<PAGE>
1997
Second Quarter
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 1-983
NATIONAL STEEL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Delaware 25-0687210
(State or other jurisdiction of (I.R.S. Employer
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
</TABLE>
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
The number of shares outstanding of the Registrant's Common Stock $ .01 par
value, as of July 31, 1997, was 43,288,240 shares.
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
<S> ----
<C>
Statements of Consolidated Income -
Three Months Ended June 30, 1997 and 1996 3
Statements of Consolidated Income -
Six Months Ended June 30, 1997 and 1996 4
Consolidated Balance Sheets -
June 30, 1997 and December 31, 1996 5
Statements of Consolidated Cash Flows -
Six Months Ended June 30, 1997 and 1996 6
Statements of Changes in Consolidated
Stockholders' Equity and Redeemable
Preferred Stock-Series B -
Six Months Ended June 30, 1997 and
Year Ended December 31, 1996 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
PART II. OTHER INFORMATION
Legal Proceedings 16
Submission of Matters to a Vote of Security Holders 17
Exhibits and Reports on Form 8-K 17
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended June 30,
1997 1996
-------- --------
<S> <C> <C>
Net Sales $824,869 $769,481
Cost of products sold 695,230 687,754
Selling, general and administrative 35,462 32,429
Depreciation and amortization 35,513 36,322
Equity income of affiliates (672) (1,376)
-------- --------
Income from Operations 59,336 14,352
Interest and other financial income (4,712) (1,797)
Interest and other financial expense 9,390 11,146
Net gain on disposal of non-core assets (17,175) --
-------- --------
(12,497) 9,349
-------- --------
Income Before Income Taxes and Extraordinary Item 71,833 5,003
Income tax provision (credit) 9,358 (5,388)
-------- --------
Income Before Extraordinary Item 62,475 10,391
Extraordinary item (net of applicable tax) (5,397) --
-------- --------
Net Income 57,078 10,391
Less preferred stock dividends 2,737 2,740
-------- --------
Net income applicable to Common Stock $ 54,341 $ 7,651
======== ========
Per Share Data Applicable to Common Stock:
Income Before Extraordinary Item $ 1.38 $ .18
Extraordinary item (.12) --
-------- --------
Net Income Applicable to Common Stock $ 1.26 $ .18
======== ========
Weighted average shares outstanding (in thousands) 43,288 43,288
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
1997 1996
----------- -----------
<S> <C> <C>
Net Sales $1,582,487 $1,451,624
Cost of products sold 1,349,520 1,316,674
Selling, general and administrative 67,034 63,842
Depreciation and amortization 70,664 72,610
Equity income of affiliates (766) (3,663)
---------- ----------
Income from Operations 96,035 2,161
Interest and other financial income (6,427) (3,693)
Interest and other financial expense 19,279 21,813
Net gain on disposal of non-core assets (17,175) --
---------- ----------
(4,323) 18,120
---------- ----------
Income (Loss) Before Income Taxes and Extraordinary Item 100,358 (15,959)
Income tax provision (credit) 11,997 (10,775)
---------- ----------
Income (Loss) Before Extraordinary Item 88,361 (5,184)
Extraordinary item (net of applicable tax) (5,397) --
---------- ----------
Net Income (Loss) 82,964 (5,184)
Less preferred stock dividends 5,478 5,482
---------- ----------
Net income (loss) applicable to Common Stock $ 77,486 $ (10,666)
========== ==========
Per Share Data Applicable to Common Stock:
Income (Loss) Before Extraordinary Item $ 1.91 $ (.25)
Extraordinary item (.12) --
---------- ----------
Net Income (Loss) Applicable to Common Stock $ 1.79 $ (.25)
========== ==========
Weighted average shares outstanding (in thousands) 43,288 43,288
========== ==========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands of Dollars, Except Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1997 1996
---------- ------------
<S> <C> <C>
Current assets
Cash and cash equivalents $ 426,884 $ 109,041
Receivables - net 284,454 279,889
Inventories - net:
Finished and semi-finished products 275,716 295,952
Raw materials and supplies 105,083 140,009
---------- ----------
380,799 435,961
---------- ----------
Total current assets 1,092,137 824,891
Investments in affiliated companies 15,383 65,399
Property, plant and equipment 3,396,976 3,664,597
Less allowances for depreciation and amortization 2,163,598 2,209,079
---------- ----------
1,233,378 1,455,518
Other assets 209,418 201,247
---------- ----------
Total Assets $2,550,316 $2,547,055
========== ==========
Liabilities, Redeemable Preferred Stock and
Stockholders' Equity:
Current liabilities
Accounts payable $ 270,750 $ 234,892
Accrued liabilities 340,195 301,176
Current portion of long term obligations 33,586 37,731
---------- ----------
Total current liabilities 644,531 573,799
Long term obligations 321,341 323,550
Long term indebtedness to related parties -- 146,744
Other long term liabilities 852,258 847,512
Redeemable Preferred Stock - Series B 62,780 63,530
Stockholders' equity
Common Stock - par value $.01:
Class A - authorized 30,000,000 shares, issued
and outstanding 22,100,000 221 221
Class B - authorized 65,000,000 shares; issued
and outstanding 21,188,240 212 212
Preferred Stock - Series A 36,650 36,650
Additional paid-in-capital 465,359 465,359
Retained earnings 166,964 89,478
---------- ----------
Total stockholders' equity 669,406 591,920
---------- ----------
Total Liabilities, Redeemable Preferred Stock
and Stockholders' Equity $2,550,316 $2,547,055
========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
Cash Flows from Operating Activities: 1997 1996
-------- ---------
<S> <C> <C>
Net Income (loss) $ 82,964 $ (5,184)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 70,664 72,610
Carrying charges related to facility sales
and plant closings 7,356 11,192
Net gain on disposal of non-core assets (17,175) --
Equity income (766) (3,663)
Dividends from affiliates 6,808 4,375
Postretirement benefits 7,499 14,603
Extraordinary item (net) 5,397 --
Deferred income taxes (10,800) (10,800)
Cash provided (used) by working capital items:
Receivables (2,566) 26,509
Inventories 45,162 (16,531)
Accounts payable 35,607 35,059
Accrued liabilities 36,701 1,510
Other 3,810 (21,169)
--------- ---------
Net Cash Provided by Operating Activities 270,661 108,511
--------- ---------
Cash Flows from Investing Activities:
Proceeds from the sale of non-core assets 309,306 --
Purchases of plant and equipment (71,593) (46,934)
Other (362) --
--------- ---------
Net Cash Provided (Used) by Investing Activities 237,351 (46,934)
--------- ---------
Cash Flows from Financing Activities:
Prepayment of related party debt (154,328) --
Costs associated with prepayment of related party debt (4,500) --
Other debt repayment (18,664) (17,682)
Payment of released Weirton benefit liabilities (6,684) (6,842)
Dividend payments on Preferred Stock-Series A (1,998) (2,007)
Dividend payments on Preferred Stock-Series B (210) --
Payment of unreleased Weirton liabilities and
their release in lieu of cash dividends on
Preferred Stock-Series B (3,785) (4,015)
--------- ---------
Net Cash Used by Financing Activities (190,169) (30,546)
--------- ---------
Net Increase in Cash and Cash Equivalents 317,843 31,031
Cash and Cash Equivalents, Beginning of the Period 109,041 127,616
--------- ---------
Cash and Cash Equivalents, End of the Period $ 426,884 $ 158,647
========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
AND REDEEMABLE PREFERRED STOCK - SERIES B
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Common Common Preferred Additional Retained Total Redeemable
Stock - Stock - Stock - Paid-In Earnings Stockholders' Preferred Stock -
Class A Class B Series A Capital (Deficit) Equity Series B
------- ------- --------- ---------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1996 $221 $212 $36,650 $465,359 $ 54,115 $556,557 $65,030
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, 1996 221 212 36,650 465,359 89,478 591,920 63,530
Net income 82,964 82,964
Amortization of excess of book value
over redemption value of Redeemable
Preferred Stock - Series B 750 750 (750)
Cumulative dividends on Preferred
Stock - Series A and B (6,228) (6,228)
---- ---- ------- -------- -------- -------- -------
BALANCE AT JUNE 30, 1997 $221 $212 $36,650 $465,359 $166,964 $669,406 $62,780
==== ==== ======= ======== ======== ======== =======
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997 (Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of National Steel Corporation and its
majority owned subsidiaries (the "Company") presented herein are unaudited.
However, in the opinion of management, such statements include all adjustments
necessary for a fair presentation of the results for the periods indicated. All
such adjustments made were of a normal recurring nature, except for the items
discussed in Note 2. The financial results presented for the three and six month
periods ended June 30, 1997 are not necessarily indicative of results of
operations for the full year. The Annual Report of the Company on Form 10-K for
the year ended December 31, 1996 (the "1996 Form 10-K") contains additional
information and should be read in conjunction with this report.
NOTE 2- NET GAIN ON DISPOSAL OF NON-CORE ASSETS
During the second quarter of 1997, the Company disposed of, or announced plans
to dispose of, certain non-core business assets that resulted in a net gain of
$17.2 million. These items, which are discussed in more detail below, are
recorded as a separate component of income on the Statement of Consolidated
Income.
On April 1, 1997, the Company completed the sale of its 21.73% minority equity
interest in the Iron Ore Company of Canada ("IOC") to North Limited, an
Australian mining and metals company ("North"). The Company received net
proceeds of $75 million from North in exchange for its interest in IOC and
reported a $37 million gain. The Company will continue to purchase iron ore from
IOC pursuant to the terms of long-term supply agreements.
On June 12, 1997, the Company completed the sale of a coke oven battery
servicing the Great Lakes Division and other related assets, including coal
inventories, to a subsidiary of DTE Energy Company. The Company received net
proceeds of $234 million in connection with the sale and recorded a $16 million
loss. The Company utilized a portion of the proceeds to prepay $154 million of
the related party coke battery debt, which resulted in a net of tax
extraordinary loss of $5.4 million. As part of the arrangement, the Company has
agreed to operate the battery and will purchase the majority of the coke
produced from the battery for a twelve-year period under a contract based upon
Great Lakes Division's coke requirements.
The Company recorded a $4 million charge related to the decision to cease
operations of American Steel Corporation, a wholly-owned subsidiary which
pickled and slit steel.
NOTE 3 - ENVIRONMENTAL AND LEGAL PROCEEDINGS
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 from those currently anticipated.
8
<PAGE>
It is the Company's policy to expense or capitalize, as appropriate,
environmental expenditures that relate to current operating sites. Environmental
expenditures that relate to past operations and which do not contribute to
future or current revenue generation are expensed. With respect to costs for
environmental assessments or remediation activities, or penalties or fines that
may be imposed for noncompliance with such laws and regulations, such costs are
accrued when it is probable that liability for such costs will be incurred and
the amount of such costs can be reasonably estimated.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), and other 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 potentially responsible parties ("PRPs") 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
Avatex Corporation ("Avatex"), formerly FoxMeyer Health Corporation, is required
to indemnify the Company ("Avatex Environmental Liabilities"). (See Note 4
below.) 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.
The Company has also recorded the reclamation and other costs to restore its
coal and iron ore mines at its shutdown locations to their original and natural
state, as required by various federal and state mining statutes.
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. 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
recorded an aggregate environmental liability of approximately $21.8 million and
$21.6 million at June 30, 1997 and December 31, 1996, respectively.
The Company is involved in various non-environmental legal proceedings, most of
which occur in the normal course of its business. The Company does not believe
that these proceedings will have a material adverse effect, either individually
or in the aggregate, on the Company's financial condition. However, with respect
to certain of the proceedings, if reserves prove to be inadequate and the
Company incurs a charge to earnings, such charge could have a material adverse
effect on the Company's results of operations and liquidity for the applicable
period.
NOTE 4 - CONTINGENCIES AND WEIRTON LIABILITIES
In 1984, the Company sold its Weirton Steel Division ("Weirton") to the
employees of the Weirton Steel Corporation. As a part of this sale, the Company
retained certain pension and other postretirement benefit liabilities of Weirton
(the "Retained Liabilities") as of the sale date.
In a series of transactions occurring after 1984, Avatex sold its interest in
the Company to NKK Corporation ("NKK") and the public. As part of those
transactions, Avatex agreed to indemnify the Company for the Retained
Liabilities and the Avatex Environmental Liabilities. In 1990, under the terms
of the Stock Purchase and Recapitalization Agreement between the Company and
Avatex (the "Recapitalization Agreement"), the Company received a payment of
$146.6 million and released Avatex
9
<PAGE>
from indemnification liability for $146.6 million of the Retained Liabilities.
In 1993, the Company released Avatex from an additional $67.8 million of pension
liabilities in connection with an early redemption of 10,000 shares of the
Series B Redeemable Preferred Stock owned by Avatex. In 1994, Avatex paid $10.0
million to the Company on account of its liability with respect to a portion of
the Avatex Environmental Liabilities. Avatex remains liable to indemnify the
Company for Avatex Environmental Liabilities in excess of this amount.
Upon the occurrence of certain events detailed in the Recapitalization
Agreement, prior to or coincident with the Series B Preferred Stock final
redemption, the released Retained Liabilities will be recalculated by an
independent actuary. Any adjustment (the "true-up") to bring the balance of the
released Retained Liabilities to such recalculated amount will be dealt with in
the Series B Preferred Stock redemption proceeds or otherwise settled. Under the
Recapitalization Agreement, any "true-up" must take place no later than the year
2000, but may take place sooner if the parties agree to do so, or if the Series
B Redeemable Preferred Stock is redeemed in full. Based on current information,
it is expected that a "true-up" would result in a payment from the Company to
Avatex. Any adjustment resulting from this "true-up" is expected to be made to
the capital accounts of the Company since such an adjustment results from
finalization of amounts related to the recapitalization arrangements.
Avatex has experienced operating difficulties and has recorded substan tial
asset writedowns. In its latest filing with the Securities and Exchange
Commission, dated March 31, 1997, it reported a deficit in its consolidated
stockholders' equity of $113.5 million. Most of Avatex's operating subsidiaries
have filed for bankruptcy protection. Although Avatex, the parent company, has
not been included in the bankruptcy filing, the filing has caused the Company to
have increased concerns about Avatex's ability to honor its remaining
indemnification obligations to the Company. Should Avatex, the parent company,
seek bankruptcy protection, the Company's future cash outlays and on-going
charges to operations could be significantly increased.
Avatex is subject to the informational requirements of the Securities and
Exchange Act of 1934 and, in accordance therewith, files reports and other
information with the Securities and Exchange Commission.
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Results of Operations - Comparison of the Three-Month Periods Ended June 30,
1997 and 1996
Net Sales
- ---------
Net sales for the second quarter of 1997 totaled a record $824.9 million, an
increase of $55.4 million, or 7.2%, compared to the corresponding period in
1996. This improvement is attributable to a 34,000 ton increase in shipments,
as well as improvements in both selling prices and product mix.
