusual charges which totalled $110.7
million. A charge of $41.5 million was recorded for the estimated costs
anticipated to be incurred in conjunction with the consolidation of certain
staff functions and relocation in 1992 of the corporate headquarters to
Mishawaka, Indiana from Pittsburgh, Pennsylvania. An unusual charge of $25.5
million related to the Company's decision to permanently idle its Mathies coal
mine after efforts to obtain third party financing to reopen the mine after a
fire were unsuccessful. Concurrently, the Company undertook an evaluation of
its other coal properties and operations and recorded an unusual charge of
$43.7 million to reduce certain coal properties to net realizable value and to
recognize postemployment, environmental and other liabilities.

NOTE K--RELATED PARTY TRANSACTIONS

Summarized below are transactions between the Company and NKK, NII and the
Company's affiliated companies accounted for under the equity method.

The Company had borrowings outstanding with an NKK affiliate totaling $343.3
million and $309.5 million as of December 31, 1993 and 1992, respectively. (See
Note C--Long-Term Obligations and Related Party Indebtedness.) Natcoal, Inc., a
wholly owned subsidiary of the Company, sold coal to and the Company purchased
coke from a subsidiary of NKK in 1991 totaling $7.5 million and $22.5 million,
respectively. There were no such coal sales or coke purchases of this type
subsequent to 1991. Accounts receivable and accounts payable relating to these
transactions totalled $3.2 million and $2.5 million, respectively, at September
30, 1994 and December 31, 1993 and 1992. During the first nine months of 1994,
the Company purchased approximately $21 million of slabs produced by NKK, with
such purchases made from trading companies in arms' length transactions.
Accounts payable relating to these transactions totaled approximately $11
million at September 30, 1994.

The Company's selling, general and administrative expenses for 1992 and 1991
included charges of $2.2 million and $3.9 million, respectively, for facilities
provided and direct services performed by NII for the benefit of the Company,
all of which arrangements have expired or have been terminated. During January
1994, NII completed the sale of substantially all of its 3,400,000 shares of
Class B Common Stock.

In both 1993 and 1992, cash dividends of $4.0 million were paid on the Series A
Preferred Stock. Accrued dividends of $0.6 million were recorded as of December
31, 1993 and 1992 related to the Series A Preferred Stock. For 1993 and 1992,
Series B Preferred Stock dividend payments totaling $12.0 million and $16.1
million were made through the release and payment of $10.6 million and $15.3
million of previously unreleased Weirton Benefit Liabilities and $1.4 million
and $.8 million of cash to reimburse NII for an obligation previously incurred
in connection with certain Weirton Liabilities, respectively. At December 31,
1993 and 1992, accrued dividends related to the Series B Preferred Stock
totalled $1.2 million and $2.4 million, respectively.

The Company is contractually required to purchase its proportionate share of
raw material production from certain affiliated companies. Such purchases of
raw materials and services aggregated $65.9 million in 1993, $63.3 million in
1992 and $65.3 million in 1991. Additional expenses were incurred in connection
with the operation of a joint venture agreement. (See Note M--Other Commitments
and Contingencies.) Accounts payable at December 31, 1993 and 1992 included
amounts with affiliated companies accounted for by the equity method of $29.1
million and $24.3 million, respectively.

NOTE L--ENVIRONMENTAL LIABILITIES

The Company's operations are subject to numerous laws and regulations relating
to the protection of human health and the environment. Because these
environmental laws and regulations are quite stringent and are generally
becoming more stringent, the Company has expended, and can be expected to
expend in the future, substantial amounts for compliance with these laws and
regulations.

F-20
<PAGE>

It is the Company's policy to expense or capitalize, as appropriate,
environmental expenditures that relate to current operating sites.
Environmental expenditures that relate to past operations and which do not
contribute to future or current revenue generation are expensed. With respect
to costs for environmental assessments or remediation activities, or penalties
or fines that may be imposed for noncompliance with such laws and regulations,
such costs are accrued when it is probable that liability for such costs will
be incurred and the amount of such costs can be reasonably estimated.

The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), and similar state superfund statutes generally
impose joint and several liability on present and former owners and operators,
transporters and generators for remediation of contaminated properties
regardless of fault. The Company and certain of its subsidiaries are involved
as a potentially responsible party ("PRP") at a number of off-site CERCLA or
state superfund site proceedings. At some of these sites, any remediation costs
incurred by the Company would constitute liabilities for which NII is required
to indemnify the Company ("NII Environmental Liabilities"). In addition, at
some of these sites, the Company does not have sufficient information regarding
the nature and extent of the contamination, the wastes contributed by other
PRPs, or the required remediation activity to estimate its potential liability.
With respect to those sites for which the Company has sufficient information to
estimate its potential liability, the Company has recorded an aggregate
liability of approximately $4 million and $2 million as of September 30, 1994
and December 31, 1993, respectively, which it anticipates paying over the next
several years.

In connection with those sites involving NII Environmental Liabilities, in
January, 1994, the Company received $10 million from NII as an unrestricted
prepayment for such liabilities for which the Company recorded $10 million as a
liability in its consolidated balance sheet. The Company is required to repay
NII portions of the $10 million to the extent the Company's expenditures for
such NII Environmental Liabilities do not meet specified levels by certain
dates over a twenty year period. NII will continue to be obligated to indemnify
the Company for all other NII Environmental Liabilities (i) arising before such
prepayment or (ii) arising after such prepayment and exceeding the $10 million
prepayment. (See Note I--Weirton Liabilities.)

The Company has also recorded the reclamation and other costs to restore its
coal and iron ore mines at its shutdown locations to their original and natural
state, as required by various federal and state mining statutes. (See Note J--
Unusual Items.)

Since the Company has been conducting steel manufacturing and related
operations at numerous locations for over sixty years, the Company potentially
may be required to remediate or reclaim any contamination that may be present
at these sites. The Company does not have sufficient information to estimate
its potential liability in connection with any potential future remediation at
such sites. Accordingly, the Company has not accrued for such potential
liabilities.

As these matters progress or the Company becomes aware of additional matters,
the Company may be required to accrue charges in excess of those previously
accrued. However, although the outcome of any of the matters described, to the
extent they exceed any applicable reserves, could have a material adverse
effect on the Company's results of operations and liquidity for the applicable
period, the Company has no reason to believe that such outcomes, whether
considered individually or in the aggregate, will have a material adverse
effect on the Company's financial condition.

In April 1993, the United States Environmental Protection Agency published a
proposed guidance document establishing minimum water quality standards and
other pollution control policies and procedures for the Great Lakes System.
Until such guidance document is finalized, the Company cannot estimate its
potential costs for compliance, and there can be no assurances that such
compliance will not have a material adverse effect on the Company's financial
condition.

F-21
<PAGE>

NOTE M--OTHER COMMITMENTS AND CONTINGENCIES

The Company has an agreement providing for the availability of raw material
loading and docking facilities through 2002. Under this agreement, the Company
must make advance freight payments if shipments fall below specified minimum
tonnages. At December 31, 1993, the maximum amount of such payments, before
giving effect to certain credits provided in the agreement, totaled
approximately $18 million or $2 million per year. During the three years ended
December 31, 1993, no advance freight payments were made as the Company's
shipments exceeded the minimum tonnage requirements. The Company anticipates
its shipments will exceed the minimum tonnage requirements in 1994.

In September 1990, the Company entered into a joint venture agreement to build
a $240 million continuous galvanizing line to serve North American automakers.
This joint venture, which was completed in 1994, coats steel products for the
Company and an unrelated third party. The Company is a 10% equity owner of the
facility, an unrelated third party is a 50% owner, and a subsidiary of NKK owns
the remaining 40%. The Company has contributed $5.6 million in equity capital,
which represents its total equity requirement. In addition, the Company is
committed to utilize and pay a tolling fee in connection with 50% of the
available line-time of the facility. The agreement extends for 20 years after
the start of production, which commenced in January 1993.

In March 1992, a wholly-owned subsidiary of the Company finalized a turnkey
contract for the construction and permanent financing of the Pickle Line
servicing the Great Lakes Division. The total financing commitment amounts to
$110 million. During 1993 the Company utilized $20 million of the proceeds from
the IPO to reduce the amount of construction borrowings outstanding and the
total commitment to $90 million. As of December 31, 1993 the construction
period financing was being provided by the contractor and was not a liability
of the Company. In January 1994, upon completion and acceptance of the Pickle
Line, the permanent financing commenced with repayment occurring over a
fourteen-year period. The Pickle Line is not subject to the lien securing the
Company's First Mortgage Bonds, but is subject to a first mortgage in favor of
the lender.

In May 1992, the Company signed an agreement to enter into a joint venture with
an unrelated third party. The joint venture, Double G Coating Company, L.P.
("Double G"), of which the Company owns 50%, constructed a $90 million steel
coating facility near Jackson, Mississippi to produce galvanized and
Galvalume(R) steel sheet for the metal buildings market. Approximately 20% of
the total cost is financed equally through partners' capital contributions with
the remaining 80% financed by a group of third party lenders. The Company has
committed to invest capital contributions of approximately $9 million of which
$7.6 million had been contributed through December 31, 1993. The balance of
approximately $1.4 million was paid during the first half of 1994. In addition,
the Company is committed to utilize and pay a tolling fee in connection with
50% of the available line time at the facility. This facility commenced
production in May 1994.

In August 1992, Double G entered into a loan agreement with a consortium of
lenders that provides up to $75 million in construction-period financing which
converts to a 10 year loan upon completion and acceptance of the facility by
Double G. Repayment of the permanent loan is scheduled to commence 18 months
after completion and acceptance of the facility and will be amortized over 10
years. Double G will provide a first mortgage on its property, plant and
equipment and the Company has separately guaranteed 50% of the debt. At
December 31, 1993, outstanding borrowings on the construction loan were $60.4
million, of which $30.2 million is separately guaranteed by the Company.

The Company has agreements to purchase approximately 1.4 million gross tons of
iron ore pellets per year through 1999 from an affiliated company, and 5.4
million gross tons in 1994 from various non-affiliated companies. In 1994,
purchases under such agreements will approximate $50 million and $145 million,
respectively. Additionally, the Company has agreed to purchase its
proportionate share of the limestone production of an affiliated company, which
will approximate $2 million per year.

F-22
<PAGE>

The Company is guarantor of specific obligations of ProCoil Corporation, an
affiliated company, approximating $10.8 million and $9.5 million at December
31, 1993 and 1992, respectively.

