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1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 1-983
NATIONAL STEEL CORPORATION
(Exact name of registrant as specified in its charter)
Incorporated under the Laws of the State of Delaware 25-0687210
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
4100 Edison Lakes Parkway, Mishawaka, IN 46545-3440
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 219-273-7000
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of each exchange on which registered
------------------- -----------------------------------------
Class B Common Stock New York Stock Exchange
First Mortgage Bonds, 8-3/8% New York Stock Exchange
Series due 2006
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
At March 3, 1997, there were 43,288,240 shares of the registrant's common
stock outstanding.
Aggregate market value of voting stock held by non-affiliates: $177,348,615.
The amount shown is based on the closing price of National Steel
Corporation's Common Stock on the New York Stock Exchange on March 3, 1997.
Voting stock held by officers and directors is not included in the computation.
However, National Steel Corporation has made no determination that such
individuals are "affiliates" within the meaning of Rule 405 under the Securities
Act of 1933.
Documents Incorporated By Reference:
Selected portions of the Annual Report to Stockholders for the year ended
December 31, 1996 are incorporated by reference into Part II and IV of the
Report on Form 10-K.
Selected portions of the 1997 Proxy Statement of National Steel Corporation
are incorporated by reference into Part III of this Report on Form 10-K.
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NATIONAL STEEL CORPORATION
TABLE OF CONTENTS
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Page
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Part I
Item 1 Business 3
Item 2 Properties 11
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 21
Part II
Item 5 Market for Registrant's Common Stock and Related
Stockholder Matters 24
Item 6 Selected Financial Data 24
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 24
Item 8 Financial Statements and Supplementary Data 24
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 24
Part III
Item 10 Directors and Executive Officers of the Registrant 25
Item 11 Executive Compensation 25
Item 12 Security Ownership of Certain Beneficial Owners and Management 25
Item 13 Certain Relationships and Related Transactions 25
Part IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 26
</TABLE>
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PART I
ITEM 1. Business
National Steel Corporation, a Delaware corporation, and its consolidated
subsidiaries (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, construction and container markets. Since 1984, the Company has
invested approximately $2.4 billion in capital improvements to enhance the
Company's competitive position and penetrate growing segments of these markets.
The Company was formed through the merger of Great Lakes Steel Corporation,
Weirton Steel Corporation 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 "FOX"), through a restructuring. In
January 1997, FOX changed its name to Avatex Corporation. 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 Corporation
(collectively, with its subsidiaries, "NKK") purchased a 50% equity interest in
the Company from FOX. On June 26, 1990, NKK purchased an additional 20% equity
interest in the Company from FOX. In April 1993, the Company completed an
initial public offering of its Class B Common Stock. In October 1993, FOX
converted all of its shares of Class A Common Stock to an equal number of shares
of Class B Common Stock and subsequently sold substantially all of its shares of
Class B Common Stock in the market in January 1994, resulting in NKK owning
75.6% voting interest in the Company at December 31, 1994. On February 1, 1995,
the Company completed a primary offering of 6.9 million shares of Class B Common
Stock. Subsequent to the transaction, NKK's voting interest decreased to 67.6%.
The Company's principal executive offices are located at 4100 Edison Lakes
Parkway, Mishawaka, Indiana 46545-3440; telephone (219) 273-7000.
Strategy
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 and shifting its product mix to higher priced,
higher value products. Management has developed a number of strategic
initiatives designed to achieve the Company's goals.
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. However, reducing all costs associated with the production process
is essential to the Company's overall cost reduction program. Management has
reduced 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.
Marketing Strategy. The Company's marketing strategy has concentrated on
increasing the level of sales of higher value-added products to the automotive,
construction 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.
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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 operate 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 "Properties--DNN Galvanizing Limited Partnership" and
"Double G Coatings, L.P." In 1995, the Company began construction of an
additional coating line which will serve the construction market. The line,
located at the Granite City Division, cost approximately $85.0 million and was
completed during the first quarter of 1996. A second line, currently under
construction at the Midwest Division, will cost approximately $70.0 million and
is scheduled to be completed during the second quarter of 1998. In addition,
during 1996, the Company began an expansion of the 72" galvanizing line at the
Midwest Division to further enable it to more effectively compete in these
value-added markets.
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. The
Company has made improvements in this area by improving process control,
utilizing employee based problem solving methods, eliminating dependence on
final inspection and reducing internal rejections and extra processing. In
addition, the Company became ISO 9002/QS 9000 registered during 1996.
Predictive 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.
Alliance with NKK
The Company has a strong alliance with its principal stockholder, NKK, the
second largest steel company in Japan and the seventh 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 35 engineers transferred from NKK, who 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 production to
finished product yields. 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; however, there can be no
assurances given as to the extent of NKK's future financial support beyond
existing contractual commitments.
This alliance with NKK was further strengthened by the Agreement for the
Transfer of Employees (superceding a prior arrangement) entered into by the
Company and NKK effective as of May 1, 1995. This agreement was unanimously
approved by all directors of the Company who were not then, and have never been,
employees of NKK. Pursuant to the terms of the agreement, technical and business
advice is provided to the Company through NKK employees who are transferred to
the employ of the Company. The Company has agreed to reimburse NKK for certain
costs and expenses incurred by NKK in connection with the transfer of the
employees. The total amount of reimbursable expenses which the Company is
obligated to pay is capped at $11.7 million for the initial term of the
agreement, which ran from May 1, 1995 through December 31, 1996. The agreement
can be extended from year to year thereafter if approved by NKK and by a
majority of those directors of the Company who are not then, and have never
been, employees of NKK. This agreement has been extended for 1997 with the total
amount of reimbursable expenses capped at $7.0 million for the term of the
agreement, which runs from January 1, 1997 through December 31, 1997.
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
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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, construction and container markets. The research center employs
approximately 50 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 construction 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 $11.6 million, $9.8
million and $7.9 million for research and development in 1996, 1995 and 1994,
respectively. In addition, the Company participates in various research efforts
through the American Iron and Steel Institute (the "AISI").
Capital Investment Program
Since 1984, the Company has invested over $2.4 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 and a
continuous caster, a coating line and a ladle metallurgy station, each of which
services the Granite City Division. Major improvements at the Midwest Division
include the installation of process control equipment to upgrade its finishing
capabilities, expansion of the 72" galvanizing line and construction of a new
coating line scheduled for completion in 1998. Capital investments for each of
1996, 1995 and 1994 were $128.6 million, $215.4 million and $137.5 million,
respectively. Capital investments for 1997 and 1998 are expected to total
approximately $297.0 million.
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 steel has been
used in a variety of automotive applications including exposed and unexposed
panels, wheels and bumpers.
The Company is also a leading supplier of steel to the domestic construction
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 additional capacity referred to above.
The Company produces chrome and tin plated steels to exacting 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.
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The following table sets forth the percentage of the Company's revenues from
various markets for the past five years.
<TABLE>
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1996 1995 1994 1993 1992
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Automotive 27.6% 27.8% 28.5% 28.9% 27.2%
Construction 21.6 20.5 18.3 16.8 15.2
Containers 10.6 11.3 13.2 13.3 14.9
Pipe and Tube 6.5 7.4 6.9 8.2 9.4
Service Centers 20.2 15.4 17.9 15.5 13.6
All Other 13.5 17.6 15.2 17.3 19.7
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
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</TABLE>
Shipments to General Motors accounted for approximately 10% of net sales in
1994. No customer accounted for more than 10% of net sales in 1996 or 1995.
Export sales accounted for approximately .5% of revenue in 1996, 2.6% in 1995
and .9% in 1994. The Company's products are sold through sales offices located
in Chicago, Detroit, Houston, Indianapolis, 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.
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. In
January 1997, the Company consolidated the Great Lakes Division and the Midwest
Division into a single business enterprise in order to improve the planning and
coordination of production at both plants. In addition, this will ensure the
best monitoring of costs and utilization of resources and will allow the Company
to more effectively meet customer needs.
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, will 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.
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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.
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RAW STEEL PRODUCTION DATA
Effective Percent
Effective Actual Capacity Continuously
Capacity Production Utilization Cast
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(000's of net tons) (%) (%)
The Company
1996 7,000 6,557 93.7 100.0
1995 6,300 6,081 96.5 100.0
1994 6,000 5,763 96.1 100.0
1993 5,550 5,551 100.0 100.0
1992 5,355 5,380 100.5 100.0
Domestic Steel Industry*
1996 116,100 104,356 89.9 93.2
1995 112,500 104,930 93.3 91.1
1994 108,200 100,579 93.0 89.5
1993 109,900 97,877 89.1 85.7
1992 113,100 92,949 82.2 79.3
</TABLE>
* Information as reported by the AISI. The 1996 industry information is
preliminary.
In 1996, capacity increased to 7,000,000 net tons primarily due to successfully
negotiated environmental relief at the Granite City Division. Unanticipated
blast furnace outages at midyear were the primary reason actual steel production
fell short of capacity. In 1995, effective capacity increased to 6,300,000 net
tons due to higher production levels at both the Great Lakes and Granite City
Divisions. Effective capacity increased to 6,000,000 net tons in 1994 due to the
fact that the Company did not reline any blast furnaces during this period. The
effective capacity of the Company was 5,355,000 net tons in 1992 as a result of
a scheduled blast furnace reline.
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 its wholly owned subsidiary, National Steel Pellet
Company ("NSPC") and through Iron Ore of Canada ("IOC") (see paragraph below),
has reserves of iron ore adequate to produce approximately 492 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 thirteen
month period from August 1, 1993 through August 28, 1994 when NSPC was idled, 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. 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 at competitive
market prices for the foreseeable future.
On January 31, 1997, the Company announced that it had entered into a definitive
agreement with North Limited ("North") and Bethlehem Steel Corporation ("BSC"),
pursuant to which the Company and BSC will sell to North their respective
minority equity interests in IOC. The Company currently owns 21.7% of the shares
of IOC and plans to continue to purchase iron ore from IOC pursuant to long-term
contracts.
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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. During 1994, one
of the West Virginia plant sites was sold, and in 1995, the remaining plant site
in West Virginia was leased for a 5 year term, with an option to extend for two
additional 5 year periods. Negotiations are in process for the long term lease
of certain West Virginia partially developed coal reserves. The remaining coal
assets 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 recently 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 in 1992, the Company has significantly improved its self-sufficiency and
can supply approximately 60% of its annual coke requirements. In the fourth
quarter of 1996, the Company started up a pulverized coal injection process at
one of its three blast furnaces at the Great Lakes Division, with plans to start
up the same process at the other blast furnaces during 1997. Successful
implementation of this process should further reduce the Company's dependency on
outside coke supplies. The remaining coke requirements are met through
competitive market purchases.
Limestone. An affiliated company in which the Company holds a minority equity
interest has limestone reserves of approximately 74 million gross tons located
in Michigan. During the last five years, approximately 67% of the Company's
average annual consumption of limestone was derived from these reserves. The
Company's remaining limestone requirements were purchased at competitive market
prices from unaffiliated third parties.
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 December 31, 1996, the Company employed 9,579 people. The Company has
labor agreements with the United Steelworkers of America (the "USWA") and other
labor organizations which collectively represent approximately 82.6% of the
Company's employees. In 1993, the Company entered into labor agreements, which
expire in 1999, with these various labor organizations.
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, 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 previously
described.
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Imports. Domestic steel producers face significant competition from foreign
producers and have been adversely affected by what the Company believes to be
unfairly traded imports. Imports of finished steel products accounted for
approximately 19% of the domestic market over the past three years. 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.
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 58% of the
Company's shipments in 1996. 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 is completing construction on a third plant.
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.
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.
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 $3.2 million and $21.0
million for 1997 and 1998, respectively. A major capital project in 1998 will be
the installation of air pollution control equipment at the National Steel Pellet
Plant. This equipment will be necessary to enable the Company to meet National
Ambient Air Quality Standards as anticipated increases in production levels
occur in the future. In addition, the Company expects to record expenses for
environmental compliance, including depreciation, of approximately $69.0 million
and $70.0 million for 1997 and 1998, 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 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 position, results of operations or liquidity.
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In 1990, the United States Environmental Protection Agency (the "EPA") released
a proposed rule which establishes standards for the implementation of a
corrective action program under the Resource Conservation Recovery Act of 1976,
as amended ("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. The
Company has conducted an investigation at its Midwest Division facility and is
currently waiting for comments from the EPA regarding the results of the
investigation. The Company estimates that the potential capital costs for
implementing corrective actions at such facility will be approximately $8.0
million payable over the next several years. At the present time, the Company's
other facilities are not subject to corrective action.
The Company has recorded the reclamation 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.
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. In addition, the Company and certain of its subsidiaries
are involved as potentially responsible parties ("PRPs") in a number of off-site
CERCLA or state superfund site proceedings. At several of these sites, any
remediation costs incurred by the Company are liabilities for which FOX has
agreed to indemnify the Company. 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 PRP's or the required
remediation activity to estimate its potential liability.
In connection with those sites involving Fox Meyer Health Corporation
(collectively with its subsidiaries "FOX"), which changed its name to Avatex
Corporation in January 1997, Environmental Liabilities, in January 1994 the
Company received $10.0 million from FOX as an unrestricted prepayment for such
liabilities for which the Company recorded $10.0 million as a liability in its
consolidated balance sheet. The Company is required to repay FOX portions of the
$10.0 million to the extent the Company's expenditures for such FOX
Environmental Liabilities do not meet specified levels by certain dates over a
twenty year period. At December 31, 1996 and December 31, 1995, the balance,
including accrued interest and environmental insurance settlements, recorded as
prepaid FOX Environmental Liabilities totaled $8.6 million and $7.2 million,
respectively. The failure of FOX to satisfy its indemnity obligations in excess
of the $10.0 million prepayment could have a material adverse effect on the
Company's liquidity or results of operations. The Company's ability to fully
realize the benefits of FOX's indemnification above the $10 million prepayment
is necessarily dependent upon FOX's financial condition at the time of any claim
with respect to such obligations. On August 20, 1996, FOX filed a Form 10-Q for
its quarter ended June 30, 1996 in which it reported a writedown of $238.7
million in its investment in FoxMeyer Drug Company, its principal operating
subsidiary. Primarily as a result of this writedown, the consolidated
stockholder's equity of FOX was reported in its Form 10-Q for the quarter ended
June 30, 1996 as a deficit of $88.4 million. As of December 31, 1996, this
deficit was $83.0 million. On August 27, 1996, most of FOX's operating
subsidiaries (including FoxMeyer Drug Company) filed for relief under Chapter 11
of the United States Bankruptcy Code in the U.S. Bankruptcy Court in Delaware.
Although FOX, the parent company, was not included in the Chapter 11 filing, the
Chapter 11 filing has caused the Company to have increased concerns about FOX's
ability to honor its remaining indemnification obligations to the Company. FOX
is subject to the informational requirements of the Securities Exchange Act of
1934 and, in accordance therewith, files reports and other information with the
Securities and Exchange Commission.
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ITEM 2. Properties
The Granite City Division.
The Granite City Division, located in Granite City, Illinois, has an effective
steelmaking capacity of approximately 3.0 million tons. All steel at this
Division is 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. In
1996, the Granite City Division completed construction of a 270,000 ton coating
facility to serve the construction market. This facility, known as Triple G,
cost approximately $85.0 million. 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 3,042 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.
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 approximately 4.0 million tons.
All steel at this Division is produced by continuous casting. The Division's
ironmaking facilities consist of a rebuilt 85-oven coke battery and three blast
furnaces. The Division also operates steelmaking facilities consisting of two
basic oxygen process vessels, 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, 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 3,717 people. The
Division is strategically located with easy access to water, 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, construction and container markets. The Midwest Division's
facilities include a continuous pickling line, two cold reduction mills, two
continuous galvanizing lines, a 48 inch wide line which can produce galvanized
or Galvalume(R) steel products and which services the construction market, 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 stretcher leveling line, 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. In 1995, the Midwest Division commenced construction of a 270,000 ton
coating line to serve the construction market. The line will cost approximately
$70.0 million and is scheduled to be completed in the second quarter of 1998. In
addition, during 1996, the Company began an expansion of the 72" galvanizing
line. Principal products of the Midwest Division include tin mill products, hot
dipped galvanized and Galvalume(R) steel, cold rolled, and electrical lamination
steels.
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The Midwest Division is located on 1,100 acres and employs 1,489 people. Its
location provides excellent access to rail, water and highway transit systems
for receiving raw materials and supplying finished steel products to customers.
In January 1997, the Company consolidated the Great Lakes Division and the
Midwest Division into a single business enterprise in order to improve the
planning and coordination of production at both plants.
National Steel Pellet Company
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 over 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 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.
Double G Coatings, L.P.
To continue to meet the needs of the growing construction market, the Company
and an unrelated third party formed a joint venture to build and operate Double
G Coatings, L.P. ("Double G"). Double G is 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 with a zinc and aluminum coating to
produce a product known as Galvalume(R) steel. Double G primarily serves 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 reached full operating capacity in
1995. The Company's steel substrate requirements are provided to Double G by the
Great Lakes and Midwest Division.
ProCoil Corporation
ProCoil Corporation ("ProCoil"), a joint venture between 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. The Company and Marubeni
Corporation each own 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. The Company is currently in the process of
purchasing NKK Corporation's two percent interest in ProCoil.
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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 Voluntary Employee Benefit Association trust (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" in Item 1 of this Form 10-K.
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ITEM 3. Legal Proceedings
In addition to the environmental matters 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.
Environmental Matters
CERCLA and State Superfund Proceedings
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. Currently, an inactive site located at the Great Lakes
Division facility is listed on the Michigan Environmental Response Act Site
List, but remediation activity has not been required by the Michigan Department
of Environmental Quality ("MDEQ"). In addition, the Company and certain of its
subsidiaries are involved as potentially responsible parties ("PRPs") in a
number of off-site CERCLA or state superfund site proceedings. The outcome of
these proceedings is not expected to have a material adverse effect on the
financial position, results of operations or liquidity of the Company. The more
significant of these matters are described below.
Buck Mine Complex. This is a proceeding involving a large site, located in
Caspian, Michigan, 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 MDEQ 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 MDEQ 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 MDEQ 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 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.
Ilada Energy Company Site. The Company and certain other PRPs have performed a
removal action pursuant to an order issued by the United States Environmental
Protection Agency ("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 63 PRPs identified at such
site. Pursuant to an Administrative Order on Consent ("AOC"), the Company and
other PRPs performed a remedial investigation and feasibility study ("RI/FS") at
this 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. The PRPs submitted a draft RI/FS to EPA and the Illinois
Environmental Protection Agency ("IEPA") and responded to the agencies' comments
on that document. Discussions between the PRPs and the agencies are ongoing. In
the course of performance of the RI/FS, a floating layer of material was
discovered above the groundwater. The Company's position, which was recently
sustained by both EPA and IEPA, is that this material is bulk aviation fuel and
is not considered to be a hazardous substance as defined under CERCLA. 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.
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Iron River (Dober Mine) Site. On July 15, 1994, the State of Michigan filed a
complaint in the Circuit Court for Ingham County, Michigan against M.A. Hanna
Company ("M.A. Hanna") 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
in Iron County, Michigan, to the Iron and Brule Rivers of acid mine drainage.
The State subsequently revised its response costs claim upward to approximately
$487,000 and its natural resources damages claim upward to $4,600,000. Under the
applicable statute, the State is also entitled to recover its attorneys' fees
and litigation costs if it prevails. 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. On September 21, 1994 and November 9, 1994,
respectively, the Company filed a third party complaint and an amended third
party complaint naming a total of seven additional defendants. Additionally, on
November 15, 1994, the Company negotiated a case management order with the State
pursuant to which the court must rule on liability issues prior to addressing
other aspects of the case. That order also stays the third party actions pending
the court's decision regarding the liability issues. Subsequently, the court
denied the Company's motion for summary disposition of the liability issues in
the case. After some discovery, the court entered an order in November 1996
staying any further proceedings in this case while the Company engages in
settlement negotiations with the State and some of the third party defendants.
These settlement negotiations are ongoing.
Port of Monroe Site. In February 1992, the Company received a notice of
potential liability from the MDEQ as a generator of waste materials at this
landfill located in Monroe County, Michigan. 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 RI/FS for
remediation work has been prepared by the owner/operator PRPs and submitted to
the MDEQ for its approval. The cost of this RI/FS was approximately $280,000. In
March 1994, the MDEQ demanded reimbursement from the PRPs for its past and
future response costs. The MDEQ has since agreed to accept $500,000 as
reimbursement for its past response costs incurred through October 1993. This
settlement has been embodied in a consent decree. 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 MDEQ. 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 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.
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 23 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 $19.7
million. Pursuant to a participation agreement among the PRPs, the Company's
share of such costs is 2.25%. Therefore, the Company's share of liability should
be approximately $443,000. To date, the Company has paid approximately $275,000
of that amount.
Springfield Township Site. This is a proceeding involving a disposal site
located in Springfield Township, Davisburg, Michigan in which approximately 22
PRPs have been identified. The Company received a general notice of liability
with respect to this site on January 23, 1990. The Company and 11 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
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$48,000. 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 this unilateral order. 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, the PRP steering
committee and the MDEQ have negotiated an AOC pursuant to which the MDEQ 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 PRPs are currently negotiating with the EPA regarding
the final remedial action at this site. The EPA and the PRP steering committee
had originally estimated the cost to implement the final remedy at approximately
$33 million and $20 million, respectively. Based upon this overall cost
estimate, the Company had offered to pay $175,000 as its share of the costs to
implement the final remedy. A proposed amendment to the Record of Decision has
been submitted to the EPA which would allow greater post-remediation
concentrations of PCBs to remain in the subsurface soil, and discussions
relating to this amendment are ongoing. If approved by the EPA, the cost range
for implementation of the final remedy would be between $3.3 million and $12.2
million. Settlement discussions among the various PRPs are also ongoing, and a
tentative settlement has been reached. If that settlement is ultimately accepted
by all parties, the Company's share of the remediation costs would be less than
the Company's original $175,000 settlement offer.
Waste, Inc. Site. On December 30, 1994, the EPA notified the Company's Midwest
Division that it was a PRP with respect to a site located in Michigan City,
Indiana known as the Waste, Inc. Landfill Site. The EPA's correspondence noted
that the Company may have contributed only a small amount of waste to this site
and that the Company may be a de minimis PRP. The EPA has informed the Company
that there are approximately 25 non de minimis PRPs, as well as approximately
200 de minimis PRPs, at this site. The EPA has estimated the cost of the remedy
at this site to be between $16 and $16.5 million. The Company has been advised
that EPA issued a Section 106 Unilateral Order to some non-de minimis PRPs to
implement the remedy and that EPA is continuing to negotiate with those PRPs the
terms of a buyout which EPA will ultimately offer to the de minimis parties,
including the Company. When those negotiations are complete, EPA intends to
initiate settlement negotiations with the de minimis PRPs.
FOX Sites
Remediation costs incurred by the Company at the following sites constitute
environmental liabilities for which FOX has agreed to indemnify the Company. In
accordance with the terms of an agreement between the Company and FOX, in
January 1994, FOX paid the Company $10 million as an unrestricted prepayment for
environmental obligations which may arise after such prepayment and for which
FOX had previously agreed to indemnify the Company. FOX retained 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. However, the failure of FOX to satisfy any such indemnity obligations
could have a material adverse effect on the Company's liquidity or results of
operations. The Company's ability to fully realize the benefits of FOX's
indemnification obligation is necessarily dependent upon FOX's financial
condition at the time of any claim with respect to such obligations. FOX is
subject to the informational requirements of the Exchange Act and, in accordance
therewith, files reports and other information with the Commission. See
"Environmental Matters" in Item 1 of this Form 10-K.
Buckeye Site. The EPA has notified the Company that it is one of a number of
PRPs with respect to the Buckeye Site located in Belmont County, Ohio, and has
requested the Company's voluntary participation in certain remedial actions. The
Company and thirteen other PRPs have entered into a consent order with the EPA
to perform collectively the remedial design pursuant to an AOC between the PRP
group and the EPA which took effect on February 10, 1992. 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 total cost for the remedial design phase to be approximately $3
million. The EPA's proposed remediation
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activities with respect to the site are estimated to cost approximately $25
million. The PRPs are currently negotiating with EPA to reduce the scope of the
remedy at the site and, therefore, the ultimate cost of remediation at this site
cannot be estimated. In March 1994, the Company was served with a copy of a
complaint filed in Federal District Court for the Southern District of Ohio,
located in Columbus, Ohio, 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. On June 27, 1996
the Company entered into a Settlement Agreement with Consolidated Coal Company,
Allegheny Ludlum Corporation, USX Corporation, Beazer East, Inc., SKF USA, Inc.,
Ashland, Inc., Aristech Chemical Corporation and the Pullman Company which
resolved the litigation brought by Consolidated Coal Company with respect to the
Buckeye Site. Under the terms of the settlement, the Company has agreed to pay
2.8 percent of the response costs associated with the Buckeye Site. The
Settlement Agreement is contingent upon the Court's approval and entry of a
Consent Decree with EPA.
Weirton Steel - Browns Island. In January 1993, the Company was notified that
the West Virginia Division of Environmental Protection ("WVDEP") had conducted
an investigation on Brown's Island, Weirton, West Virginia which was formerly
owned by the Company's Weirton Steel Division and is currently owned by Weirton
Steel Corporation ("WSC"). The WVDEP alleged that samples taken from four
groundwater monitoring wells located at this site contained elevated levels of
contamination. WVDEP informed WSC that additional investigation, possible
groundwater and soil remediation, and on-site housecleaning were required at the
site. WSC has spent approximately $210,000 to date on remediation of an
emergency wastewater lagoon located on Brown's Island. WSC has sought
reimbursement of that amount and is likely to seek reimbursement of any
additional remediation costs involving the lagoon from the Company. The Company
paid the $210,000 to WSC in February, 1997 and FOX has reimbursed the Company
for that amount. In addition, assuming a site accepts the waste material,
additional sums will be spent on disposal and backfilling. The WVDEP may require
additional investigation or remediation at the Brown's Island facility in the
future. In addition, WSC agreed to a three-year groundwater monitoring program
of the Brown's Island facility. The Company receives copies of the results of
that groundwater monitoring program. To date, no groundwater remediation has
been required, and the Company cannot yet determine if remediation will be
required in the future.
Weirton Steel - EPA Order. On September 16, 1996, EPA issued an administrative
unilateral order under the Resource Conservation and Recovery Act ("RCRA"),
requiring WSC to undertake certain investigative activities with regard to
cleanup of possible environmental contamination on Weirton Steel property. WSC
has informed the Company that the Mainland Coke Plant, Brown's Island, and the
Avenue H Disposal Site are likely to be included within the areas of
investigation required by EPA and that WSC considers these areas to be within
the scope of certain indemnity provisions of the Assignment and Assumption
Agreement between WSC and the Company. At this time, the Company is unable to
determine the cost of the activities resulting from the EPA's unilateral order
or the extent to which those activities will result in an indemnity obligation
on the part of the Company.
Tex-Tin Site. On or about August 12, 1996 Amoco Chemical Company ("Amoco")
filed a cost recovery and contribution civil suit pursuant to CERCLA Sections
107 and 113(f) in the United States District Court for the Southern District of
Texas. Plaintiff Amoco has been involved in investigations of the contamination
at the former Tex-Tin Superfund Site in Texas City, Galveston County, Texas,
pursuant to an AOC entered into with the EPA. Plaintiff alleges that the Company
is one of approximately 100 defendants jointly and severally liable under CERCLA
Section 107 for plaintiff's costs of those investigations and future response
costs. Amoco has spent approximately $9 million pursuant to the AOC at the Tex-
Tin Superfund Site. The Company is unable to ascertain the extent of its
liability at the Tex-Tin site at this time, although waste-in lists indicate
that the Company's former Weirton Steel Division sent less than 1 percent of the
waste identified at the site.
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Other Environmental Matters
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 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 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. These proceedings are described below:
Granite City Division - Alleged Air Violations. On or about March 2, 1995, the
Company received Notices of Violation ("NOVs") and Findings of Violation
("FOVs") issued by the EPA covering alleged violations of various air emission
requirements at the Granite City Division basic oxygen furnace shop, coke oven
batteries and by-products plant. On or about February 6, 1996, the EPA filed an
administrative complaint proposing a penalty assessment of approximately
$125,000 with respect to the alleged violations at the coke oven battery and the
by-products plant. The Company responded by requesting an administrative hearing
to resolve outstanding legal and factual issues and also requested an informal
settlement conference. EPA also issued to the Company a Request for Information
under the Clean Air Act pursuant to which the Company was required to, and did,
conduct visible emission observations at the stack of the basic oxygen furnace
shop through June 30, 1996.
Great Lakes Division - Coke Oven By-Products Plant. On or about February 24,
1997, the Company received an FOV issued by the EPA that alleges certain
violations of labeling, equipment and monitoring requirements at the Great Lakes
Division Coke Oven By-Products Plant. No demand for penalties or sanctions was
set forth in the FOV. A conference has been scheduled with the EPA to discuss
the allegations.
Great Lakes Division - Multimedia Inspection. Representatives from the EPA
National Enforcement Investigation Center ("NEIC") conducted a two-week,
multimedia inspection of the Company's Great Lakes facility in April 1996.
Similar NEIC investigations have been conducted at other industrial facilities
over the past year, including a significant number in the iron and steel
industry. At the close of the inspection, the NEIC presented a preliminary list
of enforcement issues and questions. The Company is in the process of evaluating
the NEIC's preliminary findings and has taken action to address a number of the
issues.