Steel shipments for the second quarter of 1997 were a record 1,605,000 tons, a
2.2% increase compared to the 1,571,000 tons shipped during the corresponding
1996 period.
Cost of Products Sold
- ---------------------
The Company's cost of products sold of $695.2 million during the second quarter
of 1997 represented 84.3% of sales compared to 89.4% of sales for the same
period in 1996, resulting in a gross margin improvement of approximately $48
million. Increases in average selling price and product yields, as well as
impacts of cost reduction efforts, led to this increase in margin.
During the second quarter of 1997, the Company produced 1,634,000 net tons of
steel, a 3.1% decrease compared to the 1,687,000 net tons produced during the
corresponding 1996 period.
Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative expense of $35.5 million during the second
quarter of 1997 represents an increase of $3.0 million compared to the
corresponding 1996 period. This increase is largely the result of increased
costs associated with certain employee benefit plans.
Financing Costs
- ---------------
Net financing costs of $4.7 million represents a $4.6 million decrease compared
to the corresponding 1996 period. This improvement is partially attributable to
a $2.9 million increase in interest income on short term investments.
Additionally, lower interest expense resulted from lower average debt levels and
higher capitalized interest.
Net Gain on Disposal of Non-Core Assets
- ---------------------------------------
During the second quarter of 1997, the Company disposed of, or announced plans
to dispose of, certain non-core business assets that resulted in a net gain of
$17.2 million. These items, which are discussed in more detail below, are
recorded as a separate component of income on the Statement of Consolidated
Income.
On April 1, 1997, the Company completed the sale of its 21.73% minority equity
interest in the Iron Ore Company of Canada ("IOC") to North Limited, an
Australian mining and metals company ("North"). The
11
<PAGE>
Company received net proceeds of $75 million from North in exchange for its
interest in IOC and recorded a $37 million gain. The Company will continue to
purchase iron ore from IOC pursuant to the terms of long-term supply agreements.
On June 12, 1997, the Company completed the sale of a coke oven battery
servicing the Great Lakes Division and other related assets, including coal
inventories, to a subsidiary of DTE Energy Company. The Company received net
proceeds of $234 million in connection with the sale and recorded a $16 million
loss. The Company utilized a portion of the proceeds to prepay $154 million of
the related party coke battery debt, which resulted in a net of tax
extraordinary loss of $5.4 million. As part of the arrangement, the Company has
agreed to operate the battery and will purchase the majority of the coke
produced from the battery for a twelve year period under a requirements
contract.
The Company recorded a $4 million charge related to the decision to cease
operations of American Steel Corporation, a wholly-owned subsidiary which
pickled and slit steel.
Income Taxes
- ------------
During the second quarter of 1997, the Company recorded alternative minimum and
state tax provisions of $12.8 million and $2.0 million, respectively, offset by
a deferred tax benefit of $5.4 million related to the periodic recognition of
deferred tax benefits. The Company's effective tax rate is lower than the
federal statutory rate primarily due to the continued utilization of available
net operating loss carryforwards.
12
<PAGE>
Comparison of the Six-Month Periods Ended June 30, 1997 and 1996
Net Sales
- ---------
Net sales for the first half of 1997 totaled a record $1.58 billion, an increase
of $130.9 million, or 9.0%, compared to $1.45 billion during the first half of
1996. A 119,000 net ton increase in steel shipments, as well as improvements
in average selling price and product mix, were responsible for this increase.
Steel shipments for the first half of 1997 were a record 3,126,000 tons, a 4.0%
increase compared to the 3,007,000 tons shipped during the corresponding 1996
period.
Cost of Products Sold
- ---------------------
The Company's cost of products sold of $1.35 billion for the first half of 1997
totaled 85.3% of sales compared to 90.7% of sales for the corresponding 1996
period, representing a margin improvement of approximately $98.0 million. This
increase in margin is primarily attributable to improvements in average selling
prices and product yields, as well as the impact of cost reduction efforts. In
addition, 1996 costs were adversely impacted by a kiln outage at the Company's
iron ore pelletizing facility, which increased costs by approximately $10
million.
Raw steel production declined to 3,268,000 tons, a 2.5% decrease from the
3,353,000 tons produced during the first half of 1996.
Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative expense of $67.0 million during the first
half of 1997 represents a $3.2 million increase compared to the corresponding
1996 period. This increase is primarily a result of increased costs associated
with certain employee benefit plans.
Financing Costs
- ---------------
Net financing costs of $12.9 million represents a $5.3 million decrease compared
to the corresponding 1996 period. This improvement is partially attributable to
a $2.7 million increase in interest income on short term investments.
Additionally, lower interest expense resulted from lower average debt levels and
higher capitalized interest.
Income Taxes
- ------------
During the first half of 1997, the Company recorded alternative minimum and
state tax provisions of $19.4 million and $3.4 million, respectively, offset by
a deferred tax benefit of $10.8 million related to the periodic recognition of
deferred tax benefits. The Company's effective tax rate is lower than the
federal statutory rate primarily due to the continued utilization of available
net operating loss carryforwards.
13
<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.
Additional sources of liquidity consist of a Receivables Purchase Agreement (the
"Receivables Purchase Agreement") with commitments of up to $200.0 million and
an expiration date of May 2001 and both a $100.0 million and a $50.0 million
credit facility, which are secured by the Company's inventories (the "Inventory
Facilities") and expire in May 2000 and July 1998, respectively.
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 June 30, 1997, 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 $91.6 million. During the first six months of 1997, the
maximum availability under the Receivables Purchase Agreement, after reduction
for letters of credit outstanding, varied from $76.7 million to $111.1 million
and was $108.4 million as of June 30, 1997.
At June 30, 1997, total debt and redeemable preferred stock as a percentage of
total capitalization decreased to 38.4% as compared to 49.1% at December 31,
1996. Cash and cash equivalents totaled $426.9 million at June 30, 1997
compared to $109.0 million at December 31, 1996.
Cash Flows from Operating Activities
- ------------------------------------
For the six months ended June 30, 1997, cash provided from operating activities
totaled $270.7 million, which is primarily attributable to $83.0 million in net
income earned during this period, adjusted for the impact of working capital
items and non-cash items.
Cash Flows from Investing Activities
- ------------------------------------
During the second quarter of 1997, the Company sold its coke oven battery at the
Great Lakes Division, as well as its minority investment in the Iron Ore Company
of Canada. The sale of these two non-core assets generated net proceeds of
$309.3 million. The Company utilized $162.5 million of these proceeds to prepay
the related party debt associated with the coke oven battery, including
prepayment costs and accrued interest. The Company is evaluating the use of the
remaining proceeds.
Capital investments for the six months ended June 30, 1997 totaled $71.6
million. The 1997 spending is primarily related to the modernization and
upgrading of the Company's 72 inch continuous galvanizing line and the
construction of a new 48 inch wide coating line, both of which are located at
the Midwest Division. The Company plans to invest approximately $86.0 million
during the remainder of 1997 for capital expenditures, including the
aforementioned Midwest Division projects, scheduled repairs to the Great Lakes
Division "A" blast furnace, which is scheduled for the fourth quarter, and
improvements at its other facilities.
Cash Flows from Financing Activities
- ------------------------------------
During the first six months of 1997, the Company utilized $190.2 million of cash
for financing activities, which includes the $154.3 million prepayment of
related party debt associated with the sale of the coke oven battery servicing
the Great Lakes Division and $4.5 million of costs associated with the
prepayment of the aforementioned debt. Other areas of cash utilization for
financing activities included scheduled payments of debt, as well as dividend
payments on the Company's preferred stock.
14
<PAGE>
OTHER
- -----
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
- --------------------------------------------------------------------------------
Statements made by the Company in reports, such as this Form 10-Q, in press
releases and in statements made by employees in oral discussions, that are not
historical facts constitute "forward looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995.
Forward looking statements, by their nature, involve risk and uncertainty. A
variety of factors could cause business conditions and the Company's actual
results and experience to differ materially from those expected by the Company
or expressed in the Company's forward looking statements. These factors
include, but are not limited to, the following: (1) changes in market prices
and market demand for the Company's products; (2) changes in the costs or
availability of the raw materials and other supplies used by the Company in the
manufacture of its products; (3) equipment failures or outages at the Company's
steelmaking, mining and processing facilities; (4) losses of customers; (5)
changes in the levels of the Company's operating costs and expenses; (6)
collective bargaining agreement negotiations, strikes, labor stoppages or other
labor difficulties; (7) actions by the Company's competitors, including domestic
integrated steel producers, foreign competitors, mini-mills and manufacturers of
steel substitutes, such as plastics, aluminum, ceramics, glass, wood and
concrete; (8) changes in industry capacity; (9) changes in economic conditions
in the United States and other major international economies, including rates of
economic growth and inflation; (10) worldwide changes in trade, monetary or
fiscal policies; (11) changes in the legal and regulatory requirements
applicable to the Company; and (12) the effects of extreme weather conditions.
15
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters
Buck Mine Complex. With respect to the matter involving the Buck Mine Complex,
previously reported in the 1996 Form 10-K, by letter dated April 29, 1997, the
Michigan Department of Environmental Quality ("MDEQ") advised the Company and M.
A. Hanna Company ("Hanna") that it had selected a remedy for the acid mine
drainage, and offered the Company and Hanna the opportunity to perform the work
to implement the remedy. This letter was also sent to other potentially
responsible parties ("PRPs"). Informally, the MDEQ has advised that it believes
that the cost of the remedy, including past costs, as well as future operating
and maintenance costs, but excluding natural resource damages, will be
approximately $750,000. None of the other PRPs have responded to the MDEQ
letter. The Company has advised the MDEQ that it is interested in pursuing a
"cash-out" settlement of this matter on behalf of itself and Hanna.
Great Lakes Division - Opacity Notice of Violation. With respect to the matter
involving alleged violations of specified opacity regulations at the Company's
Great Lakes Division's A blast furnace and basic oxygen furnace shop, previously
reported in the 1996 Form 10-K, the alleged violations set forth in the Notice
of Violation were incorporated by reference into a Consent Order with Wayne
County dated December 15, 1996. While the U.S. Environmental Protection Agency
was not a signatory to this Consent Order, it has indicated that it will accept
this settlement as a resolution of the matters covered by the Notice of
Violation.
Granite City Division - Illinois Environmental Protection Agency Notice of
Violation - Beaching of Iron. On or about April 24, 1997, the Company's Granite
City Division received a Notice of Violation ("NOV") from the Illinois
Environmental Protection Agency ("IEPA") in which it was alleged that the
Company had poured molten iron into a "beaching" pit at least 34 times in 1996,
allegedly in violation of various state air pollution requirements related to
particulate matter emissions and permitting. The Company has responded to the
NOV by agreeing to minimize the beaching of iron and requesting a modification
to its blast furnace operating permits that would recognize beaching as a
malfunction under certain circumstances. The IEPA is expected to reply to the
Company's proposal within the next 30 days.
16
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of stockholders was held on April 21, 1997. In connection
with the meeting, proxies were solicited pursuant to the Securities Exchange Act
of 1934. The following are the voting results on proposals considered and voted
upon at the meeting, all of which were described in the Company's Proxy
Statement dated March 20, 1997.
<TABLE>
<CAPTION>
1. All nominees for director listed in the Proxy Statement were elected.
Name Votes For Votes Withheld
------------------ ---------- --------------
<S> <C> <C>
Osamu Sawaragi 61,662,929 99,272
Charles A. Bowsher 61,477,876 284,325
Frank J. Lucchino 61,666,048 96,153
Bruce K. MacLaury 61,668,568 93,633
Yoshiharu Onuma 61,650,866 111,335
Keiichiro Sakata 61,648,511 113,690
Kenichiro Sekino 61,665,596 96,605
Mineo Shimura 61,647,651 114,550
</TABLE>
2. The proposal to ratify the selection of Ernst & Young LLP as the Company's
outside auditors for 1997 passed. (For 61,731,467, abstained 11,593,
against 19,141)
Item 6. Exhibits and Reports on Form 8-K
(a) See attached Exhibit Index
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated June 12, 1997, under Item
5, Other Events.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL STEEL CORPORATION
BY /s/ Carl M. Apel
------------------------------------------
Carl M. Apel, Vice President, Finance
Principal Financial Officer and
Duly Authorized Officer
Date: August 12, 1997
18
<PAGE>
NATIONAL STEEL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
For the quarterly period ended June 30, 1997
2-A Stock Purchase Agreement dated as of January 31, 1997 among North
Limited, National Steel Corporation, NS Holdings Corporation, Bethlehem
Steel Corporation and Bethlehem Steel International Corporation
10-A Amendment Number One to The National Steel Corporation 1993 Non-Employee
Directors' Stock Option Plan.
10-B Form of Stock Option Cancellation and Stock Appreciation Right Grant
Agreement under the National Steel Corporation 1993 Long Term Incentive
Plan.
10-C Form of Stock Option Cancellation and Stock Appreciation Right Grant
Agreement under the National Steel Corporation 1993 Non-Employee
Directors' Stock Option Plan.
