NS GROUP INC, S-1/A, 1995-07-13

NS GROUP INC
S-1/A, 1995-07-13
STEEL WORKS, BLAST FURNACES & ROLLING MILLS (COKE OVENS)

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 13, 1995

REGISTRATION NO. 33-56637
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------

NS GROUP, INC.
AND OTHER REGISTRANTS
(SEE TABLE OF ADDITIONAL REGISTRANTS)

KENTUCKY
(STATE OR OTHER JURISDICTION
OF INCORPORATION OR ORGANIZATION)

3312
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

61-0985936
(IRS EMPLOYER
IDENTIFICATION NUMBER)

NINTH AND LOWELL STREETS
NEWPORT, KENTUCKY 41072
(606) 292-6809
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN R. PARKER
VICE PRESIDENT, TREASURER AND
CHIEF FINANCIAL OFFICER
NINTH AND LOWELL STREETS
NEWPORT, KENTUCKY 41072
(606) 292-6809

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------

COPIES OF ALL CORRESPONDENCE TO:

WILLIAM F. SEABAUGH
BRYAN CAVE
ONE METROPOLITAN SQUARE
211 N. BROADWAY, SUITE 3600
ST. LOUIS, MISSOURI 63102-2750
(314) 259-2000
GARY L. SELLERS
SIMPSON THACHER & BARTLETT
425 LEXINGTON AVENUE
NEW YORK, NEW YORK 10017
(212) 455-2000

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

<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER
NAME OF ADDITIONAL REGISTRANTS INCORPORATION OR ORGANIZATION IDENTIFICATION NUMBER
- ----------------------------------- ------------------------------ ---------------------
<S> <C> <C>
Erlanger Tubular Corporation Oklahoma 73-1281150
Imperial Adhesives, Inc. Ohio 31-1070331
Koppel Steel Corporation Pennsylvania 25-1635833
Newport Steel Corporation Kentucky 61-1116686
Northern Kentucky Air, Inc. Kentucky 62-1208414
Northern Kentucky Management, Inc. Kentucky 61-1014963
</TABLE>

------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.

IF ANY OF THE SECURITIES REGISTERED ON THIS FORM ARE TO BE OFFERED ON A DELAYED
OR CONTINUOUS BASIS PURSUANT TO RULE 415 UNDER THE SECURITIES ACT OF 1933,
CHECK THE FOLLOWING BOX / /

IF THIS FORM IS FILED TO REGISTER ADDITIONAL SECURITIES FOR AN OFFERING PURSUANT
TO RULE 462(B) UNDER THE SECURITIES ACT, PLEASE CHECK THE FOLLOWING BOX AND
LIST THE SECURITIES ACT REGISTRATION STATEMENT NUMBER OF THE EARLIER
EFFECTIVE REGISTRATION STATEMENT FOR THE SAME OFFERING. / /

IF THIS FORM IS A POST-EFFECTIVE AMENDMENT FILED PURSUANT TO RULE 462(C) UNDER
THE SECURITIES ACT, CHECK THE FOLLOWING BOX AND LIST THE SECURITIES ACT
REGISTRATION STATEMENT NUMBER OF THE EARLIER EFFECTIVE REGISTRATION
STATEMENT FOR THE SAME OFFERING. / /

IF DELIVERY OF THE PROSPECTUS IS EXPECTED TO BE MADE PURSUANT TO RULE 434,
PLEASE CHECK THE FOLLOWING BOX. / /
------------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2

NS GROUP, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K

<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
- ---------------------------------------------------------- --------------------------------------------
<S> <C> <C>
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Inside Front Cover Page; Outside Back Cover
Page
3. Summary Information, Risk Factors and Ratio of
Earnings to Fixed Charges........................... Prospectus Summary; Risk Factors; Summary
Consolidated Financial Data
4. Use of Proceeds..................................... Use of Proceeds
5. Determination of Offering Price..................... *
6. Dilution............................................ *
7. Selling Security Holders............................ *
8. Plan of Distribution................................ Outside Front Cover Page; Underwriting
9. Description of Securities to be Registered.......... Description of the Senior Secured Notes
10. Interests of Named Experts and Counsel.............. *
11. Information with Respect to the Registrants

(a) Description of Business....................... Business

(b) Description of Property....................... Business

(d) Common Equity Securities...................... *

(e) Financial Statements.......................... Consolidated Financial Statements

(f) Selected Financial Data....................... Selected Consolidated Financial Data

(g) Supplementary Financial Information........... Notes to Selected Consolidated Financial
Data

(h) Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... Management's Discussion and Analysis of
Financial Condition and Results of
Operations

(i) Changes in and Disagreements with
Accountants................................... *

(j) Directors and Executive Officers.............. Management

(k) Executive Compensation........................ Management

(l) Security Ownership............................ Principal Stockholders

(m) Certain Relationships and Related
Transactions.................................. Management; Principal Stockholders;
Compensation Committee Interlocks and
Insider Participation; Certain Transactions
12. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... *
</TABLE>

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

*Item is inapplicable or answer is in the negative and is omitted from the
Prospectus.
<PAGE> 3

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

SUBJECT TO COMPLETION, DATED JULY 13, 1995
Prospectus
$125,000,000 [logo]
NS GROUP, INC.
% SENIOR SECURED NOTES DUE 2003

NS Group, Inc. (the "Company") is offering (the "Offering") $125,000,000
aggregate principal amount of % Senior Secured Notes due 2003 (the "Senior
Secured Notes"). Interest on the Senior Secured Notes will be payable semi-
annually on and of each year, commencing
, 1996, at the rate of % per annum. Up to 40% of the principal
amount of the Senior Secured Notes will be redeemable with the net proceeds of a
public equity offering at the option of the Company during the first 36 months
after the date of the closing of the Offering at % of the principal amount
thereof plus accrued interest; provided that at least $75,000,000 principal
amount of Senior Secured Notes remains outstanding after such redemption. The
Senior Secured Notes will also be redeemable, in whole or in part, at the option
of the Company on and after , 1999, at the redemption prices set
forth herein plus accrued interest.

The Senior Secured Notes will be obligations of the Company and will rank pari
passu with the Company's other unsubordinated Debt. After giving effect to the
Offering and the application of certain cash balances of the Company to the
payment of debt, as of April 1, 1995, the Company (excluding the Company's
Subsidiaries) would have had approximately $160.2 million of total Debt, of
which $35.2 million would be subordinated to the Senior Secured Notes. The
Senior Secured Notes will be secured by intercompany notes issued in favor of
the Company by the steel-making Subsidiaries of the Company, in an aggregate
amount at least equal to the principal amount of the Senior Secured Notes (the
"Intercompany Notes"). The Senior Secured Notes also will be unconditionally
guaranteed, jointly and severally, by each Subsidiary of the Company (the
"Subsidiary Guarantee"). For each of the Company's steel-making Subsidiaries,
its obligations under the Subsidiary Guarantee will be secured by a first
priority mortgage and security interest and its Intercompany Note will be
secured by a second priority mortgage and security interest in its steel-making
operations, excluding inventory, accounts receivable and certain intangible
property. Each Intercompany Note and the Subsidiary Guarantee will rank pari
passu in right of payment with the unsubordinated obligations of the
Subsidiaries. These obligations include a $45 million working capital facility
which will be secured by a first priority security interest in inventory,
accounts receivable and certain intangible property of the Company and the
Subsidiaries and which will be entered into contemporaneously with the Offering.
After giving effect to the Offering and the application of certain cash balances
of the Company to the payment of debt, as of April 1, 1995, the aggregate amount
of total Debt of the Company's Subsidiaries would have been approximately $10.9
million, all of which would have been unsubordinated and secured. If applicable
covenants are satisfied, the debt agreements of the Company or its Subsidiaries
do not limit the total Debt that may be incurred.

In the event of a Change of Control, the Company will be obligated to make an
offer to purchase all outstanding Senior Secured Notes from the holders of
Senior Secured Notes ("Holders") at a redemption price of 101% of the principal
amount thereof plus accrued interest. A Change of Control would constitute a
default under the working capital facility to be entered into contemporaneously
with this Offering and, therefore, the Company may be required to repay all of
its outstanding obligations under such working capital facility prior to its
redemption of any of the Senior Secured Notes upon such Change of Control. Under
certain circumstances, the Company will be obligated to apply the Net Available
Cash from asset sales to the purchase of substitute property for use in the
Company's business or to make offers to purchase a portion (calculated as set
forth herein) of the Senior Secured Notes at a redemption price of 100% of the
principal amount thereof plus accrued interest.
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SEE "RISK FACTORS" ON PAGE 17 FOR A DISCUSSION OF CERTAIN RISKS ASSOCIATED WITH
AN INVESTMENT IN THE SENIOR SECURED NOTES.
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THE SENIOR SECURED NOTES AND THE SUBSIDIARY GUARANTEE HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNT(2) COMPANY(1)(3)
<S> <C> <C> <C>
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PER SENIOR SECURED NOTE % % %
TOTAL $ $ $
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</TABLE>

(1) Plus accrued interest, if any, from , 1995.
(2) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(3) Before deducting expenses payable by the Company estimated at $975,000.
- --------------------------------------------------------------------------------

The Senior Secured Notes are offered by Chemical Securities Inc. and CS First
Boston (the "Underwriters"), subject to prior sale, when, as and if issued by
the Company and delivered to and accepted by the Underwriters, and subject to
certain other conditions. The Underwriters reserve the right to withdraw, cancel
or modify such offer and to reject orders in whole or in part. It is expected
that the delivery of the Senior Secured Notes will be made in book-entry form
through the facilities of The Depository Trust Company on or about
, 1995.

CHEMICAL SECURITIES INC. CS FIRST BOSTON

The date of this Prospectus is , 1995
<PAGE> 4

INSIDE COVER PICTURE CAPTIONS

Newport produces slabs in sizes ranging from 7-10 inches in thickness, 28-55
inches in width and 15-34 feet in length

The Company's seamless and welded tubular products include production tubing,
casing and line pipe in both carbon and alloy grades

Koppel's computer-controlled four-strand continuous bloom/billet caster

Glowing electrodes pulled from Koppel's ultra-high powered electric arc furnace

Newport's computer controlled continuous slab caster

2
<PAGE> 5

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SENIOR SECURED
NOTES AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

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

AVAILABLE INFORMATION

The Company is subject to the informational reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports and other information with the Securities
and Exchange Commission (the "Commission"). Reports, proxy statements and other
information filed by the Company with the Commission may be inspected and copied
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following
regional offices of the Commission: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such materials can be obtained by mail from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. In addition, reports, proxy
statements and other information concerning the Company may be inspected at the
offices of the New York Stock Exchange, on which shares of the Company's Common
Stock are listed, at 20 Broad Street, New York, New York.

The Company and the Subsidiaries have filed with the Commission a
Registration Statement on Form S-1 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
Senior Secured Notes, and Guarantees thereof, offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain items of which
are contained in schedules and exhibits to the Registration Statement as
permitted by the rules and regulations of the Commission. Statements made in
this Prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to such exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference. The Registration Statement, including all exhibits thereto, may
be inspected and copied in the manner and at the sources described above.

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

3
<PAGE> 6

NOTICE TO CALIFORNIA PURCHASERS

The Senior Secured Notes offered hereby will be sold in California pursuant
to a limited qualification obtained from the California Department of
Corporations under the California Corporate Securities Law of 1968. Pursuant to
the terms of such limited qualification, the Senior Secured Notes may only be
sold to the following classes of purchasers (and each such purchaser in making a
purchase of a Senior Secured Note will be deemed to have represented to, and to
have agreed with, the Underwriters that it is such a purchaser):

A. Any bank, any savings and loan association, any trust company, any
insurance company, any investment company registered under the Investment
Company Act of 1940, any pension or profit sharing trust (other than a
pension or profit-sharing trust of the Company, a self-employed individual
retirement plan, or an individual retirement account);

B. Any organization described in Section 501(e)(3) of the Internal
Revenue Code of 1986, as amended, which has total assets (including
endowment, annuity and life income funds) of not less than $5,000,000
according to its most recent audited financial statement, any corporation
which has a net worth on a consolidated basis according to its most recent
audited financial statement of not less than $14,000,000, or any wholly
owned subsidiary of a person described in (A) and (B);

C. The Federal Government, any agency or instrumentality of the
Federal Government, any corporation wholly owned by the Federal Government,
any state, any city, city and county, or county, or any agency or
instrumentality of a state, city, city and county, or county, or any state
university or state college, and any retirement system for the benefit of
employees of any person described in (C);

D. Any "accredited investor," as defined in Rule 501(a) under the
Securities Act;

E. Any person who purchases at least $1,000,000 aggregate principal
amount of the Senior Secured Notes; and

F. Any person who (a) has annual income of at least $65,000 and a net
worth of at least $250,000 or (b) has a net worth of at least $500,000. If
such person is a natural person, such person's net worth shall be
determined by excluding such person's home, home furnishing and personal
automobiles, if any. If such person is not a natural person, (1) annual
income shall be determined on a consolidated basis for such person's last
fiscal year by taking such person's net income and adding back Federal and
state income taxes, depreciation and amortization, and extraordinary items
and (2) net worth shall be determined on a consolidated basis for such
person's last fiscal year by taking such person's total assets and
subtracting therefrom such person's total liabilities.

If any of the foregoing classes of purchasers is purchasing the Senior
Secured Notes on behalf of a beneficial owner in California through the exercise
of investment control or discretion, where such beneficial owner is not one of
the purchasers described in (A) through (F) above, such purchaser exercising
such investment control or discretion must reasonably believe that such
beneficial owner has either (a) an annual income of at least $50,000 and a net
worth of at least $50,000, or (b) a net worth of at least $125,000. If such
beneficial owner is a natural person, such person's net worth shall be
determined by excluding such person's home, home furnishings and personal
automobiles, if any. If such beneficial owner is not a natural person, (1)
annual income shall be determined on a consolidated basis for such person's last
fiscal year by taking such person's net income and adding back state and Federal
income taxes, depreciation and amortization, and extraordinary items and (2) net
worth shall be determined on a consolidated basis for such person's last fiscal
year by taking such person's total assets and subtracting therefrom such
person's total liabilities.

4
<PAGE> 7

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere in this Prospectus. See
"Risk Factors" for certain factors that should be considered in connection with
an investment in the Senior Secured Notes offered hereby. Unless the context
otherwise requires, all references to the "Company" refer to NS Group, Inc. and
its principal operating subsidiaries, Newport Steel Corporation ("Newport"),
Koppel Steel Corporation ("Koppel"), Erlanger Tubular Corporation ("Erlanger")
and Imperial Adhesives, Inc. ("Imperial"). All references to a fiscal year refer
to the fiscal year of the Company which ends on the last Saturday of September
(for example, references to "fiscal 1994" mean the fiscal year ended September
24, 1994). The twelve month periods ended March 26, 1994 and April 1, 1995 are
52 and 53 week periods, respectively. In October 1993, the Company sold its
subsidiary Kentucky Electric Steel Corporation ("KES"). Except as otherwise
noted herein, all information in this Prospectus relating to the Company's
operations for fiscal 1994 is presented excluding KES. Unless otherwise noted,
the sources for all steel industry data in this Prospectus are the American Iron
and Steel Institute, an organization which collects and publishes steel industry
data ("AISI"), and Pipe Logix, Inc., an industry source which collects and
publishes data from oil country tubular goods producers.

In order to demonstrate trends in the Company's recent performance, certain
financial information is presented in this Prospectus comparing results for the
twelve months ended March 26, 1994 (on a pro forma basis to exclude the gain on
the sale of and the results for KES) to the results for the twelve months ended
April 1, 1995. As more fully discussed in "Management's Discussion and Analysis
of Financial Condition and Results of Operations", the Company experienced
significant increases in operating results during the first six months of fiscal
1995 compared to the first six months of fiscal 1994. The Company believes that
the supplemental comparative twelve month data, together with the comparative
interim presentation provided in "Management's Discussion and Analysis of
Financial Condition and Results of Operations", presents a balanced view of
these recent trends.

THE COMPANY

Despite an operating environment for oil and natural gas drilling in which
domestic consumption of oil country tubular goods ("OCTG") products declined
from approximately 1.9 million tons in fiscal 1990 to approximately 1.4 million
tons for the twelve months ended March 31, 1995, the Company has been successful
in increasing its shipments and product pricing, reducing its manufacturing
costs and improving the diversity of its product offerings. These factors have
enabled the Company to achieve improved recent operating results. For the twelve
months ended March 26, 1994, the Company's revenues and earnings before net
interest expense, taxes, depreciation and amortization ("EBITDA") (on a pro
forma basis to exclude the gain on the sale of and the results for KES) were
$278.3 million and $20.3 million, respectively. For the twelve months ended
April 1, 1995, the Company's revenues and EBITDA were $356.0 million and $32.7
million, respectively. The Company's net loss was reduced from $10.9 million for
the twelve months ended March 26, 1994 (on a pro forma basis to exclude the gain
on the sale of and the results for KES) to $2.4 million for the twelve months
ended April 1, 1995.

Increasing Shipments. The Company has consistently increased its shipments
of specialty steel products since 1991; total shipments were 513,300 tons for
the twelve months ended March 26, 1994 and 653,500 tons for the twelve months
ended April 1, 1995, an increase of approximately 27%. Shipments of welded
tubular products increased from 221,900 tons for the twelve months ended March
26, 1994 to 258,000 tons for the twelve months ended April 1, 1995, an increase
of approximately 16%. For the same comparable periods, seamless tubular
shipments

5
<PAGE> 8

increased from 68,000 tons to 88,300 tons, an increase of approximately 30%.
Additionally, SBQ product shipments increased from 130,000 tons to 167,200 tons
for the same comparable periods, an increase of approximately 29%.

Increasing Prices. Since the beginning of fiscal 1995, the Company also
has been successful in realizing price increases for certain new orders of OCTG,
line pipe and SBQ products. Average prices for the Company's welded OCTG
products increased approximately $28 per ton from $467 per ton for fiscal 1994
to $495 per ton for the first six months of fiscal 1995. Average prices for the
Company's welded line pipe products increased approximately $35 per ton from
$453 per ton for fiscal 1994 to $488 per ton for the first six months of fiscal
1995. The Company's average prices for its SBQ products increased approximately
$41 per ton from $439 per ton to $480 per ton for the same periods. These
pricing gains were partially offset by a decrease in the Company's average
prices of its seamless OCTG products which resulted in part from the Company's
continued strategic emphasis on sales of certain seamless production tubing
products which have lower costs to manufacture and lower selling prices. Due in
part to this change in product mix, the average price for seamless OCTG products
decreased from $832 per ton in fiscal 1994 to $794 per ton for the six months
ended April 1, 1995.

Reducing Manufacturing Costs. In addition to increasing its shipments and
product pricing, the Company has also implemented several measures to reduce its
manufacturing costs. Since fiscal 1990, the year before the Company installed a
continuous slab caster at its Newport facilities, manufacturing costs (excluding
the costs of depreciation and steel scrap) at the Newport facilities have
declined by approximately 16%, or $48 per ton shipped. Since fiscal 1992, the
year after the Company acquired its Koppel facilities, operating improvements
and production and shipment increases at the Koppel facilities have resulted in
a reduction of manufacturing costs (excluding the costs of depreciation and
steel scrap) of approximately 9%, or $35 per ton shipped.

SPECIALTY STEEL PRODUCTS AND PRODUCTION FACILITIES

Oil Country Tubular Goods. The Company is a significant producer of
seamless and welded OCTG, which represented 39% of the Company's net sales for
the twelve months ended April 1, 1995. OCTG products are used as production
tubing, drill pipe and casing in oil and natural gas drilling and production
applications. For the twelve months ended April 1, 1995, the Company's shipments
of OCTG products accounted for approximately 14% of total shipments by domestic
OCTG producers. In the seamless production tubing segment of the OCTG market,
the Company is one of only two domestic producers; there are several foreign
producers.

Line Pipe. The Company is a significant producer of line pipe, which
represented 15% of the Company's net sales for the twelve months ended April 1,
1995. The Company's line pipe products range in size from 1.9 to 12.75 inches in
outside diameter, and are used in gathering lines for the transportation of oil
and natural gas at drilling sites and in transmission lines by both gas utility
and transmission companies. The Company's shipments represented approximately
16% of total small diameter shipments of line pipe (16 inches and under in
outside diameter) by domestic producers for the twelve months ended April 1,
1995.

Special Bar Quality Products. The Company manufactures SBQ products, which
represented 22% of the Company's net sales for the twelve months ended April 1,
1995. The Company focuses on larger diameter SBQ products which are primarily
used by forgers and original equipment manufacturers of heavy machinery, trucks
and off-road vehicles.

Hot Rolled Coils. The Company also manufactures hot rolled coils, which
represented 4% of the Company's net sales for the twelve months ended April 1,
1995. These products are sold to service centers and other manufacturers for use
in high strength applications.

Production Facilities. The Company manufactures its specialty steel
products at its two mini-mills, located in Koppel, Pennsylvania and near
Newport, Kentucky. The Koppel facilities include modern melting and tubemaking
operations, and the Newport facility is the only mini-mill with continuous
casting capabilities manufacturing welded tubular products in the United States.

6
<PAGE> 9

A separate subsidiary of the Company, Imperial, manufactures industrial
adhesive products, and accounted for 10% of the Company's net sales for the
twelve months ended April 1, 1995.

In October 1993, to improve its financial flexibility, the Company sold
KES, a manufacturer of SBQ products, for cash and stock totaling $50.4 million.
KES had been acquired by the Company in 1986 for approximately $7.3 million.

STRATEGY

The Company's business strategy is to increase sales and improve operating
results by: (i) implementing a three year capital expenditure program; (ii)
efficiently expanding production; and (iii) improving its overall financial
flexibility and capital structure.

Implement Capital Improvement Program. The Company has consistently
reinvested in its physical facilities and undertaken initiatives to streamline
operations and reduce operating costs. During 1994, the Company implemented
operational process changes and cost saving initiatives that the Company
believes will result in total estimated annual operating benefit (the estimated
increase in operating income, before depreciation) of approximately $1.6
million. The Company has begun implementation of a three year, $21.7 million
capital expenditure program. The capital expenditure program includes nine
projects designed to achieve further productivity improvements and reduce
operating costs through the elimination of redundant or less efficient
operations and processes. The capital expenditure program is anticipated to
result in total estimated annual operating benefits of approximately $18.2
million. The Company intends to complete four of these projects in fiscal 1995.

Implementation of the capital expenditure program is dependent on future
market conditions, satisfactory completion of engineering studies, the
likelihood of realizing the estimated operating benefits and the availability of
funds. Although anticipated operating benefits from the capital expenditure
program and the other cost saving initiatives are based upon fiscal 1994 labor
costs, shipment levels and product mix, assumptions that management believes are
reasonable, there can be no assurance that the Company will be able to achieve
such operating benefits.

Efficiently Expand Production. Since incorporation in 1981, the Company
has increased its steel-making and finishing capacity through the acquisition of
idled operating assets. The fiscal 1991 acquisition of the Koppel facilities
increased the rated capacity of the Company's steel-making facilities from
700,000 tons (excluding KES) in fiscal 1990 to 1,100,000 tons currently. As a
result of this strategy, the Company has been able to increase its market share
in existing product lines and has expanded its lines to include seamless OCTG
and line pipe and SBQ products. Similarly, new finishing capacity brought on
line in the first quarter of fiscal 1995 has enabled the Company to further
expand its lines to include additional grades of seamless OCTG products. The
Company believes it has significant available production capacity it can readily
access with minimal additional fixed costs should the OCTG markets improve.

Improve Financial Flexibility and Capital Structure. The Offering is part
of the Company's long-term plan to improve its financial flexibility and its
capital structure by reducing its financial leverage. The Company has recently
used, and will use in conjunction with the closing of the Offering, a portion of
its existing cash balances to reduce its total debt outstanding, and will have
minimal term debt amortization requirements over the next five years. The
Company also will enter into a $45.0 million three year working capital
facility, which is expected to be undrawn at the closing of the Offering. The
Company may further reduce its financial leverage in the future by raising funds
through the issuance of additional equity to retire a portion of its long-term
debt at such time that its financial results and general market conditions
support an acceptable equity offering; there can be no assurances, however, when
or if and for what amount the Company will complete an equity offering.

7
<PAGE> 10

THE OFFERING

Securities................. $125,000,000 aggregate principal amount of %
Senior Secured Notes due 2003.

Interest Payment Dates..... The Senior Secured Notes will bear interest from
the date of issuance at the rate of % per
annum and will be payable semi-annually on
and of each year,
commencing , 1996.

Equity Redemption.......... During the first 36 months after the closing of the
Offering, the Company may redeem up to 40% of the
principal amount of the outstanding Senior Secured
Notes with the net proceeds of a public offering of
common stock of the Company (the "Common Stock") at
% of the principal amount thereof plus accrued
interest to the redemption date; provided that at
least $75,000,000 principal amount of the Senior
Secured Notes remains outstanding after such
redemption.

Optional Redemption........ The Senior Secured Notes may be redeemed at the
option of the Company, at any time as a whole, or
from time to time in part, on and after
, 1999, initially at % of their
principal amount, plus accrued interest to the date
of redemption, and declining ratably to par on
, 2001.

Security................... The Senior Secured Notes will be secured by a
pledge of Intercompany Notes issued in favor of the
Company by Newport, Koppel and Erlanger and will be
guaranteed by each Subsidiary. For each of Newport,
Koppel and Erlanger, its obligations under the
Subsidiary Guarantee will be secured by a first
priority mortgage and security interest and its
Intercompany Note will be secured by a second
priority mortgage and security interest in its
steel-making operations, excluding inventory,
accounts receivable and certain intangible
property. The Credit Facility (as defined below)
and the guaranty thereof will be secured by a lien
on the inventory, accounts receivable and certain
intangible property of the Company and its
Subsidiaries.

Ranking.................... The Senior Secured Notes will be obligations of the
Company and will rank pari passu in right of
payment with any existing and future unsubordinated
Debt (as defined herein) of the Company, including
obligations arising under the Company's guaranty of
the Credit Facility. Each Intercompany Note and
obligations under the Subsidiary Guarantee will
rank pari passu in right of payment with any
existing and future unsubordinated Debt of the
applicable Subsidiary. Contemporaneously with the
Offering, the Company will enter into a $45,000,000
three year Revolving Credit, Guaranty and Security
Agreement (the "Credit Facility"). The Company and
its Subsidiaries that are not borrowers under the
Credit Facility will guaranty the obligations
arising thereunder. The obligations of each
Subsidiary arising in connection with the Credit
Facility will rank pari passu with each
Subsidiary's obligations under its Intercompany
Note and/or Subsidiary Guarantee.

Change of Control.......... In the event of a Change of Control (as defined
herein), Holders will have the right to require the
Company to purchase all Senior Secured Notes then
outstanding at a purchase price equal to 101% of
the principal amount thereof plus accrued interest
to the date of repurchase.

8
<PAGE> 11

A Change of Control would constitute a default
under the Credit Facility. Upon a Change of
Control, the Company may be required to repay all
of its outstanding obligations under the Credit
Facility prior to its redemption of any of the
Senior Secured Notes pursuant to the Indenture. If
a Change of Control were to occur, the Company
might be unable to repay all of its obligations
under the Credit Facility, to purchase all of the
Senior Secured Notes tendered and to repay other
Debt that may become payable upon the occurrence of
a Change of Control.

Covenants.................. The Indenture under which the Senior Secured Notes
will be issued will contain certain restrictive
covenants that, among other things, will limit the
ability of the Company to incur additional
indebtedness; create liens; make certain restricted
payments; engage in certain transactions with
affiliates; engage in sale and leaseback
transactions; dispose of assets; issue or sell
stock of its subsidiaries; transfer assets to its
subsidiaries; enter into agreements that restrict
the ability of its subsidiaries to pay dividends
and make distributions; engage in mergers,
consolidations and transfers of substantially all
of the Company's assets; and make certain
investments, loans and advances.

Asset Sale Offers.......... The Net Available Cash (as defined herein) from
sales or other dispositions of Collateral (as
defined herein) shall become subject to the lien of
the Indenture and the Security Documents (as
defined herein). In the event the Net Available
Cash from Asset Sales (with certain exceptions)
equals or exceeds $5,000,000, the Company shall
elect, within 360 days of such date, to either
apply such cash to the acquisition of assets that,
upon purchase, shall become subject to the lien of
the Security Documents if the Net Available Cash
represents Collateral Proceeds (as defined herein),
or to make offers to purchase a portion (calculated
as set forth herein) of the Senior Secured Notes at
a purchase price equal to 100% of the principal
amount thereof, plus accrued interest to the date
of repurchase. Notwithstanding the foregoing, the
Company and its Subsidiaries, in the aggregate,
shall be permitted to retain $1,000,000 of the Net
Available Cash from Asset Sales and all of the Net
Available Cash from the sale of certain non-steel
related assets. Asset Sales and prepayment of the
Senior Secured Notes in connection with Asset Sale
Offers could result in a default under the Credit
Facility.

For a more detailed description of the Senior Secured Notes, see
"Description of the Senior Secured Notes." For a description of certain events
of default under the Credit Facility which could result in the Senior Secured
Notes becoming immediately due and payable, see "Risk Factors -- Deficiency of
Earnings to Fixed Charges; Leverage," "--Certain Restrictions Under Credit
Facility" and "Description of Certain Indebtedness."

USE OF PROCEEDS

The net proceeds of this Offering will be used for the repayment of
outstanding indebtedness and general corporate purposes. See "Use of Proceeds."

RISK FACTORS

Prospective investors should carefully consider the matters set forth under
"Risk Factors."

9
<PAGE> 12

SUMMARY CONSOLIDATED FINANCIAL DATA

The summary consolidated financial data should be read in conjunction with
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related Notes thereto included elsewhere herein. Unless otherwise
noted (see Notes 2 and 4 below), this data includes KES for all periods prior to
its sale in October 1993. See "Supplemental Consolidated Financial Data." In
addition, this data includes Koppel for all periods from the date of its
acquisition in October 1990.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------- FISCAL YEAR ENDED SEPTEMBER
APRIL 1, MARCH 26, -----------------------------------------------------------------
1995(1) 1994(1)(2) 1994(2) 1993(2) 1992(2) 1991 1990
-------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $190,544 $137,971 $ 303,380 $ 353,082 $ 281,242 $ 212,471 $ 249,871
Cost of products sold.......... 168,909 128,349 278,161 310,586 250,189 201,751 204,649
Selling and administrative
expenses..................... 13,620 12,276 24,530 30,824 29,652 28,897 25,852
Operating income (loss)........ 8,015 (2,654 ) 689 11,672 1,401 (18,177) 19,370
Net interest income
(expense).................... (9,374) (9,232 ) (18,297) (20,819) (21,075) (14,117) (410)
Gain on sale of subsidiary..... -- 35,292 35,292 -- -- -- --
Provision (credit) for income
taxes........................ 327 9,586 7,382 (3,382) (6,058) (11,973) 6,291
Extraordinary items............ -- -- -- (1,095) (2,542) -- --
Cumulative effect of a change
in accounting principle...... -- 1,715 1,715 -- -- -- --
Net income (loss).............. 522 14,443 13,208 (6,991) (15,900) (20,603) 13,047
Income (loss) per share before
extraordinary items and
cumulative effect of a change
in accounting principle...... $ .04 $ 1.05 $ .84 $ (.44) $ (.99) $ (1.53) $ .97
Net income (loss) per share.... .04 1.17 .96 (.52) (1.18) (1.53) .97
Cash dividends declared per
share........................ -- -- -- -- .06 .12 .11
BALANCE SHEET DATA:
Working capital................ $ 35,506 $ 53,390 $ 45,202 $ 39,060 $ 40,676 $ 48,411 $ 64,858
Total assets................... 312,613 320,191 315,327 317,242 319,079 329,889 220,856
Total debt..................... 173,813 185,500 182,525 192,155 193,753 196,345 72,812
Common shareholders' equity.... 76,364 79,332 76,464 62,622 68,574 85,149 107,226
OTHER FINANCIAL AND
STATISTICAL DATA:
Sources and uses of cash flows:
Net cash flows from operating
activities................. $ (5,873) $ (5,824 ) $ (4,329) $ 2,392 $ 8,515 $ (13,767) $ 14,250
Net cash flows from investing
activities................. 12,348 9,010 7,379 (4,254) (1,373) (112,722) (31,327)
Net cash flows from financing
activities................. (9,530) (1,303 ) (4,442) (1,055) (3,526) 119,037 25,576
EBITDA(3)...................... $ 19,612 $ 42,270 (4) $ 55,326(4) $ 30,078 $ 19,793 $ (3,385)(5) $ 26,515
Capital expenditures........... 7,317 3,655 11,760 6,080 4,148 16,433 45,011
Depreciation and
amortization................. 9,695 9,307 18,789 19,093 18,711 15,725 6,879
Ratio of EBITDA to net interest
charges(6)................... 2.1x 4.6x (4) 3.0x(4) 1.4x 0.9x(7) --(7) 5.8x
Ratio of EBITDA to pro forma
interest charges(8).......... 1.9x 2.7x
Ratio of earnings to fixed
charges(9)................... 1.1x 3.4x (4) 1.9x(4) -- -- -- 3.2x
Deficiency of earnings to cover
fixed charges(9)............. $ -- $ -- (4) $ --(4) $ (9,278) $ (19,416) $ (38,109) $ --
Pro forma ratio of earnings to
fixed charges(9)............. -- 1.6x
Deficiency of earnings to cover
pro forma fixed charges(9)... $ (597) --
</TABLE>

10
<PAGE> 13

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

(1) The six month periods ended April 1, 1995 and March 26, 1994 are 27 and 26
week periods, respectively.

(2) On October 6, 1993, the Company sold KES. Certain financial data of the
Company is presented below to exclude the effects from the gain on the sale
of KES in the first quarter and full fiscal year of 1994 and to exclude the
results of KES for the first six months of fiscal 1994 and for fiscal 1994,
1993 and 1992. Fiscal years 1991 and 1990 are not presented as Koppel did
not commence operations until the middle of fiscal 1991. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------- FISCAL YEAR ENDED SEPTEMBER
APRIL 1, MARCH 26, ----------------------------------
1995 1994 1994 1993 1992
------------ ------------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................... $190,544 $137,971 $303,380 $262,535 $200,803
Cost of products sold................... 168,909 128,550 278,362 239,118 186,212
Selling and administrative expenses..... 13,620 12,276 24,530 21,030 21,615
Operating income (loss)................. 8,015 (2,855) 488 2,387 (7,024)
EBITDA.................................. $ 19,612 $ 6,778 $ 19,833 $ 20,159 $ 10,606
Capital expenditures.................... 7,317 3,655 11,760 5,404 3,805
Depreciation and amortization........... 9,695 9,307 18,789 18,328 17,965
</TABLE>

(3) EBITDA represents earnings before net interest expense, taxes, depreciation
and amortization, and is calculated as net income before extraordinary
items and the cumulative effect of a change in accounting principle plus
net interest expense, taxes, depreciation and amortization. EBITDA provides
additional information for determining the Company's ability to meet debt
service requirements. EBITDA does not represent and should not be
considered as an alternative to net income, any other measure of
performance as determined by generally accepted accounting principles, as
an indicator of operating performance or as an alternative to cash flows
from operating, investing or financing activities or as a measure of
liquidity. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a discussion of liquidity and operating
results.

(4) For the first six months of fiscal 1994 and for fiscal 1994, on a pro forma
basis to exclude the gain on the sale of and the results for KES, EBITDA
was $6.8 million and $19.8 million, respectively. On a pro forma basis, for
the first six months of fiscal 1994, EBITDA was insufficient to cover net
interest charges by $2.5 million and for fiscal 1994 the ratio of EBITDA to
net interest charges was 1.1x, and the ratio of earnings to fixed charges
was not meaningful. On a pro forma basis, for the first six months of
fiscal 1994 and for fiscal 1994, earnings were insufficient to cover fixed
charges by $11.5 million and $16.6 million, respectively. See "Supplemental
Consolidated Financial Data."
(footnotes continued on following page)

11
<PAGE> 14

(5) Fiscal 1991 results were adversely impacted by several factors, including
primarily the start-up and initial operation of the Koppel facilities; a
decline in welded tubular shipments and KES shipments; and start-up costs
associated with Newport's continuous slab caster, reheat furnace and ladle
metallurgy facilities. The Koppel facilities, which were acquired in the
first quarter of fiscal 1991, commenced operations in the latter part of
the second quarter of fiscal 1991. The Koppel facilities incurred a $13.8
million operating loss in fiscal 1991, including $4.2 million of costs
incurred prior to the commencement of production and in connection with the
start-up of the facilities. The Company also experienced a significant
decline in demand for its welded tubular products and the Newport
facilities incurred a $7.7 million operating loss in fiscal 1991. In
addition, the Newport facilities incurred start-up costs, which are not
quantifiable, associated with its continuous slab caster, reheat furnace
and ladle metallurgy facility. Such costs were incurred primarily during
the first three months of fiscal 1991.

(6) Net interest charges include interest expense, including capitalized
interest, reduced by interest income.

(7) EBITDA was insufficient to cover net interest charges by $1.3 million in
fiscal 1992 and $23.0 million in fiscal 1991.

(8) The ratio of EBITDA to pro forma interest charges reflects (a) the
elimination of historical net interest charges for the respective periods;
(b) the addition of interest expense related to the issuance of the Senior
Secured Notes at an assumed rate of 12.50%; and (c) the addition of
interest expense at the stated rates of the remaining $46.1 million of Debt
of the Company as of April 1, 1995, as adjusted for the Refinancing
Transaction.

(9) For purposes of computing the ratio of earnings to fixed charges (a)
earnings consist of income before income taxes, extraordinary items and the
cumulative effect of a change in accounting principle plus fixed charges
(excluding capitalized interest) and (b) fixed charges consist of interest
expense, including capitalized interest and amortization of debt expense.
The pro forma ratio of earnings to fixed charges assumes an interest rate
of 12.50% on the Senior Secured Notes.

(10) Other products include seamless mechanical tubing and products classified
as secondary and limited service.

(11) Average selling prices for all seamless OCTG products for the first six
months of fiscal 1995 declined 7.9% from the first six months of fiscal
1994, due partially to strong pricing of seamless OCTG products in the
first quarter of fiscal 1994 which then declined during the balance of
fiscal 1994 and to changes in product mix, including the introduction of
new products with lower average selling prices. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Second Quarter and Six Month Fiscal 1995 Compared to Second
Quarter and Six Month Fiscal 1994" and "-- Quarterly Results."