NOTE N--EXTRAORDINARY ITEM

The Rockefeller Amendment, which became effective February 1, 1993, is designed
to provide funding for the United Mine Workers of America ("UMWA") retiree
medical and life insurance benefits programs by transferring funds from other
sources and imposing a liability on all signatories to certain UMWA collective
bargaining agreements for current fund deficits and present and future benefit
costs for qualifying UMWA retirees. The Company has subsidiaries that are
signatories of the 1988 UMWA Wage Agreement and thus falls within the
Rockefeller Amendment's provisions. The Rockefeller Amendment also extends,
jointly and severally, the liability for the cost of retiree medical and life
insurance benefits to any members of the signatory operator's control group,
which would include the Company.

During 1992, the Company recorded a charge of $50 million, representing
management's best estimate of its liability for UMWA beneficiaries. Based upon
preliminary assignments from the Secretary of Health and Human Services
received during 1993, the Company believes this reserve is adequate. However,
the amount is subject to future adjustment when additional information relating
to beneficiaries becomes available.

NOTE O--TEMPORARY IDLING OF NATIONAL STEEL PELLET COMPANY

NSPC was temporarily idled in October 1993, following a strike by the USWA on
August 1, 1993, and the subsequent decision to satisfy the Company's iron ore
pellet requirements from external sources. At December 31, 1993, it was the
previous management's intention to externally satisfy its iron ore pellet
requirements for a period in excess of two years, which would have caused NSPC
to remain idle for that period. The Company determined that in accordance with
Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies," a contingent liability of $108.6 million related to the idle
period had been incurred which was recorded as an unusual charge during the
fourth quarter of 1993. This charge was primarily comprised of employee
benefits such as pensions and OPEBs, which totaled $68.6 million, along with
$40.0 million of expenses relating to the idling of the facility.

Effective June 1, 1994, the Company's Board of Directors appointed a new Chief
Operating Officer and President, a new Chief Financial Officer and Senior Vice
President and a new Vice President--Human Resources. Earlier in the year, new
USWA presidents were elected at both the international and local levels. In an
effort to reduce delivered iron ore pellet costs and improve pellet mix, as
well as to strengthen the cooperative partnership approach to labor relations,
management considered the feasibility of reopening the NSPC facility. They
determined that if a total reduction of $4 per gross ton in delivered pellet
costs from pre-strike costs could be achieved, NSPC could be reopened on a cost
effective basis. After a series of negotiations, a labor agreement (the "NSPC
Labor Agreement") was reached between the USWA and NSPC. The NSPC Labor
Agreement led to negotiations with other stakeholders such as public utilities,
transportation companies, property owners and suppliers and resulted in the
achievement of the requisite $4 per gross ton reduction in delivered pellet
costs and the reopening of the facility in August 1994.

At December 31, 1993, the USWA had filed 19 unfair labor practice charges with
the National Labor Relations Board (the "NLRB") regarding the NSPC dispute. All
NLRB charges have subsequently been dropped.

F-23
<PAGE>

NOTE P--LONG TERM INCENTIVE PLAN

The Long Term Incentive Plan was established in 1993 in connection with the IPO
and has authorized the grant of options for up to 750,000 shares of Class B
Common Stock to certain executive officers, non-employee directors and other
employees of the Company. The exercise price of the options equals the fair
market value of the Common Stock on the date of grant. All options granted have
ten year terms and generally vest and become fully exercisable at the end of
three years of continued employment. However, in the event that termination is
by reason of retirement, permanent disability or death, the option must be
exercised in whole or in part within 24 months of such occurrences.

The Company currently follows the provisions of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," which requires
compensation expense for the Company's options to be recognized only if the
market price of the underlying stock exceeds the exercise price on the date of
grant. Accordingly, the Company has not recognized compensation expense for its
options granted in 1993 or during the first nine months of 1994.

A reconciliation of the Company's stock option activity, and related
information, from January 1, 1993 through September 30, 1994 follows:

<TABLE>
<CAPTION>
EXERCISE
PRICE
NUMBER (WEIGHTED
OF OPTIONS AVERAGE)
---------- ---------
<S> <C> <C>
Balance outstanding at January 1, 1993.................. -- --
Granted................................................. 755,000 $13.99
Exercised............................................... --
Forfeited............................................... (170,832)
--------
Balance outstanding at December 31, 1993................ 584,168 $13.99
--------
Granted................................................. 303,500 $14.00
Exercised............................................... (15,056) 14.00
Forfeited............................................... (155,139)
--------
Balance outstanding at September 30, 1994............... 717,473 $14.00
========
Exercisable at December 31, 1993........................ 5,418
========
Exercisable at September 30, 1994....................... 213,973
========
</TABLE>

Outstanding stock options did not enter into the determination of EPS in 1993
or during the first nine months of 1994 as their dilutive effect was less than
3%.

F-24
<PAGE>

NOTE Q--QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

Following are the unaudited quarterly results of operations for the years 1993
and 1992. The quarters ended March 31, 1993 and 1992 have each been restated to
reflect adoption of SFAS 112 and SFAS 109, respectively, retroactive to the
beginning of each of those years. The remaining quarters of 1993 and 1992 were
not impacted by the changes. Reference should be made to Note J--Unusual Items
concerning adjustments affecting the fourth quarters of 1993 and 1992.

<TABLE>
<CAPTION>
1993
THREE MONTHS ENDED,
---------------------------------------------
(RESTATED)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- -------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.................... $587,398 $622,684 $623,272 $ 585,446
Gross profit (loss).......... (3,737) 19,389 15,055 (3,379)
Unusual charges.............. -- -- (3,294) (107,672)
Loss before cumulative effect
of accounting change........ (53,665) (17,463) (32,479) (138,801)
Cumulative effect of account-
ing change.................. (16,453) -- -- --
Net loss..................... (70,118) (17,463) (32,479) (138,801)
Per share earnings applicable
to Common Stock:
Loss before cumulative ef-
fect of accounting change. $(2.19) $(.58) $(.97) $(3.89)
Net loss................... $(2.81) $(.58) $(.97) $(3.89)
<CAPTION>
1992
THREE MONTHS ENDED,
---------------------------------------------
(RESTATED)
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
---------- -------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C> <C>
Net sales.................... $564,076 $621,287 $615,205 $572,749
Gross profit................. 29,849 52,342 44,103 25,400
Unusual charges.............. -- (2,800) (9,000) (25,184)
Income (loss) before extraor-
dinary item and cumulative
effect of accounting change. (19,070) 4,493 (11,121) (48,985)
Extraordinary item........... -- -- -- (50,000)
Cumulative effect of account-
ing change.................. 76,251 -- -- --
Net income (loss)............ 57,181 4,493 (11,121) (98,985)
Per share earnings applicable
to Common Stock:
Net income (loss) before
extraordinary item and cu-
mulative effect of ac-
counting change........... $ (.92) $.01 $(.61) $(2.09)
Net income (loss).......... $2.07 $.01 $(.61) $(4.05)
</TABLE>

NOTE R--SUBSEQUENT EVENTS

On October 12, 1994, the Company filed a Registration Statement on Form S-3
relating to a primary offering (the "Offering") of up to 6.9 million shares of
its Class B Common Stock, including 900,000 shares to cover the Underwriters'
over-allotment option. After completion of the Offering, NKK will hold
approximately 68.6% of the combined voting power of the Company's outstanding
common stock, assuming the Underwriters' over-allotment option is not
exercised.

F-25
<PAGE>

LOGO

<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the various expenses payable by the Registrant
in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All of the
amounts shown are estimated except the Securities and Exchange Commission
registration fee, the NASD filing fee and the NYSE listing fee.

<TABLE>
<S> <C>
SEC registration fee......................................... $ 46,248
NASD filing fee.............................................. 13,912
NYSE listing fee............................................. 24,500
*Blue Sky fees and expenses................................... 15,000
*Printing expenses............................................ 235,000
*Legal fees and expenses...................................... 200,000
*Accounting fees and expenses................................. 75,000
*Transfer agent and registrar fees............................ 1,500
*Miscellaneous................................................ 388,840
----------
Total..................................................... $1,000,000
==========
</TABLE>
- --------

*Estimated

ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

The form of Underwriting Agreement, filed as Exhibit 1.1 hereto, contains
certain provisions relating to indemnification.

Section 145 of the Delaware General Corporation Law (the "DGCL") empowers a
corporation, subject to certain limitations, to indemnify its directors and
officers against expenses (including attorneys' fees, judgments, fines and
certain settlements) actually and reasonably incurred by them in connection
with any suit or proceeding to which they are a party so long as they acted in
good faith and in a manner reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to a criminal action or
proceeding, so long as they had no reasonable cause to believe their conduct to
have been unlawful. The By-laws of the Company provide that the Company shall
indemnify its directors and such of its officers, employees and agents as the
Board of Directors may determine from time to time, to the fullest extent
permitted by the DGCL.

Section 102 of the DGCL and Article Tenth of the Company's Restated Certificate
of Incorporation permit the Company to limit a director's liability to the
Company or its stockholders for monetary damages for breaches of fiduciary duty
except with respect to liability for breaches of the duty of loyalty, acts or
omissions not in good faith or involving intentional misconduct, or knowing
violation of the law, and the unlawful purchase or redemption of stock or
payment of unlawful dividends or the receipt of improper personal benefits
cannot be eliminated or limited in this manner.

The DGCL authorizes the purchase of indemnification insurance by the Company.
The Company currently maintains a policy insuring, subject to certain
exceptions, its directors and officers against liabilities which may be
incurred by such persons acting in such capacities.

In addition, the Board of Directors of the Company has entered into
indemnification agreements with the directors and certain officers of the
Company. Rights of directors and officers under such indemnification agreements
are not exclusive of other rights they may have under the Company's Restated
Certificate of Incorporation, the Company's By-laws or Delaware law.