27-A Financial Data Schedule
<PAGE>
Exhibit 2-A
CONFORMED COPY
STOCK PURCHASE AGREEMENT
dated as of
January 31, 1997
among
NORTH LIMITED
NATIONAL STEEL CORPORATION
NS HOLDINGS CORPORATION
BETHLEHEM STEEL CORPORATION
and
BETHLEHEM STEEL INTERNATIONAL CORPORATION
<PAGE>
ARTICLE 1
DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
1.1 Definitions........................................................ 2
1.2 References to Buyer................................................ 4
ARTICLE 2
PURCHASE AND SALE; PELLET PURCHASE AGREEMENTS
2.1 Transactions Hereunder............................................. 4
2.2 Consideration...................................................... 5
2.3 Closing............................................................ 5
2.4 Interdependent..................................................... 6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BETHLEHEM COMPANIES
3.1 Corporate Existence and Power...................................... 6
3.2 Corporate Authorization............................................ 7
3.3 Governmental Authorization......................................... 7
3.4 Non-Contravention.................................................. 7
3.5 Capitalization..................................................... 8
3.6 Ownership of Shares................................................ 8
3.7 IOC and its Business and Assets.................................... 8
3.8 Intercompany Accounts.............................................. 12
3.9 Finders' Fees...................................................... 12
3.10 Sole Representations and Warranties............................... 12
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF NATIONAL COMPANIES
4.1 Corporate Existence and Power...................................... 12
4.2 Corporate Authorization............................................ 13
4.3 Governmental Authorization......................................... 13
4.4 Non-Contravention.................................................. 13
4.5 Capitalization..................................................... 14
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.6 Ownership of Shares................................................ 14
4.7 IOC and its Business and Assets.................................... 15
4.8 Intercompany Accounts.............................................. 18
4.9 Finders' Fees...................................................... 18
4.10 Sole Representations and Warranties............................... 18
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER AND NORTH
5.1 Corporate Existence and Power...................................... 19
5.2 Corporate Authorization............................................ 19
5.3 Governmental Authorization......................................... 19
5.4 Non-Contravention.................................................. 19
5.5 Finders' Fees...................................................... 20
5.6 Financing.......................................................... 20
5.7 Purchase for Investment............................................ 20
ARTICLE 6
COVENANTS OF SELLER COMPANIES
6.1 Access to Information.............................................. 20
6.2 Guaranty........................................................... 21
6.3 Actions by IOC..................................................... 21
6.4 Confidentiality.................................................... 22
6.5 No Shopping........................................................ 23
6.6 No Solicitation.................................................... 23
6.7 Continued Due Diligence............................................ 23
ARTICLE 7
COVENANTS OF BUYER AND NORTH
7.1 Confidentiality.................................................... 24
7.2 Access............................................................. 25
7.3 Guaranty........................................................... 25
</TABLE>
ii
<PAGE>
ARTICLE 8
COVENANTS OF BUYER AND SELLER COMPANIES
<TABLE>
<CAPTION>
<S> <C>
8.1 Best Efforts....................................................... 25
8.2 Certain Filings.................................................... 25
8.3 Public Announcements............................................... 26
8.4 Intercompany Accounts.............................................. 26
8.5 Governmental Correspondence........................................ 26
ARTICLE 9
CONDITIONS TO CLOSING
9.1 Conditions to Obligations of Buyer and Seller Companies............ 26
9.2 Conditions to Obligation of Buyer.................................. 28
9.3 Conditions to Obligation of Seller Companies....................... 30
ARTICLE 10
SURVIVAL; INDEMNIFICATION
10.1 Survival.......................................................... 31
10.2 Indemnification................................................... 32
10.3 Procedures; Exclusivity........................................... 33
ARTICLE 11
TERMINATION
11.1 Grounds for Termination........................................... 33
11.2 Effect of Termination............................................. 34
</TABLE>
iii
<PAGE>
ARTICLE 12
MISCELLANEOUS
<TABLE>
<CAPTION>
<S> <C>
12.1 Notices........................................................... 35
12.2 Amendments and Waivers............................................ 36
12.3 Expenses.......................................................... 37
12.4 Successors and Assigns............................................ 37
12.5 Governing Law..................................................... 37
12.6 Counterparts; Third Party Beneficiaries........................... 37
12.7 Entire Agreement.................................................. 37
</TABLE>
iv
<PAGE>
STOCK PURCHASE AGREEMENT
AGREEMENT dated as of January 31, 1997 among North Limited, an Australian
corporation ("North"), Bethlehem Steel Corporation, a Delaware corporation
("Bethlehem"), Bethlehem Steel International Corporation, a Delaware corporation
("Beth International"), National Steel Corporation, a Delaware corporation
("National") and NS Holdings Corporation, a Delaware corporation ("National
Holdings").
W I T N E S S E T H :
WHEREAS, the purchaser of the shares to be purchased hereunder (the
"Buyer") will be a wholly-owned subsidiary of North to be designated by North
and to become a party hereto within 30 days after the date hereof by all parties
executing and delivering an agreement that Buyer unconditionally becomes a party
hereto, bound hereby and entitled to enforce its rights hereunder; and
WHEREAS, National Holdings is a wholly-owned subsidiary of National; and
WHEREAS, Beth International is the owner of 3,364.428 shares (the
"Bethlehem IOC Shares") of the Series A Common Stock, par value $1,000 per
share, of Iron Ore Company of Canada, a Delaware corporation ("IOC") and
National is the owner of 1,946.078 shares (the "National IOC Shares") of the
Series E Common Stock, par value $1,000 per share, of IOC; and
WHEREAS, IOC, Bethlehem, Beth International and National, among others,
have entered into an Amended and Restated Shareholder Participation Agreement
dated as of May 25, 1995 (the "Shareholder Agreement") and Bethlehem and
National have each entered into a Second Amended and Restated Pellet Purchase
Contract with IOC, each dated as of May 25, 1995 (the "Existing Pellet Purchase
Agreements"), providing for the production by IOC and the sale by IOC to
Bethlehem or National, as the case may be, of iron ore pellets; and
WHEREAS, subsequently to the execution of this Agreement, but prior to
Closing, National intends to transfer the National IOC Shares to National
Holdings and assign its rights and obligations under this Agreement to National
Holdings, subject to Section 6.2 of this Agreement, and, upon such assignment
and transfer, National Holdings will assume the obligations of National under
the Existing Pellet Purchase Agreement with IOC, subject to the continued
obligation of National to perform such obligations; and
1
<PAGE>
WHEREAS, Beth International desires to sell the Bethlehem IOC Shares to
Buyer, and Buyer desires to purchase the Bethlehem IOC Shares from Beth
International, and the holder of the National IOC Shares (National or National
Holdings) desires to sell the National IOC Shares to Buyer, and Buyer desires to
purchase the National IOC Shares from such holder, all upon the terms and
subject to the conditions hereinafter set forth;
The parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. (a) The following terms, as used herein, have the
following meanings:
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under common control with
such Person; provided that neither IOC nor any Subsidiary of IOC shall be
considered an Affiliate of any party.
"Balance Sheet" means the balance sheet of IOC and the
Subsidiaries as of December 31, 1995.
"Balance Sheet Date" means December 31, 1995.
"best efforts" means all practical and reasonable efforts to
achieve a given objective without the incurring of undue risk, hardship or
expense.
"Bethlehem Companies" means Bethlehem and Beth International.
"Bethlehem Representatives" means Messrs. J. J. Haggerty, J. P.
Krum, C. F. Meitzner, F. C. Rorick, R. A. Rudzki and S. J. Selden and, with
respect to matters relating to the purchase or manufacture of pellets, E. J.
Hudak, Jr.
"Canadian Acts" means the Investment Canada Act (Canada) and the
Competition Act (Canada).
"Closing Date" means the date of the Closing.
"Common Stock" means, with respect to IOC, the Common Stock, par
value $1,000 per share, of IOC.
2
<PAGE>
"GAAP" means generally accepted accounting principles in the
United States.
"Governmental Entity" means any federal, state, provincial,
municipal, local or foreign court, arbitral tribunal, board, crown corporation,
administrative agency or commission or other governmental or other regulatory
authority or administrative agency or commission or self-regulatory
organization.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"IOC Shares" means, collectively, the Bethlehem IOC Shares and
the National IOC Shares.
"Lien" means, with respect to any property or asset, any
mortgage, lien, pledge, charge, security interest, encumbrance, option or other
adverse claim of any kind in respect of such property or asset. For the purposes
of this Agreement, a Person shall be deemed to own subject to a Lien any
property or asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such property or asset.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect, individually or in the aggregate, on the condition
(financial or otherwise), business, assets, liabilities or results of operations
of such Person and its Subsidiaries, taken as a whole, or, with respect to any
Seller Company or the Buyer, a material adverse effect on the ability of such
Seller Company or Buyer to enter into or to perform this Agreement or to enter
into any of the other agreements to be entered into pursuant to this Agreement;
provided that an adverse effect which is attributable, solely or primarily, to
the cyclical nature of the iron ore business shall not constitute a Material
Adverse Effect.
"National Companies" means National and National Holdings.
"National Representatives" means J. R. Linney, W. E. McDonough,
L. R. Meyer and T. M. Trupkovich and, with respect to matters relating to the
purchase or manufacture of pellets, J. W. Beckman.
"North Representatives" means Executive Director - Finance,
General Manager - Iron Ore Development and General Manager - Legal &
Secretariat.
"Person" means an individual, sole proprietorship, corporation,
partnership, association, trust, joint venture, Governmental Entity or other
entity or organization, including a natural person in such person's capacity as
trustee, administrator or other legal representative.
3
<PAGE>
"Seller Companies" means the Bethlehem Companies and the National
Companies.
"Sellers" means Beth International and the holder of the National
IOC Shares (National or National Holdings), and "Seller" means Beth
International or such holder.
"Subsidiary" of any Person means any entity, whether incorporated
or unincorporated, of which securities or other ownership interests having
ordinary voting power to elect a majority of the board of directors or other
persons performing similar functions are at the time directly or indirectly
owned or controlled by such Person and/or one or more of its subsidiaries. For
the purposes of this Agreement, each of Northern Land Co. Ltd. and Twin Falls
Power Co. is deemed to be a subsidiary of IOC.
All references herein to "dollars" or to "$" shall refer to the
lawful currency of the United States.
1.2 References to Buyer. All references in this Agreement to
Buyer, including representations and agreements by or with respect to or for the
benefit of Buyer shall on the date upon which Buyer becomes a party to this
Agreement be deemed to apply to Buyer as if it had been a party at the date
hereof.
ARTICLE 2
PURCHASE AND SALE; PELLET PURCHASE AGREEMENTS
2.1 Transactions Hereunder. This Agreement relates to the following
transactions (the "Transactions") which are all to be completed on the Closing
Date, upon the terms and subject to the conditions of this Agreement:
(i) Beth International will sell and deliver to Buyer, and
Buyer will purchase from Beth International, the Bethlehem IOC Shares
free and clear of Liens (except as set forth in Section 1.1 of the
Shareholder Agreement or Article Ninth of the Articles of
Incorporation of IOC or as created by Buyer);
(ii) National or National Holdings will sell and deliver to
Buyer, and Buyer will purchase from National or National Holdings, the
National IOC Shares free and clear of Liens (except as set forth in
Section 1.1 of the Shareholder Agreement or Article Ninth of the
Articles of Incorporation of IOC or as created by Buyer);
4
<PAGE>
(iii) Bethlehem will enter into a Supplemental Pellet Purchase
Contract with IOC, effective as at the Closing (the "Supplemental
Bethlehem Pellet Purchase Contract") which will be in the form
attached hereto as Exhibit 1, with only such changes as shall have
been approved by IOC, Bethlehem, National and North;
(iv) National will enter into a Supplemental Pellet Purchase
Contract with IOC, effective as at the Closing (the "Supplemental
National Pellet Purchase Contract" and, together with the Supplemental
Bethlehem Pellet Purchase Contract, the "Supplemental Pellet Purchase
Contracts") which will be in the form attached hereto as Exhibit 2,
with only such changes as shall have been approved by IOC, Bethlehem,
National and North; and
(v) The parties to the Shareholder Agreement, National
Holdings, North and Buyer will enter into an Agreement, effective as
at the Closing (the "Amending Agreement") which will be in the form
attached hereto as Exhibit 3, with only such changes as shall have
been approved by Bethlehem, National and North.
2.2 Consideration. In consideration for the completion by the
Bethlehem Companies of the portion of the Transactions to be performed by them,
Buyer will deliver, or cause to be delivered, to or as directed by Bethlehem the
sum of US$145,714.634.40 in cash (the "Bethlehem Purchase Price"). In
consideration for the completion by the National Companies of the portion of the
Transactions to be performed by them, Buyer will deliver, or cause to be
delivered, to or as directed by National the sum of US$84,285,365.60 in cash
(the "National Purchase Price").
2.3 Closing. The closing (the "Closing") of the Transactions
hereunder shall take place at the offices of Davis Polk & Wardwell, 450
Lexington Avenue, New York, New York as soon as possible, but in no event later
than 10 business days, after satisfaction or waiver of the conditions set forth
in Article 9 of this Agreement, or at such other time or place as Buyer and
Sellers may agree. At the Closing:
(a) The Bethlehem Purchase Price shall be delivered in immediately
available funds by wire transfers to an account or accounts with a bank in
New York City designated by Bethlehem, by notice to Buyer not later than
two business days prior to the Closing Date (or if not so designated, then
by certified or official bank check payable in immediately available funds
to the order of Bethlehem in such amount).
(b) The National Purchase Price shall be delivered in immediately
available funds by wire transfers to an account or accounts with a bank
designated by National by notice to Buyer not later than two business days
prior to the Closing Date (or if not so designated, then by certified or
official bank check payable in immediately available funds to the order of
National or National Holdings in such amount).
5
<PAGE>
(c) Each Seller shall deliver to Buyer certificates for all of its
IOC Shares duly endorsed or accompanied by stock powers duly endorsed in
blank or accompanied by duly executed instruments of transfer, with all
required transfer tax or other revenue stamps affixed thereto.
(d) Bethlehem will deliver to IOC and Buyer a counterpart of the
Supplemental Bethlehem Pellet Purchase Contract, duly executed on behalf of
Bethlehem and IOC by their duly authorized officers.
(e) National will deliver to IOC and Buyer a counterpart of the
Supplemental National Pellet Purchase Contract, duly executed on behalf of
National and IOC by their duly authorized officers.
(f) The Seller Companies will deliver to Buyer a counterpart or
counterparts of the Amending Agreement, duly executed on behalf of each
party thereto by its duly authorized officers.
(g) The Seller Companies will deliver to Buyer copies of duly
executed resignations of each IOC Director representing any of the Seller
Companies and evidence (in a form reasonably satisfactory to North) that
the Directors nominated by North have been elected or appointed to the
Board of Directors of IOC, effective at Closing.
(h) The parties will deliver the documents and other evidences of
authority provided to be delivered by them by the provisions of Article 9
of this Agreement.
2.4 Interdependent. The obligations of the parties in respect of the
Closing shall be interdependent. All actions at the Closing shall be deemed to
take place simultaneously and no delivery, transfer, assignment or payment shall
be deemed to have been made until all deliveries, transfers, assignments and
payments have been made.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BETHLEHEM COMPANIES
The Bethlehem Companies jointly and severally represent and warrant to
Buyer and North that:
3.1 Corporate Existence and Power. Each of the Bethlehem Companies
and IOC is a corporation duly incorporated, validly existing and in good
standing under the laws
6
<PAGE>
of its jurisdiction of incorporation. Each of the Bethlehem Companies has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted. Each
Bethlehem Company is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction where such qualification is necessary,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect on such Bethlehem Company. Each Bethlehem Company has
heretofore delivered to Buyer true and complete copies of the certificate of
incorporation and by-laws of such Bethlehem Company as currently in effect.
Buyer has also received true and complete copies of the Articles of
Incorporation and by-laws of IOC as currently in effect.
3.2 Corporate Authorization. The execution, delivery and performance
by each Bethlehem Company of this Agreement and any agreement to be executed by
it pursuant to this Agreement are within such Bethlehem Company's corporate
powers and have been duly authorized by all necessary corporate action on the
part of such Bethlehem Company. Each of this Agreement and any agreement to be
executed by it pursuant to this Agreement constitutes a valid and binding
agreement of such Bethlehem Company enforceable in accordance with its terms,
except as (i) the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) the availability of equitable remedies may
be limited by equitable principles of general applicability.