Great Lakes Division - Opacity Notice of Violation. The EPA issued an NOV to
the Company's Great Lakes Division on or about August 28, 1995, alleging
violations of specified opacity regulations at the Division's A blast furnace
and basic oxygen furnace shop. The Company requested a conference with EPA,
which was held on September 25, 1995. No demand or proposal for penalties or
other sanctions was contained in the NOV.
Great Lakes Division Outfalls Proceedings. The United States Coast Guard
("USCG") has issued or proposes to issue a number of penalty assessments with
respect to alleged oil discharges at certain outfalls at the Company's Great
Lakes Division facility. The Company has appealed many of the USCG's
determinations, has paid amounts in settlement of a few, and is engaged in
settlement discussions with respect to the others. The Company believes that its
aggregate exposure with respect to these proposed penalty assessments is not
expected to exceed $500,000.
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The MDEQ, in April 1992, notified the Company of a potential enforcement action
alleging approximately 63 exceedances of limitations at the outfall at the 80-
inch hot strip mill. In July 1994, the MDEQ 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, and the plan was
fully implemented by February 1995. The Company has proposed to MDEQ that it
will perform a preliminary engineering and treatability study with respect to
alternate control systems while it simultaneously evaluates the effectiveness of
the comprehensive plan. Under this proposal, the Company would continue with the
installation of alternate control systems only if the comprehensive plan proved
to be unsuccessful. By letter dated June 28, 1995, the MDEQ accepted the
Company's proposal and, by subsequent correspondence, proposed a one year
demonstration period commencing on July 15, 1995, which has since been
completed. By letter of May 28, 1996, the MDEQ sent the Company a draft consent
order to address compliance issues at the 80-inch hot strip mill. Subsequently,
on June 17, 1996, representatives of the Company, the MDEQ and the USCG met to
discuss settlement. At that meeting, the Company presented evidence that no
further control equipment is necessary at the 80-inch hot strip mill.
Additionally, at this meeting, the MDEQ made an initial penalty demand of
$350,000. Settlement negotiations are ongoing. In the event that the Company's
comprehensive plan were to prove unsuccessful in addressing the MDEQ's concerns,
the cost of installation of alternative control systems would be approximately
$13 million.
On February 5, 1997, the State of Michigan filed a complaint in the Circuit
Court for the 30th Judicial District, Ingham County, Michigan, against the
Company's Great Lakes Division alleging approximately 75 violations of
limitations contained in two NPDES water discharge permits covering the Zug
Island and Main Plant facilities. The complaint seeks (i) to enjoin the Company
from discharging substances into the water in violation of Michigan law, (ii)
fines of not less than $2,500 and not more than $25,000 per day of violation,
and (iii) attorneys fees and costs incurred by the State. Settlement discussions
are ongoing.
Great Lakes Division - Wayne County Air Pollution Control Department. Since
January 1992, the Wayne County Air Pollution Control Department ("Wayne County")
has issued approximately 109 NOVs to the Company in connection with alleged
exceedances of emission standards and work practice standards covering various
process and fugitive emission sources at the Company's Great Lakes Division.
Wayne County and the Company currently have negotiated a consent order to
resolve approximately 68 of these NOVs. Pursuant to the terms of the consent
order, the Company has paid a $250,000 penalty and will implement an
environmental credit program valued at $250,000. The consent order was executed
by the parties and was effective December 15, 1996. There has been no activity
with respect to the other 41 NOVs.
National Mines Corporation - Isabella Mine. National Mines Corporation ("NMC"),
a wholly-owned subsidiary of the Company, previously owned and operated a coal
mine and coal refuse disposal area in Pennsylvania commonly known as the
Isabella Mine. The area covered under NMC's mining permit was approximately 140
acres. A reclamation bond in the amount of $1,200,000 was held by the
Pennsylvania Department of Environmental Resources ("DEP") for that area. NMC
subsequently ceased coal refuse disposal and mining operations at the site and
reclaimed the disposal areas. In June 1993, NMC sold the Isabella property to
Global Coal Recovery, Inc. ("Global"), a coal refuse reprocessor. Global applied
for and received a new mining permit from DEP for a total area of about 375
acres, including acreage previously covered under NMC's permit. As part of the
terms of sale, NMC agreed to allow Global to use NMC's $1,200,000 reclamation
bond as security to obtain the new permit from the DEP. Global was obligated to
repay NMC the $1,200,000. Global assumed all environmental liability associated
with the Isabella Mine as part of the transaction.
Subsequent to the sale of the Isabella Mine to Global, Global extracted coal
from a refuse pile at the mine, and in doing so, disturbed reclamation work NMC
had previously performed. Global was ultimately unable to profitably operate the
Isabella Mine at a profit and subsequently defaulted on its agreements to NMC.
Global and its contractors abandoned the site in October 1995. The DEP
subsequently took enforcement actions against Global and its contractors for
unabated discharges of mine drainage as well as other violations associated with
reclamation obligations at the Isabella site. The enforcement actions were
unsuccessful in eliminating the environmental violations at the site. On August
13, 1996, the DEP revoked the mining permit
19
<PAGE>
for the Isabella Mine held by Global. Additionally, on November 1, 1996, the DEP
issued a notice of forfeiture with respect to the $1,200,000 reclamation bond
posted by NMC. NMC has appealed this forfeiture to the Environmental Hearing
Board. NMC has presented DEP with a plan pursuant to which NMC would perform
reclamation of the site, in lieu of the forfeiture of the bond. Negotiations are
ongoing.
Granite City Division - Illinois Environmental Protection Agency Violation
Notice. On October 18, 1996, the Illinois Environmental Protection Agency
("IEPA") issued a Violation Notice alleging (i) releases to the environment
between 1990 and 1996; (ii) violations of solid waste requirements; and (iii)
violations of the National Pollutant Discharge Elimination System ("NPDES")
water permit limitations, at the Company's Granite City Division. No demand or
proposal for penalties or other sanctions was contained in the Notice; however,
the Notice does contain a recommendation by IEPA that the Company conduct an
investigation of these releases and, if necessary, remediate any contamination
discovered during that investigation. The Company responded to the Notice on
December 4, 1996. Discussions between the Company and IEPA are ongoing.
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 does not 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 December 31, 1996 and December 31, 1995
were $21.6 million, and $18.6 million, respectively.
20
<PAGE>
ITEM 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of 1996.
21
<PAGE>
Executive Officers of the Registrant
The following sets forth certain information with respect to the executive
officers of the Company. Executive officers are elected by the Board of
Directors of the Company generally, at the first meeting of the Board after each
annual meeting of stockholders. Officers of the Company serve at the discretion
of the Board of Directors and are subject to removal at any time.
Osamu Sawaragi, Chairman of the Board and Chief Executive Officer. Mr.
Sawaragi, age 68, has been a Director of the Company since June 1990 and was
elected Chairman in 1994. In August 1996, Mr. Sawaragi was appointed to the
position of Chief Executive Officer. Prior thereto he was employed by NKK as a
Director beginning in 1984, Managing Director in 1986, Senior Managing Director
in 1989, Executive Vice President from 1990 to 1994 and Senior Counsel from 1994
to 1996.
John A. Maczuzak, President and Chief Operating Officer. Mr. Maczuzak, age 55,
joined the Company as Vice President and General Manager - Granite City Division
in May 1996. He was appointed Executive Vice President and Acting Chief
Operating Officer in August 1996. On December 10, 1996 Mr. Maczuzak was
appointed to his present position. Mr. Maczuzak was formerly employed by ProTec
Coating Company as General Manager and has more than 31 years of broad based
experience in the steel industry.
Hiroshi Matsumoto, Executive Vice President, Corporate Planning and
Development. Mr. Matsumoto, age 45, joined the Company as Vice President and
Assistant to the Chief Operating Officer in June 1994, following eighteen years
with NKK. In July 1995, Mr. Matsumoto was appointed Vice President - Business
and Strategic Planning. He was appointed to his present position in February
1996. 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 NKK's American
subsidiary, NKK America Inc.
Bernard D. Henely, Senior Vice President and General Counsel. Mr. Henely, age
53, joined the Company as Vice President and General Counsel in September 1995.
He was appointed to his present position in February 1996. Mr. Henely was
formerly employed by Clark Equipment Company for over twenty-five years, where
he served as Vice President and General Counsel from 1984 to 1995.
George D. Lukes, Jr., Senior Vice President - Quality Assurance, Technology
and Production Planning. Mr. Lukes, age 50, joined the Company in June 1994 to
fill the newly created position of Vice President-Quality Assurance and Customer
Satisfaction. He was appointed to his present position in February 1996. 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 U.S. Steel's Fairless Works in
1983.
David A. Pryzbylski, Senior Vice President - Administration and Secretary. Mr.
Pryzbylski, age 47, joined the Company in June 1994 as Vice President-Human
Resources and Secretary. He was appointed to his present position in February
1996. Mr. Pryzbylski had previously been employed by U.S. Steel since 1979. He
held a number of management positions at steel and mining operations, serving
since 1987 as Senior Human Resource Manager at its Gary Works facility.
22
<PAGE>
David L. Peterson, Group Vice President - Regional Operations. Mr. Peterson,
age 46, joined the Company in June 1994 as Vice President and General Manager -
Great Lakes Division. In January 1997 he was appointed to the position of Group
Vice President - Regional Operations which includes the Great Lakes and the
Midwest Divisions. 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 U.S. Steel's Gary Works
facility.
Robert G. Pheanis, Vice President and General Manager - Midwest Division. Mr.
Pheanis, age 61, 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 facility for 35 years and in 1992 was
named its Plant Manager - Finishing Operations, with responsibility for its
total hot rolled, sheet and tin operations.
James H. Squires, Vice President and General Manager - Granite City Division.
Mr. Squires, age 58, began his career with the Company in 1956 as a laborer in
the blast furnace area and went on to hold numerous positions as an hourly
worker. In 1964, he accepted a salaried position and advanced through the
operating organization. In October 1996, Mr. Squires was appointed to his
current position.
Joseph R. Dudak, Vice President, Strategic Sourcing. Mr. Dudak, age 49, began
his career with the Company as an engineer at the Midwest Division in 1970. In
1973, he moved to the Granite City Division and served as Superintendent of
Energy Management & Utilities from 1977 until moving to corporate headquarters
in 1981. He served as Director of Energy & Environmental Affairs from 1981 to
1994, when he was appointed to his present position.
William E. Goebel, Vice President, Marketing and Sales. Mr. Goebel, age 57,
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.
William E. McDonough, Acting Chief Financial Officer and Treasurer. Mr.
McDonough, age 38, began his career with the Company in 1985 in the financial
department. He has held various positions of increasing responsibility including
Assistant Treasurer and Manager, Treasury Operations and was promoted to
Treasurer in December 1995. In July 1996, Mr. McDonough was appointed Acting
Chief Financial Officer.
Carl M. Apel, Controller. Mr. Apel, age 41, joined the Company in 1986. Mr.
Apel has served in various management capacities of increasing responsibility
within the Company's financial organization including Manager, General
Accounting and Internal Control at the Company's Midwest Division prior to being
promoted to Controller in 1992.
23
<PAGE>
PART II
ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters
The information required by this item is included on page 42 of the registrant's
Annual Report to the Shareholders for the fiscal year ended December 31, 1996
and is incorporated herein by reference.
ITEM 6. Selected Financial Data
The information required by this item is included on page 16 of the registrant's
Annual Report to the Shareholders for the fiscal year ended December 31, 1996
and is incorporated herein by reference.
ITEM 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is included on pages 17 through 21 of the
registrant's Annual Report to the Shareholders for the fiscal year ended
December 31, 1996 and is incorporated herein by reference.
ITEM 8. Financial Statements and Supplementary Data
The information required by this item is included on pages 22 through 40 of the
registrant's Annual Report to the Shareholders for the fiscal year ended
December 31, 1996 and is incorporated herein by reference.
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
24
<PAGE>
PART III
ITEM 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference from the
section captioned "Executive Officers" in Part I of this report and from the
sections captioned "Information Concerning Nominees for Directors" and
"Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by reference, the
Company's Proxy Statement is not to be deemed filed as part of this report for
purposes of this Item.
ITEM 11. Executive Compensation
The information required by this Item is incorporated by reference from the
sections captioned "Executive Compensation", "Summary Compensation Table",
"Stock Option Tables", "Option Grants in 1996", "Aggregated Option Exercises in
1996 and December 31, 1996 Option Values", "Pension Plans", "Pension Plan
Table", "Employment Agreements" and "Compensation of Directors" in the Company's
Proxy Statement for the 1997 Annual Meeting of Stockholders. With the exception
of the information specifically incorporated by reference, the Company's Proxy
Statement is not to be deemed filed as part of this report for purposes of this
Item.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference from the
sections captioned "Security Ownership of Directors and Management" and
"Additional Information Relating to Voting Securities" in the Company's Proxy
Statement for the 1997 Annual Meeting of Stockholders. With the exception of the
information specifically incorporated by reference, the Company's Proxy
Statement is not to be deemed filed as part of this report for purposes of this
Item.
ITEM 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference from the
section captioned "Certain Relationships and Related Transactions" in the
Company's Proxy Statement for the 1997 Annual Meeting of Stockholders. With the
exception of the information specifically incorporated by reference, the
Company's Proxy Statement is not to be deemed filed as part of this report for
purposes of this Item.
25
<PAGE>
PART IV
ITEMS 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this Report:
The following is an index of the financial statements, schedule and exhibits
included in this Report or incorporated herein by reference.
(1) Financial Statements
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
Page
----
Consolidated Statements of Income for the years ended
December 31, 1996, 1995 and 1994 ................................... *
Consolidated Balance Sheets as of December 31, 1996, and
December 31, 1995 .................................................. *
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 ................................... *
Consolidated Statements of Shareholders' Equity and
Redeemable Preferred Stock -Series B for the years
ended December 31, 1996, 1995 and 1994 ............................. *
Notes to Consolidated Financial Statements (Including
Quarterly Financial Data) .......................................... *
(2) Consolidated Financial Statement Schedule
The following consolidated financial statement schedule of National Steel
Corporation and Subsidiaries is filed as a part of this Report:
Schedule II -- Valuation and Qualifying Accounts and
Reserves, years ended December 31, 1996, 1995 and 1994 ............. F-1
* Incorporated in Item 8 of this Report by reference from pages 22 to 40,
inclusive, of the Company's 1996 Annual Report to Stockholders referred to below
which pages are filed with this Report as Exhibit 13. With the exception of
those pages, the 1996 Annual Report to Stockholders is not to be deemed filed as
part of this Report for purposes of this Item. The Schedule listed above should
be read in conjunction with the consolidated financial statements in such 1996
Annual Report to Stockholders.
Schedules not included have been omitted because they are not applicable or
the required information is shown in the consolidated financial statements or
notes thereto.
26
<PAGE>
Separate financial statements of subsidiaries not consolidated and 50
percent or less owned persons accounted for by the equity method have been
omitted because considered in the aggregate as a single subsidiary they do not
constitute a significant subsidiary.
(3) Exhibits
See the attached Exhibit Index. Items 10-N, 10-O, 10-P, 10-CC, 10-DD, 10-EE, 10-
FF, 10-GG, 10-HH, 10-II, 10-KK, 10-LL and 10-MM are management contracts or
compensatory plans or arrangements.
(b) Reports on Form 8-K:
During the quarter ended December 31, 1996, no reports on Form 8-K were
filed by the Company.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Mishawaka, State
of Indiana, on March 14, 1997.
NATIONAL STEEL CORPORATION
By: /s/ William E. McDonough
--------------------------------------------
William E. McDonough
Acting Chief Financial Officer and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company in the
capacities indicated on March 14, 1997.
Name Title
---- -----
/s/ Osamu Sawaragi Director; Chairman of the Board and Chief
- ------------------------- Executive Officer
Osamu Sawaragi
/s/ Kenichiro Sekino Director
- -------------------------
Kenichiro Sekino
/s/ Yoshiharu Onuma Director
- -------------------------
Yoshiharu Onuma
/s/ Frank J. Lucchino Director
- -------------------------
Frank J. Lucchino
/s/ Bruce K. MacLaury Director
- -------------------------
Bruce K. MacLaury
/s/ Keiichiro Sakata Director
- -------------------------
Keiichiro Sakata
/s/ Susumu Terao Director; Director of Finance
- -------------------------
Susumu Terao
/s/ William E. McDonough Acting Chief Financial Officer and Treasurer
- -------------------------
William E. McDonough
/s/ Carl M. Apel Controller
- ------------------------
Carl M. Apel
28
<PAGE>
Exhibit Index
Except for those exhibits which are incorporated by reference, as indicated
below, all exhibits are being filed along with this Form 10-K.
Exhibit
Number Exhibit Description
- ------ -------------------
2-A Assets 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-A to the annual report of the Company on Form 10-K for the
year ended December 31, 1995, is incorporated herein by reference.
2-B 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, filed as Exhibit
2-B to the annual report of the Company on Form 10-K for the year
ended December 31, 1995, is incorporated herein by reference.
2-C 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-C to the annual report of the Company on Form 10-K for the
year ended December 31, 1995, is incorporated herein by reference.
2-D 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.
3-A The Sixth Restated Certificate of Incorporation of the Company, filed
as Exhibit 3.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
3-B Form of Amended and Restated By-laws of the Company.
4-A NSC Stock Transfer Agreement between National Intergroup, Inc., the
Company, NKK Corporation and NII Capital Corporation dated December
24, 1985, filed as Exhibit 4-A to the annual report of the Company on
Form 10-K for the year ended December 31, 1995, is incorporated herein
by reference.
4-B Certificate of Designation of Series A Preferred Stock dated June 26,
1990, filed as Exhibit 4-B to the annual report of the Company on Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
4-C Certificate of Designation of Series B Preferred Stock dated June 26,
1990, filed as Exhibit 4-C to the annual report of the Company on Form
10-K for the year ended December 31, 1995, is incorporated herein by
reference.
29
<PAGE>
4-D The Company is a party to certain long term debt agreements where the
amount involved does not exceed 10% of the Company's total assets. The
Company agrees to furnish a copy of any such agreement to the
Commission upon request.
10-A Amended and Restated Lease Agreement between the Company and
Wilmington Trust Company, dated as of December 20, 1985, relating to
the Electrolytic Galvanizing Line, filed as Exhibit 10-A to the annual
report of the Company on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10-B Lease Agreement between The Connecticut National Bank as Owner Trustee
and Lessor and National Acquisition Corporation as Lessee dated as of
September 1, 1987 for the Ladle Metallurgy and Caster Facility located
at Ecorse, Michigan, filed as Exhibit 10-B to the annual report of the
Company on Form 10-K for the year ended December 31, 1995, is
incorporated herein by reference.
10-C Lease Supplement No. 1 dated as of September 1, 1987 between The
Connecticut National Bank as Owner Trustee and National Acquisition
Corporation as the Lessee for the Ladle Metallurgy and Caster Facility
located at Ecorse, Michigan, filed as Exhibit 10-C to the annual
report of the Company on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10-D Lease Supplement No. 2 dated as of November 18, 1987 between The
Connecticut National Bank as Owner Trustee and National Acquisition
Corporation as Lessee for the Ladle Metallurgy and Caster Facility
located at Ecorse, Michigan, filed as Exhibit 10-D to the annual
report of the Company on Form 10-K for the year ended December 31,
1995, is incorporated herein by reference.
10-E Purchase Agreement dated as of March 25, 1988 relating to the Stinson
Motor Vessel among Skar-Ore Steamship Corporation, Wilmington Trust
Company, General Foods Credit Investors No. 1 Corporation, Stinson,
Inc. and the Company, and Time Charter between Stinson, Inc. and the
Company, filed as Exhibit 10-E to the annual report of the Company on
Form 10-K for the year ended December 31, 1995, is incorporated herein
by reference.
10-F Amended and Restated Weirton Agreement dated June 26, 1990, between
National Intergroup, Inc., NII Capital Corporation and the Company,
filed as Exhibit 10-F to the annual report of the Company on Form 10-K
for the year ended December 31, 1991, is incorporated herein by
reference.
10-G Amended and Restated Weirton Liabilities Agreement dated July 31, 1991
between National Intergroup, Inc., NII Capital Corporation and the
Company, filed as Exhibit 10-H to the annual report of the Company on
Form 10-K for the year ended December 31, 1991, is incorporated herein
by reference.
10-H Put Agreement by and among NII Capital Corporation, NKK U.S.A.
Corporation and the Company, dated June 26, 1990, filed as Exhibit 10-
H to the annual report of the Company on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
10-I Subordinated Loan Agreement dated May 8, 1991, between NUF Corporation
and the Company, filed as Exhibit 4-P to the annual report of the
Company on Form 10-K, for the year ended December 31, 1991, is
incorporated herein by reference.
10-J First Amendment to Subordinated Loan Agreement dated December 9, 1991,
between NUF Corporation and the Company, filed as Exhibit 4-Q to the
annual report of the Company on Form 10-K, for the year ended December
31, 1991, is incorporated herein by reference.
30
<PAGE>
10-K Second Amendment to Subordinated Loan Agreement, dated December 29,
1992, between NUF Corporation and the Company, filed as Exhibit 10-S
to the annual report of the Company on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
10-L Amended and Restated Loan Agreement, dated October 30, 1992, between
NUF Corporation and the Company filed as Exhibit 10-T to the annual
report of the Company on Form 10-K for the year ended December 31,
1992, is incorporated herein by reference.
10-M First Amendment to Amended and Restated Loan Agreement dated February
1, 1993, between NUF Corporation and the Company filed as Exhibit 10-U
to the annual report of the Company on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
10-N 1993 National Steel Corporation Long-Term Incentive Plan, filed as
Exhibit 10.1 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
10-O 1993 National Steel Corporation Non-Employee Directors' Stock Option
Plan, filed as Exhibit 10.2 to the Company's Registration Statement on
Form S-1, Registration No. 33-57952, is incorporated herein by
reference.
10-P National Steel Corporation Management Incentive Compensation Plan
dated January 30, 1989, filed as Exhibit 10.3 to the Company's
Registration Statement on Form S-1, Registration No. 33-57952, is
incorporated herein by reference.
10-Q Purchase and Sale Agreement, dated as of May 16, 1994 between the
Company and National Steel Funding Corporation, filed as Exhibit 10-A
to the quarterly report of the Company on Form 10-Q/A for the quarter
ended March 31, 1994, is incorporated herein by reference.
10-R Form of Indemnification Agreement.
10-S Shareholders' Agreement, dated as of September 18, 1990, among DNN
Galvanizing Corporation, 904153 Ontario Inc., National Ontario
Corporation and Galvatek America Corporation, filed as Exhibit 10.27
to the Company's Registration Statement on Form S-1, Registration No.
33-57952, is incorporated herein by reference.
10-T Partnership Agreement, dated as of September 18, 1990, among Dofasco,
Inc., National Ontario II, Limited, Galvatek Ontario Corporation and
DNN Galvanizing Corporation, filed as Exhibit 10.28 to the Company's
Registration Statement on Form S-1, Registration No. 33-57952, is
incorporated herein by reference.
10-U Amendment No. 1 to the Partnership Agreement, dated as of September
18, 1990, among Dofasco, Inc., National Ontario II, Limited, Galvatek
Ontario Corporation and DNN Galvanizing Corporation, filed as Exhibit
10.29 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
10-V Agreement, dated as of February 3, 1993, among the Company, NKK, NKK
U.S.A. Corporation, NII and NII Capital Corporation, filed as Exhibit
10.30 to the Company's Registration Statement on Form S-1,
Registration No. 33-57952, is incorporated herein by reference.
31
<PAGE>
10-W Second Amendment to Amended and Restated Loan Agreement dated May 19,
1993, between NUF Corporation and the Company, filed as Exhibit 10-EE
to the annual report of the Company on Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
10-X Agreement, dated as of May 19, 1993, among the Company and NKK Capital
of America, Inc., filed as Exhibit 10-FF to the annual report of the
Company on Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
10-Y Receivables Purchase Agreement, dated as of March 16, 1994, between
the Company and National Steel Funding Corporation, filed as exhibit
10-A to the quarterly report of the Company on Form 10-Q/A for the
quarter ended June 30, 1994, is incorporated herein by reference.
10-Z Amendment Number One to the Receivables Purchase Agreement, dated as
of May 31, 1995, between the Company and National Steel Funding
Corporation, filed as exhibit 10-A to the quarterly report of the
Company on Form 10-Q for the quarter ended June 30, 1995, is
incorporated herein by reference.
10-AA Third Amendment to Amended and Restated Loan Agreement dated August 2,
1995, between NUF Corporation and the Company, filed as exhibit 10-A
to the quarterly report on Form 10-Q for the quarter ended September
30, 1995, is incorporated herein by reference.
10-BB Agreement for the Transfer of Employees by and between NKK Corporation
and the Company, dated as of May 1, 1995, filed as Exhibit 10-CC to
the annual report of the Company on Form 10-K for the year ended
December 31, 1995, is incorporated herein by reference.
10-CC Employment contract dated April 30, 1996 between National Steel
Corporation and V. John Goodwin, filed as Exhibit 10-A to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-DD Employment contract dated April 30, 1996 between National Steel
Corporation and Bernard D. Henely, filed as Exhibit 10-B to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-EE Employment contract dated April 30, 1996 between National Steel
Corporation and George D. Lukes, filed as Exhibit 10-C to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-FF Employment contract dated April 30, 1996 between National Steel
Corporation and David L. Peterson, filed as Exhibit 10-D to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-GG Employment contract dated December 11, 1996 between National Steel
Corporation and Robert G. Pheanis.
10-HH Employment contract dated April 30, 1996 between National Steel
Corporation and David A. Pryzbylski, filed as Exhibit 10-F to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
10-II Employment contract dated May 1, 1996 between National Steel
Corporation and John A. Maczuzak, filed as Exhibit 10-G to the
quarterly report of the Company on Form 10-Q for the quarter ended
June 30, 1996, is incorporated herein by reference.
32
<PAGE>
10-JJ Amendment No. 2 and Consent to the Receivables Purchase Agreement,
dated as of July 18, 1996, among the Company, National Steel Funding
Corporation and Morgan Guaranty Trust Company of New York, filed as
Exhibit 10-A to the quarterly report of the Company on Form 10-Q for
the quarter ended September 30, 1996, is incorporated herein by
reference.
10-KK Supplement to Employment contract dated July 30, 1996 between National
Steel Corporation and George D. Lukes, filed as Exhibit 10-B to the
quarterly report of the Company on Form 10-Q for the quarter ended
September 30, 1996, is incorporated herein by reference.
10-LL Supplement to Employment contract dated July 30, 1996 between National
Steel Corporation and David L. Peterson, filed as Exhibit 10-C to the
quarterly report of the Company on Form 10-Q for the quarter ended
September 30, 1996, is incorporated herein by reference.
10-MM Employment contract dated December 11, 1996 between National Steel
Corporation and Osamu Sawaragi.
10-NN Amendment No. 1 to Agreement for the Transfer of Employees by and
between the Company and NKK Corporation.
13 Portions of the Company's 1996 Annual Report to Stockholders which are
incorporated by reference into this Form 10-K.
21 List of Subsidiaries of the Company.
23 Consent of Independent Auditors.
27 Financial Data Schedule.
33
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Thousands of Dollars)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- ----------- ---------------------------------- ----------- -------------
ADDITIONS
----------------------------------
Balance at Charged to
Beginning Charged to Other Accounts - Deductions - Balance at
Description of Period Costs and Expense Describe Describe End of Period
----------- ----------- ----------------- -------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1996
- ----------------------------
RESERVES DEDUCTED FROM ASSETS
Allowances and discounts on trade
notes and accounts receivable $ 19,986 $23,560 (1) $ ---- $22,226 (3) $ 21,320
Valuation allowance on deferred
tax assets 159,400 ---- (33,900) (2) ---- 125,500
Year Ended December 31, 1995
- ----------------------------
RESERVES DEDUCTED FROM ASSETS
Allowances and discounts on trade
notes and accounts receivable $ 15,185 $21,046 (1) $ ---- $16,245 (3) $ 19,986
Valuation allowance on deferred
tax assets 208,000 ---- (48,600) (2) ---- 159,400
Year Ended December 31, 1994
- ----------------------------
RESERVES DEDUCTED FROM ASSETS
Allowances and discounts on trade
notes and accounts receivable $ 21,380 $28,504 (1) $ ---- $34,699 (3) $ 15,185
Valuation allowance on deferred
tax assets 263,200 ---- (55,200) (2) ---- 208,000
</TABLE>
NOTE 1 - Provision for doubtful accounts of $2,748, $4,854 and $(3,155) for
1996, 1995 and 1994, respectively and other charges consisting
primarily of claims for pricing adjustments and discounts allowed.
NOTE 2 - Represents the increase or (decrease) in the net deferred tax asset.
NOTE 3 - Doubtful accounts charged off, net of recoveries, claims and discounts
allowed and reclassification to other assets.
34
<PAGE>
Exhibit 3-B
National Steel Corporation
By-Laws
August 20, 1996
AMENDED AND RESTATED
BY-LAWS
OF
NATIONAL STEEL CORPORATION
[Approved by the Board of Directors on May 31, 1994,
as Amended by Written Consent on August 20, 1996]
OFFICES
-------
1. Registered Office. The registered office of National Steel Corporation
(the "Corporation") shall be in the City of Wilmington, County of New Castle,
State of Delaware, and the name of the resident agent in charge thereof shall be
The Corporation Trust Company.
2. Other Offices. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may determine from time to time, or as the business of the Corporation may
require.