12
<PAGE> 15

SUPPLEMENTAL CONSOLIDATED FINANCIAL DATA

In order to demonstrate trends in the Company's recent performance, the
following supplemental consolidated financial data includes unaudited financial
data for the 53 week period ended April 1, 1995, and unaudited pro forma summary
consolidated financial data for the 52 week period ended March 26, 1994. On
October 8, 1993, the Company sold KES, a wholly-owned subsidiary, to a newly
formed public company in exchange for $45.6 million in cash and 400,000 shares
(approximately 8%) of the new public company, then valued at $4.8 million. The
unaudited pro forma summary consolidated financial data for the 52 week period
ended March 26, 1994 gives effect to the elimination of the pre-tax gain of
$35.3 million, the related tax effect of $13.8 million and the results of KES
for the period prior to the sale. The Company believes the data presented below,
together with the comparative interim presentation provided in "Management's
Discussion and Analysis of Financial Condition and Results of Operations",
presents a balanced view of the Company's recent operating results. As more
fully discussed in "Management's Discussion and Analysis of Financial Condition
and Results of Operations", the Company experienced significant increases in
operating results during the first six months of fiscal 1995 compared to the
first six months of fiscal 1994. This supplemental consolidated financial data
should be read in conjunction with "Summary Consolidated Financial Data,"
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related Notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
PRO FORMA
TWELVE MONTHS TWELVE MONTHS
ENDED ENDED
APRIL 1, 1995 MARCH 26, 1994
------------- --------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE AND PER TON DATA)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................................................................... $ 355,953 $ 278,272
Cost of products sold.......................................................... 318,721 254,301
Selling and administrative expenses............................................ 25,874 22,458
Operating income............................................................... 11,358 1,513
Net interest expense........................................................... (18,439) (19,791)
Provision (credit) for income taxes............................................ (1,877) (6,609)
Loss before extraordinary item and cumulative effect of a change in accounting
principle.................................................................... (2,428) (10,860)
Net loss....................................................................... (2,428)
Loss per share before extraordinary item and cumulative effect of a change in
accounting principle......................................................... $ (.18) $ (.79)
Net loss per share............................................................. (.18)
Weighted average shares outstanding............................................ 13,804,501 13,662,512
OTHER FINANCIAL AND STATISTICAL DATA:
Sources and uses of cash flows:
Net cash flows from operating activities..................................... $ (4,378)
Net cash flows from investing activities..................................... 10,717
Net cash flows from financing activities..................................... (12,669)
EBITDA(1)...................................................................... $ 32,668 $ 20,333
Capital expenditures........................................................... 15,422 5,744
Depreciation and amortization.................................................. 19,177 18,478
Ratio of EBITDA to net interest charges(2)..................................... 1.8x 1.0x
Ratio of EBITDA to pro forma interest charges(3)............................... 1.6x
Ratio of earnings to fixed charges(4).......................................... -- --
Deficiency of earnings to cover fixed charges(4)............................... $ (4,305) $ (17,469)
Pro forma ratio of earnings to fixed charges(4)................................ --
Deficiency of earnings to cover pro forma fixed charges(4)..................... $ (7,765)
Tons shipped:
Tubular products
Welded OCTG.................................................................. 162,800 132,800
Seamless OCTG................................................................ 74,800 56,000
Welded line pipe............................................................. 95,200 89,100
Seamless line pipe........................................................... 13,500 12,000
SBQ products................................................................... 167,200 130,000
Hot rolled coil products....................................................... 38,800 22,800
Other products(5).............................................................. 101,200 70,600
------------- --------------
Total tons shipped............................................................. 653,500 513,300
=============== ===============
Average selling price per ton:
Tubular products
Welded OCTG.................................................................. $ 483 $ 456
Seamless OCTG(6)............................................................. 800 871
Welded line pipe............................................................. 471 440
Seamless line pipe........................................................... 589 596
SBQ products................................................................... 462 420
Hot rolled coil products....................................................... 363 350
Other products(5).............................................................. 372 384
</TABLE>

(footnotes on following page)

13
<PAGE> 16

- ---------------
(1) EBITDA represents earnings before net interest expense, taxes,
depreciation and amortization, and is calculated as net income before
extraordinary items and the cumulative effect of a change in accounting
principle plus net interest expense, taxes, depreciation and
amortization. EBITDA provides additional information for determining
the Company's ability to meet debt service requirements. EBITDA does
not represent and should not be considered as an alternative to net
income, any other measure of performance as determined by generally
accepted accounting principles, as an indicator of operating
performance or as an alternative to cash flows from operating,
investing or financing activities or as a measure of liquidity. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of liquidity and operating
results.

(2) Net interest charges include interest expense, including capitalized
interest, reduced by interest income.

(3) The ratio of EBITDA to pro forma interest charges reflects (a) the
elimination of historical net interest charges for the twelve months
ended April 1, 1995 (b) the addition of interest expense related to the
issuance of the Senior Secured Notes at an assumed rate of 12.50%; and
(c) the addition of interest expense at the stated rates of the
remaining $46.1 million of Debt of the Company as of April 1, 1995, as
adjusted for the Refinancing Transaction.

(4) For purposes of computing the ratio of earnings to fixed charges (a)
earnings consist of income before income taxes, extraordinary items and
the cumulative effect of a change in accounting principle, plus fixed
charges (excluding capitalized interest) and (b) fixed charges consist
of interest expense, including capitalized interest and amortization of
debt expense. The pro forma earnings to fixed charges assumes an
interest rate of 12.50% on the Senior Secured Notes.

(5) Other products include seamless mechanical tubing and products
classified as secondary and limited service.

(6) Average selling prices for all seamless OCTG products for the twelve
month period ended April 1, 1995 declined 8.2% from the twelve month
period ended March 26, 1994, due partially to strong pricing of
seamless OCTG products in the first three quarters of the twelve month
period ended March 26, 1994, which subsequently declined and to changes
in product mix, including the introduction of new products with lower
average selling prices. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Second Quarter and Six
Month Fiscal 1995 Compared with Second Quarter and Six Month Fiscal
1994" and "-- Quarterly Results."

14
<PAGE> 17

The table below presents certain unaudited pro forma summary consolidated
financial data for fiscal 1994. As discussed above, on October 6, 1993, the
Company sold KES, a wholly-owned subsidiary, to a newly formed public company in
exchange for $45.6 million in cash and 400,000 shares (approximately 8%) of the
new public company, then valued at $4.8 million. The unaudited pro forma summary
consolidated financial data for fiscal 1994 gives effect to the elimination of
the pre-tax gain of $35.3 million, the related tax effect of $13.8 million and
$0.2 million of operating income of KES for the eleven days of fiscal 1994 prior
to the sale. This supplemental consolidated financial data should be read in
conjunction with "Summary Consolidated Financial Data," "Selected Consolidated
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and related
Notes thereto included elsewhere herein.

<TABLE>
<CAPTION>
PRO FORMA
CONSOLIDATED
FINANCIAL DATA
FISCAL 1994
----------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AND
PER TON DATA)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................................................................. $ 303,380
Cost of products sold.................................................................. 278,362
Selling and administrative expenses.................................................... 24,530
Operating income....................................................................... 488
Net interest expense................................................................... (18,297)
Provision (credit) for income taxes.................................................... (6,460)
Loss before cumulative effect of a change in accounting principle...................... (10,158)
Loss per share before cumulative effect of a change in accounting principle............ $ (.74)
Weighted average shares outstanding.................................................... 13,789,265
OTHER FINANCIAL AND STATISTICAL DATA:
EBITDA(1).............................................................................. 19,833
Capital expenditures................................................................... 11,760
Depreciation and amortization.......................................................... 18,789
Ratio of EBITDA to net interest charges(2)............................................. 1.1x
Ratio of earnings to fixed charges(3).................................................. --
Deficiency of earnings to cover fixed charges(3)....................................... $ (16,618)
Tons shipped:
Tubular products
Welded OCTG.......................................................................... 138,200
Seamless OCTG........................................................................ 61,800
Welded line pipe..................................................................... 82,800
Seamless line pipe................................................................... 10,700
SBQ products........................................................................... 147,900
Hot rolled coil products............................................................... 38,800
Other products(4)...................................................................... 80,800
---------
Total tons shipped..................................................................... 561,000
=========
Average selling price per ton:
Tubular products
Welded OCTG.......................................................................... $ 467
Seamless OCTG........................................................................ 832
Welded line pipe..................................................................... 453
Seamless line pipe................................................................... 576
SBQ products........................................................................... 439
Hot rolled coil products............................................................... 354
Other products(4)...................................................................... 382
</TABLE>

(footnotes on following page)

15
<PAGE> 18

(2) Net interest charges include interest expense, including capitalized
interest, reduced by interest income.

(3) For purposes of computing the ratio of earnings to fixed charges (a)
earnings consist of income before income taxes, extraordinary items and
the cumulative effect of a change in accounting principle, plus fixed
charges (excluding capitalized interest) and (b) fixed charges consist
of interest expense, including capitalized interest and amortization of
debt expense. The pro forma earnings to fixed charges assumes an
interest rate of 12.50% on the Senior Secured Notes.

(4) Other products include seamless mechanical tubing and products
classified as secondary and limited service.

16
<PAGE> 19

RISK FACTORS

In addition to the other information set forth in this Prospectus,
prospective investors should carefully consider the following information in
evaluating the Company and its business before making an investment in the
Senior Secured Notes.

DEFICIENCY OF EARNINGS TO FIXED CHARGES; LEVERAGE

The Company currently has, and after the Offering will continue to have, a
substantial amount of long-term debt in relation to common shareholders' equity.
As of April 1, 1995, the Company had total Debt of $173.8 million. After giving
effect to the Offering and the application of certain cash balances of the
Company to the payment of debt, as of April 1, 1995, the Company would have had
$171.1 million of total Debt, including the $125.0 million aggregate principal
amount of the Senior Secured Notes. See "Use of Proceeds," "Summary of the
Refinancing Transaction," and "Capitalization." The Company's gross interest
expense for the twelve months ended April 1, 1995, the twelve months ended March
26, 1994, and fiscal 1994, 1993, 1992 and 1991 was $20.2 million, $20.5 million,
$20.0 million, $21.1 million, $21.8 million and $16.1 million, respectively. The
Company's gross interest expense is not expected to change materially after
giving effect to the Offering and the application of the proceeds therefrom. For
the twelve months ended April 1, 1995 and on a pro forma basis the twelve months
ended March 26, 1994, and fiscal 1994 (in each case to exclude the gain on the
sale of and the results for KES) and for fiscal years 1993, 1992 and 1991, the
Company's earnings were insufficient to cover fixed charges by $4.3 million,
$17.5 million, $16.6 million, $9.3 million, $19.4 million and $38.1 million,
respectively. These amounts were calculated including KES for the periods prior
to its sale in October 1993. The Company's ability to make interest payments on
and to repay the principal of the Senior Secured Notes will depend upon the
Company's ability to generate cash sufficient to meet such required payments or
to refinance its debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

The Company's level of indebtedness, together with the restrictive
covenants included in the Indenture and the Credit Facility, may have the effect
of limiting the Company's ability to incur additional indebtedness, sell assets
or acquire other entities, and may otherwise limit the operational and financial
flexibility of the Company. The effect of these restrictions may be to place the
Company at a competitive disadvantage in relation to less leveraged competitors.
If applicable covenants are satisfied, the debt agreements of the Company or its
Subsidiaries do not limit the total Debt that may be incurred. See "Description
of the Senior Secured Notes" and "Description of Certain Indebtedness."

CERTAIN RESTRICTIONS UNDER CREDIT FACILITY

The Credit Facility will contain extensive affirmative and negative
covenants, including, among others, covenants: (i) prescribing minimum levels of
net worth and working capital; (ii) requiring the maintenance of a certain
interest coverage ratio, current ratio and ratio of total liabilities to net
worth; and (iii) placing limits on the ability of the Company and each of its
subsidiaries to incur indebtedness, create liens, guarantee indebtedness, make
investments, make loans or extensions of credit, make capital expenditures,
declare, pay or make dividends, substantially change the nature of its business,
engage in transactions with affiliates, enter into leases, and form
subsidiaries. The Credit Facility will require the Company to maintain as of the
end of each fiscal quarter an interest coverage ratio of 1.1 to 1.0 during
fiscal 1995, 1.5 to 1.0 during fiscal 1996 and 1.75 to 1.0 during fiscal 1997,
measured on a rolling four-quarter basis. On a pro forma basis for fiscal 1994
(to exclude the gain on the sale of and the results for KES), the interest
coverage ratio was 1.2 to 1.0. In addition, the net worth covenant under the
Credit Facility will require the Company to maintain a net worth of at least $70
million, less the after-tax effect of prepayment penalties associated with the
prepayment of debt with the proceeds of the Offering. At April 1, 1995, the
Company had a net worth of approximately $76.4 million. The Company currently
would be, and will be upon the completion of the Offering, in compliance with
all covenants under the Credit Facility.

The Credit Facility will also contain covenants which limit the ability of
the Company and each of its subsidiaries to sell assets other than sales in the
ordinary course of business, sales of obsolete or idle assets (other than the
collateral under the Credit Facility) and sales of certain non-steel

17
<PAGE> 20

related assets (in which event the maximum revolving advance amount would be
reduced), and to enter into certain transactions among affiliates, among others.
The Credit Facility does not permit the Company or any of its Subsidiaries to
(i) merge, consolidate or reorganize (except that the Company and its
Subsidiaries may merge with each other under certain conditions) or (ii) acquire
all or substantially all of the stock or assets of any entity unless the Company
has working capital after such transaction of no less than the sum of $20.0
million plus scheduled principal payments due within 36 months (excluding
obligations arising under the Credit Facility). At April 1, 1995, assuming
completion of the Offering and the application of certain cash balances of the
Company to the payment of debt, the Company would have had $67.6 million in
working capital and minimal term debt amortization requirements over the next
five years. In addition, the Credit Facility will restrict prepayment of
indebtedness, including the Senior Secured Notes through optional redemptions,
Change of Control Offers and certain Asset Sale Offers.

The Credit Facility will be a borrowing base facility, although the agent
for the lenders may reduce the borrowing base by the amount of reserves such
agent reasonably deems necessary (including reserves for environmental matters).
The Credit Facility will contain certain events of default including, among
others: (i) failure to pay the obligations under the Credit Facility when due;
(ii) breach of any representation or warranty in any of the loan documents;
(iii) failure to comply with terms, provisions, conditions or covenants in any
of the loan documents (which in some cases do not include notice or cure
periods); (iv) issuance of liens or attachment which are not stayed or lifted
within 30 days or entry of judgment (over a threshold level) which is not
satisfied, stayed or discharged of record within 40 days; (v) certain events of
insolvency or bankruptcy or the written admission of inability to pay debts when
due; (vi) liens created under the Credit Facility ceasing to be first priority,
perfected security interests or any portion of the collateral being seized;
(vii) material defaults under other agreements to which the Company or any of
its subsidiaries is a party which has a material adverse effect on the Company;
(viii) change of ownership; (ix) revocation, suspension, adverse modification or
termination (or the institution of proceedings to do so) of any material
license, permit, patent, trademark or tradename; (x) certain ERISA violations;
and (xi) interruption of business operations. In addition, any change in the
condition or affairs (financial or otherwise) of Newport, Koppel or Imperial
which in the lenders' reasonable opinion materially impairs the collateral for
the Credit Facility or the ability of Newport, Koppel and Imperial, taken as a
whole, to perform their obligations under the Credit Facility will constitute an
event of default. See "Description of Certain Indebtedness."

RECENT LOSSES

The Company has incurred losses before extraordinary items of $5.9 million,
$13.4 million and $20.6 million for the fiscal years ended 1993, 1992 and 1991,
respectively. These losses include the results of KES prior to its sale in
October 1993. For fiscal 1994, excluding the gain on the sale of and the results
for KES, the Company's pro forma net loss before the cumulative effect of a
change in accounting principle was $10.2 million. Primary factors contributing
to the Company's losses include the decline in the demand for and the selling
prices of the Company's products, particularly its tubular products; the
start-up of Koppel in the face of declining markets; start-up costs associated
with Newport's continuous slab caster; and increases in the cost of steel scrap,
the Company's principal raw material. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation."

DEPENDENCE ON OIL COUNTRY TUBULAR GOODS MARKET

OCTG products represent the Company's principal product lines and largest
source of net sales, representing 39% of the Company's net sales for the twelve
months ended April 1, 1995. The market for OCTG is primarily dependent upon
domestic oil and natural gas drilling activity, which is largely dependent on
current and forecasted oil and gas prices. The domestic drilling industry has
been in a period of contraction since 1986, with average rig count declining
from a high of approximately 3,970 in 1981 to a low of approximately 718 in
1992, according to Baker Hughes, Inc. For the six months ended April 1, 1995,
average rig count was 768. Any increase in rig count in the

18
<PAGE> 21

future may benefit only welded or only seamless product sales depending on the
type of wells being drilled. The Company's OCTG sales and margins are also
influenced by OCTG imports, inventory levels of welded and seamless products,
competitive conditions, steel scrap prices and other factors beyond the
Company's control. The Company's OCTG sales and margins may be subject to
significant variation from year to year. No assurance can be given as to the
likelihood, timing and extent of any increase in domestic oil and natural gas
drilling or as to the level of future demand for the Company's products. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

Industry-wide inventory levels of OCTG can vary significantly from period
to period and have a direct effect on the demand for new production of such
products. As a result, the Company's OCTG sales and results of operations may
vary significantly from period to period. During most of the period from 1986 to
1993, demand within the energy industry for OCTG was satisfied to a significant
extent through draw downs of existing inventories held by distributors and end
users. Draw downs of existing inventories of OCTG abated in late 1992 and
inventory levels began to increase during 1993. There can be no assurance that
OCTG inventories will not again become excessive or that substantial draw downs
of such inventories will not again occur, which could have a material adverse
effect on price levels and the quantity of OCTG products sold by the Company.

CYCLICAL INDUSTRY AND SENSITIVITY TO ECONOMIC CONDITIONS

The demand for the Company's OCTG products is cyclical in nature, being
dependent on oil and natural gas drilling activity, industry-wide inventory
levels and general economic conditions. See "-- Dependence on Oil Country
Tubular Goods Market." The demand for the Company's SBQ and hot rolled coil
products is also cyclical in nature and is sensitive to general economic
conditions. The demand for and the pricing of the Company's SBQ and hot rolled
coil products is also affected by economic trends in areas such as commercial
and residential construction, automobile production and industrial investment in
new plants and facilities. Future economic downturns may adversely affect the
Company.

CAPITAL INTENSIVE INDUSTRY

The Company operates in an industry which requires substantial capital
investment, and additional capital expenditures are required by the Company to
continue to upgrade its facilities. The Company believes that foreign and
domestic producers will continue to invest heavily to achieve increased
production efficiencies and improve product quality. During the past few years,
the Company has deferred certain discretionary capital expenditures due to
financial constraints. There can be no assurance that there will be sufficient
internally generated cash or available acceptable external financing to make the
necessary capital expenditures for a protracted period of time.

ASSUMPTIONS REGARDING CAPITAL EXPENDITURE PROGRAM

The Company has begun to implement a three-year, $21.7 million capital
expenditure program intended to reduce its operating costs, improve quality and
enhance its marketing position; the program consists of nine projects, one of
which has been completed. The capital expenditure program is under continuous
review and the Company may, based upon the results of engineering studies,
revisions in budgeted project costs, increases or decreases in estimated
operating benefits, changes in the demand for the Company's products, or the
unavailability of internally generated cash or acceptable external financing,
decide in the future to eliminate, postpone, modify or accelerate projects, or
to substitute new projects for those currently included in the program. Upon
completion of the capital expenditure program, the Company believes that its
steelmaking operations, like those of other steel producers, will continue to
require capital expenditures and additional projects that are essential to the
Company's long-term competitiveness. See "-- Competition" for information
concerning low cost thin slab casting operations. Because the estimated
operating benefits from the Company's expected efficiencies and planned capital
improvements are based upon a number of assumptions, estimated operating
benefits may not necessarily be indicative of the Company's future financial
performance, and increases in the cost of raw materials or other

19
<PAGE> 22

operating costs may offset any operating benefits causing actual results to vary
significantly. In addition, the Company has based its operating benefits
estimates on fiscal 1994 production and shipment levels and product mix. Any
increase or decrease in actual tons shipped or a change in product mix would
affect the operating benefits realized through the capital expenditure program.
There can be no assurance that the estimated operating benefits of the Company's
capital expenditure program will actually be achieved, that demand for tubular
products, hot rolled coils and SBQ products will continue to support fiscal 1994
production and shipment levels, that other difficulties will not be encountered
in completing the capital expenditure program, or that the projects can be
installed or constructed at the estimated costs.

COMPETITION

The Company competes with foreign and domestic producers, including both
integrated and mini-mill producers, many of which have substantially greater
assets and larger sales organizations than the Company. The domestic mini-mill
steel industry, particularly with respect to OCTG products, is characterized by
vigorous competition with respect to price, quality and service, as well as
competition to achieve technological advancements that would allow a mini-mill
to lower its production costs. In addition, excess production capacity among
OCTG producers has resulted in competitive product pricing and continued
pressures on industry profit margins. The economics of operating a steel
mini-mill encourage mini-mill operators to maintain high levels of output, even
in times of low demand, which exacerbates the pressures on industry profit
margins.

In the welded OCTG and line pipe market, the Company competes against
certain manufacturers who purchase hot rolled coils for further processing into
welded OCTG and line pipe products. Since these tubular manufacturers acquire
their principal raw material from other producers, they avoid the substantial
investment required to build and operate a melt shop and hot strip mill. The
cost of finished tubular products for these manufacturers is largely dependent
on the market price of hot rolled coils. Depending on market demand for hot
rolled coil, these tubular manufacturers may purchase hot rolled coils at a
lower or higher cost than the Company's cost to manufacture hot rolled coils.
The barriers to entry to the welded tubular market with respect to capital
investment are low by steel industry standards.

Manufacturers with facilities utilizing thin slab casting are expected to
be increasingly strong competitors in the hot rolled coil market. The principal
advantages of thin slab casting over the Company's melting and hot strip mill
operations at the Newport facilities may include reduced capital costs per unit,
lower energy and labor costs per unit and increased economies of scale. Certain
steel facilities are currently utilizing thin slab casting technology and
additional thin slab casting facilities have either been announced or are
currently under construction. The anticipated increase in the use of thin slab
casting technology may result in lower prices to the Company's competitors for
hot rolled coils and closures of excess hot rolled capacity. As a result,
particularly in times of soft demand for hot rolled coil, the Company may be
forced by competitive pressures to lower prices for finished products.
Alternatively, the Company may be required to invest in new technologies not
included in its present capital expenditure program to offset the Newport
facilities' potential cost disadvantages when compared to a low cost thin slab
casting operation.

The domestic steel industry has historically faced significant competition
from foreign steel producers. Many foreign steel producers are owned, controlled
or subsidized by their governments and their decisions with respect to
production and sales may be influenced more by political and economic policy
considerations than by prevailing market conditions. Foreign steel producers'
share of OCTG domestic consumption has increased from approximately 7% in 1992
to approximately 23% for the twelve months ended March 31, 1995. See
"Business -- Competition."

In the SBQ market, the announced reopening of a previously closed facility
with significant capacity and the announced expansion of existing facilities
could result in an increase in competition for the Company's line of SBQ
products.

20
<PAGE> 23

UNIONIZED LABOR FORCE

The United Steel Workers of America ("USWA") represents substantially all
of the Company's hourly 1,270-person workforce. In 1994, the Company negotiated
collective bargaining agreements with respect to its hourly workforces at
Newport and Koppel, both of which expire in 1999. Execution of the Newport
agreement followed rejection of an earlier proposal and a two-day strike. The
Company's collective bargaining agreement with the USWA for Imperial expires in
November 1995. There can be no assurance that work stoppages will not occur in
the future.

OWNERSHIP CONTROL OF MANAGEMENT

Two of the Company's executive officers are currently directors of the
Company. Executive officers and directors of the Company, as a group, currently
beneficially own 36.8% of the Company's common stock. As a result, the executive
officers have sufficient voting power to influence the election of the Company's
Board of Directors and the policies of the Company. See "Principal
Stockholders."

VOLATILITY IN RAW MATERIAL COSTS

The market for steel scrap, the principal raw material used in the
Company's operations, is highly competitive and subject to price volatility
influenced by periodic shortages (due to increased demand by foreign and
domestic users), freight costs, speculation by scrap brokers and other market
conditions largely beyond the Company's control. Although the domestic mini-mill
industry attempts to maintain its profit margin by attempting to increase the
price of its finished products in response to increases in scrap costs,
increases in the prices of finished products often do not fully compensate for
such scrap price increases and generally lag several months behind increases in
steel scrap prices, thereby restricting the ability of mini-mill producers to
recover higher raw material costs. During periods of declining steel prices,
declines in scrap prices may not be as significant as declines in product prices
and, likewise, a decline in scrap prices may cause a decline in selling prices
for the Company's products. A number of companies have announced plans to open
new facilities, some of which will be located in the same geographic region as
the Company's facilities. Operation of these new mini-mills will increase the
demand for steel scrap and may result in an increase in steel scrap costs to the
Company. In addition, certain existing thin slab casting mini-mills are
expanding capacity which may also significantly increase the cost of steel scrap
to the Company. The Company's steel scrap costs per ton increased by
approximately 6% for the twelve months ended April 1, 1995 from the comparable
prior year period.

COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS

The Company's specialty steel and adhesives operations are subject to
various federal, state and local laws and regulations, including, among others,
the Clean Air Act, the 1990 amendments to the Clean Air Act (the "1990
Amendments"), the Resource Conservation and Recovery Act ("RCRA") and the Clean
Water Act and all regulations promulgated in connection therewith, including,
among others, those concerning the discharge of contaminants as air emissions or
waste water effluents and the disposal of solid and/or hazardous waste such as
electric arc furnace dust. Since its inception the Company has spent substantial
amounts to comply with these requirements, and the 1990 Amendments may require
additional expenditures for air pollution control. In addition, there can be no
assurance that environmental requirements will not change in the future or that
the Company will not incur significant costs in the future to comply with such
requirements.

The Company's mini-mills are classified, in the same manner as similar
steel mills in the industry, as generating hazardous waste due to the production
in the melting operation of dust that contains lead, cadmium and chromium. In
the event of a release of a hazardous substance generated by the Company, the
Company could be responsible for the remediation of contamination associated
with such a release.

During the third quarter of fiscal 1992 and the fourth quarter of fiscal
1993, Newport shut down its melt shop operations for 23 days and 19 days,
respectively, when it was discovered that radioactive substances were
accidentally melted, resulting in the contamination of the melt shop's

21
<PAGE> 24

electric arc furnace emission control facility, or "baghouse facility." To date,
the accidental melting of radioactive materials has not resulted in any notice
of violations from federal or state environmental regulatory agencies. The
Company is investigating and evaluating various issues concerning storage,
treatment and disposal of the radiation contaminated baghouse dust. However, a
final determination as to method of treatment and disposal, cost and further
regulatory requirements cannot be made at this time. Depending on the ultimate
timing and method of treatment and disposal, which will require appropriate
federal and state regulatory approvals, the actual cost of disposal could
substantially exceed current reserves of $4.4 million. As of April 1, 1995,
claims recorded in connection with disposal costs exhaust available insurance
coverage. As of April 1, 1995, the possible range of estimated losses related to
the environmental contingency matters discussed above in excess of those accrued
by the Company is $0 to $3.0 million; however, with respect to the Consent Order
(as discussed below), the Company cannot estimate the possible range of losses
should the Company ultimately not be indemnified.

In March 1995, Koppel entered into a Consent Order with the Environmental
Protection Agency ("EPA") relating to an April 1990 RCRA facility assessment
(the "Assessment") completed by the EPA and the Pennsylvania Department of
Environmental Resources. The Assessment was performed in connection with a RCRA
Part B permit pertaining to a landfill that is adjacent to the Koppel facilities
and owned by Babcock & Wilcox Company ("B&W"), the former owner of the Koppel
facilities. The Assessment identified potential releases of hazardous
constituents into the environment from numerous Solid Waste Management Units
("SWMU's") and Areas of Concern ("AOC's"). The SWMU's and AOC's identified
during the Assessment and the EPA's follow-up investigation are located at and
adjacent to the Company's Koppel facilities. The Consent Order establishes a
schedule for investigating, monitoring, testing and analyzing the potential
releases. Contamination documented as a result of the investigation may require
cleanup measures. Pursuant to various agreements entered into among the Company,
B&W and PMAC, Ltd. ("PMAC") at the time of the Company's acquisition of the
Koppel facilities in fiscal 1991, B&W and PMAC agreed to indemnify the Company
against various known and unknown environmental matters. While reserving its
rights against B&W, PMAC has accepted full financial responsibility for the
matters covered by the Consent Order other than with respect to a 1987 release
of hazardous constituents (the "1987 Release") that the Company believes could
represent the most significant component of any potential cleanup, and other
than with respect to hazardous constituents generated by Koppel after its
acquisition by the Company, if any. B&W, PMAC and Koppel are in dispute as to
whether the indemnification provisions relating to the 1987 Release expire in
October 1995. B&W has not acknowledged responsibility for any cleanup measures
that may be required as a result of any investigation (other than with respect
to the 1987 Release, in the event certain actions are taken by the EPA prior to
October 1995). Koppel and PMAC have jointly retained an environmental consultant
to conduct the required investigation. The Company believes that it is entitled
to full indemnity for all of the matters covered by the Consent Order from B&W
and/or PMAC. However, in the event the indemnifying parties default on their
respective obligations under the applicable agreements for any reason (including
the inability to pay such obligations), or to the extent any disputes regarding
the application of the indemnification provisions to the 1987 Release are
determined adversely to the Company, Koppel will be obligated to complete any
cleanup required by the EPA. Prior to the completion of the site analysis to be
performed in connection with the Consent Order, the Company cannot predict the
expected cleanup cost for the SWMU's and AOC's covered by the Consent Order.

PRODUCT LIABILITY

Certain losses may result or be alleged to result from defects in the
Company's products, thereby subjecting the Company to claims for consequential
damages. Drilling for oil and natural gas, in particular, involves a variety of
risks. The Company warrants certain of its OCTG, line pipe and SBQ products to
be free of certain defects. There can be no assurance that product liability in
excess of insurance coverage will not be incurred or that the Company will be
able to maintain insurance with adequate coverage levels. The Company recently
settled a case with respect to a

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<PAGE> 25

product liability claim. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Other Matters -- Legal Matters."

FRAUDULENT CONVEYANCE ISSUES; HOLDING COMPANY STRUCTURE

The Senior Secured Notes will be obligations of the Company and will be
unconditionally guaranteed, jointly and severally, by the Subsidiaries. Under
applicable provisions of Federal bankruptcy law and comparable provisions of
state fraudulent transfer laws, if it were found that any Subsidiary had
incurred the indebtedness represented by its obligations under the Subsidiary
Guarantee with an intent to hinder, delay or defraud creditors or had received
less than a reasonably equivalent value for such indebtedness and: (i) was
insolvent on the date of the execution of the Subsidiary Guarantee; (ii) was
rendered insolvent by reason of the Subsidiary Guarantee; (iii) was engaged or
about to engage in a business or transaction for which its remaining assets
constituted unreasonably small capital to carry on its business; or (iv)
intended to incur or believed that it would incur debts beyond its ability to
pay as such debts matured, the obligations of such Subsidiary under the
Subsidiary Guarantee could be avoided or claims in respect of such Subsidiary
could be subordinated to all other debts of such Subsidiary. The Subsidiary
Guarantee will contain a savings clause that limits the amount of the Subsidiary
Guarantee to the maximum amount which can be guaranteed by such Subsidiary under
applicable Federal and state laws relating to the insolvency of debtors. A legal
defense of the Subsidiary Guarantee on fraudulent conveyance grounds could,
among other things, focus on the benefits, if any, realized by a Subsidiary as a
result of the issuance by the Company of the Senior Secured Notes. To the extent
that the Subsidiary Guarantee were held to be unenforceable as a fraudulent
conveyance or for any other reason, the holder of a Senior Secured Note would
cease to have any direct claim in respect of such Subsidiary, unless such
Subsidiary issued an Intercompany Note, and would be solely a creditor of the
Company and any Subsidiary whose obligations under the Subsidiary Guarantee were
not avoided or held unenforceable. Similarly, the security interest granted by
such Subsidiary to secure its obligations under the Subsidiary Guarantee could
be avoided or held unenforceable. In the event the Subsidiary Guarantee were
avoided or subordinated, the claims of the holders of the Senior Secured Notes
with respect to such Subsidiary Guarantee would be subordinated to claims of
other creditors of such Subsidiary. In addition, since the operations of the
Company are conducted through subsidiaries, the Company's cash flow and,
consequently, its ability to service debt, including the Senior Secured Notes,
is dependent upon the cash flow of its subsidiaries and the payment of funds by
those subsidiaries to the Company.

CERTAIN LIMITATIONS ON THE SECURITY FOR THE SENIOR SECURED NOTES, THE
INTERCOMPANY NOTES AND THE GUARANTEES

The Senior Secured Notes will be obligations of the Company secured by a
pledge of the Intercompany Notes and will be guaranteed, jointly and severally,
by the Subsidiaries. If an Event of Default occurs and is continuing, the
Trustee may declare the principal amount and accrued interest on the Senior
Secured Notes to be immediately due and payable. If the Trustee does not take
such action, a vote of the Holders of at least 25% of the principal amount of
the outstanding Senior Secured Notes is required to accelerate the Senior
Secured Notes.

The right of the Trustee under the Security Documents to foreclose upon and
sell the collateral upon the occurrence of a default is likely to be
significantly impaired by applicable bankruptcy laws if a bankruptcy proceeding
were to be commenced by or against the Company or its Subsidiaries prior to or
possibly even after the Trustee has foreclosed upon and sold the Collateral. See
"Description of the Notes--Certain Bankruptcy Limitations." For each of Newport,
Koppel and Erlanger, its obligations under the Subsidiary Guarantee will be
secured by a first priority mortgage and security interest and its Intercompany
Note will be secured by a second priority mortgage and security interest in its
steel-making operations, excluding inventory, accounts receivable and certain
intangible property. No appraisals of any of the Collateral have been prepared
in connection with the Offering by or on behalf of the Company or the
Subsidiaries. At April 1, 1995, the net book value of the Collateral was
approximately $147.4 million. There can be no assurance that the proceeds of

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<PAGE> 26

any sale of the Collateral pursuant to the Indenture and the Security Documents
following an acceleration after an Event of Default under the Indenture would be
sufficient with respect to amounts owed with respect to the Senior Secured
Notes. The proceeds from the sale of the Collateral would be applied to repay
the Subsidiary's obligations under the Subsidiary Guarantee, which may be an
amount less than the obligations outstanding with respect to the Senior Secured
Notes and its Intercompany Note (where applicable). See "-- Fraudulent
Conveyance Issues; Holding Company Structure." By its nature, some or all of the
Collateral will be illiquid and may have no readily ascertainable market value.
Accordingly, there can be no assurance that the Collateral will be saleable or
that it will be able to be sold in a short period of time. In addition, the
ability of the Collateral Agent to realize upon the Collateral may be subject to
certain bankruptcy law and fraudulent conveyance limitations in the event of a
bankruptcy. See "Description of the Senior Secured Notes -- Security" and "--
Certain Bankruptcy Limitations." In addition, the Trustee for the Senior Secured
Notes will enter into an intercreditor agreement with The Bank of New York
Commercial Corporation, the agent for the lenders under the Credit Facility,
that may delay the sale of the property subject to the lien of the Indenture and
the Security Documents in order to permit the orderly sale of the property
securing the Credit Facility.

Under the Comprehensive Environmental Response, Compensation and Liability
Act, as amended ("CERCLA"), a secured party may be held liable, in certain
limited circumstances, for the costs of remediating or preventing releases or
threatened releases of hazardous substances at a mortgaged property. There may
be similar risks under various other federal laws, state laws and common law
theories. Liability for cleanup costs may be imposed in situations, among
others, where a secured party takes title to property by foreclosure, thereby
becoming the owner of the property and losing the security interest exemption
contained in CERCLA. The Subsidiary Guarantee and the Intercompany Note of
Koppel will be secured in part with respect to the real property of the Koppel
facilities. The Koppel facilities are the subject of a Consent Order with the
EPA relating to potential releases of hazardous contaminants into the
environment. See "-- Cost of Compliance with Environmental Matters."

LIMITATIONS ON ABILITY TO PURCHASE THE SENIOR SECURED NOTES FOLLOWING A CHANGE
OF CONTROL

A Change of Control would constitute a default under the Credit Facility.
If a Change of Control were to occur, the Company might be unable to repay all
of its obligations under the Credit Facility, to purchase all of the Senior
Secured Notes tendered and to repay other indebtedness that may become payable
upon the occurrence of a Change of Control. See "Description of the Senior
Secured Notes -- Change of Control."

ABSENCE OF A PUBLIC MARKET FOR THE SENIOR SECURED NOTES

The Senior Secured Notes comprise a new issue of securities for which there
is currently no market. The Underwriters have informed the Company that they
currently intend to make a market in the Senior Secured Notes; however, the
Underwriters are not obligated to do so, and any such market making may be
discontinued at any time without notice. If the Senior Secured Notes are traded
after their initial issuance, they may trade at a discount from their initial
offering price, depending upon prevailing interest rates, the market for similar
securities, the performance of the Company and other factors. Therefore, no
assurance can be given as to whether an active trading market will develop or be
maintained for the Senior Secured Notes or at what prices the Senior Secured
Notes will trade.

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<PAGE> 27

USE OF PROCEEDS

The proceeds from the sale of the Senior Secured Notes offered hereby will
be $125.0 million. The Company intends to apply the proceeds from the sale of
the Senior Secured Notes and available cash balances as follows: (i)
approximately $71.2 million to redeem $66.8 million principal amount of loans
from General Electric Capital Corporation (the "GECC Loans") (which bear
interest rates ranging from 7.99% to 12.54% per annum due 2001) including a
premium of approximately $4.4 million; (ii) approximately $33.5 million to
redeem $30.3 million principal amount of loans from certain insurance companies
(the "10.65% Notes") (which bear interest at a rate of 10.65% per annum due
1999) including a premium of approximately $2.8 million and accrued interest of
approximately $0.4 million thereon; (iii) approximately $0.7 million to redeem
other long-term debt of the Company or its Subsidiaries; (iv) approximately
$30.3 million to repay $29.9 million in outstanding balances on its existing
revolving credit facilities (which have interest rates ranging from 1/2% to
1 1/2% over prime), including accrued interest of approximately $0.4 million
thereon; and (v) approximately $4.7 million in estimated fees and expenses
(collectively, the "Refinancing Transaction"). The following table summarizes
the sources and uses of funds in the Refinancing Transaction.

SUMMARY OF THE REFINANCING TRANSACTION

(in thousands)

<TABLE>
<S> <C>
Sources of Funds
Cash, cash equivalents and short-term investments............... $ 15,436
% Senior Secured Notes........................................ 125,000
----------
Total...................................................... $ 140,436
==========
Uses of Funds
Revolving Credit Facilities..................................... $ 29,908
GECC Loans...................................................... 66,823
10.65% Notes.................................................... 30,316
Other long-term debt............................................ 713
Prepayment penalties and accrued interest....................... 7,951
Estimated fees and expenses..................................... 4,725
----------
Total...................................................... $ 140,436
==========
</TABLE>

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<PAGE> 28

CAPITALIZATION

The following table sets forth the cash, cash equivalents and short-term
investments, short-term debt and capitalization of the Company as of April 1,
1995, and as adjusted to reflect the sale of the Senior Secured Notes offered
hereby and the application of the net proceeds and available cash and short-term
investments as described under "Use of Proceeds" and "Summary of the Refinancing
Transaction." This information should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and related Notes thereto included
elsewhere herein.

<TABLE>
<CAPTION>
AS OF APRIL 1, 1995
--------------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments................ $ 21,432 $ 5,996
========= ============
Short-term debt:
Current portion of long-term debt.............................. $ 17,510 $ 700
Revolving credit facilities.................................... 29,908 --
--------- -----------
Total short-term debt.................................. $ 47,418 $ 700
========= ============
Long-term debt, less current portion:
% Senior Secured Notes due 2003.............................. $ -- $ 125,000
GECC Loans, interest ranging from 7.99% to 12.54% due 2001..... 55,418 --
10.65% Notes due 1999.......................................... 25,101 --
11% Subordinated Convertible Debentures(1)..................... 29,000 29,000
11% Subordinated Notes(2)...................................... 6,217 6,217
Other long-term debt........................................... 10,659 10,137
--------- -----------
Total long-term debt................................... 126,395 170,354
--------- -----------
Common shareholders' equity:
Common stock, no par value -- 40,000,000 authorized and
13,762,013 shares outstanding............................... 48,988 48,988
Common stock options and warrants.............................. 291 291
Unrealized gain (loss) on available for sale securities........ (775) (775)
Retained earnings.............................................. 27,860 22,000(3)
--------- -----------
Total common shareholders' equity...................... 76,364 70,504
--------- -----------
Total capitalization................................... $ 202,759 $ 240,858
========= ============
</TABLE>

- ---------------
(1) Due in annual installments of $4.8 million from October 2000 through October
2005.