3.3 Governmental Authorization. Except as described in Schedule 3.3,
no filing with, or permit, authorization, notification, consent or approval of,
any Governmental Entity is required or necessary for:
(i) the valid execution and delivery by each Bethlehem
Company of this Agreement and any agreement to be executed by it
pursuant to this Agreement or for the valid performance by each
Bethlehem Company of this Agreement or, to the actual knowledge of any
of the Bethlehem Representatives, of any agreement to be executed by
it pursuant to this Agreement; or
(ii) the consummation by each Bethlehem Company of the
transactions contemplated by this Agreement or the sale by Beth
International of the Bethlehem IOC Shares simultaneously with the sale
hereunder of the National IOC Shares;
provided that no representation is made with respect to the provisions of the
provincial statutes of Newfoundland and Quebec which may relate to or be
affected by the sale hereunder of the IOC Shares.
3.4 Non-Contravention. Except as set forth in Schedule 3.4, the
execution and delivery by each Bethlehem Company of this Agreement and any
agreement to be executed pursuant to this Agreement, and the performance by each
Bethlehem Company of this
7
<PAGE>
Agreement and, to the actual knowledge of any of the Bethlehem Representatives,
of any agreement to be executed by it pursuant to this Agreement, do not and
will not (i) conflict with or violate the certificate of incorporation or by-
laws of such Bethlehem Company or of IOC, (ii) violate any applicable law, rule,
regulation, judgment, injunction, order or decree of any Governmental Entity,
(iii) require any consent, notice or other action by any Person under,
constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of such Bethlehem
Company under, or to a loss of any benefit to which such Bethlehem Company is
entitled under, any agreement or other instrument binding upon such Bethlehem
Company, or any license, franchise, permit or other similar authorization held
by such Bethlehem Company, or (iv) result in the creation or imposition of any
Lien on any asset of such Bethlehem Company, except, in the case of clauses
(ii), (iii) and (iv), to the extent that any such violation, failure to obtain
any such consent or other action, default, right, loss or Lien would not,
individually or in the aggregate, have a Material Adverse Effect.
3.5 Capitalization. The authorized capital stock of IOC consists of
8,955.411 shares of IOC Common Stock, all of which are outstanding as of the
date hereof. All outstanding shares of capital stock of IOC have been duly
authorized and validly issued and are fully paid and non-assessable. There is no
outstanding security of any kind convertible into or exchangeable for capital
stock of IOC; IOC has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any shares of its capital stock or any interest
therein or to pay any dividend or make any other distribution in respect thereof
(other than as provided in the Agreement and Plan of Recapitalization and
Restructuring dated as of May 25, 1995 (the "Restructuring Agreement") and the
agreements referred to therein or in Article Ninth of the Articles of
Incorporation of IOC); and there is no voting trust or other agreement or
understanding to which IOC is a party or is bound with respect to the voting of
the capital stock of IOC (other than as provided in the Restructuring Agreement
and the agreements referred to therein).
3.6 Ownership of Shares. Beth International is the record and
beneficial owner of the Bethlehem IOC Shares, free and clear of any Lien and any
other limitation or restriction (including any restriction on the right to vote,
sell or otherwise dispose of such Shares), except as may be created by this
Agreement or by Buyer or as set forth in Sections 1.1 and 1.2 of the Shareholder
Agreement or Article Ninth of the Articles of Incorporation of IOC. Beth
International will transfer and deliver to Buyer at the Closing valid title to
the Bethlehem IOC Shares free and clear of any Lien and any such limitation or
restriction, except as set forth in Section 1.1 of the Shareholder Agreement or
Article Ninth of the Articles of Incorporation of IOC or as created by Buyer.
3.7 IOC and its Business and Assets. The Bethlehem Representatives
have no actual knowledge (which expression includes, with respect to the
Bethlehem Representatives who are or have been Directors of IOC, all information
that such Directors, none of whom is or has been an officer or employee of IOC
or any of its Subsidiaries, have
8
<PAGE>
received in their capacity as directors) that any of the following statements is
incomplete, misleading, inaccurate or incorrect:
(a) North has had available to it all material information about
existing material sales contracts, including true and correct copies of all
existing material sales contracts between IOC and its Subsidiaries and
their customers;
(b) IOC and its Subsidiaries have good and valid title to, or in the
case of leasehold property good and valid leasehold interests in, all
material assets and properties required for the conduct of its and their
businesses as presently conducted (including the pellet facilities at Sept-
Iles and all such material assets and properties reflected on the Balance
Sheet or on the unaudited balance sheet dated September 30, 1996), subject
only to such exceptions and Liens as do not, individually or in the
aggregate, materially interfere with the use of such assets in such
businesses as presently conducted;
(c) North has been provided with all material information pertaining
to IOC and its Subsidiaries, including, without limitation, the material
information listed on Schedule 3.7(c);
(d) all material information provided to North with respect to IOC
and its Subsidiaries and its and their businesses and assets is complete
and accurate in all material respects;
(e) since September 30, 1996, the date of the last unaudited
quarterly financial statements of IOC and its consolidated Subsidiaries,
there has been no event, occurrence, change, development or state of
circumstances or facts which has had a Material Adverse Effect with respect
to IOC and its Subsidiaries;
(f) the audited balance sheet of IOC and its consolidated
Subsidiaries as of December 31, 1995 and the related consolidated
statements of income and cash flows for the year ended December 31, 1995,
have been provided to North and have been prepared in accordance with GAAP
(consistently applied throughout the period) and present fairly and
accurately, in all material respects, the consolidated financial position
of IOC and its consolidated Subsidiaries as of the date thereof and their
consolidated results of operations and changes in cash flows for the period
then ended; and the unaudited balance sheet of IOC and its consolidated
Subsidiaries as of December 31, 1996 and the related consolidated
statements of income and cash flows for the year then ended, have been
provided to North and have been prepared in accordance with GAAP for
interim unaudited statements (and accordingly do not contain footnotes) and
present fairly and accurately, in all material respects and in a manner
consistent with past practice, the consolidated financial position of IOC
and its consolidated Subsidiaries as of the date thereof and their
consolidated results of
9
<PAGE>
operations and changes in cash flows for the year then ended (subject to
customary year-end adjustments);
(g) Bethlehem has fully performed all obligations imposed on it by
the Existing Bethlehem Pellet Purchase Agreement, and there is no default
or breach by any party thereunder;
(h) there is no material breach or default by any party to any
material contract, lease or sublease, including, without limitation, the
Labrador Sublease, binding on IOC or any of its Subsidiaries, including,
without limitation, the sales agreements referred to in clause (a);
(i) there are no material agreements or arrangements between the
shareholders of IOC and IOC or any IOC Subsidiary, or between any two or
more shareholders of IOC and relating to IOC, other than the Restructuring
Agreement and the agreements referred to therein;
(j) neither IOC nor any of its Subsidiaries is in violation of any
material license, certificate of approval or permit or similar
authorization or requirement of any Governmental Entity relating to the
conduct of its or their businesses as presently conducted or as proposed to
be conducted in accordance with existing Director-approved capital plans
and budgets;
(k) the current status of IOC's pellet making facilities at Sept-
Iles, Quebec, which has been decommissioned and is not currently in
operation, does not violate any material license, certificate of approval
or permit or similar authorization or requirement of any Governmental
Entity; and there are no extraordinary legal or political impediments to
the recommissioning of such facilities other than the need to comply with
national, provincial and local laws and regulations of general application;
(l) each of IOC's Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and each of IOC and its Subsidiaries has all corporate powers
and all governmental licenses, authorizations, permits, consents and
approvals required to carry on its business as now conducted and has, or
should be able to obtain, all governmental licenses, authorizations,
permits, consents and approvals required to carry on its business as
proposed to be conducted in accordance with existing Director-approved
capital plans and budgets;
(m) Schedule 3.7(m) contains a complete and accurate list of all
direct and indirect Subsidiaries of IOC and each other Person in which IOC
has a direct or indirect equity ownership, setting forth as to each such
Subsidiary or Person the
10
<PAGE>
jurisdiction of its incorporation and the number of shares of each class of
its authorized and outstanding capital stock owned by IOC, all of which are
validly issued, fully paid and nonassessable, and held free and clear of
any Liens;
(n) (i) there is no outstanding security of any kind convertible into
or exchangeable for capital stock of any of IOC's Subsidiaries,
(ii) none of IOC's Subsidiaries has any obligation (contingent
or otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or
make any other distribution in respect thereof, and
(iii) there is no voting trust or other agreement or
understanding to which any of IOC's Subsidiaries is a party or is
bound with respect to the voting of the capital stock of any of IOC's
Subsidiaries;
(o) the execution and delivery by each Bethlehem Company of this
Agreement and any agreement to be executed pursuant to this Agreement, and
the performance by each Bethlehem Company of such agreements, when combined
with the acquisition of the National IOC Shares, do not and will not:
(i) require any consent, notice or other action by any Person
under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation
of IOC or any of IOC's Subsidiaries under, or to a loss of any benefit
to which IOC or any of IOC's Subsidiaries is entitled under, any
agreement or other instrument binding upon IOC or any of IOC's
Subsidiaries, or any license, franchise, permit or other similar
authorization held by IOC or any of IOC's Subsidiaries, or
(ii) result in the creation or imposition of any Lien on any
asset of IOC or any of IOC's Subsidiaries,
except to the extent that any such violation, failure to obtain any such
consent or other action, default, right, loss or Lien would not,
individually or in the aggregate, have a Material Adverse Effect; and
(p) there is no one presently in the employ of any of the Bethlehem
Companies who has or has had responsibility for IOC and is not listed as a
Bethlehem Representative;
except, in the case of (a) through (p) of this Section 3.7, as is set forth on
Schedule 3.7 hereto or otherwise previously disclosed to North in writing.
11
<PAGE>
3.8 Intercompany Accounts. Schedule 3.8 contains a complete list
of all intercompany balances as of December 31, 1996 between the Bethlehem
Companies and their Affiliates, on the one hand, and IOC and its Subsidiaries,
on the other hand. Since December 31, 1996, except as set forth in Schedule 3.8,
none of IOC or its Subsidiaries has incurred any liability (whether absolute,
accrued or contingent) to any Bethlehem Company or their Affiliates and there
has not been any transaction between IOC and any of its Subsidiaries and any
Bethlehem Company except in the ordinary course of business of IOC and its
Subsidiaries, consistent with past practice. None of the Bethlehem
Representatives who are Directors of IOC will, following the Closing, have any
claims against IOC other than any rights based on indemnity or insurance.
3.9 Finders' Fees. Except for J.P. Morgan & Co. Inc, whose fees
will be paid by Sellers, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of any
Bethlehem Company who might be entitled to any fee or commission from IOC or
North or any of their Affiliates upon consummation of the transactions
contemplated by this Agreement.
3.10 Sole Representations and Warranties. The Bethlehem
Companies make no representation or warranty to Buyer except as specifically set
forth in this Agreement. In particular, the Bethlehem Companies make no
representation or warranty to Buyer, except as set forth in this Agreement or in
a certificate or document delivered pursuant to this Agreement, with respect to
(a) the information provided by IOC or by or on behalf of Sellers with respect
to the purchase and sale provided for herein, (b) any environmental or tax
liabilities or litigation of IOC or the adequacy of any reserves for such
matters on the financial statements of IOC or (c) any financial projection or
forecast relating to IOC. With respect to any such projection or forecast
delivered by or on behalf of Sellers to Buyer, Buyer acknowledges that (i) there
are uncertainties inherent in attempting to make such projections and forecasts,
(ii) it is familiar with such uncertainties, (iii) it is taking full
responsibility for making its own evaluation of the adequacy and accuracy of all
such projections and forecasts so furnished to it and (iv) it shall have no
claim against Sellers with respect thereto.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF NATIONAL COMPANIES
The National Companies jointly and severally represent and warrant
to Buyer and North that:
4.1 Corporate Existence and Power. Each of the National Companies and
IOC is a corporation duly incorporated, validly existing and in good standing
under the laws of its jurisdiction of incorporation. Each of the National
Companies has all corporate powers
12
<PAGE>
and all governmental licenses, authorizations, permits, consents and approvals
required to carry on its business as now conducted. Each National Company is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction where such qualification is necessary, except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect on such National Company. Each National Company has heretofore delivered
to Buyer true and complete copies of the certificate of incorporation and by-
laws of such National Company as currently in effect. Buyer has also received
true and complete copies of the Articles of Incorporation and by-laws of IOC as
currently in effect.
4.2 Corporate Authorization. The execution, delivery and performance
by each National Company of this Agreement and any agreement to be executed by
it pursuant to this Agreement are within such National Company's corporate
powers and have been duly authorized by all necessary corporate action on the
part of such National Company. Each of this Agreement and any agreement to be
executed by it pursuant to this Agreement constitutes a valid and binding
agreement of such National Company enforceable in accordance with its terms,
except as (i) the enforceability hereof may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (ii) the availability of equitable remedies may
be limited by equitable principles of general applicability.
4.3 Governmental Authorization. Except as described in Schedule 3.3,
no filing with, or permit, authorization, notification, consent or approval of,
any Governmental Entity is required or necessary for:
(i) the valid execution and delivery by each National Company of
this Agreement and any agreement to be executed by it pursuant to this
Agreement or for the valid performance by each National Company of this
Agreement or, to the actual knowledge of any of the National
Representatives, of any agreement to be executed by it pursuant to this
Agreement; or
(ii) the consummation by each National Company of the transactions
contemplated by this Agreement or the sale by National or National Holdings
of the National IOC Shares simultaneously with the sale hereunder of the
Bethlehem IOC Shares;
provided that no representation is made with respect to the provisions of the
provincial statutes of Newfoundland and Quebec which may relate to or be
affected by the sale hereunder of the IOC Shares.
4.4 Non-Contravention. Except as set forth in Schedule 4.4, the
execution and delivery by each National Company of this Agreement and any
agreement to be executed pursuant to this Agreement, and the performance by each
National Company of this
13
<PAGE>
Agreement and, to the actual knowledge of any of the National Representatives,
of any agreement to be executed by it pursuant to this Agreement, do not and
will not (i) conflict with or violate the certificate of incorporation or by-
laws of such National Company or of IOC, (ii) violate any applicable law, rule,
regulation, judgment, injunction, order or decree of any Governmental Entity,
(iii) require any consent, notice or other action by any Person under,
constitute a default under, or give rise to any right of termination,
cancellation or acceleration of any right or obligation of such National Company
under, or to a loss of any benefit to which such National Company is entitled
under, any agreement or other instrument binding upon such National Company, or
any license, franchise, permit or other similar authorization held by such
National Company, provided that the National IOC Shares are released from the
Lien of the Indenture (as defined in Section 4.6) or (iv) result in the creation
or imposition of any Lien on any asset of such National Company, except, in the
case of clauses (ii), (iii) and (iv), to the extent that any such violation,
failure to obtain any such consent or other action, default, right, loss or Lien
would not, individually or in the aggregate, have a Material Adverse Effect.