MEETINGS OF STOCKHOLDERS
------------------------
3. Place of Meeting. Meetings of the stockholders for the election of
directors or for any other purpose shall be held at such time and place, either
within or without the State of Delaware as shall be designated from time to time
by the Board of Directors and stated in the notice of the meeting or in a duly
executed waiver of notice thereof.
4. Annual Meetings. The Annual Meeting of Stockholders shall be held on
such date and at such time as shall be determined by the Board of Directors and
stated in the notice of the meeting at which meeting the stockholders shall
elect by a plurality vote a Board of Directors, and transact such other business
as may properly be brought before the meeting. If the Board of Directors fails
to set a time and date for the Annual Meeting, it shall be held on the second
Wednesday of May at 10:00 a.m., and if a legal holiday, then on the next
following business day. Written notice of the Annual Meeting
<PAGE>
of Stockholders shall be given in the same manner set forth in Section 39
hereof, at least ten (10) days prior to the meeting to each stockholder entitled
to vote thereat
5. Special Meetings. A Special Meeting of Stockholders, for any purpose
or purposes, may be called at any time by the Board of Directors and shall be
called by the Chairman of the Board of Directors, the President or the Secretary
at the request in writing of stockholders owning, at least fifty percent (50%)
of the voting power of the capital stock of the Corporation issued and
outstanding and entitled to vote thereat. Such request shall state the purpose
or purposes of the proposed meeting. Business transacted at all Special
Meetings of stockholders shall be confined to the matters specified in the
notice of meeting. The place, date and hour of the Special Meeting and the
purpose or purposes for which the meeting is called shall be given in the manner
set forth in Section 39 hereof at least ten (10) days before such meeting to
each stockholder entitled to vote thereat.
6. Quorum. Except as otherwise provided by law or by the Certificate of
Incorporation, as amended and restated, the holders of a majority of the voting
power of the capital stock issued and outstanding and entitled to vote thereat
present in person or represented by proxy, but in no event less than one-third
of the shares entitled to vote at the meeting shall constitute a quorum at all
meetings of the stockholders for the transaction of business. If, however, such
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present: or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. If the adjournment is for more than thirty
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder
entitled to vote at the meeting.
7. Voting. Unless otherwise required by law, the Certificate of
Incorporation, as amended and restated, or these By-Laws, any question brought
before any meeting of stockholders shall be decided by the vote of the holders
of a majority of the voting power of the capital stock represented and entitled
to vote thereat. Each stockholder represented at a meeting of stockholders shall
be entitled to cast such number of votes as set forth in the Certificate of
Incorporation, as amended and restated, with respect to such capital stock, for
each share entitled to vote thereat held by such stockholder. Such votes may be
cast in person or by proxy, but no proxy shall be voted on or after three years
from its date unless such proxy provides for a longer period. All proxies shall
be filed with the
2
<PAGE>
Secretary of the Corporation. The vote for directors, and, upon the demand of
any stockholder, the vote upon any question before the meeting shall be cast by
written ballot.
Each election of directors shall be conducted by one or more
inspectors or judges, who may or may not be stockholders, appointed by the
chairman of the meeting. The inspectors or judges shall be sworn to the faithful
performance of their duties and shall, in writing certify to the returns. No
person who is a candidate for the office of director shall be an inspector or
judge.
8. Consent of Stockholders in Lieu of Meeting. Unless otherwise provided
in the Certificate of Incorporation, as amended and restated, any action
required or permitted to be taken at any Annual or Special Meeting of
Stockholders of the Corporation, may be taken without a meeting, without prior
notice and without a vote, if a consent in writing setting forth the action so
taken, shall be signed by the holders of outstanding stock having not less than
the minimum number of votes that would be necessary to authorize or take such
action at a meeting at which all shares entitled to vote thereon were present
and voted. Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
9. List of Stockholders Entitled to Vote. The officer of the Corporation
who has charge of the stock ledger of the Corporation shall prepare, at least
ten (10) days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting arranged in alphabetical order, and
showing the address of each stockholder and the number of shares by class
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting either at a place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting or, if not so specified,
at the place where the meeting is to be held. The list shall also be produced
and kept at the time and place of the meeting during the whole time thereof, and
may be inspected by any stockholder of the Corporation who is present.
10. Stock Ledger. The stock ledger of the Corporation shall be the only
evidence as to who are the stockholders entitled to examine the stock ledger,
the list required by Section 9 or the books of the Corporation, or to vote in
person or by proxy at any meeting of stockholders.
3
<PAGE>
DIRECTORS
---------
11. Number and Election of Directors. The property and business of the
Corporation shall be managed by a Board of Directors, which shall consist of
eight (8) directors. Directors need not be stockholders. Except provided in
Section 12, directors shall be elected by a plurality of the votes cast at the
Annual Meeting of Stockholders and each director shall be elected to serve until
the next Annual Meeting of Stockholders following said director's election and
until said director's successor shall be duly elected and qualified, or until
said director's earlier resignation or removal.
12. Vacancies. Vacancies in newly created directorships resulting from
any increase in the authorized number of directors may be filled by a majority
of the entire Board of Directors, and any other vacancy occurring on the Board
of Directors may be filled by a majority of the directors then in office though
less than a quorum is present, or by a sole remaining director. The directors
so chosen to fill a vacancy shall hold office until the next annual election and
until their successors are duly elected and qualified, or until their earlier
resignation or removal.
13. Duties and Powers. The Board of Directors may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Certificate of Incorporation, as amended and restated, or by
these By-Laws, directed or required to be exercised or done by the stockholders.
14. Meetings. The Board of Directors of the Corporation may hold
meetings, both regular and special, either within or without the State of
Delaware. Regular meetings of the Board of Directors may be held at such time
and at such place as may from time to time be determined by the Board of
Directors. Notice of regular meetings shall be given in the manner set forth in
Sections 39 and 40 hereof to each director at least five (5) days prior thereto.
Special meetings of the Board of Directors may be called by the Chairman or the
Secretary and shall be called by the Secretary upon the written request of any
three directors. Oral or written notice thereof stating the place, date and hour
of the meeting shall be given to each director at least five (5) days before the
date of the meeting.
15. Quorum. At all meetings of the Board of Directors, a majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present and voting at any
meeting at which there is a quorum shall be the act of the Board of Directors.
If a quorum shall not be present at any meeting of the Board of Directors, the
directors present thereat may adjourn the meeting from time
4
<PAGE>
to time, without notice other than announcement at the meeting, until a quorum
shall be present.
16. Actions of the Board. Any action required or permitted to be taken at
any meeting of the Board of Directors, or of any committee thereof, may be taken
without a meeting if all the members of the Board of Directors or committee, as
the case may be, consent thereto in writing and the writing or writings are,
filed with the minutes of proceedings of the Board of Directors or committee.
17. Meetings by Means of Conference Telephone. Members of the Board of
Directors of the Corporation, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors or such
committee by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation in a meeting pursuant to this Section 17 shall constitute
presence in person at such meeting.
18. Committees. The Board of Directors may, by resolution passed by a
majority of the entire Board of Directors, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation.
The Board of Directors may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of any such Committee. In the absence or disqualification of a member
of a committee, and in the absence of a designation by the Board of Directors of
an alternate member to replace the absent or disqualified member, the member or
members thereof present at any meeting and not disqualified from voting whether
or not the member or members constitute a quorum, may unanimously appoint
another member of the Board of Directors to act at the meeting in the place of
any absent or disqualified member. Any committee, to the extent allowed by law
and provided in the resolution establishing such committee, shall have any and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation. Each committee shall
keep regular minutes and report to the Board of Directors when required.
19. Compensation. The directors may be paid their expenses, if any, of
attendance at each meeting of the Board of Directors and may be compensated for
their services in such manner as the Board of Directors may determine. No such
payment shall preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may also be compensated in such manner as the Board of Directors may
determine for attending committee meetings.
5
<PAGE>
OFFICERS
--------
20. General. The officers of the Corporation shall be chosen by the Board
of Directors and shall be a Chairman (who must be a director), a President, a
Secretary and a Treasurer. The Board of Directors, in its discretion, may also
designate any Vice Chairman of the Board of Directors (who must be a director)
to be an officer and may choose one or more Senior Vice Presidents, Vice
Presidents, Assistant Secretaries, Assistant Treasurers and a Controller. The
Board of Directors may designate officers to serve as Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer and other such designated
positions and to fulfill the responsibilities of such designated positions as
may from time to time be assigned by the Board in addition to their duties as
officers. Any number of offices may be held by the same person, unless
otherwise prohibited by law, the Certificate of Incorporation, as amended and
restated, or these By-Laws. The officers of the Corporation need not be
stockholders of the Corporation nor, except in the case of the Chairman and Vice
Chairman of the Board of Directors need such officers be directors of the
Corporation.
21. Election. The Board of Directors shall annually elect the officers of
the Corporation who shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board Of Directors; and all officers of the Corporation shall hold office
until their successors are chosen and qualified, or until their earlier
resignation or removal. Any officer elected by the Board of Directors may be
removed at any time by the affirmative vote of a majority of the Board of
Directors, with or without cause. Any vacancy occurring in any of the offices
of the Chairman, the President, Secretary or Treasurer shall be filled by the
Board of Directors. Any vacancy occurring in any other office may be filled by,
or pursuant to authority delegated by, the Board of Directors or may be left
unfilled. Officers of the Corporation shall be entitled to receive such
compensation for their services as officers as may be fixed by, or pursuant to
authority delegated by, the Board of Directors. Each of the compensated
officers of the Corporation shall be full-time employees of the Corporation
unless the Board of Directors expressly authorizes otherwise. The positions of
Chairman and/or Vice Chairman of the Board of Directors may be held by persons
who are not full-time employees of the Corporation, in which event such persons
will not be compensated by reason of holding such positions; provided that such
persons shall be permitted to receive reimbursement for their expenses of
attendance at Board and Board committee meetings under Section 19 hereof.
6
<PAGE>
22. Voting Securities Owned by the Corporation. Powers of attorney,
proxies, waivers of noticed of meeting consents and other instruments relating
to securities owned by the Corporation may be executed in the name of and on
behalf of the Corporation by the President or any Vice President, and any such
officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation in which the Corporation may
own securities and at any such meeting shall possess and may exercise any and
all rights and power incident to the ownership of such securities and which, as
the owner thereof, the Corporation might have exercised and possessed if
present. The Board of Directors may, by resolution from time to time confer like
powers upon any other person or persons.
23. Chairman of the Board of Directors. The Chairman of the Board shall
preside at all meetings of the Board of Directors. The Chairman shall also
perform all such other duties and exercise all such other powers as these By-
Laws or the Board of Directors may from time to time prescribe.
24. Vice Chairman. The Vice Chairman of the Board, if there is one, in
the absence or disability of the Chairman of the Board, shall perform the duties
of the Chairman of the Board and shall perform such other duties as the Board of
Directors may from time to time prescribe.
25. President. The President shall preside at all meetings of the
stockholders. If the President is a member of the Board, then at the request, or
in the absence or disability, of the Chairman or Vice Chairman of the Board of
Directors, the President shall preside at meetings of the Board of Directors.
Under the direction of the Board of Directors, the President shall have the
general management of the business of the Corporation shall see that all orders
and resolutions of the Board of Directors are carried into effect, and, in
general, shall perform all duties as are usually incident to the office of
president of a corporation. The President shall also perform all such other
duties and exercise all such other powers as from time to time may be assigned
to the President by these By-Laws by the Board of Directors.
26. Senior Vice President(s); Vice President(s). The Senior Vice
Presidents, if any, and the Vice Presidents shall perform such duties and have
such powers as shall be assigned to said officers by the Board of Directors or
the President at the request of the President or the event of the President's
absence or inability or refusal to act, the Senior Vice President or Vice
President designated by the Board of Directors shall perform the
7
<PAGE>
duties of the President and when so acting shall have all the powers of and be
subject to all the restrictions upon the President.
27. Secretary. The Secretary shall attend all meetings of the Board of
Directors and all meetings of stockholders and record all the proceedings
thereat in a book or books to be kept for this purpose; the Secretary shall also
perform like duties for the standing committees when required. The Secretary
shall give, or cause to be given, notice of all. meetings of the stockholder and
of the Board of Directors, and shall perform such other duties as may be
prescribed by the Board of Directors, the Chairman or the President. If the
Secretary shall be unable or shall refuse to cause to be given notice of all
meetings of the stockholders and of the Board of Directors, and if there be no
Assistant Secretary, then either the Board of Directors or the President may
choose another officer to cause such notice to be given. The Secretary shall
have custody of the seal of the Corporation, and the Secretary or any other
officer of the Corporation shall have authority to affix the same to any
instrument requiring it; and when so affixed, it may be attested by the
signature of the Secretary or by the signature of any other such. officer. The
Board of Directors may give general authority to any other officer to affix the
seal of the Corporation and to attest the affixing by the Secretary's signature.
The Secretary shall see that all books, reports, statements, certificates and
other documents and records required by law to be kept or filed are properly
kept or filed, as the case may be.
28. Treasurer. The Treasurer shall have the custody of the corporate
funds and securities and shall keep, or cause to be kept, full and accurate
accounts, of receipts and disbursements in books belonging to the Corporation
and kept for that purpose. The Treasurer shall deposit all moneys and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. The Treasurer shall
disburse the funds of the Corporation as may be ordered by the Board of
Directors or the President, taking proper vouchers for such disbursements, and
shall render to the President an account of all transactions as Treasurer and of
the financial condition of the Corporation. In addition, the Treasurer shall
perform all the usual duties incident to the office of Treasurer. If required
by the Board of Directors, the Treasurer shall give the Corporation a bond in
such sum and with such surety or sureties as shall be satisfactory to the Board
of Directors for the faithful performance of the duties of such office and for
the restoration to the Corporation, in case of the Treasurer's death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in the possession or under the control
of the Treasurer belonging to the Corporation.
8
<PAGE>
29. Assistant Secretaries. The Assistant Secretary, or Secretaries, if
there be any, shall such duties and have such powers as from time to time may be
assigned to such Assistant Secretary or Assistant Secretaries; by the Board of
Directors or the President and, in the absence of the Secretary or in the event
of the Secretary's disability or refusal to act shall perform the duties of the
Secretary, and when so acting, shall have all the powers of and be subject to
all the restrictions upon the Secretary.
30. Assistant Treasurers. The Assistant Treasurer or Assistant
Treasurers, if there be any, shall perform such duties and have such powers as
from time to time may be assigned to such Assistant Treasurer or, Assistant
Treasurers by the Board of Directors or the President, and, in the absence of
the Treasurer or in the event of the Treasurer's disability or refusal to act,
shall perform the duties of the Treasurer, and when so acting shall have all the
powers of and be subject to all the restrictions upon the Treasurer. If
required by the Board of Directors, an Assistant Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of such office and for the restoration to the Corporation, in case of the
Assistant Treasurer's death, resignation, retirement or removal from office, of
all books, papers, vouchers, money and other property of whatever kind in the
possession or under the control of the Assistant Treasurer belonging to the
Corporation.
31. Controller. The Controller, if any, shall perform such duties as
shall be assigned to the Controller by the Board of Directors or the President.
32. Other Officers. Such other officers as the Board of Directors may
choose shall perform such duties and have such powers as from time to time may
be assigned to them by the Board of Directors. The Board of Directors may
delegate to any other officer of the Corporation the power to choose such other
officers and to prescribe their respective duties and powers.
In case of the absence of any officer of the Corporation, or for any
other reason the Board of Directors may deem sufficient, the Board may delegate,
for the time being the powers or duties, or any of them, of such officer to any
other officer, or to any director, provided a majority of the entire Board of
Directors concurs therein.
9
<PAGE>
STOCK
-----
33. Form of Certificates. Every holder of stock in the Corporation shall
be entitled to have a certificate signed, either manually or by facsimile, in
the name of the Corporation (i) by the Chairman of the Board of Directors, the
President or the Vice President, Chief Financial Officer, and (ii) by the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, certifying the number of shares owned by a stockholder in
the Corporation.
Each certificate issued by the Corporation representing shares of
Class A Common Stock shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF l933, AS AMENDED, AND MAY BE OFFERED OR
SOLD ONLY IF REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR IF AN
EXEMPTION FROM REGISTRATION IS AVAILABLE. THESE SECURITIES ARE SUBJECT TO
CERTAIN LIMITATIONS ON TRANSFER SET FORTH IN THE RESTATED CERTIFICATE OF
INCORPORATION OF NATIONAL STEEL CORPORATION. A COPY OF SUCH CERTIFICATE OF
INCORPORATION IS ON FILE WITH THE SECRETARY OF NATIONAL STEEL CORPORATION.
34. Signatures. Where a certificate is countersigned by (i) a transfer
agent other than the Corporation or its employee, or (ii) a registrar other than
the Corporation or its employee, any other signature on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent or registrar before such certificate is
issued, it may be issued by the Corporation with the same effect as if said
person were such officer, transfer agent or registrar at the date of issue.
35. Lost Certificates. The Board of Directors may direct a new
certificate to be issued in place of any certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen or destroyed. When authorizing such issue of a new certificate, the
Board of Directors may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost stolen or
10
<PAGE>
destroyed certificate, or said owner's legal representative, to advertise the
same in such manner as the Board of Directors shall require and/or to give the
Corporation a bond in such sum as it may direct as indemnity against any claim
that may be made against the Corporation with respect to the certificate alleged
to have been lost, stolen or destroyed.
36. Transfers. Stock of the Corporation shall be transferable in the
manner prescribed by law and in these By-Laws. Transfers of stock shall be made
on the books of the Corporation only by the, person named in the certificate or
by said person's attorney lawfully constituted in writing and upon the surrender
of the certificate therefor, which shall be canceled. before a new certificate
shall be issued.
37. Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to express consent to corporate action in
writing without a meeting, or entitled to receive payment of any dividend or
other distribution or allotment of any rights, or entitled to exercise any
rights in respect of any change, conversion or exchange of stock, or for the
purpose of any other lawful action, the Board of Director may fix, in advance, a
record date, which shall not be more than sixty (60) days nor less than ten (10)
days before the date of such meeting nor more than sixty (60) days prior to any
other action. A determination of stockholders of record entitled to notice of
or to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
38. Beneficial Owners. The Corporation shall be entitled to recognize the
exclusive right of a person registered on its books as the owner of shares to
receive dividends, and to vote as such owner, and to hold liable for calls and
assessments a person registered on its books as the owner of shares, and shall
not be bound to recognize any equitable or other claim to or interest in such
share or shares on the part of any other person, whether or riot it shall have
express or other notice thereof, except as otherwise provided by law.
NOTICES
-------
39. Notices. Except as otherwise provided in these By-Laws, whenever
written notice is required by law, the Certificate of the corporation, as
amended and restated, or these By-Laws, to be given to any director, member of a
committee or stockholder, such notice may be given by mail, addressed to such
director, member of a committee or stockholder, at such address as it appears on
the records of the Corporation, with postage thereon prepaid, and such notice
shall be deemed to be given at the time
11
<PAGE>
when the same shall be deposited in the United States mail. Written notice may
also be given personally or by telegram, telecopy, telex or cable.
40. Waiver of Notice. Whenever an, notice is required by law, the
Certificate of Incorporation, as amended or restated, or these By-Laws, to be
given to any director, member of a committee or stockholder, a waiver thereof in
writing signed by the person or persons; entitled to said notice, whether before
or after the time stated therein, shall be deemed equivalent thereto.
GENERAL PROVISIONS
------------------
41. Fiscal Year. The fiscal year shall begin the first day of January in
each year.
42. Dividends. Dividends upon the capital stock of the Corporation,
subject to the provisions of the Certificate of Incorporation, as amended and
restated, if any, may be declared by the Board of Directors at any regular or
special meeting out of funds legally available for the payment thereof, in such
amounts as the Board of Directors, in its role discretion may determine.
Dividends may be paid in cash, in property (including but not limited to, in the
form of a release of liabilities whether or not then due and owing to the -
Corporation or otherwise), or in shares of the capital stock of the Corporation.
Before payment of any dividend, there may be set aside out of any funds of the
Corporation available for dividends such sum or sums as the Board of Directors
from time to time, in its absolute discretion, deems proper as a reserve or
reserves to meet contingencies, or for equalizing dividends, or for repairing or
maintaining any property of the Corporation, or for any proper purpose, and the
Board of Directors may modify or abolish any such reserve.
43. Disbursements. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
44. Corporate Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
12
<PAGE>
INDEMNIFICATION
---------------
45. Power to Indemnify in Actions, Suits or Proceedings other Than Those
by or in the Right of the Corporation. Subject to Section 47, the Corporation
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding whether
civil, criminal, administrative or investigative (including internal
investigations) (other than an action by or in the right of the Corporation) by
reason of the fact that said person is or was or has agreed to become a
director, officer, employee, fiduciary, trustee or agent of the Corporation, or
is or was serving or has agreed to serve at the request of the Corporation as a
director, officer, employees fiduciary, trustee or agent of another corporation,
partnership, joint venture, trust pension plan, employee benefit plan or other
enterprise, or by reason of any action alleged to have been taken or omitted in
such capacity, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by said person
or on said person's behalf in connection with such action, suit investigation or
proceeding, and any appeal therefrom, if said person acted in good faith and in
a manner said person reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding had no reasonable cause to believe such conduct was unlawful.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which said person reasonably believed to be in or not
opposed to the best interests of the Corporation, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that such conduct
was unlawful.
46. Power to Indemnify in Actions, Suits or Proceedings by or in the Right
of the Corporation. Subject to Section 47, the Corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action suit or investigation (including
internal investigations) or proceedings by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that said person is or was
or has agreed to become a director, officer, employee, fiduciary, trustee or
agent of the Corporation, or is or was or has agreed to serve at the request of
the Corporation as a director, officer, employee, fiduciary, trustee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan,
pension plan or other enterprise, or by reason of any action alleged to have
been taken or omitted in such capacity, against expenses (including attorneys'
fees) actually and reasonably
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incurred by said person in connection with the defense or settlement of such
action, suit, investigation or proceeding or any appeal therefrom, if said
person acted in good faith and in a manner said person reasonably believed to be
in or not opposed to the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which said person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery of Delaware or the
court in which such action or suit was brought shall determine upon application
that despite the adjudication of liability but in view of all the circumstances
of the case, said person is fairly and reasonably entitled to indemnify for such
expenses which the Court of Chancery or such other court shall deem proper.
47. Authorization of Indemnification, Any indemnification under Sections
45 and 46 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee, fiduciary, trustee or agent is proper in the
circumstances because said person has met the applicable standard of conduct set
forth in Sections 45 or 46, as the case may, be. Such determination shall be
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to such action, suit or proceeding or (ii) if
such a quorum is not obtainable, or, even if obtainable a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion or (iii) by the stockholders. To the extent however, that a director,
officer, employee, fiduciary, trustee or agent of the Corporation has been
successful on the merits or otherwise, including without limitation, the
dismissal of an action without prejudice, in defense of any action, suit,
investigation or proceeding referred to in Sections 45 and 46, or in defense of
any claim, issue or matter therein, said person shall be indemnified against all
costs, charges and expenses (including attorneys' fees) actually and reasonably
incurred by said person or on said persons behalf in connection therewith,
without the necessity of authorization in the specific case.
48. Good Faith Defined. For purposes of any determination under Section
47, a person shall be deemed to have acted in good faith and in a manner said
person reasonably believed to be in or not opposed to the best interests of the
Corporation, or, with respect to any criminal action or proceeding to have had
no reasonable cause to believe such conduct was unlawful, if said person's
action is based on the records or books of account of the Corporation or another
enterprise, or on information supplied by the officers of the Corporation or
another enterprise in the course of such officers' duties, or on the advice of
legal counsel for the Corporation or another enterprise or on information or
records given or reports made to the Corporation or another enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with
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reasonable care by the Corporation or another enterprise. The term "another
enterprise" as used in this Section 48 shall mean any other corporation or any
partnership, joint venture, trust, employee benefit plan or other enterprise of
which said person is or was serving at the request of the Corporation as a
director, officer, employee or agent. The provisions of this Section 48 shall
not be deemed to be exclusive or to limit in any way the circumstances in which
a person may be deemed to have met the applicable standard of conduct set forth
in Sections 45 or 46, as the case may be.
49. Indemnification by a Court. Notwithstanding any contrary
determination in the specific case under Section 47, and notwithstanding the
absence of any determination thereunder, any director or officer may apply to
any court of competent jurisdiction in the State of Delaware for
indemnification to the extent otherwise permissible under Sections 45 and 46.
The basis of such indemnification by a court shall be a determination by such
court that indemnification of the director or officer is proper in the
circumstances because such officer or director has met the applicable standards
of conduct set forth in Sections 45 or 46, as the case may be. Neither a
contrary determination in the specific case under Section 47 nor the absence of
any determination thereunder shall be a defense to such application or create a
presumption that the director or officer seeking indemnification has not met any
applicable standard of conduct. Notice of any application for indemnification
pursuant to this Section 49, shall be given to the Corporation promptly upon
the filing of such application. If successful, in whole or in part, the
director or officer seeking indemnification shall also be entitled to be paid
the expense of prosecuting such application.
50. Expenses Payable in Advance. Costs, charges and expenses incurred by a
person referred to in Sections 45 and 46 in defending or investigating a
threatened or pending action, suit, investigation or proceeding shall be paid to
the extent provided herein by the Corporation in advance of the final
disposition of such action, suit, investigation or proceeding; provided,
however, that (i) the payment of such costs, charges and expenses incurred by a
director or officer of the Corporation in the capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
person while a director or officer) in advance of the final disposition of such
action, suit, investigation or proceeding shall be made only upon receipt of a
written undertaking (in the form of an unsecured promissory note) by or on
behalf of the director or officer to repay all amounts so advanced in the event
that it shall ultimately be determined that such director or officer is not
entitled to be indemnified by the Corporation as authorized in these By-Laws,
and (ii) the payment of such costs, charges and expenses incurred by other
employees, fiduciaries, trustees and agents may be so paid in advance upon such
terms and conditions, if any, as the Board of Directors deems
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appropriate. The Board of Directors may, in the manner set forth above, and upon
approval of such director, officer, employee, fiduciary, trustee or agent of the
Corporation, authorize the Corporation's counsel to represent such person, in
any action, suit, investigation or proceeding whether or not the Corporation is
a party to such action, suit, investigation or proceeding.
51. Payment of Indemnification Amounts. Any indemnification under
Sections 45, 46, and 47, or advance of costs, charges and. expenses provided for
or authorized under Section 50 of these By-Laws, shall be made promptly, and in
any event within sixty (60) days, upon the written request of the director,
officer, employee, fiduciary, trustee or agent. The right to indemnification or
advances to the extent provided by these By-Laws shall be enforceable by the
director, officer, employee, fiduciary, trustee or agent in any court of
competent jurisdiction, if the Corporation denies such request, in whole or in
part or if no disposition thereof is made within sixty (60) days. Said person's
costs and expenses incurred in connection with successfully establishing said
person's right to indemnification or advances, in whole or in part, in any such
action shall also be indemnified by the Corporation. It shall be a defense to
any such action (other than an action brought to enforce a claim for the advance
of costs, charges and expenses under Section 50 where the required undertaking
if any, has been received by the Corporation) that the claimant has not met the
standard of conduct set forth in Sections 45 or 46, but the burden of proving
such defense shall be on the Corporation. Neither the failure of the Corporation
(including its Board of Directors, its independent legal counsel, and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because the claimant has met the applicable standard of conduct set forth in
Sections 45 and 46 of these By-Laws, nor the fact that there has been an actual
determination by the Corporation (including its Board of Directors, its
independent legal counsel and its stockholders) that the claimant has not met
such applicable standard of conduct shall be a defense to the action or create a
presumption that the claimant has not met the applicable standard of conduct.
52. Nonexclusivity of Indemnification and Advancement of Expenses. The
rights to indemnification by these By-Laws shall be construed so as to mandate
indemnification to the fullest extent permitted by applicable law (including
without limitation, Section 145 of the Delaware General Corporation Law, as
amended) and shall not be deemed exclusive of any other rights to which a person
seeking indemnification may be entitled under the Certificate of Incorporation,
as amended or restated, any law (common or statutory), agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity
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while holding office or while employed by or acting as an agent for the
Corporation, and shall continue as to a person who has ceased to be a director,
officer, employee, fiduciary, trustee or agent, and shall inure to the benefit
of the estate, heirs, executors and administrators of such person. All rights to
indemnification and advances under these By-Laws shall be deemed to be a
contract between the Corporation and each director, officer, employee,
fiduciary, trustee or agent of the Corporation who serves or served in such
capacity at any time while these indemnification provisions of the By-Laws are
in effect. Any repeal or modification of these indemnification provisions of the
By-Laws or any repeal or modification of relevant provisions of the Delaware
General Corporation law or any other applicable laws shall not, to the extent
permitted by applicable law, in any way diminish any rights to indemnification
and/or advances of such director, officer, employee, fiduciary, trustee or agent
or the obligations of the Corporation arising hereunder for said person's
conduct prior to such appeal or modification.
53. Insurance. The Corporation may purchase and maintain insurance on
behalf of any person who is or was or has agreed to become a director, officer,
employee, fiduciary, trustee or agent of the Corporation, or is or was serving
at the guest of the Corporation, as a director, officer, employee, fiduciary,
trustee or agent of another corporation, joint ventures trust, pension plan,
employee benefit or other similar plan or other enterprise against any liability
asserted against said person and incurred by said person or on said person's
behalf in any such capacity, or arising out of said person's status as such,
whether or not the Corporation would have the power or the obligation to
indemnify said person against such liability under the provisions of these By-
Laws.