(2) Due in equal quarterly installments of $0.4 million from January 1996
through October 1999.

(3) The reduction in retained earnings reflects the after-tax effect of the $7.2
million prepayment cost to redeem the GECC Loans and the 10.65% Notes and
the write-off of $1.8 million in unamortized debt issuance costs. This
reduction will be reflected in the results of operations in the fourth
fiscal quarter ending September 30, 1995.

26
<PAGE> 29

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data shown below (other than the data
under the captions "Tons shipped" and "Average selling price per ton") is
unaudited for the fiscal 1995 and 1994 six month periods. The selected
consolidated financial data for the five years in the period ended September 24,
1994 are derived from the audited consolidated financial statements of the
Company. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and related Notes thereto
included elsewhere herein.

Unless otherwise noted (see Notes 2 and 4 below), this data includes KES for
all periods prior to its sale in October 1993. See "Summary Consolidated
Financial Data" and "Supplemental Consolidated Financial Data." In addition,
this data includes Koppel for all periods from the date of its acquisition in
October 1990.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------- FISCAL YEAR ENDED SEPTEMBER
APRIL 1, MARCH 26, -----------------------------------------------------------------
1995(1) 1994(1)(2) 1994(2) 1993(2) 1992(2) 1991 1990
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:

Net sales........................ $ 190,544 $137,971 $ 303,380 $ 353,082 $ 281,242 $ 212,471 $ 249,871
Cost of products sold............ 168,909 128,349 278,161 310,586 250,189 201,751 204,649
Selling and administrative
expenses....................... 13,620 12,276 24,530 30,824 29,652 28,897 25,852
Operating income (loss).......... 8,015 (2,654 ) 689 11,672 1,401 (18,177) 19,370
Net interest income (expense).... (9,374) (9,232 ) (18,297) (20,819) (21,075) (14,117) (410)
Gain on sale of subsidiary....... -- 35,292 35,292 -- -- -- --
Provision (credit) for income
taxes.......................... 327 9,586 7,382 (3,382) (6,058) (11,973) 6,291
Extraordinary items.............. -- -- -- (1,095) (2,542) -- --
Cumulative effect of a change in
accounting principle........... -- 1,715 1,715 -- -- -- --
Net income (loss)................ 522 14,443 13,208 (6,991) (15,900) (20,603) 13,047
Income (loss) per share before
extraordinary items and
cumulative effect of a change
in accounting principle........ $ .04 $ 1.05 $ .84 $ (.44) $ (.99) $ (1.53) $ .97
Net income (loss) per share...... .04 1.17 .96 (.52) (1.18) (1.53) .97
Cash dividends declared per
share.......................... -- -- -- -- .06 .12 .11

BALANCE SHEET DATA:
Working capital.................. $ 35,506 $ 53,390 $ 45,202 $ 39,060 $ 40,676 $ 48,411 $ 64,858
Total assets..................... 312,613 320,191 315,327 317,242 319,079 329,889 220,856
Total debt....................... 173,813 185,500 182,525 192,155 193,753 196,345 72,812
Common shareholders' equity...... 76,364 79,332 76,464 62,622 68,574 85,149 107,226

OTHER FINANCIAL AND
STATISTICAL DATA:
Sources and uses of cash flows:
Net cash flows from operating
activities................... $ (5,873) $ (5,824 ) $ (4,329) $ 2,392 $ 8,515 $ (13,767) $ 14,250
Net cash flows from investing
activities................... 12,348 9,010 7,379 (4,254) (1,373) (112,722) (31,327)
Net cash flows from financing
activities................... (9,530) (1,303 ) (4,442) (1,055) (3,526) 119,037 25,576
EBITDA(3)........................ $ 19,612 $ 42,270 (4) $ 55,326(4) $ 30,078 $ 19,793 $ (3,385)(5) $ 26,515
Capital expenditures............. 7,317 3,655 11,760 6,080 4,148 16,433 45,011
Depreciation and amortization.... 9,695 9,307 18,789 19,093 18,711 15,725 6,879
Ratio of EBITDA to net interest
charges(6)..................... 2.1x 4.6x (4) 3.0x(4) 1.4x 0.9x(7) --(7) 5.8x
Ratio of EBITDA to pro forma
interest charges(8)............ 1.9x 2.7x
Ratio of earnings to fixed
charges(9)..................... 1.1x 3.4x (4) 1.9x(4) -- -- -- 3.2x
Deficiency of earnings to cover
fixed charges(9)............... $ -- $ -- (4) $ --(4) $ (9,278) $ (19,416) $ (38,109) $ --
Pro forma ratio of earnings to
fixed charges(9)............... -- 1.6x
Deficiency of earnings to cover
pro forma fixed charges(9)..... $ (597) --
Tons shipped:
Tubular products
Welded OCTG.................. 86,300 61,600 138,200 142,100 112,000 92,200 119,800
Seamless OCTG................ 41,400 28,500 61,800 48,700 20,500 7,000 --
Welded line pipe............. 47,300 34,900 82,800 110,900 88,500 67,000 78,300
Seamless line pipe........... 6,300 3,500 10,700 14,400 10,400 200 --
SBQ products................... 90,200 70,900 147,900 102,500 72,000 14,000 --
Hot rolled coil products....... 16,200 16,300 38,800 6,600 100 -- --
Other products(10)............. 54,800 34,200 80,800 78,600 69,800 48,700 87,000
--------- --------- --------- --------- --------- --------- ---------
Total tons shipped (excluding
KES)......................... 342,500 249,900 561,000 503,800 373,300 229,100 285,100
KES tons shipped............... -- -- -- 244,400 217,900 198,300 239,400
--------- --------- --------- --------- --------- --------- ---------
Total tons shipped............. 342,500 249,900 561,000 748,200 591,200 427,400 524,500
======== ========= ======== ======== ======== ======== ========
Average selling price per ton:
Tubular products
Welded OCTG.................. $ 495 $ 463 $ 467 $ 447 $ 469 $ 545 $ 574
Seamless OCTG................ 794(11) 862 (11) 832 881 906 905 --
Welded line pipe............. 488 452 453 427 434 511 529
Seamless line pipe........... 606 574 576 591 644 685 --
SBQ products................... 480 435 439 396 399 398 --
Hot rolled coil products....... 379 356 354 340 340 -- --
Other products(10)............. 374 400 382 353 421 363 343
</TABLE>

(footnotes on following page)

27
<PAGE> 30

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

(1) The six month periods ended April 1, 1995 and March 26, 1994 are 27 and 26
week periods, respectively.

<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------- FISCAL YEAR ENDED SEPTEMBER
APRIL 1, MARCH 26, ----------------------------------
1995 1994 1994 1993 1992
--------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................................. $ 190,544 $137,971 $303,380 $262,535 $200,803
Cost of products sold................................. 168,909 128,550 278,362 239,118 186,212
Selling and administrative expenses................... 13,620 12,276 24,530 21,030 21,615
Operating income (loss)............................... 8,015 (2,855 ) 488 2,387 (7,024)

EBITDA................................................ $ 19,612 $ 6,778 $ 19,833 $ 20,159 $ 10,606
Capital expenditures.................................. 7,317 3,655 11,760 5,404 3,805
Depreciation and amortization......................... 9,695 9,307 18,789 18,328 17,965
</TABLE>

(6) Net interest charges include interest expense, including capitalized
interest, reduced by interest income.

(7) EBITDA was insufficient to cover net interest charges by $1.3 million in
fiscal 1992 and $23.0 million in fiscal 1991.

(8) The ratio of EBITDA to pro forma net interest charges reflects (a) the
elimination of historical net interest charges for the respective periods;
(b) the addition of interest expense related to the issuance of the Senior
Secured Notes at an assumed rate of 12.50%; and (c) the addition of
interest expense at the stated rates of the remaining $46.1 million of Debt
of the Company as of April 1, 1995, as adjusted for the Refinancing
Transaction.

(10) Other products include seamless mechanical tubing and products classified
as secondary and limited service.

(11) Average selling prices for all seamless OCTG products for the first six
months of fiscal 1995 declined 7.9% from the first six months of fiscal
1994, due partially to strong pricing of seamless OCTG products in the
first quarter of fiscal 1994 which then declined during the balance of
fiscal 1994 and to changes in product mix, including the introduction of
new products with lower average selling prices. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Second Quarter and Six Month Fiscal 1995 Compared to Second Quarter and Six
Month Fiscal 1994" and "-- Quarterly Results."

28
<PAGE> 31

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL

The Company operates in two separate business segments: specialty steel and
industrial adhesives. Within the specialty steel segment are the operations of
Newport, a manufacturer of welded tubular steel products and hot rolled coils;
Koppel, a manufacturer of seamless tubular steel products, SBQ products and
semi-finished steel products; and Erlanger, a tubular steel product finishing
operation. The Company's specialty steel products consist of: (i) seamless and
welded OCTG products primarily used in oil and natural gas drilling and
production operations; (ii) line pipe used in the transmission of oil, gas and
other fluids; (iii) SBQ products primarily used in the manufacture of heavy
machinery, trucks and off-road vehicles; and (iv) hot rolled coils which are
sold to service centers and other manufacturers for further processing. Within
the adhesives segment are the operations of Imperial, a manufacturer of
industrial adhesives products. See Note 14 to the audited annual Consolidated
Financial Statements included herein for selected financial information by
business segment for the fiscal years 1994, 1993 and 1992.

In October 1993, the Company sold KES, a manufacturer of SBQ products, to a
newly formed public company in exchange for $45.6 million in cash and 400,000
shares (approximately 8%) of the newly formed public company, then valued at
$4.8 million. Reference is made to Note 2 to the audited annual Consolidated
Financial Statements included herein concerning the Company's sale of KES and
its pro forma effect on the Company's financial position and results of
operations. The impact of KES on the Company's operating results for fiscal 1993
and 1992 is reflected in the tables below and the following discussion.

RESULTS OF OPERATIONS

The Company's net sales, cost of products sold and operating results by
industry segment for the three and six month periods ended April 1, 1995 and
March 26, 1994 and for each of the three fiscal years in the period ended
September 24, 1994 are summarized below. The first quarters of fiscal 1995 and
1994 are 14 and 13 week periods, respectively. As such, the increases and
decreases in operating results for the six month comparative periods, as
discussed below, were partially attributable to the additional week of
operations in the first quarter of fiscal 1995.

<TABLE>
<CAPTION>
FISCAL QUARTER ENDED FISCAL SIX MONTHS ENDED
----------------------- -------------------------- FISCAL YEAR ENDED SEPTEMBER
APRIL 1, MARCH 26, APRIL 1, MARCH 26, ----------------------------------
1995 1994 1995 1994 1994 1993 1992
-------- ---------- --------- ------------ -------- -------- --------
(IN THOUSANDS OF DOLLARS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales
Specialty steel, excluding
KES........................... $ 88,227 $ 58,347 $172,943 $122,109 $270,441 $234,460 $175,921
KES............................. -- -- -- -- -- 90,547 80,439
-------- ---------- --------- ------------ -------- -------- --------
Total specialty steel
segment..................... 88,227 58,347 172,943 122,109 270,441 325,007 256,360
Adhesives segment............... 8,828 7,665 17,601 15,862 32,939 28,075 24,882
-------- ---------- --------- ------------ -------- -------- --------
$ 97,055 $ 66,012 $190,544 $137,971 $303,380 $353,082 $281,242
======== ========== ========= ============ ========= ========= =========
Cost of products sold
Specialty steel, excluding
KES........................... $ 79,932 $ 58,138 $155,142 $115,955 $252,880 $217,215 $168,371
KES............................. -- -- -- -- -- 71,468 62,248
-------- ---------- --------- ------------ -------- -------- --------
Total specialty steel
segment..................... 79,932 58,138 155,142 115,955 252,880 288,683 230,619
-------- ---------- --------- ------------ -------- -------- --------
Adhesives segment............... 6,978 6,043 13,767 12,394 25,281 21,903 19,570
-------- ---------- --------- ------------ -------- -------- --------
$ 86,910 $ 64,181 $168,909 $128,349 $278,161 $310,586 $250,189
======== ========== ========= ============ ========= ========= =========
Operating income (loss)
Specialty steel, excluding
KES........................... $ 4,148 $ (3,746) $ 9,444 $ (1,593) $ 2,909 $ 4,094 $ (5,074)
KES............................. -- -- -- -- -- 9,285 8,425
-------- ---------- --------- ------------ -------- -------- --------
Total specialty steel
segment..................... 4,148 (3,746) 9,444 (1,593) 2,909 13,379 3,351
-------- ---------- --------- ------------ -------- -------- --------
Adhesives segment............... 251 131 524 372 1,150 1,059 533
-------- ---------- --------- ------------ -------- -------- --------
Corporate allocations and
income........................ (942) (850) (1,953 ) (1,433) (3,370) (2,766) (2,483)
-------- ---------- --------- ------------ -------- -------- --------
$ 3,457 $ (4,465) $ 8,015 $ (2,654) $ 689 $ 11,672 $ 1,401
======== ========== ========= ============ ========= ========= =========
</TABLE>

29
<PAGE> 32

Sales data for the Company's specialty steel segment for the three and six
month periods ended April 1, 1995 and March 26, 1994 and for each of the three
fiscal years in the period ended September 24, 1994 were as follows:

SECOND QUARTER AND SIX MONTH FISCAL 1995 COMPARED WITH SECOND QUARTER AND SIX
MONTH FISCAL 1994

Net sales for the second quarter of fiscal 1995 increased $31.0 million, or
47.0%, from the second quarter of fiscal 1994 to $97.1 million. For the six
month comparable period, net sales increased $52.6 million, or 38.1%, to $190.5
million. Specialty steel segment net sales increased $29.9 million, or 51.2%,
and $50.8 million, or 41.6%, for the three and six month periods, respectively.
Adhesives segment net sales increased $1.2 million, or 15.2%, and $1.7 million,
or 11.0%, for the three and six month periods, respectively. The overall
increase in specialty steel segment net sales was the result of both higher
average selling prices and increased shipment levels as more fully discussed
below.

Welded tubular net sales increased $12.4 million, or 53.5%, on a volume
increase of 42.9%, and $23.3 million, or 45.8%, on a volume increase of 35.9%,
for the comparable three and six month periods, respectively. The increase in
welded tubular net sales for the second quarter was due partially to an overall
7.6% increase in average selling prices for all welded tubular products and an
increase in shipments of both welded OCTG and line pipe products over the second
quarter of fiscal 1994. Shipments in the second quarter of fiscal 1994 were
abnormally low due to customers' resistance to announced price increases that
ultimately failed to take hold, as well as severe winter weather conditions.
Fiscal 1995 second quarter average selling price for welded OCTG products was
$501 per ton, an increase of 7.7% and 2.2% over the second quarter of fiscal
1994 and the first quarter of fiscal 1995, respectively. Fiscal 1995 second
quarter average selling prices for welded line pipe was $500 per ton, an
increase of 8.9% and 5.7% over the second quarter of a year ago and the first
quarter of fiscal 1995, respectively.

Seamless tubular net sales increased $6.6 million, or 42.0%, on a volume
increase of 47.0%, and $10.7 million, or 31.8%, on a volume increase of 41.5%,
for the comparable three and six month periods, respectively. The increase in
seamless tubular net sales for the second quarter was partially attributable to
an increase in shipments, which resulted in large part from product line
expansion in fiscal 1995. Average selling prices for the second quarter of
fiscal 1995 for all seamless tubular products declined 3.1% from the second
quarter of fiscal 1994, due in part to changes in product mix, including the
introduction of new OCTG products with lower average selling prices. Fiscal 1995
second quarter average selling prices for all seamless tubular products declined
by 2.8% from the first quarter of fiscal 1995, due almost entirely to changes in
product mix, primarily the mix of OCTG products. Fiscal 1995 second quarter
average selling price for seamless OCTG products was $784 per ton, a decline of
4.0% and 2.6% from the second quarter of fiscal 1994 and the first

30
<PAGE> 33

quarter of fiscal 1995, respectively. Fiscal 1995 second quarter average selling
price for seamless line pipe products was $617 per ton, an increase of 9.0% and
4.6% from the second quarter of fiscal 1994 and the first quarter of fiscal
1995, respectively.

Price and volume levels in the domestic tubular market are primarily
dependent on the level of drilling activity in the United States and abroad, the
level of foreign imports, as well as general economic conditions. According to
Baker Hughes, Inc., the average number of oil and natural gas drilling rigs in
operation in the United States (rig count) decreased 6.2%, from 760 in the
second quarter of fiscal 1994 to 713 in the second quarter of fiscal 1995. The
rig count decreased 13.4% from the first quarter of fiscal 1995. On June 30,
1994, the Company and six other U.S. steel companies filed antidumping petitions
against imports of OCTG products from seven foreign nations. The cases ask the
U.S. government to take action to offset injury to the domestic OCTG industry
from unfairly traded imports. The antidumping petitions were filed against OCTG
imports from Argentina, Austria, Italy, Japan, Korea, Mexico and Spain. The
Company also joined in filing countervailing duty cases charging subsidization
of OCTG imports from Austria and Italy. In August, 1994, the International Trade
Commission (ITC) voted unanimously that there was reasonable indication of
material injury which warranted further investigation of the petitions. In June
1995, the International Trade Administration of the United States Department of
Commerce (the "Department") issued favorable determinations concerning the
existence and extent of dumping and subsidization of OCTG products, and imposed
tariffs on imports from Austria (24.16%), Italy (51.25%), Japan (44.20%), Korea
(0.00% against one producer and 12.17% against all other producers), Argentina
(1.36%), Mexico (23.79%) and Spain (11.95%). In July 1995, the ITC will assess
whether dumping and subsidization have caused or threatened to cause material
injury to the United States OCTG industry. If the ITC determines that such
injury does not exist, the trade cases will be dismissed and the Department will
refund or cancel the previously imposed tariffs. While the Company cannot
predict the outcome of the ITC's determination at this time, the Company
believes that a favorable final ruling could have a positive impact on shipments
and selling prices of certain of the Company's products.

SBQ product net sales increased $7.3 million, or 44.6%, on a volume
increase of 27.8%, and $12.5 million, or 40.4%, on a volume increase of 27.2%,
for the comparable three and six month periods, respectively. Fiscal 1995 second
quarter average selling price for SBQ product was $503 per ton, an increase of
13.0% and 10.8% over the second quarter of fiscal 1994 and the first quarter of
fiscal 1995, respectively. SBQ product volume and prices increased as a result
of stronger market demand in fiscal 1995 as compared to fiscal 1994. Second
quarter selling prices also have increased as a result of the implementation of
surcharges to recover increases in certain raw material costs. Other product
shipments and sales for the second quarter of fiscal 1995 were primarily
attributable to shipments of hot rolled coils and steel slabs. The increase in
shipments was primarily attributable to stronger market demand for these
products and the sale of approximately 5,500 tons of steel slab in the fiscal
1995 second quarter versus none in the prior year quarter. Future levels of
shipments and net sales of SBQ products and hot rolled coils will be largely
dependent on the general state of the economy and the overall strength of the
steel industry.

Gross profit for the second quarter of fiscal 1995 increased $8.3 million
from the second quarter of fiscal 1994 for a gross profit margin of 10.5% in
fiscal 1995 compared to 2.8% in the second quarter of fiscal 1994. For the six
month comparable period, gross profit increased $12.0 million for a gross profit
margin of 11.4% compared to 7.0% for the first six months of fiscal 1994. The
specialty steel segment accounted for $8.1 million and $11.6 million of the
increase in gross profit for the second quarter and six month periods,
respectively. The increase in specialty steel segment gross profit and margin
was attributable to improved operating efficiencies resulting from increased
production volume, capital expenditure improvements, including the eccentric
bottom tap project at Koppel, as well as increases in average selling prices, as
discussed above. Gross profit margin for the fiscal 1995 second quarter
declined, however, from a gross profit margin of 12.3% in the first quarter of
fiscal 1995, due in large part to production and shipment interruptions caused
by the failure and subsequent replacement of a 5000-HP motor in Newport's hot
strip mill as well as increases in the cost of raw materials over the first
quarter of fiscal 1995.

31
<PAGE> 34

The adhesives segment gross profit increased $0.2 million and $0.4 million
for the second quarter and six month comparable periods, respectively. Gross
profit margins were virtually unchanged for the comparable periods.

Selling and administrative expenses increased $0.4 million and $1.3 million
for the second quarter and six month comparable periods, respectively. Selling
and administrative expenses declined as a percentage of net sales from 9.5% in
the second quarter of fiscal 1994 to 6.9% in the current quarter and from 8.9%
for the fiscal 1994 six month periods to 7.1% for the current six month period.
The overall increase in selling and administrative expenses was primarily
attributable to increased production and sales volumes as well as costs accrued
in connection with litigation settled subsequent to the end of the fiscal 1995
second quarter. See "Other Matters -- Legal Matters".

As a result of the above factors, operating income increased $7.9 million,
from an operating loss of $4.4 million in the second quarter of fiscal 1994 to
operating income of $3.5 million in the current quarter. For the six month
period, operating income increased $10.7 million, from an operating loss of $2.7
million in fiscal 1994 to an operating profit of $8.0 million in the first six
months of fiscal 1995. The specialty steel segment earned an operating profit of
$4.1 million and $9.4 million for the second quarter and six month periods,
respectively, compared to operating losses of $3.7 million and $1.6 million for
the second quarter and six month periods of fiscal 1994, respectively. The
improvement in operating results from the prior year periods were primarily due
to an overall increase in shipments, as discussed above, as well as increases in
selling prices and improvements in production efficiencies. The Company's second
quarter operating results were negatively impacted, however, by production and
shipment interruptions stemming from a motor failure at Newport's hot strip
mill, as discussed above. The adhesives segment earned an operating profit of
$0.3 million and $0.5 million for the three and six month periods, respectively,
compared to $0.1 million and $0.4 million for the comparative periods of a year
ago.

Interest expense was virtually unchanged from the prior year comparable
periods as a decline in interest expense on long-term obligations was offset by
increases in the average borrowings and interest rates under the Company's
short-term borrowings.

Other income, net was $1.8 million and $2.2 million for the fiscal 1995
second quarter and six month periods, respectively, and increased by $1.7
million and $1.6 million over the prior year comparable periods, respectively,
primarily due to the recording of property claims filed with the Company's
insurance carrier in connection with the motor failure at Newport in the second
quarter.

As a result of the above factors, net income was $0.4 million, or $.03 per
share in the second quarter of fiscal 1995 compared to a loss of $5.6 million,
or a $.40 loss per share in the second quarter of fiscal 1994. For the six month
period, net income was $0.5 million, or $.04 per share compared to $16.2
million, or $1.17 per share. Fiscal 1994 six month net income includes a
one-time after-tax gain on the sale of KES of $21.5 million, or $1.56 per share,
and income of $1.7 million, or $.12 per share, relating to the adoption of a new
accounting standard.

FISCAL YEAR ENDED SEPTEMBER 24, 1994 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
25, 1993

Fiscal 1994 specialty steel net sales, excluding KES, increased $36.0
million, or 15.3% from fiscal 1993. Total specialty steel net sales declined
$54.6 million, or 16.8% from fiscal 1993, primarily due to the sale of KES,
which had fiscal 1993 net sales of $90.5 million.

Welded tubular net sales declined $7.9 million, or 6.3% on a volume decline
of 9.9%. Fiscal 1994 welded tubular net sales were negatively impacted by a
decline in second quarter shipments that resulted primarily from customers'
resistance to announced price increases. Second quarter welded tubular net sales
declined $7.9 million on a volume decline of 29.8% from the second quarter of
fiscal 1993. The Company adjusted its selling prices in response to the decline
and volume increased in the third quarter. Fiscal 1994 average selling prices
for all welded tubular products increased 3.9% from 1993.

32
<PAGE> 35

Seamless tubular net sales increased $10.1 million, or 16.2% on a volume
increase of 20.0%. The increase in seamless tubular net sales resulted primarily
from an increase in shipments of seamless OCTG due in part to Koppel's increased
recognition in the marketplace. Fiscal 1994 average selling prices for all
seamless tubular products declined 3.2% due in part to an increased level of
foreign imports of seamless OCTG in fiscal 1994.

The average rig count increased 3.4%, from 757 for fiscal 1993 to 783 for
fiscal 1994, according to Baker Hughes, Inc. The effects of this increase were
offset by an increased level of imported tubular products resulting in downward
pressure on tubular product prices for most of fiscal 1994.

SBQ product net sales, excluding KES, increased $24.3 million, or 59.9% on
a volume increase of 44.3%. SBQ product average selling prices increased 10.9%
from fiscal 1993. SBQ product volume and prices increased as a result of
stronger market demand over the prior year, combined with Koppel's increased
recognition in the marketplace. The increase in net sales of "other" products
was primarily attributable to an increase in shipments of hot rolled coils,
which was a result of stronger market demand for this product over the prior
year.

Adhesives segment net sales increased $4.9 million, or 17.3%. The increase
in adhesives segment net sales over the prior year was primarily the result of
expansion of product lines acquired in fiscal 1993.

Consolidated gross profit decreased $17.3 million from fiscal 1993 for a
gross profit margin of 8.3% compared to 12.0% in fiscal 1993. The decline in
gross profit and margin was primarily due to the sale of KES. KES had gross
profit in fiscal 1993 of $19.1 million. Gross profit for the specialty steel
segment, excluding KES, increased $0.3 million from fiscal 1993 for a gross
profit margin of 6.5% compared to 7.4% in fiscal 1993. The decline in gross
profit margin was partially attributable to a 20.6% increase in the Company's
average steel scrap costs over fiscal 1993. The Company recovered a portion of
the increase through higher selling prices for its SBQ products and hot rolled
coils; however, it was generally unsuccessful in passing the increases in scrap
costs through to tubular product customers. Newport and Erlanger's gross profit
declined $5.3 million primarily as a result of increased steel scrap costs and
the decline in welded tubular shipments as previously discussed as well as
increased maintenance costs due to severe winter weather in the second fiscal
quarter. Koppel's gross profit increased $5.4 million which was primarily
attributable to improved operating efficiencies due to greater production and
sales volume of SBQ and seamless tubular products, as previously discussed.
These improvements were partially offset by increased steel scrap costs, lower
seamless tubular average selling prices and the effects of severe winter weather
conditions in the second fiscal quarter.

The adhesives segment gross profit increased $1.5 million from fiscal 1993
for a gross profit margin of 23.2%, compared to 22.0% in fiscal 1993. The
increase in gross profit and margin was primarily due to increased volume and
improved selling prices.

Selling and administrative expenses declined primarily as a result of the
sale of KES and declined as a percentage of net sales from 8.7% in fiscal 1993
to 8.1% in fiscal 1994.

As a result of the above factors, total specialty steel segment operating
income declined $11.0 million primarily due to the sale of KES, which had fiscal
1993 operating income of $9.3 million. The specialty steel segment, excluding
KES, earned an operating profit of $2.9 million in fiscal 1994 compared to $4.1
million in fiscal 1993. Of the $2.9 million specialty steel operating profit,
Newport and Erlanger incurred a $6.1 million operating loss, compared to a $0.8
million loss in fiscal 1993; and Koppel earned a $9.0 million operating profit,
compared to a $4.8 million operating profit in fiscal 1993. The adhesives
segment earned an operating profit of $1.2 million, virtually unchanged from
fiscal 1993.

Interest income increased $1.5 million primarily due to an increase in
average cash and short-term investment balances that resulted primarily from the
sale of KES. Interest expense decreased $1.1 million, primarily as a result of a
decrease in long-term debt obligations, partially offset by an increase in the
average borrowings and interest rates under the Company's lines of credit. Other
income increased $1.3 million primarily due to income on the sale of equipment.

33
<PAGE> 36

The sale of KES in the first quarter of fiscal 1994 resulted in a pre-tax
gain of $35.3 million and increased net income and earnings per common share by
$21.5 million and $1.56, respectively. See Note 2 to the audited annual
Consolidated Financial Statements included herein.

As a result of the above factors, income before extraordinary item and
cumulative effect of a change in accounting principle was $11.5 million, or $.84
per share, for fiscal 1994, compared to a loss of $5.9 million, or a $.44 loss
per share, for fiscal 1993. Excluding the effect of the after-tax gain on the
sale of KES, the Company incurred a $10.0 million loss before cumulative effect
of a change in accounting principle, or a $.72 loss per share, for fiscal 1994.
The increase in the fiscal 1994 loss over fiscal 1993 was primarily attributable
to the decline in sales in the second quarter as well as the absence of
operating earnings from KES in fiscal 1994, as discussed above. See also
"Quarterly Results."

In the first quarter of fiscal 1994, the Company recorded an increase to
net income of $1.7 million, or $.12 per share, for the cumulative effect of the
adoption of Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes" (Statement 109). The adoption of Statement 109 had no impact on
cash flow for fiscal 1994. A valuation allowance has not been recorded against
deferred tax assets as it is estimated that such deferred tax assets will be
realized through a reduction of taxes otherwise payable upon the reversal of
existing taxable temporary differences. See Note 12 to the audited annual
Consolidated Financial Statements included herein.

During the first quarter of fiscal 1994, the Company also adopted the
provisions of Statement of Financial Accounting Standards No. 115, "Accounting
for Certain Investments in Debt and Equity Securities" (Statement 115).
Statement 115 requires the Company to mark certain of its investments to market
either through the income statement or directly to common shareholders' equity,
depending on the nature of the investment. The impact on the Company's financial
statements from the adoption of Statement 115 was not material.

FISCAL YEAR ENDED SEPTEMBER 25, 1993 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
26, 1992

Net sales in fiscal 1993 increased $71.8 million, or 25.5% from fiscal
1992, to $353.1 million. The specialty steel segment net sales increased $68.6
million and the adhesives segment net sales increased $3.2 million.

Welded tubular net sales increased $21.7 million, or 20.9% on a volume
increase of 24.9%. The increase in welded tubular shipments resulted generally
from an increase in market share as well as an increase in market activity, as
evidenced by a modest increase in the number of oil and natural gas drilling
rigs in operation in the United States. The rig count, which on average was 701
for fiscal 1992, increased approximately 8% to an average of 757 for fiscal
1993, according to Baker Hughes Inc. Overall average selling prices of welded
tubular products declined 3.3% from fiscal 1992; however, prices generally
improved quarter to quarter during fiscal 1993.

Seamless tubular net sales increased $24.7 million, or 65.4% on a volume
increase of 69.4%. Seamless tubular product shipments increased for reasons
similar to those for the increase in welded tubular shipments. Average selling
prices for seamless tubular products declined approximately 2.4%.

SBQ product net sales, excluding KES, increased $11.8 million, or 41.1% on
a volume increase of 42.4%. SBQ product shipments improved as a result of
stronger market demand over the prior year. Average selling prices, however,
remained virtually unchanged.

KES's net sales increased $10.1 million, or 12.6% on a 12.2% increase in
volume. Average selling prices remained virtually unchanged from fiscal 1992.
The increase in shipments resulted from continued improvement in the various
markets served by KES.

Imperial's net sales increased $3.2 million, or 12.8%, primarily the result
of the acquisition of new product lines as well as price increases.

Consolidated gross profit increased $11.4 million from fiscal 1992 to $42.5
million, or a 12.0% gross profit margin compared to 11.0% in fiscal 1992.
Specialty steel gross profit, excluding KES,

34
<PAGE> 37

increased $9.7 million from fiscal 1992 for a gross profit margin of 7.4%
compared to 4.3% in fiscal 1992.

Newport and Erlanger's gross profit increased $2.1 million from fiscal
1992. The increase was primarily due to improved operating efficiencies
resulting from increased production volumes, offset by increased steel scrap
costs and lower overall selling prices. Gross profit at Koppel increased $7.6
million as a result of significant improvements in production efficiencies due
to increased production volume for seamless tubular and SBQ products over fiscal
1992. Gross profit at Koppel was also negatively impacted by lower average
selling prices and higher steel scrap costs compared to fiscal 1992. KES's gross
profit increased $0.9 million, primarily as a result of increased volume as
previously discussed, partially offset by increases in the cost of steel scrap.

The adhesives segment gross profit increased $0.9 million for a gross
profit margin of 22.0% compared to 21.3% in fiscal 1992. The increase in gross
profit and margin was primarily due to increased sales volume and operating
efficiencies.

Selling and administrative expenses increased $1.2 million, or 4.0% and
declined as a percentage of sales from 10.5% in fiscal 1992 to 8.7% in fiscal
1993. The overall increase in selling and administrative expenses was primarily
attributable to increased production and sales volumes.

As a result of the above factors, the specialty steel segment earned an
operating profit of $13.4 million in fiscal 1993 compared to $3.4 million in
fiscal 1992. Of the $13.4 million specialty steel segment operating profit,
Newport and Erlanger incurred a $0.8 million loss, compared to a $2.0 million
loss in fiscal 1992; Koppel earned a $4.8 million profit, compared to a $3.0
million loss in fiscal 1992 and KES earned a $9.3 million profit, compared to an
$8.4 million profit in fiscal 1992. The adhesives segment earned an operating
profit of $1.1 million in fiscal 1993 compared to $0.5 million in fiscal 1992.

Interest expense decreased $0.7 million primarily as a result of a
reduction in long-term debt obligations.

During the fourth quarter of fiscal 1993, Newport shut down its melt shop
operations for nineteen days when it was discovered that a radioactive substance
was accidentally melted, resulting in the contamination of the melt shop's
electric arc furnace emission control facility, or "baghouse" facility. A
similar incident, having occurred in the third quarter of fiscal 1992, shut down
Newport's melt shop facilities for twenty-three days. The source of the
radiation in these incidents was contained in incoming shipments of scrap metal
and was not detected by monitors that check incoming steel scrap. In response,
the Company incurred capital expenditures to install additional state-of-the-art
radiation detection systems in various locations throughout the Newport plant.

The Company incurred estimated losses as a result of the extended outages
and costs to restore the melt shop and related facilities back to operations,
including estimated costs to dispose of the radiation contaminated baghouse
dust, of $7.2 million and $4.1 million, in fiscal 1993 and 1992, respectively.
With respect to the 1993 incident, through April 1, 1995, the Company has
recovered $3.9 million through insurance, and expects to recover and has
recorded a $2.1 million receivable relating to insurance claims for the recovery
of disposal costs which will be filed with the Company's insurance company at
the time such disposal costs are incurred. No recovery has been made nor
recorded for the fiscal 1992 incident and the Company is evaluating available
legal remedies. The losses and costs attributable to these incidents, net of
insurance claims, resulted in an extraordinary charge of $1.1 million, net of
applicable income tax benefit of $0.7 million, or an $.08 loss per share, in
fiscal 1993 and an extraordinary charge of $2.5 million, net of applicable
income tax benefit of $1.6 million, or a $.19 loss per share, in fiscal 1992.
See "Other Matters" for a further discussion related to these incidents.

As a result of the above factors, the Company incurred a loss before
extraordinary item of $5.9 million, or a $.44 loss per share, for fiscal 1993,
compared to a loss before extraordinary item of $13.4 million, or a $.99 loss
per share, for fiscal 1992. The decline in losses was primarily attributable to
increased specialty steel segment sales and operating income, particularly at
Koppel, as discussed above.

35
<PAGE> 38

LIQUIDITY AND CAPITAL RESOURCES

Working capital at April 1, 1995 was $35.5 million compared to $45.2
million at September 24, 1994 and $39.1 million at September 25, 1993. The
current ratio at April 1, 1995 was 1.35 to 1 compared to 1.50 to 1 at September
24, 1994 and 1.45 to 1 at September 25, 1993. At April 1, 1995, the Company had
cash and short-term investments totaling $21.4 million compared to $44.5 million
at September 24, 1994 and $9.3 million at September 25, 1993. At April 1, 1995,
the Company had aggregate lines of credit available for borrowing of $34.9
million, including a $16.2 million line of credit restricted for use at Koppel,
of which a total of $29.9 million was outstanding. These lines have interest
rates ranging from 1/2% to 1 1/2% over prime and expire in fiscal 1995 and
1996. At April 1, 1995, approximately $8.7 million in cash and short-term
investments were restricted, primarily in connection with cash collateralized
letters of credit. Contemporaneously with the Offering, the Company will enter
into the Credit Facility, which is expected to be undrawn upon completion of the
Offering. The initial term of the Credit Facility is three years, but may be
terminated earlier or extended for successive one year periods. Interest on the
revolving advances shall accrue at a rate per annum of (a) the sum of the
alternate base rate (which is the higher of prime rate or 1/2% over the federal
funds rate) plus 1% with respect to domestic rate loans or (b) the sum of the
Eurodollar rate (based on LIBOR) plus 2 3/4% with respect to Eurodollar rate
loans.

Net cash flow used in operating activities totaled $5.9 million in the
first six months of fiscal 1995, compared to $5.8 million used in the comparable
prior year period. The Company recorded net income of $0.5 million in the first
six months of fiscal 1995 compared to a fiscal 1994 six month net loss of $7.1
million before the effect of the sale of KES and the adoption of Statement 109.
Major uses of cash in operating activities for fiscal 1995 included a $6.4
million increase in trade accounts receivable and a $13.3 million increase in
inventories resulting from an increase in business activity and, for the
increase in inventories, unusually low levels at fiscal year end due to
scheduled maintenance outages at Newport as well as a temporary buildup
associated with production and shipment interruptions at Newport, as previously
discussed. Other current assets increased $2.9 million primarily due to the
recording of various insurance claims. Offsetting these uses were $9.7 million
in non-cash depreciation charges and $6.1 million resulting from an increase in
accounts payable. Accounts payable increased primarily due to the increase in
inventories and a general increase in business activities.

Fiscal 1994 six month cash flows from operating activities, before the
effect of the sale of KES and the adoption of Statement 109, were primarily
impacted by an increase in inventories, offset by a decrease in trade accounts
receivable and other current assets and an increase in accrued liabilities. The
increase in inventories was the result of unusually low levels at the end of
fiscal 1993, due in part to a fiscal 1993 fourth quarter shutdown at Newport, as
discussed in "Results of Operations". The decrease in other current assets
resulted primarily from the sale of land held for development and the increase
in accrued liabilities was primarily attributable to an increase in accrued
income taxes related to the gain on the sale of KES.

The Company incurred $7.3 million in capital expenditures during the first
six months of fiscal 1995, primarily related to improvements to and acquisition
of machinery and equipment in the specialty steel segment. The Company currently
estimates that capital spending in fiscal 1995 will approximate $13.2 million.
It is anticipated that capital spending will be funded through cash flow from
operations and available borrowing sources as well as available cash and
short-term investments. For further information pertaining to the Company's
capital plans for fiscal 1995 and beyond see "Business -- Operating Cost
Improvements" and "Business -- Strategy -- Implement Capital Improvement
Program." During the first six months of fiscal 1995, short-term investments
decreased $20.0 million, due in large part to an increase in net working
capital, particularly the inventory component. Management expects inventory
levels will decline during the remainder of the year as a portion of the
increase was attributable to a temporary inventory buildup associated with
production and shipment interruptions at Newport, as previously discussed.

As a result of the sale of KES in the first quarter of fiscal 1994, the
Company received $45.6 million in cash and $4.8 million in common stock of the
new entity. In addition, the Company received

36
<PAGE> 39

$6.8 million in cash from the new entity in satisfaction of a dividend declared
by KES prior to the sale. As part of the Refinancing Transaction, the Company
intends to use a substantial amount of its available cash balances to repay a
portion of its existing debt. See "Use of Proceeds" and "Summary of the
Refinancing Transaction." The Company intends to hold as an available-for-sale
investment the common stock acquired in the sale of KES. As of April 1, 1995 and
September 24, 1994, such common stock was recorded at $3.5 million and $4.6
million, respectively, and has resulted in a direct after-tax charge to common
shareholders' equity of $0.7 million in the first six months of fiscal 1995.