II-1
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(A) EXHIBITS

<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<S> <C>
1.1 Form of Underwriting Agreement.
2.1 Asset Purchase Agreement between Weirton Steel Corporation and the
Company, dated as of April 29, 1983, together with collateral agreements
incident to such Assets Purchase Agreement, filed as Exhibit 2 to the
report of National Intergroup, Inc. on Form 8-K dated January 10, 1984, is
incorporated herein by reference.
2.2 Stock Purchase Agreement by and among NKK Corporation, National
Intergroup, Inc. and the Company, dated August 22, 1984, together with
certain collateral agreements incident to such Stock Purchase Agreement
and certain schedules to such agreements are incorporated by reference to
Exhibit (2) (sequential pages 5 to and including 248 to National
Intergroup, Inc.'s Form 8-K dated August 31, 1984, Commission File No. 1-
8549). Other schedules to such agreements identified therein have been
omitted, but any of such schedules will be furnished supplementally to the
Commission upon request.
2.3 Stock Purchase and Recapitalization Agreement by and among National
Intergroup, Inc., NII Capital Corporation, NKK Corporation, NKK U.S.A.
Corporation and the Company dated as of June 26, 1990, filed as Exhibit 2
to the current report of the Company on Form 8-K dated July 10, 1990, is
incorporated herein by reference.
2.4 Amendment to Stock Purchase and Recapitalization Agreement by and among
National Intergroup, Inc., NII Capital Corporation, NKK Corporation, NKK
U.S.A. Corporation and the Company, dated July 31, 1991, filed as Exhibit
2-F to the annual report of the Company on Form 10-K, for the year ended
December 31, 1991, is incorporated herein by reference.
4.1 Specimen of Class B Common Stock Certificate, filed as Exhibit 4.1 to the
Company's Registration Statement on Form S-1, dated February 5, 1993, is
incorporated herein by reference.
4.2 NSC Stock Transfer Agreement between National Intergroup, Inc., the
Company, NKK Corporation and NII Capital Corporation, filed as Exhibit 4-M
to the quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1986, is incorporated herein by reference.
4.3 Form of Certificate of Designation of Series A Preferred Stock, filed as
Exhibit 4.3 to the Company's Registration Statement on Form S-1, dated
February 5, 1993, is incorporated herein by reference.
4.4 Form of Certificate of Designation of Series B Preferred Stock, filed as
Exhibit 4.4 to the Company's Registration Statement on Form S-1, dated
February 5, 1993, is incorporated herein by reference.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom regarding the legality of
the securities being registered.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (included in their opinion
filed as Exhibit 5.1).
24.1 Powers of Attorney by directors and officers of the Company (included on
page II-5 of this Registration Statement).
</TABLE>

II-2
<PAGE>

ITEM 17. UNDERTAKINGS.

(a) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934), that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.

(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(b) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, as amended, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-3
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS
ALL THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT
TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF MISHAWAKA, STATE OF INDIANA ON
NOVEMBER 17, 1994.

National Steel Corporation

*
By: ______________________________
V. John Goodwin
President and Chief Operating
Officer

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THIS
AMENDMENT TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING
PERSONS IN THE CAPACITIES INDICATED ON NOVEMBER 17, 1994.

<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
*
----------------------------------------------
Osamu Sawaragi Director and Chairman
*
----------------------------------------------
V. John Goodwin Director, President and Chief
Operating Officer
*
----------------------------------------------
Keisuke Murakami Director and Vice President--
Administration
*
----------------------------------------------
Hiroshi Matsumoto Director, Vice President and
Assistant to the President
*
----------------------------------------------
Edwin V. Clarke, Jr. Director

----------------------------------------------
Ronald H. Doerr Director
*
----------------------------------------------
Masayuki Hanmyo Director
*
----------------------------------------------
Kenichiro Sekino Director
*
----------------------------------------------
Robert J. Slater Director
/s/ Robert M. Greer
----------------------------------------------
Robert M. Greer Senior Vice President and
Chief Financial Officer
/s/ Carl M. Apel
----------------------------------------------
Carl M. Apel Corporate Controller,
Accounting and Assistant
Secretary
</TABLE>

/s/ Robert M. Greer

*By_________________________________

Attorney-in-fact

II-4
<PAGE>

EXHIBIT INDEX

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DOCUMENT DESCRIPTION NUMBER
------- -------------------- ----------
<C> <S> <C>
1.1 Form of Underwriting Agreement.
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom regarding
the legality of the securities being registered.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom (included
in their opinion filed as Exhibit 5.1).
*24.1 Powers of Attorney by directors and officers of the
Company (included on page
II-5 of this Registration Statement).
</TABLE>
- --------

* Previously filed.

<PAGE>

EXHIBIT 1.1

NATIONAL STEEL CORPORATION

6,000,000 Shares

Class B Common Stock

Underwriting Agreement

_________ __, 1994

J.P. Morgan Securities Inc.
PaineWebber Incorporated
Salomon Brothers Inc
As representatives of the
several U.S. underwriters
listed in Schedule I hereto
c/o J.P. Morgan Securities Inc.
60 Wall Street
New York, New York 10260

J.P. Morgan Securities Ltd.
PaineWebber International (U.K.) Ltd.
Salomon Brothers International Limited
As representatives of the
several international managers
listed in Schedule II hereto
c/o J.P. Morgan Securities Ltd.
60 Victoria Embankment
London EC4Y OJP

Dear Sirs:

National Steel Corporation, a Delaware corporation (the "Company"),
proposes to issue and sell to the several Underwriters (as defined below) an
aggregate of 6,000,000 shares of its class B common stock, par value $.01 per
share (the "Underwritten Shares") and, for the sole purpose of covering over-
allotments in connection with the sale of the Underwritten Shares, at the option
of the Underwriters, up to an additional 900,000 shares of its class B common
stock, par value $.01 per share (the "Option Shares"). The

<PAGE>

Underwritten Shares and the Option Shares are herein referred to as the
"Shares".

It is understood that, subject to the conditions hereinafter stated,
4,800,000 Underwritten Shares (the "U.S. Underwritten Shares") will be sold to
the several U.S. underwriters named in Schedule I hereto (the "U.S.
Underwriters") in connection with the offering and sale of such U.S.
Underwritten Shares in the United States and Canada to United States and
Canadian Persons (as such terms are defined in the Intersyndicate Agreement of
even date herewith between the U.S. Underwriters and the International
Managers), and 1,200,000 Underwritten Shares (the "International Shares") will
be sold to the several international managers named in Schedule II hereto (the
"International Managers") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. J.P. Morgan Securities Inc., PaineWebber
Incorporated and Salomon Brothers Inc shall act as representatives (the "U.S.
Representatives") of the several U.S. Underwriters, and J.P. Morgan Securities
Ltd., PaineWebber International (U.K.) Ltd. and Salomon Brothers International
Limited shall act as representatives (the "International Representatives") of
the several International Managers. The U.S. Underwriters and the International
Managers are hereinafter collectively referred to as the "Underwriters", and the
U.S. Representatives and International Representatives are hereinafter
collectively referred to as the "Representatives".

The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement relating to the Shares. The registration statement contains two
prospectuses to be used in connection with the offering and sale of the Shares:
the U.S. prospectus, to be used in connection with the offering and sale of
Shares in the United States and Canada to United States and Canadian Persons,
and the international prospectus, to be used in connection with the offering and
sale of Shares outside the United States and Canada to persons other than United
States and Canadian Persons. The international prospectus is identical to the
U.S. prospectus except for the outside front cover page. The registration
statement as amended at the time when it shall become effective, or, if a post-
effective amendment is filed with respect thereto, as amended by such post-
effective amendment at the time of its effectiveness, including in each case

2
<PAGE>

information (if any) deemed to be part of the registration statement at the time
of effectiveness pursuant to Rule 430A under the Securities Act, is referred to
in this Agreement as the "Registration Statement", and the U.S. prospectus and
the international prospectus in the respective forms first filed with the
Commission pursuant to Rule 424(b) under the Securities Act and deemed by virtue
of Rule 430A under the Securities Act to be part of the registration statement
at the time it was declared effective are hereinafter collectively referred to
as the "Prospectus". Any reference in this Agreement to the Registration
Statement, any preliminary prospectus or the Prospectus shall be deemed to refer
to and include the documents incorporated by reference therein pursuant to Item
12 of Form S-3 under the Securities Act, as of the effective date of the
Registration Statement or the date of such preliminary prospectus or the
Prospectus, as the case may be and any reference to "amend", "amendment" or
"supplement" with respect to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to refer to and include any
documents filed after such date under the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder
(collectively, the "Exchange Act") that are deemed to be incorporated by
reference therein.

The Company hereby agrees with the Underwriters as follows:

1. The Company agrees to issue and sell the Underwritten Shares to the
several Underwriters as hereinafter provided, and each Underwriter, upon the
basis of the representations and warranties herein contained, but subject to the
conditions hereinafter stated, agrees to purchase, severally and not jointly,
from the Company the respective number of Underwritten Shares set forth opposite
such Underwriter's name in Schedules I and II hereto at a purchase price (the
"Purchase Price") of $_____ per share.

In addition, the Company agrees to issue and sell the Option Shares to the
several Underwriters as hereinafter provided, and on the basis of the
representations and warranties herein contained, but subject to the conditions
hereafter stated, the U.S. Underwriters shall have the option to purchase,
severally and not jointly, from the Company up to an aggregate of 720,000 Option
Shares (the "U.S. Option Shares") and the International Managers shall have the
option to purchase, severally and not jointly, from the Company up to an
aggregate of 180,000 Option Shares (the "International Option Shares"), in each
case, at the Purchase Price for the sole purpose of covering

3
<PAGE>

over-allotments (if any) in the sale of Underwritten Shares by the several
Underwriters.

If any U.S. Option Shares are to be purchased, the number of Option Shares
to be purchased by each U.S. Underwriter shall be the number of U.S. Option
Shares which bears the same ratio to the aggregate number of U.S. Option Shares
being purchased as the number of U.S. Underwritten Shares set forth opposite the
name of such U.S. Underwriter in Schedule I hereto (or such amount increased as
set forth in Section 9 hereof) bears to the aggregate number of U.S.
Underwritten Shares being purchased from the Company by the several U.S.
Underwriters, subject, however, to such adjustments to eliminate any fractional
shares as the U.S. Representatives in their sole discretion shall make. If any
International Option Shares are to be purchased, the number of International
Option Shares to be purchased by each International Manager shall be the number
of International Option Shares which bears the same ratio to the aggregate
number of International Option Shares being purchased as the number of
International Underwritten Shares set forth opposite the name of such
International Manager in Schedule II hereto (or such amount increased as set
forth in Section 9 hereof) bears to the aggregate number of International
Underwritten Shares being purchased from the Company by the several
International Managers, subject, however, to such adjustments to eliminate any
fractional shares as the International Representatives in their sole discretion
shall make.