54. Validity. If these indemnification provisions of the By-Laws or any
portion hereof shall be invalidated on any ground by any court of competent
jurisdiction, then the Corporation shall nevertheless indemnify and provide
advances to each director, officer, employee, fiduciary, trustee and agent of
the Corporation as to costs, charges and expenses (including attorneys' fees),
judgments, fines, penalties, excise taxes and amounts paid in settlement with
respect to any action, suit, investigation or proceeding whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the full extent permitted by any applicable portion
of these By-Laws that shall not have been invalidated and to the full extent
permitted by applicable law.
55. Limitations on Indemnification. Notwithstanding any other provision
of these By-Laws, the Corporation shall not be required to indemnify any person
for any costs, charges, expenses (including attorneys' fees), judgments, fines,
penalties, excise taxes and amounts paid in settlement incurred in any action,
suit, investigation or proceeding (which shall not be deemed to include
counterclaims or affirmative defenses)
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initiated by or participated in as an interferon or amicus curiae by the person
seeking indemnification unless the initiation of or participation in such
action, suit, investigation or proceeding is authorized, either before or after
its commencement, by the Board of Directors. This Section 55 does not apply to
reimbursement of expenses incurred in successfully prosecuting or defending the
right to indemnification granted by or pursuant to these By-Laws.
56. Certain Definitions. For purposes of these Sections 46 through 56,
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors or officers, so that any person who is or was a director or officer of
such constituent corporation, or is or was a director or officer of such
constituent corporation serving at the request of such constituent corporation
as it director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, shall stand in
the same position under the provisions of these Sections 56 through 56 with
respect to the resulting or surviving corporation as said person would have with
respect to such constituent Corporation if its separate existence had continued.
For purposes of these Sections 46 through 56, references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director or
officer with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner said person
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interest of the Corporation" as referred to in these
Sections 46 through 56.
AMENDMENTS
----------
57. Amendment. These By-Laws may be altered, amended or repealed, in
whole or in part, or new By-Laws may be adopted by the stockholders or by the
Board of Directors; provided, however, that notice of such alternation, amended,
repeal or adoption of new By-Laws be contained in the notice of such meeting of
stockholders or Board of Directors as the case may be. All such amendments must
be approved by either the holders of a majority of the voting power of the
outstanding capital stock entitled to vote thereon or by a majority of the
entire Board of Directors. The stockholders may adopt a
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By-Law or By-Laws by the vote of the holders of a majority of the voting power
of the outstanding capital stock entitled to vote thereon at any such annual or
special meeting, and any By-Law so adopted may contain the provision that it is
not subject to amendment or repeal by the Board of Directors.
58. Entire Board of Directors. As used in these By-Laws generally, the
term "entire Board of Directors" means the total number of directors which the
Corporation would have if there were no vacancies.
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Exhibit 10-R
INDEMNIFICATION AGREEMENT
-------------------------
AGREEMENT, effective as of ___________ between National Steel Corporation,
a Delaware corporation (the "Company"), and _______________ (the "Indemnitee").
WHEREAS, it is essential to the Company to retain and attract as directors
and officers the most capable persons available;
WHEREAS, Indemnitee is a director and/or officer of the Company;
WHEREAS, both the Company and Indemnitee recognize the increased risk of
litigation and other claims being asserted against directors and officers of
public companies in today's environment;
WHEREAS, the By-laws of the Company require the Company to indemnify and
advance expenses to its directors and officers to the full extent permitted by
law and the Indemnitee has been serving and continues to serve as a director
and/or officer of the Company in part in reliance on such By-laws;
WHEREAS, in recognition of Indemnitee's need for substantial protection
against personal liability in order to enhance Indemnitee's continued service to
the Company in an effective manner, and in part to provide Indemnitee with
specific contractual assurance that the protection promised by the aforesaid By-
laws will be available to Indemnitee (regardless of, among other things, any
amendment to or revocation of such By-laws or any change in the composition of
the Company's Board of Directors or acquisition transaction relating to the
Company), the Company wishes to provide in this Agreement for the
indemnification of and the advancing of expenses to Indemnitee to the fullest
extent (whether partial or complete) permitted by law and as set forth in this
Agreement and, to the extent insurance is obtained, for the continued coverage
of Indemnitee under the Company's directors' and officers' liability insurance
policies;
NOW, THEREFORE, in consideration of the premises and of Indemnitee
continuing to serve the Company directly or, at its request, another enterprise,
and intending to be legally bound hereby, the parties hereto agree as follows:
1. Certain Definitions:
(a) Change in Control: shall be deemed to have occurred if (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended), other than a trustee or
other fiduciary holding securities under an employee benefit plan of
the Company or a corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company, becomes after the
effectiveness of the Company's initial public offering of equity
securities in 1993
<PAGE>
the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing 20%
or more of the total voting power represented by the Company's then
outstanding Voting Securities; (ii) during any period of two
consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director
whose election by the Board of Directors or nomination for election by
the Company's stockholders was approved by a vote of at least two-
thirds (2/3) of the directors then still in office who either were
directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any
reason to constitute a majority thereof; or (iii) the stockholders of
the Company approve a merger or consolidation of the Company with any
other corporation, other than a merger or consolidation which would
result in the Voting Securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding
or by being converted into Voting Securities of the surviving entity)
at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of
the Company approve a plan of complete liquidation of the Company or
an agreement for the sale or disposition by the Company of (in one
transaction or a series of transactions) all or substantially all the
Company's assets.
(b) Claim: any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether instituted by the
Company or any other party, that Indemnitee in good faith believes
might lead to the institution of any such action, suit or proceeding,
whether civil, criminal, administrative, investigative or other.
(c) Expenses: include attorneys' fees and all other costs, expenses and
obligations paid or incurred in connection with investigating,
defending, being a witness in or participating in (including on
appeal), or preparing to defend, be a witness in or participate in any
Claim relating to any Indemnifiable Event.
(d) Indemnifiable Event: any event or occurrence related to the fact that
Indemnitee is or was a director, officer, employee or agent of the
Company, or is or was serving at the request of the Company as a
director, officer, employee, trustee, agent or fiduciary of another
corporation, partnership, joint venture, employee benefit plan, trust
or other enterprise, or by reason of anything done or not done by
Indemnitee in any such capacity.
(e) Independent Legal Counsel: An attorney or firm of attorneys, selected
in accordance with the provisions of Section 3, who shall not have
otherwise performed services for the Company or Indemnitee within the
last five years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement or of other indemnities
under similar indemnity agreements).
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<PAGE>
(f) Reviewing Party: (i) the Board of Directors by a quorum consisting of
directors who were not parties to such Claim or (ii) if such a quorum
is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by Independent Legal Counsel.
(g) Voting Securities: any securities of the Company which vote generally
in the election of directors.
2. Basic Indemnification Arrangement. (a) In the event Indemnitee was,
is or becomes a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant in, a Claim by reason of (or
arising in part out of) an Indemnifiable Event, the Company shall indemnify
Indemnitee to the fullest extent permitted by law as soon as practicable but in
any event no later than thirty days after written demand is presented to the
Company, against any and all Expenses, judgments, fines, penalties and amounts
paid in settlement (including all interest, assessments and other charges paid
or payable in connection with or in respect of such Expenses, judgments, fines,
penalties or amounts paid in settlement) of such Claim. Notwithstanding
anything in this Agreement to the contrary, prior to a Change in Control
Indemnitee shall not be entitled to indemnification pursuant to this Agreement
in connection with any Claim initiated by Indemnitee unless the Board of
Directors has authorized or consented to the initiation of such Claim. If so
requested by Indemnitee, the Company shall advance (within two business days of
such request) any and all Expenses to Indemnitee (an "Expense Advance").
(b) Notwithstanding the foregoing, (i) the obligations of the Company
under Section 2(a) shall be subject to the condition that the Reviewing Party
shall not have determined (in a written opinion, in any case in which the
Independent Legal Counsel referred to in Section 3 hereof is involved) that
Indemnitee would not be permitted to be indemnified under applicable law and
(ii) the obligation of the Company to make an Expense Advance pursuant to
Section 2(a) shall be subject to the condition that, if, when and to the extent
that the Reviewing Party determines that Indemnitee would not be permitted to be
so indemnified under applicable law, the Company shall be entitled to be
reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all
such amounts theretofore paid; provided, however, that if Indemnitee has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that Indemnitee should be indemnified
under applicable law, any determination made by the Reviewing Party that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any Expense Advance until a final judicial determination is made with respect
thereto (as to which all rights of appeal therefrom have been exhausted or
lapsed). If there has not been a Change in Control, the Reviewing Party shall
be selected by the Board of Directors, and if there has been such a Change in
Control, the Reviewing Party shall be the Independent Legal Counsel referred to
in Section 3 hereof. If there has been no determination by the Reviewing Party
or if the Reviewing Party determines that Indemnitee substantively would not be
permitted to be indemnified in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation in any court in the State of
Delaware having subject matter jurisdiction thereof and in which venue is proper
seeking an initial determination by the court or
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<PAGE>
challenging any such determination by the Reviewing Party or any aspect thereof,
including the legal or factual bases therefor, and the Company hereby consents
to service of process and to appear in any such proceeding. Any determination by
the Reviewing Party otherwise shall be conclusive and binding on the Company and
Indemnitee.
3. Change in Control. The Company agrees that if there is a Change in
Control of the Company, then with respect to all matters thereafter arising
concerning the rights of Indemnitee to indemnity payments and Expense Advances
under this Agreement or any other agreement or Company By-law now or hereafter
in effect relating to Claims for Indemnifiable Events, the Company shall seek
legal advice only from Independent Legal Counsel selected by Indemnitee and
approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent the Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all Expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
4. Indemnification for Additional Expenses. The Company shall indemnify
Indemnitee against any and all expenses (including attorneys' fees) and, if
requested by Indemnitee, shall (within two business days of such request)
advance such expenses to Indemnitee which are incurred by Indemnitee in
connection with any action brought by Indemnitee for (i) indemnification or
advance payment of Expenses by the Company under this Agreement or any other
agreement or Company By-law now or hereafter in effect relating to Claims for
Indemnifiable Events and/or (ii) recovery under any directors' and officers'
liability insurance policies maintained by the Company, regardless of whether
Indemnitee ultimately is determined to be entitled to such indemnification,
advance expense payment or insurance recovery, as the case may be.
5. Partial Indemnity, Etc. If Indemnitee is entitled under any provision
of this Agreement to indemnification by the Company for some or a portion of the
Expenses, judgments, fines, penalties and amounts paid in settlement of a Claim
but not, however, for all of the total amount thereof, the Company shall
nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is
entitled. Moreover, notwithstanding any other provision of this Agreement, to
the extent that Indemnitee has been successful on the merits or otherwise in
defense of any or all Claims relating in whole or in part to an Indemnifiable
Event or in defense of any issue or matter therein, including dismissal without
prejudice, Indemnitee shall be indemnified against all Expenses incurred in
connection therewith.
6. Burden of Proof. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
7. No Presumptions. For purposes of this Agreement, the termination of
any claim, action, suit or proceeding, by judgment, order, settlement (whether
with or without court
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<PAGE>
approval) or conviction, or upon a plea of nolo contendere, or its equivalent,
shall not create a presumption that Indemnitee did not meet any particular
standard of conduct or have any particular belief or that a court has determined
that indemnification is not permitted by applicable law. In addition, neither
the failure of the Reviewing Party to have made a determination as to whether
Indemnitee has met any particular standard of conduct or had any particular
belief, nor an actual determination by the Reviewing Party that Indemnitee has
not met such standard of conduct or did not have such belief, prior to the
commencement of legal proceedings by Indemnitee to secure a judicial
determination that Indemnitee should be indemnified under applicable law shall
be a defense to Indemnitee's claim or create a presumption that Indemnitee has
not met any particular standard of conduct or did not have any particular
belief.
8. Nonexclusivity, Etc. The rights of the Indemnitee hereunder shall be
in addition to any other rights Indemnitee may have under the Company's By-laws
or the Delaware General Corporation Law or otherwise. To the extent that a
change in the Delaware General Corporation Law (whether by statute or judicial
decision) permits greater indemnification by agreement than would be afforded
currently under the Company's By-laws and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change.
9. Liability Insurance. To the extent the Company maintains an insurance
policy or policies providing directors' and officers' liability insurance,
Indemnitee shall be covered by such policy or policies, in accordance with its
or their terms, to the maximum extent of the coverage available for any Company
director or officer.
10. Period of Limitations. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against Indemnitee
or Indemnitee's spouse, heirs, executors or personal or legal representatives
after the expiration of two years from the date of accrual of such cause of
action, and any claim or cause of action of the Company shall be extinguished
and deemed released unless asserted by the timely filing of a legal action
within such two-year period; provided, however, that if any shorter period of
limitations is otherwise applicable to any such cause of action, such shorter
period shall govern.
11. Amendments, Etc. No supplement, modification or amendment of this
Agreement shall be binding unless executed in writing by both of the parties
hereto. No waiver of any of the provisions of this Agreement shall be deemed or
shall constitute a waiver of any other provisions hereof (whether or not
similar) nor shall such waiver constitute a continuing waiver.
12. Subrogation. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee, who shall execute all papers required and shall do
everything that may be necessary to secure such rights, including the execution
of such documents necessary to enable the Company effectively to bring suit to
enforce such rights.
13. No Duplication of Payments. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent
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<PAGE>
Indemnitee has otherwise actually received payment (under any insurance policy,
By-law or otherwise) of the amounts otherwise indemnifiable hereunder.
14. Binding Effect, Etc. This Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto and their respective
successors; assigns, including any direct or indirect successor by purchase,
merger, consolidation or otherwise to all or substantially all of the business
and/or assets of the Company; spouses; heirs; executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer or director of the Company.
15. Severability. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) is held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable in any respect, and
the validity and enforceability of any such provision in every other respect and
of the remaining provisions hereof shall not be in any way impaired and shall
remain enforceable to the fullest extent permitted by law.
16. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Delaware applicable to
contracts made and to be performed in such state without giving effect to the
principles of conflicts of laws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first hereinabove set forth.
NATIONAL STEEL CORPORATION
______________________________ By:____________________________
Name David A. Pryzbylski
Title: Senior Vice President- Administration
-------------------------------------
and Secretary
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Exhibit 10-GG
11-20-96
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AMENDED AND RESTATED EMPLOYMENT AGREEMENT is dated and effective
as of the 11th day of December, 1996 ("Effective Date"), and is by and between
National Steel Corporation, a Delaware corporation (the "Company"), and Robert
G. Pheanis ("Executive"). In consideration of the mutual covenants contained
herein, and other good and valuable consideration (including the Termination
Benefits and the Special Termination Benefits) the receipt and adequacy of which
the Company and Executive each hereby acknowledge, the Company and Executive
hereby agree as follows:
1. Employment and Term
Executive is or may be employed by the Company pursuant to one or more
contracts or letter agreements (the "Prior Agreement"). The Company hereby
agrees to employ Executive as a Vice President of the Company and Executive
hereby agrees to accept such employment and serve in such capacity on a full-
time basis during the Term and upon the terms and conditions set forth in this
Amended and Restated Employment Agreement (this "Agreement"). Executive shall
report to an officer of the Company designated by the Company's Chief Executive
Officer and Executive will have such responsibilities, duties and authorities as
are determined by the officer to whom Executive reports. The term of employment
of Executive under this Agreement shall be the period commencing on the
Effective Date and terminating on January 31, 1998 (the "Term"). The respective
rights and obligations of the parties hereunder shall survive any termination of
employment to the extent necessary to achieve the intended preservation of
rights and obligations.
2. Salary and Annual Incentive Compensation.
Executive's annual base salary as in effect on the Effective Date shall be
the Executive's annual base salary hereunder as of the Effective Date, payable
in consecutive equal monthly installments. The term "base salary" as utilized
in this Agreement shall refer to the then current base salary as adjusted from
time to time. Executive shall also be eligible to receive annual incentive
compensation pursuant to the Company's Management Incentive Compensation Program
or any successor plan (the "MICP") during the Term and as determined in
accordance with the terms and conditions of the MICP. Executive's MICP target
annual incentive compensation for 1996 shall be 35% of base salary. The Company
will maintain in effect, for each year during the Term, the MICP or an
equivalent plan under which Executive will be eligible for an award not less
than the prior year opportunity level available to Executive. Any such annual
incentive compensation payable to Executive shall be paid in accordance with the
Company's usual practices with respect to payment of incentive compensation of
senior executives.
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3. Benefit and Compensation Plans.
(a) Executive shall be entitled during the Term to participate in all
executive compensation plans, and other employee and executive benefits,
practices, policies and programs of the Company, as presently in effect or as
they may be modified or added to by the Company from time to time ("Benefit
Plans"); and during the Term, the Company will pay the cost of financial and
tax planning services, up to a maximum amount in effect on the Effective Date of
this Agreement. Such services shall be furnished by a provider selected by
Executive.
(b) During the Term, the Company will provide Executive with coverage by
long-term disability insurance and benefits; and group or individual life
insurance or a combination thereof, all in accordance with the plans, policies,
programs and arrangements as presently in effect or as they may be modified or
added to by the Company from time to time.
(c) During the Term, Executive will participate in the Company's Executive
Deferred Compensation Plan, ERISA Parity Plan, and any other supplemental
retirement plans, benefits, practices, programs, or policies of the Company, as
in effect on the Effective Date or as they may be modified or added to by the
Company from time to time ("Compensation Plans").
4. Non-Compete Agreement
Executive hereby agrees that if Executive terminates his employment with
the Company without Good Reason, then for a period of two (2) years after the
Date of Termination, but in any event only as long as the Company satisfies its
obligations under this Agreement, (the "Restricted Period"), Executive will not
engage (either as owner, investor, partner, stockholder, employer, employee,
consultant, advisor or director) in any "Competitive Business" in the
continental United States (the "Territory"). The term "Competitive Business"
means the making, producing, manufacturing or finishing of steel products which
products are in direct competition with steel products that are made, produced,
manufactured or finished by the Company on the Date of Termination. It is
agreed that the ownership of not more than one percent of the equity securities
of any company having securities listed on an exchange or regularly traded in
the over-the-counter market shall not be deemed inconsistent with this Section
4. If any court of competent jurisdiction shall deem any obligation of this
Section 4 too lengthy or the Territory too extensive, the other provisions of
this Section shall nevertheless stand, the Restricted Period shall be deemed to
be the longest period such court deems not to be too lengthy and the Territory
shall be deemed to comprise the portion of the United States east of the
Mississippi River (or such other portion of the United States that such court
deems not to be too extensive).
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5. Non-Inducement
Executive hereby agrees that for a period commencing with the Date of
Termination and ending on the second anniversary of the Date of Termination,
Executive shall not induce, or attempt to influence, any employee of the Company
who reports either directly to the Company's Chief Executive Officer or to
another employee who reports directly to the Company's Chief Executive Officer,
to terminate his employment with the Company.
6. Non-Disclosure
For a period commencing on the Date of Termination and ending on the fifth
anniversary of the Date of Termination, Executive shall keep secret and retain
in strictest confidence, and shall not furnish, make available or disclose to
any third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Section, "Confidential Information"
shall mean any information relating to the business or affairs of the Company,
including but not limited to information relating to financial statements,
customer identities, customer needs, potential customers, employees, suppliers,
servicing methods, equipment, programs, strategies and information, analyses,
profit margins or other proprietary information used by the Company in
connection with its business; provided, however, that Confidential Information
shall not include any information which is in the public domain or becomes known
in the industry through no wrongful act on the part of Executive. Executive
acknowledges that the Confidential Information is vital, sensitive, confidential
and proprietary to the Company.
7. No Unfavorable Publicity
Subsequent to Executive's Date of Termination, Executive agrees not to make
statements or communications and not to issue any written communications or
release any other written materials which would likely be materially damaging to
the Company's reputation or standing, whether in the investor or financial
community, the steel industry or otherwise.
8. Cooperation With the Company
Executive agrees to cooperate with the Company for a reasonable period of
time after the Term of this Agreement by making himself available to testify on
behalf of the Company, in any action, suit, or proceeding. In addition, for a
reasonable period of time, Executive agrees to be available at reasonable times
to meet and consult with the Company on matters reasonably within the scope of
his prior duties with the Company so as to facilitate a transition to his
successor. The Company agrees to reimburse Executive, on an after-tax basis,
for all expenses actually incurred in connection with his provision of testimony
or consulting assistance.
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9. Release of Employment Claims
Executive and the Company agree that in the event Executive receives
Special Termination Benefits (as defined in Section 11(e)), he and the Company
will execute a mutual release agreement releasing any and all claims which
either of them have or may have against the other arising out of Executive's
employment (other than enforcement of this Agreement). The Executive agrees
that in the event the Executive's employment with the Company terminates or is
terminated, the Executive's sole and exclusive remedy shall be, and the
Company's liability shall be limited to, damages equal to the payments and
benefits to be provided by the Company hereunder and to payment or reimbursement
of Executive's costs and expenses in accordance with Section 13(b).
10. Remedies
Executive acknowledges and agrees that the covenants set forth in Sections
4 through 8 will continue to apply and be applicable regardless of whether the
termination of Executive's employment with the Company occurs during the Term or
following expiration of the Term. Executive also agrees that such covenants are
reasonable and necessary for the protection of the Company's business interests,
that irreparable injury will result to the Company if Executive breaches any of
the terms of such covenants, and that in the event of Executive's actual or
threatened breach of any such covenants, the Company will have no adequate
remedy at law. Executive accordingly agrees that in the event of any actual or
threatened breach by him of any of such covenants, the Company shall be entitled
to immediate temporary injunctive and other equitable relief, without the
necessity of showing actual monetary damages, subject to hearing as soon
thereafter as possible. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of any damages which it
is able to prove.
11. Termination of Employment.
(a) Termination During the Term Due to Death or Disability. Upon an
Executive's Date of Termination during the Term due to death or disability, the
Company will pay Executive (or his beneficiaries, dependents or estate), and
Executive (or his beneficiaries, dependents or estate) will be entitled to
receive, the Termination Benefits (as defined in Section 11(d)).
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(b) Termination During or After the Term by the Company for Cause and
Termination by Executive During the Term without Good Reason. Upon Executive's
Date of Termination (i) during or after the Term by the Company for Cause, or
(ii) by Executive during the Term without Good Reason the Company shall pay
Executive (or his beneficiaries, dependents or estate), and Executive (or his
beneficiaries, dependents or estate) shall be entitled to receive, the
Termination Benefits (as defined in Section 11(d)), except that, in the event of
termination of Executive's employment by the Company for Cause or by Executive
without Good Reason, no amount shall be paid and no right accrued in respect of
Executive under Section 11(d)(i)(B).
(c) Termination During the Term by the Company Without Cause and
Termination by Executive for Good Reason. Upon Executive's Date of Termination
during the Term either by the Company without Cause or by Executive for Good
Reason the Company shall pay Executive (or his beneficiaries, dependents or
estate), and Executive (or his beneficiaries, dependents or estate) shall be
entitled to receive, the Termination Benefits (as defined in Section 11(d)) and
the Special Termination Benefits (as defined in Section 11(e)), except that in
the event Executive is age 64 or older on the Date of Termination, the "two
times" multipliers set forth in Section 11(e)(i) shall be reduced in accordance
with the schedule set forth below:
Age Multiplier
--- ----------
64 One times
65 or older Zero
(cc) Termination Following Expiration of the Term. Upon termination of
employment following expiration of the Term, whether by the Executive with or
without Good Reason, or by the Company, without Cause: (i) the Company shall pay
Executive (or his beneficiaries, dependents, or estate), and Executive (or his
beneficiaries, dependents, or estate) shall be entitled to receive, the
Termination Benefits (as defined in Section 11(d)); except that no amount shall
be paid and no right accrued in respect of Executive under Section 11(d)(i)(B),
and a lump sum severance payment in an amount equal to Executive's then current
annual base salary; and (ii) Executive shall be eligible to receive incentive
compensation based on the Company's performance for the preceding year (to the
extent not previously paid), if and when any such incentive compensation for
such year is paid to eligible employees generally pursuant to the Company's
MICP. Amounts payable to Executive under this Section 11(cc) are in lieu of,
and not in addition to, amounts described in Sections 11(d) and 11(e) of this
Agreement.
(d) "Termination Benefits". "Termination Benefits" means the aggregate of
all of the following:
(i) A single sum cash payment by the Company to Executive within thirty
(30) days after the Date of Termination of
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(A) Executive's then current annual base salary pro rata through the Date
of Termination to the extent not theretofore paid; (B) the product of (y) the
greater of (aa) the average annual incentive compensation paid to Executive in
the three fiscal years immediately preceding the fiscal year of the Date of
Termination (or all fiscal years Executive was employed if less than three, and
annualized in the event Executive was not employed by the Company for the whole
of any such fiscal year), and (bb) Executive's target incentive compensation
percentage payable under the MICP multiplied by Executive's then current base
salary and (z) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365; and (C) any accrued vacation pay to the extent not theretofore
paid.
(ii) All vested amounts owing or accrued at the Date of Termination under
any compensation and benefit plans, programs, and arrangements set forth or
referred to in this Agreement, including, but not limited to, Sections 2 and 3
hereof; and if the Date of Termination is due to Disability or death, Executive
or his estate or other beneficiaries shall receive the Disability or death
benefits described in Section 3(b);
(iii) Reasonable business expenses and disbursements incurred by Executive
prior to such Date of Termination will be fully reimbursed within ten (10) days
after the Date of Termination.
(e) "Special Termination Benefits". "Special Termination Benefits" means
the aggregate of all of the following:
(i) The Company shall pay to Executive, in a single sum in cash within
thirty (30) days after the Date of Termination, an amount equal to (y) two times
the Executive's annual base salary (immediately preceding the Date of
Termination), plus (z) in the event a Change of Control has previously occurred,
an additional amount equal to two times the greater of (aa) the average annual
incentive compensation paid to Executive in the three fiscal years immediately
preceding the fiscal year of the Date of Termination (or all fiscal years
Executive was employed if less than three, and annualized in the event Executive
was not employed by the Company for the whole of any such fiscal year), or (bb)
Executive's most recent target incentive compensation percentage payable under
the MICP multiplied by his then current base salary; provided, however, that
notwithstanding the foregoing, in the event a Change of Control has previously
occurred, the maximum aggregate amount payable under this Section 11(e)(i) shall
not exceed three times the Executive's annual base salary (immediately preceding
the Date of Termination).
(ii) For two years after Executive's Date of Termination, if Executive is
less than age 64 on his Date of Termination, or such longer period as may be
provided by the terms of the appropriate plan, program, arrangement, practice or
policy, the Company shall continue benefits to Executive and/or Executive's
dependents at least equal to those which would have been provided to them in
accordance with the Benefit Plans or this Agreement if Executive's employment
had not been terminated
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or, if more favorable to Executive, as in effect generally at any time
thereafter with respect to other peer executives of the Company and their
dependents; provided, however, that if Executive is eligible to receive health
benefits under another employer-provided plan, the health benefits described
herein shall be secondary to those provided under such other plan during such
applicable period of eligibility; and provided, further, that if Executive shall
later become ineligible for health benefits under another employer-provided
plan, the health benefits provided by the Company shall be primary. If Executive
is age 64 or older on his Date of Termination, the period of "two years" in the
first line of this Section 11(e)(ii) shall be reduced to the period set forth
below:
Age Period
--- ------
64 One year
65 or older Zero
For purposes of determining vesting, eligibility and benefit accrual (for both
age and service but not the time of commencement of benefits) of Executive for
retiree benefits pursuant to such Benefit Plans, Executive shall be considered
to have remained employed until the lesser of (a) two years after the Date of
Termination or (b) age 65, and to have retired on the last day of such period.
If such Benefit Plans do not allow Executive's continued participation,
Executive shall be paid within thirty (30) days after the Date of Termination a
cash payment actuarially equivalent on an after-tax basis to the value of the
additional benefits which Executive would have received under such employee
benefit plans, programs, and arrangements in which Executive was participating
immediately prior to the Date of Termination, as if Executive had received
credit under such plans, programs, and arrangements for service, age and
compensation with the Company during the periods previously described following
Executive's Date of Termination, with such benefits payable by the Company at
the same times and in the same manner as such benefits would have been received
by Executive under such plans, programs and arrangements. The value of any
insurance-provided benefits will be based on the premium cost to Executive,
which shall not exceed the highest risk premium charged by a carrier having an
investment grade or better credit rating.
(iii) Outplacement services, the scope and provider of which shall be
selected by Executive in his sole discretion, provided by the Company at its
sole expense as incurred.
(iv) Stock options held by Executive as of the date of this Agreement will
continue to vest as if Executive had remained an employee of the Company and
shall remain fully exercisable for the lesser of (a) the entire period that
would have been available for exercise had Executive continued in the employ of
the Company through the original option term or (b) two years; such stock
options shall otherwise be governed by the plans and programs (and the
agreements and other documents thereunder) pursuant to which such stock options
were granted.
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12. Special Provisions on Change of Control.
In the event of a Change of Control, the provisions of this Section shall
apply, and the Agreement shall be interpreted and applied consistently with the
provisions of this Section.
(a) Benefit and Compensation Plans. In no event shall Benefit Plans or
Compensation Plans provide Executive with benefits or compensation, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company for Executive under Benefit Plans or Compensation Plans
as in effect at any time during the 120-day period immediately preceding the
Change of Control or if more favorable to Executive, those provided generally at
any time after the Change of Control to other peer executives of the Company.
If after a Change of Control (i) Executive terminates his employment with the
Company with Good Reason, or (ii) Executive's employment with the Company is
terminated without Cause, the actuarially equivalent value of nonqualified
unfunded retirement benefits under any plan, program or arrangement of the
Company shall be paid to Executive in a single sum within thirty (30) days after
Executive is no longer employed by the Company.
