<PAGE>
1998
Third Quarter
UNITED STATES
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 September 30, 1998
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)
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 219-273-7000
code):
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 November 6, 1998, was 43,288,240 shares, consisting of 22,100,000
shares of Class A Common Stock and 21,188,240 shares of Class B Common Stock.
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION PAGE
----------
<S> <C>
Consolidated Statements of Income -
Three Months Ended September 30, 1998 and 1997 3
Consolidated Statements of Income -
Nine Months Ended September 30, 1998 and 1997 4
Consolidated Balance Sheets -
September 30, 1998 and December 31, 1997 5
Consolidated Statements of Cash Flows -
Nine Months Ended September 30, 1998 and 1997 6
Consolidated Statements of Changes in
Stockholders' Equity and Redeemable
Preferred Stock-Series B -
Nine Months Ended September 30, 1998 and
Year Ended December 31, 1997 7
Notes to Consolidated Financial Statements 8
Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II. OTHER INFORMATION
Legal Proceedings 18
Exhibits and Reports on Form 8-K 18
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended September 30,
1998 1997
-------- --------
<S> <C> <C>
Net Sales $706,361 $788,663
Cost of products sold 615,200 653,715
Selling, general and administrative expense 41,380 37,979
Depreciation 32,383 31,201
Equity (income) of affiliates (757) (301)
Unusual (credit) (26,621) --
-------- --------
Income from Operations 44,776 66,069
Other (Income) Expense
Interest and other financial income (3,020) (6,245)
Interest and other financial expense 7,055 7,436
Net gain on disposal of non-core assets -- (28,804)
-------- --------
4,035 (27,613)
-------- --------
Income Before Income Taxes 40,741 93,682
Income tax provision 8,238 15,121
-------- --------
Net Income 32,503 78,561
Less preferred stock dividends -- (2,740)
-------- --------
Net Income Applicable to Common Stock $ 32,503 $ 75,821
======== ========
Basic Earnings Per Share:
Net Income Applicable to Common Stock $ 0.75 $ 1.76
======== ========
Weighted average shares outstanding (in thousands) 43,288 43,288
Diluted Earnings Per Share:
Net Income Applicable to Common Stock $ 0.75 $ 1.72
======== ========
Weighted average shares outstanding (in thousands) 43,288 43,981
Dividends paid per Common Share $ 0.07 $ --
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands of Dollars, Except Per Share Amounts)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1998 1997
----------------- -----------------
<S> <C> <C>
Net Sales $2,162,636 $2,371,150
Cost of products sold 1,908,047 2,006,970
Selling, general and administrative expense 112,918 107,360
Depreciation 95,907 103,336
Equity income of affiliates (993) (1,067)
Unusual credit (26,621) --
---------- ----------
Income from Operations 73,378 154,551
Other (Income) Expense
Interest and other financial income (12,518) (12,672)
Interest and other financial expense 20,255 26,715
Net gain on disposal of non-core assets (2,685) (54,189)
---------- ----------
5,052 (40,146)
---------- ----------
Income Before Income Taxes and Extraordinary Item 68,326 194,697
Income tax provision 3,416 24,546
---------- ----------
Income Before Extraordinary Item 64,910 170,151
Extraordinary item (net of applicable tax) -- (5,397)
---------- ----------
Net Income 64,910 164,754
Less preferred stock dividends -- (8,218)
---------- ----------
Net Income Applicable to Common Stock $ 64,910 $ 156,536
========== ==========
Basic Earnings Per Share:
Income before extraordinary item $ 1.50 $ 3.74
Extraordinary item -- (0.12)
---------- ----------
Net Income Applicable to Common Stock $ 1.50 $ 3.62
========== ==========
Weighted average shares outstanding (in thousands) 43,288 43,288
Diluted Earnings Per Share:
Income before extraordinary item $ 1.50 $ 3.71
Extraordinary item -- (0.12)
---------- ----------
Net Income Applicable to Common Stock $ 1.50 $ 3.59
========== ==========
Weighted average shares outstanding (in thousands) 43,340 43,635
Dividends paid per Common Share $ 0.21 $ --
========== ==========
</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>
September 30, December 31,
1998 1997
--------------- ----------------
Assets
<S> <C> <C>
Current assets
Cash and cash equivalents $ 106,641 $ 312,642
Investments 16,284 25,000
Receivables - net 302,257 284,306
Inventories - net:
Finished and semi-finished products 344,710 261,648
Raw materials and supplies 140,591 112,554
---------- ----------
485,301 374,202
Deferred tax assets 8,597 8,597
---------- ----------
Total current assets 919,080 1,004,747
Investments in affiliated companies 18,366 15,709
Property, plant and equipment 3,454,648 3,378,131
Less accumulated depreciation 2,236,983 2,149,107
---------- ----------
1,217,665 1,229,024
Other assets 212,721 203,979
---------- ----------
Total Assets $2,367,832 $2,453,459
========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 236,471 $ 246,085
Accrued liabilities 266,405 359,749
Current portion of long term debt 31,658 31,533
---------- ----------
Total current liabilities 534,534 637,367
Long-term debt 288,472 310,976
Other long-term liabilities 652,029 668,138
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
Additional paid-in-capital 491,835 491,835
Retained earnings 401,695 345,876
Accumulated other comprehensive income:
Minimum pension liability (1,166) (1,166)
---------- ----------
Total stockholders' equity 892,797 836,978
---------- ----------
Total Liabilities and Stockholders' Equity $2,367,832 $2,453,459
========== ==========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1998 1997
------------------ -----------------
Cash Flows from Operating Activities:
<S> <C> <C>
Net income $ 64,910 $ 164,754
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation 95,907 103,336
Carrying charges related to facility sales and plant closings 4,029 15,534
Net gain on disposal of non-core assets (2,685) (54,189)
Equity income (993) (1,067)
Dividends from affiliates 1,800 6,808
Long-term pension liability (31,189) (40,900)
Postretirement benefits 22,586 15,981
Extraordinary item (net) -- 5,397
Deferred income taxes (6,584) (16,200)
Changes in working capital items:
Investments 8,716 --
Receivables (17,951) (1,621)
Inventories (111,099) 37,187
Accounts payable (9,614) 19,232
Accrued liabilities (93,344) 46,517
Other (18,353) (3,820)
--------- ---------
Net Cash Provided by (Used in) Operating Activities (93,864) 296,949
--------- ---------
Cash Flows from Investing Activities:
Proceeds from the sale of non-core assets 3,278 317,612
Purchases of plant and equipment (83,945) (101,006)
Other -- (362)
--------- ---------
Net Cash Provided by (Used in) Investing Activities (80,667) 216,244
--------- ---------
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 (30,379) (30,309)
Borrowings 8,000 2,729
Dividend payments on Common Stock (9,091) --
Dividend payments on Preferred Stock-Series A -- (3,014)
Dividend payments on Preferred Stock-Series B -- (210)
Payment of released Weirton benefit liabilities -- (9,878)
Payment of unreleased Weirton liabilities and their release in lieu of
cash dividends on Preferred Stock-Series B -- (5,818)
--------- ---------
Net Cash (Used in) Financing Activities (31,470) (205,328)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (206,001) 307,865
Cash and cash equivalents at beginning of the period 312,642 109,041
--------- ---------
Cash and cash equivalents at end of the period $ 106,641 $ 416,906
========= =========
</TABLE>
See notes to consolidated financial statements.
6
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
AND REDEEMABLE PREFERRED STOCK - SERIES B
(In Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Common Common Preferred Additional Other Total Redeemable
Stock - Stock - Stock - Paid-In Comprehensive Retained Stockholders' Preferred Stock -
Class A Class B Series A Capital Income Earnings Equity Series B
-------- ------- --------- ---------- ------------- --------- ------------- -----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1997 $ 221 $ 212 $36,650 $465,359 $ (505) $142,625 $644,562 $63,530
Comprehensive Income:
Net income 213,503 213,503
Other comprehensive income:
Minimum pension liability (661) (661)
-------
Comprehensive income 212,842
-------
Amortization of excess of
book value over redemption
value of Redeemable
Preferred Stock-Series B 1,354 1,354 (1,354)
Cumulative dividends on
Preferred Stock-
Series A and B (11,606) (11,606)
Redemption of Preferred
Stock-Series A (36,650) (36,650)
Redemption of Redeemable
Preferred Stock-Series B
and related settlement
with Avatex 26,476 26,476 (62,176)
-------- ------- --------- ---------- ------------- --------- ------------- -----------------
BALANCE AT
DECEMBER 31, 1997 221 212 ---- 491,835 (1,166) 345,876 836,978 ----
Net income and
comprehensive income 64,910 64,910
Dividends paid (9,091) (9,091)
-------- ------- --------- ---------- ------------- --------- ------------- -----------------
BALANCE AT
SEPTEMBER 30, 1998 $ 221 $ 212 $ ---- $491,835 $ (1,166) $401,695 $892,797 $ ----
======== ======= ========= ========== ============= ========= ============= =================
</TABLE>
See notes to consolidated financial statements.
7
<PAGE>
NATIONAL STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998 (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 item
discussed in Note 3. The financial results presented for the three and nine
month periods ended September 30, 1998 are not necessarily indicative of results
of operations for the full year. The Annual Report of the Company on Form 10-K,
as amended, for the year ended December 31, 1997 (the "1997 Form 10-K") contains
additional information and should be read in conjunction with this report.
The Company has engaged Ernst & Young LLP to conduct a review of the
consolidated financial statements presented herein, in accordance with standards
established by the American Institute of Certified Public Accountants. Their
review report is included as an exhibit to this Form 10-Q.
Certain amounts in the 1997 financial statements have been reclassified to
conform to current year presentation.
NOTE 2 - AUDIT COMMITTEE INQUIRY AND SECURITIES AND EXCHANGE COMMISSION INQUIRY
In the third quarter of 1997, the Audit Committee of the Company's Board of
Directors was informed of allegations about managed earnings, including excess
reserves and the accretion of such reserves to income over multiple periods, as
well as allegations about deficiencies in the system of internal controls. The
Audit Committee engaged legal counsel who, with the assistance of an accounting
firm, inquired into these matters. The Company, based upon the inquiry, restated
its financial statements for certain prior periods. On January 29, 1998, the
Company filed a Form 10-K/A for 1996 and Forms 10-Q/A for the first, second and
third quarters of 1997 reflecting the restatements. See these Forms for
information about the restatement, the report of legal counsel to the Audit
Committee and the recommendations, approved by the Board of Directors, to
improve the Company's system of internal controls contained in the
aforementioned report.
The Securities and Exchange Commission (the "Commission") has authorized an
investigation pursuant to a formal order of investigation relating to the
matters described above. The Company has been cooperating with the staff of the
Commission and intends to continue to do so.
Additionally, a complaint has been filed seeking shareholder class action status
and alleging violations of the federal securities laws generally relating to the
matters described above. The Company believes that the lawsuit is without merit
and intends to defend against it vigorously.
NOTE 3 - UNUSUAL CREDIT
During the third quarter of 1998, the Company recorded an unusual credit of
$26.6 million resulting from the settlement of a lawsuit seeking a reduction in
the assessed value of the Company's real and personal property at the Great
Lakes Division relating to the 1991 through 1997 tax years. The Company received
tax refunds and was granted a lower assessment base that will result in future
tax savings.
8
<PAGE>
NOTE 4 - 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.
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. Costs for environmental
assessments or remediation activities, or penalties or fines that may be imposed
for noncompliance with environmental laws and regulations, are accrued when it
is probable that liability for such costs will be incurred and the amount of
such costs can be reasonably estimated.
The Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), and similar state superfund statutes generally
impose joint and several liability on present and former owners and operators,
transporters and generators for remediation of contaminated properties,
regardless of fault. The Company and certain of its subsidiaries are involved as
potentially responsible parties ("PRPs") at a number of off-site CERCLA or state
superfund site proceedings. 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 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 $18.0 million and
$18.7 million at September 30, 1998 and December 31, 1997, 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 5 - EARNINGS PER SHARE
Basic earnings per share ("EPS") is computed by dividing net income available to
common stockholders by the weighted average number of shares of common stock
outstanding during the period. Diluted EPS is computed by dividing net income
available to common stockholders by the weighted average number of common stock
shares outstanding during the period plus dilutive stock options which are
determined through the application of the treasury stock method.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
This commentary should be read in conjunction with the third quarter and first
nine months of 1998 consolidated financial statements and selected notes and the
Annual Report of National Steel Corporation on Form 10-K, as amended, for the
year ended December 31, 1997 for a full understanding of the Company's financial
condition and results of operations.
Results of Operations
Comparative operating results for the nine and three month periods ending
September 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
Nine Months ended September 30, Three Months ended September 30,
1998 1997 1998 1997
---- ---- ---- ----
(Dollars in millions) (Dollars in millions)
<S> <C> <C> <C> <C>
Net Sales $2,162.6 $2,371.1 $706.4 $788.7
Gross margin 158.7 260.8 58.8 103.7
Gross margin as a percentage
of net sales 7.3% 11.0% 8.3% 13.2%
Tons shipped (in thousands) 4,235 4,645 1,366 1,519
</TABLE>
Net Sales
Net sales for the first nine months of 1998 decreased $208.5 million or 8.8%
compared to the corresponding 1997 period. A decrease in tons shipped of
410,000 as compared to the same period in 1997 is the primary reason for the
decrease in sales. Increased competition from low-priced imports and the Great
Lakes Division "A" blast furnace reline early in the year were the primary
factors contributing to the decrease in tons shipped.
Net sales for the third quarter of 1998 decreased $82.3 million or 10.4%
compared to the corresponding 1997 period. Shipments decreased 153,000 tons in
the third quarter of 1998 primarily as a result of increased competition from
low-priced imports and the work stoppage at General Motors, one of the Company's
largest customers. The decrease in tons shipped resulted in a decrease in sales
of approximately $77.0 million when compared to the third quarter of 1997.
Market and customer mix had approximately a $4.0 million negative impact on
third quarter sales as compared to the prior year.
The Company anticipates that high levels of low-priced imported steel and the
resulting above normal steel inventory levels at service centers will continue
to negatively impact shipments as compared to prior year levels through the end
of the year. In response, the Company, in October 1998, decided to temporarily
idle a blast furnace at its Great Lakes Division and is aggressively seeking to
reduce costs. Shipment and pricing levels are likely to continue to be
negatively impacted until the amount of low-priced imports is reduced and steel
inventories have been brought down to more normal levels.
Gross Margin (net sales less cost of products sold and depreciation)
Gross margin in the first nine months of 1998 decreased $102.1 million or 39.1%
compared to the corresponding 1997 period. Approximately $57.0 million of the
reduction in gross margin corresponds to the decrease in tons shipped as
discussed above. Lower average selling prices partially offset by an
improvement in product mix resulted in a reduction in gross margin of
approximately $53.0 million. The Great Lakes Division "A" blast furnace outage
along with higher maintenance costs lowered margins by approximately $43.0
million in comparison to the corresponding 1997 period. This was partially
offset by improved operating unit yield performances, lower depreciation expense
as a result of the second quarter 1997 sale of the Great Lakes Division No. 5
coke battery, reduced outside steel purchases and lower costs as a result of the
settlement with Avatex Corporation. These offsetting items amounted to an
increase of approximately $50.0 million in gross margin.
10
<PAGE>
Gross Margin - (Continued)
- --------------------------
Gross margin in the third quarter of 1998 decreased $44.9 million in comparison
to the corresponding 1997 period. Approximately $20.0 million of this decrease
in gross margin is the result of decreased shipments as described in the net
sales discussion above. In addition, lower selling prices and product mix
changes resulted in a decrease of approximately $24.0 million.
Unusual Credit - Great Lakes Division Property Tax Settlement
- -------------------------------------------------------------
On August 31, 1998, the Michigan Tax Tribunal issued Consent Judgments approving
property tax refunds relating to the 1991 through 1997 tax years as well as a
lower assessment base that will result in future tax savings. Under the Consent
Judgments, the Company will receive a net amount of approximately $23.0 million.
This amount, along with related interest income and a reduction of certain
property tax accruals, was recorded as an unusual credit of $26.6 million.
Selling, General and Administrative Expense
- -------------------------------------------
Selling, general and administrative expense in the first nine months of 1998 was
$112.9 million, or 5.2% of net sales, compared to $107.4 million, or 4.5% of net
sales, in the corresponding 1997 period. This $5.5 million increase is
primarily the result of higher benefit costs related to certain exiting senior
executives, Year 2000 project expenses and professional and legal expenses
partially offset by lower mainframe system costs.
Selling, general and administrative expense in the third quarter of 1998 was
$41.4 million, or 5.9% of net sales, compared to $38.0 million, or 4.8% of net
sales, in the corresponding 1997 period. This $3.4 million increase is
primarily due to higher benefit costs related to certain exiting senior
executives, Year 2000 project expenses and legal expenses when compared to the
third quarter of 1997.