The U.S. Underwriters may exercise the option to purchase the U.S. Option
Shares at any time (but not more than once) on or before the thirtieth day
following the date of this Agreement, by written notice from the U.S.
Representatives to the Company. The International Managers may exercise the
option to purchase the International Option Shares at any time (but not more
than once) on or before the thirtieth day following the date of this Agreement,
by written notice from the International Representatives to the Company. Any
such notice shall set forth the aggregate number of Option Shares as to which
the option is being exercised and the date and time when the Option Shares are
to be delivered and paid for which may be the same date and time as the Closing
Date (as hereinafter defined) but shall not be earlier than the Closing Date nor
later than the tenth full Business Day (as hereinafter defined) after the date
of such notice (unless such time and date are postponed in accordance with the
provisions of Section 9 hereof). Any such notice shall be given at least two
Business Days prior to the date and time of delivery specified therein.

4
<PAGE>

2. The Company understands that the Underwriters intend (i) to make a
public offering of the Shares as soon after the Registration Statement and this
Agreement have become effective as in the judgment of the Representatives is
advisable and (ii) initially to offer the Shares upon the terms set forth in the
Prospectus. It is understood that the International Managers propose to offer
the International Shares for sale as set forth in the international prospectus.
The Company and each International Manager agrees that it will not, directly or
indirectly, purchase, offer, sell or deliver any International Shares or have in
its possession or distribute or publish the international prospectus or any
other offering material in any country or jurisdiction except under
circumstances that will not violate any applicable laws and regulations and that
will not impose any material obligations on the Company or any International
Manager.

3. Payment for the Shares shall be made to the Company or to its order by
certified or official bank check or checks payable in New York Clearing House or
other next day funds at the offices of Skadden, Arps, Slate, Meagher & Flom, 919
Third Avenue, New York, New York 10022 at 10:00 A.M., New York City time, in the
case of the Underwritten Shares, on ________ __, 1994, or at such other time on
the same or such other date, not later than the fifth Business Day thereafter,
as the Representatives and the Company may agree upon in writing or, in the case
of the U.S. Option Shares, on the date and time specified by the U.S.
Representatives in the written notice of the U.S. Underwriters' election to
purchase such U.S. Option Shares or, in the case of the International Option
Shares, on the date and time specified by the International Managers in the
written notice of the International Managers' election to purchase such
International Option Shares. The time and date of such payment for the
Underwritten Shares are referred to herein as the Closing Date and the time and
date for each such payment for the Option Shares, if other than the Closing
Date, are herein referred to as an Additional Closing Date. As used herein, the
term "Business Day" means any day other than a day on which banks are permitted
or required to be closed in New York City.

Payment for the Shares to be purchased on the Closing Date or an Additional
Closing Date, as the case may be, shall be made against delivery to the
Representatives for the respective accounts of the several Underwriters of the
Shares to be purchased on such date registered in such names and in such
denominations as the Representatives shall request in writing not later than two
full Business Days prior to the Closing Date or such Additional Closing Date,

5
<PAGE>

as the case may be. The certificates for the Shares will be made available for
inspection and packaging by the Representatives at the offices of Skadden, Arps,
Slate, Meagher & Flom set forth above not later than 1:00 P.M., New York City
time, on the Business Day prior to the Closing Date or such Additional Closing
Date, as the case may be.

4. The Company represents and warrants to each Underwriter that:

(a) no order preventing or suspending the use of any preliminary
prospectus has been issued by the Commission and each preliminary
prospectus filed as part of the Registration Statement as originally filed
or as part of any amendment thereto, or filed pursuant to Rule 424 under
the Securities Act, complied when so filed in all material respects with
the Securities Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; provided that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by such Underwriter through
the Representatives expressly for use therein;

(b) no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceeding for that purpose has been
instituted or, to the knowledge of the Company, threatened by the
Commission; and the Registration Statement and Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) comply, or will comply, as the case may be, in all
material respects with the Securities Act and do not and will not, as of
the applicable effective date as to the Registration Statement and any
amendment thereto and as of the date of the Prospectus and any amendment or
supplement thereto, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Prospectus, as amended
or supplemented at the Closing Date, if applicable, will not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; except that the foregoing
representations and warranties shall not

6
<PAGE>

apply to statements or omissions in the Registration Statement or the
Prospectus made in reliance upon and in conformity with information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through the Representatives expressly for use therein;

(c) the documents incorporated by reference in the Prospectus, when
they were filed with the Commission, as amended at or prior to the date the
Registration Statement became effective, conformed in all material respects
to the requirements of the Exchange Act and none of such documents
contained an untrue statement of a material fact or omitted to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and any further
documents so filed and incorporated by reference in the Prospectus, when
such documents are filed with the Commission, will conform in all material
respects to the requirements of the Exchange Act, and will not contain an
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading;

(d) the consolidated financial statements, and the related notes
thereto, included or incorporated by reference in the Registration
Statement and the Prospectus present fairly the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
indicated and the results of their operations and the changes in their
consolidated cash flows for the periods specified; and said consolidated
financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis except as
otherwise specified therein or in the reports related thereto, and the
supporting schedules included or incorporated by reference in the
Registration Statement present fairly the information required to be stated
therein;

(e) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any
material adverse change in or affecting the business, prospects, financial
position or results of operations of the Company and its subsidiaries
(which term shall be limited to entities in which the Company has a
majority interest) taken as a whole, otherwise than as set forth

7
<PAGE>

or contemplated in the Prospectus; and, except as set forth or contemplated
in the Prospectus, neither the Company nor any of its subsidiaries has
entered into any transaction or agreement (whether or not in the ordinary
course of business) material to the Company and its subsidiaries taken as a
whole;

(f) the Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the state of its
incorporation, with corporate power and authority to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties, or conducts any business, so as to require such
qualification, other than where the failure to be so qualified or in good
standing would not have a material adverse effect on the Company and its
subsidiaries taken as a whole;

(g) the Company has no "significant subsidiaries" within the meaning
of Rule 1-02 of Regulation S-X promulgated by the Commission;

(h) this Agreement has been duly authorized, executed and delivered
by the Company;

(i) the authorized capital stock of the Company conforms as to legal
matters to the description thereof set forth in the Registration Statement
and the Prospectus, and all of the outstanding shares of capital stock of
the Company have been duly authorized and validly issued, are fully-paid
and non-assessable and are not subject to any pre-emptive or similar
rights; and, except as described in or expressly contemplated by the
Prospectus, there are no outstanding rights (including, without limitation,
preemptive rights), warrants or options to acquire, or instruments
convertible into or exchangeable for, any shares of capital stock or other
equity interest in the Company or any of its subsidiaries, or any contract,
commitment, agreement, understanding or arrangement of any kind relating to
the issuance of any capital stock of the Company or any such subsidiary,
any such convertible or exchangeable securities or any such rights,
warrants or options;

(j) the Shares to be issued and sold by the Company hereunder have
been duly authorized, and, when delivered to and paid for by the
Underwriters in

8
<PAGE>

accordance with the terms of this Agreement, will have been duly issued and
will be fully paid and non-assessable and will conform to the descriptions
thereof in the Prospectus; and the issuance of the Shares is not subject to
any preemptive or similar right;

(k) neither the Company nor any of its subsidiaries is, or with the
giving of notice or lapse of time or both would be, in violation of or in
default under, its Certificate of Incorporation or By-Laws or any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which it or any of them or any of their respective properties is bound,
except for violations and defaults which individually and in the aggregate
are not material to the Company and its subsidiaries taken as a whole; the
issue and sale of the Shares and the performance by the Company of its
obligations under this Agreement and the consummation of the transactions
contemplated herein will not conflict with or result in a breach of any of
the terms or provisions of, or constitute a default under, any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries is bound or to which any of
the property or assets of the Company or any of its subsidiaries is
subject, nor will any such action result in any violation of the provisions
of the Certificate of Incorporation or the By-Laws of the Company or any
violation by the Company of any applicable law or statute or any order,
rule or regulation of any court or governmental agency or body having
jurisdiction over the Company, its subsidiaries or any of their respective
properties, except for conflicts, breaches, defaults and violations which
individually and in the aggregate are not material to the Company and its
subsidiaries taken as a whole; and no consent, approval, authorization,
order, registration or qualification of or with any court or governmental
agency or body is required for the issue and sale of the Shares by the
Company or the consummation by the Company of the transactions contemplated
by this Agreement, except such consents, approvals, authorizations,
registrations or qualifications (i) as have been obtained under the
Securities Act, (ii) as may be required under state securities or Blue Sky
Laws in connection with the purchase and distribution of the Shares by the
Underwriters, (iii) the absence of which individually

9
<PAGE>

and in the aggregate both are not material to the Company and its
subsidiaries taken as a whole and would not have a material adverse effect
on the sale or ownership of the Shares and (iv) as may be required under
foreign securities laws in connection with the purchase and sale of the
Shares by the International Managers;

(l) other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending or, to the knowledge of
the Company, threatened to which the Company or any of its subsidiaries is
or may be a party or to which any property of the Company or any of its
subsidiaries is or may be the subject in which there is a reasonable
possibility of an adverse decision which could materially adversely affect
the business, prospects, financial position or results of operations of the
Company and its subsidiaries, taken as a whole, and, to the best of the
Company's knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others; and there are no statutes
or regulations, the effect of which is required to be described in the
Registration Statement or Prospectus, or contracts or other documents of a
character required to be described in the Registration Statement or the
Prospectus or required to be filed as an exhibit to the Registration
Statement which are not described or filed as required;

(m) the Company and its subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws described in clause (i), failure to
receive required permits, licenses or other approvals described in clause
(ii) or failure to comply with the terms and conditions of such permits,
licenses or approvals described in clause (iii) would not, individually or
in the aggregate, have a material adverse effect on the Company and its
subsidiaries taken as a whole;

10
<PAGE>

(n) other than as set forth or contemplated in the Prospectus, the
Company has reasonably concluded that the costs and liabilities associated
with the effect of Environmental Laws on the business, operations and
properties of the Company and its subsidiaries (including, without
limitation, any capital or operating expenditures required for clean-up,
closure of properties or compliance with Environmental Laws or any permit,
license or approval, any related constraints on operating activities and
any potential liabilities to third parties) would not, individually or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries taken as a whole;

(o) each of the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits of
and from, and has made all declarations and filings with, all federal,
state, local and other governmental authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease, license
and use its properties and assets and to conduct its business in the manner
described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company and
its subsidiaries taken as a whole;

(p) the Company and its subsidiaries have good title to all items of
real property and personal property owned by them, in each case free and
clear of all liens, encumbrances and defects except such as are referred to
in the Prospectus or such as would not individually or in the aggregate
have a material adverse effect on the Company and its subsidiaries taken as
a whole; and any real property and buildings held under lease by the
Company and its subsidiaries are held by them under valid, existing and,
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereinafter in effect relating to creditors' rights
generally and general principles of equity, enforceable leases with such
exceptions as would not individually or in the aggregate have a material
adverse effect on the Company and its subsidiaries taken as a whole;

(q) no relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors,
officers, stockholders, customers or suppliers of the Company or any of its
subsidiaries on the other hand, which is

11
<PAGE>

required by the Securities Act to be described in the Registration
Statement and the Prospectus which is not so described in all material
respects;

(r) except as described in the Prospectus, no person has the right to
require the Company to register any securities for offering and sale under
the Securities Act by reason of the filing of the Registration Statement
with the Commission or the issue and sale of the Shares; and

(s) the Company has complied in all material respects with all
provisions of Section 517.075, Florida Statutes (Chapter 92-198, Laws of
Florida).