(b) Tax Matters. If Executive becomes entitled to one or more payments
(with a "payment" including, without limitation, any Termination Benefits,
Special Termination Benefits, the vesting of an option or other cash or non-cash
benefit or property), whether pursuant to the terms of this Agreement or any
other plan, program, policy, practice, arrangement, or agreement with the
Company (the "Benefit Payments"), which are or may become subject to the tax
imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (the
"Code") (or any similar tax that may hereafter be imposed) (the "Excise Tax"),
the Company shall indemnify and hold the Executive harmless on an after-tax
basis from the Excise Tax and any additional federal, state, and local income
tax, employment tax and penalties and interest thereon, and the Company shall
pay to Executive at the time of the Benefit Payments (or at the time the Excise
Tax is imposed, if earlier) an additional amount which shall equal and include
the Excise Tax, reimbursement for any penalties and interest that may accrue in
respect of any Excise Tax (including any penalties or interest thereon) and any
federal, state and local income or employment tax and Excise Tax on such
additional amount, including any penalties or interest thereon (collectively,
the "Additional Amounts"), but before reduction for any federal, state, or local
income or employment tax on the Benefit Payments, so that after payment of the
previously mentioned taxes (including penalties and interest thereon) Executive
retains an amount equal to the sum of (a) the Benefit Payments, and (b) an
amount equal to the product of any deductions disallowed for federal, state, or
local income tax purposes because of the inclusion of the Additional Amounts in
Executive's adjusted gross income multiplied by the highest applicable marginal
rate of federal, state, or local income taxation, respectively, for the calendar
year in which payment of the Additional Amounts is to be made.
The Benefit Payments shall be treated as "parachute payments" within the
meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments"
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within the meaning of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent independent legal counsel or
independent compensation consultants or independent certified public accountants
of nationally recognized standing mutually selected by the Company and Executive
("Independent Advisors") provide a written opinion acceptable to Executive that
the Benefit Payments (in whole or in part) are not subject to Excise Tax because
they do not constitute parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
For purposes of determining the amount of the Additional Amounts, Executive
shall be deemed (A) to pay federal income taxes at the highest marginal rate of
federal income taxation for the calendar year in which the payment of the
Additional Amounts is to be made; (B) to pay any applicable state and local
income taxes at the highest marginal rate of taxation for the calendar year in
which the payment of the Additional Amounts is to be made, net of the maximum
reduction in federal income taxes which could be obtained from deduction of such
state and local taxes if paid in such year (determined without regard to
limitations on deductions based upon the amount of Executive's adjusted gross
income); and (C) to have otherwise allowable deductions for federal, state, and
local income tax purposes at least equal to those disallowed because of the
inclusion of the Additional Amounts in Executive's adjusted gross income.
The Company shall have the right to contest any claim by the Internal
Revenue Service relating to the Excise Tax; provided, however, that the Company
shall bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest and shall
indemnify and hold Executive harmless, on an after-tax basis, for any Excise
Tax, federal, state and local income or employment tax (including interest and
penalties with respect thereto) imposed and payment of costs and expenses.
The Company shall bear all of its own expenses and the expense of the
Independent Advisors, and the legal, consulting and accounting expenses of
Executive incurred by Executive for any reason under or with respect to this
Section.
13. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be construed,
administered, and enforced in accordance with the laws of the State of Indiana,
without regard to Indiana conflicts of law principles, except insofar as the
Delaware General Corporation Law and federal laws and regulations may be
applicable. If under the governing law, any portion of this Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Agreement. The
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invalidity of any such portion shall not affect the force, effect, and validity
of the remaining portion hereof.
(b) Reimbursement of Expenses in Enforcing Rights. All costs and expenses
(including, without limitation, fees and disbursements of actuaries, accountants
and counsel) incurred by Executive in seeking in good faith to enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights. If there shall be any dispute between the Company and Executive,
the Company shall pay or provide, as applicable, all undisputed amounts or
benefits as are then payable to Executive or Executive's beneficiaries or
dependents pursuant to this Agreement. Any amounts that have become payable
pursuant to the terms of this Agreement or any decision by arbitrators or
judgment by a court of law, but which are not timely paid shall bear interest,
payable by the Company, at the lower of (A) the highest lawful rate or (B) the
prime rate in effect at the time such payment first becomes payable, as quoted
by The Wall Street Journal.
(c) Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Chicago,
Illinois, in accordance with the rules of the American Arbitration Association
in effect at the time of submission to arbitration, by three (3) arbitrators,
one of which shall be chosen by the Company, one of which shall be chosen by
Executive, and one of which shall be chosen by the arbitrators chosen by Company
and Executive. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Indiana; (ii) any of the courts of
the State of Indiana, or (iii) any other court having jurisdiction. The Company
and Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
may now or hereafter have to such jurisdiction and any defense of inconvenient
forum. The Company and Executive hereby agree that a judgment upon an award
rendered by the arbitrators may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. The Company shall bear all
costs and expenses arising in connection with any arbitration proceeding.
Notwithstanding any provision in this Section 13(c), Executive shall be entitled
to seek specific performance of Executive's right to be paid during the pendency
of any dispute or controversy arising under or in connection with this
Agreement.
14. Definitions
Certain terms in this Agreement are defined the first time they appear;
other terms which are capitalized are not defined the first time they appear,
but unless the context indicates otherwise, have the meanings set forth below:
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(a) "Cause". For purposes of this Agreement, "Cause" shall mean
Executive's gross misconduct (as defined herein) or willful and material breach
of this Agreement. For purposes of this definition, "gross misconduct" shall
mean (A) a felony conviction or a plea of nolo contendere to a felony charge in
a court of law under applicable federal or state laws which results in material
damage to the Company, or (B) willfully engaging in one or more acts which is
demonstrably and materially damaging to the Company. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him, within six months after the Board (A) had
knowledge of conduct or an event allegedly constituting Cause and (B) had reason
to believe that such conduct or event could be grounds for Cause, a copy of a
resolution duly adopted by a majority affirmative vote of the entire membership
of the Company's Board of Directors (excluding Executive if a member of
Company's Board of Directors), at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
set forth above in this Section 14(a).
(b) "Change of Control". For the purpose of this Agreement, a "Change of
Control" shall mean:
(i) (A) If any individual, entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")) (a "Person") acquires (by purchase, tender offer or otherwise)
or becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange
Act) of thirty percent (30%) or more of the combined voting power of the then-
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities") and (B) NKK
Corporation ceases to be the beneficial owner, directly or indirectly, of more
than fifty percent (50%) of the total voting power of all the then Outstanding
Company Voting Securities; provided, however, that for purposes of this
subsection (i), the following acquisitions shall not constitute a Change of
Control: (1) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company, or (2) any acquisition by any entity
pursuant to a transaction which complies with each of clauses (A), (B) and (C)
of subsection (iii) of this paragraph (b).
(ii) Individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
shareholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or
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threatened solicitation of proxies or consents by or on behalf of a Person other
than the Board;
(iii) Consummation of a reorganization, recapitalization, merger,
acquisition of securities or assets by the Company or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) the individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of, respectively, the then-outstanding
shares of common stock and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business Combination
(including, without limitation, the Company or a corporation which as a result
of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be and (B) no Person (excluding any
corporation resulting from such Business Combination or any employee benefit
plan (or related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly, thirty percent
(30%) or more of, respectively, the then outstanding shares of common stock of
the corporation resulting from such Business Combination, or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and (C)
at least two-thirds of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete liquidation
or dissolution of the Company.
(c) "Date of Termination". "Date of Termination" means (i) if Executive's
employment is terminated by the Company for Cause, or by Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; (ii) if Executive's employment is
terminated by the Company without Cause, the Date of Termination shall be the
date on which the Company notifies Executive of such Date of Termination; and
(iii) if Executive's employment is terminated by reason of death or Disability,
or is terminated by Executive without Good Reason, the Date of Termination shall
be the date of death of Executive, the Disability Effective Date, or the date
Executive notifies the Company that Executive's employment will terminate, as
the case may be. If the Company determines in good faith that the Disability of
Executive has occurred during the Term of the Agreement (pursuant to the
definition of Disability set forth in Section 14(d)), it may give to Executive
written notice in accordance with Section
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14(f) of this Agreement of its intention to terminate Executive's employment. In
such event, Executive's Date of Termination is effective on the date that is six
months after receipt of such notice by Executive (the "Disability Effective
Date"), provided that, within such six month period, Executive shall not have
returned to full-time performance of Executive's duties. Any termination by the
Company for Cause, or by Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in accordance with Section
14(f) of this Agreement.
(d) "Disability". "Disability" means the failure of Executive to render
and perform the services required of him under this Agreement, for a total of
180 days or more during any consecutive 12 month period, because of any physical
or mental incapacity or disability as determined by a physician or physicians
selected by the Company and reasonably acceptable to Executive, unless, within
six (6) months after Executive has received written notice from the Company of a
proposed Date of Termination due to such absence, Executive shall have returned
to the full performance of his duties hereunder and shall have presented to the
Company a written certificate of Executive's good health prepared by a physician
selected by Executive and reasonably acceptable to the Company.
(e) "Good Reason". For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following, without Executive's prior written
consent:
(i) any reduction in Executive's then current base salary or in Executive's
then current target incentive compensation opportunity under the MICP;
(ii) any reduction in benefits under the Retirement Plan, the Retirement
Equalization Benefit, the ERISA Parity Plan or the Supplemental Pension payable
to Executive under the Company's Executive Deferred Compensation Plan unless
such reduction under any tax-qualified employee benefit plan is required by law;
provided, further, that if any such reduction is required by law, "Good Reason"
shall still exist unless the Company promptly makes Executive whole for any such
reduction through equal accruals under a non-tax qualified plan;
(iii) any failure other than provided in Section 14(e)(ii) by the Company
to comply with any of the provisions of this Agreement, including but not
limited to Sections 2 and 3 of this Agreement, other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
Executive;
(iv) any failure by the Company to perform any obligation under, or breach
by the Company of any provision of, this Agreement;
(v) any purported termination by the Company of Executive's employment
otherwise than as expressly permitted by this Agreement; or
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(vi) any failure by the Company to comply with and satisfy Section 15(c) of
this Agreement.
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(f) "Notice of Termination". "Notice of Termination" means a written
notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated and (iii) if the Date of Termination
is other than the date of receipt of such notice, specifies the Date of
Termination. The failure by Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of Executive or the Company,
respectively, hereunder or preclude Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing Executive's or the Company's
rights hereunder.
(g) "Board" or "Board of Directors". "Board" or "Board of Directors"
means the full board of directors of the Company as it may be constituted in
accordance with applicable law from time to time, and any committee of the board
shall not be deemed to be the Board or Board of Directors for purposes of this
Agreement.
15. Miscellaneous.
(a) Integration. This Agreement modifies and supersedes any and all prior
employment agreements (including but not limited to the Prior Agreement, if
any). This Agreement constitutes the entire agreement among the parties with
respect to the matters herein provided, and no modification or waiver of any
provision hereof shall be effective unless in writing and signed by the parties
hereto. Notwithstanding the foregoing, all stock options granted to Executive
pursuant to such Prior Agreement shall remain outstanding, and to the extent
applicable, Section 11(e)(iv) shall apply to such stock options and shall also
apply to such other stock options granted to Executive prior to the Effective
Date of this Agreement.
(b) Nonexclusivity of Rights.
Nothing in this Agreement shall prevent or limit Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company or any of its affiliated companies and for which Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement. In the event of any conflict between the terms and
provisions of this Agreement and any of the Company's plans, policies,
practices, programs, contracts or agreements, the terms and provisions of
whichever is more favorable to the Executive shall prevail.
(c) Non-Transferability. Neither this Agreement nor the rights or
obligations hereunder of the parties hereto shall be transferable or assignable
by Executive,
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except in accordance with the laws of descent and distribution or as specified
in Section 15(d). The Company may, but only with the consent of Executive,
assign this Agreement and the Company's rights and obligations hereunder, and
the Company shall, as a condition of the succession, require such Successor to
assume (jointly and severally with the Company) the Company's obligations and be
bound by this Agreement. Any such assignment shall not release the Company of
any of its obligations under this Agreement. For purposes of this Agreement,
"Successor" shall mean any person that succeeds to, or has the practical ability
to control (either immediately or with the passage of time), the Company's
business directly, by merger or consolidation, or indirectly, by purchase of the
Company's voting securities or all or substantially all of its assets, or
otherwise.
(d) Beneficiaries. Executive shall be entitled to designate (and change,
to the extent permitted under applicable law) a beneficiary or beneficiaries to
receive any compensation or benefits payable hereunder following Executive's
death. If Executive should die while any amount would still be payable to him
hereunder had Executive continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
his devisee, legatee or other designee or, if there is no such designee, to his
estate.
(e) Notices. Whenever under this Agreement it becomes necessary to give
notice, such notice shall be in writing, signed by the party or parties giving
or making the same, and shall be served on the person or persons for whom it is
intended or who should be advised or notified, by overnight courier service or
by certified or registered mail, return receipt requested, postage prepaid and
addressed to such party at the address set forth below or at such other address
as may be designated by such party by like notice:
If to the Company: With copies to:
Senior Vice President - Administration Senior Vice President &
National Steel Corporation General Counsel
4100 Edison Lakes Parkway National Steel Corporation
Mishawaka, Indiana 46545-3440 4100 Edison Lakes Parkway
Mishawaka, Indiana 46545-3440
If to Executive at his then current address reflected in the Company's
records.
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement when sent. In the case of overnight courier
service, such notice or advice shall be effective when sent, and, in the cases
of certified or registered mail, shall be effective 2 days after deposit into
the mails by delivery to the U.S. Post Office. If the person to receive the
notice (or a copy thereof) for the Company is Executive, then notice to the
Company shall be sent to the Chief Executive Officer of the Company at the above
address rather than to the officer previously named.
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(f) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) No General Waivers. The failure of any party at any time to require
performance by any other party of any provision hereof or to resort to any
remedy provided herein or at law or in equity shall in no way affect the right
of such party to require such performance or to resort to such remedy at any
time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required to seek
other employment or otherwise to mitigate Executive's damages on or after
Executive's Date of Termination, and the amount of any payment or benefit
provided for in this Agreement shall not be reduced by any compensation or
benefits earned by Executive as the result of employment by another employer or
by retirement benefits; provided, however, that, the health benefits that
Executive is entitled to receive after the Date of Termination may be reduced in
accordance with the terms of Section 11(e)(ii).
(i) Offsets; Withholding. The amounts required to be paid by the Company
to Executive pursuant to this Agreement shall not be subject to offset. The
foregoing and other provisions of this Agreement notwithstanding, all payments
to be made to Executive under this Agreement, including under Sections 11 and
12, or otherwise by the Company, will be subject to required withholding taxes
and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of Executive, his heirs, executors, administrators and
beneficiaries, and shall be binding upon and inure to the benefit of the Company
and its permitted successors and assigns as provided in Section 15(c). This
Agreement is a personal contract and the rights and interests of Executive
hereunder may not be sold, transferred, assigned, pledged, encumbered, or
hypothecated by him, except as otherwise expressly permitted by the provisions
of this Agreement. This Agreement shall inure to the benefit of and be
enforceable by Executive and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
(k) Actuarially Equivalent Value Calculation. For the purpose of
determining an actuarially equivalent value under the terms of this Agreement,
the interest rate specified in Section 417(e)(3) of the Internal Revenue Code of
1986, or any successor section thereto, as of the date of such determination,
and the 1994 Group Annuitants Mortality Table, shall be used and for purposes of
determining present
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value under the terms of this Agreement, the interest rate specified immediately
above shall be used. All calculations shall be made at the expense of the
Company, by the independent auditors of the Company. As soon as practicable
after the need for such calculation arises, the Company shall provide to its
auditors all information needed to perform such calculations.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has
caused this instrument to be duly executed as of the day and year first above
written.
NATIONAL STEEL CORPORATION
By: /s/ Osamu Sawaragi
---------------------------------
Name: Osamu Sawaragi
Title: Chairman of the Board and
Chief Executive Officer
/s/ Robert G. Pheanis
---------------------------------------
Robert G. Pheanis
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Exhibit 10-MM
11-20-96
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is dated and effective as of the 11th day of
December, 1996 ("Effective Date"), and is by and between National Steel
Corporation, a Delaware corporation (the "Company"), and Osamu Sawaragi
("Executive"). In consideration of the mutual covenants contained herein, and
other good and valuable consideration (including the Termination Benefits and
the Special Termination Benefits) the receipt and adequacy of which the Company
and Executive each hereby acknowledge, the Company and Executive hereby agree as
follows:
1. Employment and Term.
The Company hereby agrees to employ Executive as the Chief Executive
Officer of the Company and Executive hereby agrees to accept such employment and
serve in such capacity on a full-time basis during the Term and upon the terms
and conditions set forth in this Employment Agreement (this "Agreement").
Executive shall report solely to the Company's Board of Directors, and will have
such responsibilities, duties and authorities as are customary for such
positions in a publicly held company of the size, type and nature of the Company
as they may exist from time to time. The term of employment of Executive under
this Agreement shall be the period commencing on the Effective Date and
terminating on October 5, 1998 (the "Term"). The respective rights and
obligations of the parties hereunder shall survive any termination of employment
to the extent necessary to achieve the intended preservation of rights and
obligations.
2. Salary and Annual Incentive Compensation.
Executive's annual base salary as in effect on the Effective Date shall be
the Executive's annual base salary hereunder as of the Effective Date, payable
in consecutive equal monthly installments. The term "base salary" as utilized
in this Agreement shall refer to the then current base salary as adjusted from
time to time. Executive shall also be eligible to receive annual incentive
compensation pursuant to the Company's Management Incentive Compensation Program
or any successor plan (the "MICP") during the Term and as determined in
accordance with the terms and conditions of the MICP. Executive's MICP target
annual incentive
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compensation for 1996 shall be 50% of base salary, multiplied by a fraction, the
numerator of which shall be the number of days employed by the Company in 1996,
and the denominator of which shall be 365. The Company will maintain in effect,
for each year during the Term, the MICP or an equivalent plan under which
Executive will be eligible for an award not less than the prior year opportunity
level available to Executive. Any such annual incentive compensation payable to
Executive shall be paid in accordance with the Company's usual practices with
respect to payment of incentive compensation of senior executives.
3. Benefit and Compensation Plans.
(a) Executive shall be entitled during the Term to participate in all
executive compensation plans, and other employee and executive benefits,
practices, policies and programs of the Company, as presently in effect or as
they may be modified or added to by the Company from time to time ("Benefit
Plans").
(b) During the Term, the Company will provide Executive with coverage by
Company-paid group or individual life insurance or a combination thereof, all in
accordance with the plans, policies, programs and arrangements as presently in
effect or as they may be modified or added to by the Company from time to time.
(c) During the Term, Executive will participate in the Company's Executive
Deferred Compensation Plan, and any supplemental retirement plans, benefits,
practices, programs, or policies of the Company, as in effect on the Effective
Date or as they may be modified or added to by the Company from time to time
("Compensation Plans").
4. Non-Compete Agreement.
Executive hereby agrees that if Executive terminates his employment with
the Company without Good Reason, then for a period of two (2) years after the
Date of Termination, but in any event only as long as the Company satisfies its
obligations under this Agreement, (the "Restricted Period"), Executive will not
engage (either as owner, investor, partner, stockholder, employer, employee,
consultant, advisor or director) in any "Competitive Business" in the
continental United States (the "Territory"). The term "Competitive Business"
means the making, producing, manufacturing or finishing of steel products which
products are in direct competition with steel products that are made, produced,
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manufactured or finished by the Company on the Date of Termination. It is
agreed that the ownership of not more than one percent of the equity securities
of any company having securities listed on an exchange or regularly traded in
the over-the-counter market shall not be deemed inconsistent with this Section
4. If any court of competent jurisdiction shall deem any obligation of this
Section 4 too lengthy or the Territory too extensive, the other provisions of
this Section shall nevertheless stand, the Restricted Period shall be deemed to
be the longest period such court deems not to be too lengthy and the Territory
shall be deemed to comprise the portion of the United States east of the
Mississippi River (or such other portion of the United States that such court
deems not to be too extensive).
5. Non-Inducement.
Executive hereby agrees that for a period commencing with the Date of
Termination and ending on the second anniversary of the Date of Termination,
Executive shall not induce, or attempt to influence, any employee of the Company
who reports either directly to the Company's Chief Executive Officer, President,
Chief Operating Officer or Acting Chief Operating Officer or to another employee
who reports directly to the Company's Chief Executive Officer, President, Chief
Operating Officer or Acting Chief Operating Officer to terminate his employment
with the Company.
6. Non-Disclosure.
For a period commencing on the Date of Termination and ending on the fifth
anniversary of the Date of Termination, Executive shall keep secret and retain
in strictest confidence, and shall not furnish, make available or disclose to
any third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Section, "Confidential Information"
shall mean any information relating to the business or affairs of the Company,
including but not limited to information relating to financial statements,
customer identities, customer needs, potential customers, employees, suppliers,
servicing methods, equipment, programs, strategies and information, analyses,
profit margins or other proprietary information used by the Company in
connection with its business; provided, however, that Confidential Information
shall not include any information which is in the public domain or becomes known
in the industry through no wrongful act on the part of Executive. Executive
acknowledges that the
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Confidential Information is vital, sensitive, confidential and proprietary to
the Company.
7. No Unfavorable Publicity.
Subsequent to Executive's Date of Termination, Executive agrees not to make
statements or communications and not to issue any written communications or
release any other written materials which would likely be materially damaging to
the Company's reputation or standing, whether in the investor or financial
community, the steel industry or otherwise.
8. Cooperation With the Company.
Executive agrees to cooperate with the Company for a reasonable period of
time after the Term of this Agreement by making himself available to testify on
behalf of the Company, in any action, suit, or proceeding. In addition, for a
reasonable period of time, Executive agrees to be available at reasonable times
to meet and consult with the Company on matters reasonably within the scope of
his prior duties with the Company so as to facilitate a transition to his
successor. The Company agrees to reimburse Executive, on an after-tax basis,
for all expenses actually incurred in connection with his provision of testimony
or consulting assistance.
9. Release of Employment Claims.
Executive and the Company agree that in the event Executive receives
Special Termination Benefits (as defined in Section 11(e)), he and the Company
will execute a mutual release agreement releasing any and all claims which
either of them have or may have against the other arising out of Executive's
employment (other than enforcement of this Agreement). The Executive agrees
that in the event the Executive's employment with the Company terminates or is
terminated, the Executive's sole and exclusive remedy shall be, and the
Company's liability shall be limited to, damages equal to the payments and
benefits to be provided by the Company hereunder and to payment or reimbursement
of Executive's costs and expenses in accordance with Section 12(b).
10. Remedies.
Executive acknowledges and agrees that the covenants set forth in Sections
4 through 8 are reasonable and necessary for the
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protection of the Company's business interests, that irreparable injury will
result to the Company if Executive breaches any of the terms of such covenants,
and that in the event of Executive's actual or threatened breach of any such
covenants, the Company will have no adequate remedy at law. Executive
accordingly agrees that in the event of any actual or threatened breach by him
of any of such covenants, the Company shall be entitled to immediate temporary
injunctive and other equitable relief, without the necessity of showing actual
monetary damages, subject to hearing as soon thereafter as possible. Nothing
contained herein shall be construed as prohibiting the Company from pursuing any
other remedies available to it for such breach or threatened breach, including
the recovery of any damages which it is able to prove.
11. Termination of Employment.
(a) Termination Due to Death or Disability. Upon an Executive's Date of
Termination during the Term due to death or Disability, the Company will pay
Executive (or his beneficiaries, dependents or estate), and Executive (or his
beneficiaries, dependents or estate) will be entitled to receive, the
Termination Benefits (as defined in Section 11(d)).
(b) Termination by the Company for Cause and Termination by Executive
without Good Reason. Upon Executive's Date of Termination during the Term by
the Company for Cause or by Executive without Good Reason the Company shall pay
Executive (or his beneficiaries, dependents or estate), and Executive (or his
beneficiaries, dependents or estate) shall be entitled to receive, the
Termination Benefits (as defined in Section 11(d)), except that no amount shall
be paid and no right accrued in respect of Executive under Section 11(d)(i)(B).
(c) Termination by the Company Without Cause and Termination by Executive
for Good Reason. Upon Executive's Date of Termination during the Term by the
Company without Cause or by Executive for Good Reason the Company shall pay
Executive (or his beneficiaries, dependents or estate), and Executive (or his
beneficiaries, dependents or estate) shall be entitled to receive, the
Termination Benefits (as defined in Section 11(d)) and the Special Termination
Benefits (as defined in Section 11(e)).
(cc) Termination Following Expiration of the Term. Upon termination of
employment following expiration of the Term, whether by the Executive with or
without Good Reason, or by the
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Company, without Cause, the Company shall pay Executive (or his beneficiaries,
dependents, or estate), and Executive (or his beneficiaries, dependents, or
estate) shall be entitled to receive, the Termination Benefits (as defined in
Section 11(d)) and the Special Termination Benefits (as defined in Section
11(e)).
(d) "Termination Benefits". "Termination Benefits" means the aggregate
of all of the following:
(i) a single sum cash payment by the Company to Executive within thirty
(30) days after the Date of Termination of
(A) Executive's then current annual base salary pro rata through the Date
of Termination to the extent not theretofore paid; (B) the product of (y) the
greater of (aa) the average annual incentive compensation paid to Executive in
the three fiscal years immediately preceding the fiscal year of the Date of
Termination (or all fiscal years Executive was employed if less than three, and
annualized in the event Executive was not employed by the Company for the whole
of any such fiscal year), and (bb) Executive's target incentive compensation
percentage payable under the MICP multiplied by Executive's then current base
salary and (z) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365; and (C) any accrued vacation pay to the extent not theretofore
paid.
(ii) All vested amounts owing or accrued at the Date of Termination under
any compensation and benefit plans, programs, and arrangements set forth or
referred to in this Agreement, including, but not limited to, Sections 2 and 3
hereof; and if the Date of Termination is due to death, Executive's estate or
other beneficiaries shall receive the death benefits described in Section 3(b).
(iii) Reasonable business expenses and disbursements incurred by Executive
prior to such Date of Termination will be fully reimbursed within ten (10) days
after the Date of Termination.
(e) "Special Termination Benefits". "Special Termination Benefits" means
the aggregate of all of the following:
(i) The Company shall pay to Executive, in a single sum in cash within
thirty (30) days after the Date of Termination, an
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amount equal to fifty percent of Executive's annual base salary (immediately
preceding the Date of Termination).
(ii) For two years after Executive's Date of Termination, if Executive is
less than age 69 on his Date of Termination, or such longer period as may be
provided by the terms of the appropriate plan, program, arrangement, practice or
policy, the Company shall continue benefits to Executive and/or Executive's
dependents at least equal to those which would have been provided to them in
accordance with the Benefits Plans or this Agreement if Executive's employment
had not been terminated or, if more favorable to Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and their dependents; provided, however, that notwithstanding anything
in this Agreement to the contrary, if Executive is eligible to receive health
benefits or other benefits under an NKK Corporation sponsored plan or
arrangement, or any Japanese government plan or arrangement, or under any other
plan or arrangement, the health benefits and other benefits described herein
shall be secondary to those provided under such other plan or arrangement during
such applicable period of eligibility; and provided, further, that if Executive
shall later become ineligible for health benefits or other benefits under such
other plans and arrangements, the health benefits or other benefits provided by
the Company shall be primary. If Executive is age 69 or older on his Date of
Termination, the period of "two years" in the first line of this Section
11(e)(ii) shall be reduced to the period set forth below:
Age Period
--- ------
69 One Year
70 or older Zero
(iii) Stock options held by Executive as of the date of this Agreement
were granted pursuant to the 1993 National Steel Corporation Non-Employee
Directors' Stock Option Plan and shall continue to be governed by the terms and
conditions of said Non-Employee Directors' Stock Option Plan. Stock options
granted to Executive after the date of this Agreement shall be issued pursuant
to the 1993 National Steel Corporation Long Term Incentive Plan and shall
continue to vest as if Executive had remained an employee of the Company and
shall remain fully exercisable for the lesser of (a) the entire period that
would have been available for exercise had Executive continued in the
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employ of the Company through the original option term or (b) five years; such
stock options shall otherwise be governed by the terms and conditions of said
Long Term Incentive Plan (and the agreements and other documents thereunder)
pursuant to which such stock options were granted.
12. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be construed,
administered, and enforced in accordance with the laws of the State of Indiana,
without regard to Indiana conflicts of law principles, except insofar as the
Delaware General Corporation Law and federal laws and regulations may be
applicable. If under the governing law, any portion of this Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof.
(b) Reimbursement of Expenses in Enforcing Rights. All costs and expenses
(including, without limitation, fees and disbursements of actuaries, accountants
and counsel) incurred by Executive in seeking in good faith to enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights. If there shall be any dispute between the Company and Executive,
the Company shall pay or provide, as applicable, all undisputed amounts or
benefits as are then payable to Executive or Executive's beneficiaries or
dependents pursuant to this Agreement. Any amounts that have become payable
pursuant to the terms of this Agreement or any decision by arbitrators or
judgment by a court of law, but which are not timely paid shall bear interest,
payable by the Company, at the lower of (A) the highest lawful rate or (B) the
prime rate in effect at the time such payment first becomes payable, as quoted
by The Wall Street Journal.