Net Financing Costs
- -------------------
In the nine months ended September 30, 1998, net financing costs decreased $6.3
million compared to the same 1997 period. This decrease resulted mainly from
reduced interest expense due to lower average debt balances during 1998
resulting from the repayment of the outstanding debt associated with the Great
Lakes Division No. 5 coke battery during 1997.
Net financing costs for the three months ended September 30, 1998 increased $2.8
million compared to the same 1997 period. This is primarily attributable to a
decrease in interest income as a result of lower cash balances available for
investment.
Net Gain on Disposal of Non-Core Assets and Other Related Activities
- --------------------------------------------------------------------
During the second quarter of 1998, the Company sold certain non-core land and
property at its Midwest Division and recorded a net gain of $2.7 million related
to the sale.
During the third quarter of 1997, the Company sold two coal properties. The
Company received proceeds for the property sales of $7.7 million. In
conjunction with one of the property sales, the purchaser agreed to assume the
potential environmental liabilities of approximately $8.0 million related to the
property. Additionally, during the third quarter of 1997, the Company received
information concerning other liabilities related to its shutdown of coal
properties that resulted in a reduction of the related accrued liabilities. As
such, the Company recorded an aggregate net gain related to its shutdown of coal
properties of $28.8 million during the third quarter of 1997.
In addition, during the second quarter of 1997, the Company disposed of certain
non-core business assets that resulted in a net gain of $25.3 million. The
assets included the sale of the Company's 21.73% minority equity interest in the
Iron Ore Company of Canada, which netted a gain of $37.0 million; the sale of
its Great Lakes Division No. 5 coke oven battery and related coal inventories,
which netted a loss of $11.1 million; and the sale of a coal mine property,
which netted a gain of $3.0 million. Additionally, the Company recorded a $3.6
million charge related to the decision to cease operations of American Steel
Corporation, a wholly owned subsidiary, which pickled and slit steel.
11
<PAGE>
Income Taxes
- ------------
The Company recorded current taxes payable of $10.0 million and $40.7 million in
the nine months ending September 30, 1998 and 1997, respectively. The Company
also recorded a deferred tax benefit of $6.6 million and $16.2 million in the
first nine months of 1998 and 1997, respectively.
The Company recorded current taxes payable of $4.0 million and $20.5 million in
the third quarter of 1998 and 1997, respectively. The Company also recorded
deferred tax expense of $4.2 million in the third quarter of 1998 and a deferred
tax benefit of $5.4 million in the third quarter of 1997.
The Company's effective tax rate is lower than the combined federal and state
statutory rates primarily because of continued utilization of available federal
and state net operating loss carryforwards and the recognition of additional
deferred tax benefits.
12
<PAGE>
Liquidity and Sources of Capital
- --------------------------------
The Company's liquidity needs arise primarily from capital investments, working
capital requirements, pension funding requirements, principal and interest
payments on its indebtedness, common stock dividend payments and stock
repurchase programs. 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 September 2002 and a $100.0 million and a $50.0 million
credit facility, both of which are secured by the Company's inventories (the
"Inventory Facilities") and expire in May 2000 and July 1999, 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 September 30, 1998, 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 $81.0 million. During the first nine months of 1998, the
maximum availability under the Receivables Purchase Agreement, after reduction
of letters of credit outstanding, varied from $76.3 million to $119.0 million
and was $119.0 million as of September 30, 1998.
At September 30, 1998, total debt as a percentage of total capitalization
decreased to 26.4% as compared to 29.0% at December 31, 1997. Cash and cash
equivalents totaled $106.6 million at September 30, 1998 compared to $312.6
million at December 31, 1997.
Cash Flows from Operating Activities
- ------------------------------------
For the nine months ended September 30, 1998, cash used in operating activities
amounted to $93.9 million, a decrease of $390.8 million in comparison to the
same period in 1997. This decrease is primarily attributable to the impact of
working capital items and a decrease in net income. The increase in inventories
of $111.1 million from December 31, 1997 balances was a significant use of cash
during the first nine months of 1998. In October 1998, the Company decided to
temporarily idle a blast furnace at its Great Lakes Division in order to
stabilize inventory levels through the end of 1998. Other working capital items
impacting cash used in operating activities include decreases in accrued
liabilities mainly due to pension contributions and bonus payments, partially
offset by noncash charges for depreciation and postretirement benefits. Net
income of $64.9 million, including an unusual credit of $26.6 million, decreased
$99.8 million as compared to the nine months ended September 30, 1997. See
"Results of Operations" above for information regarding items that impacted net
income.
Cash Flows from Investing Activities
- ------------------------------------
Capital investments for the nine months ended September 30, 1998 amounted to
$83.9 million. The 1998 spending is mainly attributable to the construction of
the new coating line at the Midwest Division, the reline of the Great Lakes
Division "A" blast furnace, and the Company's new order fulfillment system.
Cash Flows from Financing Activities
- ------------------------------------
During the first nine months of 1998, the Company utilized $31.5 million of cash
for financing activities that included scheduled debt payments, as well as
dividend payments on the Company's common stock.
13
<PAGE>
Other
- -----
Year 2000 Issues
- ----------------
The "Year 2000" computer software problem is caused by programming practices
that were originally intended to conserve computer memory by allowing only two
digits in the date field, with the assumption being that the first two digits
would be "19." Thus, there is a risk that systems, products and equipment which
use date-sensitive software or computer chips with two digit date fields will
recognize a date using "00" as the year 1900, rather than the year 2000. If not
corrected, this error could cause such systems, products and equipment to fail
or give erroneous results.
The Company has established a Year 2000 Project team to coordinate and oversee
the Year 2000 remediation project. The team is supervised by an executive
steering committee that meets regularly to monitor progress. The project
includes the assessment and remediation of business software and other
information technology items, as well as non-information technology items, such
as process control software and embedded software in hardware devices. The
Company has also sent written inquiries to its key vendors and suppliers to
determine their Year 2000 compliance. The responses to these inquiries are
being used to evaluate the extent to which the Company's operations could be
interrupted as a result of the failure of a vendor or supplier to become Year
2000 compliant. Most key suppliers who have replied thus far to the Company's
inquiries have indicated that they expect to be Year 2000 compliant on a timely
basis. The Company intends to conduct follow up site visits with certain key
suppliers to verify the responses to these written inquiries.
In order to verify the status of the Company's year 2000 compliance efforts, a
major independent accounting and consulting firm was retained to perform a
limited review of the Company's project plan and remediation activities and to
provide its observations. The project is ongoing and will be completed in the
fourth quarter of 1998.
Following is a table which shows the current status and expected substantial
completion dates for the major components of the Company's Year 2000 project:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------
Estimated
Description Substantial Completion
- --------------------------------------------------------------------------------------------------------------
<S> <C>
General:
- --------------------------------------------------------------------------------------------------------------
Development of a Year 2000 Project plan Complete
- --------------------------------------------------------------------------------------------------------------
Limited review of Year 2000 Project plan by a major independent accounting
and consulting firm 4th quarter 1998
- --------------------------------------------------------------------------------------------------------------
Mainframe business systems:
- --------------------------------------------------------------------------------------------------------------
Transition of data service center to Year 2000 compliant provider 4th quarter 1998
- --------------------------------------------------------------------------------------------------------------
Business critical applications--remediated, tested and implemented 4th quarter 1998
- --------------------------------------------------------------------------------------------------------------
Non-business critical applications--remediated, tested and implemented 2nd quarter 1999
- --------------------------------------------------------------------------------------------------------------
Non mainframe computer equipment and software:
- --------------------------------------------------------------------------------------------------------------
Inventory and assessment of all non mainframe computer equipment 4th quarter 1998
- --------------------------------------------------------------------------------------------------------------
Business computers at divisions remediated, tested and implemented 2nd quarter 1999
- --------------------------------------------------------------------------------------------------------------
Process control computers and embedded devices--assessed and remediated 2nd quarter 1999
- --------------------------------------------------------------------------------------------------------------
Vendors, customers and others:
- --------------------------------------------------------------------------------------------------------------
Vendor readiness evaluations prepared and mailed Complete
- --------------------------------------------------------------------------------------------------------------
Review of responses and assessment of risk Ongoing
- --------------------------------------------------------------------------------------------------------------
Contingency plan:
- --------------------------------------------------------------------------------------------------------------
Development and review of contingency plan 2nd quarter 1999
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The Company's Year 2000 compliance effort is currently progressing according to
schedule. The remediation of the coding for the mission critical mainframe based
applications has been completed. These programs are currently being tested to
confirm that the remediation adequately corrected the problems, and they are
scheduled to be returned to production by the end of 1998. Other non-critical
mainframe based applications are currently being
14
<PAGE>
Year 2000 Issues--(Continued)
- ----------------------------
remediated. The inventory, assessment and remediation of all non-mainframe
hardware, business computers, process control computers and embedded devices are
proceeding according to schedule. The Company has discovered some computer
equipment that is not Year 2000 compliant and has made arrangements to replace
it. An inventory of all desktop computer equipment, such as personal computers
and printers, is being completed in the fourth quarter of 1998.
The Company expects to incur total costs of approximately $18.5 million to
address all of its Year 2000 issues. This total consists of: (i) approximately
$10.0 million to remediate mainframe business systems; (ii) approximately $4.7
million to remediate business computers at the divisions and other non-mainframe
desk-top equipment; (iii) approximately $1.9 million to remediate process
control computers and embedded devices; (iv) approximately $1.4 million for
accelerated replacement of software which is not Year 2000 compliant; and (v)
approximately $0.5 million for other related administrative costs. Of this
total, the Company spent approximately $1.8 million during 1997 and $4.0 million
during the first nine months of 1998. These cost estimates do not include any
costs that may be incurred by the Company as a result of the failure of any
supplier or customer of the Company, or any other party with whom the Company
does business, to become Year 2000 compliant. Year 2000 costs have been paid by
the Company as operating expenses from the Company's information technology
budget. The Company has not deferred any other information technology projects
as a result of its Year 2000 efforts.
Thus far, the Company's Year 2000 efforts have focused on (i) the assessment and
remediation of information technology and non-information technology items and
(ii) the evaluation of the Year 2000 compliance status of key suppliers,
customers and other parties with whom the Company does business. The information
obtained by the Company from these activities will be used by the Company to
determine the most reasonably likely worst case scenarios which could result
from a failure by the Company or third parties to become Year 2000 compliant and
to develop any necessary contingency plans for handling these worst case
scenarios. The Company intends to make these determinations and create any
necessary contingency plans by the end of the second quarter of 1999.
Based upon the information currently available to it, the Company believes that
the implementation of its Year 2000 Project Plan will adequately resolve the
Company's Year 2000 issues. However, since it is not possible to anticipate all
possible future outcomes, there could be circumstances under which the Company's
business operations are disrupted as a result of Year 2000 problems. These
disruptions could be caused by (i) the failure of the Company's systems or
equipment to operate as a result of Year 2000 problems, (ii) the failure of the
Company's suppliers to provide the Company with raw materials, utilities,
supplies or other products or services which are necessary to sustain the
Company's manufacturing processes or other business operations, or (iii) the
failure of the Company's customers to accept delivery of the Company's products
as a result of their Year 2000 problems. Any such disruption to the Company's
business operations could have a material adverse effect on the financial
condition and results of operations of the Company.
Statements contained herein regarding the estimated costs and time to complete
the Company's Year 2000 projects, and the potential effects of Year 2000
problems, are "forward looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. A variety of factors could cause the
actual costs, time for completion and effects to differ from those which are
currently expected. These factors include, but are not limited to, the
following: (1) the failure of the Company to accurately identify all software
and hardware devices which are not Year 2000 compliant; (2) the failure of the
remediation actions identified by the Company to adequately correct the Year
2000 problems; (3) the failure of the Company's customers or suppliers and other
third parties with whom the Company does business to achieve Year 2000
compliance; (4) the inability of the Company to find sufficient outside
resources to assist the Company in its Year 2000 remediation activities; and (5)
increases in costs and fees charged by third parties retained by the Company to
assist in the Company's Year 2000 remediation activities.
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments
of an Enterprise and Related Information. The
15
<PAGE>
Impact of Recently Issued Accounting Standards--(Continued)
- ----------------------------------------------------------
Statement changes the way public companies are required to report operating
segment information in annual financial statements and in interim financial
reports to stockholders. Operating segments are determined consistent with the
way management organizes and evaluates financial information internally for
making decisions and assessing performance. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. The Statement is effective for financial statements for fiscal years
beginning after December 15, 1997, and the Company will adopt the Statement, as
required, effective December 31, 1998. Although the Company continues to
evaluate the impact that this Statement will have on its financial reporting,
the Company does not expect significant additional reporting requirements.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, which is effective for fiscal years
beginning after December 15, 1997, and will be adopted by the Company, as
required, effective December 31, 1998. The statement will standardize
disclosures about pensions and other postretirement benefits in an effort to
make the information more understandable. Implementation of this disclosure
standard will not affect the financial position or results of operations of the
Company.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. The Statement will
require the Company to recognize all derivatives on the balance sheet at fair
value. Derivatives that are not hedges must be adjusted to fair value through
income. If the derivative is a hedge, depending on the nature of the hedge,
changes in the fair value of derivatives will either be offset against the
change in fair value of hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive income until the hedged item is
recognized in earnings. The ineffective portion of a derivative's change in
fair value will be immediately recognized in earnings. The Company has not yet
determined what the effect of this Statement will be on earnings and the
financial position of the Company.
Dividend on Common Stock
- ------------------------
On October 27, 1998, the Company's Board of Directors declared a regular
quarterly common stock dividend of $0.07 per share, payable on December 9, 1998,
to stockholders of record on November 20, 1998.
Repurchase of Class B Common Stock
- ----------------------------------
The Company's Board of Directors has authorized the repurchase of up to two
million shares of its Class B Common Stock. The transactions will be completed
from time to time over the next several months, depending on market conditions,
through open market or privately negotiated purchases.
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 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
16
<PAGE>
Safe Harbor Statement Under
the Private Securities Litigation Reform Act of 1995 -(Continued)
- ----------------------------------------------------------------
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 including changes
in interest rates; (11) changes in the legal and regulatory requirements
applicable to the Company; and (12) the effects of extreme weather conditions.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
17
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Environmental Matters
Midwest Division - NPDES Permit Violations. On October 1, 1998, the Company
received a Notice of Violation ("NOV") from the Indiana Department of
Environmental Management ("IDEM") which alleges exceedances of the Company's
National Pollutant Discharge Elimination System ("NPDES") permit limitations
between September 1995 and August 1998. IDEM has proposed a penalty of $354,250
for these alleged violations. Additionally, under IDEM's proposal, the Company
would be required to install certain equipment to help prevent future
violations. Settlement negotiations with IDEM are ongoing.
Iron River (Dober Mine) Site. This matter involves the Iron River (Dober Mine)
site, and was previously reported in the Company's 1997 Form 10-K. On October
28, 1998, the Court approved a Consent Decree which resolved the State of
Michigan's claim against the Company. Under the terms of the settlement, the
Company will (1) pay $312,000 in satisfaction of the State's natural resource
damage claim, (2) pay approximately $559,000 in settlement of the State's claim
for past response and litigation costs, (3) assume responsibility for the
ongoing operation and maintenance of a remedial system which was previously
installed at the site to address the acid mine drainage from the site to the
Iron River and (4) become the permittee on the NPDES permit applicable to the
discharge from the remedial system to the Iron River. The Company continues to
pursue its claims for contribution against certain third parties that it
believes contributed to the contamination of the Iron River.
Great Lakes Division - Outfall Proceedings. This matter involves alleged
exceedances at the hot strip mill located at the Company's Great Lakes Division
and was previously reported in the Company's 1997 Form 10-K. The Company, the
Michigan Department of Environmental Quality ("MDEQ") and the United States
Coast Guard ("USCG") have reached an agreement to settle all claims associated
with allegations of oil discharges at the hot strip mill and have established a
procedure to determine MDEQ and USCG jurisdiction in the event of future
discharge issues. Under the terms of the settlement, the Company will pay MDEQ
$216,664 and the USCG $75,000. A Consent Order embodying the settlement with
MDEQ has been executed by the Company and forwarded to MDEQ for signature. The
Consent Order with USCG has not yet been negotiated.
Granite City Division - IEPA NOV - Beaching of Iron. This matter was previously
reported in the Company's 1997 Form 10-K and involves the issuance of an NOV by
the Illinois Environmental Protection Agency ("IEPA") to the Company's Granite
City Division for alleged violations of various state air pollution requirements
caused by pouring molten iron into a "beaching pit" on 34 occasions during 1996.