4.5 Capitalization. The authorized capital stock of IOC consists of
8,955.411 shares of IOC Common Stock, all of which are outstanding as of the
date hereof. All outstanding shares of capital stock of IOC have been duly
authorized and validly issued and are fully paid and non-assessable. There is no
outstanding security of any kind convertible into or exchangeable for capital
stock of IOC; IOC has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any shares of its capital stock or any interest
therein or to pay any dividend or make any other distribution in respect thereof
(other than as provided in the Restructuring Agreement and the agreements
referred to therein or in Article Ninth of the Articles of Incorporation of
IOC); and there is no voting trust or other agreement or understanding to which
IOC is a party or is bound with respect to the voting of the capital stock of
IOC (other than as provided in the Restructuring Agreement and the agreements
referred to therein).
4.6 Ownership of Shares. National is the record and beneficial owner
of the National IOC Shares, free and clear of any Lien and any other limitation
or restriction (including any restriction on the right to vote, sell or
otherwise dispose of such Shares), except as may be created by this Agreement or
by Buyer or as set forth in Sections 1.1 and 1.2 of the Shareholder Agreement or
Article Ninth of the Articles of Incorporation of IOC, and other than the Lien
created by the Indenture of Mortgage and Deed of Trust dated May 1, 1952 (the
"Indenture") from National, as Mortgagor, and Great Lakes Steel Corporation, a
Delaware corporation, as Co-Mortgagor, to City Bank Farmers Trust Company and
Ralph E. Morton as Trustees (The Chase Manhattan Bank being successor Trustee
and Frank J. Grippo being successor Individual Trustee). National will have
access prior to the Closing Date to sufficient funds to arrange for the release
prior to Closing of the National IOC Shares from the Lien of the Indenture.
National or National Holdings will transfer and deliver to Buyer at the Closing
valid title to the National IOC Shares free and clear of any Lien and any such
limitation or restriction, except as set forth in Section 1.1 of the
14
<PAGE>
Shareholder Agreement or Article Ninth of the Articles of Incorporation of IOC
or as created by Buyer.
4.7 IOC and its Business and Assets. The National Representatives
have no actual knowledge (which expression includes, with respect to the
National Representatives who are or have been Directors of IOC, all information
that such Directors, none of whom is or has been an officer or employee of IOC
or any of its Subsidiaries, have received in their capacity as directors) that
any of the following statements is incomplete, misleading, inaccurate or
incorrect:
(a) North has had available to it all material information about
existing material sales contracts, including true and correct copies of
all existing material sales contracts between IOC and its Subsidiaries
and their customers;
(b) IOC and its Subsidiaries have good and valid title to, or in the
case of leasehold property good and valid leasehold interests in, all
material assets and properties required for the conduct of its and their
businesses as presently conducted (including the pellet facilities at
Sept-Iles and all such material assets and properties reflected on the
Balance Sheet or on the unaudited balance sheet dated September 30,
1996), subject only to such exceptions and Liens as do not, individually
or in the aggregate, materially interfere with the use of such assets in
such businesses as presently conducted;
(c) North has been provided with all material information pertaining
to IOC and its Subsidiaries, including, without limitation, the material
information listed on Schedule 3.7(c);
(d) all material information provided to North with respect to IOC
and its Subsidiaries and its and their businesses and assets is complete
and accurate in all material respects;
(e) since September 30, 1996, the date of the last unaudited
quarterly financial statements of IOC and its consolidated Subsidiaries,
there has been no event, occurrence, change, development or state of
circumstances or facts which has had a Material Adverse Effect with
respect to IOC and its Subsidiaries;
(f) the audited balance sheet of IOC and its consolidated
Subsidiaries as of December 31, 1995 and the related consolidated
statements of income and cash flows for the year ended December 31, 1995,
have been provided to North and have been prepared in accordance with
GAAP (consistently applied throughout the period) and present fairly and
accurately, in all material respects, the consolidated financial position
of IOC and its consolidated Subsidiaries as of the date thereof and their
consolidated results of operations and changes in cash flows for the
period then
15
<PAGE>
ended; and the unaudited balance sheet of IOC and its consolidated
Subsidiaries as of December 31, 1996 and the related consolidated
statements of income and cash flows for the year then ended, have been
provided to North and have been prepared in accordance with GAAP for
interim unaudited statements (and accordingly do not contain footnotes)
and present fairly and accurately, in all material respects and in a
manner consistent with past practice, the consolidated financial position
of IOC and its consolidated Subsidiaries as of the date thereof and their
consolidated results of operations and changes in cash flows for the year
then ended (subject to customary year-end adjustments);
(g) National has fully performed all obligations imposed on it by the
Existing National Pellet Purchase Agreement, and there is no default or
breach by any party thereunder;
(h) there is no material breach or default by any party to any
material contract, lease or sublease, including, without limitation, the
Labrador Sublease, binding on IOC or any of its Subsidiaries, including,
without limitation, the sales agreements referred to in clause (a);
(i) there are no material agreements or arrangements between the
shareholders of IOC and IOC or any IOC Subsidiary, or between any two or
more shareholders of IOC and relating to IOC, other than the
Restructuring Agreement and the agreements referred to therein;
(j) neither IOC nor any of its Subsidiaries is in violation of any
material license, certificate of approval or permit or similar
authorization or requirement of any Governmental Entity relating to the
conduct of its or their businesses as presently conducted or as proposed
to be conducted in accordance with existing Director-approved capital
plans and budgets;
(k) the current status of IOC's pellet making facilities at Sept-
Iles, Quebec, which has been decommissioned and is not currently in
operation, does not violate any material license, certificate of approval
or permit or similar authorization or requirement of any Governmental
Entity; and there are no extraordinary legal or political impediments to
the recommissioning of such facilities other than the need to comply with
national, provincial and local laws and regulations of general
application;
(l) each of IOC's Subsidiaries is a corporation duly incorporated,
validly existing and in good standing under the laws of its jurisdiction
of incorporation and each of IOC and its Subsidiaries has all corporate
powers and all governmental licenses, authorizations, permits, consents
and approvals required to carry on its business as now conducted and has,
or should be able to obtain, all governmental
16
<PAGE>
licenses, authorizations, permits, consents and approvals required to
carry on its business as proposed to be conducted in accordance with
existing Director-approved capital plans and budgets;
(m) Schedule 3.7(m) contains a complete and accurate list of all
direct and indirect Subsidiaries of IOC and each other Person in which
IOC has a direct or indirect equity ownership, setting forth as to each
such Subsidiary or Person the jurisdiction of its incorporation and the
number of shares of each class of its authorized and outstanding capital
stock owned by IOC, all of which are validly issued, fully paid and
nonassessable, and held free and clear of any Liens;
(n) (i) there is no outstanding security of any kind convertible into
or exchangeable for capital stock of any of IOC's Subsidiaries,
(ii) none of IOC's Subsidiaries has any obligation (contingent or
otherwise) to purchase, redeem or otherwise acquire any shares of
its capital stock or any interest therein or to pay any dividend or
make any other distribution in respect thereof, and
(iii) there is no voting trust or other agreement or
understanding to which any of IOC's Subsidiaries is a party or is
bound with respect to the voting of the capital stock of any of
IOC's Subsidiaries;
(o) the execution and delivery by each National Company of this
Agreement and any agreement to be executed pursuant to this Agreement,
and the performance by each National Company of such agreements, when
combined with the acquisition of the Bethlehem IOC Shares, do not and
will not:
(i) require any consent, notice or other action by any Person
under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation
of IOC or any of IOC's Subsidiaries under, or to a loss of any
benefit to which IOC or any of IOC's Subsidiaries is entitled under,
any agreement or other instrument binding upon IOC or any of IOC's
Subsidiaries, or any license, franchise, permit or other similar
authorization held by IOC or any of IOC's Subsidiaries, or
(ii) result in the creation or imposition of any Lien on any
asset of IOC or any of IOC's Subsidiaries,
except to the extent that any such violation, failure to obtain any such
consent or other action, default, right, loss or Lien would not,
individually or in the aggregate, have a Material Adverse Effect; and
17
<PAGE>
(p) there is no one presently in the employ of any of the National
Companies who has or has had responsibility for IOC and is not listed as
a National Representative;
except, in the case of (a) through (o) of this Section 4.7, as is set forth on
Schedule 4.7 hereto or otherwise previously disclosed to North in writing.
4.8 Intercompany Accounts. Schedule 4.8 contains a complete list of
all intercompany balances as of December 31, 1996 between the National
Companies and their Affiliates, on the one hand, and IOC and its Subsidiaries,
on the other hand. Since December 31, 1996, except as set forth in Schedule
4.8, none of IOC or its Subsidiaries has incurred any liability (whether
absolute, accrued or contingent) to any National Company or their Affiliates
and there has not been any transaction between IOC and any of its Subsidiaries
and any National Company, except in the ordinary course of business of IOC and
its Subsidiaries, consistent with past practice. None of the National
Representatives who are Directors of IOC will, following the Closing, have any
claims against IOC other than any rights based on indemnity or insurance.
4.9 Finders' Fees. Except for J.P. Morgan & Co. Inc, whose fees will
be paid by Sellers, there is no investment banker, broker, finder or other
intermediary which has been retained by or is authorized to act on behalf of
such National Company who might be entitled to any fee or commission from IOC
or North or any of their Affiliates upon consummation of the transactions
contemplated by this Agreement.
4.10 Sole Representations and Warranties. The National Companies
make no representation or warranty to Buyer except as specifically set forth
in this Agreement. In particular, the National Companies make no
representation or warranty to Buyer, except as contemplated or set forth in
this Agreement or in a certificate or document delivered pursuant to this
Agreement, with respect to (a) the information provided by IOC or by or on
behalf of Sellers with respect to the purchase and sale provided for herein,
(b) any environmental or tax liabilities or litigation of IOC or the adequacy
of any reserves for such matters on the financial statements of IOC or (c) any
financial projection or forecast relating to IOC. With respect to any such
projection or forecast delivered by or on behalf of Sellers to Buyer, Buyer
acknowledges that (i) there are uncertainties inherent in attempting to make
such projections and forecasts, (ii) it is familiar with such uncertainties,
(iii) it is taking full responsibility for making its own evaluation of the
adequacy and accuracy of all such projections and forecasts so furnished to it
and (iv) it shall have no claim against Sellers with respect thereto.
18
<PAGE>
5
REPRESENTATIONS AND WARRANTIES OF BUYER AND NORTH
Buyer and North jointly and severally represent and warrant to each of
the Sellers as of the date hereof that:
5.1 Corporate Existence and Power. Buyer is a corporation duly
incorporated, validly existing and in good standing under the laws of the
place of its incorporation and has all corporate powers and all governmental
licenses, authorizations, permits, consents and approvals required to carry on
its business as now conducted. North is a corporation duly incorporated,
validly existing and in good standing under the laws of Australia and has all
corporate powers and all governmental licenses, authorizations, permits,
consents and approvals required to carry on its business as now conducted.
Each of North and the Buyer is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, except where the failure to be so qualified or in
good standing would not have a Material Adverse Effect on such company. Each
of North and Buyer has heretofore delivered to Sellers true and complete
copies of the certificate of incorporation and by-laws of such company as
currently in effect.
5.2 Corporate Authorization. The execution, delivery and performance
by Buyer and North of this Agreement are within the corporate powers of Buyer
or North, as the case may be, and have been duly authorized by all necessary
corporate action on the part of Buyer or North, as the case may be. This
Agreement constitutes a valid and binding agreement of Buyer and North
enforceable in accordance with its terms, except as (i) the enforceability
hereof may be limited by bankruptcy, insolvency, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
5.3 Governmental Authorization. Except as described in Schedule 3.3,
no filing with, or permit, authorization, notification, consent or approval
of, any Governmental Entity is required or necessary for:
(i) the valid execution and delivery by Buyer and North of this
Agreement and any agreement to be executed by it pursuant to this
Agreement or for the valid performance by Buyer or North of this
Agreement; or
(ii) the consummation by North and Buyer of the transactions
contemplated by this Agreement or the purchase by Buyer of the IOC
Shares;
19
<PAGE>
provided that no representation is made with respect to the provisions of the
provincial statutes of Newfoundland and Quebec which may relate to or be
affected by the sale hereunder of the IOC Shares.
5.4 Non-Contravention. The execution, delivery and performance by
Buyer and North of this Agreement do not and will not (i) violate the
certificate of incorporation or by-laws of Buyer or North or (ii) assuming
compliance with the matters referred to in Section 5.3, violate any applicable
law, rule, regulation, judgment, injunction, order or decree.
5.5 Finders' Fees. Except for Merrill Lynch International
(Australia) Limited, whose fees will be paid by Buyer, there is no investment
banker, broker, finder or other intermediary which has been retained by or is
authorized to act on behalf of Buyer or North who might be entitled to any fee
or commission from IOC or any Seller or any of its Affiliates upon consummation
of the transactions contemplated by this Agreement.
5.6 Financing. Buyer has access to sufficient funds to enable it to
purchase all of the IOC Shares pursuant to this Agreement.
5.7 Purchase for Investment. Buyer will acquire the IOC Shares for
its own account and not with a view toward the resale or distribution thereof.
6
COVENANTS OF SELLER COMPANIES
Each of the Seller Companies agrees that:
6.1 Access to Information. From the date hereof until the Closing
Date, it will (i) give, and will use best efforts to cause IOC and each of its
Subsidiaries to give, Buyer, its counsel, financial advisors, auditors and
other authorized representatives full access to the offices, properties, books
and records of IOC and its Subsidiaries and to the books and records of such
Seller Company relating to IOC and its Subsidiaries, (ii) furnish, and will use
best efforts to cause IOC and its Subsidiaries to furnish, to Buyer, its
counsel, financial advisors, auditors and other authorized representatives such
financial and operating data and other information relating to IOC or any of its
Subsidiaries as such Persons may reasonably request and (iii) instruct the
employees, counsel and financial advisors of such Seller Company and use best
efforts to cause the employees, counsel and financial advisors of IOC and its
Subsidiaries to cooperate with Buyer in its investigation of IOC and its
Subsidiaries. Notwithstanding the foregoing, Buyer shall not have access to
personnel records of IOC or any of its Subsidiaries relating to individual
performance or evaluation records or medical histories the disclosure of which
could, in such Seller Company's good faith opinion, subject IOC or such Seller
Company to risk of liability, except with the specific consent of
20
<PAGE>
each individual whose records are being examined. North and Buyer acknowledge
that the North Representatives are not aware of any material information with
respect to IOC and its Subsidiaries which they have requested and which has not
been provided to them.