(c) Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Chicago,
Illinois, in accordance with the rules of the American Arbitration Association
in effect at the time of submission to arbitration, by three (3) arbitrators,
one of which
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shall be chosen by the Company, one of which shall be chosen by Executive, and
one of which shall be chosen by the arbitrators chosen by Company and Executive.
Judgment may be entered on the arbitrators' award in any court having
jurisdiction. For purposes of entering any judgment upon an award rendered by
the arbitrators, the Company and Executive hereby consent to the jurisdiction of
any or all of the following courts: (i) the United States District Court for the
Northern District of Indiana; (ii) any of the courts of the State of Indiana, or
(iii) any other court having jurisdiction. The Company and Executive further
agree that any service of process or notice requirements in any such proceeding
shall be satisfied if the rules of such court relating thereto have been
substantially satisfied. The Company and Executive hereby waive, to the fullest
extent permitted by applicable law, any objection which it may now or hereafter
have to such jurisdiction and any defense of inconvenient forum. The Company and
Executive hereby agree that a judgment upon an award rendered by the arbitrators
may be enforced in other jurisdictions by suit on the judgment or in any other
manner provided by law. The Company shall bear all costs and expenses arising in
connection with any arbitration proceeding. Notwithstanding any provision in
this Section 12(c), Executive shall be entitled to seek specific performance of
Executive's right to be paid during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
13. Definitions.
Certain terms in this Agreement are defined the first time they appear;
other terms which are capitalized are not defined the first time they appear,
but unless the context indicates otherwise, have the meanings set forth below:
(a) "Cause". For purposes of this Agreement, "Cause" shall mean
Executive's gross misconduct (as defined herein) or willful and material breach
of this Agreement. For purposes of this definition, "gross misconduct" shall
mean (A) a felony conviction or a plea of nolo contendere to a felony charge in
a court of law under applicable federal or state laws which results in material
damage to the Company, or (B) willfully engaging in one or more acts which is
demonstrably and materially damaging to the Company. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him, within six months after the Board (A) had
knowledge of conduct or an event allegedly constituting Cause and (B) had reason
to
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<PAGE>
believe that such conduct or event could be grounds for Cause, a copy of a
resolution duly adopted by a majority affirmative vote of the entire membership
of the Company's Board of Directors (excluding Executive if a member of
Company's Board of Directors), at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
set forth above in this Section 13(a).
(b) "Date of Termination". "Date of Termination" means (i) if
Executive's employment is terminated by the Company for Cause or by Executive
for Good Reason, the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be; (ii) if Executive's employment is
terminated by the Company without Cause, the Date of Termination shall be the
date on which the Company notifies Executive of such Date of Termination, and
(iii) if Executive's employment is terminated by reason of death or Disability,
or is terminated by Executive without Good Reason, the Date of Termination shall
be the date of death of Executive, the Disability Effective Date, or the date
Executive notifies the Company that Executive's employment will terminate, as
the case may be. If the Company determines in good faith that the Disability of
Executive has occurred during the Term of the Agreement (pursuant to the
definition of Disability set forth in Section 13(c)), it may give to Executive
written notice in accordance with Section 13(e) of this Agreement of its
intention to terminate Executive's employment. In such event, Executive's Date
of Termination is effective on the date that is six months after receipt of such
notice by Executive (the "Disability Effective Date"), provided that, within
such six month period, Executive shall not have returned to full-time
performance of Executive's duties. Any termination by the Company for Cause, or
by Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(e) of this Agreement.
(c) "Disability". "Disability" means the failure of Executive to render
and perform the services required of him under this Agreement, for a total of
180 days or more during any consecutive 12 month period, because of any physical
or mental incapacity or disability as determined by a physician or
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<PAGE>
physicians selected by the Company and reasonably acceptable to Executive,
unless, within six (6) months after Executive has received written notice from
the Company of a proposed Date of Termination due to such absence, Executive
shall have returned to the full performance of his duties hereunder and shall
have presented to the Company a written certificate of Executive's good health
prepared by a physician selected by Executive and reasonably acceptable to the
Company.
(d) "Good Reason". For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following events set forth in paragraphs (i)
through (vii) below, without Executive's prior written consent:
(i) the diminution of Executive's status, titles, positions, duties,
offices, authorities, responsibilities, assignments or reporting relationships,
or removal from Executive of any status, titles, positions, duties, offices,
authorities, responsibilities, assignments or reporting relationships, which is
inconsistent in any respect with Executive's status, titles, positions, duties,
offices, authorities, responsibilities, assignments or reporting relationships,
as contemplated by Section 1 of this Agreement, excluding for this purpose (a)
any removal of the title "Chairman of the Board," the removal of Executive from
the Board, or any failure to elect or re-elect, or nominate Executive to the
Board, (b) any search for a new Chief Executive Officer, or transition or
succession planning regarding a Chief Executive Officer, (c) any announcement of
an appointment of a new Chief Executive Officer, with an effective date after
the Term hereof, or (d) an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company promptly after receipt
of notice thereof given by Executive;
(ii) any reduction in Executive's then current base salary or in
Executive's then current target incentive compensation opportunity under the
MICP;
(iii) any failure by the Company to comply with any of the provisions of
this Agreement, including but not limited to Sections 2 and 3 of this Agreement,
other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice
thereof given by Executive;
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<PAGE>
(iv) any failure by the Company to perform any obligation under, or breach
by the Company of any provision of, this Agreement;
(v) any purported termination by the Company of Executive's employment
otherwise than as expressly permitted by this Agreement; or
(vi) any failure by the Company to comply with and satisfy Section 14(c) of
this Agreement.
(vii) voluntary termination of employment by Executive with the prior
approval of a simple majority of the Board.
(e) "Notice of Termination". "Notice of Termination" means a written
notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated and (iii) if the Date of Termination
is other than the date of receipt of such notice, specifies the Date of
Termination. The failure by Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of Executive or the Company,
respectively, hereunder or preclude Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing Executive's or the Company's
rights hereunder.
(f) "Board" or "Board of Directors". "Board" or "Board of Directors" means
the full board of directors of the Company as it may be constituted in
accordance with applicable law from time to time, and any committee of the board
shall not be deemed to be the Board or Board of Directors for purposes of this
Agreement.
14. Miscellaneous.
(a) Integration. This Agreement modifies and supersedes any and all prior
employment agreements. This Agreement constitutes the entire agreement among the
parties with respect to the matters herein provided, and no modification or
waiver of any provision hereof shall be effective unless in writing and signed
by the parties hereto.
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<PAGE>
(b) Nonexclusivity of Rights.
Nothing in this Agreement shall prevent or limit Executive's continuing or
future participation in any plan, program, policy or practice provided by the
Company during the Term of this Agreement and for which Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company. Amounts which are vested
benefits or which Executive is otherwise entitled to receive under any plan,
policy, practice or program of or any contract or agreement with the Company at
or subsequent to the Date of Termination shall be payable in accordance with
such plan, policy, practice or program or contract or agreement except as
explicitly modified by this Agreement. In the event of any conflict between the
terms and provisions of this Agreement and any of the Company's plans, policies,
practices, programs, contracts or agreements, the terms and provisions of
whichever is more favorable to the Executive shall prevail.
(c) Non-Transferability. Neither this Agreement nor the rights or
obligations hereunder of the parties hereto shall be transferable or assignable
by Executive, except in accordance with the laws of descent and distribution or
as specified in Section 14(d). The Company may, but only with the consent of
Executive, assign this Agreement and the Company's rights and obligations
hereunder, and the Company shall, as a condition of the succession, require such
Successor to assume (jointly and severally with the Company) the Company's
obligations and be bound by this Agreement. Any such assignment shall not
release the Company of any of its obligations under this Agreement. For
purposes of this Agreement, "Successor" shall mean any person that succeeds to,
or has the practical ability to control (either immediately or with the passage
of time), the Company's business directly, by merger or consolidation, or
indirectly, by purchase of the Company's voting securities or all or
substantially all of its assets, or otherwise.
(d) Beneficiaries. Executive shall be entitled to designate (and change,
to the extent permitted under applicable law) a beneficiary or beneficiaries to
receive any compensation or benefits payable hereunder following Executive's
death. If Executive should die while any amount would still be payable to him
hereunder had Executive continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
his devisee, legatee or other designee or, if there is no such designee, to his
estate.
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<PAGE>
(e) Notices. Whenever under this Agreement it becomes necessary to give
notice, such notice shall be in writing, signed by the party or parties giving
or making the same, and shall be served on the person or persons for whom it is
intended or who should be advised or notified, by overnight courier service or
by certified or registered mail, return receipt requested, postage prepaid and
addressed to such party at the address set forth below or at such other address
as may be designated by such party by like notice:
If to the Company: With copies to:
Sr. Vice President-Administration Sr. Vice President & Gen. Counsel National
Steel Corporation National Steel Corporation
4100 Edison Lakes Parkway 100 Edison Lakes Parkway
Mishawaka, Indiana 46545-3440 Mishawaka, Indiana 46545-3440
If to Executive at his then current address reflected in the Company's
records.
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement when sent. In the case of overnight courier
service, such notice or advice shall be effective when sent, and, in the cases
of certified or registered mail, shall be effective 2 days after deposit into
the mails by delivery to the U.S. Post Office.
(f) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) No General Waivers. The failure of any party at any time to require
performance by any other party of any provision hereof or to resort to any
remedy provided herein or at law or in equity shall in no way affect the right
of such party to require such performance or to resort to such remedy at any
time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
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<PAGE>
(h) No Obligation To Mitigate. Executive shall not be required to seek
other employment or otherwise to mitigate Executive's damages on or after
Executive's Date of Termination, and the amount of any payment or benefit
provided for in this Agreement shall not be reduced by any compensation or
benefits earned by Executive as the result of employment by another employer or
by retirement benefits; provided, however, that, the health benefits or other
benefits that Executive is entitled to receive after the Date of Termination may
be reduced in accordance with the terms of Section 11(e)(ii).
(i) Offsets; Withholding. The amounts required to be paid by the Company
to Executive pursuant to this Agreement shall not be subject to offset. The
foregoing and other provisions of this Agreement notwithstanding, all payments
to be made to Executive under this Agreement, including under Section 11, or
otherwise by the Company, will be subject to required withholding taxes and
other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of Executive, his heirs, executors, administrators and
beneficiaries, and shall be binding upon and inure to the benefit of the Company
and its permitted successors and assigns as provided in Section 14(c). This
Agreement is a personal contract and the rights and interests of Executive
hereunder may not be sold, transferred, assigned, pledged, encumbered, or
hypothecated by him, except as otherwise expressly permitted by the provisions
of this Agreement. This Agreement shall inure to the benefit of and be
enforceable by Executive and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
(k) Actuarially Equivalent Value Calculation. For the purpose of
determining an actuarially equivalent value under the terms of this Agreement,
the interest rate specified in Section 417(e)(3) of the Internal Revenue Code of
1986, or any successor section thereto, as of the date of such determination,
and the 1994 Group Annuitants Mortality Table, shall be used and for purposes of
determining present value under the terms of this Agreement, the interest rate
specified immediately above shall be used. All calculations shall be made at
the expense of the Company, by the independent auditors of the Company. As soon
as practicable after the need for such calculation arises, the
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<PAGE>
Company shall provide to its auditors all information needed to perform such
calculations.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has
caused this instrument to be duly executed as of the day and year first above
written.
NATIONAL STEEL CORPORATION
By: /s/ David A. Pryzbylski
-----------------------
Name: David A. Pryzbylski
Title: Senior Vice President,
Administration and Secretary
/s/ Osamu Sawaragi
--------------------------------
Osamu Sawaragi
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<PAGE>
EXHIBIT 10-NN
AMENDMENT NO. 1 TO THE
----------------------
AGREEMENT FOR THE TRANSFER OF EMPLOYEES
---------------------------------------
THIS AGREEMENT, by and between NKK CORPORATION, a Japanese corporation, having
its main office at 1-1-2, Marunouchi, Chiyoda-ku, Tokyo, Japan (herein called
"NKK") and NATIONAL STEEL CORPORATION, a Delaware corporation having its
principal office at 4100 Edison Lakes Parkway, Mishawaka, IN 46545-3440, U.S.A.
(herein called "NSC"), is made effective December 10, 1996.
WITNESSETH:
WHEREAS, NKK and NSC entered into an Agreement for the Transfer of Employees
dated as of May 1, 1995 (the "Agreement"), pursuant to which certain employees
have been transferred from NKK to NSC for the purpose of providing technical
assistance, consulting services and business assistance to NSC; and
WHEREAS, NKK and NSC desire to extend the term of the Agreement for an
additional year, through 1997.
NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:
1. Capitalized terms as used herein and not defined herein shall have the same
meaning as set forth in the Agreement.
2. In accordance with Paragraph 15 of the Agreement, the term of the Agreement
is hereby extended for an additional Contract Year, from January 1, 1997
through December 31, 1997 (the "1997 Contract Year").
3. The Reimbursable Expenses Cap for the 1997 Contract Year shall be Seven
Million Dollars ($7,000,000).
4. Each party represents and warrants to the other that it has the requisite
power and authority to extend the Agreement, including, without limitation,
that all necessary corporate proceedings have been duly taken as required
under Paragraph 15 of the Agreement.
5. Except as amended hereby, all of the terms of the Agreement shall remain in
full force and effect.
NATIONAL STEEL CORPORATION NKK CORPORATION
By:___________________________ By:______________________________
Title:________________________ Title:___________________________
Date:_________________________ Date:____________________________
<PAGE>
EXHIBIT 13
<TABLE>
<CAPTION>
National Steel Corporation
Financial Report
- --------------------------------------------------------------------------------
<S> <C>
Five Year Selected Financial and
Operating Information............................ 16
Management's Discussion and Analysis.............. 17
Statements of Consolidated Income................. 22
Consolidated Balance Sheets....................... 23
Statements of Consolidated Cash Flows............. 24
Statements of Changes in Consolidated
Stockholders' Equity and
Redeemable Preferred Stock--Series B............. 25
Notes to Consolidated Financial Statements........ 26
Report of Ernst & Young LLP Independent Auditors.. 40
Management's Responsibility
for Financial Statements......................... 40
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
FIVE YEAR SELECTED FINANCIAL AND OPERATING INFORMATION
Dollars in Millions, Except Per Share Data
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Year Ended December 31,
1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Net sales $ 2,955 $ 2,954 $ 2,700 $ 2,419 $ 2,373
Cost of products sold 2,619 2,528 2,354 2,254 2,107
Depreciation, depletion and amortization 144 145 142 137 115
- ----------------------------------------------------------------------------------------------------------
Gross profit 191 281 204 27 152
Selling, general and administrative 139 154 138 137 133
Unusual charges (credits) -- 5 (25) 111 37
Income (loss) from operations 61 131 97 (218) (12)
Financing costs (net) 36 39 56 62 62
Income (loss) before income taxes, extraordinary
items and cumulative effect of accounting changes 29 92 152 (280) (75)
Extraordinary items -- 5 -- -- (50)
Cumulative effect of accounting changes -- -- -- (16) 76
Net income (loss) applicable to common stock 34 100 157 (272) (66)
Per share data applicable to common stock:
Income (loss) before extraordinary items
and cumulative effect of accounting changes .78 2.21 4.33 (7.55) (3.61)
Net income (loss) .78 2.34 4.33 (8.04) (2.58)
Cash dividends -- -- -- -- --
- ----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Cash and cash equivalents 109 128 162 5 55
Working capital 251 224 225 27 74
Net property, plant and equipment 1,456 1,469 1,394 1,399 1,395
Total assets 2,547 2,668 2,499 2,304 2,189
Current maturities of long term obligations 38 36 36 28 33
Long term obligations 470 502 671 674 662
Redeemable Preferred Stock--Series B 64 65 67 68 138
Stockholders' equity 592 557 354 190 327
- ----------------------------------------------------------------------------------------------------------
OTHER DATA
Shipments (net tons, in thousands) 5,895 5,564 5,208 5,005 4,974
Raw steel production (net tons, in thousands) 6,557 6,081 5,763 5,551 5,380
Effective capacity utilization 93.7% 96.5% 96.1% 100.0% 100.5%
Number of employees (year end) 9,579 9,474 9,711 10,069 10,299
Capital investments $ 129 $ 215 $ 138 $ 161 $ 284
Total debt and redeemable preferred stock as
a percent of total capitalization 49.1% 52.0% 68.6% 80.2% 71.8%
Common shares outstanding at year end (in thousands) 43,288 43,288 36,376 36,361 25,500
- ----------------------------------------------------------------------------------------------------------
</TABLE>
16
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT ------------------------------------
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS--COMPARISON OF THE YEARS ENDED DECEMBER 31, 1996 AND 1995
Net Sales
Net sales for 1996 and 1995 for National Steel Corporation (the "Company") each
totaled $ 3.0 billion. Despite an increase in volume, net sales remained
essentially unchanged primarily as a result of a decline in average selling
prices sustained earlier in the year, as well as lower outside pellet sales.
Steel shipments for 1996 were a rec-ord 5,895,000 tons, representing a 5.9%
increase compared to the 5,564,000 tons shipped in 1995. Productivity
improvements as well as additional capacity provided by the new Triple G coating
line at the Granite City Division contributed to this increase.
Cost of Products Sold
The Company's cost of products sold totaled $2.6 billion in 1996, an increase of
$91.9 million, or 3.6%, compared to 1995. Some of the major factors contributing
to this increase include the 331,000 net ton increase in steel shipments,
unplanned blast furnace and kiln outages at the Granite City Division and
National Steel Pellet Company, respectively, as well as a shift in product mix
to more costly but higher value-added products. Higher natural gas prices due to
extreme cold weather earlier in the year also increased costs. These increases
were partially offset by a reduction in costs associated with the decline in
outside pellet sales, along with the Company's cost reduction programs.
Raw steel production increased to 6,557,000 tons in 1996, a 7.8% increase from
the 6,081,000 tons produced in 1995.
Selling, General and Administrative Expense
Selling, general and administrative expense of $138.6 million in 1996 represents
a $15.1 million decrease compared to 1995. This decrease is a result of the
favorable settlement of a lawsuit earlier in the year, along with a reduction in
the level of spending for professional services.
Financing Costs
Net financing costs of $36.2 million in 1996 represents a $3.0 million decrease
compared to net financing costs of $39.2 million for 1995. This decrease is a
result of the prepayment of $133.3 million of debt in August 1995, offset by a
reduction in interest income as a result of lower average cash balances.
Income Taxes
During 1996 and 1995, the Company recognized income tax credits and additional
deferred tax assets of $21.6 million and $28.6 million, respectively, based upon
future projections of income. In 1996 and 1995, these credits were offset by
$5.2 million and $8.6 million of federal income tax expense and $.7 million and
$6.4 million of state income tax expense, respectively.
The Company's effective tax rate was lower than the federal statutory rate
primarily because of the continued utilization of available operating loss
carryforwards. As such, the Company's effective alternative minimum tax rate was
18.0% and 4.0% for 1996 and 1995, respectively.
Settlement of Legal Proceedings
During the third quarter of 1996, the Company settled two disputes that resulted
in aggregate gains totaling $11.2 million.
On September 12, 1996, following the closing of the settlement agreement between
the Company and Bakers Port, Inc., the Company sold 213 acres out of a total of
2,338 acres of land received in connection with this settlement. The sale
generated a net gain of $3.7 million, which was recorded as other income.
On August 15, 1996, the Company finalized the settlement agreement with the
Pension Benefit Guaranty Corporation (the "PBGC") relating to the Donner-Hanna
Joint Venture pension plans. As a part of the settlement, the Company paid $8.5
million to the PBGC. Since the Company had estimated and accrued $16.0 million
for this liability, a gain of $7.5 million was recorded in connection with this
settlement. This gain reduced cost of goods sold during the third quarter of
1996.
17
Plan
Pace
Performance
Pride
-----------
<PAGE>
Subsequent Event
On January 31, 1997, the Company entered into a definitive agreement with North
Limited ("North") and Bethlehem Steel Corporation ("BSC"), pursuant to which the
Company and BSC will sell to North their respective minority equity interests in
the Iron Ore Company of Canada ("IOC"). The Company, which owns 21.73% of IOC,
will receive approximately $85 million in proceeds in exchange for its shares
and realize an after-tax gain of approximately $25 million. The Company expects
to record the gain during the first quarter of 1997 at the time of the closing
of the transaction.
Change in Pension Measurement Date and Discount Rate and Increase in Minimum
Contributions
During the third quarter of 1996, the Company changed the measurement date for
pensions and other postretirement benefit obligations ("OPEB") from December 31
to September 30 in order to provide for more timely information. The change in
measurement date had no effect on 1996 expense and had an immaterial impact on
the funded status of the plans at December 31, 1996.
As a result of recent federal legislation, the Company expects minimum pension
plan contributions to increase from $38.3 million in 1996 to approximately $93.0
million in 1997.
As a result of the increase in long term interest rates in the United States, at
September 30, 1996, the Company increased the discount rate used to calculate
the actuarial present value of its accumulated benefit obligation for pensions
and OPEB by 75 basis points to 8.0%, from the rate used at December 31, 1995.
The effect of these changes did not impact 1996 expense. However, the increase
in the discount rate used to calculate the pension obligation decreased the
minimum pension liability recorded on the Company's balance sheet from $108.8
million to $14.4 million at September 30, 1996, and at the same time resulted in
a $1.8 million increase to stockholders' equity.
Adoption of New Accounting Pronouncements
During the first quarter of 1996, the Company adopted Statement of Financial
Accounting Standards No. 121 ("SFAS 121"), "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS 121
requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying value. The adoption of SFAS 121 did not have an impact on the Company's
financial statements.
The Company also adopted Statement of Financial Accounting Standards No. 123
("SFAS 123") "Accounting for Stock-Based Compensation" during the first quarter
of 1996. SFAS 123 requires the Company to either adopt a fair value based method
of expense recognition for all stock compensation based awards, or provide pro
forma net income and earnings per share ("EPS") information as if the
recognition and measurement provisions of SFAS 123 had been adopted. The Company
decided to account for its stock based compensation awards following the
provisions of Accounting Principles Board Opinion No. 25 ("APB 25"). APB 25
requires compensation expense to be recognized only if the market price of the
underlying stock exceeds the exercise price on the date of grant. The Company's
stock based awards consist of stock options with an exercise price equal to
market price on the date of grant. As such, the Company has not recorded
compensation expense in connection with these awards. In addition, the effect of
applying the SFAS 123 fair value method to the Company's stock-based awards
results in net income and EPS that are not materially different from amounts
reported.
Labor Negotiations
In 1993, the Company and the United Steelworkers of America ("USWA") negotiated
a six year labor agreement continuing through July 1999, with a reopener
provision in 1996 for specified payroll items and employee benefits. Pursuant to
the terms of the reopener, if the parties could not reach a settlement, they
were to submit final offers to an arbitrator who would, after a hearing,
consider the information and determine an award. On October 30, 1996, the
arbitrator handed down an award regarding the arbitration of the reopener. The
arbitrator's award is comparable to the industry pattern for payroll and benefit
items under collective bargaining agreements between the USWA and other
integrated steel producers. Pursuant to the award, employees represented by the
USWA received an immediate wage increase of fifty cents per hour retroactive to
August 1, 1996, with increases of twenty five cents per hour on August 1, 1997
and 1998. In addition, $500 lump sum bonuses will be paid to each employee
represented by the USWA on May 1, 1998 and 1999.
18
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT
<PAGE>
The Company estimates that these items, along with certain other provisions in
the agreement, will increase employee related expenses by approximately $7
million, $15 million and $18 million for 1997, 1998 and 1999, respectively. The
Company's 1996 labor costs increased by approximately $4 million as a result of
the arbitrator's award.
RESULTS OF OPERATIONS--COMPARISON OF THE YEARS ENDED DECEMBER 31, 1995 AND 1994
Net Sales
Net sales for 1995 totaled $3.0 billion, a 9.4% increase compared to 1994. This
increase was attributable to an increase in volume as well as an increase in
realized selling prices. Steel shipments for 1995 were 5,564,000 tons,
representing a 6.8% increase compared to the 5,208,000 tons shipped in 1994. Raw
steel production increased to 6,081,000 tons, a 5.5% increase from the 5,763,000
tons produced in 1994.
Cost of Products Sold
Cost of products sold as a percentage of sales declined from 87.2% in 1994 to
85.6% in 1995. This improvement was the result of an increased level of
shipments, higher average selling prices and various cost reduction programs,
and was achieved despite a major blast furnace reline.
Selling, General and Administrative Expense
Selling, general and administrative expenses of $153.7 million in 1995
represented an increase of $15.5 million compared to 1994. This increase was
largely attributable to nonrecurring outside professional fees associated with
various strategic initiatives.
Unusual Charges (Credits)
Reduction in Workforce--During the fourth quarter of 1994, the Company finalized
and implemented a plan that resulted in a workforce reduction of approximately
400 salaried nonrepresented employees, and a restructuring charge of $34.2
million, or $25.6 million net of tax. During the first quarter of 1995, the
Company recorded an additional restructuring charge of $5.3 million, or $3.6
million net of tax, as a result of the various elections made by the terminated
employees during the first quarter.
The aggregate restructuring charge of $39.5 million was comprised of OPEB--$26.5
million; severance--$12.5 million; pensions--($2.6) million and other charges--
$3.1 million. Substantially all of the amounts related to severance and other
charges were paid as of December 31, 1995. The remaining balance of $23.9
million related primarily to OPEB and pensions and will require the utilization
of cash over the retirement lives of the affected employees.
Financing Costs
Net financing costs of $39.2 million in 1995 represented a 29.6% decrease
compared to net financing costs of $55.7 million for 1994. This decrease was
attributable to higher short term investment earnings resulting from the receipt
of cash generated by the issuance of 6.9 million shares of Class B Common Stock
in February 1995, coupled with a decrease in interest expense as a result of
debt reduction.
Primary Offering of Class B Common Stock and Extraordinary Item
On February 1, 1995, the Company completed a primary offering of 6,900,000
shares of Class B Common Stock, bringing the total number of shares of Class B
Common Stock issued and outstanding to 21,176,156 at that time. Subsequent to
the offering, NKK Corporation, through its ownership of all 22,100,000 issued
and outstanding shares of Class A Common Stock, holds 67.6% of the combined
voting power of the Company. The remaining 32.4% of the combined voting power is
held by the public. The issuance of the additional shares of Class B Common
Stock generated net proceeds of approximately $104.7 million. On August 7, 1995,
the Company utilized these proceeds, along with an additional amount of $20.9
million funded from the Company's available cash, to prepay $133.3 million
principal amount of the outstanding $323.3 million related party debt associated
with the rebuild of the No. 5 Coke Oven Battery serving the Great Lakes
Division. This transaction resulted in an extra-ordinary item of $5.4 million,
net of related income tax expense of $.5 million, or $.13 per share.
19
Plan
Pace
Performance
Pride
<PAGE>
LIQUIDITY AND SOURCES OF CAPITAL
The Company's liquidity needs arise primarily from capital investments, working
capital requirements, pension funding requirements and principal and interest
payments on its indebtedness. The Company has satisfied these liquidity needs
with funds provided by long term borrowings and cash provided by operations. One
source of liquidity consists of a Receivables Purchase Agreement (the
"Receivables Purchase Agreement") with commitments of up to $200.0 million.
During July 1996, the Company amended the Receivables Purchase Agreement
extending the expiration date to May 2001. Also during July 1996, the Company
entered into a new $100.0 million credit facility and a new $50.0 million credit
facility, which will expire in May 2000 and July 1997, respectively, both of
which are secured by the Company's inventories (the "Inventory Facilities").
The Company is currently in compliance with all material covenants of, and
obligations under, the Receivables Purchase Agreement, the Inventory Facilities
and other debt instruments. On December 31, 1996, there were no cash borrowings
outstanding under the Receivables Purchase Agreement or the Inventory
Facilities, and outstanding letters of credit under the Receivables Purchase
Agreement totaled $89.8 million. For 1996, the maximum availability under the
Receivables Purchase Agreement, after reduction for letters of credit
outstanding, varied from $59.3 million to $110.4 million and was $88.7 million
as of December 31, 1996.
At December 31, 1996, total debt and redeemable preferred stock as a percentage
of total capitalization decreased to 49.1% as compared to 52.0% at December 31,
1995. Cash and cash equivalents totaled $109.0 million and $127.6 million as of
December 31, 1996 and 1995, respectively. At December 31, 1996, obligations
guaranteed by the Company approximated $32.2 million, compared to $35.6 million
at December 31, 1995.
Cash Flows From Operating Activities
For 1996, cash provided from operating activities totaled $162.6 million, a
decrease of $102.5 million compared to 1995. This decrease is primarily
attributable to the $66.2 million decrease in net income as well as a higher
usage to fund working capital needs.
For 1995, cash provided from operating activities decreased by $51.7 million
compared to 1994. However, excluding the after tax effect of the 1994 Bessemer
and Lake Erie Railroad litigation gain of $107.9 million, cash provided by
operating activities increased by $56.2 million. The increase was primarily
attributable to increased sales and improvements in operating results.
Cash Flows From Investing Activities
Capital investments at December 31, 1996 and 1995 amounted to $128.6 million and
$215.4 million, respectively. The 1996 spending is primarily related to the 72
inch continuous galvanizing line upgrade and construction of the new coating
line, both at the Midwest Division, along with the completion of the coating
line at the Granite City Division. Capital expenditures during 1995 were
primarily for projects related to the Company's Granite City Division. These
projects included the construction of the Triple G coating line, the "B" blast
furnace reline and the hot strip mill modernization program.