Net cash flows used by financing activities were $9.5 million in the first
six months of fiscal 1995. The Company made scheduled payments on long-term debt
obligations of $9.8 million during the first six months and increased its
borrowings under its lines of credit by $1.0 million. Scheduled long-term debt
maturities are $15.5 million (inclusive of $9.8 million paid through April 1,
1995), $19.0 million and $18.6 million for fiscal 1995, 1996 and 1997
respectively. As discussed in "Use of Proceeds," the proceeds of the Offering
will be used to refinance a significant portion of the Company's long-term debt,
which will result in minimal term debt amortization requirements over the next
three years.

Certain of the Company's loan agreements contain covenants restricting the
payment of dividends to its shareholders. Under the most restrictive of these
covenants, retained earnings available for dividends are computed under a
formula which is based in part on the earnings and losses of the Company after
fiscal 1988. Under this covenant, the Company is currently prohibited from
paying dividends to its shareholders.

The Company believes that its current available cash and short-term
investments, its cash flow from operations and borrowing sources will be
sufficient to meet its anticipated operating cash requirements, including
capital expenditures, for at least the next twelve months.

Cash flow used in operating activities totaled $4.3 million in fiscal 1994.
Major components include a net loss before the effect of the gain on the sale of
KES and the adoption of Statement 109 of $10.0 million, a $7.9 million increase
in accounts receivable, a $1.2 million decrease in long-term deferred taxes and
a $3.2 million increase in inventories. Partially offsetting these uses of
operating cash flow were non-cash depreciation and amortization charges of $18.8
million, a decrease in refundable income taxes and other current assets of $2.6
million and $2.7 million, respectively, and an increase in accounts payable of
$5.8 million. The increases in accounts receivable, inventories and accounts
payable were primarily attributable to the increase in business activity in the
specialty steel segment. Other current assets decreased primarily due to the
receipt of insurance claims recorded in fiscal 1993. Cash flows from operating
activities were also reduced by $4.9 million for income taxes paid, which
resulted from the sale of KES.

Cash flows from operating activities were $2.4 million in fiscal 1993
compared to $8.5 million in fiscal 1992. Major uses of cash in operating
activities in fiscal 1993 included a net loss of $7.0 million, an increase in
accounts receivable of $11.5 million, resulting primarily from an increase in
business activity in the specialty steel segment, and an increase in other
current assets of $7.2 million, resulting primarily from the recording of
insurance claims. Increases in operating cash flows resulted from increases in
accounts payable and accrued liabilities of $1.0 million and $6.8 million,
respectively, which were primarily attributable to the increase in business
activity in the specialty steel segment and the recording of environmental
remediation liabilities.

Major uses of cash in operating activities in fiscal 1992 included a net
loss of $15.9 million and an increase in accounts receivable of $11.5 million
that was primarily attributable to the increase in business activity in the
specialty steel segment, offset by a decrease in refundable income taxes of $7.1
million. In addition, increases in net cash flows of $10.0 million resulted from
increases in accounts payable and accrued liabilities, primarily attributable to
the increase in business activity in the specialty steel segment.

The Company incurred $11.8 million, $6.1 million and $4.1 million in
capital expenditures during fiscal 1994, 1993 and 1992, respectively. Such
capital expenditures were primarily related to the

37
<PAGE> 40

acquisition of machinery and equipment in the specialty steel segment. For
fiscal 1994, the most significant expenditure was the $2.2 million acquisition
of a tubular processing facility located near Houston, Texas. Included in total
capital spending for fiscal 1994, 1993 and 1992 was $0.8 million, $0.3 million
and $0.2 million, respectively, related to the Company's environmental control
facilities.

Net cash flows used by financing activities were $4.4 million in fiscal
1994. During fiscal 1994, the Company made payments on long-term debt
obligations of $7.2 million and increased its borrowings under its lines of
credit by $1.9 million.

Cash flows from financing activities in fiscal 1993 and 1992 included net
repayments on long-term debt obligations of $7.9 million and $6.6 million,
respectively, and increased borrowings under the Company's lines of credit of
$6.3 million and $4.0 million, respectively.

INFLATION

The Company believes that inflation has not had a material effect on its
results of operations to date. Generally, the Company experiences inflationary
increases in its costs of raw materials, energy, supplies, salaries and benefits
and selling and administrative expenses. Except with respect to significant
increases in steel scrap prices as discussed herein, the Company has generally
been able to pass these inflationary increases through to its customers.

OTHER MATTERS

Legal Matters

In fiscal 1994, Newport was named as a co-defendant in a claim for breach
of implied warranty in the United States District Court for the Southern
District of Texas arising from the failure of two joints of welded pipe during
testing of an off-shore pipeline. Subsequent to the end of the fiscal 1995
second quarter, the Company reached a settlement for an amount significantly
less than the plaintiff's original claim and the litigation was dismissed. The
settlement was funded in part with insurance proceeds and in part from the
Company's existing cash balances. The Company is subject to various claims,
lawsuits and administrative proceedings arising in the ordinary course of
business with respect to commercial, product liability and other matters, which
seek remedies or damages. Based upon its evaluation of available information,
management does not believe that any such matters, including the above-mentioned
settlement, are likely, individually or in the aggregate, to have a material
adverse effect upon the Company's consolidated financial position, results of
operations or cash flows.

Environmental Matters

The Company is subject to federal, state and local environmental laws and
regulations, including, among others, RCRA, the Clean Air Act, the 1990
Amendments, the Clean Water Act and all regulations promulgated in connection
therewith, including those concerning the discharge of contaminants as air
emissions or waste water effluents and the disposal of solid and/or hazardous
wastes such as electric arc furnace dust. As such, the Company is from time to
time involved in administrative and judicial proceedings and administrative
inquiries related to environmental matters.

As with other similar mills in the industry, the Company's steel mini-mills
produce dust which contains lead, cadmium, and chromium and is classified as a
hazardous waste. The Company currently collects the dust resulting from its
electric arc furnace operations through emission control systems and contracts
with a company for treatment and disposal of the dust at an EPA-approved
facility. The Company also has on its property at Newport a permitted hazardous
waste disposal facility.

The occurrences of accidental melting of radioactive materials previously
discussed have not resulted in any notice of violations from federal or state
environmental regulatory agencies. The Company is investigating and evaluating
various issues concerning storage, treatment and disposal of the radiation
contaminated baghouse dust; however, a final determination as to method of
treatment and disposal, cost and further regulatory requirements cannot be made
at this time.

38
<PAGE> 41

Depending on the ultimate timing and method of treatment and disposal, which
will require appropriate federal and state regulatory approval, the actual cost
of disposal could substantially exceed current estimates and the Company's
insurance coverage. As of April 1, 1995, claims recorded in connection with
disposal costs exhaust available insurance coverage. Based on current knowledge,
management believes the recorded gross reserves of $4.4 million for disposal
costs pertaining to these incidents are adequate.

Regulations resulting from the 1990 Amendments that will pertain to the
Company's electric arc furnace operations are currently not expected to be
promulgated until 1997 or later. The Company cannot predict the level of
required capital expenditures resulting from future environmental regulations
such as those forthcoming as a result of the 1990 Amendments. However, the
Company believes that while the 1990 Amendments may require additional
expenditures, such expenditures will not have a material impact on the Company's
business or consolidated financial position for the foreseeable future. Capital
expenditures during fiscal 1995 for the Company's environmental control
facilities are not expected to be material; however, such expenditures could be
influenced by new and revised environmental laws and regulations.

As of April 1, 1995, the Company had environmental remediation reserves of
$4.7 million, of which $4.4 million pertain to accrued disposal costs for
radiation contaminated baghouse dust. As of April 1, 1995, the possible range of
estimated losses related to the environmental contingency matters discussed
above in excess of those accrued by the Company is $0 to $3.0 million; however,
with respect to the Consent Order, the Company cannot estimate the possible
range of losses should the Company ultimately not be indemnified. Based upon its
evaluation of available information, and subject to third party indemnities
discussed above, management does not believe that any of the environmental
contingency matters discussed above are likely, individually or in the
aggregate, to have a material adverse effect upon the Company's consolidated
financial position, results of operations or cash flows. However, the Company
cannot predict with certainty that new information or developments with respect
to the Consent Order or its other environmental contingency matters,
individually or in the aggregate, will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.

39
<PAGE> 42

QUARTERLY RESULTS

The following table provides certain summary financial information for the
first and second quarter of fiscal 1995 and for each of the four quarters of
fiscal 1994 and fiscal 1993. Information for fiscal 1993 includes the results of
KES which was sold in October 1993.

<TABLE>
<CAPTION>
FISCAL 1995 FISCAL 1994 FISCAL 1993
------------------ -------------------------------------------- ------------------------------------------
SECOND FIRST FOURTH THIRD SECOND FIRST FOURTH THIRD SECOND FIRST
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS OF DOLLARS, EXCEPT PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales......... $ 97,055 $ 93,489 $ 84,602 $ 80,807 $ 66,012 $ 71,959 $ 93,205 $ 95,363 $ 86,735 $ 77,779
Gross profit...... 10,145 11,490 8,394 7,203 1,831 7,791 12,162 12,686 10,282 7,366
Operating income
(loss)........... 3,457 4,558 1,966 1,377 (4,465) 1,811 4,300 4,904 2,290 178
Net income
(loss)........... 447 75 (960) (1,990) (5,583) 21,741 (1,532) 11 (2,115) (3,355)
Specialty steel
net sales:
Tubular products
OCTG
products..... $ 34,387 $ 41,178 $ 35,025 $ 27,842 $ 23,351 $ 29,757 $ 29,517 $ 26,820 $ 23,971 $ 26,053
Line pipe
products..... 15,651 11,237 11,386 14,492 9,461 8,323 11,055 17,491 16,093 11,244
SBQ products..... 23,808 19,459 15,848 18,197 16,467 14,346 13,337 10,551 9,142 7,531
Hot rolled coil
products....... 2,718 3,424 4,260 3,669 2,577 3,232 445 1,805 -- --
Other
products(1).... 11,663 9,418 9,598 8,015 6,491 8,104 7,243 6,880 7,917 7,365
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total,
excluding
KES.......... 88,227 84,716 76,117 72,215 58,347 63,762 61,597 63,547 57,123 52,193
KES.............. -- -- -- -- -- -- 23,557 24,710 22,932 19,348
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total specialty
steel net
sales........ $ 88,227 $ 84,716 $ 76,117 $ 72,215 $ 58,347 $ 63,762 $ 85,154 $ 88,257 $ 80,055 $ 71,541
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Tons shipped:
Tubular products
Welded OCTG.... 36,100 50,200 45,700 30,800 25,900 35,800 41,000 30,100 29,900 41,100
Seamless
OCTG......... 20,800 20,600 17,100 16,300 13,800 14,600 13,000 14,600 12,200 8,900
Welded line
pipe......... 26,600 20,700 20,300 27,600 17,400 17,500 20,000 34,200 32,800 23,900
Seamless line
pipe......... 3,800 2,500 3,400 3,800 2,600 900 3,900 4,600 3,800 2,100
SBQ products..... 47,300 42,800 36,000 41,000 37,000 33,900 32,200 26,900 23,300 20,100
Hot rolled coil
products....... 7,400 8,800 12,300 10,300 7,100 9,100 1,400 5,200 -- --
Other
products(1).... 30,900 24,000 25,600 20,900 15,600 18,700 17,900 18,400 22,000 20,300
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total,
excluding
KES.......... 172,900 169,600 160,400 150,700 119,400 130,500 129,400 134,000 124,000 116,400
KES.............. -- -- -- -- -- -- 62,400 66,100 62,600 53,300
-------- -------- -------- -------- -------- -------- -------- -------- -------- --------
Total tons
shipped...... 172,900 169,600 160,400 150,700 119,400 130,500 191,800 200,100 186,600 169,700
======== ======== ======== ======== ======== ======== ======== ======== ======== ========
Average selling
price per ton:
Welded tubular
products..... $ 455 $ 446 $ 429 $ 418 $ 423 $ 417 $ 412 $ 414 $ 399 $ 401
Seamless
tubular
products..... 758 780 738 776 782 869 801 823 808 823
SBQ products... 503 454 441 443 445 424 413 392 393 375
</TABLE>

- ---------------
(1) Other products include seamless mechanical tubing and products classified as
secondary and limited service.

The sale of KES increased fiscal 1994 first quarter net income by $21.5
million. In addition, in the fiscal 1994 first quarter, the Company recorded the
cumulative effect of the adoption of Statement No. 109, "Accounting for Income
Taxes," which increased net income by $1.7 million.

Fiscal 1994 second quarter results were negatively affected by a decline in
welded tubular shipments that resulted primarily from customers' resistance to
announced price increases. Fiscal 1994 second quarter welded tubular sales
declined by approximately $7.9 million from the comparable fiscal 1993 quarter.
The Company adjusted its welded tubular selling prices in response to the
decline and volume recovered in the third quarter of fiscal 1994. In addition,
fiscal 1994 second quarter results were negatively impacted by severe winter
weather conditions.

40
<PAGE> 43

BUSINESS

GENERAL

The Company produces a diverse group of specialty steel products consisting
of: (i) seamless and welded tubular goods primarily used in oil and natural gas
drilling and production operations; (ii) line pipe used in the transmission of
oil, natural gas and other fluids; (iii) SBQ products primarily used in the
manufacture of heavy industrial equipment, trucks and off-road vehicles; and
(iv) hot rolled coils which are sold to service centers and other manufacturers
for further processing. The Company manufactures these specialty steel products
at its two mini-mills, located in Koppel, Pennsylvania and near Newport,
Kentucky. The Koppel facilities include modern melting and tubemaking operations
and the Newport facility is the only mini-mill with continuous casting
capabilities manufacturing welded tubular products in the United States. The
Company sold 513,300 tons of specialty steel products in the twelve months ended
March 26, 1994 and 653,500 tons for the twelve months ended April 1, 1995.

A separate subsidiary of the Company, Imperial, manufactures industrial
adhesive products, and accounted for 10% of the Company's net sales for the
twelve months ended April 1, 1995.

The Company completed an initial public offering of its common stock in
1988. Current executive officers and directors of the Company, as a group,
currently beneficially own 36.8% of the Company's common stock. The Company's
common stock is traded on the New York Stock Exchange under the symbol "NSS."
The address of the Company's principal place of business is Ninth & Lowell
Streets, Newport, Kentucky 41072 and its telephone number is (606) 292-6809.

HISTORY

The Company was incorporated in 1980 for the purpose of purchasing the
idled steel-making facilities of Newport Steel Works from Interlake, Inc. for
approximately $23 million. The Company successfully restarted the Newport
facilities in 1981, and has subsequently made four strategic acquisitions to
increase its steel-making capacity and to extend and diversify its specialty
steel product lines. In each of these acquisitions, the Company purchased idled
and undervalued production facilities where it had identified readily obtainable
cost saving and operating improvement opportunities. Prior to each purchase, the
Company recruited a skilled work force and negotiated new and favorable labor
contracts with flexible work rules. The Company has assumed no legacy costs,
such as retirement or health benefits, with respect to former employees of the
facilities.

In June 1994, the Company acquired a tubular products processing facility
located near Houston in Baytown, Texas ("Baytown") for $2.2 million. The
facility, which commenced operations in October 1994, finishes production
tubing, casing and drill pipe and provides a company-owned stocking location in
the heart of the southwest oil and natural gas drilling region. The Company can
deliver product to Baytown from both Koppel and Newport by barge. The Company
believes that Baytown will lower its finishing costs, increase its product range
and increase the geographic market in which it can competitively offer its
product since it can ship tubular products to Baytown by barge, and then stock
or reship either finished or plain-end tubular products directly to customers in
the southwest by truck.

In October 1990, the Company acquired Koppel Steel Corporation from B&W for
$96.7 million. This acquisition extended the Company's product line to seamless
OCTG and line pipe and SBQ products. The Koppel tubemaking facility was built in
1977 and the melt shop facilities were built in 1984 at a combined cost
significantly in excess of $100 million. B&W built and operated these facilities
until they closed the facilities in 1988 due in part to labor contract problems.
Before reopening the facilities, the Company was able to negotiate a new and
favorable labor contract that afforded the Company labor costs significantly
below the steel industry average. Since restarting the facility, the Company has
successfully implemented a number of productivity and operational improvements
which reduced manufacturing costs. Through the Koppel facility, the Company
believes it has established itself as a significant producer in the seamless
OCTG market.

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<PAGE> 44

In August 1986, the Company acquired Kentucky Electric Steel Corporation, a
mini-mill producer of SBQ products located near Ashland, Kentucky, for
approximately $7.3 million. As with Newport and Koppel, at the time of its
acquisition by the Company, KES had been closed due to labor contract problems.
The Company restarted the mill and began shipping products in November 1986.
Although KES had not been profitable for several years prior to its closing, KES
incurred start-up losses for only the first six months of fiscal 1987 and was
profitable for every quarter thereafter. The Company sold KES in October 1993
for cash and stock totaling $50.4 million. The Company believes the sale
maximized the return on its investment in KES.

In June 1986, the Company acquired Erlanger Tubular Corporation, a tubular
products finishing facility located near Tulsa, Oklahoma, for approximately $4.5
million. Erlanger provides the Company with the capability of heat treating and
end finishing tubular products manufactured either by the Company or by other
tubular products producers and allows the Company to maintain another inventory
site in the southwest.

The Company acquired Imperial Adhesives, Inc. in 1985 for $2.5 million.
Imperial produces water-borne, solvent-borne and hot melt adhesives for a number
of product assembly applications. See "-- Imperial Adhesives."

MANUFACTURING FACILITIES AND PROCESS

Koppel Facilities

The Company manufactures seamless OCTG and line pipe and SBQ products at
facilities located in Koppel and Ambridge, Pennsylvania. The operations consist
of a melting and casting facility and bar mill located in Koppel and a seamless
tubemaking facility located approximately 20 miles away in Ambridge. See "--
Specialty Steel Products -- OCTG Products -- Seamless OCTG Products" and "--
Special Bar Quality Steel Products."

The production of seamless OCTG product is a technically demanding, capital
intensive manufacturing process that requires specialized equipment. The
Company's seamless tubemaking facilities are designed for making OCTG in the
smaller size range from 1.9 to 5.0 inches in outside diameter. The Company is
one of only two producers of seamless production tubing in the United States;
there are several foreign producers.

The tubemaking facility located in Ambridge consists of a piercer, a
mandrel mill and a transval mill. The tubemaking facility includes a
highly-automated rotary hearth furnace where round billets ("tube rounds") are
reheated to temperatures over 2,200 degrees Fahrenheit. Tube rounds exit the
furnace to a piercer where a hollow tube is formed. Hollow tubes are then rolled
to a specific size and wall thickness by passing through either the mandrel mill
or transval mill. Seamless tubular products are produced in both carbon and
alloy grades.

The Company's melting and casting facilities at Koppel consist of an 80 ton
Ultra-High Powered ("UHP") electric arc furnace, a ladle refining station and a
computer-controlled four-strand continuous bloom/billet caster. Select grades of
steel scrap are melted utilizing the UHP furnace. Molten steel, reaching
temperatures of approximately 3,000 degrees Fahrenheit, is tapped from the UHP
furnace into a ladle and transported to the ladle refining station. The ladle
refining station allows for the addition of alloys, thereby providing precise
chemical compositions, while maintaining the molten steel at proper temperatures
for the caster. Once the chemistries are analyzed and conformed to metallurgical
standards, the ladle is carried by crane to the continuous bloom/billet caster.
The continuous bloom/billet caster is capable of casting 9-inch square blooms or
5.5-inch round billets. Blooms and billets are further processed at the
tubemaking facilities into seamless tubular products or at the bar facilities
into SBQ products, or they can be sold to third parties as "as cast"
(unfinished) product.

At the bar mill, blooms are reheated in a highly-automated rotary hearth
furnace to temperatures over 2,200 degrees Fahrenheit. Upon exiting the furnace,
blooms pass through a series of rolls, reshaping the steel into round bars.

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<PAGE> 45

Koppel is certified by the American Petroleum Institute ("API") enabling
the Company to sell its OCTG products as API-certified. The API establishes
design standards and procedural specifications for producers of OCTG products.
API-certified products are demanded by the major oil and natural gas exploration
and production companies as well as other customers.

Newport Facilities

The Newport facilities located near Newport, Kentucky, which are also
API-certified, consist of a melt shop housing three 100-ton electric arc
furnaces, a modern ladle metallurgy station, a continuous slab caster and a
walking-beam slab reheat furnace, a hot strip mill, an 8-inch welded pipe mill
and a 16-inch welded pipe mill. See "-- Specialty Steel Products -- OCTG
Products -- Welded OCTG Products" and "-- Hot Rolled Coils." The ladle
metallurgy station, continuous slab caster and walking-beam slab reheat furnace
were installed in 1990. The 16-inch welded pipe mill was installed in 1984.
Newport is the only mini-mill manufacturing welded tubular products in the
United States with continuous casting capabilities. The Newport facilities also
include a barge loading facility for shipping product by river and inland
waterway.

In addition, the Company recently purchased 34.5 acres of land adjacent to
the Newport facilities which it intends to utilize in the future for unloading
and handling incoming steel scrap by barge. The ability to receive steel scrap
by barge will significantly increase the geographic area from which the Company
can purchase steel scrap at a competitive cost and thereby should partially
insulate the Company from temporary local supply imbalances. The Company
currently receives its incoming steel scrap at its Newport operations by rail
and truck.

The production process for the Company's welded tubular products involves
three separate operations: melting, rolling and pipe making. Steel scrap is
first charged and melted into molten steel utilizing the electric arc furnaces.
The molten steel is then "tapped" from the furnace and refined in a
state-of-the-art ladle metallurgy station. The ladle metallurgy station allows
for the precise control of temperatures and chemistries and enables continuous
production sequencing of the molten steel to the continuous slab caster, thereby
enhancing melt shop productivity. After metallurgical standards have been met,
the molten steel is "cast" into slabs which are cut to length and lifted onto
specially designed rail cars for transport to the adjacent reheat furnace. Slabs
are processed through the walking-beam slab reheat furnace where they are evenly
heated to temperatures of over 2,400 degrees Fahrenheit. Slabs exit directly
from the reheat furnace onto the hot strip rolling mill where they are reduced
to desired thickness and rolled into coils in sizes up to 50-inch maximum width.
Coils are then either slit and formed into welded tubular products at one of
Newport's two pipe making facilities or are sold as hot rolled coils.

Erlanger and Baytown Facilities

The Company processes and finishes a portion of its own welded and seamless
tubular products, and to a lesser extent those of other tubular producers, at
Erlanger and Baytown. The finishing processes at Erlanger include upsetting,
which is a forging process that thickens tube ends; heat treating, which is a
furnace operation designed to strengthen the steel; straightening; coating for
rust prevention; and threading. Currently, Baytown is capable of upsetting,
coating and threading. One of the projects included in the Company's capital
expenditures program is to expand the Company's finishing capabilities at
Baytown. Erlanger and Baytown have approximately 21 and 30 acres, respectively,
available for storage of tubular products.

The waterway locations of Erlanger, near Tulsa, and Baytown, near Houston,
allow the Company to transport its product directly from Newport and Koppel to
the southwest market by barge, the least expensive means of transportation.
After finishing, products are either immediately reshipped to customers or
stored as inventory to enable the Company to respond quickly to customer needs.
According to the Oil and Gas Journal, approximately 60% of all oil and natural
gas wells drilled in the United States (as measured by total feet drilled) from
1991 to 1993 were located in Texas, Oklahoma, Louisiana and New Mexico. The
Company believes it gains strategic marketing and cost advantages by having
finishing, stocking and distribution locations in the heart of the U.S. drilling
market. In addition, by operating its own finishing facilities, the Company is
able to control

43
<PAGE> 46

product quality and cost, respond quickly to customer shipment requirements and
effectively control inventory.

Capacity Utilization

Due to adverse conditions in the OCTG market, which is the Company's
largest primary end-user market, the Company has been operating its facilities
at less than optimal capacity utilization rates as indicated in the table below.
The Company has excess production capacity that it believes it can access
quickly and with minimal additional fixed costs, if and when the OCTG market
improves.

<TABLE>
<CAPTION>
CAPACITY UTILIZATION
--------------------------------
FISCAL YEAR
TWELVE MONTHS ENDED
RATED CAPACITY ENDED SEPTEMBER
FACILITY (IN TONS) APRIL 1, 1995 1994
- ----------------------------------- -------------- -------------- -------------
<S> <C> <C> <C>
Koppel facilities
Melt shop........................ 400,000 77.9% 69.6%
Bar mill......................... 200,000 90.8% 85.0%
Seamless tube mill............... 200,000 59.6% 50.5%
Newport facilities
Melt shop........................ 700,000 60.6% 52.5%
Hot strip rolling mill........... 750,000 52.5% 47.1%
Welded pipe mills................ 580,000 55.3% 46.5%
</TABLE>

OPERATING COST IMPROVEMENTS

The Company has invested over $100 million in the last six fiscal years to
maintain and modernize its steel-making facilities. These capital improvements
have enabled the Company to improve operating efficiencies and reduce costs.

For the Newport facilities, major expenditures during that period include:

(i) The completion in fiscal 1990 of a $45 million continuous slab
caster, including a walking-beam slab reheat furnace, to replace the less
efficient method of ingot production, resulting in a significant
improvement in prime product yield, lower reheat costs and greater
productivity in the hot strip rolling mill;

(ii) The completion in fiscal 1990 of a $4 million ladle metallurgy
station which allows the steel refining process to occur in the ladle
rather than the furnace, providing for a more precise metallurgical control
and improved equipment efficiency, material yield and product quality; and

(iii) The addition in fiscal 1989 of a $6 million baghouse facility to
improve electric arc furnace dust collection and enable the melt shop to
simultaneously operate all three electric arc furnaces.

For the Koppel facilities, major expenditures during that period include:

(i) The acquisition in fiscal 1994 of the Baytown facility for $2.2
million to extend the Company's finishing capacity and provide access to
the Houston market;

(ii) A $1.3 million rebuild in fiscal 1991 of the tube mill rotary
hearth furnace to enhance the reliability and efficiency of reheating tube
rounds; and

(iii) a $1.1 million rebuild in fiscal 1993 of the bar mill rotary
hearth furnace, to enhance product quality and provide more efficient
reheating of blooms.

In addition to achieving operating cost improvements through modernizing
the steel-making facilities, the Company has consistently focused on ways to
reduce its labor costs. The Company's average labor cost per hour (including all
benefits) was $24.31 for its Newport facilities and $18.85 for its Koppel
facilities for the first six months of fiscal 1995. According to the AISI, the
industry average labor cost per hour was $33.56 for the same period. The Company
does not provide retiree benefits.

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<PAGE> 47

As indicated in the following table, average manufacturing costs and man
hours per ton shipped have declined at both the Newport and Koppel facilities.
These productivity measures are influenced by the capital improvements and other
operating cost improvements implemented by the Company over the periods
presented. In addition, the level of production and shipments as well as product
mix has a significant influence on these productivity measures. The following
data should be read in conjunction with the more detailed "tons shipped" product
volume and sales information included in the "Summary Consolidated Financial
Data" and "Selected Consolidated Financial Data."

<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED
APRIL
1, FISCAL YEAR ENDED SEPTEMBER
------- --------------------------------------------------------
1995 1994 1993 1992 1991(1) 1990
------- ------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Manufacturing costs per ton shipped (2)
Newport facilities (3)............. $244 $252 $254 $273 $333 $292
Koppel facilities (4).............. $361(5) $353 $379 $396 $560 N/A
Steel scrap costs per ton (6)........ $125 $123 $100 $89 $101 $101
Man hours per ton shipped
Newport facilities (3)............. 2.85 2.95 3.09 3.24 4.07 3.55
Koppel facilities (4).............. 4.05 4.84 5.45 6.91 N/M N/A
Tons shipped
Newport facilities (3)............. 377,100 320,700 324,400 255,800 205,700 285,100
Koppel facilities (4).............. 276,400 240,300 179,400 117,500 23,400 N/A
</TABLE>

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

(1) In fiscal 1991, the Company incurred non-recurring start-up costs associated
with converting Newport's steel-making operations from the ingot method of
production to continuous casting. Approximately 81% of Newport's fiscal 1991
production was continuous cast. In addition, in fiscal 1991, the Company
incurred non-recurring costs of $4.2 million prior to the commencement of
production at and in connection with the start-up of its Koppel facilities.

(2) Excludes the cost of steel scrap and depreciation.

(3) Includes both tubular and hot rolled coil products.

(4) Includes both tubular and SBQ products.

(5) The increase in manufacturing costs per ton shipped for the twelve months
ended April 1, 1995 over fiscal 1994 was due partially to changes in product
mix as well as increases in certain raw material costs.

(6) Represents the average cost per ton paid by Newport and Koppel for its steel
scrap for the respective periods.

During 1994, the Company continued to invest in its steel-making facilities
by implementing production changes and operating efficiency improvements, which
are expected to result in total annual operating cost improvements of
approximately $1.6 million (based on fiscal 1994 labor costs, product mix and
shipment levels). Operating cost improvements during this period included:

(i) At the Koppel bar mill, the Company implemented operational
changes that substantially eliminated the need to grind blooms, and thereby
reduced production costs for its SBQ products. Based on 1994 shipment
levels, the Company believes these operating changes at Koppel will result
in anticipated annual operating benefits of approximately $0.5 million;

(ii) In April 1994, the Company negotiated a new five year labor
contract with the USWA for Newport, which allowed Newport to consolidate
and eliminate certain jobs and, along with changes in incentive and benefit
plans, will result in annual labor cost savings in excess of $1.0 million
per year beginning in fiscal 1995. In November 1994, the Company signed a
five year labor agreement with the USWA for Koppel which includes a net
increase in labor costs of approximately 3% per year. The Company estimates
this contract will result in an average increase in labor costs of
approximately $0.5 million per year; and

(iii) In October 1994, the Company upgraded the two ladle cranes in
Newport's melt shop to increase the total weight of steel melted in the
furnace ("heat size") at one time from 80 to 90 tons. The increase in heat
size will improve productivity, increase yields and reduce refractory
costs. Based on fiscal 1994 shipment levels, the Company believes it would
achieve approximately $0.6 million of annual operating benefits.

There can be no assurance that the Company's current manufacturing costs,
or other costs such as the cost of steel scrap and other raw materials, will not
increase to offset the operating

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<PAGE> 48

benefits achieved by the initiatives previously described. In addition, changes
in product mix, such as increased production levels of hot rolled coils and SBQ
products which are significantly less expensive and time consuming to
manufacture than tubular products, will decrease manufacturing costs per ton
shipped and man hours per ton shipped. There can be no assurance that the
Company's production and shipment levels as well as product mix will remain at
levels sufficient to achieve the above results.

SPECIALTY STEEL PRODUCTS

The Company's primary specialty steel products are OCTG products, line
pipe, SBQ products and hot rolled coils. The Company believes it is generally
perceived by the marketplace as a high quality producer of specialty steel
products.

The chart below lists the size ranges of specialty steel products
manufactured by the Company.

<TABLE>
<CAPTION>
RANGE OF SIZES
SPECIALTY STEEL PRODUCTS (OUTSIDE DIAMETER) GAUGES
- ---------------------------------------- ---------------------- -----------------
<S> <C> <C>
OCTG Products
Seamless OCTG Products
Production tubing.................. 1.9" to 4.5" 0.145" to 0.560"
Drill pipe......................... 2.375" to 5" 0.287" to 0.500"
Casing............................. 4.5" and 5" 0.205" to 0.500"
Welded OCTG Products
Casing............................. 4.5" to 13.375" 0.196" to 0.480"
Seamless and Welded Line Pipe
Products.............................. 1.9" to 12.75" 0.145" to 0.531"
SBQ Products............................ 2.875" to 6"
Hot Rolled Coil Products................ 28" to 50" in width 0.125" to 0.500"
</TABLE>

OCTG Products

During the twelve months ended March 31, 1995, total shipments by domestic
OCTG producers were approximately 1.7 million tons, of which approximately 57%
represented seamless products and approximately 43% represented welded products.
During the twelve months ended March 26, 1994 and April 1, 1995, the Company
shipped approximately 56,000 and 74,800 tons, respectively, of seamless OCTG
products and approximately 132,800 tons and 162,800 tons, respectively, of
welded OCTG products. Together, shipments of seamless and welded OCTG products
accounted for 39% of the Company's net sales for the twelve months ended April
1, 1995. For the twelve months ended April 1, 1995, the Company's shipments of
seamless OCTG products accounted for approximately 8% of total shipments by
domestic OCTG producers and the Company's shipments of welded OCTG products
accounted for 23% of total shipments by domestic OCTG producers.

Seamless OCTG Products. The Company's seamless OCTG products are used as
drill pipe, casing and production tubing. Drill pipe is used and may be reused
to drill several wells. Casing forms the structural wall of oil and natural gas
wells to provide support and prevent caving during drilling operations and is
generally not removed after it has been installed in a well. Production tubing
is placed within the casing and is used to convey oil and natural gas to the
surface. The Company's seamless OCTG products are sold as a finished threaded
and coupled product in both alloy and carbon grades.

Seamless production tubing represented approximately 65% of the Company's
shipments of seamless OCTG products for the twelve months ended April 1, 1995.
During the twelve months ended March 26, 1994 and April 1, 1995, the Company
shipped approximately 30,700 tons and 48,800 tons, respectively, of seamless
production tubing to the OCTG markets.

Compared to similar welded products, seamless production tubing and casing
are better suited for use in hostile drilling environments such as off-shore
drilling or deeper wells because of their greater strength and durability. The
production of seamless tubular products with these properties requires a more
costly and specialized manufacturing process than does the production of welded
tubular products.

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<PAGE> 49

For the twelve months ended March 26, 1994 and April 1, 1995, the Company's
average selling price was $871 and $800 per ton, respectively, for all grades
and sizes of its seamless OCTG products and was $607 and $636 per ton,
respectively, for all grades and sizes of its threaded and coupled welded OCTG
products. The decline in average selling price for all grades and sizes of
seamless OCTG products was due in part to the Company's continued strategic
emphasis on certain seamless production tubing products which have lower costs
to manufacture and lower average selling prices.

Welded OCTG Products. The Company's welded OCTG products are used
primarily as casing in oil and natural gas wells during drilling operations.
Welded OCTG products are generally used when higher strength is not required,
typically in wells less than 10,000 feet in depth. The Company sells its welded
OCTG products as both a plain end and as a finished tubular product. The primary
market for welded OCTG products is the southwest, northeast and central sections
of the United States. The Company's welded OCTG products are sold primarily to
distributors, who in turn sell to end users, such as oil and gas drilling and
production companies. For the twelve months ended April 1, 1995, the Company's
shipments of welded OCTG products accounted for 23% of total shipments by
domestic producers.

Line Pipe Products. The line pipe market consists of both seamless and
welded products, ranging in size from 1 to 80 inches in outside diameter. Line
pipe products are primarily used in gathering lines for the transportation of
oil and natural gas at the drilling site and in transmission lines by both gas
utility and transmission companies. The Company's seamless and welded line pipe
products range from 1.9 to 12.75 inches in outside diameter and are shipped as a
plain end product and welded together on site. Line pipe shipments accounted for
15% of the Company's net sales for the twelve months ended April 1, 1995. The
Company sells its line pipe products to both distributors and end users.

During the twelve months ended March 31, 1995, total shipments by domestic
line pipe producers were approximately 1.0 million tons. Of these 1.0 million
tons shipped, 697,500 tons, or 66%, were line pipe 16 inches and under. For the
twelve months ended April 1, 1995, the Company shipped approximately 108,700
tons or 16% of all shipments by domestic producers of line pipe 16 inches and
under.

Special Bar Quality Steel Products

Unlike the majority of SBQ products which are less than 2 inches in
diameter and are used primarily in passenger car applications, the Company
manufactures SBQ products in a specialized market niche of products ranging in
size from 2.875 to 6 inches. The Company produces its SBQ products from
continuous cast blooms that enable substantial size reductions in the bloom
during processing and provide heavier strength-to-weight ratios. These heavier
size SBQ products are primarily used in critical weight-bearing applications
such as suspension systems, gear blanks, drive axles for tractors and off-road
vehicles, heavy machinery components and hydraulic and pneumatic cylinders. As a
result of recent increased demand for these products, the Company has increased
its total shipments of SBQ products from approximately 130,000 tons for the
twelve months ended March 26, 1994 to 167,200 tons for the twelve months ended
April 1, 1995. SBQ shipments accounted for 22% of the Company's net sales for
the twelve months ended April 1, 1995. Since beginning production at its Koppel
bar facility in March 1991, the Company has consistently increased SBQ
shipments.

Hot Rolled Coils

The Company produces commercial quality grade hot rolled coils, from 28 to
50 inches in width, between 0.125 to 0.500 inches in gauge, and in 15 ton coil
weights. In the past, the Company typically limited its production of hot rolled
coils to the amount required to supply its welded pipe mills for conversion into
welded tubular products. However, as a result of recent strong demand for hot
rolled coils, the Company has begun to utilize its excess melting and rolling
capacity to produce hot rolled coils for direct sale to third parties. The
Company increased its shipments of hot rolled

47
<PAGE> 50

coils from approximately 22,800 tons for the twelve months ended March 26, 1994
to 38,800 tons for the twelve months ended April 1, 1995. Hot rolled coil
shipments accounted for 4% of the Company's net sales for the twelve months
ended April 1, 1995. While the Company's shipments of hot rolled coils are not
sizable in relation to the total market, the Company focuses its production on
the much smaller niche market for high carbon hot rolled coils. These products
are sold to service centers and to others for use in high-strength applications.

Other Products

The Company's OCTG products are inspected and tested to ensure that they
meet API specifications. Products that do not meet specifications are classified
as secondary or limited service products and are sold at substantially reduced
prices. With the implementation of the ladle metallurgy station and continuous
slab caster as well as other capital improvements at the Newport facilities, the
Company reduced its secondary and limited service shipments as a percentage of
total welded product shipments from 31% in fiscal 1989 to 19% for the twelve
months ended April 1, 1995.

STRATEGY

The Company's business strategy is to increase sales and improve operating
results by: (i) implementing capital improvements; (ii) efficiently expanding
production; and (iii) improving its overall financial flexibility and capital
structure.

Since its inception, the Company has consistently reinvested in its
operating facilities, introduced operating efficiencies and reduced its
manufacturing costs per ton. Over the last six years, the Company has spent
approximately $80 million at the Newport facilities for capital improvements,
including a new continuous slab caster, a new ladle metallurgy station and a new
electric arc furnace dust collection facility. The Company has spent
approximately $21 million through fiscal 1994 to implement a number of capital
improvements in the Koppel facilities. These improvements included rebuilding
the rotary hearth furnaces at both the tube mill and bar mill and installing a
water descaling system at the bar mill. The Company's capital and operating
improvements as well as increases in its production and shipments have resulted
in a reduction in manufacturing costs per ton shipped (excluding depreciation
and the cost of steel scrap) of approximately $48 at Newport since 1990 and of
approximately $35 at Koppel since fiscal 1992. Over the same periods, the
Company's man hours per ton have decreased from approximately 3.55 to 2.85 at
Newport and from approximately 6.91 to 4.05 at Koppel.

Implement Capital Improvement Program

The Company has begun to implement a three year, $21.7 million capital
expenditure program designed to further reduce its operating costs, improve
quality and enhance its market position. The program includes nine projects,
each of which will allow the Company to achieve productivity improvements and
reduce operating costs through the elimination of redundant or less efficient
operations and processes. The Company intends to complete four of these projects
in fiscal 1995 for an estimated aggregate cost of approximately $3.7 million.
These projects are anticipated to result in annual operating benefits before
depreciation of approximately $5.4 million. Over the balance of the program,
which is scheduled to be completed by the end of fiscal 1997, the Company
intends to implement five additional projects for an estimated aggregate cost of
approximately $18.0 million. These five projects are anticipated to result in
annual operating benefits before depreciation of approximately $12.8 million.
The Company believes that upon completion, total operating benefits from its
capital expenditure program will result in annual operating benefits before
depreciation of approximately $18.2 million. During implementation of the
capital improvement program, the Company will continue to make other capital
expenditures on its facilities and equipment to maintain these operating assets.