On July 20, 1998, the IEPA issued modifications to the Company's blast furnace
operating permits that allow beaching of iron in the event of a malfunction or
breakdown.
Item 6. Exhibits and Reports on Form 8-K
(a) See attached Exhibit Index
(b) Reports on Form 8-K
The Company filed two reports on Form 8-K dated July 29, 1998 reporting on
Item 5, Other Events.
The Company filed a report on Form 8-K dated September 2, 1998 reporting on
Item 5, Other Events.
18
<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/ John A. Maczuzak
---------------------
John A. Maczuzak
President and Chief Operating Officer
BY /s/ Glenn H. Gage
-----------------
Glenn H. Gage
Senior Vice President and Chief Financial Officer
Date: November 13, 1998
19
<PAGE>
NATIONAL STEEL CORPORATION
QUARTERLY REPORT ON FORM 10-Q
EXHIBIT INDEX
For the quarterly period ended September 30, 1998
10-A Employment Contract dated as of August 1, 1998 between National Steel
Corporation and Glenn H. Gage
10-B Employment Contract dated as of August 1, 1998 between National Steel
Corporation and John F. Kaloski
10-C Employment Contract dated as of September 1, 1998 between National Steel
Corporation and Yutaka Tanaka
10-D Amendment dated August 1, 1998 to Employment Contract between National
Steel Corporation and David L. Peterson
15-A Independent Accountants' Review Report
15-B Acknowledgment Letter on Unaudited Interim Financial Information
27 Financial Data Schedule
<PAGE>
EXHIBIT 10-A
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into on August 1,
1998, by and between National Steel Corporation, a Delaware corporation (the
"Company"), with its principal office in Mishawaka, Indiana, and Glenn H. Gage,
a resident of Illinois ("Executive").
WHEREAS, both parties desire to enter into an agreement to reflect
Executive's executive capacities in the Company's business and to provide for
Executive's employment by the Company, upon the terms and conditions set forth
herein:
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Employment. The Company hereby agrees to employ Executive, and
Executive hereby accepts such employment and agrees to perform Executive's
duties and responsibilities, in accordance with the terms, conditions and
provisions hereinafter set forth.
1.1. Employment Term. The term of Executive's employment under this
Agreement shall commence on August 1, 1998 (the "Effective Date") and shall
continue until July 31, 2000, and may be extended for such period or periods
thereafter as the Company and Executive may agree, unless sooner terminated in
accordance with Section 5 or Section 6 hereof. The period commencing as of the
Effective Date and ending on the date on which the term of Executive's
employment under the Agreement shall terminate is hereinafter referred to as the
"Employment Term."
<PAGE>
1.2. Duties and Responsibilities. Executive shall serve as Senior Vice
President and Chief Financial Officer for the Company and/or in such other
senior positions, if any, to which he may be appointed during the Employment
Term and which are consistent with his skills and experience. During the
Employment Term, Executive shall perform, on a full time basis, all duties and
accept all responsibilities incident to such positions as may be assigned to him
by the Company's Chief Executive Officer, or, if the Company's Chief Executive
Officer so specifies from time to time, by the Company's President. In
performing his duties and responsibilities hereunder, Executive shall have the
authority customarily held by others holding similar senior executive level
positions within the Company. Executive may serve on the board of directors of
not more than one (1) for-profit business corporation which does not compete
with the Company.
1.3. Base Salary. For all the services rendered by Executive hereunder,
the Company shall pay Executive a base salary ("Base Salary"), commencing on the
Effective Date, at the annual rate of $285,000, payable in installments at such
times as the Company customarily pays its other senior level executives (but in
any event no less often than monthly). Executive's Base Salary shall be reviewed
annually for appropriate adjustment (but shall not be reduced below that in
effect on during the prior annual period without Executive's prior written
consent) by the Company's President, Chief Executive Officer and Board of
Directors (the "Board") pursuant to normal performance review policies for
senior level executives (but in the sole discretion of such reviewing parties).
1.4. Retirement and Benefit Coverages. During the Employment Term,
Executive shall be entitled to participate in all (a) employee pension and
retirement plans and programs
-2-
<PAGE>
("Retirement Plans") and (b) welfare benefit plans and programs ("Benefit
Coverages"), in each case made available to the Company's senior level
executives as a group or to its employees generally, as such Retirement Plans or
Benefit Coverages may be in effect from time to time.
1.5. Reimbursement of Expenses and Dues; Vacation; Perquisites. Executive
shall be provided with reimbursement of expenses related to Executive's
employment by the Company on a basis no less favorable than that which may be
authorized from time to time for senior level executives as a group, and shall
be entitled to five (5) weeks of vacation annually and holidays in accordance
with the Company's normal personnel policies for senior level executives in
effect from time to time. In addition, Executive shall be entitled to (i) such
professional tax, financial and estate planning services as the Company provides
for its senior level executives, (ii) such indemnification for authorized
actions incident to his responsibilities for the Company as is generally
provided to senior level executives of the Company from time to time, (iii)
relocation benefits at the maximum level provided under the Company's Salaried
Exempt Relocation Policy, and (iv) payment for reasonable legal fees and
expenses not in excess of $2,000 attendant to the preparation of this Agreement.
1.6. Short-Term Incentive Compensation. Executive shall be entitled to
participate in the Company's Key Management Incentive Compensation Plan or any
other short-term incentive compensation programs established by the Company for
its senior level executives generally, and shall be eligible to receive such
short-term incentive compensation, depending upon achievement of certain annual
individual or business performance objectives specified and approved by the
Board (or a Committee thereof) in its sole discretion and as otherwise
determined in accordance
-3-
<PAGE>
with the terms of such plan(s) or program(s); provided, however, that
Executive's "target opportunity" under any such plan or program shall be at
least 40% of Executive's Base Salary (as determined in accordance with the terms
of such plan(s) or program(s)), and Executive shall be entitled to a payment for
1998 under the Company's Key Management Incentive Compensation Plan of not less
than $47,500.
1.7. Long-Term Incentive Compensation. Executive shall be entitled to
participate in the Company's 1993 Long-Term Incentive Plan or any other long-
term incentive compensation programs established by the Company for its senior
level executives generally. As of the Effective Date, Executive shall be
granted options to purchase 30,000 shares of the Company's Class B Common Stock,
which options shall vest and become exercisable in three equal installments on
each of the first three anniversaries of the Effective Date.
2. Confidential Information. Executive recognizes and acknowledges that
by reason of Executive's employment by and service to the Company during and, if
applicable, after the Employment Term, Executive will have access to certain
confidential and proprietary information relating to the business of the
Company, which may include, but is not limited to, trade secrets, trade "know-
how," customer information, supplier information, cost and pricing information,
marketing and sales techniques, strategies and programs, manufacturing processes
and equipment, computer programs and software and financial information
(collectively referred to as "Confidential Information"). Executive
acknowledges that such Confidential Information is a valuable and unique asset
of the Company and Executive covenants that Executive will not,
-4-
<PAGE>
unless expressly authorized in writing by the Company's Chief Executive Officer,
at any time during the course of Executive's employment use any Confidential
Information or divulge or disclose any Confidential Information to any person,
firm or corporation except in connection with the performance of Executive's
duties for the Company and in a manner consistent with the Company's policies
regarding Confidential Information. Executive also covenants that at any time
after the termination of such employment, directly or indirectly, Executive will
not use any Confidential Information or divulge or disclose any Confidential
Information to any person, firm or corporation, unless such information is in
the public domain through no fault of Executive or except when required to do so
by a court of law, by any governmental agency having supervisory authority over
the business of the Company or by any administrative or legislative body
(including a committee thereof) with apparent jurisdiction to order Executive to
divulge, disclose or make accessible such information, in which case Executive
will inform the Company in writing promptly of such required disclosure, but in
any event at least two business days prior to disclosure. All written
Confidential Information (including, without limitation, in any computer or
other electronic format) which comes into Executive's possession during the
course of Executive's employment shall remain the property of the Company.
Except as required in the performance of Executive's duties for the Company, or
unless expressly authorized in writing by the Company's President or Chief
Executive Officer, Executive shall not remove any written Confidential
Information from the Company's premises, except in connection with the
performance of Executive's duties for the Company and in a manner consistent
with the Company's policies regarding Confidential Information. Upon termination
of Executive's
-5-
<PAGE>
employment, Executive agrees immediately to return to the Company all written
Confidential Information in Executive's possession.
3. Non-Competition; Non-Solicitation; No Unfavorable Publicity;
Cooperation.
(a) During Executive's employment by the Company and for a period of
one year after Executive's termination of employment under Section 5.5 of this
Agreement, within the "Geographic Area," as defined below, Executive will not,
except with the prior written consent of the Company's Chief Executive Officer,
directly or indirectly, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or financing of, or
be connected as an officer, director, employee, partner, principal, agent,
representative, consultant or otherwise with, or use or permit Executive's name
to be used in connection with, any business or enterprise which is engaged in
making, producing, manufacturing or finishing steel products that are in direct
competition with steel products made, produced, manufactured or finished by the
Company. For the purposes of this Section, "Geographic Area" shall mean the
continental United States; provided, however, that if any court of competent
jurisdiction determines that the Geographic Area is too extensive to require
enforcement of this Subsection 3(a), the Geographic Area shall be the portion of
the United States east of the Mississippi River (or the largest other such
portion of the United States that such court deems not too extensive to require
enforcement of this Subsection 3(a)).
(b) The foregoing restrictions shall not be construed to prohibit the
ownership by Executive of less than one percent (1%) of any class of securities
of any corporation which is engaged in any of the foregoing businesses having a
class of securities registered pursuant to the
-6-
<PAGE>
Securities Exchange Act of 1934, provided that such ownership represents a
passive investment and that neither Executive nor any group of persons including
Executive in any way, either directly or indirectly, manages or exercises
control of any such corporation, guarantees any of its financial obligations,
otherwise takes any part in its business, other than exercising Executive's
rights as a shareholder, or seeks to do any of the foregoing.
(c) Executive further covenants and agrees that during Executive's
employment by the Company and for the period of one year thereafter, Executive
will not, directly or indirectly, (i) solicit, divert, take away, or attempt to
solicit, divert or take away, any of the Company's customers, or (ii) encourage
any customer to reduce its patronage of the Company.
(d) Executive further covenants and agrees that during Executive's
employment by the Company and for the period of one year thereafter, Executive
will not, except with the prior written consent of the Company's Chief Executive
Officer, directly or indirectly, solicit or hire, or encourage the solicitation
or hiring of, any person who was an employee of the Company at any time during
the term of Executive's employment by the Company by any employer other than the
Company for any position as an employee, independent contractor, consultant or
otherwise. The foregoing covenant of Executive shall not apply to any person
after 12 months have elapsed subsequent to the date on which such person's
employment by the Company has terminated.
(e) During the Employment Term and subsequent to Executive's
termination of employment with the Company, Executive agrees not to make any
negative or unfavorable
-7-
<PAGE>
statements or communications, and not to issue any written communications or
release any other written materials which would in any way be (i) derogatory,
defamatory or disparaging about the Company or its products, or (ii) damaging to
the Company, its officers, directors or affiliates, or its or their reputation
or standing, whether in the investor or financial community, the steel industry
or otherwise. Also, during the Employment Term and subsequent to Executive's
termination of employment with the Company, the Company agrees not to make any
negative or unfavorable statements or communications, and not to issue any
written communications or release any other written materials which would in any
way be (i) derogatory, defamatory or disparaging about the Executive or (ii)
damaging to the Executive or his reputation or standing, whether in the investor
or financial community, the steel industry or otherwise.
(f) Executive agrees to cooperate with the Company for a reasonable
period of time after the Employment Term by making himself available to testify
on behalf of the Company, in any action, suit or proceeding. In addition,
provided that Executive's professional commitments permit, for a reasonable
period of time, Executive agrees to be available at reasonable times to meet and
consult with the Company on matters reasonably within the scope of his prior
duties with the Company so as to facilitate a transition to his successor.
Executive shall be reimbursed for all out-of-pocket expenses reasonably incurred
in complying with this provision of the Agreement.
4. Equitable Relief and Damages.
(a) The parties acknowledge and agree that the restrictions contained
in Sections 2 and 3 are reasonable and necessary to protect and preserve the
legitimate interests,
-8-
<PAGE>
properties, goodwill and business of the Company, and legitimate interests and
reputation of the Executive, and that the parties would not have entered into
this Agreement in the absence of such restrictions and that irreparable injury
will be suffered by the Company and the Executive should either party breach any
of the provisions of those Sections. Executive represents and acknowledges that
(i) Executive has been advised by the Company to consult Executive's own legal
counsel in respect of this Agreement, and (ii) that Executive has had full
opportunity, prior to execution of this Agreement, to review thoroughly this
Agreement with Executive's counsel.
(b) The parties further acknowledge and agree that a breach of any of
the restrictions in Sections 2 and 3 cannot be adequately compensated by
monetary damages. The Company and the Executive agree that the other party
shall be entitled to preliminary and permanent injunctive relief, without the
necessity of proving actual damages, as well as an equitable accounting of all
earnings, profits and other benefits arising from any violation of Sections 2 or
3 hereof, which rights shall be cumulative and in addition to any other rights
or remedies to which the Company and the Executive may be entitled. In the
event that any of the provisions of Sections 2 or 3 hereof should ever be
adjudicated to exceed the time, geographic, service, or other limitations
permitted by applicable law in any jurisdiction, it is the intention of the
parties that the provision shall be amended to the extent of the maximum time,
geographic, service, or other limitations permitted by applicable law, that such
amendment shall apply only within the jurisdiction of the court that made such
adjudication and that the provision otherwise be enforced to the maximum extent
permitted by law.
-9-
<PAGE>
(c) If Executive breaches any of Executive's obligations under
Sections 2 or 3 hereof, and such breach constitutes "Cause," as defined in
Section 5.3 hereof, or would constitute Cause if it had occurred during the
Employment Term, the Company shall thereafter remain obligated only for such
compensation and other benefits, if any, as may otherwise be required by any
plans, policies or practices then applicable to Executive in accordance with the
terms thereof, and not for any compensation or other benefits under this
Agreement.
(d) The parties irrevocably and unconditionally (i) agree that any
suit, action or other legal proceeding arising out of Sections 2 or 3 hereof,
including without limitation, any action commenced by the Company or the
Executive for preliminary and permanent injunctive relief and other equitable
relief, may be brought in the United States District Court for the Northern
District of Indiana, or if such court does not have jurisdiction or will not
accept jurisdiction, in any court of general jurisdiction in Indiana, (ii)
consent to the non-exclusive jurisdiction of any such court in any such suit,
action or proceeding, and (iii) waive any objection which the parties may have
to the laying of venue of any such suit, action or proceeding in any such court.
5. Termination. The Employment Term shall terminate upon the occurrence
of any one of the following events:
5.1. Disability. The Company may terminate the Employment Term if
Executive is unable substantially to perform Executive's material duties and
responsibilities hereunder to the full extent required by the Company's
President or Chief Executive Officer by reason of illness, injury or incapacity
for six consecutive months, or for more than six months in the aggregate
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during any period of twelve calendar months; provided, however, that the Company
shall continue to pay Executive's Base Salary and Executive shall continue to
maintain full participation in the Retirement Plans, Benefit Coverages,
perquisites and compensation provided in Sections 1.4-1.7 herein until the
effective date of termination of the Employment Term. If the Company terminates
the Employment Term, Executive shall be entitled to receive (i) any amounts
earned, accrued or owing but not yet paid under Section 1 above, and (ii) any
other benefits, if any, otherwise required by any applicable plans and programs
(or related agreements) of the Company referred to in Section 1 above.
Otherwise, the Company shall have no further liability or obligation to
Executive for compensation or benefits under this Agreement. Executive agrees,
in the event of a dispute under this Section 5.1 as to whether Executive is
disabled, the determination of disability shall be made by a board certified
physician agreed upon by the Company and the Executive or, if the parties cannot
agree within a reasonable period of time, by a board certified physician
appointed by the Chief of Medicine of Memorial Hospital in South Bend, Indiana.
5.2. Death. The Employment Term shall terminate in the event of
Executive's death. In such event, the Company shall pay to Executive's
executors, legal representatives or administrators, as applicable, an amount
equal to the installment of Executive's Base Salary set forth in Section 1.3
hereof for the month in which Executive dies. In addition, Executive's estate
or other appropriate beneficiary (as designated by Executive in accordance with
the terms of any applicable benefit plans or programs of the Company) shall be
entitled to receive (i) any other amounts earned, accrued or owing but not yet
paid under Section 1 above and (ii) any other
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benefits, all in accordance with the terms of any applicable plans and programs
(or related agreements) of the Company referred to in Section 1 above.
Otherwise, the Company shall have no further liability or obligation under this
Agreement to Executive's executors, legal representatives, administrators, heirs
or assigns or any other person claiming under or through Executive.