Budgeted capital expenditures approximating $297.0 million, of which $99.4
million is committed at December 31, 1996, are expected to be made during 1997
and 1998. These budgeted capital expenditures relate primarily to the completion
of the new coating line and the completion of the 72 inch continuous galvanizing
line upgrade, both at the Midwest Division, as well as blast furnace repairs
scheduled at the Great Lakes Division.
Cash Flows From Financing Activities
During 1996, the Company utilized $56.7 million for financing activities, which
included scheduled repayments of debt, as well as dividend payments on the
Company's preferred stock. During the fourth quarter of 1996, a $6.5 million low
interest loan was issued to National Steel Pellet Company from the State of
Minnesota for the general upgrade of the mine's operations.
During the first quarter of 1995, the Company completed a primary offering of
6,900,000 million shares of Class B Common Stock. The issuance of this stock
generated net proceeds of $104.7 million, which was used along with cash from
operations during the third quarter of 1995 to prepay $133.3 million aggregate
principal amount of related party debt.
20
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT
<PAGE>
Weirton Liabilities and Preferred Stock
In connection with the Company's June 1990 recapitalization, the Company
received $146.6 million from FoxMeyer Health Corporation (collectively with its
subsidiaries "FOX"), which changed its name to Avatex Corporation in January
1997, in cash and recorded a net present value equivalent liability with respect
to certain released Weirton Benefit Liabilities, primarily retiree 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
each of 1996 and 1995, such cash payments were $15.4 million.
The Series B Redeemable 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 FOX
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
Redeemable Preferred Stock and, accordingly, such payments are expected to be
made in the form of releases of FOX from its obligations to indemnify the
Company for corresponding amounts of the remaining unreleased Weirton Benefit
Liabilities. Dividend and redemption payments with respect to the Series B
Redeemable Preferred Stock reduce the Company's cash flow, even though they are
paid in the form of a release of FOX 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 Redeemable Preferred Stock is less than the amount required to
satisfy FOX's then current indemnification obligation, FOX would be required to
pay such shortfall in cash to the Company. The Company's ability to fully
realize the benefits of FOX's indemnification obligations is necessarily
dependent upon FOX's financial condition at the time of any claim with respect
to such obligations.
On August 20, 1996, FOX filed a Form 10-Q for its quarter ended June 30, 1996 in
which it reported a writedown of $238.7 million in its investment in FoxMeyer
Drug Company, its principal operating subsidiary. Primarily as a result of this
writedown, the consolidated stockholders' equity of FOX was reported in its Form
10-Q for the quarter ended June 30, 1996 as a deficit of $88.4 million. At
December 31, 1996, this deficit was $83.0 million.
On August 27, 1996, most of FOX's operating subsidiaries (including FoxMeyer
Drug Company) filed for relief under Chapter 11 of the United States Bankruptcy
Code in the U.S. Bankruptcy Court in Delaware. Although FOX, the parent company,
was not included in the Chapter 11 filing, the Chapter 11 filing has caused the
Company to have increased concerns about FOX's ability to honor its remaining
indemnification obligations to the Company. FOX is subject to the informational
requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission.
21
Plan
Pace
Performance
Pride
-----------
<PAGE>
National Steel Corporation and Subsidiaries
Statements of Consolidated Income
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Dollars in Thousands, Except Per Share Amounts Years Ended December 31,
1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $2,954,033 $2,954,218 $2,700,273
Cost of products sold 2,619,469 2,527,521 2,353,970
Selling, general and
administrative 138,568 153,690 138,223
Depreciation, depletion and
amortization 144,413 145,452 141,869
Equity income of affiliates (9,763) (8,767) (5,464)
Unusual charges (credits) ---------- 5,336 (24,888)
- ---------------------------------------------------------------------------------------------------------------
Income from Operations 61,346 130,986 96,563
- ---------------------------------------------------------------------------------------------------------------
Other (income) expense
Interest and other financial income (7,103) (11,736) (5,542)
Interest and other financial costs 43,352 50,950 61,241
Other (3,732) -------- (110,972)
- ---------------------------------------------------------------------------------------------------------------
Income before Income Taxes and Extraordinary Item 28,829 91,772 151,836
- ---------------------------------------------------------------------------------------------------------------
Income tax credit (15,728) (13,651) (16,676)
- ---------------------------------------------------------------------------------------------------------------
Income before Extraordinary Item 44,557 105,423 168,512
Extraordinary item ---------- 5,373 --------
- ---------------------------------------------------------------------------------------------------------------
Net Income 44,557 110,796 168,512
Less preferred stock dividends 10,959 10,958 11,038
- ---------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ 33,598 $ 99,838 $ 157,474
===============================================================================================================
Per Share Data Applicable to Common Stock
- ---------------------------------------------------------------------------------------------------------------
Income before Extraordinary Item $ .78 $ 2.21 $ 4.33
Extraordinary Item ---------- .13 ----------
- ---------------------------------------------------------------------------------------------------------------
Net Income Applicable to Common Stock $ .78 $ 2.34 $ 4.33
===============================================================================================================
Weighted average shares outstanding
(in thousands) 43,288 42,707 36,367
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
22
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT ------------------------------------
<PAGE>
<TABLE>
<CAPTION>
National Steel Corporation and Subsidiaries
Consolidated Balance Sheets
- ---------------------------------------------------------------------------------------------------------------
Dollars in Thousands, Except Per Share Amounts December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS Current assets
Cash and cash equivalents $ 109,041 $ 127,616
Receivables, less allowances (1996--$21,320; 1995--$19,986) 279,889 316,662
Inventories 435,961 412,014
- ---------------------------------------------------------------------------------------------------------------
Total current assets 824,891 856,292
- ---------------------------------------------------------------------------------------------------------------
Investments in affiliated companies 65,399 59,885
Property, plant and equipment
Land and land improvements 241,576 234,693
Buildings 263,301 259,391
Machinery and equipment 3,159,720 3,046,130
- ---------------------------------------------------------------------------------------------------------------
Total property, plant and equipment 3,664,597 3,540,214
Less accumulated depreciation, depletion and amortization 2,209,079 2,071,511
- ---------------------------------------------------------------------------------------------------------------
Net property, plant and equipment 1,455,518 1,468,703
Deferred tax assets 151,500 129,900
Intangible pension asset 14,409 108,822
Other assets 35,338 44,277
- ---------------------------------------------------------------------------------------------------------------
Total Assets $ 2,547,055 $ 2,667,879
===============================================================================================================
LIABILITIES, Current liabilities
REDEEMABLE Accounts payable $ 234,892 $ 255,574
PREFERRED Salaries and wages 69,764 89,987
STOCK AND Withheld and accrued taxes 86,079 82,076
STOCKHOLDERS' Pension and other employee benefits 79,808 96,894
EQUITY Other accrued liabilities 63,101 68,373
Income taxes 2,424 3,912
Current portion of long term obligations 37,731 35,750
- ---------------------------------------------------------------------------------------------------------------
Total current liabilities 573,799 632,566
- ---------------------------------------------------------------------------------------------------------------
Long term obligations 323,550 339,613
Long term obligations to related parties 146,744 161,912
Long term pension liabilities 248,403 326,151
Postretirement benefits other than pensions 249,771 221,627
Other long term liabilities 349,338 364,423
Redeemable Preferred Stock--Series B 63,530 65,030
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity
Common Stock par value $.01:
Class A--authorized 30,000,000 shares; issued and outstanding
22,100,000 shares in 1996 and 1995 221 221
Class B--authorized 65,000,000 shares; issued and outstanding
21,188,240 shares in 1996 and 1995 212 212
Preferred Stock--Series A 36,650 36,650
Additional paid-in capital 465,359 465,359
Retained earnings 89,478 54,115
- ---------------------------------------------------------------------------------------------------------------
Total stockholders' equity 591,920 556,557
- ---------------------------------------------------------------------------------------------------------------
Total Liabilities, Redeemable Preferred Stock and
Stockholders' Equity $ 2,547,055 $ 2,667,879
===============================================================================================================
</TABLE>
See notes to consolidated financial statements.
23
Plan
Pace
Performance
Pride
-----------
<PAGE>
National Steel Corporation and Subsidiaries
Statements of Consolidated Cash Flows
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Dollars in Thousands YEARS ENDED DECEMBER 31,
1996 1995 1994
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income $ 44,557 $ 110,796 $ 168,512
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation, depletion and amortization 144,413 145,452 141,869
Carrying charges related to facility sales
and plant closings 22,385 24,307 24,337
Equity income of affiliates (9,763) (8,767) (5,464)
Dividends from affiliates 4,375 6,332 6,252
Long term pension liability (net of change in
intangible pension asset) 18,430 24,763 36,707
Postretirement benefits 28,145 42,120 22,072
Extraordinary item -- (5,373) --
Deferred income taxes (21,600) (28,600) (20,700)
Changes in working capital items:
Receivables 36,773 (23,793) (68,160)
Inventories (23,947) (44,002) 3,085
Accounts payable (20,682) (17,012) 30,292
Accrued liabilities (40,426) 50,936 (28,441)
Other (20,023) (12,063) 6,481
- -----------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 162,637 265,096 316,842
- -----------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Purchases of property, plant and equipment (128,621) (215,442) (137,519)
Proceeds from sale of assets 4,118 110 1,694
- -----------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (124,503) (215,332) (135,825)
- -----------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Exercise of stock options -- 169 211
Issuance of Class B Common Stock -- 104,734 --
Prepayment of related party debt -- (125,624) --
Debt repayments (35,750) (35,849) (83,845)
Borrowings 6,500 -- 87,950
Payment of released Weirton
Benefit Liabilities (15,360) (15,429) (16,614)
Payment of unreleased Weirton Liabilities
and their release in lieu of cash
dividends on Redeemable Preferred Stock--Series B (8,066) (7,099) (7,055)
Dividend payments on Preferred Stock--Series A (4,033) (4,032) (4,032)
Dividend payments on Redeemable Preferred Stock--Series B -- (964) (1,008)
- -----------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (56,709) (84,094) (24,393)
- -----------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents (18,575) (34,330) 156,624
Cash and cash equivalents at beginning of the year 127,616 161,946 5,322
- -----------------------------------------------------------------------------------------------
Cash and cash equivalents at end of the year $ 109,041 $ 127,616 $ 161,946
- -----------------------------------------------------------------------------------------------
Supplemental Cash Payment Information
Interest and other financing costs paid $ 42,487 $ 45,627 $ 60,342
Income taxes paid 16,525 22,229 5,338
- -----------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
24
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT -------------------------------------
<PAGE>
National Steel Corporation and Subsidiaries
Statements of Changes in Consolidated Stockholders' Equity
and Redeemable Preferred Stock--Series B
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
Dollars in Thousands Common Common Preferred Additional Retained Total Redeemable
Stock-- Stock-- Stock-- Paid-In Earnings Stockholders' Preferred
Class A Class B Series A Capital (Deficit) Equity Stock--Series B
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 $221 $143 $36,650 $360,314 $(207,366) $189,962 $68,030
Net Income 168,512 168,512
Amortization of excess of
book value over
redemption value of
Redeemable Preferred
Stock--Series B 1,500 1,500 (1,500)
Cumulative dividends on
Preferred Stock--
Series A and B (12,538) (12,538)
Exercise of stock options 211 211
Minimum pension liability 5,934 5,934
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 221 143 36,650 360,525 (43,958) 353,581 66,530
1994
Net Income 110,796 110,796
Amortization of excess of
book value over
redemption value of
Redeemable Preferred
Stock--Series B 1,500 1,500 (1,500)
Cumulative dividends on
Preferred Stock--
Series A and B (12,458) (12,458)
Issuance of Common
Stock--Class B 69 104,665 104,734
Exercise of stock options 169 169
Minimum pension liability (1,765) (1,765)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 221 212 36,650 465,359 54,115 556,557 65,030
1995
Net Income 44,557 44,557
Amortization of excess of
book value over
redemption value of
Redeemable Preferred
Stock--Series B 1,500 1,500 (1,500)
Cumulative dividends on
Preferred Stock--
Series A and B (12,459) (12,459)
Minimum pension liability 1,765 1,765
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, $221 $212 $36,650 $465,359 $ 89,478 $591,920 $63,530
1996
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
25
Plan
Pace
Performance
Pride
-----------
<PAGE>
National Steel Corporation and Subsidiaries
Notes to Consolidated Financial Statements
December 31, 1996
Note A--Significant Accounting Policies
Principles of Consolidation. The consolidated financial statements include the
accounts of National Steel Corporation and its majority owned subsidiaries (the
"Company"). Intercompany accounts and transactions have been eliminated.
Nature of Operations. The Company is a domestic manufacturer 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 primarily to
the automotive, construction 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. The Company's principal
markets are located throughout the United States.
In 1996 and 1995, no single customer accounted for more than 10% of net sales.
In 1994, a single customer accounted for approximately 10% of net sales. Sales
to the automotive market accounted for approximately 28% of total net sales in
1996 and 1995, and 29% in 1994. Concentration of credit risk related to trade
receivables is limited due to the large numbers of customers in differing
industries and geographic areas and management's credit practices.
Since 1986, the Company has had cooperative labor agreements with the United
Steelworkers of America (the "USWA") and other labor organizations, which
collectively represent 82.6% of the Company's employees. The Company entered
into a six year agreement with these labor organizations effective as of August
1, 1993 (the "1993 Settlement Agreement"). Additionally, the 1993 Settlement
Agreement contains a no-strike clause also effective through 1999. Scheduled
negotiations reopened in 1996, and were ultimately resolved utilizing the
arbitration provisions provided for in the 1993 Settlement Agreement without any
disruption to operations.
Cash Equivalents. Cash equivalents are short-term liquid investments which
consist principally of time deposits and commercial paper 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.
Based on replacement cost, inventories would have been approximately $168.8 and
$146.0 million higher than reported at December 31, 1996 and 1995, respectively.
During each of the last three years certain inventory quantity reductions caused
liquidations of LIFO inventory values. These liquidations did not have a
material effect on net income.
The Company's inventory as of December 31 is as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------
Inventories 1996 1995
<S> <C> <C>
Dollars in thousands
- --------------------------------------------------
Finished and semi-finished $387,216 $368,623
Raw materials and supplies 183,184 180,757
- --------------------------------------------------
570,400 549,380
Less LIFO reserve 134,439 137,366
- --------------------------------------------------
$435,961 $412,014
==================================================
</TABLE>
Investments in Affiliated Companies. 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, 1996 and
1995 amounted to $14.6 million and $8.9 million, respectively. (See Note M--
Investment in Iron Ore Company of Canada regarding its sale subsequent to year
end.)
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 $4.0 million in 1996, $6.3 million in 1995 and $3.7 million
in 1994. Amortization of capitalized interest amounted to $5.5 million in 1996
and $5.6 million in 1995 and 1994.
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. 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.
26
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT ------------------------------------
<PAGE>
Research and Development. Research and development costs are expensed when
incurred and are charged to cost of products sold. Expenses for 1996, 1995 and
1994 amounted to approximately $11.6 million, $9.8 million and $7.9 million,
respectively.
Financial Instruments. Financial instruments consist of cash and cash
equivalents, long term obligations (excluding capitalized lease obligations),
and the Series B Redeemable Preferred Stock. The fair value of these financial
instruments approximates their carrying amounts at December 31, 1996. At
December 31, 1996 and 1995, the Company had not invested in any derivative
financial instruments.
Earnings per Share. Earnings per share of common stock ("EPS") is computed by
dividing net income applicable to common stock by the sum of the weighted
average shares of common stock outstanding during the period plus common stock
equivalents, if dilutive.
Use of Estimates. Preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the amounts reported in
the consolidated financial statements and accompanying notes. Actual results
could differ from those estimates.
Reclassifications. Certain items in prior years have been reclassified to
conform with the current year presentation.
Note B -- Capital Structure and Primary Offering of Class B Common Stock
Ownership: On February 1, 1995, the Company completed a primary offering of
6,900,000 shares of Class B Common Stock, bringing the total number of shares of
Class B Common Stock issued and outstanding to 21,176,156 at that time. The
issuance of this stock generated net proceeds of $104.7 million, all of which
was used for related party debt reduction. Subsequent to the offering, NKK
Corporation (collectively with its subsidiaries "NKK"), through its ownership of
all 22,100,000 issued and outstanding shares of Class A Common Stock, holds
67.6% of the combined voting power of the Company. The remaining 32.4% of the
combined voting power is held by the public.
At December 31, 1996, the Company's capital structure was as follows:
Series A Preferred Stock
At December 31, 1996, 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. All outstanding Shares of
Series A Preferred Stock are owned by NKK. In 1996 and 1995, cash dividends of
approximately $4.0 million were paid on the Series A Preferred Stock.
Series B Redeemable Preferred Stock
At December 31, 1996, there were 10,000 shares of Series B Redeemable Preferred
Stock issued and outstanding and held by FoxMeyer Health Corporation
(collectively with its subsidiaries "FOX"), which changed its name to Avatex
Corporation in January 1997. Annual dividends of $806.30 per share on the Series
B Redeemable 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 FOX from its indemnification obligations with respect to the remaining
unreleased liabilities for certain employee benefits of its former Weirton Steel
Division employees (the "Weirton Benefit Liabilities"). The Series B Redeemable
Preferred Stock dividend permitted release and payment of $8.1 million and $7.1
million, respectively, of previously unreleased Weirton Benefit Liabilities
during 1996 and 1995, and a cash payment of $1.0 million during 1995, to
reimburse FOX for an obligation previously incurred in connection with the
Weirton Benefit Liabilities. There were no cash payments during 1996 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 Redeemable 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 Redeemable Preferred Stock redemption proceeds or otherwise
settled. If the Company does not meet its preferred stock dividend and
redemption obligations when due, FOX has the right to cause
27
Plan
Pace
Performance
Pride
-----------
6
<PAGE>
NKK to purchase the Company's preferred stock dividend and redemption
obligations. The Series B Redeemable Preferred Stock is nontransferable and
nonvoting. (See Note H--Weirton Liabilities.)
The Series B Redeemable 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 FOX. On January 1, 1998, the
redemption price for the Series B Redeemable Preferred Stock would be $62.2
million.
Periodic adjustments are made to retained earnings for the excess of the book
value of the Series B Redeemable 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 Redeemable
Preferred Stock, and accordingly, such payments are expected to be made in the
form of releases of FOX 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 Redeemable 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, 1996, 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 on the Class A Common Stock in 1996, 1995
or 1994.
Class B Common Stock
At December 31, 1996, the Company had 65,000,000 shares of $.01 par value Class
B Common Stock authorized and 21,188,240 shares issued and outstanding. No cash
dividends were paid on the Class B Common Stock in 1996, 1995 or 1994. All of
the issued and outstanding shares of Class B Common Stock are publicly traded.
28
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT ------------------------------------
<PAGE>
Note C--Long Term Obligations
Long term obligations were as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31,
1996 1995
Dollars in thousands
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
First Mortgage Bonds, 8.375% Series due August 1, 2006,
with general first liens on principal plants, properties, certain subsidiaries and an affiliated company. $ 75,000 $ 75,000
Vacuum Degassing Facility Loan, 10.336% fixed rate due in semi-annual installments through
2000, with a first mortgage in favor of the lenders. 26,375 32,357
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. 113,920 119,428
Coke Battery Loan, 7.54% fixed rate with semi-annual payments due through 2008.
Lenders are wholly-owned subsidiaries of NKK and unsecured. 161,912 177,080
Pickle Line Loan, 7.726% fixed rate due in equal semi-annual installments through 2007,
with a first mortgage in favor of the lender. 83,526 87,901
Capitalized lease obligations 24,965 28,485
Other 22,327 17,024
- ----------------------------------------------------------------------------------------------------------------------------------
Total long term obligations 508,025 537,275
Less long term obligations due within one year 37,731 35,750
- ----------------------------------------------------------------------------------------------------------------------------------
Long term obligations $470,294 $501,525
==================================================================================================================================
</TABLE>
Future minimum payments for all long term obligations and leases as of December
31 1996 are as follows:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------------
CAPITALIZED OPERATING OTHER
LEASE LEASES LONG TERM
OBLIGATIONS
Dollars in thousands
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 $ 6,712 $ 61,737 $ 33,792
1998 6,712 59,920 35,484
1999 6,712 52,006 38,797
2000 6,712 48,299 33,721
2001 6,712 37,273 33,729
Thereafter -------- 147,762 307,537
- ----------------------------------------------------------------------------------------------------------------------------------
Total Payments $33,560 $406,997 $483,060
===================================================================================================================================
Less amount representing interest 8,595
Less current portion of obligation under capitalized lease 3,939
- ---------------------------------------------------------------------------------------------
Long term obligation under capitalized lease $21,026
=============================================================================================
</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
and expires in 2001. Upon expiration, the Company has the option to extend the
leases or purchase the equipment at fair market value. 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 totaled $72.2 million in 1996, $71.8 million
in 1995 and $70.4 million in 1994.
The Company borrowed a total of $350.0 million over a three year period ended in
1993 from a United States subsidiary of NKK for the rebuild of the No. 5 coke
oven battery servicing the Great Lakes Division. During 1995, the Company
utilized proceeds from the 6.9 million share primary offering, along with other
cash funds, to prepay
- --------------------------------------------------------------------------------
29
Plan
Pace
Performance
Pride
- -----------
<PAGE>
$133.3 million aggregate principal amount of the forementioned loan. During
1996, the Company made principal payments of $15.2 million, and recorded $12.1
million in interest expenses, on the coke battery loan. During 1995, the
principal and interest payments on the coke battery loan totaled $152.9 million
and $19.7 million, respectively. The 1995 principal payments includes the $133.3
prepayment mentioned above. Accrued interest on the loan as of December 31, 1996
and 1995 was $4.7 million and $5.1 million, respectively. Additionally, deferred
financing costs related to the loan were $2.3 million and $2.5 million,
respectively, as of December 31, 1996 and 1995. (See Note I--Nonrecurring and
Extraordinary Items.)
CREDIT ARRANGEMENTS
During July 1996, the Company entered into a new $100.0 million credit facility
and a new $50.0 million credit facility, which will expire in May 2000 and July
1997, respectively, both of which are secured by the company's inventories (the
"Inventory Facilities"). No amounts have been borrowed against the Inventory
Facilities.
The Company's credit arrangements also consist of a Receivables Purchase
Agreement with commitments of up to $200.0 million. As of December 31, 1996, no
funded participation interests had been sold under the facility, although $89.8
million in letters of credit had been issued. With respect to the pool of
receivables at December 31, 1996, after reduction for letters of credit
outstanding, the amount of participating interest eligible for sale was $88.7
million. During 1996, the eligible amount ranged from $59.3 million to $110.4
million. During July 1996, the Company amended the Receivables Purchase
Agreement extending the expiration date May 2001.
Various debt and certain lease agreements include restrictions on the amount of
stockholders' equity available for the payment of dividends. Under the most
restrictive of these covenants, stockholders' equity in the amount of $124.7
million was free of such limitations at December 31, 1996. The Company is
currently in compliance with all material covenants of, and obligations under,
the Receivables Purchase Agreement, the Inventory Facilities and other debts
instruments.
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 sixty consecutive months 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 sixty consecutive months 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 increased the long term rate of return for funding
purposes from 8.5% in 1995 to 9.25% in 1996. The Company's contributions to the
pension trust for 1996 and 1995 were $59.9 million and $8.9 million,
respectively. As a result of recent federal legislation, the Company expects
minimum pension contributions for the 1997 plan year to increase to
approximately $93.0 million .
In 1996, the Company elected to change the measurement date for pension from
December 31 to September 30, in order to provide for more timely information.
The change in measurement date no effect on 1996 expense and had an immaterial
impact on the funded status of the plans at December 31, 1996.
Pension expense and related actuarial assumptions utilized are summarized below:
- --------------------------------------------------------------------------------
1996 1995 1994
Dollars in thousands
- --------------------------------------------------------------------------------
Assumptions:
Discount rate 7.25% 8.75% 7.50%
Return on assets 9.25% 8.50% 8.50%
Average rate of compensation
increase 4.70% 4.70% 4.55%
Pension expense:
Service cost 25,989 $ 19,143 $ 24,713
Interest cost 11,364 110,683 104,320
Actual return on plan assets (82,362) (234,792) 51,240
Net amortization and deferral 6,930 169,756 (114,855)
- --------------------------------------------------------------------------------
Net pension expense 61,921 64,790 65,418
Special termination credits -- -- (17,372)
- --------------------------------------------------------------------------------
TOTAL PENSION EXPENSE $ 61,921 $ 64,790 $ 48,046
================================================================================
30
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT -------------------------------------
<PAGE>
The funded status of the Company's plans at September 30, 1996 and December 31,
1995 along with the actuarial assumptions utilized are as follows:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
1996 1995
Dollars in thousands
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assumptions:
Discount rate 8.00% 7.25%
Average rate of compensation increase 4.70% 4.70%
- ------------------------------------------------------------------------------------------------------------------
Funded Status:
Accumulated benefit obligation ("ABO") including vested benefits of
$1,249,551 and $1,328,302 for 1996 and 1995, respectively $1,364,742 $1,441,579
Effect of future pensionable earnings increases 99,502 116,474
- ------------------------------------------------------------------------------------------------------------------
Projected benefit obligation ("PBO") 1,464,244 1,558,053
Plans' assets at fair market value 1,181,708 1,132,077
- ------------------------------------------------------------------------------------------------------------------
PBO in excess of plan assets at fair market value 282,536 425,976
Unrecognized transition obligations (47,334) (56,770)
Unrecognized net gain (loss) 115,603 (16,613)
Unrecognized prior service cost (95,556) (106,694)
Pension contributions October through December 1996 (7,321) --
Adjustment required to recognize minimum pension liability 14,409 110,587
- ------------------------------------------------------------------------------------------------------------------
Accrued pension liability 262,337 356,486
Less pension liability due within one year 13,934 30,335
- ------------------------------------------------------------------------------------------------------------------
Long term pension liability at December 31 $ 248,403 $ 326,151
==================================================================================================================
</TABLE>
As a result of an increase in long term interest rates at September 30, 1996,
the Company increased the discount rate used to calculate the actuarial present
value of its ABO by 75 basis points to 8.0% from the rate used at December 31,
1995. This is the primary reason for the decrease in the ABO.
The adjustment required to recognize the minimum pension liability of $14.4
million and $110.6 million at December 31, 1996 and 1995, respectively,
represents the excess of the ABO over the fair value of plan assets, including
unfunded accrued pension cost, in underfunded plans. The decrease in the minimum
pension liability is primarily attributable to the increase in the discount
rate.
At September 30, 1996, the Company's pension plans' assets of $1.2 billion were
comprised of approximately 58% equity investments, 37% fixed income investments
and 5% in real estate investments.
Note E--Postretirement Benefits Other Than Pensions
The Company provides contributory healthcare 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 has elected to amortize its transition obligation over 20
years, 16 of which remain at December 31, 1996.
In 1996, the Company elected to change the measurement date for OPEB from
December 31 to September 30, in order to provide for more timely information.
The change in measurement date had no effect on 1996 expense and had an
immaterial impact on the funded status of the plan at December 31, 1996.
- --------------------------------------------------------------------------------
31
Plan
Pace
Performance
Pride
-----------
<PAGE>
The components of postretirement benefit cost and related actuarial assumptions
were as follows:
- --------------------------------------------------------------------------------
1996 1995 1994
Dollars in thousands
- --------------------------------------------------------------------------------
Assumptions:
Discount rate 7.25% 8.75% 7.75%
Health care trend rate 7.20% 7.80% 10.10%
Postretirement benefit cost:
Service cost $12,546 $10,573 $13,737
Interest cost 46,241 52,700 53,577
Amortization of
transition obligation 26,274 26,274 26,510
Other (4,887) (5,003) (2,162)
- --------------------------------------------------------------------------------
Net periodic benefit cost 80,174 84,544 91,662
Special termination credits ------ ------ (4,081)
- --------------------------------------------------------------------------------
The following represents the plans' funded status as of September 30, 1996 and
December 31, 1995, reconciled with amounts recognized in the consolidated
balance sheet and related actuarial assumptions:
- --------------------------------------------------------------------------------
1996 1995
Dollars in thousands
- --------------------------------------------------------------------------------
Assumptions:
Discount rate 8.00% 7.25%
Health care trend rate 6.60% 7.20%
Accumulated postretirement
benefit obligation ("APBO")
Retirees $408,228 $ 525,567
Fully eligible active participants 76,945 85,871
Other active participants 108,823 107,388
- --------------------------------------------------------------------------------
Total 593,996 718,826
Plan assets at fair value 48,287 33,201
- --------------------------------------------------------------------------------
APBO in excess of plan assets 545,709 685,625
Unrecognized transition obligation (420,381) (446,654)
Unrecognized net gain (loss) 148,583 (7,344)
Claims and contributions October
through December 1996 (14,140) -------
- --------------------------------------------------------------------------------
Accrued postretirement
liability 259,771 231,627
Less postretirement benefit
liability due within one year 10,000 10,000
- --------------------------------------------------------------------------------
Long term postretirement
benefit liability at December 31 $249,771 $ 221,627
- --------------------------------------------------------------------------------
As a result of the increase in the long term interest rates at September 30,
1996, the Company increased the discount rate used to calculate the actuarial
present value of its APBO by 75 basis points to 8.0% from the rate used at
December 31, 1995. This is the primary reason for the decrease in the APBO. The
assumed healthcare cost trend rate of 5.0% in 2002 and thereafter. A 1.0%
increased the APBO at September 30, 1996, and postretirement benefit cost for
1996 by $55.3 million and $6.6 million, respectively.