5. The Company covenants and agrees with the several Underwriters as
follows:

(a) to use all reasonable efforts to cause the Registration Statement
to become effective at the earliest possible time and, if required, to file
the final Prospectus with the Commission within the time periods specified
by Rule 424(b) and Rule 430A under the Securities Act;

(b) to deliver, at the expense of the Company, to the
Representatives, four signed copies of the Registration Statement (as
originally filed) and each amendment thereto, in each case including
exhibits, and to each other Underwriter a conformed copy of the
Registration Statement (as originally filed) and each amendment thereto, in
each case without exhibits and, during the period mentioned in paragraph
(e) below, to each of the Underwriters as many copies of the Prospectus
(including all amendments and supplements thereto) as the Representatives
may reasonably request;

(c) before filing any amendment or supplement to the Registration
Statement or the Prospectus, whether before or after the time the
Registration Statement becomes effective, to furnish to the Representatives
a copy of the proposed amendment or supplement for review and to give
reasonable consideration to any comments or objections of the
Representatives before filing any such proposed amendment or supplement;

(d) to advise the Representatives promptly, and to confirm such
advice in writing, (i) when the Registration Statement shall become
effective, (ii) when any amendment to the Registration Statement shall have
become effective, (iii) of any request by

12
<PAGE>

the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for any additional
information, (iv) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation or threatening of any proceeding for that purpose, and (v) of
the receipt by the Company of any notification with respect to any
suspension of the qualification of the Shares for offer and sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose; and to use all reasonable efforts to prevent the issuance of any
such stop order or notification and, if issued, to obtain as soon as
possible the withdrawal thereof;

(e) if, during such period of time after the first date of the public
offering of the Shares as in the opinion of counsel for the Underwriters a
prospectus relating to the Shares is required by law to be delivered in
connection with sales by the Underwriters or any dealer, any event shall
occur as a result of which it is necessary to amend or supplement the
Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not
misleading, or if it is necessary to amend or supplement the Prospectus to
comply with law, forthwith to prepare and furnish, at the expense of the
Company, to the Underwriters and to the dealers (whose names and addresses
the Representatives will furnish to the Company) to which Shares may have
been sold by the Representatives on behalf of the Underwriters and to any
other dealers upon request, such amendments or supplements to the
Prospectus as may be necessary so that the statements in the Prospectus as
so amended or supplemented will not, in the light of the circumstances when
the Prospectus is delivered to a purchaser, be misleading or so that the
Prospectus will comply with law;

(f) to endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as the Representatives
shall reasonably request and to continue such qualification in effect for a
period of up to 12 months for distribution of the Shares and to pay all
fees and expenses (including fees and disbursements of counsel to the
Underwriters) reasonably incurred in connection with such qualification;
provided that the Company shall not be required to file a general consent
to service of process in any jurisdiction or to qualify as a foreign
corporation or as a dealer in securities in any

13
<PAGE>

jurisdiction in which it is not already so qualified or to subject itself
to taxation in respect of doing business in any jurisdiction in which it is
not otherwise so subject;

(g) to make generally available to its security holders and to the
Representatives as soon as practicable an earnings statement covering a
period of at least twelve months beginning with the first fiscal quarter of
the Company occurring after the effective date of the Registration
Statement, which shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 of the Commission promulgated thereunder;

(h) so long as the Shares are outstanding, to furnish to the
Representatives upon request copies of all reports or other communications
(financial or other) furnished to holders of Shares, and copies of any
reports and financial statements furnished to or filed with the Commission
or any national securities exchange;

(i) for a period of 90 days after the date of the initial public
offering of the Shares not to offer, sell, contract to sell or otherwise
dispose of any shares of common stock of the Company including, without
limitation, class A common stock of the Company and class B common stock of
the Company, or any securities convertible into or exercisable or
exchangeable for shares of common stock of the Company without the prior
written consent of J.P. Morgan Securities Inc., other than the Shares to be
sold hereunder and shares or options therefor sold or granted pursuant to
employee benefit plans resales of which shares or options shall be
restricted for a period of 90 days after the date of the initial public
offering of the Shares;

(j) to pay all costs and expenses incident to the performance of its
obligations hereunder, including without limiting the generality of the
foregoing, all costs and expenses (i) incident to the preparation,
issuance, execution and delivery of the Shares, (ii) incident to the
preparation, printing and filing under the Securities Act of the
Registration Statement, the Prospectus and any preliminary prospectus
(including in each case all exhibits, amendments and supplements thereto),
(iii) filing fees and fees of counsel for the Underwriters and their
disbursements incurred in connection with the registration or qualification
of the Shares under the laws of such

14
<PAGE>

jurisdictions as the Representatives may reasonably request, (iv) in
connection with the listing of the Shares on any stock exchange, (v)
related to the filing with, and clearance of the offering by, the National
Association of Securities Dealers, Inc. and (vi) in connection with the
printing (including word processing and duplication costs) and delivery of
this Agreement, the Preliminary and Supplemental Blue Sky Memoranda and the
furnishing to the Underwriters and dealers of copies of the Registration
Statement and the Prospectus, including mailing and shipping, as herein
provided.

6. The several obligations of the Underwriters hereunder to purchase
the Underwritten Shares are subject to the performance by the Company of its
obligations hereunder and to the following additional conditions:

(a) the Registration Statement shall have become effective (or if a
post-effective amendment is required to be filed under the Securities Act,
such post-effective amendment shall have become effective) not later than
5:00 P.M., New York City time, on the date hereof; and no stop order
suspending the effectiveness of the Registration Statement shall be in
effect, and no proceedings for such purpose shall be pending before or
threatened by the Commission;

(b) the representations and warranties of the Company contained
herein shall be true and correct on and as of the Closing Date, provided
that the representations and warranties contained in Section 4(l) shall be
true and correct in all material respects, as if made on and as of the
Closing Date and the Company shall have complied in all material respects
with all agreements and all conditions on its part to be performed or
satisfied hereunder at or prior to the Closing Date;

(c) since the respective dates as of which information is given in
the Registration Statement and the Prospectus there shall not have been any
material adverse change in or affecting the business, prospects, financial
position or results of operations of the Company and its subsidiaries taken
as a whole, otherwise than as set forth or contemplated in the Prospectus,
the effect of which in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the
delivery of the Shares on the terms and in the manner contemplated in the
Prospectus;

15
<PAGE>

(d) the Representatives shall have received on and as of the Closing
Date a certificate of an executive officer of the Company satisfactory to
the Representatives to the effect set forth in subsections (a) through (b)
of this Section and to the further effect that since the respective dates
as of which information is given in the Registration Statement and the
Prospectus there has not occurred any material adverse change in or
affecting the business, prospects, financial position or results of
operations of the Company and its subsidiaries taken as a whole, otherwise
than as set forth or contemplated in the Prospectus;

(e) Skadden, Arps, Slate, Meagher & Flom, special counsel for the
Company, shall have furnished to the Representatives their written opinion,
dated the Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:

(i) the Company is duly incorporated and validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation, with corporate power and authority to own its
properties and conduct its business as described in the Prospectus;

(ii) this Agreement has been duly authorized, executed and
delivered by the Company;

(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;

(iv) the Shares to be issued and sold by the Company hereunder
have been duly authorized, and when delivered to and paid for by the
Underwriters in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-assessable and the issuance of the
Shares is not subject to any preemptive or similar rights;

(v) the issue and sale of the Shares and the performance by the
Company of its obligations under this Agreement and the consummation
by the Company of the transactions contemplated herein will not
conflict with or result in a breach of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust, loan agreement or other material agreement or instrument
relating to the Company or any of

16
<PAGE>

its subsidiaries which is set forth on Schedule VI(e)(v) hereto, nor
will any such action result in any violation of the provisions of the
Certificate of Incorporation, or the By-Laws of the Company or any
applicable U.S. law or statute or any order, rule or regulation of any
U.S. court or governmental agency or body having jurisdiction over the
Company, its subsidiaries or any of their respective properties,
provided that such counsel's opinion may be limited to those laws,
rules and regulations of the United States of America, the State of
Delaware and the State of Illinois, in each case, which, in such
counsel's opinion, are normally applicable to transactions of the type
contemplated by this Agreement, and provided further, that such
counsel need not express any opinion with respect to state securities
or Blue Sky laws in connection with the purchase and distribution of
the Shares by the Underwriters or with respect to conflicts, breaches
or violations which individually and in the aggregate both are not
material to the Company and its subsidiaries taken as a whole and
would not have a material adverse effect on the sale or ownership of
the Shares or which may be required under foreign laws in connection
with the purchase and distribution of the Shares by the International
Managers;

(vi) no consent, approval, authorization, order, registration or
qualification of or with any U.S. court or governmental agency or body
is required for the issue and sale of the Shares by the Company or the
consummation by the Company of the other transactions contemplated by
this Agreement, except such consents, approvals, authorizations,
registrations or qualifications (w) as have been obtained under the
Securities Act, (x) as may be required under state securities or Blue
Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters, (y) the absence of which individually or
in the aggregate both are not material to the Company and its
subsidiaries taken as a whole and would not have a material adverse
effect on the sale or ownership of the Shares and (z) may be required
under foreign laws in connection with the purchase and distribution of
the Shares by the International Managers (as to which clauses (w)
through (z) such counsel need not express any opinion);

17
<PAGE>

(vii) the contracts and agreements described in the Prospectus
under "Certain Relationships and Related Transactions" conform in all
material respects to the descriptions thereof contained in the
Prospectus, and the statements in the Prospectus under "Certain United
States Tax Consequences to Non-United States Holders" and "Description
of Capital Stock", insofar as such statements constitute a summary of
the legal matters or documents referred to therein, fairly present the
information called for with respect to such legal matters or
documents; and

(viii) (A) such counsel is of the opinion that each document, if
any, filed pursuant to the Exchange Act and incorporated by reference
in the Registration Statement and the Prospectus (except for financial
statements and schedules as to which such counsel need not express any
opinion) complied when so filed as to form in all material respects
with the Exchange Act and the rules and regulations of the Commission
thereunder, (B) such counsel is of the opinion that the Registration
Statement and the Prospectus and any amendments and supplements
thereto (except for the financial statements included therein or
omitted therefrom as to which such counsel need express no opinion)
appear on their face to comply as to form in all material respects
with the requirements of the Securities Act and (C) no facts have come
to such counsel's attention which have led them to believe that
(except for the financial statements included therein or omitted
therefrom as to which such counsel need express no belief) the
Registration Statement and the prospectus included therein at the time
the Registration Statement became effective contained any untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading, and that the Prospectus as amended or
supplemented, if applicable, contains any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading.