5.3. Cause. The Company may terminate the Employment Term, at any time,
for "Cause" upon written notice, in which event all payments under this
Agreement shall cease, except for Base Salary to the extent already earned by
reason of services actually performed, but Executive shall remain entitled to
any other benefits, if any, otherwise required by any applicable plans and
programs (or related agreements) of the Company referred to in Section 1 above.
For purposes of this Agreement, Executive's employment may be terminated for
"Cause" if (i) Executive is convicted of a felony, (ii) in the reasonable
determination of the Board, Executive has (x) committed an act of fraud,
embezzlement, or theft in connection with Executive's duties in the course of
Executive's employment with the Company, (y) caused intentional damage or harm
to the property, business or reputation of the Company, or intentionally
disclosed Confidential Information in breach of this Agreement, or (z) engaged
in gross misconduct or gross negligence in the course of Executive's employment
with the Company, or (iii) Executive has otherwise materially breached
Executive's obligations under this Agreement and shall not have remedied such
breach within 15 days after receiving written notice from the Board specifying
the details thereof. For purposes of this Agreement, an act or omission on the
part of Executive shall be deemed "intentional" only if it was not due primarily
to an error in judgment
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or negligence and was done by Executive not in good faith and without reasonable
belief that the act or omission was in the best interest of the Company.
5.4. Termination Without Cause and Constructive Discharge.
(a) The Company may remove Executive at any time, without Cause, from
the position in which Executive is employed hereunder, or Executive may
terminate employment with the Company at any time under circumstances comprising
Constructive Discharge, as defined in this Section 5.4, and in either such case
the Employment Term shall be deemed to have ended, by written notice to the
other party. If such notice is given by the Company to Executive before June 1,
2000, the Employment Term shall end no earlier than the 60th day following the
date such notice is given. If such notice is given by Executive, the Employment
Term shall end on the date such notice is given. In the event that such notice
is given, Executive shall be under no obligation to render any additional
services to the Company and, subject to the provisions of Section 3 hereof,
shall be allowed to seek other employment. Upon any such termination by the
Company or Executive, or if this Agreement terminates on July 31, 2000, or at
the end of any subsequent period for which this Agreement has been extended,
solely because of the Company's refusal to extend this Agreement, Executive
shall be entitled to receive, as liquidated damages for the failure of the
Company to continue to employ Executive, (i) a single sum payment in cash,
within 30 days after the end of the Employment Term, in the amount of
Executive's annual Base Salary as of the last day of the Employment Term; (ii)
executive level outplacement services for a period not to exceed 12 months
rendered by a career transition assistance firm selected by the Executive and
acceptable to the Company; and (iii) continued
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participation for Executive and Executive's eligible dependents in the Company
sponsored health care plan in which Executive participated on the last day of
the Employment Term, for a period of 12 months or, if earlier, until Executive
becomes covered under a group health care plan sponsored by another employer,
under equivalent terms and at substantially the same cost that would have
applied to Executive if the Employment Term had not ended. Such continued health
care coverage shall not reduce the period of health care continuation coverage
to which Executive would otherwise be entitled under applicable federal law. If
such Company sponsored health care plan does not by its terms allow Executive's
participation or continued participation, the Company shall obtain and pay all
premiums for insurance coverage on behalf of Executive and/or Executive's
eligible dependents that provides equivalent benefits as provided under such
Company sponsored health care plan or, at the Company's election, shall provide
such benefits from its own assets. Notwithstanding anything in this Agreement to
the contrary, on or after the date Executive attains age 65, no action by the
Company shall be treated as a removal from employment, refusal to extend this
Agreement, or Constructive Discharge if on the effective date of such action
Executive satisfies all of the requirements for the executive or high policy-
making exception to applicable provisions of state and federal age
discrimination legislation.
(b) Notwithstanding the provisions of Section 5.4(a) (other than the
last sentence), in the event that Executive executes a written release upon such
removal, refusal to extend this Agreement, or Constructive Discharge,
substantially in the form attached hereto as Exhibit A (the "Release"), of any
and all claims against the Company and all related parties with respect to all
matters arising out of Executive's employment by the Company (other than any
entitlements under the terms of this Agreement or under any other plans or
programs of the
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Company in which Executive participated and under which Executive has accrued a
benefit), or the termination thereof, Executive shall be entitled to receive, in
lieu of the payment described in Section 5.4(a)(i), which Executive agrees to
waive, a single sum payment in cash, within 30 days after the end of the
Employment Term, equal to twice the amount of Executive's annual Base Salary as
of the last day of the Employment Term.
(c) The term "Constructive Discharge" means a termination of the
Executive's employment by the Executive due to (i) a failure of the Company or
its successors without the prior written consent of the Executive to fulfill the
obligations under this Agreement in any material respect, including any non-
payment or reduction in the Base Salary or "target opportunity" (as described in
Section 1.6) then in effect, or removal from eligibility to participate in the
Company's long term incentive compensation program (as described in Section 1.7)
then in effect; provided, however, that the Company shall have had written
notice of such failure and a 15 day opportunity to remedy same, (ii) a material
change in Executive's duties, responsibilities or authority, without Executive's
prior written consent, that is inconsistent with Executor's skills and
experience, (iii) relocation of Executive's principal worksite, without
Executive's prior written consent, other than in connection with relocation of
the Company's corporate headquarters or executive offices, or (iv) failure or
refusal by any successor to all or substantially all of the business or assets
of the Company to expressly assume this Agreement in form and substance
reasonably satisfactory to Executive..
5.5. Voluntary Termination. Executive may voluntarily terminate the
Employment Term under circumstances that do not comprise Constructive Discharge,
upon written notice for any reason, and the Employment Term shall end on the
date such notice is given. In such event,
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no further payments shall be due under this Agreement, except for Base Salary to
the extent already earned by reason of services actually performed, and
benefits, if any, otherwise required by any applicable plans and programs (or
related agreements) of the Company referred to in Section 1 above.
6. Payments Upon a Change of Control.
6.1. Definitions. For all purposes of this Section 6, the following terms
shall have the meanings specified in this Section 6.1 unless the context
otherwise clearly requires:
(a) "Change of Control." For purposes of this Agreement, a "Change of
Control" shall mean:
(i) (A) If any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") acquires (by purchase, tender offer or
otherwise) or becomes the "beneficial owner" (as defined in rule 13d-3 under the
Exchange Act) of thirty percent (30%) or more of the combined voting power of
the then-outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities") and
(B) NKK Corporation ceases to be the beneficial owner, directly or indirectly,
of more than fifty percent (50%) of the total voting power of all the then
Outstanding Company Voting Securities; provided, however, that for purposes of
this subsection (i), the following acquisitions shall not constitute a Change of
Control: (1) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company, or (2) any acquisition by any entity
pursuant to a transaction which complies with each of clauses (A), (B) and (C)
of paragraph (iii) of this Subsection (a).
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(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board, provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
(iii) Consummation of a reorganization, recapitalization, merger,
acquisition of securities or assets by the Company or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) the individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of, respectively, the then outstanding
shares of common stock (in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the Outstanding
Company Common Stock) and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business Combination
(including, without limitation, the Company or a corporation which as a result
of such transaction owns the
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Company or all or substantially all of the Company's assets either directly or
through one or more subsidiaries), and (B) no Person (excluding any corporation
resulting from such Business Combination or any employee benefit plan (or
related trust) of the Company or such corporation resulting from such Business
Combination) beneficially owns, directly or indirectly, thirty percent (30%) or
more of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination, or the combined voting
power of the then outstanding voting securities of such corporation except to
the extent that such ownership existed prior to the Business Combination and (C)
at least two-thirds of the members of the board of directors of the corporation
resulting from such Business Combination were members of the Incumbent Board at
the time of the execution of the initial agreement, or of the action of the
Board, providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(b) "Termination upon a Change of Control" shall mean a termination of
Executive's employment under Section 5.4 of this Agreement upon or within two
years after a Change of Control.
6.2. Notice of Termination. Any Termination upon a Change of Control
shall be communicated by a Notice of Termination to the other party hereto given
in accordance with Section 9 hereof. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) briefly summarizes the
facts and circumstances deemed to provide a basis for a termination of
employment and the applicable provision hereof, and (iii) if the termination
date is other than the
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date of receipt of such notice, specifies the termination date (which date shall
not be more than 15 days after the giving of such notice).
6.3. Compensation and Benefits. In no event following a Change of Control
shall the Company provide Executive with compensation or benefits, in each case,
less favorable than the most favorable of those provided under Sections 1.3-1.7
of this Agreement at any time during the 120-day period immediately preceding
the Change of Control or, if more favorable to Executive, those provided
generally at any time after the Change of Control to other peer executives of
the Company.
6.4. Payments and Benefits upon Termination. Subject to the provisions of
Section 6.5 hereof, in the event of Executive's Termination upon a Change of
Control, Executive shall be entitled to receive (a) payments and benefits in
accordance with Section 5.4 of this Agreement, provided that such payments shall
include an additional amount equal to (i) in the case of payments otherwise due
under Subsection 5.4(a), the greater of (A) the average annual amount paid to
Executive under Section 1.6 of this Agreement for years prior to the year in
which Executive's Termination upon a Change of Control occurs or (B) Executive's
most recent "Target Bonus Percentage" (as determined under the Key Management
Incentive Compensation Plan) multiplied by his Base Salary as of the date of
his Termination upon a Change of Control, or (ii) in the case of payments
otherwise due under Subsection 5.4(b), two times the amount determined under the
preceding clause (i); and (b) within 30 days after Executive's Termination upon
a Change of Control, a single sum payment in cash in the amount of the
actuarially equivalent value (based on the 1994 Group Annuitants Mortality Table
and the annual rate of interest on 30-year Treasury securities for the second
calendar month preceding the Executive's Termination
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upon a Change of Control) of any nonqualified unfunded retirement benefits to
which Executive is entitled under any plan, program or arrangement of the
Company, acceptance of which single sum payment shall constitute Executive's
waiver of any claim or entitlement to benefits under any such plan, program or
arrangement.
6.5. Certain Increase in Payments.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event that it shall be determined that any payment or distribution by the
Company to or for the benefit of Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "Payment"), would constitute an "excess parachute payment" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), Executive shall be paid an additional amount (the "Gross-Up
Payment") such that the net amount retained by Executive from the Payment and
the Gross-Up Payment, after deduction of any excise tax imposed under Section
4999 of the Code and any federal, state and local income and employment tax and
excise tax imposed upon the Gross-Up Payment, shall be equal to the Payment.
For purposes of determining the amount of the Gross-Up Payment, Executive shall
be deemed to pay federal income tax and employment taxes at the highest marginal
rate of federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of Executive's residence on
the date of Executive's Termination upon a Change of Control, net of the maximum
reduction in federal income taxes that may be obtained from the deduction of
such state and local taxes.
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(b) All determinations to be made under this Section 6.5 shall be made
by the Company's independent public accountant immediately prior to the Change
of Control (the "Accounting Firm"), which firm shall provide its determinations
and any supporting calculations both to the Company and Executive within 10 days
of the date of Executive's Termination upon a Change of Control. Within five
days after the Accounting Firm's determination, the Company shall pay (or cause
to be paid) or distribute (or cause to be distributed) to or for the benefit of
Executive such amounts, if any, as are then due to Executive under this
Agreement.
(c) In the event that upon any audit by the Internal Revenue Service,
or by a state or local taxing authority, of the Payment or Gross-Up Payment, a
change is finally determined to be required in the amount of taxes paid by
Executive, appropriate adjustments shall be made under this Agreement such that
the net amount which is payable to Executive after taking into account the
provisions of Section 4999 of the Code shall reflect the intent of the parties
as expressed in subsection (a) above, in the manner determined by the Accounting
Firm.
(d) All of the fees and expenses of the Accounting Firm in performing
the determinations referred to in subsections (b) and (c) above shall be borne
solely by the Company.
7. Survivorship. The respective rights and obligations of the parties
under this Agreement shall survive any termination of Executive's employment to
the extent necessary to the intended preservation of such rights and
obligations.
8. Arbitration; Expenses. In the event of any dispute under the
provisions of this Agreement other than a dispute in which the primary relief
sought is an equitable remedy such as an injunction, the parties shall be
required to have the dispute, controversy or claim settled by arbitration in
Mishawaka, Indiana, in accordance with National Rules for the Resolution of
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Employment Disputes then in effect of the American Arbitration Association,
before a panel of three arbitrators, two of whom shall be selected by the
Company and Executive, respectively, and the third of whom shall be selected by
the other two arbitrators. Any award entered by the arbitrators shall be final,
binding and nonappealable, and judgment may be entered thereon by either party
in accordance with applicable law in any court of competent jurisdiction. This
arbitration provision shall be specifically enforceable. The arbitrators shall
have no authority to modify any provision of this Agreement or to award a remedy
for a dispute involving this Agreement other than a benefit specifically
provided under or by virtue of the Agreement. If Executive prevails on any
material issue which is the subject of such arbitration or lawsuit, the Company
shall be responsible for the pro-rated portion of all of the fees of the
American Arbitration Association and the arbitrators and any expenses relating
to the conduct of the arbitration as may be related to such issue (including the
Company's and Executive's reasonable attorneys' fees and expenses). Otherwise,
each party shall be responsible for its own expenses relating to the conduct of
the arbitration (including reasonable attorneys' fees and expenses) and shall
share the fees of the American Arbitration Association.
9. Notices. All notices and other communications required or permitted
under this Agreement or necessary or convenient in connection herewith shall be
in writing and shall be deemed to have been given when hand delivered or mailed
by registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received):
If to the Company, to:
Senior Vice President - Administration
National Steel Corporation
4100 Edison Lakes Parkway
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Mishawaka, Indiana 46545-3440
If to Executive, to:
Glenn H. Gage
11 Stoneridge Drive
South Barrington, IL 60010
or to such other names or addresses as the Company or Executive, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.
10. Contents of Agreement; Amendment and Assignment.
(a) This Agreement sets forth the entire understanding between the
parties hereto with respect to the subject matter hereof and cannot be changed,
modified, extended or terminated except upon written amendment approved by the
Board and executed on its behalf by a duly authorized officer and by Executive.
(b) All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, legal representatives, successors and assigns of the
parties hereto, except that the duties and responsibilities of Executive under
this Agreement are of a personal nature and shall not be assignable or
delegatable in whole or in part by Executive. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to
Executive, expressly to assume and agree to perform this
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Agreement in the same manner and to the extent the Company would be required to
perform if no such succession had taken place.
11. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or application and shall
not invalidate or render unenforceable such provision or application in any
other jurisdiction. If any provision is held void, invalid or unenforceable
with respect to particular circumstances, it shall nevertheless remain in full
force and effect in all other circumstances.
12. Remedies Cumulative; No Waiver. No remedy conferred upon a party by
this Agreement is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to any other
remedy given under this Agreement or now or hereafter existing at law or in
equity. No delay or omission by a party in exercising any right, remedy or
power under this Agreement or existing at law or in equity shall be construed as
a waiver thereof, and any such right, remedy or power may be exercised by such
party from time to time and as often as may be deemed expedient or necessary by
such party in its sole discretion.
13. Beneficiaries/References. Executive shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable under this
Agreement following Executive's death by giving the Company written notice
thereof. In the event of Executive's death or a judicial determination of
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Executive's incompetence, reference in this Agreement to Executive shall be
deemed, where appropriate, to refer to Executive's beneficiary, estate or other
legal representative.
14. Miscellaneous. All section headings used in this Agreement are for
convenience only. This Agreement may be executed in counterparts, each of which
is an original. It shall not be necessary in making proof of this Agreement or
any counterpart hereof to produce or account for any of the other counterparts.
15. Withholding. The Company may withhold from any payments under this
Agreement all federal, state and local taxes as the Company is required to
withhold pursuant to any law or governmental rule or regulation. Executive
shall bear all expense of, and be solely responsible for, all federal, state and
local taxes due with respect to any payment received under this Agreement.
16. Governing Law. This Agreement shall be governed by and interpreted
under the laws of the State of Indiana without giving effect to any conflict of
laws provisions.
17. Construction The Company and the Executive acknowledge that this
Agreement was the result of arm's-length negotiations between sophisticated
parties represented by legal counsel. Each and every portion of this Agreement
shall be construed as though both parties participated equally in the drafting
of same, and any rule of construction that a document shall be construed against
the drafting party shall not be applicable to this Agreement.