In connection with the 1993 Settlement Agreement between the Company and the
USWA, the Company began prefunding the OPEB obligation with respect to USWA
represented employees beginning in 1994. Pursuant to the terms of the 1993
Settlement Agreement, a Voluntary Employee Benefit Association trust (the "VEBA
Trust") was established. Under the terms of the agreement, the Company agreed to
contribute a minimum of $10.0 million annually and, under certain circumstances,
additional amounts calculated as set forth in the 1993 Settlement Agreement. In
1996 and 1995, the Company contributed $15.5 million and $10.0 million,
respectively, to the VEBA Trust. VEBA Trust assets of $48.3 million at September
30, 1996, were comprised of 70.0% equity investments and 30.0% fixed income
investments.
Note F--Other Long Term Liabilities
Other long term liabilities at December 31 consisted of the following:
- --------------------------------------------------------------------------------
1996 1995
Dollars in thousands
- --------------------------------------------------------------------------------
Deferred gain on sale leasebacks $ 21,503 $ 24,179
Insurance and employee benefits
(excluding pensions and OPEB) 132,599 128,179
Plant Closings 52,681 61,521
Released Weirton Benefit Liabilities 122,697 121,373
Other 19,858 29,171
- --------------------------------------------------------------------------------
Total other long term liabilities $349,338 $364,423
- --------------------------------------------------------------------------------
32
[LOGO OF N NATIONAL STEEL] 1996 ANNUAL REPORT ---------------------------------
<PAGE>
Note G--Income Taxes
Deferred income taxes reflect the net 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 deferred
tax assets and liabilities at December 31, are as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
1996 1995
Dollars in thousands
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Reserves $152,000 $156,900
Employee benefits 209,500 198,400
Net operating loss ("NOL")
carryforwards 70,600 67,100
Leases 12,700 17,500
Federal tax credits 26,800 13,100
Other 28,000 22,600
- --------------------------------------------------------------------------------
Total deferred tax assets 499,600 475,600
Valuation allowance (125,500) (159,400)
- -------------------------------------------------------------------
Deferred tax assets net of
valuation allowance 374,100 316,200
- --------------------------------------------------------------------------------
Deferred tax liabilities
Book basis of property in
excess of tax basis (168,200) (138,500)
Excess tax LIFO over book (40,400) (29,100)
Other (14,000) (18,700)
- --------------------------------------------------------------------------------
Total deferred tax liabilities (222,600) (186,300)
- --------------------------------------------------------------------------------
Net deferred tax assets after
valuation allowance $ 151,500 $129,900
================================================================================
</TABLE>
In 1996, 1995, and 1994, the Company determined that it was more likely than not
that sufficient future taxable income would be generated and tax planning
strategies are available to justify increasing the net deferred tax assets after
the valuation allowance. Accordingly, the Company recognized additional deferred
tax assets of $21.6 million, $28.6 million and $20.7 million in 1996, 1995 and
1994, respectively.
Significant components of the provision for income taxes are as follows:
<TABLE>
- --------------------------------------------------------------------------------
1996 1995 1994
Dollars in thousands
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Current taxes payable:
Federal (alternative
minimum tax) $ 5,200 $ 8,584 $ 4,016
State and foreign 672 6,365 8
Deferred taxes (21,600) (28,600) (20,700)
- --------------------------------------------------------------------------------
Total tax credit $(15,728) $(13,651) $(16,676)
================================================================================
</TABLE>
The reconciliation of income tax computed at the federal statutory tax rates to
the recorded total tax credit is as follows:
<TABLE>
- --------------------------------------------------------------------------------
1996 1995 1994
Dollars in thousands
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at federal
statutory rates $ 10,100 $ 32,100 $ 53,100
Benefits of operating
loss carryforward
Temporary deductible ( 6,000) (58,400) (84,100)
differences for which
(benefit)
no benefit was
recognized (net) (27,800) 9,700 20,600
Depletion (1,900) (4,300) ------
Dividend exclusion (1,200) (1,800) (1,600)
Alternative minimum tax 5,200 8,584 4,016
Other 5,872 465 (8,692)
- --------------------------------------------------------------------------------
Total tax credit $(15,728) $(13,651) $(16,676)
================================================================================
</TABLE>
At December 3, 1996, the Company had unused NOL carryforwards of approximately
$196.7 million, which expire as follows: $79.7 million in 2007 and $117.0
million in 2008.
At December 31, 1996, the Company had unused alternative minimum tax credit
carryforwards of approximately $17.9 million which may be applied to offset its
future regular federal income tax liabilities. These tax credits may be carried
forward indefinitely.
33
Plan
Pace
Performance
Pride
- -----------
<PAGE>
Note H--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, 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, FOX agreed, as
between FOX and the Company, to provide in advance sufficient funds for payment
and discharge of, and to indemnify the 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 FOX from indemnification of
$146.6 million of certain defined Weirton Benefit Liabilities. FOX 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 FOX from an additional $67.8 million of
previously unreleased Weirton Benefit Liabilities in connection with an early
redemption of 10,000 shares of Series B Redeemable Preferred Stock.
During the first quarter of 1994, FOX sold all of its 3,400,000 shares of Class
B Common Stock. In connection with the initial public stock offering, the
Company entered into an agreement (the "Definitive Agreement") with FOX and NKK
which amends certain terms and conditions of the Recapitalization Agreement.
Pursuant to the Definitive Agreement, FOX paid the Company $10.0 million as an
unrestricted prepayment for environmental obligations which may arise after such
prepayment and for which FOX has previously agreed to indemnify the Company.
Such prepayment accrues interest at a variable interest rate which is based upon
the prime rate. The interest rate on such prepayment was 10.75% at December 31,
1996. The Company is required to repay to FOX portions of the $10.0 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. FOX retains
responsibility to indemnify the Company for remaining environmental liabilities
arising after such prepayment and in excess of $10.0 million (as reduced by any
above described repayments to FOX). At December 31, 1996 and 1995, the balance
of the prepayment recorded in accrued liabilities totaled $8.6 million and $7.2
million, respectively. The failure of FOX to satisfy its indemnity obligations
in excess of the $10.0 million prepayment could have a material adverse effect
on the Company's liquidity or results of operations. The Company's ability to
fully realize the benefits of FOX's indemnification beyond the $10 million
prepayment is necessarily dependent upon FOX's financial condition at the time
of any claim with respect to such obligations.
On August 20, 1996, FOX filed a Form 10-Q for its quarter ended June 30, 1996 in
which it reported a writedown of $238.7 million in its investment in FoxMeyer
Drug Company, its principal operating subsidiary. Primarily as a result of this
writedown, the consolidated stockholders' equity of FOX was reported as a
deficit of $88.4 million. At December 31, 1996, this deficit was $83.0 million.
On August 27, 1996, most of FOX's operating subsidiaries (including FoxMeyer
Drug Company) filed for relief under Chapter 11 of the United States Bankruptcy
Code in the U.S. Bankruptcy Court in Delaware. Although FOX, the parent company,
was not included in the Chapter 11 filing, the Chapter 11 filing has caused the
Company to have increased concerns about FOX's ability to honor its remaining
indemnification obligations to the Company. FOX is subject to the informational
requirements of the Securities Exchange Act of 1934 and, in accordance
therewith, files reports and other information with the Securities and Exchange
Commission.
At December 31, 1996, the net present value of the released Weirton Benefit
Liabilities, based upon a contractual discount factor of 12.0% per annum, is
$140.7 million. FOX continues to indemnify the Company for the remaining
unreleased Weirton Benefit Liabilities and other liabilities. The Company is
indemnified by FOX for such remaining liabilities and, therefore, they are not
recorded in the 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 $88.6 million with respect to the
Series B Redeemable Preferred Stock and (ii) other contingent liabilities, such
as environmental liabilities, that are not currently estimable.
34
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT ------------------------------------
<PAGE>
Note 1--Nonrecurring and
Extraordinary Items
1995--During 1995, the Company's Statement of Consolidated Income reflected two
nonrecurring items. An unusual charge of $5.3 million was recorded during the
first quarter pursuant to the finalization of a restructuring plan that the
Company began in 1994 related to the salaried nonrepresented workforce. In
addition, a $5.4 million extraordinary item was recorded during the third
quarter in connection with the prepayment of $133.3 million aggregate principal
amount of related party debt associated with the No. 5 coke oven battery serving
the Great Lakes Division.
1994--During 1994, the Company recorded a net unusual credit of $24.9 million.
An unusual charge of $34.2 million was recorded in connection with the
restructuring of the salaried nonrepresented workforce. This charge was
entirely offset by a $59.1 million credit recorded as a result of the reopening
of National Steel Pellet Company ("NSPC"). NSPC had previously been idled in
1993 following a strike by the USWA.
Additionally, during 1994 the United States Supreme Court denied the Bessemer
and Lake Erie Railroad (the "B&LE") petition to hear the appeal in the Iron Ore
Antitrust Litigation, thus sustaining a judgment in favor of the Company against
the B&LE. Accordingly, the Company received $111.0 million in satisfaction of
this judgment, which was recorded as other income.
Note J--Related Party Transactions
Summarized below are transactions between the Company and NKK, and the Company's
affiliated companies accounted for using the equity method.
The Company had U.S. dollar denominated borrowings outstanding with an NKK
affiliate totaling $161.9 million and $177.1 million as of December 31, 1996 and
1995, respectively. (See Note C--Long Term Obligations and Note I--Nonrecurring
and Extraordinary Items.) Accounts receivable with related parties totaled $3.2
million at December 31, 1995. Accounts payable with related parties totaled $2.5
million at December 31, 1995. There were no related party accounts receivable or
payable balances at December 31, 1996.
Effective May 1, 1995, the Company entered into an Agreement for the Transfer of
Employees (superseding a prior arrangement) with NKK Corporation. The agreement
was unanimously approved by all directors of the Company who were not then, and
never have been, employees of NKK. Pursuant to the terms of the agreement,
technical and business advice is provided through NKK employees who are
transferred to the employ of the Company. The Company has agreed to reimburse
NKK for the costs and expenses incurred by NKK in connection with the transfer
of the employees. The total amount of reimbursable expenses which the Company
is obligated to pay was capped at $11.7 million for the initial term of the
agreement, which ran from May 1, 1995 through December 31, 1996. The agreement
can be extended from year to year thereafter if approved by NKK and by a
majority of those directors of the Company who are not then, and have never
been, employees of NKK. The agreement has been extended for 1997, with the
total amount of reimbursable expenses capped at $7.0 million. The Company
expensed $4.2 million and $5.1 million under this contract in 1996 and 1995,
respectively.
In both 1996 and 1995, cash dividends of approximately $4.0 million were paid on
the Series A Preferred Stock. Accrued dividends of $0.6 million were recorded
as of December 31, 1996 and 1995 related to the Series A Preferred Stock.
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 $111.4 million in 1996, $86.5 million in 1995
and $87.0 million 1994. Additional expenses were incurred in connection with
the operation of a joint venture agreement. (See Note L--Other Commitments and
Contingencies and Note M--Investment in Iron Ore Company of Canada.) Accounts
payable at December 31, 1996 and 1995 included amounts with affiliated companies
accounted for by the equity method of $18.6 million and $19.0 million,
respectively.
Note K--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. Due to the possibility of future changes in circumstances or
regulatory requirements, the amount and timing of future environmental
expenditures could vary substantially from those currently anticipated.
<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 of 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 Company has accrued an
aggregate liability of approximately $4.4 million and $2.4 million for these
items at December 31, 1996 and 1995, respectively.
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 FOX is required
to indemnify the Company ("FOX Environmental Liabilities"--See Note H--Weirton
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 informatio to estimate its potential liability, the
Company has accrued an aggregate liability for CERCLA claims of approximately
$5.1 million and $4.6 million as of December 31, 1996 and 1995, respectively.
The Company has also recorded 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. The Company has
recorded an aggregate liability of approximately $12.1 million and $11.6 million
at December 31, 1996 and 1995, respectively, relating to these properties.
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.
Note L--Other Commitments and Contingencies
The Company has an agreement providing for the availability of raw material
loading and docking facilities through 2002. Pursuant to this agreement, the
Company must make advance freight payments if shipments fall below the contract
requirements. At December 31, 1996, the maximum amount of such payments, before
giving effect to certain credits provided in the agreement, totaled
approximately $12 million, or $2 million per year. During the three years ended
December 31, 1996, no advance freight payments were made as the Company met all
of the contract requirements. The Company anticipates meeting the specified
contract requirements in 1997.
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 1993, 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 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.
The Company has a 50% interest in a joint venture with an unrelated third party.
The joint venture, Double G Coatings Company, L.P. ("Double G"), constructed a
$90 million steel coating facility near Jackson, Mississippi to produce
galvanized and Galvalume(R) steel sheet for the construction market, which
commenced production in May 1994. the Company is committed to utilize and pay a
tolling fee in
36
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT ------------------------------------
<PAGE>
connection with 50% of the available line-time at the facility through May 10,
2004. Double G provided a first mortgage on its property, plant and equipment
and the Company has separately guaranteed $24.1 million of Double G's debt as of
December 31, 1996.
The Company has agreements to purchase 1.8 million gross tons of iron ore
pellets in 1997 from the Iron Ore Company of Canada ("IOC") for approximately
$65.5 million. Beginning in 1998, the Company's firm obligation to purchase
iron ore pellets from IOC is .9 million gross tons per year through the year
2004. Other potential commitments with IOC consist of the purchase of an
additional .5 million gross tons per year, based upon National Steel's
production requirements, and are effective through 1999. (See Note M-Investments
in Iron Ore Company of Canada.) The Company has also agreed to purchase its
proportionate share of the limestone production from another affiliated company,
which will approximate $2 million per year. These agreements contain pricing
provisions that are expected to approximate market price at the time of
purchase.
The Company has entered into certain commitments with suppliers which are of a
customary nature within the steel industry. Commitments have been entered into
relating to future expected requirements for such commodities as coal, coke,
natural and industrial gas, electricity and certain transportation and other
services. Commitments have also been made relating to the supply of pulverized
coal and coke briquettes. Certain commitments contain provisions which require
that the Company "take or pay" for specified quantities without regard to actual
usage for periods of up to 15 years. In 1997 and 1998 the Company has
commitments with "take or pay" or other similar commitment provisions for
approximately $200.0 million and $190.0 million, respectively.
The Company believes that production requirements will be such that consumption
of the products or services purchased under these commitments will occur in the
normal production process. The Company also believes that pricing mechanisms
in the contracts are such that the products or services will approximate the
market price at the time of purchase.
The Company is guarantor of specific obligations of ProCoil Corporation, an
affiliated company, approximating $8.1 million at December 31, 1996.
NOTE M--INVESTMENT IN IRON ORE COMPANY OF CANADA
Summarized financial information for IOC, an affiliated company accounted for by
the equity method, is presented below:
- --------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31,
- --------------------------------------------------------------------------------
1996 1995 1994
Dollars in thousands
- --------------------------------------------------------------------------------
Current assets $160,440 $151,868 $151,480
Property, plant and
equipment and
other assets 337,812 331,881 354,857
Current liabilities 153,071 115,178 108,689
Long term obligations
and other liabilities 99,652 116,168 141,268
Sales and operating
revenues 461,917 434,357 444,519
Gross profit 112,479 111,367 87,729
Net income 41,923 44,869 30,668
Company's equity in:
Net assets 53,353 54,847 55,711
Net income 9,110 9,750 6,664
Ownership percentage 27.73% 21.73% 19.96%
- --------------------------------------------------------------------------------
On January 31, 1997, the Company entered into a definitive agreement with North
Limited ("North") and Bethlehem Steel Corporation ("BSC"), pursuant to which the
Company and BSC will sell to North their respective minority interests in IOC.
The Company, which owns 21.73% of the shares of IOC, will receive approximately
$85 million in proceeds in exchange for its shares and realize an after-tax gain
of approximately $25 million. This transaction is subject to approval by the
other shareholders of IOC and customary governmental approvals and is expected
to occur late in the first quarter of 1997. The Company will continue to
purchase iron ore from IOC pursuant to long-term contracts. (See Note L--Other
Commitments and Contingencies).
37
Plan
Pace
Performance
Pride
-----------
<PAGE>
Note N--Long Term Incentive Plan
The Long Term Incentive Plan established in 1993 authorized the granting of
options for up to 3,400,000 shares of Class B Common Stock to certain executive
officers and other key employees of the Company. The Non-Employee Directors
Stock Option Plan, also established in 1993, has authorized the grant of options
for up to 100,000 shares of Class B Common Stock to certain non-employee
directors. The exercise price of the options equals the fair market value of the
Common Stock on the date of the 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 adopted Statement of Financial Accounting Standards No. 123 ("SFAS
123") "Accounting for Stock-Based Compensation" during 1996. SFAS 123 required
the Company to either adopt a fair value based method of expense recognition for
all stock compensation based awards, or provide pro forma net income and
earnings per share information as if the recognition and measurement provisions
of SFAS 123 had been adopted. The Company decided to account for its stock based
compensation awards following the provisions of Accounting Principles Board
Opinion No. 25 ("APB 25"). APB 25 requires compensation expense to be recognized
only if the market price of the underlying stock exceeds the exercise price on
the date of grant. The Company's stock based awards consist of stock options
with an exercise price equal to market price on the date of grant. As such, the
Company has not recorded compensation expense in connection with these awards.
In addition, the effect of applying the SFAS 123 fair value method to the
Company's stock-based awards results in net income and EPS that are not
materially different from amounts reported.
A reconciliation of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------
Exercise Price
Number of (Weighted
Options Average)
- --------------------------------------------------------
<S> <C> <C>
Balance outstanding at
January 1, 1994 584,168 $13.99
Granted 304,500 14.00
Exercised (15,056) 14.00
Forfeited (155,139)
- --------------------------------------------------------
Balance outstanding at
December 31, 1994 718,473 14.00
- --------------------------------------------------------
Granted 427,500 15.02
Exercised (12,084) 14.00
Forfeited (165,973)
- --------------------------------------------------------
Balance outstanding at
December 31, 1995 967,916 14.38
- --------------------------------------------------------
Granted 314,000 12.96
Exercised ----------
Forfeited (122,181)
- --------------------------------------------------------
Balance outstanding at
December 31, 1996 1,159,735 $14.03
========================================================
</TABLE>
Exercisable stock options as of December 31, 1996, 1995 and 1994 were 457,401;
324,249; and 213,973, respectively.
Outstanding stock options did not enter into the determination of EPS in 1996,
1995, or 1994 as their dilutive effect was less than 3%.
38
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT ------------------------------------
<PAGE>
Note O--Quarterly Results of Operations (Unaudited)
Following are the unaudited quarterly results of operations for the years 1996
and 1995. Reference should be made to Note I--Nonrecurring and Extraordinary
Items concerning adjustments affecting the first and third quarters of 1995.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
1996
- ------------------------------------------------------------------------------------------------
Three Months Ended, March 31 June 30 September 30 December 31
<S> <C> <C> <C> <C>
----------------------------------------------------------
Dollars in thousands, except per share amounts
- ------------------------------------------------------------------------------------------------
Net Sales $682,143 $769,481 $735,858 $766,551
Gross Profit 16,935 45,405 62,351 65,460
Net Income (loss) (15,575) 10,391 24,289 25,452
- ------------------------------------------------------------------------------------------------
Per share earnings applicable to
Common Stock
Net Income (loss) $ (.42) $ .18 $ .50 $ .52
================================================================================================
</TABLE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
1995
- -----------------------------------------------------------------------------------------------
Three Months Ended, March 31 June 30 September 30 December 31
----------------------------------------------------------
<S> <C> <C> <C> <C>
Dollars in thousands, except per share amounts
- ------------------------------------------------------------------------------------------------
Net Sales $752,676 $736,611 $724,798 $740,133
Gross Profit 97,127 80,459 53,632 50,027
Unusual charges 5,336 -------- -------- --------
Income before extraordinary item 44,694 30,317 15,608 14,804
Extraordinary item -------- -------- 5,373 --------
Net Income 44,694 30,317 20,981 14,804
- ------------------------------------------------------------------------------------------------
Per share earnings applicable to
Common Stock
Income before extraordinary item $ 1.02 $ .64 $ .30 $ .28
Extraordinary item -------- -------- .12 --------
- ------------------------------------------------------------------------------------------------
Net Income $ 1.02 $ .64 $ .42 $ .28
================================================================================================
</TABLE>
39
Plan
Pace
Performance
Pride
- -----------
<PAGE>
Report of Ernst & Young LLP Independent Auditors to the 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, 1996 and 1995,
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, 1996. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of the Company at
December 31, 1996 and 1995, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1996, in conformity with generally accepted accounting principles.
Fort Wayne, Indiana
January 23, 1997, except for Note M,
as to which the date is January 31, 1997.
Management's Responsibility for Financial Statements
Management is responsible for the reliability of the consolidated financial
statements and related notes, which have been prepared in conformity with
generally accepted accounting principles and include amounts based upon our
estimates and judgments, as required. The financial statements have been
audited in accordance with generally accepted auditing standards and reported
upon by our independent auditors, Ernst & Young LLP, who were given free access
to all financial records and related data, including minutes of the meetings of
the Board of Directors. We believe the representations made to the independent
auditors were valid and appropriate.
National Steel Corporation maintains a system of internal accounting controls
designed to provide reasonable assurance for the safeguarding of assets and
reliability of financial records. The system is subject to review through its
internal audit function, which monitors and reports on the adequacy of and
compliance with the internal control system and takes appropriate action to
address control deficiencies and other opportunities for improving the system as
they are identified. Although no cost effective internal control system will
preclude all errors and irregularities, management believes that through the
careful selection of employees, the division of responsibilities and the
application of formal policies and procedures, National Steel Corporation has an
effective and responsive system of internal accounting controls.
The Audit Committee of the Board of Directors, which is composed solely of
non-employee directors, provides oversight to the financial reporting process
through periodic meetings. The Audit Committee is responsible for recommending
to the Board of Directors, subject to approval by the Board and ratification by
stockholders, the independent auditors to perform audit and related work for the
Company, for reviewing with the independent auditors the scope of their audit of
the Company's financial statements, for reviewing with the Company's internal
auditors the scope of the plan of audit, for meeting with the independent
auditors and the Company's internal auditors to review the results of their
audits and the Company's internal accounting controls, and for reviewing other
professional services being performed for the Company by the independent
auditors. Both the independent auditors and the Company's internal auditors have
free access to the Audit Committee.
Management believes the system of internal accounting controls provides
reasonable assurance that business activities are conducted in a manner
consistent with the Company's high standards of business conduct, and the
Company's financial accounting system contains the integrity and objectivity
necessary to maintain accountability for assets and to prepare National Steel
Corporation's financial statements in accordance with generally accepted
accounting principles.
OSAMU SAWARAGI WILLIAM E. MCDONOUGH
Chairman of the Board and Acting Chief Financial
Chief Executive Officer Officer and Treasurer
40
[LOGO NATIONAL STEEL] 1996 ANNUAL REPORT --------------------------------------
<PAGE>
CORPORATE INFORMATION
HEADQUARTERS
4100 Edison Lakes Parkway
Mishawaka, Indiana 46545-3440
Telephone: (219) 273-7000
Telefax: (219) 273-7869
ANNUAL MEETING
The Annual Stockholders' Meeting of National Steel Corporation will be held
April 21, 1997. Formal notice of the meeting and proxy materials will be
mailed to stockholders.
LISTING OF COMMON STOCK
Class B Common Stock (NS)
New York Stock Exchange
INDEPENDENT AUDITORS
Ernst & Young LLP
TRANSFER AGENT AND REGISTRAR
Chemical Mellon Shareholders Services
Pittsburgh, Pennsylvania
ADDITIONAL REPORTS
More detailed information on the Company's business is available in its Form
10-K filed annually with the Securities and Exchange Commission. Stockholders
desiring a copy of this report for the most recent fiscal year may obtain it,
without charge, by written request to the Director, Investor Relations, at the
Company's headquarters.
COMMON STOCK INFORMATION
The following table sets forth for the periods indicated the high and low
sales prices of the Class B Common Stock on a quarterly basis as reported on
the New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
PERIOD HIGH LOW
- --------------------------------------------------------------------------------
1996
<S> <C> <C>
First Quarter $ 15-1/4 $ 12-1/4
Second Quarter 14-1/2 10-1/4
Third Quarter 11-7/8 8-1/2
Fourth Quarter 11-1/2 8
- --------------------------------------------------------------------------------
1995
First Quarter $ 18-7/8 $ 14-5/8
Second Quarter 16-1/8 12-5/8
Third Quarter 17-5/8 14-1/2
Fourth Quarter 15-1/2 11-3/4
- --------------------------------------------------------------------------------
</TABLE>
As of December 31, 1996, there were approximately 184 registered holders of
Class B Common Stock. (See Note B--Capital Structure and Primary Offering 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 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 Redeemable Preferred Stock,
and must be matched by a payment into the VEBA Trust, the amount of which is
calculated under the terms of the 1993 Settlement Agreement between the Company
and the USWA, until the asset value of the VEBA Trust exceeds $100.0 million.
During 1997, the Company has the capability of declaring a Common Stock dividend
slightly in excess of $26 million without having to contribute any matching
amounts into the VEBA Trust. Various debt and certain lease agreements include
restrictions on the amount of stockholders' equity available for the payment of
dividends. Under the most restrictive of these covenants, stockholders' equity
in the amount of $124.7 million was free of such limitations at December 31,
1996.
- --------------------------------------------------------------------------------
<PAGE>
Exhibit 21
NATIONAL STEEL CORPORATION SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction Percentage
of Outstanding
Name Incorporation Stock Owned
---- ------------- -----------
<S> <C> <C>
American Steel Corporation Michigan 100%
Delray Connecting Railroad Company Michigan 100%
D. W. Pipeline Company Michigan 100%
Granite City Steel Company Illinois 100%
Granite Intake Corporation Delaware 100%
Granite Office Building Corporation Illinois 100%
Great Lakes Steel Corporation Delaware 100%
The Hanna Furnace Corporation New York 100%
Hanna Ore Mining Company Minnesota 100%
Ingleside PT Corporation Texas 100%
Liberty Pipe and Tube, Inc. Texas 100%
Mathies Coal Company Pennsylvania 86.67%
Mid-Coast Minerals Corporation Delaware 100%
Midwest Steel Corporation Pennsylvania 100%
Natcoal, Inc. Delaware 100%
National Acquisition Corporation Delaware 100%
National Caster Acquisition Corporation Delaware 100%
National Caster Operating Corporation Delaware 100%
National Casting Corporation Delaware 100%
National Coal Mining Company Delaware 100%
National Coating Limited Corporation Delaware 100%
National Coating Line Corporation Delaware 100%
National Materials Procurement Corporation Illinois 100%
National Mines Corporation Pennsylvania 100%
National Ontario Corporation Delaware 100%
National Ontario II, Limited Delaware 100%
National Pickle Line Corporation Delaware 100%
National Steel Corporation (New York) New York 100%
National Steel Funding Corporation Delaware 100%
National Steel Pallet Company Delaware 100%
Natland Corporation Delaware 100%
National Steel Foreign Sales Corporation Barbados 100%
NS Holdings Corporation Delaware 100%
NS Land Company New Jersey 100%
NSC Realty Corporation Delaware 100%
NSL, Inc. Delaware 100%
Peter White Coal Mining Corporation West Virginia 100%
Puritan Mining Company Michigan 100%
Rostraver Corporation Delaware 100%
Skar-Ore Steamship Corporation Delaware 100%
The Teal Lake Iron Mining Company Michigan 100%
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of National Steel Corporation and Subsidiaries (the "Company") of our report
dated January 23, 1997 (except Note M, as to which the date is January 31,
1997), included in the 1996 Annual Report to Shareholders of the Company.
Our audit also included the financial statement schedule the Company listed in
Item 14(a). This schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion, the
financial statement schedule referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the following Registration
Statements:
. Form S-8 No. 33-51991 pertaining to the 1994 and 1995 Stock Grants to Union
Employees.
. Form S-8 No. 33-51081 pertaining to the 1993 National Steel Corporation Long
Term Incentive Plan,
. Form S-8 No. 33-51083 pertaining to the 1993 National Steel Corporation
Non-Employee Director's Stock Option Plan, and
. Form S-8 No. 33-51087 pertaining to the National Steel Retirement Savings
Plan and National Steel Represented Employee Retirement Savings Plan;
of our report dated January 23, 1997, (except Note M, as to which the date is
January 31, 1997), with respect to the consolidated financial statements and
schedule of the Company included in this Annual Report (Form 10-K) for the year
ended December 31, 1996.
Ernst & Young LLP
Fort Wayne, Indiana
March 14, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 109,041
<SECURITIES> 0
<RECEIVABLES> 301,209
<ALLOWANCES> 21,320
<INVENTORY> 435,961
<CURRENT-ASSETS> 824,891
<PP&E> 3,664,597
<DEPRECIATION> 2,209,079
<TOTAL-ASSETS> 2,547,055
<CURRENT-LIABILITIES> 573,799
<BONDS> 470,294
<COMMON> 433
63,530
36,650
<OTHER-SE> 681,398
<TOTAL-LIABILITY-AND-EQUITY> 2,547,055
<SALES> 2,954,033
<TOTAL-REVENUES> 2,954,033
<CGS> 2,619,469
<TOTAL-COSTS> 2,619,469
<OTHER-EXPENSES> 268,152
<LOSS-PROVISION> 1,334
<INTEREST-EXPENSE> 36,249
<INCOME-PRETAX> 28,829
<INCOME-TAX> (15,728)
<INCOME-CONTINUING> 44,557
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 44,557
<EPS-PRIMARY> 0.78
<EPS-DILUTED> 0.78
</TABLE>