In rendering such opinions, such counsel may rely (A) as to
matters involving the application of laws other than the laws of the United
States and the

18
<PAGE>

States of Delaware and New York, to the extent such counsel deems proper
and to the extent specified in such opinion, if at all, upon an opinion or
opinions (reasonably satisfactory to Underwriters' counsel) of other
counsel reasonably acceptable to the Underwriters' counsel, familiar with
the applicable laws; and (B) as to matters of fact, to the extent such
counsel deems proper, on certificates of responsible officers of the
Company and certificates or other written statements of officials of
jurisdictions having custody of documents respecting the corporate
existence or good standing of the Company. For purposes of rendering such
opinions, compliance with financial covenants contained in any indenture,
mortgage, deed of trust, loan agreement or other material agreement or
instrument relating to the Company or any of its subsidiaries shall be
deemed to be a question of fact. The opinion of such special counsel for
the Company shall state that the opinion of any such other counsel is in
form satisfactory to such counsel and that such counsel believes that the
Underwriters and they are justified in relying thereon. With respect to
the matters to be covered in subparagraph (viii) above, counsel may state
that (A) they are not passing upon the adequacy of the derivation or
compilation from Company financial statements or financial records of any
financial or statistical data and (B) their opinion and belief is based
upon their participation in the preparation of the Registration Statement
and the Prospectus and any amendment or supplement thereto and review and
discussion of the contents thereof but is without independent check or
verification except as specified.

(f) Babst, Calland, Clements & Zomnir, special counsel for the
Company, shall have furnished to the Representatives their written opinion,
dated the Closing Date, in form and substance satisfactory to the
Representatives, to the effect that:

(i) the Company has been duly qualified as a foreign corporation
for the transaction of business and is in good standing under the laws
of each other jurisdiction in which it owns or leases properties, or
conducts any business, so as to require such qualification, other than
where the failure to be so qualified or in good standing would not
have a material adverse effect on the Company and its subsidiaries
taken as a whole;

19
<PAGE>

(ii) the shares of capital stock of the Company outstanding prior
to the issuance of the Shares to be sold by the Company have been duly
authorized and are validly issued, fully paid and non-assessable;

(iii) other than as set forth or contemplated in the Prospectus,
to the best of such counsel's knowledge, based entirely on such
counsel's actual knowledge and the certifications set forth in the
certificates attached to such counsel's opinion, the form of which
certificates are attached hereto as Schedule VI, there are no legal or
governmental proceedings pending, threatened or contemplated to which
the Company or any of its subsidiaries is or may be a party or to
which any property of the Company or its subsidiaries is or may be the
subject in which there is a reasonable possibility of an adverse
decision which could materially adversely affect the business,
financial position or results of operations of the Company and its
subsidiaries taken as a whole; and, to the best of such counsel's
knowledge, based entirely on such counsel's actual knowledge and the
certifications set forth in the certificates attached to such
counsel's opinion, the form of which certificates are attached hereto
as Schedule VI, such counsel does not know of any statutes,
regulations, contracts or other documents of a character required to
be described in the Registration Statement or the Prospectus which are
not described as required nor has such counsel concluded that there
are any contracts or other documents required to be filed as an
exhibit to the Registration Statement which have not been filed as
required;

(iv) to the best of such counsel's knowledge, based entirely on
such counsel's actual knowledge and the certifications set forth in
the certificates attached to such counsel's opinion, the form of which
certificates are attached hereto as Schedule VI, the Company has all
necessary consents, authorizations, approvals, orders, certificates
and permits of and from, and has made all declarations and filings
with, all federal, state, local and other U.S. governmental
authorities, all self-regulatory organizations and all U.S. courts and
other tribunals, to own, lease, license and use its properties and
assets and to conduct its business in the manner

20
<PAGE>

described in the Prospectus, except to the extent that the failure to
obtain or file would not have a material adverse effect on the Company
and its subsidiaries taken as a whole;

(v) to the best of such counsel's knowledge, based entirely on
such counsel's actual knowledge, the certifications set forth in the
certificates attached to such counsel's opinion, the form of which
certificates are attached hereto as Schedule VI, and discussions with
counsel representing the Company in such matters, the statements in
the Prospectus under "Business - Legal Proceedings", insofar as such
statements constitute a summary of the legal matters, documents or
proceedings referred to therein, fairly present the information called
for with respect to such legal matters, documents or proceedings; and

(vi) no facts have come to such counsel's attention which have led
them to believe that (except for the financial statements included
therein or omitted therefrom as to which such counsel need express no
belief) the Registration Statement, the prospectus included therein
and the documents incorporated therein by reference at the time the
Registration Statement became effective contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading, and that the Prospectus as amended or supplemented, if
applicable, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.

In rendering such opinions, such counsel may (A) rely as to
matters of fact, to the extent such counsel deems proper, on certificates
of responsible officers of the Company and certificates or other written
statements of officials of jurisdictions having custody of documents
respecting the corporate existence or good standing of the Company and (B)
state that they are not passing upon the adequacy or accuracy of the
derivation or compilation from Company financial statements or financial
records of any financial or statistical data.

21
<PAGE>

(g) on the effective date of the Registration Statement and the
effective date of the most recently filed post-effective amendment to the
Registration Statement and also on the Closing Date, Ernst & Young shall
have furnished to the Representatives letters, dated the respective dates
of delivery thereof, in form and substance satisfactory to the
Representatives, containing statements and information of the type
customarily included in accountants "comfort letters" to underwriters with
respect to the financial statements and certain financial information
contained in the Registration Statement and the Prospectus;

(h) the Representatives shall have received on and as of the Closing
Date an opinion of Davis Polk & Wardwell, counsel to the Underwriters, with
respect to the due authority and valid issuance of the Shares, the
Registration Statement, the Prospectus and other related matters as the
Representatives may reasonably request, and such counsel shall have
received such papers and information as they may reasonably request to
enable them to pass upon such matters;

(i) the Shares shall have been approved for listing on the New York
Stock Exchange, subject to official notice of issuance; and

(j) on or prior to the Closing Date the Company shall have furnished
to the Representatives such further certificates and documents as the
Representatives shall reasonably request.

The several obligations of the Underwriters to purchase Option Shares hereunder
on any Additional Closing Date are subject to satisfaction of the conditions set
forth in paragraphs (a) through (j) above on and as of such Additional Closing
Date, except that the certificate called for by paragraph (d) above, the
opinions called for by paragraphs (e), (f) and (h) above and the third letter
called for by paragraph (g) above shall be dated such Additional Closing Date.

7. The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act, from
and against any and all losses, claims, damages and liabilities (including,
without limitation, the reasonable legal fees and other reasonable expenses
incurred in connection with any suit, action or proceeding or any claim
asserted) caused by any untrue statement or alleged

22
<PAGE>

untrue statement of a material fact contained in the Registration Statement or
the Prospectus (as amended or supplemented if the Company shall have furnished
any amendments or supplements thereto) or any preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Underwriter
furnished to the Company in writing by such Underwriter through the
Representatives expressly for use therein; provided that the foregoing indemnity
with respect to any preliminary prospectus shall not inure to the benefit of any
Underwriter (or to the benefit of any person controlling such Underwriter) from
whom the person asserting any such losses, claims, damages or liabilities
purchased Shares if such untrue statement or omission or alleged untrue
statement or omission made in such preliminary prospectus is eliminated or
remedied in the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) and, if required by law, a copy
of the Prospectus (as so amended or supplemented) shall not have been furnished
to such person at or prior to the written confirmation of the sale of such
Shares to such person.

Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement and each person who controls the Company within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act, to the same extent
as the foregoing indemnity from the Company to each Underwriter, but only with
reference to information relating to such Underwriter furnished to the Company
in writing by such Underwriter through the Representatives expressly for use in
the Registration Statement, the Prospectus, any amendment or supplement thereto,
or any preliminary prospectus.

If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such person (the "Indemnified Person") shall promptly
notify the person against whom such indemnity may be sought (the "Indemnifying
Person") in writing, and the Indemnifying Person, upon request of the
Indemnified Person, shall retain counsel reasonably satisfactory to the
Indemnified Person to represent the

23
<PAGE>

Indemnified Person and any others the Indemnifying Person may designate in such
proceeding and shall pay the fees and expenses of such counsel related to such
proceeding. In any such proceeding, any Indemnified Person shall have the right
to retain its own counsel, but the fees and expenses of such counsel shall be at
the expense of such Indemnified Person unless (i) the Indemnifying Person and
the Indemnified Person shall have mutually agreed to the contrary, (ii) the
Indemnifying Person has failed within a reasonable time to retain counsel
reasonably satisfactory to the Indemnified Person or (iii) the named parties in
any such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnified Person and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying Person
shall not, in connection with any proceeding or related proceeding in the same
jurisdiction, be liable for the fees and expenses of more than one separate firm
(in addition to any local counsel) for all Indemnified Persons, and that all
such fees and expenses shall be reimbursed as they are incurred. Any such
separate firm for the Underwriters and such control persons of Underwriters
shall be designated in writing by J.P. Morgan Securities Inc. and any such
separate firm for the Company, its directors, its officers who sign the
Registration Statement and such control persons of the Company shall be
designated in writing by the Company. The Indemnifying Person shall not be
liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the Indemnifying Person agrees to indemnify any Indemnified
Person from and against any loss or liability by reason of such settlement or
judgment. No Indemnifying Person shall, without the prior written consent of
the Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.