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IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
NATIONAL STEEL CORPORATION
_______________________ By:_________________________
GLENN H. GAGE Name: David A. Pryzbylski
Title: Senior Vice President - Administration
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EXHIBIT A
RELEASE
-------
This Release, dated ___________________________________, is by ____________
__________ ("Executive").
1. Executive does hereby knowingly and voluntarily release, acquit and
forever discharge National Steel Corporation (the "Company"), its present and
former officers, directors, subsidiaries, divisions, parents, affiliates,
employees, agents, servants, associates, attorneys, accountants, auditors,
consultants, counselors, partners, representatives, predecessors, successors,
heirs, executors, administrators, transferees, trustees, assigns, shareholders
(including without limitation NKK Corporation, NKK U.S.A. Corporation and their
respective directors, officers, employees, trustees and shareholders), and any
and all persons in privity with such persons or entities ("Releasees"), from and
against any and all charges, complaints, claims, cross-claims, third-party
claims, counterclaims, contribution claims, contracts, liabilities, obligations,
promises, agreements, controversies, damages, actions, causes of action, suits,
rights, demands, costs, losses, debts and expenses of any nature whatsoever,
known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or
unmatured, which exist, have existed, or may arise from any matter whatsoever
occurring at any time up to and including the date hereof, including, but not
limited to, any claims arising out of or in any way related to Executive's
employment with the Company. Executive acknowledges that, in exchange for this
Release, the Company is providing Executive with consideration, financial and
otherwise, which exceeds what Executive would have received had Executive not
given this release. By executing this Release, Executive waives all claims
against the Releasees arising under federal, state and local labor and anti-
discrimination laws
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and any other restrictions on the right to terminate employment, including,
without limitation, Title VII of the Civil Rights Act of 1964, as amended, the
Americans with Disabilities Act of 1990, as amended, and claims for breach of
contract, promissory estoppel, defamation, tortious interference, intentional
infliction of emotional distress, tortious injury to reputation,
misrepresentation and fraud.
2. EXECUTIVE SPECIFICALLY WAIVES AND RELEASES THE RELEASEES FROM ALL
CLAIMS EXECUTIVE MAY HAVE AS OF THE DATE EXECUTIVE SIGNS THIS RELEASE REGARDING
CLAIMS OR RIGHTS ARISING UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967,
AS AMENDED, 29 U.S.C. (S) 621 et seq. ("ADEA"). EXECUTIVE FURTHER AGREES: (a)
THAT EXECUTIVE'S WAIVER OF RIGHTS UNDER THIS RELEASE IS KNOWING AND VOLUNTARY
AND IN COMPLIANCE WITH THE OLDER WORKERS' BENEFIT PROTECTION ACT OF 1990; (b)
THAT EXECUTIVE UNDERSTANDS THE TERMS OF THIS RELEASE; (c) THAT PAYMENTS AND
OTHER BENEFITS PROVIDED BY THE COMPANY TO THE EXECUTIVE WOULD NOT HAVE BEEN
PROVIDED HAD EXECUTIVE NOT SIGNED THIS RELEASE, AND THAT THE PAYMENTS AND
BENEFITS ARE IN EXCHANGE FOR THE SIGNING OF THIS RELEASE; (d) THAT EXECUTIVE HAS
BEEN ADVISED IN WRITING BY THE COMPANY TO CONSULT WITH AN ATTORNEY PRIOR TO
EXECUTING THIS RELEASE; (e) THAT THE COMPANY HAS GIVEN EXECUTIVE A PERIOD OF AT
LEAST TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER THIS RELEASE; (f) THAT
EXECUTIVE REALIZES THAT FOLLOWING EXECUTIVE'S EXECUTION OF THIS RELEASE,
EXECUTIVE HAS SEVEN (7) DAYS IN WHICH TO REVOKE THIS RELEASE BY WRITTEN NOTICE
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TO_______________________________________________; AND (g) IF EXECUTIVE CHOOSES
TO REVOKE THIS RELEASE, THE COMPANY SHALL HAVE NO OBLIGATION TO PROVIDE
EXECUTIVE THE BENEFITS SET FORTH IN THE SETTLEMENT AGREEMENT.
3. Executive agrees that he will not commence any action or proceeding of
any nature whatsoever against any Releasee, and that he will not seek or be
entitled to any award of equitable or monetary relief in any action or
proceeding brought on his behalf, arising out of the matters released by
Executive under this Release.
_____________________________
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EXHIBIT 10-B
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of August 1,
1998, by and between National Steel Corporation, a Delaware corporation (the
"Company"), with its principal office in Mishawaka, Indiana, and John F.
Kaloski, a resident of Indiana ("Executive").
WHEREAS, both parties desire to enter into an agreement to reflect
Executive's executive capacities in the Company's business and to provide for
Executive's employment by the Company, upon the terms and conditions set forth
herein:
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. Employment. The Company hereby agrees to employ Executive, and
Executive hereby accepts such employment and agrees to perform Executive's
duties and responsibilities, in accordance with the terms, conditions and
provisions hereinafter set forth.
1.1. Employment Term. The term of Executive's employment under this
Agreement shall commence as of the date hereof (the "Effective Date") and shall
continue until July 31, 2002, unless sooner terminated in accordance with
Section 5 or Section 6 hereof. The period commencing as of the Effective Date
and ending on the date on which the term of Executive's employment under the
Agreement shall terminate is hereinafter referred to as the "Employment Term."
<PAGE>
1.2. Duties and Responsibilities. Executive shall serve as Senior Vice
President of Regional Operations for the Company and/or in such other senior
positions, if any, to which he may be appointed during the Employment Term.
During the Employment Term, Executive shall perform, on a full time basis, all
duties and accept all responsibilities incident to such positions as may be
assigned to him by the Company's Chief Executive Officer, or, if the Company's
Chief Executive Officer so specifies from time to time, by the Company's
President.
1.3. Base Salary. For all the services rendered by Executive hereunder,
the Company shall pay Executive a base salary ("Base Salary"), commencing on the
Effective Date, at the annual rate of $250,000, payable in installments at such
times as the Company customarily pays its other senior level executives (but in
any event no less often than monthly). Executive's Base Salary shall be reviewed
annually for appropriate adjustment (but shall not be reduced below that in
effect on the Effective Date without Executive's written consent) by the
Company's President, Chief Executive Officer and Board of Directors (the
"Board") pursuant to normal performance review policies for senior level
executives.
1.4. Retirement and Benefit Coverages. During the Employment Term,
Executive shall be entitled to participate in all (a) employee pension and
retirement plans and programs ("Retirement Plans") and (b) welfare benefit plans
and programs ("Benefit Coverages"), in each case made available to the Company's
senior level executives as a group or to its employees generally, as such
Retirement Plans or Benefit Coverages may be in effect from time to time.
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1.5. Reimbursement of Expenses and Dues; Vacation; Perquisites. Executive
shall be provided with reimbursement of expenses related to Executive's
employment by the Company on a basis no less favorable than that which may be
authorized from time to time for senior level
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executives as a group, and shall be entitled to five (5) weeks of vacation
annually and holidays in accordance with the Company's normal personnel policies
for senior level executives in effect from time to time. In addition, Executive
shall be entitled to (i) the use of an automobile, including all operating and
maintenance expenses, (ii) reimbursement by the Company for reasonable
residential accommodations in the vicinity of the Great Lakes Division,
including reimbursement for any federal, state or local income taxes
attributable thereto, (iii) such professional tax, financial and estate planning
services as the Company provides for its senior level executives, and (iv) such
indemnification for authorized actions incident to his responsibilities for the
Company as is generally provided to senior executives of the Company.
1.6. Short-Term Incentive Compensation. Executive shall be entitled
to participate in the Company's Key Management Incentive Compensation Plan or
any other short-term incentive compensation programs established by the Company
for its senior level executives generally, and shall be eligible to receive such
short-term incentive compensation, depending upon achievement of certain annual
individual or business performance objectives specified and approved by the
Board (or a Committee thereof) in its sole discretion and as otherwise
determined in accordance with the terms of such plan(s) or program(s); provided,
however, that Executive's "target opportunity" under any such plan or program
shall be at least 40% of Executive's Base Salary (as determined in accordance
with the terms of such plan(s) or program(s)), and Executive shall be treated as
if he had performed services as the Company's Senior Vice President of Regional
Operations for the entire calendar year 1998.
1.7. Long-Term Incentive Compensation. Executive shall be entitled to
participate in the Company's 1993 Long-Term Incentive Plan or any other long-
term incentive compensation
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programs established by the Company for its senior level executives generally.
As of the Effective Date, Executive shall be granted options to purchase 30,000
shares of the Company's Class B Common Stock, which options shall vest and
become exercisable in three equal installments on each of the first three
anniversaries of the Effective Date.
2. Confidential Information. Executive recognizes and acknowledges that
by reason of Executive's employment by and service to the Company during and, if
applicable, after the Employment Term, Executive will continue to have access to
certain confidential and proprietary information relating to the business of the
Company, which may include, but is not limited to, trade secrets, trade "know-
how," customer information, supplier information, cost and pricing information,
marketing and sales techniques, strategies and programs, manufacturing processes
and equipment, computer programs and software and financial information
(collectively referred to as "Confidential Information"). Executive
acknowledges that such Confidential Information is a valuable and unique asset
of the Company and Executive covenants that Executive will not, unless expressly
authorized in writing by the Company's Chief Executive Officer, at any time
during the course of Executive's employment use any Confidential Information or
divulge or disclose any Confidential Information to any person, firm or
corporation except in connection with the performance of Executive's duties for
the Company and in a manner consistent with the Company's policies regarding
Confidential Information. Executive also covenants that at any time after the
termination of such employment, directly or indirectly, Executive will not use
any Confidential Information or divulge or disclose any Confidential Information
to any person, firm or corporation, unless such information is in the public
domain through no fault of Executive or
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except when required to do so by a court of law, by any governmental agency
having supervisory authority over the business of the Company or by any
administrative or legislative body (including a committee thereof) with apparent
jurisdiction to order Executive to divulge, disclose or make accessible such
information, in which case Executive will inform the Company in writing promptly
of such required disclosure, but in any event at least two business days prior
to disclosure. All written Confidential Information (including, without
limitation, in any computer or other electronic format) which comes into
Executive's possession during the course of Executive's employment shall remain
the property of the Company. Except as required in the performance of
Executive's duties for the Company, or unless expressly authorized in writing by
the Company's President or Chief Executive Officer, Executive shall not remove
any written Confidential Information from the Company's premises, except in
connection with the performance of Executive's duties for the Company and in a
manner consistent with the Company's policies regarding Confidential
Information. Upon termination of Executive's employment, Executive agrees
immediately to return to the Company all written Confidential Information in
Executive's possession.
3. Non-Competition; Non-Solicitation; No Unfavorable Publicity;
Cooperation.
(a) During Executive's employment by the Company and for a period of
one year after Executive's termination of employment under Section 5.5 of this
Agreement, within the "Geographic Area," as defined below, Executive will not,
except with the prior written consent of the Company's Chief Executive Officer,
directly or indirectly, own, manage, operate, join, control, finance or
participate in the ownership, management, operation, control or
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financing of, or be connected as an officer, director, employee, partner,
principal, agent, representative, consultant or otherwise with, or use or permit
Executive's name to be used in connection with, any business or enterprise which
is engaged in making, producing, manufacturing or finishing steel products that
are in direct competition with steel products made, produced, manufactured or
finished by the Company. For the purposes of this Section, "Geographic Area"
shall mean the continental United States; provided, however, that if any court
of competent jurisdiction determines that the Geographic Area is too extensive
to require enforcement of this Subsection 3(a), the Geographic Area shall be the
portion of the United States east of the Mississippi River (or the largest other
such portion of the United States that such court deems not too extensive to
require enforcement of this Subsection 3(a)).
(b) The foregoing restrictions shall not be construed to prohibit the
ownership by Executive of less than one percent (1%) of any class of securities
of any corporation which is engaged in any of the foregoing businesses having a
class of securities registered pursuant to the Securities Exchange Act of 1934,
provided that such ownership represents a passive investment and that neither
Executive nor any group of persons including Executive in any way, either
directly or indirectly, manages or exercises control of any such corporation,
guarantees any of its financial obligations, otherwise takes any part in its
business, other than exercising Executive's rights as a shareholder, or seeks to
do any of the foregoing.
(c) Executive further covenants and agrees that during Executive's
employment by the Company and for the period of one year thereafter, Executive
will not, directly or indirectly, (i) solicit, divert, take away, or attempt to
solicit, divert or take away, any
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of the Company's customers, or (ii) encourage any customer to reduce its
patronage of the Company.
(d) Executive further covenants and agrees that during Executive's
employment by the Company and for the period of one year thereafter, Executive
will not, except with the prior written consent of the Company's Chief Executive
Officer, directly or indirectly, solicit or hire, or encourage the solicitation
or hiring of, any person who was a managerial or higher level employee of the
Company at any time during the term of Executive's employment by the Company by
any employer other than the Company for any position as an employee, independent
contractor, consultant or otherwise. The foregoing covenant of Executive shall
not apply to any person after 12 months have elapsed subsequent to the date on
which such person's employment by the Company has terminated.
(e) During the Term and subsequent to Executive's termination of
employment with the Company, Executive agrees not to make any negative or
unfavorable statements or communications, and not to issue any written
communications or release any other written materials which would be materially
damaging to the Company, its officers, directors or affiliates, or its or their
reputation or standing, whether in the investor or financial community, the
steel industry or otherwise.
(f) Executive agrees to cooperate with the Company for a reasonable
period of time after the Employment Term by making himself available to testify
on behalf of the Company, in any action, suit or proceeding. In addition, for a
reasonable period of time, Executive agrees to be available at reasonable times
to meet and consult with the Company on
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matters reasonably within the scope of his prior duties with the Company so as
to facilitate a transition to his successor. The Company agrees to compensate
Executive at the highest rate of Base Salary applicable under Section 1.3 of
this Agreement during the Employment Term and to reimburse Executive for all
expenses actually incurred in connection with his provision of testimony or
consulting assistance.
4. Equitable Relief and Damages.
(a) Executive acknowledges and agrees that the restrictions contained
in Sections 2 and 3 are reasonable and necessary to protect and preserve the
legitimate interests, properties, goodwill and business of the Company, that the
Company would not have entered into this Agreement in the absence of such
restrictions and that irreparable injury will be suffered by the Company should
Executive breach any of the provisions of those Sections. Executive represents
and acknowledges that (i) Executive has been advised by the Company to consult
Executive's own legal counsel in respect of this Agreement, and (ii) that
Executive has had full opportunity, prior to execution of this Agreement, to
review thoroughly this Agreement with Executive's counsel.
(b) Executive further acknowledges and agrees that a breach of any of
the restrictions in Sections 2 and 3 cannot be adequately compensated by
monetary damages. Executive agrees that the Company shall be entitled to
preliminary and permanent injunctive relief, without the necessity of proving
actual damages, as well as an equitable accounting of all earnings, profits and
other benefits arising from any violation of Sections 2 or 3 hereof, which
rights shall be cumulative and in addition to any other rights or remedies to
which the Company
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may be entitled. In the event that any of the provisions of Sections 2 or 3
hereof should ever be adjudicated to exceed the time, geographic, service, or
other limitations permitted by applicable law in any jurisdiction, it is the
intention of the parties that the provision shall be amended to the extent of
the maximum time, geographic, service, or other limitations permitted by
applicable law, that such amendment shall apply only within the jurisdiction of
the court that made such adjudication and that the provision otherwise be
enforced to the maximum extent permitted by law.
(c) Damages. If Executive breaches any of Executive's obligations
under Sections 2 or 3 hereof, and such breach constitutes "Cause," as defined in
Section 5.3 hereof, or would constitute Cause if it had occurred during the
Employment Term, the Company shall thereafter remain obligated only for such
compensation and other benefits, if any, as may otherwise be required in any
plans, policies or practices then applicable to Executive in accordance with the
terms thereof, and not for any compensation or other benefits under this
Agreement.
(d) Executive irrevocably and unconditionally (i) agrees that any
suit, action or other legal proceeding arising out of Sections 2 or 3 hereof,
including without limitation, any action commenced by the Company for
preliminary and permanent injunctive relief and other equitable relief, may be
brought in the United States District Court for the Northern District of
Indiana, or if such court does not have jurisdiction or will not accept
jurisdiction, in any court of general jurisdiction in Indiana, (ii) consents to
the non-exclusive jurisdiction of any such court in
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any such suit, action or proceeding, and (iii) waives any objection which
Executive may have to the laying of venue of any such suit, action or proceeding
in any such court.
5. Termination. The Employment Term shall terminate upon the occurrence
of any one of the following events:
5.1. Disability. The Company may terminate the Employment Term if
Executive is unable substantially to perform Executive's duties and
responsibilities hereunder to the full extent required by the Company's
President or Chief Executive Officer by reason of illness, injury or incapacity
for six consecutive months, or for more than six months in the aggregate during
any period of twelve calendar months; provided, however, that the Company shall
continue to pay Executive's Base Salary until the Company acts to terminate the
Employment Term. If the Company terminates the Employment Term, Executive shall
be entitled to receive (i) any amounts earned, accrued or owing but not yet paid
under Section 1 above, and (ii) any other benefits, all in accordance with the
terms of any applicable plans and programs (or related agreements) of the
Company referred to in Section 1 above. Otherwise, the Company shall have no
further liability or obligation to Executive for compensation or benefits under
this Agreement. Executive agrees, in the event of a dispute under this Section
5.1, to submit to a physical examination by a licensed physician selected by the
Company's President or Chief Executive Officer.