6.2 Guaranty. Bethlehem will cause Beth International to fully
perform all of its obligations hereunder. National will cause National Holdings
to fully perform all of National Holdings' obligations hereunder and
notwithstanding any assignment will remain fully responsible for the performance
of the obligations undertaken by it or National Holdings hereunder and under the
Supplemental National Pellet Purchase Contract.
6.3 Actions by IOC. Each of the Seller Companies agrees that, until
the Closing Date, it will (i) attend and remain present for the duration of each
shareholder meeting of IOC, and (ii) will use best efforts to cause the
Directors of IOC nominated and elected by it to attend and remain present for
the duration of each Board of Directors meeting of IOC, and, in each case, will
vote or cause such Directors to vote against (and not abstain from voting) any
matter that directly or indirectly relates to any of the following actions with
respect to IOC or any of its Subsidiaries, unless they have first obtained the
consent of North, which consent shall not be unreasonably withheld, unless, in
the reasonable judgment of such Director (in the case of a Directors meeting),
it is necessary for such Director to vote to permit or abstain from voting
against such action in order for the Director to satisfy such Director's
fiduciary obligations:
(a) amend the Existing Pellet Purchase Agreements except as part of
the Transactions;
(b) amend, terminate or enter into any other material agreements
(other than in the ordinary course of business after notification with
respect thereto has been given to a designated representative of North);
(c) dispose of, acquire or encumber any material assets (other than
in the ordinary course of business after notification with respect thereto
has been given to a designated representative of North, provided that such
notice need not be given with respect to the sale of pellets);
(d) enter into any material leases or other material financial
commitments, including any major capital commitments (other than Strategic
Direction Projects (as defined in the Restructuring Agreement), excluding
any thereof initiated or proposed by any of the Seller Companies, where
notification with respect thereto has been given to a designated
representative of North and the approval of North has been obtained unless
failure to take action as a result of lack of approval by North would cause
the Seller Companies to be in breach of their contractual obligations under
Section 8.3 of the Restructuring Agreement);
21
<PAGE>
(e) declare, set aside or pay any dividends or distributions or
repurchase or otherwise acquire any of its shares or make any other return
of capital;
(f) issue any additional shares of capital stock or any options or
rights to purchase any shares of capital stock;
(g) incur, assume or guaranty any material indebtedness for borrowed
money, other than under its existing credit agreements or otherwise in the
ordinary course of business (after notification with respect thereto has
been given to a designated representative of North);
(h) grant any bonuses, whether monetary or otherwise, or make any
compensation, wage or salary increases in respect to its Directors,
officers or other employees (other than as provided in collective
bargaining agreements) or change the terms of employment for any employee,
in each case except in the ordinary course of business and consistent with
current commitments or past practices;
(i) approve or adopt any operating or capital budget; or
(j) amend, alter or otherwise change the Articles of Incorporation or
the by-laws of IOC or any of its Subsidiaries, except as permitted under
Section 9.2(iii) of this Agreement.
6.4 Confidentiality. After the Closing, each of the Seller Companies
will hold, and will severally cause the respective Directors of IOC nominated
and elected by it to hold, in confidence, unless compelled to disclose by
judicial or administrative process or by other requirements of law, all
documents and information concerning IOC or any of its Subsidiaries (A) obtained
pursuant to Section 7.2 or (B) obtained by such Directors in their capacity as
Directors or by such Seller Company in its capacity as a minority stockholder of
IOC or (C) specifically designated in writing by Buyer or North as confidential
for the purposes of this Section (the documents and information described in
(A), (B) and (C) being herein referred to collectively as the "Designated
Confidential Information"), except to the extent that such Designated
Confidential Information can be shown to have been (i) previously known on a
nonconfidential basis by a Seller or any of its Affiliates (but not including
information previously known as a result of information obtained in accordance
with paragraph (B) above), (ii) in the public domain through no fault of Sellers
or any of their Affiliates or (iii) later lawfully acquired by a Seller or any
of its Affiliates from sources other than any other Seller or IOC or any of its
Subsidiaries or any other shareholder of IOC; provided that Sellers or any of
their Affiliates may disclose such Designated Confidential Information to its
officers, Directors, employees, accountants, counsel, consultants, advisors and
agents who have a need to know such information in connection with transactions
in the ordinary course of the business of Sellers or any of their Affiliates so
long as such Persons are informed by a Seller or any of its Affiliates of the
confidential nature of such Designated Confidential Information and are directed
by a Seller or any of its Affiliates to treat such Designated Confidential
Information confidentially. Each Seller shall be responsible for a breach of
this provision by any of its officers, Directors, employees, accountants,
counsel, consultants, advisors and agents, but not for a breach by the other
Seller or any of the officers, Directors, employees, accountants, counsel,
consultants, advisors and agents of the other Seller. In the event that a Seller
or any of its Affiliates or anyone to whom they transmit Designated Confidential
Information, is requested or becomes legally compelled (by oral questions,
interrogatories, requests for information or documents, subpoena, criminal or
22
<PAGE>
civil investigative demand or other similar process) to disclose any such
Designated Confidential Information, such Seller shall promptly notify Buyer in
writing so that it may seek a protective order or other appropriate remedy. If
Buyer fails to promptly seek any order or remedy or if such a protective order
or other remedy is not obtained, only that portion of the Designated
Confidential Information which is legally obligated to be disclosed shall be
disclosed, and such Seller and its Affiliates shall use best efforts to obtain
reliable assurance that confidential treatment will be accorded such Designated
Confidential Information.
6.5 No Shopping. None of the Seller Companies will, and each of the
Seller Companies severally will use best efforts to cause IOC and its
Subsidiaries not to, directly or indirectly, solicit, encourage, facilitate or
participate or discuss or engage in (including by way of furnishing any
nonpublic information concerning the business, properties or assets of IOC or
its Subsidiaries) any Acquisition Proposal (as defined below), subject to the
fiduciary obligations of the Directors of such Seller Company. Each Seller
Company will notify Buyer promptly if any such information is requested from, or
any Acquisition Proposal is received by, it or, to the knowledge of its
Representatives, by IOC or any of its Subsidiaries. As used in this Agreement,
"Acquisition Proposal" means any proposal or inquiry received by a Seller
Company or IOC or its Subsidiaries from a Person other than Buyer or North for
or with respect to a merger or other business combination involving IOC or any
of its Subsidiaries or for or with respect to the acquisition of a substantial
equity interest in, or a substantial portion of the assets of, IOC or its
Subsidiaries.
6.6 No Solicitation. Each of the Seller Companies severally
undertakes to Buyer and North that neither it nor any of its Affiliates will for
a period of two years after the Closing Date on its own account or for any
Person entice away from IOC or any of its Subsidiaries, or solicit the provision
of services of, any employee of IOC or any of its Subsidiaries; provided, that
this prohibition shall not apply to general advertisements, or utilization of an
executive search firm, employment agency or other general employment services
which may employ general advertisements, not directed at or intended to be of
particular interest to such employees, nor shall it prevent the employment of
persons who seek employment by such Seller Company other than as a result of
solicitation prohibited hereby.
6.7 Continued Due Diligence. During the period from the date of this
Agreement to the Closing, each of the Seller Companies will continue to grant to
Buyer and North access to IOC and its records as provided in Section 6.1, and,
during such period, each Seller Company will use its best efforts (and use its
best efforts to cause IOC and its Subsidiaries) to notify Buyer of any Material
Adverse Effect with respect to IOC and its Subsidiaries, of any complaints,
investigations, hearings or other regulatory or legislative proceedings or
initiatives of any Governmental Entity, or of any actual, pending or threatened
material litigation (or settlement thereof), in each case involving IOC or its
Subsidiaries and of which such Seller Company has knowledge, and to keep Buyer
fully informed of such events.
23
<PAGE>
7
COVENANTS OF BUYER AND NORTH
Buyer and North agree that:
7.1 Confidentiality. Prior to the Closing Date and after any
termination of this Agreement, Buyer and its Affiliates will hold, and will
cause their respective officers, Directors, employees, accountants, counsel,
consultants, advisors and agents to hold, in confidence, unless compelled to
disclose by judicial or administrative process or by other requirements of law,
all documents and information concerning IOC or any of its Subsidiaries
furnished to Buyer or its Affiliates in connection with the transactions
contemplated by this Agreement ("Confidential Information"), except to the
extent that such Confidential Information can be shown to have been (i)
previously known on a nonconfidential basis by Buyer or any of its Affiliates,
(ii) in the public domain through no fault of Buyer or any of its Affiliates or
(iii) later lawfully acquired by Buyer or any of its Affiliates from sources
other than any Seller or IOC or any of its Subsidiaries; provided that Buyer or
any of its Affiliates may disclose such Confidential Information to its
officers, Directors, employees, accountants, counsel, consultants, advisors and
agents who have a need to know such information in connection with the
transactions contemplated by this Agreement so long as such Persons are informed
by Buyer or any of its Affiliates of the confidential nature of such
Confidential Information and are directed by Buyer or any of its Affiliates to
treat such Confidential Information confidentially. Buyer shall be responsible
for a breach of this provision by any of its officers, Directors, employees,
accountants, counsel, consultants, advisors and agents. If this Agreement is
terminated, Buyer and its Affiliates will, and will cause their respective
officers, Directors, employees, accountants, counsel, consultants, advisors and
agents to, destroy or deliver to Sellers, upon request, all documents and other
materials containing Confidential Information, and all copies thereof. In the
event that Buyer or any of its Affiliates or anyone to whom they transmit
Confidential Information, is requested or becomes legally compelled (by oral
questions, interrogatories, requests for information or documents, subpoena,
criminal or civil investigative demand or other similar process) to disclose any
such Confidential Information, Buyer shall promptly notify Sellers in writing so
that they may seek a protective order or other appropriate remedy. If Sellers
fail to promptly seek any order or remedy or if such a protective order or other
remedy is not obtained, only that portion of the Confidential Information which
is legally obligated to be disclosed shall be disclosed, and Buyer and its
Affiliates shall use best efforts to obtain reliable assurance that confidential
treatment will be accorded such Confidential Information.
7.2 Access. Buyer will use best efforts to cause IOC and its
Subsidiaries, on and after the Closing Date, to afford promptly to each Seller
Company and its agents reasonable access to their properties, books, records,
employees and auditors to the extent
24
<PAGE>
necessary to permit such Seller Company to determine any matter relating to its
rights and obligations hereunder or to any period ending on or before the
Closing Date.
7.3 Guaranty. North will cause Buyer to fully perform all of its
obligations hereunder and, if the Buyer never executes the agreement referred to
in the first Recital hereto or North never designates a wholly-owned subsidiary,
North will directly perform all of such obligations.
8
COVENANTS OF BUYER AND SELLER COMPANIES
Buyer and the Seller Companies agree that:
8.1 Best Efforts. Subject to the terms and conditions of this
Agreement, and whether before or after Closing, Buyer and the Seller Companies
will use best efforts to take, or cause to be taken, all actions and to do, or
cause to be done, all things necessary or desirable to consummate the
transactions contemplated by this Agreement and to vest in Buyer title to the
IOC Shares as contemplated hereby. Each Seller Company and Buyer agree, and each
Seller Company, prior to the Closing, and Buyer and North,after Closing, agree
to use best efforts to cause IOC and its Subsidiaries, to execute and deliver
such other documents, certificates, agreements and other writings and to take
such other actions as may be necessary or desirable in order to consummate or
implement expeditiously the transactions contemplated by this Agreement. The
provisions of this Section 8 shall not require any party to accept or grant any
undertaking or commitment to any Governmental Entity, otherwise than as
expressly provided in this Agreement.
8.2 Certain Filings. The Sellers Companies and Buyer shall cooperate
with one another (i) in determining whether any action by or in respect of, or
filing with, any Governmental Entity is required, or any actions, consents,
approvals or waivers are required to be obtained from parties to any material
contracts, leases or subleases, in connection with the consummation of the
transactions contemplated by this Agreement and (ii) in taking such actions or
making any such filings, furnishing information required in connection therewith
and seeking in a timely fashion to obtain any such actions, consents, approvals
or waivers.
8.3 Public Announcements. The parties agree to consult with each
other before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange or any Governmental Entity
25
<PAGE>
(and then only after the other parties have been notified in writing and, if
practicable, consulted), will not issue any such press release or make any such
public statement prior to such consultation.
8.4 Intercompany Accounts. All intercompany accounts between the
Seller Companies or any of their Affiliates, on the one hand, and IOC or any of
its Subsidiaries, on the other hand, as of the Closing (i) if related to the
purchase of pellets, shall be settled in accordance with their terms or in the
ordinary course consistent with past practice, as the case may be, and (ii)
otherwise, shall be discharged in full on or prior to the Closing Date.
8.5 Governmental Correspondence. Subject to the confidentiality
obligations in Articles 6 and 7 of this Agreement, each party agrees to provide
each other with copies of all material written correspondence, filings and
communications between such party or any of its representatives and any
Governmental Entity in relation to the Closing and any other transaction
contemplated by this Agreement.
ARTICLE 9
CONDITIONS TO CLOSING
9.1 Conditions to Obligations of Buyer and Seller Companies. The
obligations of Buyer and each Seller Company to consummate the Closing are
subject to the satisfaction of the following conditions:
(i) HSR Act. Any applicable waiting period under the HSR Act
relating to the transactions contemplated hereby shall have expired or
been terminated and no action shall have been instituted by the
Department of Justice or the Federal Trade Commission challenging or
seeking to enjoin the consummation of the Closing or any transaction
contemplated by this Agreement, other than an action which shall have
been withdrawn or terminated.
(ii) Investment Canada Act. If the purchase of the IOC Shares by
Buyer is a reviewable investment under the Investment Canada Act
(Canada), then either Buyer shall have received written confirmation that
The Minister responsible for such Act is satisfied that the purchase of
the IOC Shares by Buyer is likely to be of net benefit to Canada or the
time within which the Minister is required to advise Buyer whether the
Minister is so satisfied has expired (unless within that time the
Minister has sent a notice to Buyer confirming that the Minister is not
satisfied that the purchase of the IOC Shares is likely to be of net
benefit to Canada).
(iii) Competition Act. Either:
26
<PAGE>
(a) the Buyer has obtained:
(A) an advance ruling pursuant to Section 102 of the
Competition Act (Canada) to the effect that the Director of
Investigation and Research under such Act is satisfied that
there would not be sufficient grounds upon which to apply to
the Competition Tribunal under Section 92 of such Act with
respect to the transactions contemplated by this Agreement; or
(B) written notification from the Director of Investigation
and Research under the Competition Act (Canada) that such
Director does not at that time intend to make application to
the Competition Tribunal under Section 92 of such Act with
respect to the transactions contemplated by this Agreement or
to commence an inquiry under Section 10 of such Act; or
(b) the waiting period prescribed by Section 123 of such Act shall
have expired unless within such waiting period the Director of
Investigation and Research under such Act has notified Buyer that he
intends to make application to the Competition Tribunal under
Section 92 of such Act in respect of the transactions contemplated
by this Agreement.