If the indemnification provided for in the first and second paragraphs
of this Section 7 is unavailable to an Indemnified Person in respect of any
losses, claims, damages or liabilities referred to therein except by reason of
the proviso contained in the first paragraph of this Section 7, then each
Indemnifying Person under such paragraph, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable by
such Indemnified

24
<PAGE>

Person as a result of such losses, claims, damages or liabilities (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company on the one hand and the Underwriters on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriters on the other shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by the Company and the total underwriting discounts
and the commissions received by the Underwriters, in each case as set forth in
the table on the cover of the Prospectus, bear to the aggregate public offering
price of the Shares. The relative fault of the Company on the one hand and the
Underwriters on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.

The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, reasonable legal or other expenses incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall an
Underwriter be required to contribute any amount in excess of the amount by
which the total price at which the Shares underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages that
such Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty

25
<PAGE>

of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriters' obligations to
contribute pursuant to this Section 7 are several in proportion to the
respective number of Shares set forth opposite their names in Schedules I and II
hereto, and not joint.

The indemnity and contribution agreements contained in this Section 7
are in addition to any liability which the Indemnifying Persons may otherwise
have to the Indemnified Persons referred to above.

The indemnity and contribution agreements contained in this Section 7
and the representations and warranties of the Company set forth in this
Agreement shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of any Underwriter or any person controlling any Underwriter or by or on behalf
of the Company, its officers or directors or any other person controlling the
Company and (iii) acceptance of and payment for any of the Shares.

8. Notwithstanding anything herein contained, this Agreement (or the
obligations of the several Underwriters with respect to the Option Shares) may
be terminated in the absolute discretion of the Representatives, by notice given
to the Company, if after the execution and delivery of this Agreement and prior
to the Closing Date (or, in the case of the Option Shares, prior to the
applicable Additional Closing Date): (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, either of the New
York Stock Exchange or the London Stock Exchange, (ii) trading of any securities
of or guaranteed by the Company shall have been suspended on any exchange or in
any over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York or London shall have been declared by either U.S.
Federal, New York State or United Kingdom authorities, or (iv) there shall have
occurred any outbreak or escalation of hostilities or any change in financial
markets or any calamity or crisis that, in the case of any of the events
described in this clause (iv), in the judgment of the Representatives, is
material and adverse and which, in the judgment of the Representatives, makes it
impracticable to market the Shares on the terms and in the manner contemplated
in the Prospectus.

26
<PAGE>

9. This Agreement shall become effective upon the later of (x)
execution and delivery hereof by the parties hereto and (y) release of
notification of the effectiveness of the Registration Statement (or, if
applicable, any post-effective amendment) by the Commission.

If, on the Closing Date or the Additional Closing Date, as the case
may be, any one or more of the Underwriters shall fail or refuse to purchase
Shares which it or they have agreed to purchase hereunder on such date, and the
aggregate number of Shares which such defaulting Underwriter or Underwriters
agreed but failed or refused to purchase is not more than one-tenth of the
aggregate number of Shares to be purchased on such date, the other Underwriters
shall be obligated severally in the proportions that the number of Shares set
forth opposite their respective names in Schedules I and II hereto bears to the
aggregate number of Underwritten Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as the Representatives
may specify, to purchase the Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase on such date; provided
that in no event shall the number of Shares that any Underwriter has agreed to
purchase pursuant to Section 1 be increased pursuant to this Section 9 by an
amount in excess of one-ninth of such number of Shares without the written
consent of such Underwriter. If, on the Closing Date or the Additional Closing
Date, as the case may be, any Underwriter or Underwriters shall fail or refuse
to purchase Shares which it or they have agreed to purchase hereunder on such
date, and the number of Shares with respect to which such default occurs is more
than one-tenth of the aggregate number of Shares to be purchased on such date,
and arrangements satisfactory to the Representatives and the Company for the
purchase of such Shares are not made within 36 hours after such default, this
Agreement (or the obligations of the several Underwriters to purchase the Option
Shares, as the case may be) shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either the
Representatives or the Company shall have the right to postpone the Closing Date
(or, in the case of the Option Shares, the Additional Closing Date), but in no
event for longer than seven days, in order that the required changes, if any, in
the Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.

27
<PAGE>

10. If this Agreement shall be terminated by the Underwriters, or any
of them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement or any condition of the Underwriters' obligations cannot be fulfilled,
the Company agrees to reimburse the Underwriters or such Underwriters as have so
terminated this Agreement with respect to themselves, severally, for all out-of-
pocket expenses (including the fees and expenses of their counsel) reasonably
incurred by the Underwriters in connection with this Agreement or the offering
contemplated hereunder.

11. This Agreement shall inure to the benefit of and be binding upon
the Company, the Underwriters, any controlling persons referred to herein and
their respective successors and assigns. Nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person, firm or
corporation any legal or equitable right, remedy or claim under or in respect of
this Agreement or any provision herein contained. No purchaser of Shares from
any Underwriter shall be deemed to be a successor by reason merely of such
purchase.

12. Any action by the Underwriters hereunder may be taken by the
Representatives jointly or by J.P. Morgan Securities Inc. alone on behalf of the
Underwriters, and any such action taken by the Representatives jointly or by
J.P. Morgan Securities Inc. alone shall be binding upon the Underwriters. All
notices and other communications hereunder shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be given to the
Representatives c/o J.P. Morgan Securities Inc., 60 Wall Street, New York, New
York 10260 (facsimile: (212) 648-5705); Attention: Syndicate Department.
Notices to the Company shall be given to it at National Steel Corporation, 4100
Edison Lakes Parkway, Mishawaka, Indiana 46545, (facsimile: (219) 273-7869);
Attention: Vice President, Chief Financial Officer and Secretary.

13. This Agreement may be signed in counterparts, each of which shall
be an original and all of which together shall constitute one and the same
instrument. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without giving effect to the conflicts
of laws provisions thereof.

28
<PAGE>

If the foregoing is in accordance with your understanding, please sign
and return four counterparts hereof.

Very truly yours,

NATIONAL STEEL CORPORATION

By:_________________________
Title: Senior Vice
President and
Chief Financial
Officer

Accepted: ________ __, 199_

J.P. MORGAN SECURITIES INC.
PAINEWEBBER INCORPORATED
SALOMON BROTHERS INC

Acting severally on behalf
of themselves and the several
U.S. Underwriters listed
in Schedule I hereto.

By: J.P. MORGAN SECURITIES INC.

By: ____________________________
Title:

J.P. MORGAN SECURITIES LTD.
PAINEWEBBER INTERNATIONAL (U.K.) LTD.
SALOMON BROTHERS INTERNATIONAL LIMITED

Acting severally on behalf
of themselves and the several
international managers listed
in Schedule II hereto.

By: J.P. MORGAN SECURITIES LTD.

By: ____________________________
Title:

<PAGE>

SCHEDULE I

Number of U.S.
Underwritten Shares
U.S. Underwriter To Be Purchased
- ---------------- -------------------

J.P. Morgan Securities Inc. . . . . . . . . . . . . .

PaineWebber Incorporated. . . . . . . . . . . . . . .

Salomon Brothers Inc . . . . . . . . . . . . . . . .

_______________

Total: . . . . . . . . . . . . .

<PAGE>

SCHEDULE II

Number of
International
Underwritten Shares
International Manager To Be Purchased
- --------------------- -------------------

J.P. Morgan Securities Ltd. . . . . . . . . . . . . . .

PaineWebber International (U.K.) Ltd. . . . . . . . . .

Salomon Brothers International Limited . . . . . . . .

________________

Total: . . . . . . . . . . . . . .

<PAGE>

SCHEDULE VI

CERTIFICATE OF THE

_______________________________________
OF NATIONAL STEEL CORPORATION

I, [Eli Krivoshia], [Ron Werhnyak] being the ___________________ of
National Steel Corporation, a Delaware corporation (the "Company"), do hereby
certify that:

1. I am not aware of any jurisdiction where the Company owns or
leases properties or would otherwise be considered to be "doing business" (e.g.,
employs individuals; maintains offices, warehouses or other facilities;
otherwise conducts extensive activities) in which the Company has either failed
to qualify as a foreign corporation, or is not in good standing, under the laws
of that foreign jurisdiction.

2. To the best of my knowledge, all of the shares of the Company's
capital stock outstanding prior to the issuance of the shares contemplated to be
sold by the Company in the public offering in connection with which this
certificate is being delivered (the "Public Offering") have been duly authorized
and are validly issued, fully paid and non-assessable.

3. Other than as set forth in the Company's Prospectus dated
__________ __, 1994 (the "Prospectus"), there are no legal or governmental
proceedings pending or, to the best of my knowledge, threatened or contemplated,
to which the Company or any of its subsidiaries is or may be a party or to which
the property of the Company or its subsidiaries is or may be subject in which
there is a reasonable possibility of an adverse decision which could
individually or in the aggregate have a material adverse effect on the business,
financial position or results of operations of the Company and its subsidiaries
taken as a whole.

4. I am not aware of any statutes, laws or governmental regulations
affecting the Company's business, or of any contracts or documents, which (i)
are material to the Company, or (ii) are otherwise of a character, as I have
been advised by Skadden, Arps, Meagher, Slate & Flom and

<PAGE>

Babst, Calland, Clements & Zomnir, P.C. (collectively, "Company Counsel"), which
are required to be described or incorporated by reference in the Prospectus or
the Company's Registration Statement on Form S-3 (Reg. No. 33-_____) (the
"Registration Statement"). Likewise, I have reviewed item 601 of SEC Regulation
S-K, and based upon such review and my discussions with Company Counsel as to
the requirements of item 601, I am not aware of any contracts or documents which
are required to be filed as an exhibit to the Registration Statement which are
not so filed or described as required.

5. To the best of my knowledge, the Company has all necessary
consents, authorizations, approvals, orders, certificates and permits of and
from, and has made all declarations and filings with, all federal, state, local
and other United States governmental authorities, all self-regulatory
organizations and all United States courts and other tribunals to own, lease,
license and use its properties and assets and to conduct its business in the
manner described in the Prospectus, except to the extent that the failure to so
obtain or file would not have a material adverse effect on the Company and its
subsidiaries taken as a whole.

6. I have reviewed the statements in the Prospectus under "Business-
Legal Proceedings", insofar as such statements constitute a summary of the legal
matters, documents or proceedings referred to therein. To the best of my
knowledge, such statements fairly and accurately present the current status of
such legal matters, documents and proceedings.

7. I have carefully reviewed the Prospectus and the Registration
Statement (including the documents incorporated by reference therein), and
(except for the financial statements contained therein or omitted therefrom, as
to which I express no opinion or belief), I believe that neither the Prospectus
nor the Registration Statement contains any untrue statements of material facts,
or omits to state any material facts required to be stated therein or necessary
to make the statements contained therein not misleading.