5.2. Death. The Employment Term shall terminate in the event of
Executive's death. In such event, the Company shall pay to Executive's
executors, legal representatives or administrators, as applicable, an amount
equal to the installment of Executive's Base Salary set
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forth in Section 1.4 hereof for the month in which Executive dies. In addition,
Executive's estate or other appropriate beneficiary (as designated by Executive
in accordance with the terms of any applicable benefit plans or programs of the
Company) shall be entitled to receive (i) any other amounts earned, accrued or
owing but not yet paid under Section 1 above and (ii) any other benefits, all in
accordance with the terms of any applicable plans and programs (or related
agreements) of the Company referred to in Section 1 above. Otherwise, the
Company shall have no further liability or obligation under this Agreement to
Executive's executors, legal representatives, administrators, heirs or assigns
or any other person claiming under or through Executive.
5.3. Cause. The Company may terminate the Employment Term, at any time,
for "Cause" upon written notice, in which event all payments under this
Agreement shall cease, except for Base Salary to the extent already earned by
reason of services actually performed, but Executive shall remain entitled to
any other benefits in accordance with the terms of any applicable plans and
programs of the Company. For purposes of this Agreement, Executive's employment
may be terminated for "Cause" if (i) Executive is convicted of a felony, (ii) in
the reasonable determination of the Board, Executive has (x) committed an act of
fraud, embezzlement, or theft in connection with Executive's duties in the
course of Executive's employment with the Company, (y) caused intentional damage
or harm to the property, business or reputation of the Company, or intentionally
disclosed Confidential Information in breach of this Agreement, or (z) engaged
in gross misconduct or gross negligence in the course of Executive's employment
with the Company, or (iii) Executive has otherwise materially breached
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Executive's obligations under this Agreement and shall not have remedied such
breach within 15 days after receiving written notice from the Board specifying
the details thereof. For purposes of this Agreement, an act or omission on the
part of Executive shall be deemed "intentional" only if it was not due primarily
to an error in judgment or negligence and was done by Executive not in good
faith and without reasonable belief that the act or omission was in the best
interest of the Company.
5.4. Termination Without Cause and Constructive Discharge.
(a) The Company may remove Executive at any time, without Cause, from
the position in which Executive is employed hereunder, or Executive may
terminate employment with the Company at any time under circumstances comprising
Constructive Discharge, as defined in this Section 5.4, and in either such case
the Employment Term shall be deemed to have ended, by written notice to the
other party. If such notice is given by the Company to Executive before June 1,
2002, the Employment Term shall end no earlier than the 60th day following the
date such notice is given. If such notice is given by Executive, the Employment
Term shall end on the date such notice is given. In the event that such notice
is given, Executive shall be under no obligation to render any additional
services to the Company and, subject to the provisions of Section 3 hereof,
shall be allowed to seek other employment. Upon any such termination by the
Company or Executive, Executive shall be entitled to receive, as liquidated
damages for the failure of the Company to continue to employ Executive, (i) a
single sum payment in cash, within 30 days after the end of the Employment Term,
in the amount of Executive's annual Base Salary as of the last day of the
Employment Term; (ii) outplacement
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services for a period not to exceed 12 months; and (iii) continued participation
for Executive and Executive's eligible dependents in the Company sponsored
health care plan in which Executive participated on the last day of the
Employment Term, for a period of 12 months or, if earlier, until Executive
becomes covered under a group health care plan sponsored by another employer,
under equivalent terms and at substantially the same cost that would have
applied to Executive if the Employment Term had not ended. Such continued health
care coverage shall not reduce the period of health care continuation coverage
to which Executive would otherwise be entitled under applicable federal law. If
such Company sponsored health care plan does not by its terms allow Executive's
participation or continued participation, the Company shall obtain and pay all
premiums for insurance coverage on behalf of Executive and/or Executive's
eligible dependents that provides equivalent benefits as provided under such
Company sponsored health care plan or, at the Company's election, shall provide
such benefits from its own assets. Notwithstanding anything in this Agreement to
the contrary, on or after the date Executive attains age 65, no action by the
Company shall be treated as a removal from employment or Constructive Discharge
if on the effective date of such action Executive satisfies all of the
requirements for the executive or high policy-making exception to applicable
provisions of state and federal age discrimination legislation.
(b) Notwithstanding the provisions of Section 5.4(a) (other than the
last sentence), in the event that Executive executes a written release upon such
removal or Constructive Discharge, substantially in the form attached hereto as
Annex 1, (the "Release"), of any and all claims against the Company and all
related parties with respect to all matters arising
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out of Executive's employment by the Company (other than any entitlements under
the terms of this Agreement or under any other plans or programs of the Company
in which Executive participated and under which Executive has accrued a
benefit), or the termination thereof, Executive shall be entitled to receive, in
lieu of the payment described in Section 5.4(a)(i), which Executive agrees to
waive, a single sum payment in cash, within 30 days after the end of the
Employment Term, equal to twice the amount of Executive's annual Base Salary as
of the last day of the Employment Term.
(c) The term "Constructive Discharge" means a termination of the
Executive's employment by the Executive due to a failure of the Company or its
successors without the prior consent of the Executive to fulfill the obligations
under this Agreement in any material respect, including any non-payment or
reduction in the Base Salary or "target opportunity" (as described in Section
1.6) then in effect.
5.5. Voluntary Termination. Executive may voluntarily terminate the
Employment Term under circumstances that do not comprise Constructive Discharge,
upon written notice for any reason, and the Employment Term shall end on the
date such notice is given. In such event, no further payments shall be due
under this Agreement, except that Executive shall be entitled to any benefits
due in accordance with the terms of any applicable plan and programs of the
Company.
6. Payments Upon a Change of Control.
6.1. Definitions. For all purposes of this Section 6, the following terms
shall have the meanings specified in this Section 6.1 unless the context
otherwise clearly requires:
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(a) "Change of Control." For purposes of this Agreement, a "Change of
Control" shall mean:
(i) (A) If any individual, entity or group (within the meaning of
Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) (a "Person") acquires (by purchase, tender offer or
otherwise) or becomes the "beneficial owner" (as defined in rule 13d-3 under the
Exchange Act) of thirty percent (30%) or more of the combined voting power of
the then-outstanding voting securities of the Company entitled to vote generally
in the election of directors (the "Outstanding Company Voting Securities") and
(B) NKK Corporation ceases to be the beneficial owner, directly or indirectly,
of more than fifty percent (50%) of the total voting power of all the then
Outstanding Company Voting Securities; provided, however, that for purposes of
this subsection (i), the following acquisitions shall not constitute a Change of
Control: (1) any acquisition by any employee benefit plan (or related trust)
sponsored or maintained by the Company, or (2) any acquisition by any entity
pursuant to a transaction which complies with each of clauses (A), (B) and (C)
of paragraph (iii) of this Subsection (a).
(ii) Individuals who, as of the date hereof, constitute the Board
(the "Incumbent Board") cease for any reason to constitute at least a majority
of the Board, provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened
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election contest with respect to the election or removal of directors or other
actual or threatened solicitation of proxies or consents by or on behalf of a
Person other than the Board.
(iii) Consummation of a reorganization, recapitalization, merger,
acquisition of securities or assets by the Company or consolidation or sale or
other disposition of all or substantially all of the assets of the Company (a
"Business Combination"), in each case, unless, following such Business
Combination, (A) the individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of common stock of the Company (the
"Outstanding Company Common Stock") and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than fifty percent (50%) of, respectively, the then outstanding
shares of common stock (in substantially the same proportions as their
ownership, immediately prior to such Business Combination, of the Outstanding
Company Common Stock) and the combined voting power of the then outstanding
voting securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business Combination
(including, without limitation, the Company or a corporation which as a result
of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries), and (B)
no Person (excluding any corporation resulting from such Business Combination or
any employee benefit plan (or related trust) of the Company or such corporation
resulting from such Business Combination) beneficially owns, directly or
indirectly, thirty percent (30%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination, or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
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prior to the Business Combination and (C) at least two-thirds of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Board, providing for such
Business Combination; or
(iv) Approval by the shareholders of the Company of a complete
liquidation or dissolution of the Company.
(b) "Termination upon a Change of Control" shall mean a termination of
Executive's employment under Section 5.4 of this Agreement upon or within two
years after a Change of Control.
6.2. Notice of Termination. Any Termination upon a Change of Control
shall be communicated by a Notice of Termination to the other party hereto given
in accordance with Section 9 hereof. For purposes of this Agreement, a "Notice
of Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) briefly summarizes the
facts and circumstances deemed to provide a basis for a termination of
employment and the applicable provision hereof, and (iii) if the termination
date is other than the date of receipt of such notice, specifies the termination
date (which date shall not be more than 15 days after the giving of such
notice).
6.3. Compensation and Benefits. In no event following a Change of Control
shall the Company provide Executive with compensation or benefits, in each case,
less favorable than the most favorable of those provided under Sections 1.3-1.7
of this Agreement at any time during the 120-day period immediately preceding
the Change of Control or, if more favorable to Executive,
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those provided generally at any time after the Change of Control to other peer
executives of the Company.
6.4. Payments and Benefits upon Termination. Subject to the provisions of
Section 6.5 hereof, in the event of Executive's Termination upon a Change of
Control, Executive shall be entitled to receive (a) payments and benefits in
accordance with Section 5.4 of this Agreement, provided that such payments shall
include an additional amount equal to (i) in the case of payments otherwise due
under Subsection 5.4(a), the greater of (A) the average annual amount paid to
Executive under Section 1.6 of this Agreement for years prior to the year in
which Executive's Termination upon a Change of Control occurs or (B) Executive's
most recent "Target Bonus Percentage" (as determined under the Key Management
Incentive Compensation Plan) multiplied by his Base Salary as of the date of
his Termination upon a Change of Control, or (ii) in the case of payments
otherwise due under Subsection 5.4(b), two times the amount determined under the
preceding clause (i); and (b) within 30 days after Executive's Termination upon
a Change of Control, a single sum payment in cash in the amount of the
actuarially equivalent value (based on the 1994 Group Annuitants Mortality Table
and the annual rate of interest on 30-year Treasury securities for the second
calendar month preceding the Executive's Termination upon a Change of Control)
of any nonqualified unfunded retirement benefits to which Executive is entitled
under any plan, program or arrangement of the Company, acceptance of which
single sum payment shall constitute Executive's waiver of any claim or
entitlement to benefits under any such plan, program or arrangement.
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6.5. Certain Increase in Payments.
(a) Anything in this Agreement to the contrary notwithstanding, in the
event that it shall be determined that any payment or distribution by the
Company to or for the benefit of Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise (the "Payment"), would constitute an "excess parachute payment" within
the meaning of Section 280G of the Internal Revenue Code of 1986, as amended
(the "Code"), Executive shall be paid an additional amount (the "Gross-Up
Payment") such that the net amount retained by Executive from the Payment and
the Gross-Up Payment, after deduction of any excise tax imposed under Section
4999 of the Code and any federal, state and local income and employment tax and
excise tax imposed upon the Gross-Up Payment, shall be equal to the Payment.
For purposes of determining the amount of the Gross-Up Payment, Executive shall
be deemed to pay federal income tax and employment taxes at the highest marginal
rate of federal income and employment taxation in the calendar year in which the
Gross-Up Payment is to be made and state and local income taxes at the highest
marginal rate of taxation in the state and locality of Executive's residence on
the date of Executive's Termination upon a Change of Control, net of the maximum
reduction in federal income taxes that may be obtained from the deduction of
such state and local taxes.
(b) All determinations to be made under this Section 6.5 shall be made
by the Company's independent public accountant immediately prior to the Change
of Control (the "Accounting Firm"), which firm shall provide its determinations
and any supporting calculations both to the Company and Executive within 10 days
of the date of Executive's Termination upon a Change of Control. Within five
days after the Accounting Firm's determination, the Company
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shall pay (or cause to be paid) or distribute (or cause to be distributed) to or
for the benefit of Executive such amounts as are then due to Executive under
this Agreement.
(c) In the event that upon any audit by the Internal Revenue Service,
or by a state or local taxing authority, of the Payment or Gross-Up Payment, a
change is finally determined to be required in the amount of taxes paid by
Executive, appropriate adjustments shall be made under this Agreement such that
the net amount which is payable to Executive after taking into account the
provisions of Section 4999 of the Code shall reflect the intent of the parties
as expressed in subsection (a) above, in the manner determined by the Accounting
Firm.
(d) All of the fees and expenses of the Accounting Firm in performing
the determinations referred to in subsections (b) and (c) above shall be borne
solely by the Company.
7. Survivorship. The respective rights and obligations of the parties
under this Agreement shall survive any termination of Executive's employment to
the extent necessary to the intended preservation of such rights and
obligations.
8. Arbitration; Expenses. In the event of any dispute under the
provisions of this Agreement other than a dispute in which the primary relief
sought is an equitable remedy such as an injunction, the parties shall be
required to have the dispute, controversy or claim settled by arbitration in
Mishawaka, Indiana, in accordance with National Rules for the Resolution of
Employment Disputes then in effect of the American Arbitration Association,
before a panel of three arbitrators, two of whom shall be selected by the
Company and Executive, respectively, and the third of whom shall be selected by
the other two arbitrators. Any award entered by the arbitrators shall be final,
binding and nonappealable, and judgment may be entered thereon by either party
in accordance with applicable law in any court of competent jurisdiction. This
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arbitration provision shall be specifically enforceable. The arbitrators shall
have no authority to modify any provision of this Agreement or to award a remedy
for a dispute involving this Agreement other than a benefit specifically
provided under or by virtue of the Agreement. If Executive prevails on any
material issue which is the subject of such arbitration or lawsuit, the Company
shall be responsible for all of the fees of the American Arbitration Association
and the arbitrators and any expenses relating to the conduct of the arbitration
(including the Company's and Executive's reasonable attorneys' fees and
expenses). Otherwise, each party shall be responsible for its own expenses
relating to the conduct of the arbitration (including reasonable attorneys' fees
and expenses) and shall share the fees of the American Arbitration Association.
9. Notices. All notices and other communications required or permitted
under this Agreement or necessary or convenient in connection herewith shall be
in writing and shall be deemed to have been given when hand delivered or mailed
by registered or certified mail, as follows (provided that notice of change of
address shall be deemed given only when received):
If to the Company, to:
Senior Vice President - Administration
National Steel Corporation
4100 Edison Lakes Parkway
Mishawaka, Indiana 46545-3440
If to Executive, to:
John F. Kaloski
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or to such other names or addresses as the Company or Executive, as the case may
be, shall designate by notice to each other person entitled to receive notices
in the manner specified in this Section.
10. Contents of Agreement; Amendment and Assignment.
(a) This Agreement sets forth the entire understanding between the
parties hereto with respect to the subject matter hereof and cannot be changed,
modified, extended or terminated except upon written amendment approved by the
Board and executed on its behalf by a duly authorized officer and by Executive.
(b) All of the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective heirs,
executors, administrators, legal representatives, successors and assigns of the
parties hereto, except that the duties and responsibilities of Executive under
this Agreement are of a personal nature and shall not be assignable or
delegatable in whole or in part by Executive. The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation,
reorganization or otherwise) to all or substantially all of the business or
assets of the Company, by agreement in form and substance satisfactory to
Executive, expressly to assume and agree to perform this Agreement in the same
manner and to the extent the Company would be required to perform if no such
succession had taken place.
11. Severability. If any provision of this Agreement or application
thereof to anyone or under any circumstances is adjudicated to be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect any other provision or application of this Agreement which can be given
effect without the invalid or unenforceable provision or
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application and shall not invalidate or render unenforceable such provision or
application in any other jurisdiction. If any provision is held void, invalid or
unenforceable with respect to particular circumstances, it shall nevertheless
remain in full force and effect in all other circumstances.
12. Remedies Cumulative; No Waiver. No remedy conferred upon a party by
this Agreement is intended to be exclusive of any other remedy, and each and
every such remedy shall be cumulative and shall be in addition to any other
remedy given under this Agreement or now or hereafter existing at law or in
equity. No delay or omission by a party in exercising any right, remedy or
power under this Agreement or existing at law or in equity shall be construed as
a waiver thereof, and any such right, remedy or power may be exercised by such
party from time to time and as often as may be deemed expedient or necessary by
such party in its sole discretion.