The Company's capital expenditure program is under continuous review and
the Company may, based on the results of engineering studies, revisions in
budgeted project costs, increases or

48
<PAGE> 51

decreases in estimated operating benefits, changes in the demand for the
Company's products, or the unavailability of internally-generated cash or
acceptable external financing, decide in the future to eliminate, postpone,
modify or accelerate projects, or to substitute new projects for those currently
included in the program. Upon completion of the capital expenditure program, the
Company believes that its steel-making operations, like those of other steel
producers, will continue to require capital expenditures and additional projects
that are essential to the Company's long-term competitiveness. Because the
estimated operating benefits from the Company's expected efficiencies and
planned capital improvements are based upon a number of assumptions, estimated
operating benefits may not necessarily be indicative of the Company's future
financial performance, and increases in the cost of raw materials or other
operating costs may offset any operating benefits causing actual results to vary
significantly. In addition, the Company has based its operating benefit
estimates on fiscal 1994 labor rates, production and shipment levels and product
mix. Any increase or decrease in labor rates, actual tons shipped or change in
the product mix would affect the operating benefits realized through the capital
expenditure program. Although the Company believes its assumptions with respect
to its planned capital expenditure program to be reasonable, there can be no
assurance that the estimated operating benefits of the Company's capital
expenditure program will actually be achieved, that demand for tubular products,
hot rolled coils and SBQ products will continue to support fiscal 1994
production and shipment levels, as well as product mix, that other difficulties
will not be encountered in completing the capital expenditure program, or that
the projects can be installed or constructed at the estimated costs.

Significant components of the plan, and estimated costs and operating
benefits, are summarized below. For a more complete description of the projects
listed in the table below and the assumptions underlying the estimated annual
operating benefits calculations, see the discussion following this table.

<TABLE>
<CAPTION>
ESTIMATED TOTAL ESTIMATED
FISCAL YEAR ESTIMATED ANNUAL
OF CAPITAL OPERATING
PROJECT COMPLETION EXPENDITURE BENEFIT
- --------------------------------------------- ----------- ----------- ---------
(IN MILLIONS)
<S> <C> <C> <C>
Eccentric Bottom Tap -- UHP Furnace.......... 1995 $ 1.1 $ 3.4
Line Pipe Coating Facility................... 1995 1.1 0.6
Upgrade Finish Coiler........................ 1995 0.6 0.4
Width Control and Crop Shear Automation...... 1995 0.9 1.0
Seamless Mill Material Handling.............. 1996 0.6 0.4
Multi-Lance Manipulator...................... 1996 0.9 0.8
Finishing Facility Expansion................. 1996 4.0 3.8
Processing Equipment......................... 1997 2.5 0.5
UHP Electric Arc Furnace..................... 1997 10.0 7.3
----------- ---------
Total........................................ $21.7 $18.2
=========== =========
</TABLE>

Eccentric Bottom Tap -- UHP Furnace. In December 1994, the Company
upgraded the UHP electric arc furnace at Koppel by installing a new furnace
shell with an eccentric bottom tap ("EBT"). Eccentric bottom tapping is a more
efficient method of removing slag from the production process and virtually
eliminates the need for re-ladling. The installation has reduced the time
required to melt and refine scrap which reduces labor costs, costs of refractory
material, electrode usage, and electric power consumption per ton. The larger
tap opening has reduced the time to pour liquid steel into a ladle thereby
reducing labor costs per ton. In addition, the new EBT has resulted in increased
heat sizes. Based on fiscal 1994 shipments (147,900 tons of SBQ products and
92,300 tons of seamless tubular products) and the results of an internal review
of the project for the first two months of its operation, the Company believes
it will achieve approximately $2.1 million of annual operating benefit or
approximately $14.00 per ton for SBQ products and approximately $1.3 million of
annual operating benefit or approximately $14.50 per ton for seamless tubular
products.

49
<PAGE> 52

Line Pipe Coating Facility. The Company has begun construction of a line
pipe coating facility in Newport, Kentucky. The new facility will be operated by
L.B. Foster, a line pipe coating company and a distributor of line pipe and
other tubular products. The facility is currently anticipated to be completed in
the third quarter of fiscal 1995. Due to its close proximity to the Newport
facilities, this project will result in a substantial reduction in freight
costs. In addition, the Company will receive a commission on all line pipe
coated by L.B. Foster at the new facility. Based on an estimated 48,000 tons of
the Company's welded line pipe coated by third parties during fiscal 1994, the
Company believes it would achieve approximately $0.6 million of annual operating
benefit or approximately $12.40 per ton on these products, including the
commission on that tonnage. The expected operating benefits do not take into
account any commissions the Company may receive on line pipe coating by L.B.
Foster for third parties.

Upgrade Finish Coiler. The finish coiler in the hot strip mill at the
Newport facilities will be upgraded to allow an increase in the weight of hot
rolled coils by approximately 3,300 pounds in average coil weight, which is an
increase of approximately 15% from the finish coiler's current capacity. The
Company anticipates completing the upgrade by the fourth quarter of fiscal 1995.
Production of larger coils will result in a 10% increase in tons produced per
hour, thereby reducing variable costs per ton including the cost of labor,
maintenance parts, fuels and utilities and other supplies. Based on fiscal 1994
labor costs and shipment levels (approximately 277,600 tons of welded tubular
products), the Company believes it would achieve approximately $0.4 million of
annual operating benefit or approximately $1.50 per ton for welded tubular
products.

Width Control and Crop Shear Automation. The hot strip mill at the Newport
facility will be upgraded with the installation of width control and crop shear
automation equipment to permit closer monitoring of the width of the strip
during the rolling process. Currently 2.0 inches of excess width are provided
for edge trim prior to a strip being formed into pipe. The enhanced width
monitoring equipment will provide better control of rolled widths and will allow
rolled width to be approximately 0.5 inches narrower than current practice,
which will result in a significant improvement in material yield. In addition,
the crop shear will be automated to permit fully automatic shearing of the head
and tail end of each strip during the rolling process. By automating the crop
shear, the amount of head and tail end scrap removed from each strip will be
reduced, resulting in a yield improvement of approximately 0.5%. The Company
anticipates completing the upgrade during the fourth quarter of fiscal 1995.
Based on fiscal 1994 labor and material costs and shipment levels (277,600 tons
of welded tubular products), the Company believes it would achieve approximately
$1.0 million of annual operating benefit or approximately $3.40 per ton of
welded tubular products shipped.

Seamless Mill Material Handling. Material handling equipment will be
installed in the Koppel tubemaking facility to provide automatic lift, handling,
and conveying systems to move tubular products to the off mill area for further
processing. The Company anticipates completing this project in the third quarter
of fiscal 1996. Currently, seamless tubular products are moved using overhead
cranes. A new transfer car will move tubular products to the off mill area for
upsetting, non-destructive testing and heat treating. The new conveyance system
equipment will improve product flow through the finishing operations costs and
reduce labor costs per ton. Based on fiscal 1994 labor costs and shipment levels
(approximately 92,300 tons of seamless tubular products), the Company believes
it would achieve approximately $0.4 million of annual operating benefit or
approximately $3.85 per ton on these products.

Multi-Lance Manipulator. A double head multiple lance
robotically-controlled manipulator will be installed for use on the UHP electric
arc furnace at the Koppel facility. The Company anticipates completing the
installation of the new manipulator during the second quarter of fiscal 1996.
The multi-lance manipulator, which will replace a single lance manipulator, will
permit efficient simultaneous injection of oxygen and carbon to the furnace and
will reduce electricity consumption, electrode consumption and melt times and
will result in reduced labor costs per ton. Based on 1994 labor costs and
shipment levels (approximately 147,900 tons of SBQ products and 92,300 tons of
seamless tubular products), the Company believes it would achieve approximately
$0.7 million of

50
<PAGE> 53

annual operating benefit or approximately $4.60 per ton for SBQ products and
approximately $0.1 million of annual operating benefit or approximately $1.30
per ton for seamless tubular products.

Finishing Facility Expansion. A new straightener will be installed at
Koppel's tubemaking facility which will allow the Company to completely process
certain alloy API production tubing in-house and substantially reduce outside
processing costs. All of this product is currently produced as plain end tube at
Koppel's tubemaking facility and shipped to outside processors for all finish
processing such as upsetting, heat treating, straightening, threading, coupling
and inspection. At the Baytown facility, unused equipment currently in storage
will be installed, including a PMC threading line, Taylor Wilson Hydrotester and
an in-line coater. The enhanced finishing capacity at Baytown will allow
finishing of all grades of production tubing at significantly lower conversion
costs. The Company anticipates completing the installation of the proposed
equipment during the fourth quarter of fiscal 1996. Based on actual 1995 costs
and fiscal 1994 shipment levels (23,500 tons of certain alloy API production
tubing products) the Company believes it would achieve approximately $3.8
million of annual operating benefit or approximately $163.00 per ton on certain
alloy API production tubing products. This anticipated annual operating benefit
does not include any benefit resulting from the Company's ability to produce and
sell certain new production tubing products.

Processing Equipment. Equipment will be installed in the tubemaking
facility at Koppel to provide the finishing capacity for API-certified line pipe
products, mechanical tubing, redraw tubing, and other semi-finished products.
The Company anticipates completing this project in fiscal 1997. The equipment
installation will include a straightener, end-facers, a hydrotester, conveyors
and handling equipment. The installation of the proposed equipment will
consolidate cutting and beveling into one operation and eliminate multiple
product moves using the overhead crane thereby reducing variable costs per ton
including the cost of labor, maintenance parts, fuels and utilities and other
supplies. Based on fiscal 1994 tons finished (approximately 24,100 tons), the
Company believes it would achieve approximately $0.5 million of annual operating
benefit or approximately $20.50 per ton on these products.

UHP Electric Arc Furnace. A UHP electric arc furnace will be installed in
the Newport melt shop to replace the existing three furnaces. The furnace will
have a rated annual capacity of 750,000 tons of hot metal and have a melting
capacity of 110 to 120 tons per hour. The furnace will also include an eccentric
bottom tap to permit slag free tapping. The Company currently anticipates
completing final engineering studies on the project in December 1995 and
estimates completing the installation during fiscal 1997. Significantly shorter
melt times will increase melt shop productivity by reducing variable costs per
ton including the cost of labor, maintenance parts, fuels and utilities and
other supplies. The Company anticipates the new furnace will also lower
production costs through a reduction in electricity and electrode consumption.
Based on fiscal 1994 labor costs and shipment levels (277,600 tons of welded
tubular products and 38,800 tons of hot rolled coils), the Company believes it
would achieve approximately $6.5 million of annual operating benefit or
approximately $23.40 per ton for welded tubular products and approximately $0.8
million of annual operating benefit or approximately $21.15 per ton for hot
rolled coils.

Efficiently Expand Production

Since incorporation in 1981, the Company has increased its steel-making and
finishing capacity through the acquisition of idled operating assets. The fiscal
1991 acquisition of the Koppel facilities increased the rated capacity of its
steel-making facilities from 700,000 tons (excluding KES) in fiscal 1990 to
1,100,000 tons currently, and expanded its product range to include seamless
OCTG and line pipe and SBQ products. The Company's operating strategy is to
maintain an active market presence through all phases of its customers' business
cycles. During market downturns, the Company has endeavored to follow this
strategy by maintaining production while at the same time reducing costs and
investing in its facilities. The Company has also sought to increase the range
of products within its principal markets. As a result of new finishing capacity
brought on line in the first quarter of fiscal 1995, the Company was able to
expand its product lines to include additional grades of seamless OCTG products.
The Company believes it has significant available production capability

51
<PAGE> 54

it can readily access with minimal fixed costs should the OCTG markets improve.
In the OCTG market, even though demand has remained relatively weak, the Company
has increased its shipments of tubular products since 1990. For the twelve month
period ended April 1, 1995, capacity utilization at the Company's Koppel and
Newport tubemaking facilities increased to 60% and 55%, respectively. Total
shipments by domestic SBQ producers increased approximately 11% during the
twelve months ended March 1995 over the comparable prior year period. For fiscal
1994 and for the twelve months ended April 1, 1995, the Company increased its
shipments of SBQ products by 44% and 29%, respectively, and its average selling
price of SBQ products by 11% and 10%, respectively, excluding KES from the
comparable prior year periods.

Improve Financial Flexibility and Capital Structure

The Offering is part of the Company's long-term plan to increase its
financial flexibility and reduce its financial leverage. The Company has
recently used, and will use in conjunction with the Refinancing Transaction, a
portion of its existing cash balances to reduce its total debt outstanding.
Contemporaneously with the Offering, the Company will enter into the Credit
Facility. Upon completion of the Offering, the Company's aggregate cash,
short-term investments and borrowing capacity under the new credit facility will
total approximately $51.0 million and based on the Company's debt outstanding
after the Offering, it will have minimal term debt amortization requirements
over the next five years. The Company also may further reduce its financial
leverage in the future by raising funds through the issuance of additional
equity to retire a portion of its long-term debt at such time that its financial
results and general market conditions support an acceptable equity offering.
There can be no assurances, however, when or if and for what amount the Company
will complete an equity offering.

MARKETS AND DISTRIBUTION

The Company sells its specialty steel products to its customers through an
in-house sales force which is supplemented by a number of independent sales
representatives. The primary end markets for the Company's seamless tubular
products has been the southwest United States and certain foreign markets.
Nearly all of the Company's OCTG products are sold to domestic distributors,
some of whom subsequently sell the Company's products into the international
marketplace. The Company estimates that the final destination for its seamless
OCTG products included five different foreign countries in fiscal 1994. The
Company has historically marketed its welded tubular products in the east,
central and southwest regions of the United States, in areas where shallow oil
and gas drilling and exploration activity utilize welded tubular products. The
Company sells its SBQ products to customers located generally within 400 miles
of the Koppel facilities.

All of the Company's steel-making and finishing facilities are located on
or near major rivers or waterways, enabling the Company to transport its tubular
products into the southwest by barge. Barge transportation is the least
expensive form of transportation and provides the Company with an advantage over
competitors outside the southwest market who do not have similar access to barge
facilities. Shipping by barge also enables the Company to be cost competitive
with producers located in or near the southwest market. For example, barge
transportation costs from Newport to the Houston market can reach as low as $9
per ton, while rail transportation to that market can cost approximately $25 per
ton. The Company ships substantially all of its welded OCTG products destined
for the southwest region by barge, and with the addition of Baytown, the Company
will be shipping substantially all of its seamless OCTG product destined for the
southwest by barge as well.

CUSTOMERS

The Company has approximately 300 specialty steel product customers. The
Company's OCTG and line pipe products are used by major and independent oil and
natural gas exploration and production companies in drilling and production
applications in the United States, Canada, Mexico and overseas. Line pipe
products are also used by gas utility and transmission companies. The majority
of the Company's OCTG and line products are sold to domestic distributors and
directly to end users. The Company sells its SBQ products to service centers,
cold finishers, forgers and original equipment manufacturers, and primarily
sells its hot rolled coils to service centers and other

52
<PAGE> 55

manufacturers for further processing. The Company has long-standing
relationships with many of its larger customers; however, the Company believes
that it is not dependent on any customer and that it could, over time, replace
lost sales attributable to any one customer. In fiscal 1994, the Company's top
five customers accounted for approximately 22% of net sales, and no one customer
accounted for more than 8% of total net sales.

COMPETITION

The markets for the Company's specialty steel products are highly
competitive and cyclical. The Company's principal competitors in its primary
markets include integrated producers, mini-mills, welded tubular product
processing companies as well as foreign steel producers. The Company believes
that the principal competitive factors affecting its business are price, quality
and customer service.

The Company's principal domestic competitors in the welded tubular market,
which includes both OCTG and line pipe products, are Lone Star Steel Company,
LTV Corporation, IPSCO Steel, Inc., USS/Kobe Steel Company and Maverick Tube
Corporation. In the seamless OCTG market, the Company's principal competitors
include the USS/Kobe Steel Company in Lorain, Ohio, the only domestic
competitor, which has approximately 250,000 tons of annual capacity, and a
number of foreign producers. With respect to its SBQ products, the Company
competes with a number of steel manufacturers, including USX Corporation, CSC
Industries, Inc., Republic Engineered Steels, Inc., Inland Steel Industries,
Inc., Bethlehem Steel Corporation, MacSteel Division of Quanex Corporation,
North Star Steel Company, Inc. and Atlantic Steel Company. The Company believes
that it has been able to compete successfully in the SBQ market by virtue of its
focus on a narrow range of quality products.

Trade Cases

Imports into the U.S. have captured a significant portion of the OCTG
market. From 1984 to 1992, a series of voluntary restraint agreements with
various countries limited the amount of OCTG products those countries would
export into the United States. These agreements expired March 31, 1992. See
"-- Industry."

In response to the rising level of foreign imports of OCTG products, on
June 30, 1994, the Company and six other U.S. steel companies (Bellville Tube
Division of Quanex Corporation, IPSCO Steel, Inc., Maverick Tube Corporation,
North Star Steel Company, Inc., USX Corporation, and USS/Kobe Steel Company)
filed antidumping petitions against imports of OCTG products from seven foreign
nations. The cases ask the United States government to take action to offset
injury to the domestic OCTG industry from unfairly traded imports. The
antidumping petitions were filed against OCTG imports from Argentina, Austria,
Italy, Japan, Korea, Mexico and Spain. The Company also joined in filing
countervailing duty cases charging subsidization of OCTG imports from Austria
and Italy. In August 1994, the United States International Trade Commission
("ITC") voted unanimously that there was reasonable indication of material
injury which warranted further investigation of the petitions. In June 1995, the
International Trade Administration of the United States Department of Commerce
(the "Department") issued favorable determinations concerning the existence and
extent of dumping and subsidization of OCTG products, and imposed tariffs on
imports from Austria (24.16%), Italy (51.25%), Japan (44.20%), Korea (0.00%
against one producer and 12.17% against all other producers), Argentina (1.36%),
Mexico (23.79%) and Spain (11.95%). In July 1995, the ITC will assess whether
dumping and subsidization have caused or threatened to cause material injury to
the United States OCTG industry. If the ITC determines that such injury does not
exist, the trade cases will be dismissed and the Department will refund or
cancel the previously imposed tariffs. While the Company cannot predict the
outcome of the ITC's determination at this time, the Company believes that a
final favorable ruling could have a positive impact on shipments and selling
prices of certain of the Company's products.

53
<PAGE> 56

RAW MATERIALS

The Company's major raw material is steel scrap, which is generated
principally from industrial, automotive, demolition, railroad and other steel
scrap sources. Steel scrap is purchased by the Company either through scrap
brokers or directly in the open market.

The cost of steel scrap is subject to market forces, and is primarily
affected by the expected production levels of other mini-mill steel producers.
The cost of steel scrap to the Company can vary significantly, and product
prices cannot always be adjusted in the short term to recover increases in steel
scrap costs. The Company utilizes numerous grades of steel scrap in its
production process to minimize its use of higher cost grades. Historically, the
Company has been able to increase SBQ product prices to recover a substantial
portion of such increases; however, the Company has not consistently been able
to increase its tubular product prices to recover increases in steel scrap
costs.

The long-term demand for steel scrap and its importance to the domestic
steel industry may be expected to increase as steel-makers continue to expand
steel scrap-based electric arc furnace and thin slab casting capacities. For the
foreseeable future, however, the Company believes that supplies of steel scrap
will continue to be available in sufficient quantities at competitive prices.
The Company recently acquired land adjacent to the Newport mill which, with
minor modification, can be used as a barge loading facility. This facility will
allow Newport to have steel scrap delivered by barge, rather than by rail and
truck as is currently done, which will substantially expand the geographic
region from which Newport can acquire scrap. In addition, a number of
technologies exist for the processing of iron ore into forms which may be
substituted for steel scrap in electric arc furnace-based steel-making
operations. Such forms include direct-reduced iron, iron carbide and
hot-briquette iron. While such forms may not be cost competitive with steel
scrap at present, a sustained increase in the price of steel scrap could result
in increased implementation of these alternative technologies.

The Company's steel manufacturing facilities consume large amounts of
electricity. The Company purchases its electricity from utilities near its
steel-making facilities pursuant to contracts that expire in 1996 for Koppel and
2001 for Newport. The contracts contain provisions that provide for lower priced
demand charges during off-peak hours and known maximums in higher cost firm
demand power. Also, the Company receives discounted demand rates in return for
the utilities' right to periodically curtail service during periods of peak
demand. The Company has no reason to believe that the utility contract expiring
at Koppel in 1996 will not be renewed upon substantially similar terms.

The Company also consumes smaller quantities of additives, alloys and flux
which are purchased from a number of suppliers.

INDUSTRY

Oil Country Tubular Goods

The demand for domestic OCTG products is primarily dependent on the number
and depth of oil and natural gas wells being drilled in the United States. The
level of drilling activity is largely a function of the current prices of oil
and natural gas and the industry's future price expectations.

Overall, OCTG demand in the United States has been cyclical. According to
Baker Hughes Inc., the average monthly rig count, the most common measure of
drilling activity in the U.S., reached a peak of approximately 3,970 in 1981 and
a low of approximately 718 in 1992; the average monthly rig count for the first
six months of fiscal 1995 was 768.

Since 1992, there has been a significant change in the oil and natural gas
drilling industry in the United States. Historically, a greater percentage of
wells drilled were for crude oil than for natural gas; however, for the year
ended December 1994, there was more drilling for natural gas than for crude oil.
This shift reflects the increase in well head natural gas prices due principally
to the steady increase in natural gas consumption. The increase in natural gas
drilling has resulted in greater consumption of seamless tubular products. The
United States Department of Energy forecasts in its

54
<PAGE> 57

1994 Annual Energy Outlook that domestic annual natural gas consumption will
increase from 18.7 trillion cubic feet in 1990 to 24.1 trillion cubic feet in
the year 2010. The forecasted increases are due to regulatory demands for a
cleaner environment, natural gas conversions, new residential construction in
which two-thirds of all new homes use natural gas, new uses for natural gas,
such as space cooling and gas heat pumps and advances in gas fired generation
technology.

Demand for OCTG products is also influenced by the levels of inventory held
by producers, distributors and end users. OCTG product inventory levels have
historically been cyclical with inventories building during periods of high
drilling activity and declining in periods of lower drilling activity. Over the
past ten years demand for OCTG products has been partially satisfied by
drawdowns of existing inventories. In 1993, for the first time in five years,
inventories increased, and for the year ended December 1994 inventory levels
were generally stable.

The demand for OCTG products produced domestically is also significantly
impacted by the level of foreign imports of OCTG products. The level of OCTG
imports is affected by: (i) the value of the U.S. dollar versus other key
currencies; (ii) overall world demand for OCTG products; (iii) the production
cost competitiveness of domestic producers; (iv) trade practices of and
government subsidies to foreign producers; and (v) the presence or absence of
governmentally imposed trade restrictions in the United States. OCTG market
penetration by imports in the United States increased from 7% in 1992 to 23% for
the twelve months ended March 31, 1995. Seamless tubular products represented
approximately 78% of all imported OCTG product for the year ended December 1994.
On July 1, 1994, the Company and six other U.S. steel companies filed
antidumping petitions against imports of OCTG products from seven foreign
nations. The International Trade Commission has issued a favorable preliminary
determination on one aspect of the petitions, although the outcome of the cases
cannot be predicted at this time. See "-- Competition -- Trade Cases."

Line Pipe

The demand for line pipe is only partially dependent on oil and gas
drilling activities. In addition to drilling activities, line pipe demand is
dependent on factors such as pipe line construction activity, line pipe
replacement requirements, utility purchasing programs and new residential
construction. Line pipe demand has grown since 1989 along with the increase in
natural gas usage and the attendant need for gas transportation lines. Overall,
total shipments by domestic line pipe producers reached 1.0 million tons for the
twelve months ended March 31, 1995 and shipments of line pipe product 16 inches
in diameter and smaller, the product sizes that the Company produces, totaled
696,700 tons in that period.

55
<PAGE> 58

TUBULAR PRODUCT INDUSTRY STATISTICS

<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDED YEAR ENDED DECEMBER
MARCH 31, ---------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985
---------- ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Drilling Activity
Average rig count drilling for:
Natural gas(1)......... 417 427 364 331 351 464 401 354 N/A N/A N/A
Crude oil(1)........... 332 335 373 373 482 532 453 554 N/A N/A N/A
Total average rig
count(1)............... 762 775 754 721 860 1,010 869 936 936 964 1,980
Average well depth(2)... 5,817 5,699 5,461 5,254 4,887 4,788 4,755 4,820 4,551 4,482 4,435
Total well
completions(2)......... 17,794 18,845 23,474 23,124 29,076 31,202 28,055 31,802 35,424 39,602 70,481
Total feet drilled(2)... 103.5 107.4 128.2 121.5 142.1 149.4 133.4 153.3 161.2 177.5 312.6

International rig
count(3)................ 1,004 990 971 955 1,036 1,047 1,055 1,222 1,162 1,262 1,604

Leading Indicators
Average oil and natural gas prices:
West Texas intermediate
crude(4).............. $17.21 $16.46 $18.17 $19.67 $20.42 $23.17 $18.29 $15.52 $18.21 $16.44 $28.08
U.S. well head natural
gas(5)................ $ 1.60 $ 1.79 $ 2.01 $ 1.73 $ 1.63 $ 1.70 $ 1.69 $ 1.68 $ 1.66 $ 1.94 $ 2.51

U.S. OCTG Consumption(6)
Total U.S. producer
domestic
shipments(7)........... 1,300 1,243 1,422 1,005 963 1,297 706 1,212 1,086 588 1,569
Total imported
shipments.............. 312 342 353 101 413 381 429 988 576 617 1,505
Inventory (increase)
decrease............... (250) (191) (330) 276 275 257 533 (401) 128 721 96
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total U.S. market
consumption............ 1,362 1,394 1,445 1,382 1,651 1,935 1,668 1,799 1,790 1,926 3,170
====== ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
Imports as percent of
U.S. consumption....... 23% 25% 24% 7% 25% 20% 26% 55% 32% 32% 48%

U.S. Producer Line Pipe
Shipments(8)............ 697 652 623 710 657 634 606 645 494 432 577
</TABLE>

- ---------------
(1) As reported by Baker Hughes, Inc. (contained in Monthly Energy Review, May
1995)

(2) As reported by the Energy Information Administration (contained in Monthly
Energy Review, May 1995). Average well depth in feet, total feet drilled in
millions of feet.

(3) As reported by Baker Hughes, Inc. Excludes U.S. rig activity.

(4) In dollars per barrel, as reported by the Oil and Gas Journal.

(5) In dollars per million cubic feet, as reported by the Oil and Gas Journal
for the years ended December 1985 through 1993 and as reported by Bloomberg
for the year ended December 1994 and the twelve months ended March 31, 1995.

(6) In thousands of tons, as reported by Pipe Logix, Inc.

(7) Net of U.S. producer exports.

(8) In thousands of tons, as reported by AISI. Includes line pipe 16 inches in
diameter and under only.

56
<PAGE> 59

SBQ and Hot Rolled Coils

The bar and flat rolled steel markets represent the largest segments of the
steel market. According to the AISI, total 1994 shipments by domestic producers
of bar products (which include the Company's SBQ products) and flat rolled steel
products (which include the Company's hot rolled coils) were approximately 16
million and 29 million tons, respectively. Bar products are generally
categorized into merchant bar quality products and SBQ products which are used
for a wide variety of industrial applications including automotive, metal
working fabrication, construction, farm equipment, heavy machinery and trucks
and off-road vehicles. The hot rolled coils market is differentiated into three
broad categories of quality based on surface quality, metallurgical purity,
formability and strength to weight ratios. The Company competes in relatively
small segments of each of these markets.

Unlike the majority of SBQ products which are primarily used by passenger
car manufacturers, heavy SBQ products such as those produced by the Company are
primarily used in the manufacture of light and heavy trucks and off-road
vehicles.

Hot rolled coils are used in the manufacture of steel pipe and tubular
products and in a number of other manufacturing processes. The demand for hot
rolled coils has significantly increased from recent years as the general market
demand for flat rolled steel has increased. Hot rolled coils can be substituted
for other flat rolled steel in many applications. As a result, for the twelve
months ended April 1, 1995, average selling prices for the Company's hot rolled
coils increased 4% over the comparable prior year period.

IMPERIAL ADHESIVES

General

Imperial Adhesives, Inc. is a manufacturer of industrial adhesives
products. Imperial maintains over 900 active formulas for the manufacture of
water-borne, solvent-borne, and hot melt adhesives, which are used in product
assembly applications, including footwear, foam bonding, marine and recreational
vehicles, and consumer packaging.

The Company acquired Imperial in 1985 for $2.5 million. The adhesives
company, which had been divested from The United States Shoe Corporation in
1981, afforded the Company an attractive investment opportunity outside of the
steel industry. Since acquisition, Imperial has grown in sales from
approximately $15 million in fiscal 1986 to approximately $34.7 for the twelve
months ended April 1, 1995.

Manufacturing Facilities and Process

Imperial produces adhesives products at manufacturing plants located in
Ohio, Tennessee, Virginia and Michigan. Imperial manufactures its adhesives by
mixing predetermined quantities of raw materials in specially designed mixers.
The physical properties of finished formulas are measured and strictly monitored
by a statistical process control system. Imperial works closely with its
customers to develop adhesives applications designed to meet specific product
requirements.

Strategy

The Company has implemented a business strategy for Imperial designed to
achieve growth in Imperial's revenues through internal development and
acquisition of new products and product lines. Imperial has focused on
developing or acquiring water-borne products that can be used in place of
solvent-based, non-flammable products. In 1995, certain restrictions will be
imposed on the manufacture of certain solvent-based, non-flammable adhesives by
the 1990 Amendments to the Clean Air Act and the regulations promulgated
thereunder. In fiscal 1993, Imperial purchased exclusive U.S. rights to
manufacture a water-borne adhesive, Rapid Stick Dispersion ("RSD"). RSD was
developed by SABA International Lamino B.V. to provide an alternative to
solvent-based adhesives that bond immediately without utilizing oven or forced
drying methods. This product, which is primarily spray-applied, is used in
automotive, furniture, upholstery and marine industries.

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<PAGE> 60

Imperial has internally financed its growth and has not required any
additional capital investment by the Company. In addition to continuing to focus
on revenue growth at Imperial, the Company is also improving its cost structure
through facilities consolidation and by reducing the number of products, many of
which have similar properties, that it offers customers.

Markets and Distribution

Imperial markets its adhesives products throughout the United States and
the Caribbean basin through a sales force of approximately 35 people, some of
whom are independent sales representatives. Products are distributed from
Imperial's four manufacturing sites, a warehouse in Puerto Rico and a number of
public warehouses across the United States.

Competition

Competition in the industrial adhesives products market is
highly-fragmented. The Company believes that it competes in this market on the
basis of price, product performance and customer service. Imperial's ability to
meet diverse customer needs for water-borne, solvent-borne, and hot-melt
adhesives enables it to compete with numerous small or comparably-sized
companies, as well as major adhesives producers such as H.B. Fuller Company and
National Starch and Chemical Corporation.

OTHER ASSETS

KESI Stock

In October 1993, the Company sold KES to Kentucky Electric Steel, Inc.
("KESI") for $45.6 million in cash and 400,000 shares (approximately 8% of the
outstanding shares) of KESI. See Note 2 to the fiscal 1994 Consolidated
Financial Statements. KESI is traded on the NASDAQ National Market. On May 31,
1995, KESI's stock price closed at $9 per share. Until October 6, 1998, the
Company has certain registration rights with respect to its shares of KESI.

Real Estate

The Company owns approximately 40 acres of partially improved land near
Newport, Kentucky. This property, which has a book value of approximately $10.8
million at April 1, 1995, is held as investment property and is listed for sale.
The Company also owns approximately 85 acres of additional real estate which is
currently not used in operations and has a book value of approximately $0.8
million.

ENVIRONMENTAL MATTERS

The Company's specialty steel and adhesives operations are subject to
various federal, state and local environmental laws and regulations, including,
among others, the Clean Air Act, the 1990 Amendments, the Clean Water Act and
RCRA and all regulations promulgated in connection therewith, including, among
others, those concerning the discharge of contaminants as air emissions or waste
water effluents and the disposal of solid and/or hazardous wastes such as
electric arc furnace dust. The Company is from time to time involved in
administrative and judicial proceedings and administrative inquiries related to
environmental matters.

As with other similar mills in the industry, the Company's steel mini-mills
produce dust which contains lead, cadmium and chromium, and is classified as a
hazardous waste. The Company currently collects the dust resulting from its
electric arc furnace operations through emission control systems and contracts
with a company for treatment and disposal of the dust at an EPA approved
facility. The Company also has on its property at Newport a permitted hazardous
waste disposal facility. In the event of a release of a hazardous substance
generated by the Company, the Company could be responsible for the remediation
of contamination associated with such release.

During the fourth quarter of fiscal 1993, Newport shut down its melt shop
operations for 19 days when it was discovered that a radioactive substance was
accidentally melted, resulting in the contamination of the melt shop's electric
arc furnace emission control facility, or "baghouse facility". A similar
incident, having occurred in the third quarter of fiscal 1992, shut down
Newport's melt shop

58
<PAGE> 61

facilities for 23 days. The source of the radiation in these incidents was
contained in incoming shipments of scrap steel, and was not detected by monitors
that check incoming steel scrap. In response, the Company incurred capital
expenditures to install additional state-of-the-art radiation detection systems
in various locations throughout the Newport plant.

The Company incurred estimated losses as a result of the extended outages
and costs to restore the melt shop and related facilities back to operation,
including estimated costs to dispose of the radiation contaminated baghouse
dust, of $7.2 million and $4.1 million in fiscal 1993 and 1992, respectively.
The Company has recovered $3.9 million through insurance, and expects to recover
and has recorded, with respect to the 1993 incident, a $2.1 million receivable
relating to insurance claims for the recovery of disposal costs which will be
filed with the Company's insurance company at the time such disposal costs are
incurred. No recovery has been made nor recorded for the fiscal 1992 incident
and the Company is assessing the possibility of legal remedies against certain
parties. The losses and costs attributable to these incidents, net of insurance
claims, resulted in an extraordinary charge of $1.1 million, net of applicable
income tax benefit of $0.7 million in fiscal 1993 and an extraordinary charge of
$2.5 million, net of applicable income tax benefit of $1.6 million in fiscal
1992.

To date, the occurrences of the accidental melting of radioactive materials
have not resulted in any notice of violations from federal or state
environmental regulatory agencies. The Company is investigating and evaluating
various issues concerning storage, treatment and disposal of the radiation
contaminated baghouse dust; however, a final determination as to method of
treatment and disposal, cost and further regulatory requirements cannot be made
at this time. Depending on the ultimate timing and method of treatment and
disposal, which will require appropriate federal and state regulatory approval,
the actual cost of disposal could substantially exceed current estimates and the
Company's insurance coverage. As of April 1, 1995, claims recorded in connection
with disposal costs exhaust available insurance coverage. Based on current
knowledge, management believes the recorded gross reserves of $4.4 million for
disposal costs pertaining to these incidents are adequate.

In March 1995, Koppel entered into a Consent Order with the EPA relating to
the Assessment completed by the EPA and the Pennsylvania Department of
Environmental Resources. The Assessment was performed in connection with a RCRA
Part B permit pertaining to a landfill that is adjacent to the Koppel facilities
and owned by B&W, the former owner of the Koppel facilities. The Assessment
identified potential releases of hazardous constituents into the environment
from numerous SWMU's and AOC's. The SWMU's and AOC's identified during the
Assessment and the EPA's follow-up investigation are located at and adjacent to
the Company's Koppel facilities. The Consent Order establishes a schedule for
investigating, monitoring, testing and analyzing the potential releases.
Contamination documented as a result of the investigation may require cleanup
measures. Pursuant to various agreements entered into among the Company, B&W and
PMAC at the time of the Company's acquisition of the Koppel facilities, B&W and
PMAC agreed to indemnify the Company against various known and unknown
environmental matters. While reserving its rights against B&W, PMAC has accepted
full financial responsibility for the matters covered by the Consent Order other
than with respect to a 1987 release of hazardous constituents (the "1987
Release") that the Company believes could represent the most significant
component of any potential cleanup, and other than with respect to hazardous
constituents generated by Koppel after its acquisition by the Company, if any.
B&W, PMAC and Koppel are in dispute as to whether the indemnification provisions
relating to the 1987 Release expire in October 1995. B&W has not acknowledged
responsibility for any cleanup measures that may be required as a result of any
investigation (other than with respect to the 1987 Release, in the event certain
actions are taken by the EPA prior to October 1995). Koppel and PMAC have
jointly retained an environmental consultant to conduct the required
investigation. Prior to the completion of the site analysis to be performed in
connection with the Consent Order, the Company cannot predict the expected
cleanup cost for the SWMU's and AOC's covered by the Consent Order. The Company
believes that it is entitled to full indemnity for all of the matters covered by
the Consent Order from B&W and/or PMAC. Pursuant to its contractual arrangements
with PMAC, the Company has a right of offset

59
<PAGE> 62

against the $15 million principal amount of Subordinated Convertible Debentures
due October 2000 through 2005 issued to PMAC which are held in escrow to secure
PMAC's indemnification obligations to the Company upon obtaining a final court
order in favor of the Company with respect to a dispute, if any, concerning the
indemnity.

Subject to the uncertainties concerning the Consent Order and the storage
and disposal of the radiation contaminated baghouse dust, the Company believes
it is in compliance in all material respects with all applicable environmental
regulations. Regulations resulting from the 1990 Amendments that will pertain to
the Company's electric arc furnace operations are currently not expected to be
promulgated until 1997 or later. The Company cannot predict the level of
required capital expenditures resulting from future environmental regulations
such as those forthcoming as a result of the 1990 Amendments, however, the
Company believes that while the 1990 Amendments may require additional
expenditures, such expenditures will not have a material impact on the Company's
business or consolidated financial position for the foreseeable future. Capital
expenditures for the Company's environmental control facilities are anticipated
to total approximately $1.0 million through fiscal 1997 and $3.0 to $5.0 million
through fiscal 1999; however, such expenditures could be influenced by new and
revised environmental laws and regulations.

As of April 1, 1995, the Company had environmental remediation reserves of
$4.7 million, of which $4.4 million pertain to accrued disposal costs for
radiation contaminated baghouse dust. As of April 1, 1995, the possible range of
estimated losses related to the environmental contingency matters discussed
above in excess of those accrued by the Company is $0 to $3.0 million; however,
with respect to the Consent Order, the Company cannot estimate the possible
range of losses should the Company ultimately not be indemnified. Based upon its
evaluation of available information, management does not believe that any of the
environmental contingency matters discussed above are likely, individually or in
the aggregate, to have a material adverse effect upon the Company's consolidated
financial position, results of operations or cash flows, subject to the third
party indemnities discussed above. However, the Company cannot predict with
certainty that new information or developments with respect to the Consent Order
or its other environmental contingency matters, individually or in the
aggregate, will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.

EMPLOYEES

As of April 19, 1995, the Company had 1,667 employees of whom 397 were
salaried and 1,270 were hourly. Substantially all of the Company's hourly
employees are represented by the USWA. The Company's union contracts expire as
follows:

<TABLE>
<CAPTION>
BARGAINING UNIT EMPLOYEES
SUBSIDIARY CONTRACT EXPIRATION DATE AS OF APRIL 19, 1995
- ----------------------------- ------------------------- -------------------------
<S> <C> <C>
Imperial Adhesives, Inc. November 3, 1995 46
Erlanger Tubular Corporation March 6, 1997 49
Newport Steel Corporation April 15, 1999 557
Koppel Steel Corporation August 31, 1999 537
</TABLE>

Since its inception, the Company has successfully negotiated 13 labor
contracts and has experienced only one work stoppage. During fiscal 1994,
Newport experienced a two-day strike when the employees who are represented by
the USWA rejected a proposed new labor contract. The strike necessitated a
two-day shutdown of the welded tubular products facility. The labor contract
which was ultimately agreed upon allows the Company to combine and eliminate
certain job classifications resulting in a reduction of its Newport work force.
In November 1994, the Company signed a five year labor agreement with USWA for
Koppel which includes a net increase in labor costs of approximately 3% per
year. The Company estimates this contract will result in an average increase in
labor costs of approximately $0.5 million per year.