(iv) Prohibitions. There shall be no injunction or restraining
order issued preventing, and no pending or threatened claim, action,
litigation or proceeding, judicial or administrative, or investigation
against any party to this Agreement, IOC or any of its Subsidiaries by any
Governmental Entity or any other Person, for the purpose of enjoining,
preventing or delaying, the consummation of the Closing or any other
transaction contemplated in this Agreement, or otherwise claiming that this
Agreement or the consummation thereof is improper or would give rise to
proceedings under any statute or rule of law.
(v) Governmental Authorizations. All actions (including consents,
approvals, orders and waivers) by or in respect of or filings with any
Governmental Entity required to permit the consummation of the Closing
shall have been taken, made or obtained.
(vi) Indenture Lien. The National IOC Shares shall have been
fully released from the Lien created by the Indenture.
(vii) Third Party Consents. The consent or approval of, or
waivers by the Persons identified on Schedule 9.1 of objection to, this
Agreement and the transactions contemplated by this Agreement shall have
been obtained.
27
<PAGE>
(viii) Amending Agreement. The Amending Agreement shall have been
fully executed and delivered by the parties thereto.
9.2 Conditions to Obligation of Buyer. The obligation of Buyer to
consummate the Closing is subject to the satisfaction of the following further
conditions at or before the Closing, each of which is acknowledged to be
inserted for the exclusive benefit of Buyer and may be waived in whole or in
part by Buyer:
(i) (A) Each of the Seller Companies shall have performed in all
material respects all of its obligations hereunder required to be performed
by it on or prior to the Closing Date, including, without limitation, the
delivery of the IOC Shares and the execution and delivery of signed
counterparts of the Supplemental Pellet Purchase Contracts, and Buyer shall
have received a certificate signed by a Vice President of each Seller
Company to the foregoing effect with respect to such Seller Company.
(B) The aggregate effect of all inaccuracies in the
representations and warranties of each Seller Company set forth in this
Agreement (which representations and warranties shall, for purpose of this
condition, be regarded as restated on and as of the Closing Date) does not
and will not have a Material Adverse Effect on IOC and its Subsidiaries
(and, for such purpose, the representations and warranties of each Seller
Company contained in this Agreement that are qualified with reference to
Material Adverse Effect or materiality shall be true and correct, and the
representation and warranties that are not so qualified shall be true and
correct in all material respects, as of the date hereof and, except to the
extent such representation and warranties speak as of an earlier date, as
of the Closing Date as though made on and as of the Closing Date), and
Buyer shall have received a certificate signed by a Vice President of each
Seller Company to the foregoing effect with respect to such Seller Company
(ii) Buyer shall have received from its counsel in each of Quebec
and Newfoundland favorable opinions, in form and substance satisfactory to
Buyer, acting reasonably, which confirm that IOC or its Subsidiaries have
good and valid title to, or in the case of leasehold property, good and
valid leasehold interests in, the material mining, railway and port assets
and properties of IOC and its Subsidiaries required for the conduct of its
and their businesses as presently conducted (including all properties
reflected on the Balance Sheet or the unaudited balance sheet dated
December 31, 1996, including the pellet facilities at Sept-Iles, Quebec),
subject only to such exceptions and Liens as do not, individually or in the
aggregate, materially interfere with the use of such assets in such
businesses as presently conducted (or as presently proposed to be
conducted, in the case of the pellet facilities at Sept-Iles).
28
<PAGE>
(iii) North shall have been entered on the books of registry of
IOC as the registered owner of the IOC Shares.
(iv) Directors nominated by North shall have been elected to the
Board of Directors of IOC (and shall represent at least a majority of such
Board), effective at Closing, in place of the Directors theretofore
nominated and elected by the Seller Companies.
(v) Buyer shall have received an opinion of Davis Polk &
Wardwell, counsel to Sellers, dated the Closing Date, in the form of
Exhibit 4 hereto, with only such changes thereto as have been approved by
North, Bethlehem and National. In rendering such opinion, such counsel may
rely upon opinions of outside counsel in relation to any matter not
governed by the federal law of the United States, the General Corporation
Law of Delaware or the law of the State of New York.
(vi) All documentation relating to the due authorization and
completion of the sale and purchase of the IOC Shares under this Agreement,
and all actions and proceedings taken on or prior to the Closing in
connection with the performance by Sellers and Bethlehem of their
obligations under this Agreement, shall be reasonably satisfactory to
Buyer, and Buyer shall have received copies of all such documentation or
other evidence as it may reasonably request in order to establish the
consummation of the transactions contemplated hereby and the taking of all
corporate action in connection therewith in compliance with these
conditions, in form (as to certification and otherwise) and substance
reasonably satisfactory to Buyer.
(vii) Each Seller shall have signed and delivered a certification
to the effect that such Seller is not a "foreign person" as defined in
Section 1445 of the Code.
(viii) Buyer shall have received a copy of an acknowledgment, in
form and substance reasonably satisfactory to Buyer, by M. A. Hanna as to
the satisfaction of all claims by that company against IOC and M. A. Hanna
shall have agreed to return all books and records relating to IOC and its
Subsidiaries in connection with the termination or expiration of the
Management Agreement between IOC and M. A. Hanna on December 31, 1996,
without additional costs to the Seller Companies, Buyer, North or IOC or
any IOC Subsidiary.
(ix) Since the Balance Sheet Date, there has been no event,
occurrence, change, development or state of circumstances or facts which
has had a Material Adverse Effect with respect to IOC and its Subsidiaries.
29
<PAGE>
(x) None of the events set forth in paragraphs (a) to (j) of
Section 6.3 (without giving effect to the parenthetical limitations set
forth therein) shall have occurred in relation to IOC or any of its
Subsidiaries in a manner which, individually or in the aggregate, shall
have had a Material Adverse Effect with respect to IOC and its
Subsidiaries.
(xi) Neither North nor Buyer shall have been prevented, after
unsuccessfully seeking the assistance of the Seller Companies, from
completing the due diligence investigation of IOC and its Subsidiaries
which North reasonably deems to be necessary to enable North to evaluate
the desirability of completing the purchase of the IOC Shares.
9.3 Conditions to Obligation of Seller Companies. The obligation of
each Seller Company to consummate the Closing is subject to the satisfaction of
the following further conditions at or before the Closing, each of which is
acknowledged to be inserted for the exclusive benefit of the Seller Companies
and may be waived in whole or in part by the Seller Companies:
(i) (A) Buyer shall have performed in all material respects all
of its obligations hereunder required to be performed by it at or prior to
the Closing Date, including, without limitation, the payment of the
Bethlehem Purchase Price and the National Purchase Price, and each Seller
shall have received a certificate signed by the Vice President of Buyer to
the foregoing effect.
(B) The aggregate effect of all inaccuracies in the
representations and warranties of Buyer set forth in this Agreement does
not and will not have a Material Adverse Effect on Sellers, and each Seller
shall have received a certificate signed by a Vice President of Buyer to
the foregoing effect.
(ii) Such Seller shall have received an opinion of counsel to
Buyer from the jurisdiction of its incorporation, dated the Closing Date,
in form reasonably satisfactory to such Seller and (to the extent
applicable in such jurisdiction) addressing the following matters: duly
incorporated, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; corporate power to carry on its
business; execution, delivery and performance of this Agreement are within
Buyer's corporate powers and have been duly authorized; the Agreement is
valid and binding on Buyer; execution, delivery and performance do not
contravene or conflict with the certificate of incorporation or by-laws of
Buyer; and, other than as contemplated by Schedule 3.3, no approval of any
Governmental Entity in
30
<PAGE>
the relevant jurisdiction required for such execution, delivery and
performance. In rendering such opinion, such counsel may rely upon opinions
of outside counsel in relation to any matter not governed by the law of
such jurisdiction.
(iii) All documentation relating to the due authorization and
completion of the sale and purchase of the IOC Shares under this Agreement,
and all actions and proceedings taken on or prior to the Closing in
connection with the performance by Buyer and North of their obligations
under this Agreement, shall be reasonably satisfactory to the Seller
Companies, and each Seller Company shall have received copies of all such
documentation or other evidence as it may reasonably request in order to
establish the consummation of the transactions contemplated hereby and the
taking of all corporate action in connection therewith in compliance with
these conditions, in form (as to certification and otherwise) and substance
reasonably satisfactory to such Seller Company.
(iv) The sale by the other Seller Companies of their IOC Shares
hereunder shall be simultaneously consummated in accordance with the terms
hereof.
(v) Each Seller shall have received Section 116 Certificates
under the Income Tax Act (Canada) (and any comparable certificates that may
be required under any applicable provincial tax law) with respect to the
sale of its IOC Shares.
ARTICLE 10
SURVIVAL; INDEMNIFICATION
10.1 Survival. The representations and warranties contained in this
Agreement or in any certificate or other writing delivered pursuant hereto or in
connection herewith shall survive the Closing until two years after the Closing
Date (except for the representations and warranties in Sections 3.5, 3.6, 4.5
and 4.6, which shall survive indefinitely); provided that no representation or
warranty shall survive the Closing if the party to whom such representation or
warranty is made has actual knowledge of facts on the Closing Date that would
cause such representation or warranty not to be true on such date. No
representation or warranty contained in this Agreement shall survive after the
time at which it would otherwise terminate pursuant to the preceding sentence
unless notice of the inaccuracy or breach thereof shall have been given to the
party against whom such indemnity may be sought prior to such time or within one
month thereafter.
31
<PAGE>
10.2 Indemnification. (a) Effective at the Closing, the Bethlehem
Companies hereby indemnify Buyer and North and each of their directors,
officers, employees and agents against and agree to hold them harmless from any
and all damage, cost, demand, loss, liability and expense whatsoever (including
without limitation reasonable expenses of investigation and reasonable
attorneys' fees and expenses), net of any tax savings ("Damages") incurred or
suffered by Buyer or North (including damage to Buyer's investment in the IOC
Shares) by reason of, resulting from or arising out of any misrepresentation or
breach of warranty made pursuant to this Agreement by any of the Bethlehem
Companies; provided that the Bethlehem Companies shall have an obligation to pay
Damages pursuant to this clause (a) only to the extent such Damages in the
aggregate shall exceed $1,000,000, and in no event shall the aggregate Damages
so payable exceed the Bethlehem Purchase Price.
(b) Effective at the Closing, the National Companies hereby
indemnify Buyer and North and each of their directors, officers, employees and
agents against and agree to hold them harmless from any and all Damages incurred
or suffered by Buyer or North (including damage to Buyer's investment in the IOC
Shares) by reason of, resulting from or arising out of any misrepresentation or
breach of warranty made pursuant to this Agreement by any of the National
Companies; provided that the National Companies shall have an obligation to pay
Damages pursuant to this clause (b) only to the extent such Damages in the
aggregate shall exceed $1,000,000, and in no event shall the aggregate Damages
so payable exceed the National Purchase Price.
(c) Effective at the Closing, Buyer hereby indemnifies each
Seller Company and each of its directors, officers, employees and agents against
and agrees to hold it harmless from any and all Damages incurred or suffered by
such Seller by reason of, or resulting from or arising out of any
misrepresentation or breach of warranty made by Buyer pursuant to this
Agreement; provided that Buyer shall have an obligation to pay Damages pursuant
to this clause (c) only to the extent such Damages in the aggregate shall exceed
$1,000,000.
(d) Effective at the Closing, Bethlehem hereby agrees that, if
IOC is required to make any actual payments to the United States Internal
Revenue Service ("IRS") to satisfy any exposure which IOC may have for
Alternative Minimum Tax for the tax years 1995 or 1996 or both, Bethlehem will
indemnify Buyer and North from the effects thereof by paying to North, promptly
after receiving notification of such IOC payments, an amount equal to the
product of the lesser of (x) such payments by IOC and (y) $5,000,000, multiplied
by a fraction the numerator of which is the number of Bethlehem IOC Shares and
the denominator of which is 8,955.411; provided that the obligation to make such
payment shall terminate if demand for payment thereof has not been made by the
second anniversary of the Closing Date.
32
<PAGE>
(e) Effective at the Closing, National hereby agrees that, if
IOC is required to make any actual payments to IRS to satisfy any exposure which
IOC may have for Alternative Minimum Tax for the tax years 1995 or 1996 or both,
National will indemnify Buyer and North from the effects thereof by paying to
North, promptly after receiving notification of such IOC payments, an amount
equal to the product of the lesser of (x) such payments by IOC and (y)
$5,000,000, multiplied by a fraction the numerator of which is the number of
National IOC Shares and the denominator of which is 8,955.411; provided that the
obligation to make such payment shall terminate if demand for payment thereof
has not been made by the second anniversary of the Closing Date.
(f) In no event shall any party hereto be entitled to punitive
or exemplary damages in any action relating to the subject matter of this
Agreement.
10.3 Procedures; Exclusivity. (a) The party seeking indemnification
under Section 10.2 (the "Indemnified Party") agrees to give prompt notice to the
party against whom indemnity is sought (the "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought under such Section; provided that, in
the event of a failure to give such notice, such failure shall not preclude the
party seeing indemnification from obtaining such indemnification, but its right
to indemnification shall be reduced to the extent that such delay prejudiced the
defense of the claim. The Indemnifying Party may, and at the request of the
Indemnified Party shall, participate in and control the defense of any such
suit, action or proceeding at its own expense. The Indemnifying Party shall not
be liable under Section 10.2 for any settlement effected without its consent of
any claim, litigation or proceeding in respect of which indemnity may be sought
hereunder, such consent not to be unreasonably withheld.
(b) After the Closing and except in the case of fraud, Section
10.2 will provide the exclusive remedy for any misrepresentation or breach of
warranty arising out of this Agreement.
ARTICLE 11
TERMINATION
11.1 Grounds for Termination. This Agreement may be terminated at
any time prior to the Closing:
(i) by written agreement of both Sellers and Buyer;
33
<PAGE>
(ii) by National, Bethlehem or Buyer if the Closing shall not have
been consummated on or before April 30, 1997;
(iii) by National, Bethlehem or Buyer if there shall be any law or
regulation that makes consummation of the transactions contemplated hereby
illegal or otherwise prohibited or if consummation of the transactions
contemplated hereby would violate any nonappealable final order, decree or
judgment of any Governmental Entity;
(iv) by National or Bethlehem, if:
(A) there has been a breach of any representation or
warranty of Buyer set forth herein, the effect of which is a
Material Adverse Effect on Buyer;
(B) there has been a breach in any material respect of any
of the covenants or agreements set forth in this Agreement on the
part of North or Buyer, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such
breach has been given by National or Bethlehem to North or Buyer;
or
(v) by Buyer, if:
(A) there has been a breach of any representation or
warranty of any of the Seller Companies set forth herein, the
effect of which is a Material Adverse Effect on any of the Seller
Companies or IOC and its Subsidiaries;
(B) there has been a breach in any material respect of any
of the covenants or agreements set forth in this Agreement on the part
of any of the Seller Companies, which breach is not curable or, if
curable, is not cured within 30 days after written notice of such
breach has been given by North or Buyer to such Seller Company.