13. Beneficiaries/References. Executive shall be entitled, to the extent
permitted under any applicable law, to select and change a beneficiary or
beneficiaries to receive any compensation or benefit payable under this
Agreement following Executive's death by giving the Company written notice
thereof. In the event of Executive's death or a judicial determination of
Executive's incompetence, reference in this Agreement to Executive shall be
deemed, where appropriate, to refer to Executive's beneficiary, estate or other
legal representative.
14. Miscellaneous. All section headings used in this Agreement are for
convenience only. This Agreement may be executed in counterparts, each of which
is an original. It shall not be necessary in making proof of this Agreement or
any counterpart hereof to produce or account for any of the other counterparts.
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15. Withholding. The Company may withhold from any payments under this
Agreement all federal, state and local taxes as the Company is required to
withhold pursuant to any law or governmental rule or regulation. Executive
shall bear all expense of, and be solely responsible for, all federal, state and
local taxes due with respect to any payment received under this Agreement.
16. Governing Law. This Agreement shall be governed by and interpreted
under the laws of the State of Indiana without giving effect to any conflict of
laws provisions.
IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have
executed this Agreement as of the date first above written.
NATIONAL STEEL CORPORATION
_______________________ By:________________________________
JOHN F. KALOSKI Name: David A. Pryzbylski
Title: Senior Vice President - Administration
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EXHIBIT 10-C
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is dated and effective as of the 1st day of
September, 1998 ("Effective Date"), and is by and between National Steel
Corporation, a Delaware corporation (the "Company"), and Yutaka Tanaka
("Executive"). In consideration of the mutual covenants contained herein, and
other good and valuable consideration (including the Termination Benefits and
the Special Termination Benefits) the receipt and adequacy of which the Company
and Executive each hereby acknowledges, the Company and Executive hereby agree
as follows:
1. Employment and Term
The Company hereby agrees to employ Executive as the Chief Executive
Officer of the Company and Executive hereby agrees to accept such employment and
serve in such capacity on a full-time basis during the Term and upon the terms
and conditions set forth in this Employment Agreement (this "Agreement").
Executive shall report solely to the Company's Board of Directors, and will have
such responsibilities, duties and authorities as are customary for such
positions in a publicly held company of the size, type and nature of the Company
as they may exist from time to time. The term of employment of Executive under
this Agreement shall be the period commencing on the Effective Date and
terminating on August 31, 2001 (the "Term"). The respective rights and
obligations of the parties hereunder shall survive any termination of employment
to the extent necessary to achieve the intended preservation of rights and
obligations.
2. Salary and Annual Incentive Compensation.
Executive's annual base salary as in effect on the Effective Date shall be
the Executive's annual base salary hereunder as of the Effective Date, payable
in consecutive equal monthly installments. The term "base salary" as utilized
in this Agreement shall refer to the then current base salary as adjusted from
time to time. Executive's annual base salary shall be reviewed periodically in
accordance with the Company's compensation policies and practices for senior
executives, and may be increased from time to time in accordance with such
policies and practices, but shall not be decreased. Executive shall also be
eligible to receive annual incentive compensation pursuant to the Company's
Management Incentive Compensation Program or any successor plan (the "MICP")
during the Term and as determined in accordance with the terms and conditions of
the MICP. Executive's MICP target annual incentive compensation for 1998 shall
be 50% of base salary, multiplied by a fraction, the numerator of which shall be
the number of days employed by the Company in 1998, and the denominator of which
shall be 365. The Company will maintain in effect, for each year during the
Term, the MICP or an equivalent plan under which Executive will be eligible for
an award not less than the prior year opportunity level available to Executive.
Any such annual incentive compensation payable to Executive shall be paid in
accordance with the Company's usual practices with respect to payment of
incentive compensation of senior executives.
<PAGE>
3. Benefit and Compensation Plans.
(a) Executive shall be entitled during the Term to participate in all
executive compensation plans, and other employee and executive benefits,
practices, policies and programs of the Company, as presently in effect or as
they may be modified or added to by the Company from time to time ("Benefit
Plans").
(b) During the Term, the Company will provide Executive with coverage by
Company-paid group or individual life insurance or a combination thereof, all in
accordance with the plans, policies, programs and arrangements as presently in
effect or as they may be modified or added to by the Company from time to time.
(c) During the Term, Executive will participate in the Company's Executive
Deferred Compensation Plan, and any supplemental retirement plans, benefits,
practices, programs, or policies of the Company, as in effect on the Effective
Date or as they may be modified or added to by the Company from time to time
("Compensation Plans").
4. Non-Compete Agreement.
Executive hereby agrees that if Executive terminates his employment with
the Company without Good Reason, then for a period of two (2) years after the
Date of Termination, but in any event only as long as the Company satisfies its
obligations under this Agreement, (the "Restricted Period"), Executive will not
engage (either as owner, investor, partner, stockholder, employer, employee,
consultant, advisor or director) in any "Competitive Business" in the
continental United States (the "Territory"). The term "Competitive Business"
means the making, producing, manufacturing or finishing of steel products which
products are in direct competition with steel products that are made, produced,
manufactured or finished by the Company on the Date of Termination. It is
agreed that the ownership of not more than one percent of the equity securities
of any company having securities listed on an exchange or regularly traded in
the over-the-counter market shall not be deemed inconsistent with this Section
4. If any court of competent jurisdiction shall deem any obligation of this
Section 4 too lengthy or the Territory too extensive, the other provisions of
this Section shall nevertheless stand, the Restricted Period shall be deemed to
be the longest period such court deems not to be too lengthy and the Territory
shall be deemed to comprise the portion of the United States east of the
Mississippi River (or such other portion of the United States that such court
deems not to be too extensive).
5. Non-Inducement.
Executive hereby agrees that for a period commencing with the Date of
Termination and ending on the second anniversary of the Date of Termination,
Executive shall not induce, or attempt to influence, any employee of the Company
who reports either directly to the Company's Chief Executive Officer, President,
Chief Operating Officer or Acting Chief Operating Officer or to another employee
who reports directly to the Company's Chief Executive Officer, President, Chief
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Operating Officer or Acting Chief Operating Officer to terminate his employment
with the Company.
6. Non-Disclosure.
For a period commencing on the Date of Termination and ending on the fifth
anniversary of the Date of Termination, Executive shall keep secret and retain
in strictest confidence, and shall not furnish, make available or disclose to
any third party or use for the benefit of himself or any third party, any
Confidential Information. As used in this Section, "Confidential Information"
shall mean any information relating to the business or affairs of the Company,
including but not limited to information relating to financial statements,
customer identities, customer needs, potential customers, employees, suppliers,
servicing methods, equipment, programs, strategies and information, analyses,
profit margins or other proprietary information used by the Company in
connection with its business; provided, however, that Confidential Information
shall not include any information which is in the public domain or becomes known
in the industry through no wrongful act on the part of Executive. Executive
acknowledges that the Confidential Information is vital, sensitive, confidential
and proprietary to the Company.
7. No Unfavorable Publicity.
Subsequent to Executive's Date of Termination, Executive agrees not to make
statements or communications and not to issue any written communications or
release any other written materials which would likely be materially damaging to
the Company's reputation or standing, whether in the investor or financial
community, the steel industry or otherwise.
8. Cooperation With the Company.
Executive agrees to cooperate with the Company for a reasonable period of
time after the Term of this Agreement by making himself available to testify on
behalf of the Company, in any action, suit, or proceeding. In addition, for a
reasonable period of time, Executive agrees to be available at reasonable times
to meet and consult with the Company on matters reasonably within the scope of
his prior duties with the Company so as to facilitate a transition to his
successor. The Company agrees to reimburse Executive, on an after-tax basis,
for all expenses actually incurred in connection with his provision of testimony
or consulting assistance.
9. Release of Employment Claims.
Executive and the Company agree that in the event Executive receives
Special Termination Benefits (as defined in Section 11(e)), he and the Company
will execute a mutual release agreement releasing any and all claims which
either of them have or may have against the other arising out of Executive's
employment (other than enforcement of this Agreement). The Executive agrees
that in the event the Executive's employment with the Company terminates or is
terminated, the Executive's sole and exclusive remedy shall be, and the
Company's liability shall be limited to,
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damages equal to the payments and benefits to be provided by the Company
hereunder and to payment or reimbursement of Executive's costs and expenses in
accordance with Section 12(b).
10. Remedies.
Executive acknowledges and agrees that the covenants set forth in Sections
4 through 8 are reasonable and necessary for the protection of the Company's
business interests, that irreparable injury will result to the Company if
Executive breaches any of the terms of such covenants, and that in the event of
Executive's actual or threatened breach of any such covenants, the Company will
have no adequate remedy at law. Executive accordingly agrees that in the event
of any actual or threatened breach by him of any of such covenants, the Company
shall be entitled to immediate temporary injunctive and other equitable relief,
without the necessity of showing actual monetary damages, subject to hearing as
soon thereafter as possible. Nothing contained herein shall be construed as
prohibiting the Company from pursuing any other remedies available to it for
such breach or threatened breach, including the recovery of any damages which it
is able to prove.
11. Termination of Employment.
(a) Termination Due to Death or Disability. Upon an Executive's Date of
Termination during the Term due to death or Disability, the Company will pay
Executive (or his beneficiaries, dependents or estate), and Executive (or his
beneficiaries, dependents or estate) will be entitled to receive, the
Termination Benefits (as defined in Section 11(d)).
(b) Termination by the Company for Cause and Termination by Executive
without Good Reason. Upon Executive's Date of Termination during the Term by
the Company for Cause or by Executive without Good Reason the Company shall pay
Executive (or his beneficiaries, dependents or estate), and Executive (or his
beneficiaries, dependents or estate) shall be entitled to receive, the
Termination Benefits (as defined in Section 11(d)), except that no amount shall
be paid and no right accrued in respect of Executive under Section 11(d) (i)
(B).
(c) Termination by the Company Without Cause and Termination by Executive
for Good Reason. Upon Executive's Date of Termination during the Term by the
Company without Cause or by Executive for Good Reason the Company shall pay
Executive (or his beneficiaries, dependents or estate), and Executive (or his
beneficiaries, dependents or estate) shall be entitled to receive, the
Termination Benefits (as defined in Section 11(d)) and the Special Termination
Benefits (as defined in Section 11(e)).
(cc) Termination Following Expiration of the Term. Upon termination of
employment following expiration of the Term, whether by the Executive with or
without Good Reason, or by the Company, without Cause, the Company shall pay
Executive (or his beneficiaries, dependents, or estate), and Executive (or his
beneficiaries, dependents, or estate) shall be entitled to receive, the
Termination Benefits (as defined in Section 11(d)) and the Special Termination
Benefits (as defined in Section 11(e)).
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(d) "Termination Benefits". "Termination Benefits" means the aggregate of
all of the following:
(i) a single sum cash payment by the Company to Executive within thirty
(30) days after the Date of Termination of
(A) Executive's then current annual base salary pro rata through the Date
of Termination to the extent not theretofore paid; (B) the product of (y) the
greater of (aa) the average annual incentive compensation paid to Executive in
the three fiscal years immediately preceding the fiscal year of the Date of
Termination (or all fiscal years Executive was employed if less than three, and
annualized in the event Executive was not employed by the Company for the whole
of any such fiscal year), and (bb) Executive's target incentive compensation
percentage payable under the MICP multiplied by Executive's then current base
salary and (z) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination, and the denominator of
which is 365; and (C) any accrued vacation pay to the extent not theretofore
paid.
(ii) All vested amounts owing or accrued at the Date of Termination under
any compensation and benefit plans, programs, and arrangements set forth or
referred to in this Agreement, including, but not limited to, Sections 2 and 3
hereof; and if the Date of Termination is due to death, Executive's estate or
other beneficiaries shall receive the death benefits described in Section 3(b).
(iii) Reasonable business expenses and disbursements incurred by Executive
prior to such Date of Termination will be fully reimbursed within ten (10) days
after the Date of Termination.
(e) "Special Termination Benefits". "Special Termination Benefits" means
the aggregate of all of the following:
(i) The Company shall pay to Executive, in a single sum in cash within
thirty (30) days after the Date of Termination, an amount equal to fifty percent
of Executive's annual base salary (immediately preceding the Date of
Termination).
(ii) For two years after Executive's Date of Termination, if Executive is
less than age 69 on his Date of Termination, or such longer period as may be
provided by the terms of the appropriate plan, program, arrangement, practice or
policy, the Company shall continue benefits to Executive and/or Executive's
dependents at least equal to those which would have been provided to them in
accordance with the Benefits Plans or this Agreement if Executive's employment
had not been terminated or, if more favorable to Executive, as in effect
generally at any time thereafter with respect to other peer executives of the
Company and their dependents; provided, however, that notwithstanding anything
in this Agreement to the contrary, if Executive is eligible to receive health
benefits or other benefits under an NKK Corporation sponsored plan or
arrangement, or any Japanese government plan or arrangement, or under any other
plan or arrangement, the health benefits and other benefits described herein
shall be secondary to those provided under such other
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plan or arrangement during such applicable period of eligibility; and provided,
further, that if Executive shall later become ineligible for health benefits or
other benefits under such other plans and arrangements, the health benefits or
other benefits provided by the Company shall be primary. If Executive is age 69
or older on his Date of Termination, the period of "two years" in the first line
of this Section 11(e) (ii) shall be reduced to the period set forth below:
<TABLE>
<CAPTION>
Age Period
--- ------
<S> <C>
69 One Year
70 or older Zero
</TABLE>
(iii) Stock options held by Executive as of the date of this Agreement were
granted pursuant to the 1993 National Steel Corporation Non-Employee Directors'
Stock Option Plan and shall continue to be governed by the terms and conditions
of said Non-Employee Directors' Stock Option Plan. Stock options granted to
Executive after the date of this Agreement shall be issued pursuant to the 1993
National Steel Corporation Long Term Incentive Plan and shall continue to vest
as if Executive had remained an employee of the Company and shall remain fully
exercisable for the lesser of (a) the entire period that would have been
available for exercise had Executive continued in the employ of the Company
through the original option term or (b) five years; such stock options shall
otherwise be governed by the terms and conditions of said Long Term Incentive
Plan (and the agreements and other documents thereunder) pursuant to which such
stock options were granted.
12. Governing Law; Disputes; Arbitration.
(a) Governing Law. This Agreement is governed by and is to be construed,
administered, and enforced in accordance with the laws of the State of Indiana,
without regard to Indiana conflicts of law principles, except insofar as the
Delaware General Corporation Law and federal laws and regulations may be
applicable. If under the governing law, any portion of this Agreement is at any
time deemed to be in conflict with any applicable statute, rule, regulation,
ordinance, or other principle of law, such portion shall be deemed to be
modified or altered to the extent necessary to conform thereto or, if that is
not possible, to be omitted from this Agreement. The invalidity of any such
portion shall not affect the force, effect, and validity of the remaining
portion hereof.
(b) Reimbursement of Expenses in Enforcing Rights. All costs and expenses
(including, without limitation, fees and disbursements of actuaries, accountants
and counsel) incurred by Executive in seeking in good faith to enforce rights
pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive
promptly by the Company, whether or not Executive is successful in asserting
such rights. If there shall be any dispute between the Company and Executive,
the Company shall pay or provide, as applicable, all undisputed amounts or
benefits as are then payable to Executive or Executive's beneficiaries or
dependents pursuant to this Agreement. Any amounts that have become payable
pursuant to the terms of this Agreement or any decision by
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arbitrators or judgment by a court of law, but which are not timely paid shall
bear interest, payable by the Company, at the lower of (A) the highest lawful
rate or (B) the prime rate in effect at the time such payment first becomes
payable, as quoted by The Wall Street Journal.
(c) Arbitration. Any dispute or controversy arising under or in connection
with this Agreement shall be settled exclusively by arbitration in Chicago,
Illinois, in accordance with the rules of the American Arbitration Association
in effect at the time of submission to arbitration, by three (3) arbitrators,
one of which shall be chosen by the Company, one of which shall be chosen by
Executive, and one of which shall be chosen by the arbitrators chosen by Company
and Executive. Judgment may be entered on the arbitrators' award in any court
having jurisdiction. For purposes of entering any judgment upon an award
rendered by the arbitrators, the Company and Executive hereby consent to the
jurisdiction of any or all of the following courts: (i) the United States
District Court for the Northern District of Indiana; (ii) any of the courts of
the State of Indiana, or (iii) any other court having jurisdiction. The Company
and Executive further agree that any service of process or notice requirements
in any such proceeding shall be satisfied if the rules of such court relating
thereto have been substantially satisfied. The Company and Executive hereby
waive, to the fullest extent permitted by applicable law, any objection which it
may now or hereafter have to such jurisdiction and any defense of inconvenient
forum. The Company and Executive hereby agree that a judgment upon an award
rendered by the arbitrators may be enforced in other jurisdictions by suit on
the judgment or in any other manner provided by law. The Company shall bear all
costs and expenses arising in connection with any arbitration proceeding.