The Company has assumed no legacy costs, such as retirement and health
benefits, with respect to former employees of the facilities it has acquired.
Retirement benefits (including post-

60
<PAGE> 63

retirement health care) represent the most significant difference between the
Company's labor costs and the industry average as the Company's employees
participate in profit sharing plans as opposed to the typically more costly
defined benefit plans prevalent throughout the industry. The profit sharing
plans generally require mandatory contributions at a specified percentage of
pre-tax profits (with a guaranteed minimum based on hours worked for the
bargaining unit employees at Newport). Contribution expense for Newport for the
profit sharing plans was $0.5 million in fiscal 1994.

PROPERTIES

The Company's principal operating properties are listed in the table below.
The Company believes its facilities are adequate and suitable for its present
level of operations.

<TABLE>
<CAPTION>
LOCATION PROPERTY
- ----------------------- -------------------------------------------------------------------
<S> <C>
Specialty Steel
Newport, Kentucky The Company owns approximately 250 acres of real estate upon which
are located a melt shop, hot strip mill, two welded pipe mills,
machine and fabricating shops and storage and repair facilities
aggregating approximately 636,000 square feet, as well as the
Company's administrative offices.
Koppel, Pennsylvania The Company owns approximately 227 acres of real estate upon which
are located a melt shop, bar mill, blooming mill, pickling
facility, machine and fabricating shops, storage and repair
facilities and administrative offices aggregating approximately
900,000 square feet.
Ambridge, Pennsylvania The Company owns approximately 45 acres of real estate upon which
are located a seamless tube making facility and seamless tube
finishing facilities aggregating approximately 659,000 square feet.
Tulsa, Oklahoma The Company leases approximately 35.7 acres of property upon which
is located a tubular processing facility. The facility is located
at the Tulsa Port of Catoosa where barge facilities are in close
proximity. Located on this property are six buildings aggregating
approximately 119,000 square feet which house the various finishing
operations.
Baytown, Texas The Company owns approximately 55 acres of real estate upon which
is located a tubular processing facility and barge facility.
Located on the property are eight buildings aggregating
approximately 65,000 square feet which house the various finishing
operations.
Adhesives
Cincinnati, Ohio The Company owns approximately seven acres of property in
Kalamazoo, Michigan Cincinnati, Ohio, five acres of property in Kalamazoo, Michigan,
Lynchburg, Virginia and 1.5 acres of property in Lynchburg, Virginia for use in its
Nashville, Tennessee adhesives operations. The Cincinnati properties contain five
buildings aggregating approximately 150,000 square feet; the
Kalamazoo property consists of one 24,000 square foot building; and
the Lynchburg property consists of one 10,000 square foot building.
The Company also leases approximately 3.1 acres in Nashville,
Tennessee for use in its adhesives operations, including one
building aggregating approximately 60,000 square feet.
Other
Newport, Kentucky The Company also owns approximately 40 acres of partially developed
land near Newport, Kentucky, acquired in fiscal 1989, which is held
as investment property and is listed for sale. The Company also
owns approximately 85 acres of additional real estate which is
currently not used in operations.
</TABLE>

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<PAGE> 64

LEGAL PROCEEDINGS

In March 1995, Koppel entered into a Consent Order with the EPA. See "Risk
Factors -- Cost of Compliance with Environmental Regulations" and
"-- Environmental Matters."

The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business with respect to
commercial, product liability and other matters which seek remedies or damages.
The Company believes it has meritorious defenses with respect to these claims
and litigation and that the ultimate disposition of any of the proceedings,
individually or in the aggregate, to which the Company is currently a party will
not have a material adverse effect on its consolidated financial position,
results of operations or cash flows.

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<PAGE> 65

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

The executive officers and directors of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- ----------------------------------- ---- ---------------------------------------------
<S> <C> <C>
Clifford R. Borland................ 57 Director, President and Chief Executive
Officer
Patrick J.B. Donnelly.............. 58 Director
John B. Lally...................... 58 Director
R. Glen Mayfield................... 53 Director
Ronald R. Noel..................... 54 Director and Vice President; President of
Newport
John R. Parker..................... 51 Vice President, Treasurer and Chief Financial
Officer
</TABLE>

The directors of the Company are elected at each annual meeting of the
shareholders and hold office until their successors have been elected and
qualified. The officers are appointed by the Board of Directors and serve at its
discretion. The Articles of Incorporation provide that at such time as there are
nine or more directors, the Board of Directors may by resolution divide the
Board into three classes with the terms in office of each class ending in
successive years.

BUSINESS BACKGROUND OF EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY

CLIFFORD R. BORLAND is a founder of the Company, has been its President and
Chief Executive Officer since its inception, and has been a director since 1981.
He held various positions at United States Steel Corporation from 1960 through
1967. He joined Interlake's Riverdale Works as Chief Metallurgist in 1967,
became Director of Metallurgy for Interlake's Iron and Steel Division in 1978
and served as Plant Manager of the Newport Steel Works from 1977 to 1980. Mr.
Borland is also a director of The Huntington Bank, Inc. (Kenton County,
Kentucky) and Kentucky Electric Steel, Inc.

PATRICK J.B. DONNELLY has been a director of the Company since November 1981.
Since 1972, he has been a partner in the law firm of Niles, Barton and Wilmer
which is based in Baltimore, Maryland.

JOHN B. LALLY has been a director of the Company since November 1981. Mr. Lally
is Chairman of the Board and President of L B Industries, Inc., a
privately-owned pipe distributor. He has served as an executive officer of L B
Industries, Inc. and its predecessors for over 27 years. Mr. Lally is also
Chairman of the Board and Chief Executive Officer of LB Steel Plate Company, a
steel plate processer and distributor.

R. GLEN MAYFIELD has been a director of the Company since November 1981. Mr.
Mayfield is the President of Mayfield & Robinson, Inc., an independent
management and financial consulting firm, which he founded in 1978. For ten
years prior to founding Mayfield & Robinson, Inc., Mr. Mayfield worked for the
First National Bank of Cincinnati. He is also a director of Suburban
Bancorporation, Inc.

RONALD R. NOEL has been a director of the Company since November 1981. He is a
founder of the Company and has been Vice President since its inception. He held
the position of Secretary of the Company from November 1989 until February 1995
and the position of President of Newport since March 1994. Mr. Noel joined
Interlake's Newport Steel Works in 1966 and served in various positions,
including Chief Industrial Engineer from 1976 to 1980.

JOHN R. PARKER joined the Company as Treasurer in 1981 and has held the
positions of Vice President, Treasurer and Chief Financial Officer or similar
positions with the Company for more than five years. Prior to joining the
Company, he was a manager with Arthur Andersen LLP.

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<PAGE> 66

BUSINESS BACKGROUND OF OTHER MANAGEMENT MEMBERS

PAUL C. BORLAND joined the Company as Vice President and General Manager of KES
in 1989. Mr. Borland assumed his current position as President of Koppel in
1990. Mr. Borland joined the Company with over 33 years of steel industry
experience where he held various management positions with Latrobe Steel
Corporation and the Universal Cyclops Specialty Steel Division of Cyclops
Corporation. He also held the position of Vice President and General Manager of
Ohio Steel Tube, a division of Copperweld Corporation, where he also held the
position of Vice President. Paul C. Borland is the brother of Clifford R.
Borland.

RICHARD L. CARTER has been Vice President and General Manager of Erlanger since
1987. Prior to 1987 Mr. Carter held various positions in the industrial
engineering department of Newport.

THOMAS J. DEPENBROCK has been Corporate Controller of the Company since 1987 and
Vice President since February 1995. Mr. Depenbrock was with the accounting firm
of Arthur Andersen LLP from 1978 until 1987.

THOMAS L. GOLATZKI has been Vice President of the Company since 1987. Prior to
1987, Mr. Golatzki was the Director of Engineering and Administrative Services
of the Company.

ROBERT D. JOHNSON joined Imperial in 1970 and has served as its President since
1980.

JACK W. MEHALKO has been Vice President of the Company since March 1994 and
Secretary since February 1995. Mr. Mehalko was President of Newport from 1989
until March 1994 and Vice President and General Manager of KES from 1986 to
1989.

DIRECTOR COMPENSATION

Directors who are not employees of the Company are paid an annual retainer
of $16,000 and $1,000 for each meeting of the Board of Directors attended in
excess of four meetings per fiscal year and expenses for attendance at meetings
of the Board and Committees. In addition, such outside Directors are paid $750
($1,000 for Committee Chairmen) for each Committee meeting attended.

EXECUTIVE COMPENSATION

The following table presents summary information concerning compensation
received by the Chief Executive Officer and each of the other executive officers
for each of the last three fiscal years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------- ------------
OTHER ANNUAL NUMBER OF ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1) OPTIONS/SARS COMPENSATION(1)
- --------------------------------- ----- -------- ----- --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Clifford R. Borland 1994 $361,392 $ 0 (2) 41,333 $31,750
President and Chief 1993 315,921 0 (2) 15,000 16,648(3)
Executive Officer 1992 310,000 0 0
Ronald R. Noel 1994 $188,951 $ 0 (2) 13,420 $ 8,643(3)
Vice President, Secretary and 1993 181,328 0 (2) 9,750 14,537(3)
Chief Administrative Officer; 1992 178,000 0 0
President of Newport
John R. Parker 1994 $173,863 $ 0 (2) 13,420 $15,647(3)
Vice President, Treasurer and 1993 166,022 0 (2) 9,750 7,131(3)
Chief Financial Officer 1992 163,000 0 0
</TABLE>

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<PAGE> 67

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

(1) In accordance with the transitional provisions of the rules on executive
officer compensation adopted by the Securities and Exchange Commission,
amounts under "Other Annual Compensation" and "All Other Compensation" are
excluded for the Company's fiscal 1992.

(2) The named executive officers received certain perquisites in fiscal 1994 and
fiscal 1993, the amount of which did not exceed the lesser of $50,000 or 10%
of any such officer's salary and bonus.

(3) Amounts included as "All Other Compensation" consist of insurance premiums
made pursuant to the Company's salary continuation program and in connection
with certain disability insurance policies. Under the Company's salary
continuation program, which the Company funds with insurance policies, the
Company will pay certain employees, including the executive officers, upon
retirement at or after age 62 an amount ranging from 27% to 42% of his
current base salary for life, with payments for a minimum of 10 years either
to each participant or his descendants. During fiscal 1994 and fiscal 1993,
respectively, the Company paid aggregate premiums as follows: $18,933 and
$4,733 for Mr. Borland; $3,143 and $9,430 for Mr. Noel; and $10,911 and
$2,748 for Mr. Parker. The Company has purchased disability insurance
policies for the benefit of certain employees of the Company, including the
named executive officers. In the event an insured is disabled for more than
60 days, he will be paid 70% of his base salary during the term of such
disability up to age 65. During fiscal 1994 and fiscal 1993, respectively,
the Company paid aggregate premiums as follows: $12,817 and $11,915 for Mr.
Borland; $5,500 and $5,107 for Mr. Noel; and $4,736 and $4,383 for Mr.
Parker.

The following tables present certain information concerning stock
options/SARs granted to and exercised by the executive officers of the Company
during fiscal 1994.

OPTION/SAR GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
PERCENT OF AT ASSUMED ANNUAL
TOTAL RATES
OPTIONS/SARS OF STOCK PRICE
GRANTED TO APPRECIATION
EMPLOYEES IN MARKET PRICE FOR OPTION TERM(3)
OPTIONS/SARS FISCAL PER SHARE ON DATE EXPIRATION ---------------------
NAME GRANTED(1) YEAR(2) EXERCISE PRICE OF GRANT DATE 5% 10%
- -------------------- ------------ ------------ -------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Clifford R. Borland 41,333 9.7% $ 7.25 $ 7.25 12/01/03 $188,457 $477,588
Ronald R. Noel 13,420 3.2 7.25 7.25 12/01/03 61,188 155,063
John R. Parker 13,420 3.2 7.25 7.25 12/01/03 61,188 155,063
</TABLE>

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

(1) Options/SARs were granted pursuant to the NS Group, Inc. Non-Qualified Stock
Option and Stock Appreciation Rights Plan of 1988 (NSO Plan). The options
become exercisable over a five year period in increments of 20% per year
beginning with the third anniversary of the date of grant.

(2) The Company granted options representing 424,135 shares to employees in
fiscal 1994 (135,085 under the NSO Plan and 289,050 under the Company's
Employee Incentive Stock Option Plan).

(3) The amounts shown under these columns are the result of calculations at 5%
and 10% rates as required by the Commission and are not intended to forecast
future appreciation of the stock price of the Company's common stock.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION/SAR VALUES

<TABLE>
<CAPTION>
TOTAL NUMBER OF SHARES FOR TOTAL VALUE OF UNEXERCISED,
WHICH UNEXERCISED IN-THE-MONEY OPTIONS/SARS
NUMBER OF OPTIONS/SARS HELD AT HELD AT SEPTEMBER 24, 1994(1)
SHARES SEPTEMBER 24, 1994
ACQUIRED ON VALUE ----------------------------- -----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Clifford R. Borland 0 $0 18,200 73,133 $ 0 $41,250
Ronald R. Noel 0 0 13,900 36,770 0 26,813
John R. Parker 0 0 14,700 36,970 0 26,813
</TABLE>

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

(1) In-the-Money Options/SARs are those where the fair market value of the
underlying securities at fiscal year end exceed the exercise price of the
option or SAR.

65
<PAGE> 68

PRINCIPAL STOCKHOLDERS

The following table sets forth certain information as of May 31, 1995 with
respect to the beneficial ownership of shares of Common Stock owned by (a) each
person known by the Company to own beneficially more than 5% of the Common Stock
of the Company, (b) each director or officer of the Company, and (c) all
directors and officers of the Company as a group.

<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
NAME SHARES OWNED OF CLASS
- -------------------------------------------------------------- ------------ ----------
<S> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Clifford R. Borland(1)........................................ 2,898,200(2) 21.0
Ronald R. Noel(1)............................................. 1,148,952(2) 8.3
John B. Lally(1).............................................. 677,545(3) 4.9
John R. Parker................................................ 150,470(2)(4) 1.1
Patrick J.B. Donnelly......................................... 99,375(5) .7
R. Glen Mayfield.............................................. 116,695 .8
All Directors and Executive
Officers as a group
(6 persons)................................................... 5,091,237(2) 36.8
OTHER 5% SHAREHOLDERS:
State of Wisconsin Investment Board(1)........................ 1,315,400 9.6
Pioneering Management Corporation(1).......................... 977,600 7.1
General Electric Capital Corporation(1)....................... 772,481(6) 5.3
PMAC, Ltd. and certain other parties(7)....................... 1,705,881 11.0
</TABLE>

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

(1) The address of Messrs. Borland and Noel is NS Group, Inc., Ninth and Lowell
Streets, Newport, Kentucky 41072. The address of Mr. Lally is 1207 East
143rd Street, East Chicago, Indiana 46312. The address of the State of
Wisconsin Investment Board is P.O. Box 7842, Madison, Wisconsin 53707. The
address of Pioneering Management Corporation is 60 State Street, Boston,
Massachusetts 02109-1820. The share ownership information for State of
Wisconsin Investment Board and Pioneering Management Corporation was derived
from Vicers Corporation Institutional Ownership Report. The address of
General Electric Capital Corporation ("GECC") is 260 Long Ridge Road,
Stamford, Connecticut 06927.

(2) Includes, where applicable, shares of Common Stock (a) which may be acquired
within 60 days of May 31, 1995 by Mr. Borland (25,200), Mr. Noel (19,400),
Mr. Parker (20,400) and all Directors and executive officers as a group
(65,000) pursuant to the Company's Non-Qualified Stock Option and Stock
Appreciation Rights Plan of 1988 and (b) owned by Mr. Noel (1,102) and all
Directors and executive officers as a group (1,102) and held by the trustee
of the NS Group, Inc. Salaried Employees' Flexible Compensation Plan, which
shares are voted as directed by the participants to whose account they are
allocated.

(3) Includes 50,855 shares owned by Mr. Lally's wife. Mr. Lally disclaims any
beneficial interest in these shares.

(4) Includes 65,000 shares owned by Mr. Parker's wife. Mr. Parker disclaims any
beneficial interest in these shares.

(5) Includes 32,850 shares owned by Mr. Donnelly's wife and 33,000 shares held
by Mr. Donnelly's wife as custodian for their children. Mr. Donnelly
disclaims any beneficial interest in these shares.

(6) Represents number of shares purchasable upon exercise of warrants, which
have an exercise price of $8.00 per share.

(7) PMAC is a Texas limited partnership for which PM Acquisition Corporation
("PM Corp.") is the general partner. PMAC, PM Corp. and certain other
affiliated persons have filed a Schedule 13D ("PMAC Schedule 13D") with the
Commission indicating on the cover pages thereof the following ownership
numbers and percentages, as updated from information provided by PMAC (some
of which are duplicative as described below): PMAC (and PM Corp.), 882,352
(6.0%); R. Alpert, 1,335,293 (8.8%); R. E. Belfer, 370,588 (2.6%); R. A.
Belfer, 370,588 (2.6%). The shares listed in the PMAC Schedule 13D for R.
Alpert include the shares listed for PMAC and PM Corp. (for which shares R.
Alpert, PMAC and PM Corp. would share voting and dispositive power) and an
additional 452,941 shares (for which R. Alpert would have sole voting and
dispositive power). R. E. Belfer and R. A. Belfer, as co-trustees of certain
trusts, would share voting and dispositive power for 92,647 shares; R. E.
Belfer, as sole trustee of certain other trusts, would hold sole voting and
dispositive power for 92,647 shares; and R. A. Belfer, as sole trustee of a
certain other trust, would hold sole voting and dispositive power for
185,294 shares. The cover pages for the Belfers in the PMAC Schedule 13D
filed (and updated from information obtained from PMAC) indicates that each
one shares voting and dispositive power for 370,588 shares.

All of the shares listed in the PMAC Schedule 13D represent shares issuable
upon conversion of $29 million principal amount of Convertible Debentures,
convertible at a price of $17 per share ("Convertible Debentures"), issued
to PMAC in connection with the Company's purchase of the assets comprising
Koppel Steel Corporation in 1990 ("Koppel Acquisition"). (Of such
Convertible Debentures, $15 million, which are owned by PMAC (and PM Corp.),
are held in escrow as security for contingent indemnification obligations of
PMAC to the Company in connection with the Koppel Acquisition.)

The Convertible Debentures provide that, after the conversion into Common
Stock of all of the Convertible Debentures, so long as PMAC or its
affiliates own 60% of the shares issued upon conversion, the Company will
take certain actions to

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provide for the election as a director of the Company of an individual
chosen by PMAC (and approved by the Company). As of October 4, 1990, the
Company agreed that R. A. Belfer would be acceptable as such director. The
Convertible Debentures also provide that the holders of the stock issuable
upon conversion thereof will vote for the Company's nominees for directors
(including the nominee designated by PMAC). In addition, the transfer of the
Convertible Debentures is subject to a right of first refusal in favor of
the Company; a holder of the shares issuable upon conversion may not
transfer such shares except subject to a right of first refusal in favor of
the Company or pursuant to Rule 144 under the Securities Act of 1933.
Finally, the holders of the Convertible Debentures and any shares issued
upon conversion thereof are subject to certain "standstill" provisions,
including a prohibition against acquiring, in the aggregate, more than a 15%
interest in the voting securities of the Company.

The address of PMAC, Ltd. and R. Alpert is 15311 Vantage Parkway West, Suite
315, Houston, Texas 77032. The address of R. E. Belfer and R. A. Belfer is
885 Second Avenue, New York, New York 10017.

The information in this footnote and the corresponding information in the
above share ownership table was derived from the PMAC Schedule 13D,
information provided by PMAC and from the terms of the Convertible
Debentures.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is composed of Messrs. Mayfield, Lally and
Donnelly, none of whom has served as an officer or employee of the Company or
any of its subsidiaries.

John B. Lally owns the controlling interest in L B Industries, Inc. The
Company sells substantially all of its secondary and limited service tubular
products to L B Industries, Inc. Sales to L B Industries, Inc. amounted to
approximately $11.0 million, $10.9 million and $10.3 million in fiscal 1994,
1993 and 1992, respectively. Trade receivables from this customer were $958,000
and $582,000 at the end of fiscal 1994 and 1993, respectively. The Company
believes that its transactions with L B Industries are conducted on an
arms-length basis.

CERTAIN TRANSACTIONS

On September 27, 1993, the Company repaid an $8 million loan from PMAC made
pursuant to a Loan Agreement dated as of October 4, 1990. The Company funded
such repayment with the proceeds of an $8.0 million capital expenditure loan
made to the Company by GECC. Such loan is payable in 28 quarterly installments
of principal, together with interest at 8%.

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DESCRIPTION OF THE SENIOR SECURED NOTES

The Senior Secured Notes will be issued under an indenture (the
"Indenture"), between the Company, the Subsidiaries and Huntington National
Bank, as trustee (the "Trustee"), a copy of which has been filed as an exhibit
to the Registration Statement of which this Prospectus is a part. The Senior
Secured Notes are subject to all such terms, and prospective purchasers of the
Senior Secured Notes are referred to the Indenture for a statement thereof. The
following summary does not purport to be a complete description of the Senior
Secured Notes and is subject to the detailed provisions of, and qualified in its
entirety by reference to, the Indenture and the Senior Secured Notes, and is
qualified in its entirety by reference to the Trust Indenture Act of 1939, as
amended ("TIA"), as in effect on the date of the Indenture. The definitions of
certain capitalized terms used in the following summary are set forth below
under "Certain Definitions."

PRINCIPAL, MATURITY AND INTEREST

The Senior Secured Notes will be obligations of the Company and will rank
pari passu with the Company's other unsubordinated debt obligations. The Senior
Secured Notes will be limited to $125,000,000 aggregate principal amount and
will mature on , 2003. The Senior Secured Notes will be secured by
Intercompany Notes issued in favor of the Company by Newport, Koppel and
Erlanger in an aggregate amount at least equal to the principal amount of the
Senior Secured Notes. The Senior Secured Notes also will be unconditionally
guaranteed, jointly and severally, by each current Subsidiary of the Company.
Each Intercompany Note and the obligations under the Subsidiary Guarantee will
rank pari passu in right of payment with the unsubordinated obligations of the
Subsidiaries, including obligations arising in connection with the Credit
Facility. For each of Newport, Koppel and Erlanger, its obligations under the
Subsidiary Guarantee will be secured by a first priority mortgage and security
interest and its Intercompany Note will be secured by a second priority mortgage
and security interest in its steel-making operations, excluding inventory,
accounts receivable and certain intangible property.

Interest on the Senior Secured Notes will accrue at the rate of % per
annum and will be payable semi-annually on each and ,
commencing , 1996 to the Holders of record of Senior Secured Notes
at the close of business on the and immediately
preceding such interest payment dates. Interest on the Senior Secured Notes will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the original date of issuance (the "Issue Date").
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months. Interest on overdue principal and (to the extent permitted by
law) on overdue installments of interest will accrue at a rate equal to the
stated rate of interest.

As discussed below, payment of principal of, and interest on, Senior
Secured Notes represented by one or more permanent global Senior Secured Notes
registered in the name of or held by The Depository Trust Company (the
"Depositary") or its nominee will be made in immediately available funds to the
Depositary or its nominee, as the case may be, as the registered owner and
holder of such permanent global Senior Secured Note or Notes. See "-- Same-Day
Settlement and Payment."

OPTIONAL REDEMPTION

Except as described below, the Senior Secured Notes may not be redeemed
prior to , 1999. On and after , 1999, the Company may,
at its option, redeem the Senior Secured Notes, in whole or in part, from time
to time, at the redemption prices set forth below (expressed as a percentage of
the principal amount thereof), in each case together with accrued

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interest, if any, to the date of redemption, if redeemed during the twelve-month
period beginning of the years indicated below:

<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------- -----------
<S> <C>
1999............................................. %
2000............................................. %
2001 and thereafter.............................. 100.00%
</TABLE>

If the date fixed for redemption is or , then the
interest payable on such date shall be paid to the Holder of record on the next
preceding or .

During the first 36 months after the closing of the Offering, the Company
may redeem up to 40% of the principal amount of the Senior Secured Notes with
the net proceeds of a Public Equity Offering of Common Stock at % of the
principal amount thereof plus accrued interest to the redemption date; provided
that at least $75,000,000 of the Senior Secured Notes remain outstanding
following the redemption.

In the event that less than all of the Senior Secured Notes are to be
redeemed at any time, selection of Senior Secured Notes for redemption will be
made by the Trustee on a pro rata basis, by lot or by such method as the Trustee
shall deem fair and appropriate; provided, however, that no Senior Secured Notes
of $1,000 or less shall be redeemed in part. Notice of redemption shall be
mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Senior Secured Notes to be redeemed at its
registered address. If any Senior Secured Note is to be redeemed in part only,
the notice of redemption that relates to such Senior Secured Note shall state
the portion of the principal amount thereof to be redeemed. A new Senior Secured
Note in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Senior Secured Note. On and after the redemption date, interest will cease to
accrue on Senior Secured Notes or the portion thereof called for redemption
unless the Company defaults in the payment of the redemption price or accrued
interest. Senior Secured Notes that are optionally redeemed by the Company
(after a Public Equity Offering or otherwise) or that are purchased by the
Company pursuant to an Asset Sale Offer as described under "-- Certain
Covenants-Restrictions on Asset Sales" or pursuant to a Change of Control Offer
as described under "-- Change of Control" will be surrendered to the Trustee for
cancellation.

The Credit Facility contains certain covenants that restrict the ability of
the Company to redeem the Senior Secured Notes without the prior written consent
of the Lenders. See "Description of Certain Indebtedness-Credit Facility."

CHANGE OF CONTROL

The Indenture provides that upon a Change of Control, each Holder shall
have the right to require the Company to repurchase all or any part of such
Holder's Senior Secured Notes at a cash purchase price equal to 101% of the
principal amount plus accrued and unpaid interest, if any, to the date of
repurchase pursuant to the procedures set forth in the Indenture (a "Change of
Control Offer").

Within 30 days following any Change of Control, the Company shall send, by
first class mail, a notice to each Holder, with a copy to the Trustee, which
notice will govern the terms of the Change of Control Offer. This notice will
state, among other things, the repurchase date (which shall not be earlier than
30 days or later than 60 days from the date such notice is mailed) and the
circumstance and relevant facts regarding such Change of Control (including
information with respect to pro forma historical income, cash flow and
capitalization after giving effect to such Change of Control). Holders electing
to have a Senior Secured Note repurchased will be required to surrender the
Senior Secured Note, with the form entitled "Option of Holder to Elect Purchase"
on the reverse of the Senior Secured Note completed, to the paying agent at the
address specified in the notice prior to the close of business on the date of
repurchase. Holders will be entitled to withdraw their election if

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the paying agent receives, not later than the close of business on the third
Business Day (or such shorter period as may be required by applicable law)
preceding the date of repurchase, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the Senior
Secured Notes the Holder delivered for repurchase, and a statement that such
Holder is withdrawing his election to have such Senior Secured Notes
repurchased. Failure to make a Change of Control Offer as required will
constitute a covenant Default under the Indenture.

In the event a Change of Control occurs and the Holders exercise their
right to require the Company to repurchase the Senior Secured Notes, and
assuming that such repurchase constitutes a "tender offer" for purposes of Rule
14e-1 under the Exchange Act at the time it is required, the Company will comply
with the requirements of Rule 14e-1 as then in effect with respect to such
repurchase.

A Change of Control under the Indenture will constitute a default under the
Credit Facility. Therefore, upon the occurrence of a Change of Control, the
Lenders will have the ability to accelerate their loans and the Company may be
required to repay all of its outstanding obligations under the Credit Facility
prior to the payment of the principal of any of the Senior Secured Notes that
the Company is required to repurchase pursuant to the Indenture. See
"Description of Certain Indebtedness-Credit Facility."

With respect to the disposition of assets, the phrase "all or substantially
all" as used in the Indenture varies according to the facts and circumstances of
the subject transaction, has no clearly established meaning under New York law
(which governs the Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances there may be a degree of uncertainty in
ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the assets of the Company, and therefore it may be
unclear as to whether a Change of Control has occurred and whether the Holders
have the right to require the Company to repurchase Senior Secured Notes.

None of the provisions relating to a repurchase upon a Change of Control
are waivable by the Board of Directors of the Company. The Company could, in the
future, enter into certain transactions, including certain recapitalizations of
the Company, that would not constitute a Change of Control with respect to the
Change of Control purchase feature of the Senior Secured Notes, but would
increase the amount of Indebtedness outstanding at such time.

If a Change of Control were to occur, there can be no assurance that the
Company would be able to repay all of its obligations under the Credit Facility,
to purchase all of the Senior Secured Notes tendered and to repay other
indebtedness that may become payable upon the occurrence of such Change of
Control. After giving effect to the Offering and the application of the
estimated net proceeds therefrom as set forth under "Use of Proceeds," the
Company would not have sufficient funds available to repurchase all of the
outstanding Senior Secured Notes pursuant to a Change of Control Offer. In the
event that the Company were required to repurchase outstanding Senior Secured
Notes pursuant to a Change of Control Offer, the Company expects that it would
need to seek third-party financing to the extent it does not have available
funds to meet its repurchase obligations, although there can be no assurance
that the Company would be able to obtain such financing. Accordingly, it is
possible that a prospective acquiror would, in order to avoid the occurrence of
an Event of Default under the Credit Facility, the Indenture and the Senior
Secured Notes, either fund the Company's purchase of the Senior Secured Notes
tendered in the Change of Control Offer following such acquisition or seek to
refinance the Senior Secured Notes, which funding or refinancing may have the
effect of delaying, discouraging or preventing an acquisition. Consequently, the
obligation of the Company to make a Change of Control Offer and repurchase
tendered Senior Secured Notes upon a Change of Control could have the effect of
preventing or delaying the ability of other persons or entities to acquire
control of the Company.

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RANKING

The Senior Secured Notes will be obligations of the Company. The Senior
Secured Notes will rank pari passu in right of payment with any existing and
future unsubordinated Debt of the Company, including obligations arising under
the Company's guaranty of the Credit Facility. Each Intercompany Note and
Guarantee will rank pari passu with respect to the payment in full of the
principal and interest on all existing and future unsubordinated Debt of the
applicable Subsidiary, including obligations of each Subsidiary arising under
the Credit Facility.

INTERCOMPANY NOTES AND GUARANTEES OF SENIOR SECURED NOTES

The Senior Secured Notes will be secured by a pledge of Intercompany Notes
issued to the Company by Newport, Koppel and Erlanger in the approximate
respective amounts of $47.8 million, $83.6 million, and $9.8 million, reflecting
the amounts loaned to such Subsidiaries by the Company as part of the
Refinancing Transaction or, in the case of Erlanger, prior intercompany
advances. In addition, each existing and future Subsidiary of the Company
(excluding Non-Recourse Subsidiaries) unconditionally will guarantee (each a
"Guarantor"), jointly and severally, to each Holder and the Trustees, the full
and prompt performance of the Company's obligations under the Indenture and the
Senior Secured Notes, including the payment of principal of and interest on the
Senior Secured Notes. The obligations of each Subsidiary are limited to the
maximum amount which will result in the obligations of such Subsidiary under the
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law. Various fraudulent conveyance laws enacted
for the protection of creditors may be utilized by a court of competent
jurisdiction to avoid or subordinate in favor of existing and/or future
creditors of the Subsidiaries the Subsidiary Guarantee and the liens of the
Security Documents. See "Risk Factors -- Fraudulent Conveyance Issues; Holding
Company Structure." Each Subsidiary that makes a payment or distribution under
the Subsidiary Guarantee shall be entitled to a contribution from each other
Guarantor in an amount pro rata based on the net assets of each Subsidiary,
determined in accordance with GAAP.

Subject to the terms and conditions of the Indenture, each Recourse
Subsidiary may consolidate with or merge into or sell its assets to the Company
or another Recourse Subsidiary. See "-- Certain Covenants -- Transfer of Assets
to Subsidiaries." In the event all of the capital stock of a Guarantor is sold
by the Company to a Person that is not a Recourse Subsidiary, or the surviving
party of a merger involving a Guarantor is not a Recourse Subsidiary, and such
sale or merger complies with the covenants set forth in the Indenture, then such
Subsidiary's obligations under the Subsidiary Guarantee will be released.

SECURITY

As security for the Intercompany Notes and the Subsidiary Guarantee,
Newport, Koppel and Erlanger will assign and pledge and grant a security
interest in the following property and assets: (a) the real property interests
in the approximately 250 acres of real property at the Newport facility,
including the melt shop, hot strip mill, two welded pipe mills, machine and
fabricating shops, storage and repair facilities and administrative offices, and
all other buildings, fixtures and improvements thereon with a net book value of
approximately $7.9 million at April 1, 1995; (b) approximately 272 acres of real
property at the Koppel and Ambridge facilities, including the melt shop, bar
mill, tube mill, blooming mill, pickling facility, machine and fabricating
shops, storage and repair facilities and administrative offices and all other
buildings, fixtures and improvements thereon, with a net book value of
approximately $12.0 million at April 1, 1995; (c) approximately 40 acres of real
property at the Baytown facility, including the finishing facility and all other
buildings, fixtures and improvements thereon, with a net book value of
approximately $0.6 million at April 1, 1995; (d) the Erlanger lease of
approximately 36 acres of real property at the Port of Catoosa near Tulsa,
Oklahoma and all leasehold improvements thereon with a net book value of
approximately $1.3 million at April 1, 1995; (e) all existing fixtures,
machinery, tools, equipment and similar property at each of the Newport, Koppel
and Ambridge, Baytown and Erlanger facilities with respective net book values at
April 1, 1995 of $56.0 million, $66.2 million, $1.6 million, and

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$1.8 million, and all future real estate, fixtures, machinery, tools, equipment
and similar property owned by such Subsidiaries; and (f) all proceeds and
products of any and all of the foregoing, except as described under "Possession,
Use and Release of Property" (the property and assets described under clauses
(a)-(f) are collectively referred to as "Collateral"). The security interest
will not extend to the inventory, accounts receivable and certain intangible
property of the Subsidiaries as these assets secure the obligations of the
Subsidiaries under the Credit Facility and the related guarantees. Further, the
security interest will not extend to the Excluded Assets. The security interest
in the Collateral will be a first priority interest with respect to the
Subsidiary Guarantee and a second priority security interest with respect to the
Intercompany Notes (to the extent attainable by filing or possession), subject
to certain permitted encumbrances or Liens that, in the judgment of the Company,
will not materially adversely affect the value of the Collateral. Each future
Subsidiary of the Company (other than Non-Recourse Subsidiaries) will also
pledge their real property, fixtures, machinery, tools, equipment and similar
property to secure its obligations under the Subsidiary Guarantee. The proceeds
from the foreclosure on the Collateral would be applied to repay the
Subsidiary's obligations under the Subsidiary Guarantee, which may be
enforceable for an amount less than the obligations outstanding with respect to
the Senior Secured Notes and its Intercompany Note (where applicable).

The real property Collateral will be pledged pursuant to first and second
priority mortgages or deeds of trust (the "Mortgages"), subject to the Liens
permitted by the Indenture. See "-- Certain Covenants -- Limitation on Liens."
Each first priority Mortgage executed by a Subsidiary will secure all
obligations arising under the Subsidiary Guarantee, and each second priority
Mortgage executed by a Subsidiary (where applicable) will secure the obligations
arising under its Intercompany Note. Upon issuance of the Senior Secured Notes,
the Collateral Agent will receive mortgagee's title insurance policies in
satisfactory form. The personal property to be included within the Collateral
will be pledged by the Subsidiaries pursuant to security agreements (the
"Security Agreements") and will constitute first and second priority Liens,
subject to the Liens permitted by the Indenture (the "Security Documents"). See
"-- Certain Covenants -- Limitation on Liens." Upon the occurrence of an Event
of Default under the Indenture, the Senior Secured Notes or the Security
Documents, the Collateral Agent will have the customary rights and remedies of a
secured party with respect to the Collateral assigned by a Subsidiary.

No appraisals of any of the Collateral have been prepared by or on behalf
of the Company in connection with the issuance and sale of the Senior Secured
Notes. In addition, the fair market value of the Collateral is subject to
fluctuations based on factors that include, among others, the condition of the
steel industry, the ability to sell the Collateral in an orderly sale, the
condition of the national and local economy, the availability of buyers and
similar factors. The net book value of the Collateral as of April 1, 1995 was
approximately $147.4 million. There can be no assurance that the proceeds of any
sale of the Collateral, in whole or in part, pursuant to the Indenture and the
Security Documents following an Event of Default would be sufficient to satisfy
payments due on the Intercompany Notes and the Subsidiary Guarantee. To the
extent that third parties enjoy Liens permitted by the Indenture, such third
parties have or may exercise rights and remedies with respect to the property
subject to such Lien that could adversely affect the value of such Collateral
and the ability of the Collateral Agent, Trustee or the Holders to realize or
foreclose on such Collateral. In addition, the ability of the Trustee and
Collateral Agent to realize upon the Collateral may be subject to certain
bankruptcy law limitations in the event of a bankruptcy. See "-- Certain
Bankruptcy Limitations" below.

The collateral release provisions of the Indenture permit the release of
Collateral in connection with Asset Sales of Collateral and in other
circumstances upon compliance with certain conditions. See "-- Possession, Use
and Release of Collateral." As described under "-- Certain Covenants --
Restrictions on Asset Sales," the Net Available Cash from such Asset Sales,
above prescribed amounts and subject to certain exceptions, are required to be
deposited in the Collateral Account prior to the making of an offer to purchase
Senior Secured Notes in an Asset Sale Offer or a Permitted Related Acquisition
(each as defined below). To the extent an Asset Sale Offer is not

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subscribed to by Holders, the unutilized Net Available Cash may be retained by
the Company or the applicable Subsidiary free of the Lien of the Indenture and
the Security Documents. In addition, the Collateral release provisions of the
Indenture permit the sale, lease, transfer or other disposition of tangible
personal property that, in the reasonable judgment of the Company, has become
worn out, obsolete or no longer necessary to the operation of the Subsidiaries'
business and which is disposed in the ordinary course of business, subject to
certain limitations.

If an Event of Default has occurred and is continuing and the Trustee has
been directed by the Holders of at least 25% in aggregate principal amount of
Senior Secured Notes to enforce the Intercompany Notes and the Subsidiary
Guarantee and foreclose upon all or any part of the Collateral, the Collateral
Agent will take such action to foreclose upon the Collateral as is consistent
with such directions. The Collateral Agent will thereupon foreclose upon the
Collateral in accordance with instruction from such representatives, unless
Holders of a majority in aggregate principal amount of the Senior Secured Notes
shall have given contrary instructions, in each case as provided in the Security
Documents. The proceeds received by the Collateral Agent will be applied by the
Collateral Agent first to pay the expenses of such foreclosure and fees and
other amounts then payable to the Trustee under the Indenture, and thereafter to
pay, pro rata, the principal of, premium, if any, and interest on the Senior
Secured Notes. Dispositions of Collateral may be subject to delay as a result of
the Intercreditor Agreement.