The party desiring to terminate this Agreement shall give notice of
such termination to each other party.
11.2 Effect of Termination. If this Agreement is terminated as
permitted by Section 11.1, termination shall be without liability of any party
(or any stockholder, Director, officer, employee, agent, consultant or
representative of such party) to the other parties to this Agreement; provided
that if this Agreement shall be terminated by:
34
<PAGE>
(i) Buyer pursuant to Section 11.1(v), Bethlehem and National shall
severally be liable to pay promptly (but in no event later than
five business days after having received joint notice from North
and Buyer specifying their out-of-pocket costs and expenses
relating in any way whatsoever to the Transactions ("Seller
Termination Payment")) its several share (based on percentage of
IOC Shares being sold) of the Seller Termination Payment to
North and Buyer, which amount shall be payable in same day
funds; or
(ii) National or Bethlehem pursuant to Section 11.1(iv), Buyer and
North shall promptly (but in no event later than five business
days after having received joint notice from Bethlehem and
National specifying their out-of-pocket costs and expenses
relating in any way whatsoever to the Transactions ("Buyer
Termination Payment")), pay the Buyer Termination Payment to
Bethlehem and National, which amount shall be payable in same
day funds;
provided further that, in the event of termination of this Agreement, no parties
shall be entitled to recover for any Damages in excess of the Seller Termination
Payment or the Buyer Termination Payment, as the case may be, except that a
party shall be entitled to reimbursement of its costs and expenses (including
attorney's fees), if any, incurred in enforcing its right to collect the
applicable Termination Payment. The provisions of this Section 11 and of
Sections 7.1 and 12.3 shall survive any termination hereof pursuant to Section
11.1.
12
MISCELLANEOUS
12.1 Notices. All notices, requests and other communications to any
party hereunder shall be in writing (including facsimile transmission) and shall
be given,
if to Buyer or North, to:
North Limited
476 St. Kilda Road
Melbourne, Victoria 3004
Attention: Barry Lewin, Esq.
Fax: (03) 9207 5052
with a copy to:
35
<PAGE>
Osler, Hoskin & Harcourt
P.O. Box 50
1 First Canadian Place
Toronto, Ontario M5X 1B8
Attention: John T. Evans, Esq.
Fax: (416) 862-6666
if to any Bethlehem Company, to:
Bethlehem Steel Corporation
1170 Eighth Avenue
Bethlehem, Pennsylvania 18016
Fax: (610) 694-1500
Attention: Restructured Operations
with a copy to:
Stephen J. Selden, Esq.
Assistant General Counsel
Bethlehem Steel Corporation
1170 Eighth Avenue
Bethlehem, Pennsylvania 18016
Fax: (610) 694-1500
if to any National Company, to:
National Steel Corporation
4100 Edison Lakes Parkway
Mishawaka, Indiana 46545
Fax: (219) 273-7608
Attention: General Counsel
with a copy to:
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
Attention: Edwin Deane Leonard, Esq.
Fax: (212) 450-5591
All such notices, requests and other communications shall be deemed received on
the date of receipt by the recipient thereof if received prior to 5 p.m. in the
place of receipt and such day is a business day in the place of receipt.
Otherwise, any such notice, request or
36
<PAGE>
communication shall be deemed not to have been received until the next
succeeding business day in the place of receipt.
12.2 Amendments and Waivers. (a) Any provision of this Agreement
may be amended or waived prior to the Closing Date if, but only if, such
amendment or waiver is in writing and is signed, in the case of an amendment, by
each party to this Agreement, or in the case of a waiver, by the party against
whom the waiver is to be effective.
(a) No failure or delay by any party in exercising any right, power
or privilege hereunder shall operate as a waiver thereof nor shall any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided shall be cumulative and not exclusive of any rights or remedies
provided by law.
12.3 Expenses. All costs and expenses incurred in connection with
this Agreement shall be paid by the party incurring such cost or expense.
12.4 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns; provided that no party may assign, delegate
or otherwise transfer any of its rights or obligations under this Agreement
without the consent of each other party hereto, except that, subject to the
provisions of Section 6.2, National may assign its rights and obligations
hereunder to National Holdings without the consent of the other parties hereto.
12.5 Governing Law. This Agreement shall be governed by and
construed in accordance with the law of the State of Delaware, without regard to
the conflicts of law rules of such state.
12.6 Counterparts; Third Party Beneficiaries. This Agreement may be
signed in any number of counterparts, each of which shall be an original, with
the same effect as if the signatures thereto and hereto were upon the same
instrument. No provision of this Agreement is intended to confer upon any Person
other than the parties hereto any rights or remedies hereunder.
12.7 Entire Agreement. This Agreement (including the Schedules and
the instruments referred to herein or contemplated hereby) constitutes the
entire agreement among the parties with respect to the subject matter of this
Agreement and supersedes all prior agreements and understandings, both oral and
written, among the parties with respect to the subject matter of this Agreement.
No representation, inducement, promise, understanding, condition or warranty not
set forth herein has been made or relied upon by any party hereto.
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed by their respective authorized officers as of the day and year
first above written.
NORTH LIMITED
By: /s/ Campbell Anderson
---------------------
Title: Managing Director
NATIONAL STEEL CORPORATION
By: /s/ William E. McDonough
------------------------
Title: Treasurer
NS HOLDINGS CORPORATION
By: /s/ Robert E. Foley
-------------------
Title: President
BETHLEHEM STEEL CORPORATION
By: /s/ G. L. Millenbruch
---------------------
Title: Executive Vice President,
Chief Financial Officer
and Treasurer
38
<PAGE>
BETHLEHEM STEEL INTERNATIONAL
CORPORATION
By: /s/ Jonathan P. Krum
--------------------
Title: President
39
<PAGE>
Exhibit 10-A
AMENDMENT NUMBER ONE TO
THE NATIONAL STEEL CORPORATION
1993 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
Amendment of the Plan. Effective as of June 23, 1997, the Board of
Directors of National Steel Corporation, pursuant to the authority reserved in
Section 10 of the National Steel Corporation 1993 Non-Employee Directors' Stock
Option Plan ("Plan"), hereby amends the Plan as follows:
1. A new Section 6.03 is hereby added to read, in its entirety, as follows:
6.03 Stock Appreciation Rights. The Committee is authorized to grant
Stock Appreciation Rights to Participants on the following terms
and conditions:
(i) Right to Payment. A Stock Appreciation Right shall confer on
the Participant to whom it is granted a right to receive, upon
exercise thereof, the excess of (i) the Fair Market Value of a
Share on the date of exercise, or if the Committee shall so
determine, at any time during a specified period before or after
the date of exercise, over (ii) the grant price of the Stock
Appreciation Right as determined by the Committee as of the date
of grant of the Stock Appreciation Right.
(ii) Other Terms. The terms, methods of exercise, methods of
settlement and any other terms and conditions of any Stock
Appreciation Right shall be determined by the Committee. A Stock
Appreciation Right may be granted either alone or in addition to,
in tandem with or in substitution for, any other Award granted
under the Plan.
2. Section 2.01.1 is hereby amended to read, in its entirety, as follows:
2.01.1 "Award" means any Option or Stock Appreciation Right granted under
the Plan.
3. A new Section 2.01.16 is hereby added to read, in its entirety, as follows:
2.01.16 "Stock Appreciation Right" means a right, granted under Section
6.03 hereof, to be paid an amount measured by the appreciation in
the Fair Market Value of Shares from the date of grant to the date
of exercise.
3
<PAGE>
Exhibit 10-B
National Steel Corporation
--------------------------
1993 Long-Term Incentive Plan
-----------------------------
Stock Option Cancellation
-------------------------
and Stock Appreciation Right Grant Agreement
--------------------------------------------
This Agreement (the "Agreement"), dated as of _____________, 1997, by and
between National Steel Corporation (the "Company") and
_____________________________________(the "Grantee").
WHEREAS, the Company maintains the 1993 Long-Term Incentive Plan (the
"Plan"); and
WHEREAS, the Plan provides for the grant of stock appreciation rights,
including without limitation, in substitution for other awards previously
granted under the Plan; and
WHEREAS, the Grantee has previously been granted an option under the
Plan to acquire _____ Shares at an exercise price of $ ____ per share pursuant
to an agreement dated as of ______________ (the "Stock Option"); and
WHEREAS, the Company wishes to grant to the Grantee a stock
appreciation right in substitution for, and in exchange for the cancellation of,
the Stock Option, and the Grantee wishes to receive from the Company such stock
appreciation right in substitution for, and in exchange for the cancellation of,
such Stock Option, in accordance with the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, BE IT RESOLVED, that the Company and the Grantee
hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
have the meanings set forth in the Plan.
2. Cancellation of Option. The Stock Option is hereby cancelled and
of no further force or effect.
3. Grant of Stock Appreciation Right. The Company hereby grants to
the Grantee a Stock Appreciation Right (the "SAR"), with respect to __________
Shares at an exercise price of $ ____ per Share. The SAR shall become vested
and exercisable with respect to all of the Shares on ______________. Upon
exercise of the SAR, the Grantee shall be entitled to receive from the Company a
cash payment equal to (a) the excess, if any, of the Fair Market Value of a
Share on the date of such exercise over the exercise price of the SAR,
multiplied by (b) the number of Shares with respect to which the SAR is then
being exercised.
1
<PAGE>
4. Notice of Exercise. Notice of exercise of the SAR must be given
in writing to the Senior Vice President, Administration and Secretary of the
Company, or to such other person as the Company may hereafter specify in writing
to the Grantee. The SAR shall be deemed exercised on the date on which such
notice is received by the Company. Such notice may be given by personal
delivery, facsimile, overnight courier or by mail.
5. Other Terms and Conditions. The SAR shall be subject to the terms
of the Plan and shall be further subject to all other terms and conditions that
were applicable to the Stock Option immediately prior to its cancellation
pursuant to this Agreement, including without limitation (a) the expiration date
of the SAR and (b) the terms and conditions affecting the Grantee's right to
exercise the SAR during and subsequent to the Grantee's employment with the
Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
National Steel Corporation
By: _________________________
Name:
Title:
____________________________
[Grantee]
<PAGE>
Exhibit 10-C
National Steel Corporation
--------------------------
1993 Non-Employee Directors' Stock Option Plan
----------------------------------------------
Stock Option Cancellation
-------------------------
and Stock Appreciation Right Grant Agreement
--------------------------------------------
This Agreement (the "Agreement"), dated as of ______________ 1997, by and
between National Steel Corporation (the "Company") and__________________
___________________(the "Grantee").
WHEREAS, the Company maintains the 1993 Non-Employee Directors' Stock
Option Plan (the "Plan"); and
WHEREAS, the Plan provides for the grant of stock appreciation rights,
including without limitation, in substitution for other awards previously
granted under the Plan; and
WHEREAS, the Grantee has previously been granted an option under the
Plan to acquire ______ Shares at an exercise price of $ _____ per share pursuant
to an agreement dated as of ________________ (the "Stock Option"); and
WHEREAS, the Company wishes to grant to the Grantee a stock
appreciation right in substitution for, and in exchange for the cancellation of,
the Stock Option, and the Grantee wishes to receive from the Company such stock
appreciation right in substitution for, and in exchange for the cancellation of,
such Stock Option, in accordance with the terms and conditions set forth in this
Agreement.
NOW, THEREFORE, BE IT RESOLVED, that the Company and the Grantee
hereby agree as follows:
1. Definitions. Capitalized terms not otherwise defined herein shall
have the meanings set forth in the Plan.
2. Cancellation of Option. The Stock Option is hereby cancelled and
of no further force or effect.
3. Grant of Stock Appreciation Right. The Company hereby grants to
the Grantee a Stock Appreciation Right (the "SAR"), with respect to _______
Shares at an exercise price of $____ per Share. The SAR shall become vested and
exercisable with respect to all of the Shares on _______________. Upon exercise
of the SAR, the Grantee shall be entitled to receive from the Company a cash
payment equal to (a) the excess, if any, of the Fair Market Value of a Share on
the date of such exercise over the exercise price of the SAR, multiplied by (b)
the number of Shares with respect to which the SAR is then being exercised.
2
<PAGE>
4. Notice of Exercise. Notice of exercise of the SAR must be given
in writing to the Senior Vice President, Administration and Secretary of the
Company, or to such other person as the Company may hereafter specify in writing
to the Grantee. The SAR shall be deemed exercised on the date on which such
notice is received by the Company. Such notice may be given by personal
delivery, facsimile, overnight courier or by mail.
5. Other Terms and Conditions. The SAR shall be subject to the terms
of the Plan and shall be further subject to all other terms and conditions that
were applicable to the Stock Option immediately prior to its cancellation
pursuant to this Agreement, including without limitation (a) the expiration date
of the SAR and (b) the terms and conditions affecting the Grantee's right to
exercise the SAR during and subsequent to the Grantee's service as a director of
the Company.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
National Steel Corporation
By: ___________________________
Name:
Title:
______________________________
[Grantee]
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 426,884
<SECURITIES> 0
<RECEIVABLES> 310,126
<ALLOWANCES> 25,672
<INVENTORY> 380,799
<CURRENT-ASSETS> 1,092,137
<PP&E> 3,396,976
<DEPRECIATION> 2,163,598
<TOTAL-ASSETS> 2,550,316
<CURRENT-LIABILITIES> 644,531
<BONDS> 321,341
62,780
36,650
<COMMON> 433
<OTHER-SE> 632,053
<TOTAL-LIABILITY-AND-EQUITY> 2,550,316
<SALES> 824,869
<TOTAL-REVENUES> 824,869
<CGS> 695,230
<TOTAL-COSTS> 695,230
<OTHER-EXPENSES> 48,416
<LOSS-PROVISION> 3,796
<INTEREST-EXPENSE> 9,390
<INCOME-PRETAX> 71,833
<INCOME-TAX> 9,358
<INCOME-CONTINUING> 25,886
<DISCONTINUED> 0
<EXTRAORDINARY> 5,397
<CHANGES> 0
<NET-INCOME> 57,078
<EPS-PRIMARY> 1.26
<EPS-DILUTED> 1.26
</TABLE>