I have read the Certificates of the Company's officers, employees and
representatives listed on Exhibit B hereto, and in executing this Certificate I
have relied on the factual representations stated therein and on the accuracy
and completeness thereof, without independent check

2
<PAGE>

or verification thereof. However, I am not aware of any statements contained in
such Certificates which are untrue or inaccurate or which fail to state any
material facts necessary to make the statements contained therein not
misleading.

I understand that this Certificate is being issued in connection with
an Underwriting Agreement dated _________ __, 1994 (the "Underwriting
Agreement") among the Company and various underwriters (the "Underwriters")
which sets forth the terms and conditions pursuant to which the Underwriters
will sell up to 6.9 million shares of the Company's common stock in the Public
Offering. In issuing their opinions, Company Counsel (but no other persons) are
hereby authorized to rely upon the accuracy and completeness of the Certificate.

IN WITNESS WHEREOF, I have subscribed my name as of this
[Closing Date].

______________________________
Name

_____________________________
Title

3
<PAGE>

SCHEDULE VI

CERTIFICATE OF OFFICERS

OF NATIONAL STEEL CORPORATION

I, being one of the undersigned officers of National Steel
Corporation, a Delaware corporation (the "Company"), do hereby certify that:

1. To the best of my knowledge, the list set forth on Exhibit A
attached hereto represents a complete list of those jurisdictions where the
Company owns or leases, properties, employs individuals, maintains offices,
warehouse or other facilities or otherwise conducts extensive business
activities (other than routine "ordinary course of business" sales and purchases
and contracts with suppliers and customers).

2. Other than as set forth in the Company's Prospectus dated
_________ __, 1994 (the "Prospectus") or on Item 1 to Exhibit B attached hereto,
I am not aware of any pending legal or governmental proceedings to which the
Company or any of its subsidiaries are a party or to which the property of the
Company or any of its subsidiaries is subject where the amount in controversy or
the possible damages to the Company or its subsidiaries could exceed (i) as to
environmental proceedings, $100,000, and (ii) as to all other proceedings,
$1,000,000. Likewise, to the best of my knowledge, no such proceedings are
threatened.

3. To the best of my knowledge, and other than as set forth on Item 2
to Exhibit B attached hereto: (i) neither the Company nor any of its
subsidiaries is in default under any Material Contracts (as that term is defined
below), (ii) neither the Company nor any of its subsidiaries have received any
notices or claims (whether written or oral) of alleged defaults under any such
Material Contracts, and (iii) there are no existing disputes under any Material
Contracts that could lead to a default being claimed or litigation being filed
against the Company or its subsidiaries. For the purposes of this Certificate,
"Material Contracts" are those in which the contract price or aggregate payments
to be made by or to the Company exceeds $1,000,000, as well as any other
contracts (regardless of the dollar amount involved) which if terminated,
suspended or breached would have a material adverse effect on the Company and/or
its subsidiaries.

<PAGE>

SCHEDULE VI

4. I have carefully reviewed the Company's Registration Statement on
Form S-3 Reg. No. 33-_________ (the "Registration Statement") and Prospectus
dated _________ __, 1994 (including the documents incorporated by reference
therein), and (except for the financial statements contained therein, as to
which I express no opinion or belief), I believe that, with respect to matters
as to which I have knowledge and/or which are within my area(s) of
responsibility, neither the Registration Statement nor the Prospectus contains
any untrue statements of fact or omits to state any facts necessary to make the
statements contained in such Registration Statement and Prospectus not
misleading.

5. To the best of my knowledge, the Company has all necessary
consents, authorizations, approvals and permits from, and has made all necessary
filings with, all federal, state, local and other United States governmental
authorities, self-regulatory organizations and courts and tribunals, necessary
for the Company to own and use its properties and assets and to conduct its
business as presently conducted.

6. I am not aware of any statutes, laws or governmental regulations
affecting the Company's business, or of any contracts or documents, (i) which
are material to the Company, or (ii) are otherwise of a character, as I have
been advised by Skadden, Arps, Meagher, Slate & Flom and Babst, Calland,
Clements & Zomnir, P.C. (collectively, "Company Counsel"), which are required to
be described in the Prospectus or the Registration Statement or based upon my
discussions with Company Counsel, are required to be filed as an exhibit to the
Registration Statement, which are not so filed or described as required.

I understand that this Certificate is being issued in connection with
an Underwriting Agreement dated _________ __, 1994 (the "Underwriting
Agreement") among the Company and various underwriters ("Underwriters") which
sets forth the terms and conditions pursuant to which the Underwriters will sell
up to 6.9 million shares of the Company's common stock in a public offering. In
issuing their opinions, Company Counsel (but no other persons) are hereby
authorized to rely upon the accuracy and completeness of this Certificate.

In the event that, prior to the closing of the transactions
contemplated by the Underwriting Agreement, I

5
<PAGE>

SCHEDULE VI

become aware of any facts or circumstances which would cause any of the matters
certified herein to become untrue or inaccurate, I will promptly so notify
Company Counsel in writing.

IN WITNESS WHEREOF,
I have subscribed my name as of this ____ day of __________, 1994.

[NAMES AND TITLES TO BE UPDATED AS APPROPRIATE]

_________________________________
V. John Goodwin
President and Chief Operating
Officer

_________________________________
Robert M. Greer
Senior Vice President and Chief
Financial Officer

_________________________________
Hiroshi Matsumoto
Vice President and Assistant to the
President

_________________________________
Michael Christy
Director, Strategic Planning

_________________________________
James Warren
Director, Planning & Analysis

_________________________________
Joseph Rainis
Director, Investor Relations

6
<PAGE>

SCHEDULE VI

_________________________________
William E. Goebel
Vice President, Marketing and
Sales

_________________________________
[_____________________]
[Vice President and General Manager
Granite City Division]

_________________________________
Richard S. Brzenk
[Vice President, Information
Systems]

_________________________________
[_____________________]
[Vice President and General Manager
Great Lakes Division ]

_________________________________
[_____________________]
[Vice President and General Manager
Midwest Division]

_________________________________
James L. Wainscott
Treasurer and Assistant Secretary

_________________________________
Carl M. Apel
Corporate Controller, Accounting
and Assistant Secretary

38
<PAGE>

SCHEDULE VI(e)(v)

[LIST OF MATERIAL AGREEMENTS TO COME FROM
SKADDEN, ARPS, SLATE, MEAGHER & FLOM]

<PAGE>

EXHIBIT 5.1

[LETTERHEAD OF SKADDEN, ARPS, SLATE, MEAGHER & FLOM]

November 17, 1994

National Steel Corporation
4100 Edison Lakes Parkway
Mishawaka, Indiana 46545-3440

Re: National Steel Corporation
Registration Statement on Form S-3
(Registration No. 33-55989)
----------------------------------

Gentlemen:

We are acting as special counsel to National Steel Corporation, a
Delaware corporation (the "Company"), in connection with the preparation of the
above-referenced Registration Statement on Form S-3 (the "Registration
Statement"), filed by the Company with the Securities and Exchange Commission
(the "Commission") on October 12, 1994. The Registration Statement relates to
the registration under the Securities Act of 1933, as amended (the "Act"), of up
to 6,900,000 shares (the "Shares") of Class B Common Stock, par value $.01 per
share, to be issued and sold pursuant to an underwriting agreement to be entered
into among the Company and J.P. Morgan Securities Inc., PaineWebber
Incorporated, Salomon Brothers Inc, J.P. Morgan Securities Ltd., PaineWebber
International (U.K.) Ltd. and Salomon Brothers International Limited, on behalf
of themselves and the several other underwriters to be named in Schedule I and
II thereto (the "Underwriting Agreement"). Capitalized terms used herein and
not otherwise defined have the meanings given to them in the Registration
Statement.
<PAGE>

National Steel Corporation
November 17, 1994
Page 2

This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Act.

In connection with this opinion, we have examined and are familiar
with originals or copies, certified or otherwise identified to our satisfaction,
of (i) the Sixth Restated Certificate of Incorporation of the Company as amended
to date, (ii) the By-laws of the Company as amended to date (iii) certain
resolutions of the Board of Directors of the Company relating to the offering of
the Shares and certain other actions to be taken in connection with the issuance
and sale of the Shares, (iv) the Registration Statement and (v) such other
documents as we have deemed necessary or appropriate as the basis for the
opinions set forth below. In such examination, we have assumed the genuineness
of all signatures, the legal capacity of natural persons, the authenticity of
all documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to any facts
material to this opinion which we did not independently establish or verify, we
have relied upon statements and representations of officers and other
representatives of the Company and others.

Members of our firm are admitted to the practice of law in the States
of Illinois and Delaware, and we express no opinion as to the laws of any other
jurisdiction.

Based upon and subject to the foregoing, we are of the opinion that
when (i) the Registration Statement becomes effective, (ii) the Underwriting
Agreement is duly executed and delivered by the Company and the other parties
thereto and (iii) certificates representing the Shares are duly executed,
countersigned, registered and duly delivered upon payment of the agreed upon
consideration therefor, the Shares will be duly authorized, validly issued,
fully paid and non-assessable.
<PAGE>

National Steel Corporation
November 17, 1994
Page 3

We hereby consent to the filing of this opinion with the Commission as
Exhibit 5.1 to the Registration Statement. We also consent to the reference to
our firm under the caption "Legal Matters" in the Registration Statement. In
giving this consent, we do not thereby admit that we are included in the
category of persons whose consent is required under Section 7 of the Act or the
rules and regulations of the Commission.

Very truly yours,

/s/ SKADDEN, ARPS, SLATE, MEAGHER & FLOM
----------------------------------------
Skadden, Arps, Slate, Meagher & Flom

<PAGE>

EXHIBIT 23.1

CONSENT OF ERNST & YOUNG LLP INDEPENDENT AUDITORS

We consent to the references to our firm under the captions "Summary Financial
Information," "Selected Financial Information" and "Experts" in Amendment No. 1
to the Registration Statement (Form S-3 No. 33-55989) and related Prospectus of
National Steel Corporation for the Registration of 6,900,000 shares of its
Class B Common Stock and to the incorporation by reference herein of our report
dated January 26, 1994, except for the last paragraph of Note S, as to which
the date is February 11, 1994, with respect to the consolidated financial
statements and schedules of the Company included in its Annual Report on Form
10-K for the year ended December 31, 1993, filed with the Securities and
Exchange Commission.

/s/ Ernst & Young LLP
---------------------
Ernst & Young LLP

Fort Wayne, Indiana
November 17, 1994