Real property pledged as security may be subject to known and unforeseen
environmental risks. In March 1995, Koppel entered into a Consent Order with the
EPA relating to an April 1990 RCRA facility assessment completed by the EPA and
the Pennsylvania Department of Environmental Resources. The Assessment
identified potential releases of hazardous constituents into the environment
from numerous SWMU's and AOC's located at and adjacent to the Koppel facilities.
See "Risk Factors -- Cost of Compliance with Environmental Regulations" and
"Business -- Environmental Matters." Under the Comprehensive Environmental
Response, Compensation and Liability Act, as amended ("CERCLA"), a secured party
may be held liable, in certain limited circumstances, for the costs of
remediating or preventing releases or threatened releases of hazardous
substances at a mortgaged property. There may be similar risks under various
other federal laws, state laws and common law theories. Such liability has been
imposed where a secured party has become sufficiently involved in the operations
of the borrower so that its "participation in the management" of the borrower
meets the test set out in CERCLA and elaborated in a number of court decisions.
Liability for cleanup costs has also been imposed if a secured party takes title
to property by foreclosure, thereby becoming the owner of the property and
losing the security interest exemption contained in CERCLA. Additionally,
foreclosure may result in a lender becoming subject to substantial requirements,
including obligations, with respect to environmental permits, under
environmental laws.

Under the Indenture, the Trustee may, prior to taking certain actions,
request the Holders to provide an indemnification against its costs, expenses,
and liabilities. It is possible that CERCLA (or analogous) cleanup costs could
become a liability of the Trustee in its capacity as Collateral Agent and cause
a loss to any Holders that provided an indemnification. In addition, such
Holders may act directly rather than through the Trustee, in specified
circumstances, in order to pursue a remedy under the Indenture. If Holders
exercise that right, they could be deemed to be secured parties that are subject
to the risks discussed above.

INTERCREDITOR AGREEMENT; SUBORDINATION AGREEMENTS

Prior to the consummation of the Offering, the Collateral Agent, on behalf
of the Holders of the Senior Secured Notes, will enter into an intercreditor
agreement (the "Intercreditor Agreement") with BNYCC, as agent for the Lenders
under the Credit Facility (in such capacity, the "Agent"). The Intercreditor
Agreement will provide, among other things, that (i) the Collateral Agent and
the Agent will provide notices to each other with respect to a default under the
Senior Secured Notes or the Indebtedness under the Credit Facility, as the case
may be, and the commencement of any action to enforce the rights of the Holders,
the Collateral Agent, the Lenders or the Agent; (ii) for a period

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following the issuance of a notice of enforcement, the Agent may enter upon all
or any portion of the Subsidiaries' premises, use the Collateral to the extent
necessary to complete the manufacture of inventory, collect accounts and sell or
otherwise dispose of the collateral securing the Debt under the Credit Facility;
and (iii) the Collateral Agent will not amend the Indenture or any of the
Security Documents and the Agent will not amend the Credit Facility or any of
the collateral documents relating thereto without the consent of the other if
such amendment would affect adversely the interests of (a) the Agent or the
various Lenders represented by the Agent in the case of a proposed amendment to
the Indenture or any of the Security Documents or (b) the Collateral Agent or
the Holders in the case of a proposed amendment to the Credit Facility or any
related collateral documents.

In addition, prior to the completion of the Offering, the Collateral Agent
will enter into a subordination agreement with the City of Dayton, Kentucky
("Dayton"). Dayton has a mortgage on certain Newport property and security
interests in certain machinery and equipment located at Newport and such
mortgage and security interests will be subordinated to the liens in favor of
the Holders. As of April 1, 1995 the outstanding balance of the loan from Dayton
to Newport was $6.8 million. The Collateral Agent, on behalf of the Holders,
Koppel and the Commonwealth of Pennsylvania, acting by and through the
Department of Commerce (the "Department"), will enter into an Agreement creating
a reciprocal easement between the Company's Koppel facilities and an idle
portion of the Koppel facilities (and related machinery, equipment and other
property) on which the Department has the mortgage. As of April 1, 1995, the
outstanding balance on the loan from the Department to Koppel was $3.7 million.

CERTAIN BANKRUPTCY LIMITATIONS

The right of the Collateral Agent to repossess and dispose of the
Collateral upon the occurrence of an Event of Default would be significantly
impaired by applicable Bankruptcy Law in the event that a bankruptcy proceeding
were to be commenced by or against the Company or the Subsidiaries that have
granted a security interest in property to secure its obligations under its
Intercompany Note (where applicable) and its obligations under the Subsidiary
Guarantee prior to the Collateral Agent having repossessed and disposed of the
Collateral. Prior to foreclosing on the property securing an Intercompany Note
or the Subsidiary Guarantee, the Trustee must pursue payment under the relevant
Intercompany Note or the Subsidiary Guarantee. Upon the commencement of a case
for relief under Title 11 of the United States Code, as amended (the "Bankruptcy
Code"), a secured creditor, such as the Collateral Agent, is prohibited from
repossessing its security from a debtor in a bankruptcy case, or from disposing
of security repossessed from such debtor, without bankruptcy court approval.
Moreover, the Bankruptcy Code permits the debtor to continue to retain and use
collateral even though the debtor is in default under the applicable debt
instruments provided that the secured creditor is given "adequate protection."
The meaning of the term "adequate protection" may vary according to
circumstances, but it is intended in general to protect the value of the secured
creditor's interest in the collateral and may include cash payments or the
granting of additional security for any diminution in the value of the
collateral as a result of the stay of repossession or disposition or any use of
the collateral by the debtor during the pendency of the bankruptcy case. A
bankruptcy court may determine that a secured creditor may not require
compensation for a diminution in the value of the collateral if the value of the
collateral exceeds the debt it secures.

In view of the broad equitable powers of a bankruptcy court, it is
impossible to predict how long payments under the Senior Secured Notes, the
Intercompany Notes and the Subsidiary Guarantee could be delayed following
commencement of a bankruptcy case, whether or when the Collateral Agent could
repossess or dispose of the Collateral, the value of the Collateral at the time
of a bankruptcy petition or whether or to what extent Holders would be
compensated for any delay in payment or loss of value of the Collateral through
the requirement of "adequate protection." Any disposition of the Collateral
would also require approval of the bankruptcy court. Furthermore, in the event a
bankruptcy court determines the value of the Collateral is not sufficient to
repay all amounts

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due under the Intercompany Notes and the applicable obligations under the
Subsidiary Guarantee, the Collateral Agent, on behalf of the Holders, would have
a secured claim to the extent of the value of the Collateral securing an
Intercompany Note (where applicable) or obligations under the Subsidiary
Guarantee, and unsecured claims with respect to any shortfall. The Bankruptcy
Code permits the payment and/or accrual of post-petition interest, costs and
attorney's fees to the Collateral Agent during a debtor's bankruptcy case only
to the extent the value of the Collateral is determined by the bankruptcy court
to exceed the aggregate obligation under such Intercompany Note or Guarantee, as
the case may be.

POSSESSION, USE AND RELEASE OF COLLATERAL

Unless an Event of Default shall have occurred and be continuing, the
Subsidiaries will have the right to remain in possession and retain exclusive
control of the Collateral securing the Intercompany Notes and the Guarantees
(other than Trust Moneys and other personal property held by, or required to be
deposited or pledged with, the Collateral Agent under the Indenture or any
Security Document), to freely operate the Collateral and to collect, invest and
dispose of any income thereon. In case a Default or an Event of Default shall
have occurred and be continuing, the Subsidiaries, while in possession of the
Collateral (other than cash and other personal property held by, or required to
be deposited or pledged with, the Collateral Agent under the Indenture or any
Security Document or with any trustee, mortgagee or other holder of a prior Lien
permitted under the Security Documents), may do any of the things enumerated in
the "Release of Collateral" provisions described below only if the Trustee, in
its discretion, or the Holders of a majority in aggregate principal amount of
the outstanding Senior Secured Notes, shall consent to such action.

Release of Collateral. The Subsidiaries will have the right to sell,
exchange or otherwise dispose of any of the Collateral (excluding Trust Moneys)
(the "Released Collateral") upon delivery to the Trustee of certain documents
that may include, among others, a Company Order, an Officers' Certificate, all
documentation required by the TIA prior to the release of the Released
Collateral by the Collateral Agent, and an Opinion of Counsel. Subject to
certain exceptions for obsolete assets and certain amounts the Company and its
Subsidiaries are permitted to retain pursuant to "-- Certain Covenants --
Restrictions on Asset Sales," all cash or Cash Equivalents received by the
Collateral Agent upon an Asset Sale with respect to Collateral will be held by
the Collateral Agent as Trust Moneys under the Indenture prior to application as
provided in "Use of Trust Moneys" below and "-- Certain Covenants --
Restrictions on Asset Sales." All purchase money, chattel paper, instruments and
other obligations received as part of the net proceeds by the Collateral Agent
pursuant to these "Release of Collateral" provisions shall be held by the
Collateral Agent.

As long as no Event of Default shall have occurred and be continuing, the
Subsidiaries, collectively, may, without any release or consent by the
Collateral Agent, sell or otherwise dispose of any machinery, equipment,
furniture, apparatus, tools or implements or other similar property subject to
the Lien of the Security Documents, which in the opinion of such Subsidiary may
have become worn out, obsolete or no longer necessary to the operation of such
Subsidiary's business ("Obsolete Assets"), not exceeding individually, in fair
market value, $25,000.

Use of Trust Moneys. All Trust Moneys shall be held by the Collateral Agent
as part of the Collateral securing the obligations of the Subsidiaries under the
applicable Intercompany Note and Guarantee, and, so long as no Event of Default
shall have occurred and be continuing, may either, at the direction of the
Company, upon delivery to the Trustee of certain documents that may include,
among others, a Company Order, an Officer's Certificate, all documentation
required by the TIA and an Opinion of Counsel, be applied by the Company from
time to time to a Permitted Related Acquisition or to the payment of the
principal, premium, if any, and interest on any Senior Secured Notes at maturity
or to the repurchase of Senior Secured Notes in an Asset Sale Offer, each of the
foregoing being performed by the Company in accordance with the Indenture.

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CERTAIN COVENANTS

The following is a summary of certain covenants that will be contained in
the Indenture. Such covenants will be applicable (unless waived or amended) so
long as any of the Senior Secured Notes are outstanding.

Limitation on Liens. The Company shall not, and shall not permit, cause or
suffer any of its Subsidiaries to, create, incur, assume or suffer to exist any
Liens of any kind upon any property or assets of the Company or any Subsidiary,
whether now owned or hereafter acquired, except for (i) Liens in favor of the
Collateral Agent or the Holders, including Liens created by the Senior Secured
Notes, the Indenture and the Security Documents (ii) Liens on accounts
receivable, inventory and certain intangibles to secure the Credit Facility and
the guarantees executed in connection therewith; (iii) Permitted Liens; (iv)
Liens on the property of the Company or any of its Subsidiaries created solely
for the purpose of securing purchase money obligations for property acquired in
the ordinary course of business; provided, that (a) such property so acquired
for use in the ordinary course of business is for use in lines of business
related to the Company's or its Subsidiaries' business as it exists immediately
prior to the issuance of the related debt, (b) no such Lien shall extend to or
cover other property or assets of the Company and its Subsidiaries other than
the respective property or assets so acquired and (c) the principal amount of
Debt secured by any such Lien shall at no time exceed the original purchase
price of such property or assets; (v) Liens on the property or assets of a
Subsidiary acquired after the Issue Date or on property or assets acquired in an
asset purchase transaction with a Person that is not an Affiliate created solely
to secure the obligations that financed the acquisition of such Subsidiary or
such property and assets; provided that (a) no such Lien shall extend to or
cover property or assets of the Company and its Subsidiaries other than the
property or assets of the Subsidiary so acquired or the property or assets so
acquired and (b) no such Lien shall extend to the Capital Stock of any
Subsidiary so acquired and (c) the principal amount of Debt secured by any such
Lien shall not exceed the original purchase price of such Subsidiary or such
property or assets; (vi) Liens on the assets of any entity existing at the time
such entity or assets are acquired by the Company or any of its Subsidiaries,
whether by merger, consolidation, purchase of assets or otherwise; provided,
that such Liens (a) are not created, incurred or assumed in connection with, or
in contemplation of, such assets being acquired by the Company or any of its
Subsidiaries and (b) do not extend to any other property of the Company or any
of its Subsidiaries; (vii) Liens securing Industrial Revenue Bonds ; (viii)
Liens on assets specified in the Indenture securing Government Loans; (ix) Liens
in existence on the date of the Indenture; and (x) any extension, renewal or
replacement (or successive extensions, renewals or replacements), in whole or in
part, of any Lien referred to in the foregoing clauses; provided, that the
principal amount of Debt secured thereby shall not exceed the principal amount
of Debt so secured immediately prior to the time of such extension, renewal or
replacement (or with respect to the Credit Facility, the maximum amount
permitted to be borrowed thereunder), and that such extension, renewal, or
replacement Lien shall be limited to all or a part of the property which secured
the Lien so extended, renewed or replaced (plus improvements on such property).

Limitation on Debt. The Company shall not and will not permit any
Subsidiary to Issue, directly or indirectly, any Debt (including Acquired Debt)
unless the pro forma Consolidated EBITDA Coverage Ratio exceeds 2.0 to 1.0.
Notwithstanding the above, the Company and its Subsidiaries may issue the
following Debt: (i) Debt evidenced by the Senior Secured Notes and the Security
Documents; (ii) Debt issued pursuant to the Credit Facility in the aggregate
principal amount outstanding at any time not to exceed the greater of (a) $50
million or (b) the sum of (1) 85% of the aggregate face amount of Accounts
Receivable plus (2) 50% of the aggregate book value of Inventory, in each case,
measured as of the end of the most recent fiscal month for which information
regarding Accounts Receivable and Inventory is then available; (iii) Debt of the
Company issued to any Wholly Owned Recourse Subsidiary; provided, that (a) any
such Debt is unsecured and is subordinated to the Senior Secured Notes and (b)
that any subsequent issuance or transfer of any Capital Stock which results in
any Wholly Owned Recourse Subsidiary ceasing to be a Wholly Owned Recourse
Subsidiary or any transfer of such Debt to a Person not a Wholly Owned Recourse
Subsidiary will be

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deemed an incurrence of such Debt; (iv) Debt of a Wholly Owned Recourse
Subsidiary issued to and held by the Company or any Wholly Owned Recourse
Subsidiary of the Company; provided, that any subsequent issuance or transfer of
any Capital Stock which results in such Wholly Owned Recourse Subsidiary ceasing
to be a Wholly Owned Recourse Subsidiary or any transfer of such Debt to a
Person not a Wholly Owned Recourse Subsidiary will be deemed an incurrence of
such Debt; (v) Debt in existence following the issuance of the Senior Secured
Notes and the application of the proceeds of the Senior Secured Notes in the
manner set forth under "Use of Proceeds"; (vi) Debt evidenced by Industrial
Revenue Bonds (including Pollution Control Bonds) as such terms are defined
under the Internal Revenue Code of 1986, as amended, or Government Loans in an
aggregate principal amount not to exceed $20,000,000; (vii) Debt issued pursuant
to (a) Interest Rate Protection Agreements in respect of Debt of the Company or
any of its Subsidiaries to the extent the notional principal amount of such
obligation does not exceed the aggregate principal amount of the Debt to which
such Interest Rate Protection Agreements relate, and (b) Hedging Agreements in
respect of foreign exchange or commodity exposures incurred by the Company or
any of its Subsidiaries in the ordinary course of its business; (viii)
Non-Recourse Debt of a Non-Recourse Subsidiary; provided, however, that if any
such Debt thereafter ceases to be Non-Recourse Debt of a Non-Recourse
Subsidiary, then such event shall be deemed to constitute the issuance of such
Debt by the issuer thereof; (ix) Debt incurred with respect to the deferred
purchase price of machinery and equipment (including all capitalized costs
incurred in connection therewith, such as engineering studies and installation
thereof) related to the business of the Company or its Subsidiaries at the time
of purchase and other purchase money obligations (including Capital Lease
Obligations) not to exceed, in the aggregate, $20 million outstanding at any
time; provided, that the maturity of any such obligation does not exceed the
anticipated useful life of the asset being financed; and (x) any renewal,
extension or refinancing (and subsequent renewals, extensions or refinancings)
of any Debt permitted at the time incurred of the Company and its Subsidiaries;
provided, however, that (a) the principal amount of the Debt so issued shall not
exceed the maximum principal amount of the Debt so exchanged, refunded or
refinanced, (b) Debt which constitutes a renewal, extension or refinancing of
Debt of the Company shall be pari passu or subordinated in right of payment to
the Senior Secured Notes, (c) Debt which constitutes a renewal, extension or
refinancing of Debt of Subsidiaries shall be pari passu or subordinated in right
of payment to the Subsidiary Guarantee and (d) the Debt so issued (1) shall not
mature prior to the maturity of the Debt so exchanged, refunded or refinanced
and (2) shall have an Average Life equal to or greater than the remaining
Average Life of the Debt so exchanged, refunded or refinanced; and provided,
further, that in no event may Debt be renewed, extended or refinanced by means
of Debt of any Subsidiary of the Company if such Debt was originally incurred by
the Company.

Limitation on Preferred Stock of Recourse Subsidiaries. The Company will
not permit any of its Recourse Subsidiaries to issue, directly or indirectly,
any Preferred Stock, except (i) Preferred Stock issued to and held by the
Company or a Wholly Owned Recourse Subsidiary, except that any subsequent
issuance or transfer of any Capital Stock which results in any Wholly Owned
Recourse Subsidiary ceasing to be a Wholly Owned Recourse Subsidiary or any
transfer of such Preferred Stock to a Person not a Wholly Owned Recourse
Subsidiary will be deemed an issuance of Preferred Stock; (ii) Preferred Stock
issued by a Person prior to the time (a) such Person became a Subsidiary, (b)
such Person merges with or into a Subsidiary or (c) another Person merges with
or into such Person (in a transaction in which such Person becomes a
Subsidiary), in each case if such Preferred Stock was not issued in anticipation
of such transaction; and (iii) Preferred Stock issued in exchange for, or the
proceeds of which are used to refund Debt or refinance Preferred Stock issued
pursuant to clauses (i) or (ii) (other than Preferred Stock which by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable) that is redeemable at the option of the holder thereof or that is
otherwise redeemable, pursuant to sinking fund obligations or otherwise, prior
to the date of redemption or maturity of the Preferred Stock or Debt being so
refunded or refinanced); provided that (a) the liquidation value of such
Preferred Stock so issued shall not exceed the principal amount or the
liquidation value of the Debt or Preferred Stock, as the case may be, so
refunded or refinanced and (b) the Preferred Stock so

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issued (i) shall have a stated maturity not earlier than the stated maturity of
the Debt or Preferred Stock being refunded or refinanced and (2) shall have an
Average Life equal to or greater than the remaining Average Life of the Debt or
Preferred Stock being refunded or refinanced.

Limitation on Restricted Payments. The Company shall not, and shall not
permit any Recourse Subsidiary, directly or indirectly to, declare, pay or set
apart for payment, any Restricted Payment, if after giving effect thereto: (i) a
Default shall have occurred and be continuing (or would result therefrom); or
(ii) the aggregate amount of such Restricted Payment and all other Restricted
Payments since the date on which the Senior Secured Notes were originally issued
would exceed the sum of (a) 50% of the Consolidated Net Income accrued during
the period (treated as one accounting period) from the first day of the fiscal
quarter succeeding the date on which the Senior Secured Notes were originally
issued to the end of the most recent fiscal quarter ending prior to the date of
such Restricted Payment (or, in case such Consolidated Net Income shall be a
deficit, minus 100% of such deficit); (b) the aggregate Net Cash Proceeds
received by the Company from the issue or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the date on which the Senior Secured Notes
were originally issued (other than to a Subsidiary of the Company or an employee
stock ownership plan or similar trust), including Net Cash Proceeds from the
exercise of warrants; (c) the aggregate Net Cash Proceeds received by the
Company from the issue or sale of its Capital Stock (other than Disqualified
Stock) to an employee stock ownership plan subsequent to the date on which the
Senior Secured Notes were originally issued; provided, that if such employee
stock ownership plan issues any Debt, only to the extent that any such proceeds
are equal to any increase in the Consolidated Net Worth of the Company resulting
from principal repayments made by such employee stock ownership plan with
respect to Debt issued by it to finance the purchase of such Capital Stock; and
(d) the aggregate Net Cash Proceeds received by the Company from the issuance of
its Capital Stock upon the conversion of or exchange for (other than by a
Subsidiary of the Company), securities evidencing Debt of the Company subsequent
to the date on which the Senior Secured Notes were originally issued, calculated
on the assumption that the gross proceeds from such issuance are equal to the
aggregate principal amount (or if discounted Debt, the accreted principal
amount) of Debt evidenced by such securities converted or exchanged, plus any
additional sums payable upon conversion or exchange (less the amount of any
cash, or the fair market value of other property, distributed to the holder of
such Debt by the Company or any of its Subsidiaries upon such conversion or
exchange).

Notwithstanding the foregoing, this provision shall not prevent (i) the
payment of any dividend within 60 days after the date of its declaration (if the
declaration of such dividend was permitted by the foregoing provision at the
time of such declaration); or (ii) the repurchase, retirement or other
acquisition of any shares of the Company's Capital Stock, or any option, warrant
or other right to purchase shares of the Company's Capital Stock, or the
repayment of any Debt of the Company solely in exchange for shares of, or out of
the proceeds of a substantially contemporaneous issuance of, Capital Stock
(other than Disqualified Stock).

Limitation on Issuance and Sale of Capital Stock of Recourse Subsidiaries.
The Company shall not sell any Capital Stock of a Recourse Subsidiary, and shall
not permit any Recourse Subsidiary to issue or sell any Capital Stock, or permit
any Person, other than the Company and its Recourse Subsidiaries, to own or hold
any such interest, other than any interest owned or held on the date of issue of
the Senior Secured Notes by a Person other than the Company and its Recourse
Subsidiaries in any Capital Stock of any Recourse Subsidiary (other than a Joint
Venture); provided, that the foregoing limitation shall not apply to (i) the
sale of 100% of the Capital Stock of any Subsidiary made in accordance with
"Restrictions on Sales of Assets," (ii) the sale or issuance of any Capital
Stock of Imperial and (iii) issuances of Preferred Stock permitted pursuant to
clauses (i) or (iii) of "Limitation on Preferred Stock of Subsidiaries."

Limitation on Restrictions on Distributions from Recourse Subsidiaries. The
Company shall not, and shall not permit any Recourse Subsidiary to, create or
permit to exist or become effective any encumbrance or restriction on the
ability of any Recourse Subsidiary to (i) pay dividends, in cash or otherwise,
or make any other distributions on its Capital Stock, (ii) make payments in
respect of

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any Debt owed to the Company or any of the Company's Recourse Subsidiaries,
(iii) make any loans or advances to the Company or any of the Company's Recourse
Subsidiaries or (iv) transfer any of its property or assets to the Company or
any of the Company's Recourse Subsidiaries, except: (a) any encumbrance or
restriction pursuant to the Senior Secured Notes, the Indenture or the Security
Documents; (b) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the date the Senior Secured Notes are issued (including
without limitation the Credit Facility); (c) any encumbrance or restriction with
respect to a Recourse Subsidiary pursuant to an agreement relating to any Debt
issued by such Recourse Subsidiary on or prior to the date on which such
Recourse Subsidiary was acquired by the Company (other than Debt issued as
consideration in, or to provide all or any portion of the funds utilized to
consummate, the transaction or series of related transactions pursuant to which
such Recourse Subsidiary became a Recourse Subsidiary or was acquired by the
Company) and outstanding on such date; (d) any encumbrance or restriction
pursuant to an agreement effecting a refinancing of Debt issued pursuant to an
agreement referred to in clause (b) or (c) or contained in any amendment to an
agreement referred to in clause (b) or (c); provided, however, that the
encumbrances and restrictions contained in any such refinancing agreement or
amendment are no more restrictive than encumbrances and restrictions contained
in the refinanced or amended agreements; (e) customary non-assignment provisions
restricting subletting or assignment of any lease or assignment entered into by
a Recourse Subsidiary; and (f) any restrictions with respect to a Recourse
Subsidiary of the Company imposed pursuant to an agreement which has been
entered into for the sale or disposition of all or substantially all of the
Capital Stock or assets of such Recourse Subsidiary.

Restrictions on Asset Sales. The Company will not, and will not permit any
of its Recourse Subsidiaries to, make any Asset Sale, unless (a) the Company (or
its Recourse Subsidiary, as the case may be) receives consideration at the time
of such Asset Sale at least equal to the fair market value of the Capital Stock
or assets to be sold (as determined in good faith by its Board of Directors);
(b) at least 85% of the consideration therefor is received by the Company or
such Recourse Subsidiary in the form of cash or Cash Equivalents; and (c) 100%
of the consideration therefor is received by the Company or such Recourse
Subsidiary in the form of cash, Cash Equivalents or instruments with respect to
which a security interest therein may be perfected by possession; provided that
the limitations set forth in (b) and (c) above shall not be applicable to the
sale of the Excluded Assets.

Within 360 days of the date that the sum of the Net Available Cash of Asset
Sales by the Company and its Recourse Subsidiaries (excluding the Net Available
Cash (i) previously applied to the acquisition of property and assets used in
lines of business related to the Company's or the Recourse Subsidiaries'
business at such time (each a "Permitted Related Acquisition") and (ii) from the
sale of Obsolete Assets not exceeding an aggregate fair market value of
$1,000,000 in any year), together with Condemnation Awards and Net Insurance
Proceeds (the "Available Amount"), equals or exceeds $5,000,000, the Company
will elect to either (a) apply or cause to be applied the Available Amount to a
Permitted Related Acquisition or the commencement thereof (provided that such
project is completed within a reasonable time of the commencement thereof), (b)
make an offer to purchase Senior Secured Notes (an "Asset Sale Offer") from all
Holders up to an amount equal to the Available Amount (rounded to the next
lowest multiple of $1,000) at a purchase price equal to 100% of the principal
amount thereof plus accrued interest thereon, if any, to the date of purchase or
(c) any combination of clauses (a) and (b) above; provided, that (i) property
acquired at any time as a Permitted Related Acquisition that has been acquired
with Collateral Proceeds shall be subject to a first priority Lien in favor of
the Collateral Agent for the benefit of the Trustee and the Holders; (ii)
pending application to a Permitted Related Acquisition or an Asset Sale Offer,
the Collateral Proceeds, together with all Condemnation Awards and Net Insurance
Proceeds received by the Collateral Agent, will be retained by the Collateral
Agent in a collateral account; and (iii) notwithstanding the foregoing, the
Company and its Recourse Subsidiaries, in the aggregate, shall be permitted to
retain (x) $1,000,000 of Net Cash Proceeds from Asset Sales other than sales of
Obsolete Assets and (y) the Net Available Cash from the sale of the Excluded
Assets. To the extent that Holders do not subscribe to an Asset Sale Offer, the
Company

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may retain the unutilized Available Amount free of the Lien of the Security
Documents. The Company and its Recourse Subsidiaries collectively may retain the
Net Cash Proceeds from the sale of Obsolete Assets in an aggregate amount not to
exceed $1,000,000 in any year.

The Credit Facility contains certain covenants that restrict the ability of
the Company to sell assets other than certain non-steel assets and obsolete
assets, and does not permit the prepayment of the Senior Secured Notes with the
proceeds of any such sales without the prior written consent of the Lenders. See
"Description of Certain Indebtedness -- Credit Facility."

Transfer of Assets to Subsidiaries. Notwithstanding the covenants
restricting Asset Sales, Restricted Payments and Transactions with Affiliates,
the Company shall not, and shall not permit any of its Recourse Subsidiaries to,
make any sale, transfer or other disposition (including by way of Sale and
Leaseback Transaction) to any of its Subsidiaries (other than in the ordinary
course of business) of (i) any assets of the Company or its Recourse
Subsidiaries or (ii) any shares of Capital Stock of any of the Company's
Recourse Subsidiaries, in either case with a fair market value in excess of
$1,000,000 (as determined in good faith by the Company) unless the Company or
its Recourse Subsidiaries shall receive consideration from the Subsidiary
acquiring such assets or Capital Stock by way of any such sale, transfer or
otherwise in cash or Cash Equivalents equal to the amount in excess of
$1,000,000 (the fair market value of such assets or Capital Stock to be
determined in good faith by an Independent Appraiser or Independent Financial
Advisor, as the circumstances dictate, with respect to a transaction with a fair
market value in excess of $1,000,000); provided that there shall be no
restriction on the transfer of assets of Erlanger to either Koppel or Newport;
and provided further that assets may not be transferred by any Recourse
Subsidiary to any Excluded Company.

Limitation on Sale and Leaseback Transactions. The Company will not, and
will not permit any of its Recourse Subsidiaries to, enter into, directly or
indirectly, any Sale and Leaseback Transaction, with respect to any real or
tangible personal property, other than (i) a Sale and Leaseback Transaction
entered into between the Company and any one of its Wholly Owned Recourse
Subsidiaries, or between Wholly Owned Recourse Subsidiaries; provided that upon
either (a) the transfer or other disposition by such Wholly Owned Recourse
Subsidiary of any such lease to a Person other than the Company or another
Wholly Owned Recourse Subsidiary or (b) the issuance, sale, lease, transfer or
other disposition of Capital Stock (including by way of consolidation or merger)
of such Wholly Owned Recourse Subsidiary to a Person other than the Company or
another Wholly Owned Recourse Subsidiary, the provisions of this clause (i)
shall no longer be applicable to such lease and such lease shall be deemed for
purposes of this paragraph to constitute the entering into of such Sale and
Leaseback transaction by the parties thereto; and (ii) Capital Lease Obligations
permitted to be incurred by the Company or any of its Recourse Subsidiaries
pursuant to the limitations on Debt.

Limitation on Transactions with Affiliates. The Company shall not, and
shall not permit any Recourse Subsidiary to, conduct any business or enter into
or permit to exist any transaction or series of related transactions (including,
without limitation, any loan, advance, Guarantee or capital contribution to, or
for the benefit of, or any purchase, sale, lease, exchange or other disposition
of any property or the rendering of any service, or any other direct or indirect
payment, transfer or other disposition) with any Affiliate of the Company or any
legal or beneficial owner of 5% or more of any class of Capital Stock of the
Company or with an Affiliate of any such owner unless the terms of such
business, transaction or series of transactions are (i) set forth in writing,
(ii) as favorable to the Company or such Recourse Subsidiary as terms that would
be obtainable at the time for a comparable transaction or series of similar
transactions in arms-length dealings with an unrelated third Person and (iii)
the Board of Directors has, by resolution, determined in good faith that such
business or transaction or series of transactions meets the criteria set forth
in (ii) above; except that (a) the requirements of clauses (i) and (iii) shall
not apply to transactions involving the sale of goods and services in the
ordinary course of business that are consistent with the Company's and its
Recourse Subsidiaries' past practices and (b) the foregoing shall not prohibit
(1) Restricted Payments, Permitted Investments and Permitted Payments otherwise
permitted by the Indenture, (2) transactions between the Company and one or more
of its Wholly Owned Recourse Subsidiar-

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ies, provided that such transactions are not otherwise prohibited, (3) payments
of reasonable and customary compensation for services, directors fees, meeting
expenses, insurance premiums and indemnities to the extent permitted by
applicable law, (4) the issuance of stock options (and shares of stock upon the
exercise thereof) pursuant to any stock option plan approved by the Board of
Directors and stockholders of the Company and (5) loans or advances to employees
for relocation or travel related expenses consistent with ordinary practices of
the Company.

Limitation on Mergers and Consolidation. The Company shall not consolidate
with or merge with or into any Person (other than a Recourse Subsidiary that is
not an Excluded Company), and the Company will not, and will not permit any of
its Subsidiaries to, sell, assign, transfer, lease, convey or otherwise dispose
of all or substantially all of the Company's consolidated assets in one
transaction or a series of transactions to any other Person or Persons (other
than a Recourse Subsidiary that is not an Excluded Company), or permit any
Person (other than a Recourse Subsidiary) to consolidate with or merge into the
Company, or convey, sell, assign, transfer or lease all or substantially all of
such Person's properties and assets in one transaction or a series of
transactions to the Company, unless: (i) the resulting, surviving or transferee
Person shall be a solvent Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia; (ii)
the resulting, surviving or transferee Person (if not the Company) shall
expressly assume, by an indenture supplemental to the Indenture, executed and
delivered to the Trustee, all the obligations of the Company under the Senior
Secured Notes, the Indenture and the Security Documents; (iii) immediately
before and after giving effect to such transaction, no Default shall have
occurred and be continuing; (iv) immediately after giving effect to such
transaction or series of transactions (including, without limitation any Debt
incurred or anticipated to be incurred in connection with or in respect of the
transaction or series of transactions), the resulting, surviving or transferee
Person would be able to incur at least $1.00 of Debt pursuant to the first
sentence of "Limitation on Debt"; (v) immediately after giving effect to such
transaction, the resulting, surviving or transferee Person shall have
Consolidated Net Worth in an amount which is not less than the Consolidated Net
Worth of the Company prior to such transaction; (vi) each Recourse Subsidiary
shall expressly confirm that its obligations under the Subsidiary Guarantee
shall apply to the obligations under the Senior Secured Notes of any successor
to the Company; and (vii) the Company shall have delivered to the Trustee an
Officers' Certificate stating that such consolidation, merger or transfer and
such supplemental indenture (if any) comply with the Indenture, and an Opinion
of Counsel as required by the Indenture.

Notwithstanding the foregoing, the Company and its Recourse Subsidiaries
may not consolidate with or merge into a Non-Recourse Subsidiary or any Excluded
Company or convey, sell, assign, transfer or lease all or substantially all of
their properties and assets (determined, with respect to the Company, on a
consolidated basis for the Company and its Recourse Subsidiaries taken as a
whole) in one transaction or a series of transactions to any Non-Recourse
Subsidiary or Excluded Company, or unless such transaction satisfies the
restrictions under "Limitation on Debt," "Limitation on Restricted Payments" and
the other covenants (treating, under each covenant, any Non-Recourse Debt as
Recourse Debt), permit any Non-Recourse Subsidiary to consolidate with or merge
into the Company or any of its Recourse Subsidiaries or convey, sell, assign,
transfer or release all or substantially all of such Non-Recourse Subsidiary's
properties and assets in one transaction or a series of transactions to the
Company or any of its Recourse Subsidiaries.

Limitations as to Non-Recourse Subsidiaries. The Company will not permit
any Non-Recourse Subsidiary to Issue, create, assume, incur, Guarantee or
otherwise become liable in respect of any Debt other than Non-Recourse Debt.
Neither the Company nor any of its Recourse Subsidiaries will sell, lease,
convey or otherwise transfer to any Non-Recourse Subsidiary any asset which is
essential to the steel-making operations of the Company or its Recourse
Subsidiaries. The Company will not permit any Non-Recourse Subsidiary to acquire
from any Person any asset essential to the steel-making operations of the
Company or its Recourse Subsidiaries or all or any portion of its Recourse
Subsidiaries.

SEC Reports. Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company shall file with the

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Securities and Exchange Commission and provide the Trustee and Noteholders with
such annual reports and such information, documents and other reports specified
in Sections 13 and 15(d) of the Securities Exchange Act of 1934, as amended.

EVENTS OF DEFAULT

The following will be defined in the Indenture as "Events of Default":

<TABLE>
<C> <S>
(i) The Company defaults in any payment of interest on any Senior Secured Note when the
same becomes due and payable, and such default continues for a period of 30 days;
(ii) The Company (a) defaults in the payment of the principal, or premium, if any, of
any Senior Secured Note when the same becomes due and payable at maturity, upon
redemption, upon acceleration or otherwise; or (b) fails to redeem or purchase
Senior Secured Notes when required pursuant to the Indenture and the Senior Secured
Notes (including, without limitation, failure to make payments when due pursuant to
a Change of Control Offer or Asset Sale Offer);
(iii) The Company fails to comply with the covenant described under "Limitation on
Mergers and Consolidation";
(iv) The Company fails to comply with any of its covenants or agreements described under
"Restrictions on Asset Sales" or "Change of Control," and such failure continues
for a period of five days after the Company has received notice of such
noncompliance;
(v) The Company or any of its Subsidiaries fails to comply with any covenant described
above or with any of its agreements in the Senior Secured Notes, the Indenture or
the Security Documents (other than those referred to in (i), (ii), (iii) or (iv)
above) and such failure continues for 60 days after there has been given to the
Company by the Trustee or has been received by the Company and the Trustee from the
Holders of at least 25% of the principal amount of the Senior Secured Notes then
outstanding, a written notice specifying such default, demanding that it be
remedied and stating that the notice is a "Notice of Default", unless, with respect
to defaults under the Security Documents, the remedy or cure of such default
requires work to be performed, acts to be done or conditions to be removed which
cannot, by their nature, reasonably be performed, done or removed within such
60-day period, or if such remedy or cure is prevented by causes outside of the
control or responsibility of the Company or its Subsidiaries, as the case may be,
in which case no "Event of Default" shall be deemed to exist for a period of 90
days after such written notice so long as the Company or its Subsidiaries, as the
case may be, shall have commenced cure within such 90-day period and shall
diligently prosecute the same to completion;
(vi) A default in the payment of principal at final maturity under any mortgage,
indenture or instrument under which there may be issued or by which there may be
secured or evidenced any Debt of the Company or any of its Recourse Subsidiaries
(or the payment of which is Guaranteed now or hereafter by the Company or any of
its Recourse Subsidiaries), whether such Debt or Guarantee now exists or shall be
created hereafter, in a principal amount of at least $2,000,000 (after the
expiration of any applicable grace period with respect thereto);
(vii) A default occurs under any mortgage, indenture or instrument under which there may
be issued or by which there may be secured or evidenced any Debt (including any
interest thereon) of the Company or its Recourse Subsidiaries (or the payment of
which is Guaranteed now or hereafter by the Company or any of its Recourse
Subsidiaries), whether such Debt or Guarantee now exists or shall be created
hereafter, if (i) as a result of such event of default the maturity of such Debt
has been accelerated prior to its stated maturity and (ii) the principal amount of
such Debt, together with the principal amount of any other Debt of the Company and
its Recourse Subsidiaries the maturity of which has been so accelerated, aggregates
$5,000,000 or more;
(viii) The Company or any Subsidiary (other than a Non-Recourse Subsidiary, unless such
action or proceeding has a Material Adverse Effect on the interests of the Company
or any
</TABLE>

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<TABLE>
<C> <S>
Recourse Subsidiary) pursuant to or within the meaning of any Bankruptcy Law: (a)
commences a voluntary case or proceeding; (b) consents to the entry of an order for
relief against it in an involuntary case or proceeding; (c) consents to the
appointment of a Custodian of it or for all or substantially all of its property;
(d) makes a general assignment for the benefit of its creditors; or (e) admits in
writing its inability to pay its debts as the same become due;
(ix) A court of competent jurisdiction enters an order or decree under any Bankruptcy
Law that remains unstayed and in effect for 60 days and: (a) is for relief against
the Company or any Subsidiary in an involuntary case; (b) appoints a Custodian of
the Company or any Subsidiary for all or substantially all of its property; or (c)
orders the liquidation of the Company or any Subsidiary; provided, that clauses
(a), (b) and (c) shall not apply to a Non-Recourse Subsidiary unless such action or
proceeding materially and adversely affects the interests of the Company or any
Recourse Subsidiary;
(x) The Company or any Recourse Subsidiary shall fail to discharge any one or more
judgments not covered by insurance (from which no further appeal may be taken) in
excess of $1,000,000, and either (A) an enforcement proceeding has been commenced
by any creditor upon such judgments or (B) such judgments shall remain in force,
undischarged, unsatisfied, unstayed and unbonded for more than 30 days;
(xi) The Security Documents shall cease, for any reason, to be in full force and effect
or shall cease to be effective to grant a perfected Lien on the Collateral with the
priority purported to be created thereby (unless the cessation of effectiveness is
due to the failure by the Trustee (or any agent or representative of the Trustee)
to file continuation statements or similar filings or due to the gross negligence
of the Trustee) with respect to any Collateral that, individually or in the
aggregate, represents more than 1% of the book value of the consolidated assets of
the Company and the Recourse Subsidiaries constituting Collateral or is material to
the lines of business in which the Company and the Recourse Subsidiaries are
engaged; or
(xii) Cessation of all or any portion of the Subsidiary Guarantee to be in full force and
effect or the declaration of all or any portion of the Subsidiary Guarantee to be
null and void and unenforceable or the finding that all or any portion of the
Subsidiary Guarantee is invalid or the denial of any Guarantor of its liability
under the Subsidiary Guarantee (other than by reason of release of a Guarantor in
accordance with its terms).
</TABLE>

If an Event of Default (other than an Event of Default specified in
subparagraph (viii) or (ix) set forth above) occurs and is continuing, the
Trustee or the Holders of at least 25% of the principal amount of the Senior
Secured Notes then outstanding by notice to the Company (and to the Trustee if
such notice is given by the Holders) may declare the principal amount and
accrued interest on the Senior Secured Notes to be immediately due and payable.
If an Event of Default specified in section (viii) or (ix) above occurs, the
principal amount and accrued interest shall ipso facto become and be immediately
due and payable on all outstanding Senior Secured Notes without any declaration
or other act on the party of the Trustee or any Holder. The Holders of a
majority in principal amount of the then outstanding Senior Secured Notes by
notice to the Company and the Trustee may rescind an acceleration and its
consequences if all existing Events of Default, other than the nonpayment of the
principal of the Senior Secured Notes which have become due solely by such
declaration of acceleration, have been cured or waived. The Holders of a
majority in principal amount of the outstanding Senior Secured Notes also have
the right to waive certain past defaults under the Indenture except a default in
the payment of the principal of, premium, if any, or interest on any Senior
Secured Note, or in respect of a covenant or a provision which cannot be
modified or amended without the consent of all Holders.