Notwithstanding any provision in this Section 12(c), Executive shall be
entitled to seek specific performance of Executive's right to be paid during the
pendency of any dispute or controversy arising under or in connection with this
Agreement.
13. Definitions.
Certain terms in this Agreement are defined the first time they appear;
other terms which are capitalized are not defined the first time they appear,
but unless the context indicates otherwise, have the meanings set forth below:
(a) "Cause". For purposes of this Agreement, "Cause" shall mean
Executive's gross misconduct (as defined herein) or willful and material breach
of this Agreement. For purposes of this definition, "gross misconduct" shall
mean (A) a felony conviction or a plea of nolo contendere to a felony charge in
a court of law under applicable federal or state laws which results in material
damage to the Company, or (B) willfully engaging in one or more acts which is
demonstrably and materially damaging to the Company. Notwithstanding the
foregoing, Executive may not be terminated for Cause unless and until there
shall have been delivered to him, within six months after the Board (A) had
knowledge of conduct or an event allegedly constituting Cause and (B) had reason
to believe that such conduct or event could be grounds for Cause, a copy of a
resolution duly adopted by a majority affirmative vote of the entire membership
of the Company's Board of Directors (excluding Executive if a member of
Company's Board of Directors), at a meeting of the Board called and held for
such purpose (after giving Executive reasonable notice specifying the nature of
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the grounds for such termination and not less than 30 days to correct the acts
or omissions complained of, if correctable, and affording Executive the
opportunity, together with his counsel, to be heard before the Board) finding
that, in the good faith opinion of the Board, Executive was guilty of conduct
set forth above in this Section 13 (a).
(b) "Date of Termination". "Date of Termination" means (i) if Executive's
employment is terminated by the Company for Cause or by Executive for Good
Reason, the date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; (ii) if Executive's employment is
terminated by the Company without Cause, the Date of Termination shall be the
date on which the Company notifies Executive of such Date of Termination, and
(iii) if Executive's employment is terminated by reason of death or Disability,
or is terminated by Executive without Good Reason, the Date of Termination shall
be the date of death of Executive, the Disability Effective Date, or the date
Executive notifies the Company that Executive's employment will terminate, as
the case may be. If the Company determines in good faith that the Disability of
Executive has occurred during the Term of the Agreement (pursuant to the
definition of Disability set forth in Section 13 (c)), it may give to Executive
written notice in accordance with Section 13(e) of this Agreement of its
intention to terminate Executive's employment. In such event, Executive's Date
of Termination is effective on the date that is six months after receipt of such
notice by Executive (the "Disability Effective Date"), provided that, within
such six month period, Executive shall not have returned to full-time
performance of Executive's duties. Any termination by the Company for Cause, or
by Executive for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13 (e) of this
Agreement.
(c) "Disability". "Disability" means the failure of Executive to render
and perform the services required of him under this Agreement, for a total of
180 days or more during any consecutive 12 month period, because of any physical
or mental incapacity or disability as determined by a physician or physicians
selected by the Company and reasonably acceptable to Executive, unless, within
six (6) months after Executive has received written notice from the Company of a
proposed Date of Termination due to such absence, Executive shall have returned
to the full performance of his duties hereunder and shall have presented to the
Company a written certificate of Executive's good health prepared by a physician
selected by Executive and reasonably acceptable to the Company.
(d) "Good Reason". For purposes of this Agreement, "Good Reason" shall
mean the occurrence of any of the following events set forth in paragraphs (i)
through (vii) below, without Executive's prior written consent.
(i) the diminution of Executive's status, titles, positions, duties,
offices, authorities, responsibilities, assignments or reporting relationships,
or removal from Executive of any status, titles, positions, duties, offices,
authorities, responsibilities, assignments or reporting relationships, which is
inconsistent in any respect with Executive's status, titles, positions, duties,
offices, authorities, responsibilities, assignments or reporting relationships,
as contemplated by Section 1 of this Agreement, excluding for this purpose (a)
any removal of the title "Chairman of the Board," the
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removal of Executive from the Board, or any failure to elect or re-elect, or
nominate Executive to the Board, (b) any search for a new Chief Executive
Officer or other transition or succession planning for a new Chief Executive
Officer, (c) any announcement of an appointment of a new Chief Executive
Officer, with an effective date after the Term hereof, or (d) an isolated,
insubstantial and inadvertent action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof given by
Executive;
(ii) any reduction in Executive's then current base salary or in
Executive's then current target incentive compensation opportunity under the
MICP;
(iii) any failure by the Company to comply with any of the provisions of
this Agreement, including but not limited to Sections 2 and 3 of this Agreement,
other than an isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after receipt of notice
thereof given by Executive;
(iv) any failure by the Company to perform any obligation under, or breach
by the Company of any provision of, this Agreement;
(v) any purported termination by the Company of Executive's employment
otherwise than as expressly permitted by this Agreement; or
(vi) any failure by the Company to comply with and satisfy Section 14(c) of
this Agreement.
(vii) voluntary termination of employment by Executive with the prior
approval of a simple majority of the Board.
(e) "Notice of Termination". "Notice of Termination" means a written
notice which (i) indicates the specific termination provision in this Agreement
relied upon, (ii) to the extent applicable, sets forth the facts and
circumstances claimed to provide a basis for termination of Executive's
employment under the provision so indicated and (iii) if the Date of Termination
is other than the date of receipt of such notice, specifies the Date of
Termination. The failure by Executive or the Company to set forth in the Notice
of Termination any fact or circumstance which contributes to a showing of Good
Reason or Cause shall not waive any right of Executive or the Company,
respectively, hereunder or preclude Executive or the Company, respectively, from
asserting such fact or circumstance in enforcing Executive's or the Company's
rights hereunder.
(f) "Board" or "Board of Directors". "Board" or "Board of Directors" means
the full board of directors of the Company as it may be constituted in
accordance with applicable law from time to time, and any committee of the board
shall not be deemed to be the Board or Board of Directors for purposes of this
Agreement.
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14. Miscellaneous.
(a) Integration. This Agreement modifies and supersedes any and all prior
employment agreements. This Agreement constitutes the entire agreement among
the parties with respect to the matters herein provided, and no modification or
waiver of any provision hereof shall be effective unless in writing and signed
by the parties hereto.
(b) Nonexclusivity of Rights. Nothing in this Agreement shall prevent or
limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company during the Term of this Agreement and
for which Executive may qualify, nor shall anything herein limit or otherwise
affect such rights as Executive may have under any contract or agreement with
the Company. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company at or subsequent to the Date of
Termination shall be payable in accordance with such plan, policy, practice or
program or contract or agreement except as explicitly modified by this
Agreement. In the event of any conflict between the terms and provisions of
this Agreement and any of the Company's plans, policies, practices, programs,
contracts or agreements, the terms and provisions of whichever is more favorable
to the Executive shall prevail.
(c) Non-Transferability. Neither this Agreement nor the rights or
obligations hereunder of the parties hereto shall be transferable or assignable
by Executive, except in accordance with the laws of descent and distribution or
as specified in Section 14(d). The Company may, but only with the consent of
Executive, assign this Agreement and the Company's rights and obligations
hereunder, and the Company shall, as a condition of the succession, require such
Successor to assume (jointly and severally with the Company) the Company's
obligations and be bound by this Agreement. Any such assignment shall not
release the Company of any of its obligations under this Agreement. For
purposes of this Agreement, "Successor" shall mean any person that succeeds to,
or has the practical ability to control (either immediately or with the passage
of time), the Company's business directly, by merger or consolidation, or
indirectly, by purchase of the Company's voting securities or all or
substantially all of its assets, or otherwise.
(d) Beneficiaries. Executive shall be entitled to designate (and change,
to the extent permitted under applicable law) a beneficiary or beneficiaries to
receive any compensation or benefits payable hereunder following Executive's
death. If Executive should die while any amount would still be payable to him
hereunder had Executive continued to live, all such amounts, unless otherwise
provided herein, shall be paid in accordance with the terms of this Agreement to
his devisee, legatee or other designee or, if there is no such designee, to his
estate.
(e) Notices. Whenever under this Agreement it becomes necessary to give
notice, such notice shall be in writing, signed by the party or parties giving
or making the same, and shall be served on the person or persons for whom it is
intended or who should be advised or notified, by overnight courier service or
by certified or registered mail, return receipt requested, postage prepaid
-10-
<PAGE>
and addressed to such party at the address set forth below or at such other
address as may be designated by such party by like notice:
If to the Company:
General Counsel
National Steel Corporation
4100 Edison Lakes Parkway
Mishawaka, Indiana 46545-3440
If to the Executive at his then current address reflected in the Company's
records.
If the parties by mutual agreement supply each other with telecopier numbers for
the purposes of providing notice by facsimile, such notice shall also be proper
notice under this Agreement when sent. In the case of overnight courier
service, such notice or advice shall be effective when sent, and, in the cases
of certified or registered mail, shall be effective 2 days after deposit into
the mails by delivery to the U.S. Post Office.
(f) Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
(g) No General Waivers. The failure of any party at any time to require
performance by any other party of any provision hereof or to resort to any
remedy provided herein or at law or in equity shall in no way affect the right
of such party to require such performance or to resort to such remedy at any
time thereafter, nor shall the waiver by any party of a breach of any of the
provisions hereof be deemed to be a waiver of any subsequent breach of such
provisions. No such waiver shall be effective unless in writing and signed by
the party against whom such waiver is sought to be enforced.
(h) No Obligation To Mitigate. Executive shall not be required to seek
other employment or otherwise to mitigate Executive's damages on or after
Executive's Date of Termination, and the amount of any payment or benefit
provided for in this Agreement shall not be reduced by any compensation or
benefits earned by Executive as the result of employment by another employer or
by retirement benefits; provided, however, that, the health benefits or other
benefits that Executive is entitled to receive after the Date of Termination may
be reduced in accordance with the terms of Section 11 (e) (ii).
(i) Offsets; Withholding. The amounts required to be paid by the Company
to Executive pursuant to this Agreement shall not be subject to offset. The
foregoing and other provisions of this Agreement notwithstanding, all payments
to be made to Executive under this Agreement, including
-11-
<PAGE>
under Section 11, or otherwise by the Company, will be subject to required
withholding taxes and other required deductions.
(j) Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of Executive, his heirs, executors, administrators and
beneficiaries, and shall be binding upon and inure to the benefit of the Company
and its permitted successors and assigns as provided in Section 14(c). This
Agreement is a personal contract and the rights and interests of Executive
hereunder may not be sold, transferred, assigned, pledged, encumbered, or
hypothecated by him, except as otherwise expressly permitted by the provisions
of this Agreement. This Agreement shall inure to the benefit of and be
enforceable by Executive and his personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees.
(k) Actuarially Equivalent Value Calculation. For the purpose of
determining an actuarially equivalent value under the terms of this Agreement,
the interest rate specified in Section 417(e) (3) of the Internal Revenue Code
of 1986, or any successor section thereto, as of the date of such determination,
and the 1994 Group Annuitants Mortality Table, shall be used and for purposes of
determining present value under the terms of this Agreement, the interest rate
specified immediately above shall be used. All calculations shall be made at
the expense of the Company, by the independent auditors of the Company. As soon
as practicable after the need for such calculation arises, the Company shall
provide to its auditors all information needed to perform such calculations.
IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has
caused this instrument to be duly executed as of the day and year first above
written.
NATIONAL STEEL CORPORATION
By:_________________________________
Name:
Title:
____________________________________
Yutaka Tanaka
-12-
<PAGE>
EXHIBIT 10-D
August 1, 1998
Mr. David L. Peterson
906 Coldspring
Northville, MI 48167
Dear Mr. Peterson:
This is to confirm that you have agreed to assume the position of Sr. Vice
President Business Development, Production Planning and Technical Services at
the Mishawaka, Indiana Headquarters of National Steel Corporation ("NSC" or the
"Company"). In this position, you will receive the same annual salary and
benefits as you are currently receiving.
We understand that you believe that this change in your title provides you "Good
Reason" to terminate your employment with NSC under your Agreement, but that you
nevertheless are willing to assume the Headquarters job on a trial basis for up
to six months. As we have discussed, it is the Company's position that the
change in your job title does not provide you "Good Reason" to terminate within
the meaning of your Agreement.
The Company and you have agreed to put off the resolution of any dispute over
this matter and preserve the respective arguments concerning "Good Reason"
during the trial period so as to permit you to evaluate the new assignment.
Accordingly, the Company and you agree as follows:
1. You will assume the position of Sr. Vice President Business Development,
Production Planning and Technical Services for a trial period beginning
on August 1, 1998 and ending on or before January 31, 1999. Your
employment will be pursuant to the terms of your Employment Agreement
except as provided in this letter.
2. If any time prior to February 1, 1999 you do not wish to continue your
employment, you will provide the Company with a Notice of Termination
("Notice") as defined in your Agreement and terminate employment within
10 days of such Notice. If you do not provide such Notice prior to
February 1, 1999, you will remain employed in your new
<PAGE>
Mr. David L. Peterson
August 1, 1998
Page 2
position pursuant to the terms of your current Agreement or, if mutually
acceptable, pursuant to the terms of a new employment agreement to be
negotiated in good faith between you and the Company.
3. Effective August 3, 1998, you will be granted 10,000 stock options (the
"stock option") under the Company's Long Term Incentive Plan (the
"Plan"). The stock option will be granted at an exercise price that is
equal to the average of NSC's high and low market price reported by the
NYSE on August 3, 1998. Should you terminate your employment with NSC
for "Good Reason" as defined in your Agreement on or before February 1,
1999, you will forfeit these stock options. In all other respects, these
stock options shall be subject to the terms of the Plan.
4. If you so provide the Notice described in paragraph 2 above, the Company
will not contend in any arbitration or other proceeding between you and
the Company that your agreement to accept the position on a trial basis
prevents you from arguing that you have "Good Reason" to terminate your
employment based on your reassignment.
5. You will not contend in any arbitration or other proceeding that the
Company's agreement to offer you the new position on a trial basis (a)
is an admission that the reassignment provides you "Good Reason" to
terminate employment or (b) prevents the Company from contending in any
such proceeding that you do not have "Good Reason" to terminate
employment.
Please countersign below to confirm that you have consulted with personal
counsel and that this letter accurately reflects our agreement.
Sincerely,
_______________________________
David A. Pryzbylski
Senior Vice President - Administration
and Corporate Secretary
Accepted and Agreed to:
______________________
David L. Peterson
<PAGE>
Exhibit 15-A
Independent Accountants' Review Report
Board of Directors
National Steel Corporation
We have reviewed the accompanying consolidated balance sheet of National Steel
Corporation and subsidiaries (the Company) as of September 30, 1998, and the
related consolidated statements of income for the three-month and nine-month
periods ended September 30, 1998 and 1997, of cash flows for the nine-month
period ended September 30, 1998 and 1997, and of changes in stockholders' equity
and redeemable preferred stock--Series B for the nine-month period ended
September 30, 1998. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements referred to above
for them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of National Steel Corporation and
subsidiaries as of December 31, 1997, and the related consolidated statements of
income, cash flows, and stockholders' equity and redeemable preferred stock--
Series B for the year then ended (not presented here), and in our report dated
January 28, 1998 (except for Notes C, I, and K, as to which the date is February
26, 1998), we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
consolidated balance sheet as of December 31, 1997, is fairly stated, in all
material respects, in relation to the consolidated balance sheet from which it
has been derived.
Ernst & Young LLP
Indianapolis, Indiana
November 13, 1998
<PAGE>
Exhibit 15-B
Board of Directors
National Steel Corporation
We are aware of the incorporation by reference in the following Registration
Statements:
Form S-8, No. 33-51991, pertaining to the 1994 and 1995 Stock Grants to
Union Employees,
Form S-8, No. 33-51081, pertaining to the 1993 National Steel Corporation
Long-Term Incentive Plan,
Form S-8, No. 33-51083, pertaining to the 1993 National Steel Corporation
Non-Employee Director's Stock Option Plan, and
Form S-8, No. 33-61087, pertaining to the National Steel Retirement
Savings Plan and National Steel Represented Employee Retirement Savings
Plan,
of our report dated November 13, 1998 relating to the unaudited interim
consolidated financial statements of National Steel Corporation and subsidiaries
that are included in its Form 10-Q for the quarter ended September 30, 1998.
Ernst & Young LLP
Indianapolis, Indiana
November 13, 1998
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<PAGE>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 106,641
<SECURITIES> 16,284
<RECEIVABLES> 318,192
<ALLOWANCES> 15,935
<INVENTORY> 485,301
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<PP&E> 3,454,648
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0
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