No Holder has the right to institute any proceeding with respect to the
Indenture, the Security Documents or any remedy thereunder, unless the Holders
of at least 25% in principal amount of the outstanding Senior Secured Notes have
made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee, the Trustee has failed to institute such
proceeding within 15 days after receipt of such notice, and the Trustee has not
within such 15-day

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period received directions inconsistent with such written request by Holders of
a majority in principal amount of the outstanding Senior Secured Notes. Such
limitations do not apply, however, to suits instituted by a Holder for the
enforcement of the payment of the principal of, premium, if any, or interest on
such Senior Secured Note on or after the respective due dates expressed in such
Senior Secured Note.

The Holders of a majority in principal amount of the outstanding Senior
Secured Notes will have the right, subject to certain limitations, to direct the
time, method and place of conducting any proceeding for any remedy available to
the Trustee or exercising any trust or power conferred on the Trustee. The
Indenture will provide that in case an Event of Default shall occur and be
continuing, the Trustee will exercise such of its rights and powers under the
Indenture, and use the same degree of care and skill in their exercise, as a
prudent Person would exercise or use under the circumstances in the conduct of
his or her own affairs. Subject to certain provision of the Indenture, the
Trustee will be under no obligation to exercise any of its rights or powers
under the Indenture at the request of any of the Holders unless they have
offered to the Trustee reasonable security or indemnity against the costs,
expenses and liabilities which might be incurred by it in compliance with such
request. The Trustee may withhold from Holders notice of any continuing default
(except a default in payment) if it determines in good faith that the
withholding of such notice is in the interest of such Holders.

Under the Indenture, the Company will be required to furnish to the Trustee
annually (i) a statement by certain officers of the Company to the effect that
to the best of their knowledge the Company is not in default in the fulfillment
of any of its obligations under such Indenture or, if there has been such
default, specifying each such default and (ii) an Opinion of Counsel either
stating that action has been taken with respect to any filing, refiling,
recording or re-recording with respect to the Security Documents as is necessary
to maintain the Lien of the Security Documents or that no such action is
necessary to maintain such Lien.

MODIFICATION OF THE INDENTURE

From time to time, the Company, when authorized by resolutions of its Board
of Directors, and the Trustee and the Collateral Agent (if a party thereto) may
amend, waive or supplement the Indenture, the Security Documents or the Senior
Secured Notes for certain specified purposes, including, among other things,
curing ambiguities, defects or inconsistencies, making any change that does not
adversely affect the rights of any Holder, giving effect to the release of any
Released Collateral, evidencing the succession of another Person to the Company
or any Subsidiary of the Company and the assumption by any such successor of the
covenants of the Company or such Subsidiary, as the case may be, to evidence the
release and discharge of the obligations of any Subsidiary of the Company the
Capital Stock of which has been sold or otherwise disposed of in accordance with
the applicable provisions of the Indenture, pledging or granting a security
interest in favor of the Collateral Agent as additional security for the payment
and performance of the obligations under the Indenture, in any property or
assets, including any which are required to be mortgaged, pledged or
hypothecated, or in which a security interest is required to be granted, to the
Collateral Agent pursuant to any Security Document or otherwise; provided, that
the Company delivers to the Trustee an Opinion of Counsel as required by the
Indenture. Other amendments and modifications of the Indenture, the Senior
Secured Notes or the Security Documents may be made by the Company, the
Collateral Agent (if a party thereto) and the Trustee with the consent of the
Holders of not less than a majority of the aggregate principal amount of the
outstanding Senior Secured Notes; provided, that no such modification or
amendment may, without the consent of the Holder of each outstanding Senior
Secured Note affected thereby, (i) reduce the principal amount of, change the
time or place for payment, extend the final maturity of, alter the redemption
provisions of, or alter the provisions with respect to Change of Control Offers
or Asset Sale Offers for the Senior Secured Notes, (ii) change the currency in
which any Senior Secured Notes or any premium thereon is payable, (iii) reduce
the percentage in principal amount of outstanding Senior Secured Notes that must
consent to an amendment, supplement or waiver or consent to take any

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action under the Indenture, the Senior Secured Notes or the Security Documents,
(iv) impair the right to institute suit for the enforcement of any payment on or
with respect to the Senior Secured Notes, (v) waive a default in payment with
respect to the Senior Secured Notes, (vi) reduce or change the rate or time for
payment of interest on the Senior Secured Notes, (vii) affect the ranking of the
Senior Secured Notes or the security for the Subsidiary Guarantee or the
Intercompany Notes, or (viii) modify any of the foregoing provisions or reduce
the principal amount of outstanding Senior Secured Notes necessary to waive any
covenant or past Default.

LEGAL DEFEASANCE AND COVENANT DEFEASANCE

The Company at any time may terminate (i) all its obligations under the
Senior Secured Notes, the Indenture and the Security Documents ("legal
defeasance option") or (ii) its obligations to comply with certain restrictive
covenants, including certain of the covenants described under "-- Certain
Covenants" above ("covenant defeasance option"). The Company may exercise its
legal defeasance option notwithstanding its prior exercise of its covenant
defeasance option.

If the Company exercises its legal defeasance option, payment of the Senior
Secured Notes may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Senior Secured
Notes may not be accelerated because of certain Events of Default described
under "Events of Default" above (not including Events of Default relating to
non-payment, bankruptcy and insolvency events, among others) or because of the
failure of the Company to comply with certain covenants specified in the
Indenture.

The Company may exercise its legal defeasance option or its covenant
defeasance option only if:

(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal and interest on
the Senior Secured Notes to maturity or redemption, as the case may be;

(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the payments of principal and interest when
due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and interest
when due on all the Senior Secured Notes to maturity or redemption, as the
case may be;

(3) 123 days pass after the deposit is made and during the 123-day
period no Default relating to bankruptcy and insolvency events with respect
to the Company occurs which is continuing at the end of the period;

(4) no Default has occurred and is continuing on the date of such
deposit and after giving effect thereto;

(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that (i) the trust resulting from the deposit does not constitute,
or is qualified as, a regulated investment company under the Investment
Company Act of 1940, (ii) the Holders have a valid first priority perfected
security interest in the trust funds, and (iii) after passage of 123 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" for purposes of
the Bankruptcy Code, after one year following the deposit), the trust funds
will not be subject to the effect of Section 547 of the Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law in a case commenced by
or against the Company under either such statute, and either (A) the trust
funds will no longer remain the property of the Company (and therefore,
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally) or
(B) if a court were to rule under any such law in any case or proceeding
that the trust funds remained property of the Company, (x) assuming such
trust funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to Holders, the Trustee will hold,

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<PAGE> 88

for the benefit of the Holders, a valid first priority perfected security
interest in such trust funds that is not avoidable in bankruptcy or
otherwise except for the effect of Section 552(b) of the Bankruptcy Code on
interest on the trust funds accruing after the commencement of a case under
such statute and (y) the Holders will be entitled to receive adequate
protection of their interests in such trust funds if such trust funds are
used in such case or proceeding.

(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of the Indenture there has been a
change in the applicable U.S. Federal income tax law or a regulation
clarifying existing law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders will not
recognize income, gain or loss for U.S. Federal income tax purposes as a
result of such defeasance and will be subject to U.S. Federal income tax on
the same amounts, in the same manner and at the same time as would have
been the case if such defeasance had not occurred;

(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Holders will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such covenant defeasance and will be subject to
U.S. Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; and

(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the Senior Secured Notes have
been complied with.

SATISFACTION AND DISCHARGE OF THE INDENTURE

The Indenture will cease to be of further effect (except as to the
surviving rights of registration of transfer or exchange of Senior Secured
Notes, as expressly provided for in the Indenture, and as otherwise expressly
provided for in the Indenture) when either (i) all such Senior Secured Notes
theretofore authenticated and issued have been delivered (except lost, stolen or
destroyed Senior Secured Notes which have been replaced or paid, or Senior
Secured Notes for whose payment money has been deposited in trust or segregated
and held in trust by the Company and thereafter repaid to the Trustee or
discharged from such trust) to the Trustee for cancellation or (ii) all such
Senior Secured Notes not theretofore delivered to the Trustee for cancellation
have become due and payable or will become due and payable within one year and
the Company has irrevocably deposited or caused to be deposited with the Trustee
funds in an amount sufficient to pay at maturity or redemption the entire
indebtedness on such Senior Secured Notes not theretofore delivered to the
Trustee for cancellation, including principal, premium and interest thereon, and
the Company has paid all sums payable by it under the Indenture. The Trustee is
required to acknowledge satisfaction and discharge of the Indenture on demand of
the Company accompanied by an Officers' Certificate and an Opinion of Counsel
and at the cost and expense of the Company.

BOOK-ENTRY, DELIVERY AND FORM

Upon issuance, the Senior Secured Notes will be represented by a permanent
global Senior Secured Note or Senior Secured Notes. Each permanent global Senior
Secured Note will be deposited with, or on behalf of, the Depositary and
registered in the name of a nominee of the Depositary. Except under the limited
circumstances described below, permanent global Senior Secured Notes will not be
exchangeable for definitive certificated Senior Secured Notes.

Ownership of beneficial interests in a permanent global Senior Secured Note
will be limited to institutions that have accounts with the Depositary or its
nominee ("participants") or persons that may hold interests through
participants. In addition, ownership of beneficial interests by participants in
such permanent global Senior Secured Note will be evidenced only by, and the
transfer of that ownership interest will be effected only through, records
maintained by the Depositary or its

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nominee for such permanent global Senior Secured Note. Ownership of beneficial
interests in such permanent global Senior Secured Note by persons that hold
through participants will be evidenced only by, and the transfer of that
ownership interest within such participant will be effected only through,
records maintained by such participant. The Depositary has no knowledge of the
actual beneficial owners of the Senior Secured Notes. Beneficial owners will not
receive written confirmation from the Depositary of their purchase, but
beneficial owners are expected to receive written confirmations providing
details of the transaction, as well as periodic statements of their holdings,
from the participants through which the beneficial owners entered the
transaction. The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such permanent
global Senior Secured Note.

The Company has been advised by the Depositary that upon the issuance of a
permanent global Senior Secured Note and the deposit of such permanent global
Senior Secured Note with the Depositary, the Depositary will immediately credit,
on its book-entry registration and transfer system, the respective principal
amounts represented by such permanent global Senior Secured Note to the accounts
of such participants.

Payment of principal of, and interest on, Senior Secured Notes represented
by a permanent global Senior Secured Note registered in the name of or held by
the Depositary or its nominee will be made to the Depositary or its nominee, as
the case may be, as the registered owner and holder of the permanent global
Senior Secured Note representing such Senior Secured Notes. The Company has been
advised by the Depositary that upon receipt of any payment of principal of, or
interest on, a permanent global Senior Secured Note, the Depositary will
immediately credit, on its book-entry registration and transfer system, accounts
of participants with payments in amounts proportionate to their respective
beneficial interests in the principal amount of such permanent global Senior
Secured Note as shown in the records of the Depositary. Payments by participants
to owners of beneficial interests in a permanent global Senior Secured Note held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the sole
responsibility of such participants, subject to any statutory or regulatory
requirements as may be in effect from time to time.

None of the Company, the Trustee or any other agent of the Company or the
Trustee will have any responsibility or liability for any aspect of the records
of the Depositary, any nominee or any participant relating to, or payments made
on account of, beneficial interests in a permanent global Senior Secured Note or
for maintaining, supervising or reviewing any of the records of the Depositary,
any nominee or any participant relating to such beneficial interests.

A permanent global Senior Secured Note is exchangeable for definitive
Senior Secured Notes registered in the name of, and a transfer of a permanent
global Senior Secured Note may be registered to, any person other than the
Depositary or its nominee, only if:

(a) the Depositary notifies the Company that it is unwilling or unable
to continue as Depositary for such permanent global Senior Secured Note or
if at any time the Depositary ceases to be a clearing agency registered
under the Exchange Act;

(b) the Company in its sole discretion determines that such permanent
global Senior Secured Note shall be exchangeable for definitive Senior
Secured Notes in registered form; or

Any permanent global Senior Secured Note that is exchangeable pursuant to
the preceding sentence will be exchangeable in whole for definitive Senior
Secured Notes in registered form, of like tenor and of an equal aggregate
principal amount as the permanent global Senior Secured Note, in denominations
of $1,000 and integral multiples thereof. Such definitive Senior Secured Notes
will be registered in the name or names of such persons as the Depositary shall
instruct the Trustee. It is

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expected that such instructions may be based upon directions received by the
Depositary from its participants with respect to ownership of beneficial
interests in such permanent global Senior Secured Note. With respect to
definitive Senior Secured Notes, any principal and interest will be payable, the
transfer of the definitive Senior Secured Notes will be registerable and the
definitive Senior Secured Notes will be exchangeable at the office of the
Trustee in Covington, Kentucky, provided that payment of interest may be made at
the option of the Company by check mailed to the address of the person entitled
thereto and as shown on the register for the Senior Secured Notes.

Except as provided above, owners of beneficial interests in such permanent
global Senior Secured Note will not be entitled to receive physical delivery of
Senior Secured Notes in definitive form and will not be considered the holders
thereof for any purpose under the Indenture, and no permanent global Senior
Secured Note shall be exchangeable except for another permanent global Senior
Secured Note of like denomination and tenor to be registered in the name of the
Depositary or its nominee. Accordingly, each person owning a beneficial interest
in such permanent global Senior Secured Note must rely on the procedures of the
Depositary and, if such person is not a participant, on the procedures of the
participant through which such person owns its interest, to exercise any rights
of a Holder under the permanent global Senior Secured Note.

The Company understands that, under existing industry practices, in the
event that the Company requests any action of Holders, or an owner of a
beneficial interest in such permanent global Senior Secured Note desires to give
or take any action that a Holder is entitled to give or take under the Senior
Secured Notes, the Depositary would authorize the participants holding the
relevant beneficial interests to give or take such action, and such participants
would authorize beneficial owners owning through such participants to give or
take such action or would otherwise act upon the instructions of beneficial
owners owning through them.

The Depositary has advised the Company that the Depositary is a limited
purpose trust company organized under the laws of the State of New York, a
"banking organization" within the meaning of the New York Banking Law, a member
of the Federal Reserve System, a "clearing corporation" within the meaning of
the New York Uniform Commercial Code and a "clearing agency" registered under
the Exchange Act. The Depositary was created to hold securities of its
participants and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the need
for physical movement of securities certificates. The Depositary's participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations. The Depositary is owned by a
number of its participants and by the New York Stock Exchange, Inc., the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to the Depositary's book-entry system is also available to
others, such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly. The rules applicable to the Depositary and its participants are on
file with the Commission.

SAME-DAY SETTLEMENT AND PAYMENT

Settlement for the Senior Secured Notes will be made in immediately
available funds. So long as the Senior Secured Notes are represented by a
permanent global Senior Secured Note or Notes, all payments of principal,
premium, if any, and interest will be made by the Company in immediately
available funds.

Secondary trading in long-term notes and debentures of corporate issuers is
generally settled in clearing-house or next-day funds. So long as the Senior
Secured Notes are represented by a permanent global Senior Secured Note or Notes
registered in the name of the Depositary or its nominee, the Senior Secured
Notes will trade in the Depositary's Same-Day Funds Settlement System, and
secondary market trading activity in the Senior Secured Notes will therefore be
required by the Depositary to settle in immediately available funds. No
assurance can be given as to

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the effect, if any, of settlement in immediately available funds on the trading
activity in the Senior Secured Notes.

REGARDING THE TRUSTEE AND THE COLLATERAL AGENT

The Huntington National Bank will serve the Trustee under the Indenture and
will act as Collateral Agent under the Security Documents.

NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS

Directors, officers, employees or stockholders of the Company will not have
any liability for any obligations of the Company under the Senior Secured Notes,
the Indenture or the Security Documents or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder, by
accepting a Senior Secured Note, waives and releases all such liability. The
waiver and release are part of the consideration for the issue of the Senior
Secured Notes.

REPORTS

The Company will furnish the Trustee with copies of all quarterly and
annual reports, and any other documents it is required to file with the
Commission pursuant to Section 13 or 15(d) of the Exchange Act, within five days
after it files the same with the Commission.

GOVERNING LAW

The Indenture, the Security Documents and the Senior Secured Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.

CERTAIN DEFINITIONS

Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.

"Accounts Receivable" means all accounts of the Company and its
Subsidiaries which, in conformity with GAAP would be set forth opposite the
caption accounts receivable, or any like caption on the consolidated balance
sheet of the Company and its Subsidiaries (after giving effect to any allowance
for doubtful accounts).

"Acquired Debt" means Debt of a Person existing at the time such Person
becomes a Subsidiary of the Company or assumed in connection with an Asset
Acquisition by such Person, including, without limitation, Debt incurred in
connection with, or in anticipation of, such Person becoming a Subsidiary of the
Company or such acquisition.

"Affiliate" of any specified Person means (i) any other Person which,
directly or indirectly, is in control of, is controlled by or is under common
control with such specified Person or (ii) any other Person who is a director or
officer (A) of such specified Person, (B) of any subsidiary of such specified
Person or (C) of any Person described in clause (i) above or (iii) any Person in
which such Person has, directly or indirectly, a 5% or greater voting or
economic interest or the power to control. For purposes of this definition,
control of a Person means the power, direct or indirect, to direct or cause the
direction of the management or policies of such Person whether through the
ownership of voting securities or by contract or otherwise and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.

"Appraiser" means a Person who in the course of its business appraises
property and, where real property is involved, who is a member in good standing
of the American Institute of Real Estate Appraisers, recognized and licensed to
do business in the jurisdiction where the applicable real property is situated,
and who may be employed by the Company.

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"Asset Acquisition" means (i) any capital contribution (by means of
transfer of cash or other property to others or payments for property or
services for the account or use of others, or otherwise), or purchase or
acquisition of Capital Stock by the Company or any of its Subsidiaries in any
other Person, in either case pursuant to which such Person shall become a
Subsidiary of the Company or any of its Subsidiaries or shall be merged with or
into the Company or any of its Subsidiaries or (ii) any acquisition by the
Company or any of its Subsidiaries of the assets of any Person which constitute
substantially all of an operating unit or business of such Person.

"Asset Disposition" or "Asset Sale" means any sale, lease, transfer or
other disposition (or series of related sales, leases, transfers or
dispositions) of shares of Capital Stock of a Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its
Subsidiaries, including any disposition by means of a merger, consolidation or
similar transaction, other than (i) a disposition by a Subsidiary to the Company
or by the Company or a Subsidiary to a Wholly Owned Recourse Subsidiary, (ii) a
disposition of property or assets at fair market value in the ordinary course of
business, or (iii) a disposition that constitutes a Restricted Payment or a Sale
and Leaseback Transaction.

"Average Life" means, as of the date of determination, with respect to any
Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of the
products of the numbers of the years from the date of determination to the dates
of each successive scheduled principal payment of such Debt or redemption or
similar payment with respect to such Preferred Stock multiplied by the amount of
such payment by (ii) the sum of all such payments.

"Bankruptcy Law" means Title 11, United States Code or any similar Federal
or state law for the relief of debtors, as amended.

"Board of Directors" means the Board of Directors of the Company or its
Subsidiaries or any committee thereof duly authorized to act on behalf of such
Board.

"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company or its Subsidiaries, as the case may
be, to have been duly adopted by the Board of Directors of the Company or its
Subsidiaries, as the case may be, and to be in full force and effect on the date
of such certification, and delivered to the Trustee.

"Business Day" means any day that is not a Saturday, a Sunday or a day on
which banking institutions are required to close in the State of New York, the
State of Ohio or the State of Kentucky.

"Capital Lease Obligations" of a Person means any obligation which is
required to be classified and accounted for as a capital lease on the face of a
balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP.

"Capital Stock" means any and all shares, interests, rights to purchase,
warrants, options, participation or other equivalents of or interest in (however
designated and whether voting or non-voting) corporate stock of a corporation
and any and all equivalent ownership interests in a Person (other than a
corporation), in each case whether outstanding on the date of issuance of the
Senior Secured Notes or thereafter issued, including any Preferred Stock.

"Cash Equivalents", means (i) investments in U.S. Government Obligations
maturing within 180 days of the date of acquisition thereof, (ii) investments in
certificates of deposit maturing within 90 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States or any state thereof having capital, surplus and undivided
profits aggregating in excess of $250,000,000, (iii) investments in commercial
paper rated at least A-1 by Standard & Poor's Corporation, Inc. and P-1 by
Moody's Investors Service, Inc. and maturing not more than 180 days from the
date of acquisition thereof, (iv) securities issued or fully guaranteed by any
state, commonwealth or territory of the United States, or by any political
subdivision or taxing

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authority thereof, which mature in the hands of the Company within 180 days of
acquisition thereof, and rated at least "A" by Standard & Poor's Corporation,
Inc. or "A" by Moody's Investors Service, Inc. and (v) money market and auction
rate preferred stocks which, at the date of acquisition and at all times
thereafter, are accorded ratings of at least AA- by Standard and Poor's
Corporation, Inc. or Aa3 by Moody's Investors Service, Inc.

"Change of Control" means the occurrence of one or more of the following
events:

(a) the direct or indirect sale, lease, exchange or other transfer of
all or substantially all of the assets of the Company to any Person or
entity or group of Persons or entities acting in concert as a partnership
or other group (a "Group of Persons") other than a Person described in
clause (i) of the definition of Affiliate;

(b) the consummation of any consolidation or merger of the Company
with or into another corporation with the effect that the stockholders of
the Company immediately prior to the date of the consolidation or merger
hold less than 51% of the combined voting power of the outstanding voting
securities of the surviving entity of such merger or the corporation
resulting from such consolidation ordinarily having the right to vote in
the election of directors (apart from rights accruing under special
circumstances) immediately after such merger or consolidation;

(c) the stockholders of the Company shall approve any plan or proposal
for the liquidation or dissolution of the Company;

(d) a Person or Group of Persons acting in concert as a partnership,
limited partnership, syndicate or other group shall, as a result of a
tender or exchange offer, open market purchases, privately negotiated
purchases or otherwise, have become the direct or indirect beneficial owner
(within the meaning of Rule 13d-3 under the Exchange Act) of securities of
the Company representing 30% or more of the combined voting power of the
then outstanding securities of the Company ordinarily (and apart from
rights accruing under special circumstances) having the right to vote in
the election of directors; and

(e) a Person or Group of Persons, together with any Affiliates
thereof, shall succeed in having a sufficient number of its nominees
elected to the Board of Directors of the Company such that such nominees,
when added to any existing director remaining on the Board of Directors of
the Company after such election who is an Affiliate of such Person or Group
of Persons, will constitute a majority of the Board of Directors of the
Company;

provided that the Person or Group of Persons referred to in clauses (a), (d) and
(e) shall not mean Clifford Borland or any Group of Persons the majority of the
voting equity interests of which is beneficially owned by Clifford Borland.

"Collateral" means, collectively, all of the property and assets that are
from time to time subject to the Liens of the Security Documents, including,
without limitation, Trust Moneys.

"Collateral Account" means the collateral account to be established
pursuant to the Indenture.

"Collateral Agent" means the Trustee acting in its capacity as agent for
the Noteholders with respect to the Collateral under the Security Documents.

"Collateral Proceeds" means the Net Available Cash received by the Trustee
from the sale of Collateral.

"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.

"Condemnation Awards" means any proceeds, award or payment paid to the
mortgagee or beneficiary under the Security Documents relating to any taking of
the Collateral subject to such

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Security Document by Condemnation or eminent domain or similar action, together
with interest accrued thereon.

"Consolidated EBITDA Coverage Ratio" as of any date of determination (the
"Determination Date") means the ratio of (i) the aggregate amount of EBITDA for
the period of the most recent four consecutive fiscal quarters ending prior to
the date of such determination to (ii) Net Interest Expense for such four fiscal
quarters; provided, however, that (1) if the Company or any Recourse Subsidiary
has issued any Debt since the beginning of such period that remains outstanding
or if the transaction giving rise to the need to calculate the Consolidated
EBITDA Coverage Ratio is an issuance of Debt, or both, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving effect on a
pro forma basis to such Debt as if such Debt had been issued on the first day of
such period and as if the discharge of any other Debt repaid, repurchased,
defeased or otherwise discharged with the proceeds of such new Debt had occurred
on the first day of such period, (2) if since the beginning of such period the
Company or any Recourse Subsidiary shall have made any Asset Disposition which
constitutes all or substantially all of an operating unit of a business, the
EBITDA for such period shall be reduced by an amount equal to the EBITDA (if
positive) directly attributable to the assets which are the subject of such
Asset Disposition for such period, or increased by an amount equal to the EBITDA
(if negative), directly attributable thereto for such period, and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Debt of the Company
or any Recourse Subsidiary repaid, repurchased, defeased or otherwise discharged
with respect to the Company and its continuing Recourse Subsidiaries in
connection with such Asset Dispositions for such period (or, if the Capital
Stock of any Recourse Subsidiary is sold, the Consolidated Interest Expense for
such period directly attributable to the Debt of such Recourse Subsidiary to the
extent the Company and its continuing Recourse Subsidiaries are no longer liable
for such Debt after such sale), as if such Asset Disposition occurred on the
first day of such period, (3) if since the beginning of such period the Company
or any Recourse Subsidiary (by merger or otherwise) shall have made an
Investment in any Recourse Subsidiary (or any Person which becomes a Recourse
Subsidiary) or an Asset Acquisition, including any acquisition of assets
occurring in connection with a transaction causing a calculation to be made
hereunder, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving pro forma effect thereto (including the issuance of any
Debt) as if such Investment or Asset Acquisition occurred on the first day of
such period, (4) if since the beginning of such period any Person (that
subsequently became a Recourse Subsidiary or was merged with or into the Company
or any Recourse Subsidiary since the beginning of such period) shall have made
any Asset Disposition or any Investment or Asset Acquisition that would have
required an adjustment pursuant to clause (2) or (3) above if made by the
Company or a Recourse Subsidiary during such period, EBITDA and Consolidated
Interest Expense for such period shall be calculated after giving pro forma
effect thereto as if such Asset Disposition or Investment or Asset Acquisition
occurred on the first day of such period and (5) there shall be excluded from
Consolidated Interest Expense any Consolidated Interest Expense related to any
Debt which was outstanding during the period but is not outstanding on the
Determination Date, except for Consolidated Interest Expense actually incurred
with respect to Debt borrowed under a revolving credit or similar arrangement to
the extent the commitment thereunder remains in effect on the Determination
Date. For purposes of this definition, whenever pro forma effect is to be given
to an Asset Disposition, an Investment or an Asset Acquisition, the amount of
income or earnings relating thereto, and the amount of Consolidated Interest
Expense associated with any Debt issued, redeemed or defeased in connection
therewith, the pro forma calculations shall be determined in good faith by a
responsible financial or accounting officer of the Company. If any Debt bears a
floating rate of interest and is being given pro forma effect, the interest of
such Debt shall be calculated as if the rate in effect on the Determination Date
had been the applicable rate for the entire period (taking into account any
Interest Rate Protection Agreement applicable to such Debt if such Interest Rate
Protection Agreement has a remaining term in excess of 12 months).

"Consolidated Income Tax Expense" of any Person for any period means,
without duplication, the aggregate amount of net taxes based on income or
profits for such period of the operations of

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such Person and its consolidated Recourse Subsidiaries actually payable with
respect to such period, determined in accordance with GAAP (to the extent such
income or profits were included in computing Consolidated Net Income).

"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Recourse Subsidiaries, including,
without duplication, (i) interest expense attributable to Capital Lease
Obligations, (ii) amortization of debt discount and debt issuance cost, (iii)
capitalized interest, (iv) non-cash interest payment or accruals, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs under Interest Rate
Protection Agreements and Hedging Agreements (including amortization of fees),
(vii) Preferred Stock dividends paid in respect of all Preferred Stock held by
Persons other than the Company or a Wholly Owned Recourse Subsidiary, (viii)
amortization of other financing fees and expenses and the interest portion of
any deferred payment obligations and (ix) interest actually paid by the Company
or any of its consolidated Recourse Subsidiaries under any Guarantee of Debt or
other obligation of any other Person.

"Consolidated Interest Income" means, for any period, all amounts that
would be included under interest income on a consolidated income statement of
such Person and its consolidated Recourse Subsidiaries determined in accordance
with GAAP, less accreted amounts attributable to original issue discount
securities prior to the receipt thereof and other non-cash interest payments.

"Consolidated Net Income" of any Person for any period means the Net Income
of such Person and its consolidated Recourse Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; provided, that (a)
there shall be excluded (i) the Net Income of any Person (other than a
consolidated Recourse Subsidiary) in which such Person or any of its
consolidated Recourse Subsidiaries has a joint interest with a third party
except to the extent of the amount of dividends or distributions actually paid
to such Person or its consolidated Recourse Subsidiary during such period; (ii)
except to the extent includable pursuant to the foregoing clause (i), the Net
Income of any Person accrued prior to the date it becomes a Recourse Subsidiary
of such Person or is merged into or consolidated with such Person or any of its
Recourse Subsidiaries or that Person's assets are acquired by such Person or any
of its Recourse Subsidiaries; (iii) the Net Income (if positive), or any portion
thereof, of any Recourse Subsidiary of such Person to the extent that the
declaration or payment of dividends or similar distributions by that Recourse
Subsidiary to such Person or to any other Recourse Subsidiary of such Net Income
is not at the time permitted by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Recourse Subsidiary, except that (A) the Company's
equity in the Net Income of any such Recourse Subsidiary for such period shall
be included in such Consolidated Net Income up to the aggregate amount of cash
actually distributed by such Recourse Subsidiary during such period to the
Company or another Recourse Subsidiary as a dividend or other distribution
(subject, in the case of a dividend or other distribution to a Recourse
Subsidiary, to the limitation contained in this clause) and (B) the Company's
equity in a net loss of any such Recourse Subsidiary for such period shall be
included in determining such Consolidated Net Income; (iv) without duplication,
any gains or losses attributable to Asset Sales; (v) Net Income (if positive),
arising from the adoption of changes in accounting policy to comply with GAAP or
voluntarily by the Company with the consent of its independent auditors that so
qualify under Regulation S-X of the Securities Act; (vi) Net Income arising for
periods prior to the date of a transaction in connection with the accounting
treatment for a merger, combination or consolidation under the pooling of
interests method; and (vii) foreign currency translation gains and losses and
(b) the Company's equity in the Net Income of a Non-Recourse Subsidiary shall be
included up to the aggregate amount of cash actually distributed by such
Non-Recourse Subsidiary during such period to the Company or a consolidated
Recourse Subsidiary as a dividend or other distribution.

"Consolidated Net Worth" of any Person means the total of the amounts shown
on the balance sheet of such Person and its consolidated Recourse Subsidiaries,
determined on a consolidated basis in accordance with GAAP, as of the end of the
most recent fiscal quarter of such Person prior to the taking of any action for
the purpose of which the determination is being made, as (i) the par

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or stated value of all outstanding Capital Stock of such Person plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.

"Credit Facility" means the Revolving Credit and Security Agreement to be
entered into among The Bank of New York Commercial Corporation, as lender,
co-agent and ACM agent, PNC Bank Ohio, National Association, as lender and
co-agent, Newport, Koppel and Imperial, and any renewals, extensions or
refinancings thereof.

"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.

"Debt" of any Person means, without duplication:

(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable;

(ii) all Capital Lease Obligations of such Person;

(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property, all conditional sale obligations of such Person
and all obligation of such Person under any title retention agreement (but
excluding trade accounts payable arising in the ordinary course of
business);

(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in (i) through (iii)
above) entered into in the ordinary course of business of such Person to
the extent such letters of credit are not drawn upon or, if and to the
extent drawn upon, such drawing is reimbursed no later than the third
Business Day following receipt by such Person of a demand for reimbursement
following payment on the letter of credit);

(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock (the
amount of Debt represented by any Disqualified Stock will be the
liquidation preference, plus accrued and unpaid dividends);

(vi) to the extent not otherwise included, all obligations under
Interest Rate Protection Agreements and Hedging Agreements;

(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons and all dividends of other persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee; and

(viii) all obligations of the type referred to in clauses (i) through
(vii) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person);
provided, that if recourse with respect to such Debt is limited to such
asset, the amount of such Debt being deemed to be the lesser of the value
of such property or assets or the amount of the obligation so secured.

"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.

"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part on, or prior to, the final
maturity date of the Senior Secured Notes.

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"EBITDA" for any period means the Consolidated Net Income for such period
(but without giving effect to adjustments, accruals, deductions or entries
resulting from purchase accounting), plus the following to the extent deducted
in calculating such Consolidated Net Income for such period (i) Consolidated
Income Tax Expense, (ii) Consolidated Interest Expense and (iii) depreciation
and amortization expense determined on a consolidated basis for such Person and
its consolidated Recourse Subsidiaries in accordance with GAAP for such period.

"Excluded Assets" means the stock of Kentucky Electric Steel, Inc. held on
the Issue Date by the Company or its Subsidiaries and the stock and assets of
Imperial and the NK Subsidiaries.

"Excluded Company" means any existing or future Subsidiary that does not
execute security agreements and/or mortgages in favor of the Collateral Agent
for the benefit of the Holders relating to substantially all of its real
property, fixtures, machinery, tools, equipment and similar property.

"Financial Advisor" means an investment banking firm of national reputation
which (except as otherwise expressly provided in the Indenture) may be employed
by the Company.

"GAAP" means generally accepted accounting principles in the United States
as in effect from time to time, including, without limitation, those set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are applicable as of the
date of determination.

"Government Loans" means any Debt issued, guaranteed or otherwise sponsored
by any state or local governmental entity that carries an annual interest rate
not in excess of the rate which is 2% less than the prime rate of interest
charged by the Trustee at the time such Debt is incurred.

"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Debt or other obligation of any other
Person and any obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the purchase or
payment of) such Debt or other obligation of such other Person (whether arising
by virtue of partnership arrangements, or by agreement to keepwell, to purchase
assets, goods, securities or services, to take-or-pay, or to maintain financial
statement conditions or otherwise) or (ii) entered into for purposes of assuring
in any other manner the obligee of such Debt or other obligation of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" shall not include
endorsements for collection or deposits in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning. The amount of any
Guarantee shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Guarantee is made
(unless such Guarantee shall be expressly limited to a lesser amount, in which
case such lesser amount shall apply) or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof as determined by
such Person in good faith.

"Hedging Agreement" means any foreign exchange or commodity, hedge,
exchange or similar agreement designed to protect the Company or its
Subsidiaries against fluctuations in foreign currency exchange rates or
commodity prices in respect of foreign exchange or commodity exposures incurred
by the Company or its Subsidiaries in the ordinary course of business.

"Independent" when used with respect to any specified Person means such a
Person who (a) is in fact independent, (b) does not have any direct financial
interest or any material indirect financial interest in the Company or in any
other obligor in respect of the Senior Secured Notes or in any Affiliate of the
Company or such other obligor and (c) is not an officer, employee, promoter,
underwriter, trustee, partner, director or person performing similar functions
to any of the foregoing for the Company or such other obligor or any Affiliate
thereof. Whenever it is provided in the Indenture that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by the Company and approved by the Trustee in the exercise of

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reasonable care, and such opinion or certificate shall state that the signer has
read this definition and that the signer is Independent within the meaning
thereof.

"Inventory" means all inventory of the Company and its Subsidiaries which,
in conformity with GAAP, would be set forth opposite the caption inventory or
any like caption on the consolidated balance sheet of the Company and its
Subsidiaries.

"Investment" of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances or capital contributions, or (ii)
all purchases (or other acquisitions for consideration) by such Person of Debt,
Capital Stock or other securities of any other Person, or (iii) all other items
that would be classified as investments on a balance sheet of such Person
prepared in accordance with GAAP.

"Issue" means issue, assume, guarantee, incur or otherwise become liable
for; provided, however, that any Debt or Capital Stock of a Person existing at
the time such Person becomes a Subsidiary (whether by merger, consolidation,
acquisition or otherwise) shall be deemed to be issued by such Subsidiary at the
time it becomes a Subsidiary.

"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided,
that as to any such arrangement in corporate form, such corporation shall not,
as to any Person of which such corporation is a Subsidiary, be considered to be
a Joint Venture to which such Person is a party.

"Lenders" means the lenders who are from time to time parties to the Credit
Facility.

"Lien" means, with respect to any property, any mortgage, deed of trust,
lien, pledge, security interest, lease, easement, restriction, covenant,
right-of-way, charge, encumbrance, conditional sale or other title retention
agreement or other similar lien. For purpose of the Indenture and the Security
Documents, the Company and its Subsidiaries shall be deemed to own subject to a
Lien any property which they have acquired or hold subject to the interests of a
vendor or lessor under any conditional sales agreement, capital lease or other
title retention agreement relating to such property.

"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or prospects
of the Company and its Recourse Subsidiaries taken as a whole, (b) the ability
of the Company and its Subsidiaries to perform their respective obligations
under the Senior Secured Notes and the Security Documents or (c) the validity or
enforceability of the Senior Secured Notes or any of the Security Documents.

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payments, which by the terms of the indemnities will not, under any
circumstances, be made during the term of the Senior Secured Notes) and net of
all payments made on any Debt which is secured by any assets subject to such
Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by its
terms, or in order to obtain a release of such Lien or a necessary consent to
such Asset Disposition, or by applicable law be repaid out of the proceeds from
such Asset Disposition, and net of all distributions and other payments required
to be made to minority interest holders in Subsidiaries or Joint Ventures as a
result of such Asset Disposition.

"Net Cash Proceeds" means, with respect to any issuance or sale of Capital
Stock, the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts and
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.

"Net Income" of any Person for any period means the net income (loss) of
such Person for such period, determined in accordance with GAAP, except that
extraordinary, unusual and non-recurring gains and losses as determined in
accordance with GAAP shall be excluded.

"Net Interest Expense" means the difference between Consolidated Interest
Expense and Consolidated Interest Income; provided that such amount shall not be
less than zero.

"NK Subsidiaries" means Northern Kentucky Management, Inc. and Northern
Kentucky Air, Inc.

"Non-Recourse Debt" means Debt or the portion of Debt of a Non-Recourse
Subsidiary (i) as to which neither the Company nor any Recourse Subsidiary (a)
provides credit support or a Guarantee (including any undertaking, agreement or
instrument which would constitute Debt) or (b) is directly or indirectly liable;
(ii) the holders of such Debt (other than the Company or any Recourse
Subsidiary) expressly waive all claims and any recourse which they may have, in
law, equity or otherwise, whether based on misrepresentation, control, ownership
or otherwise, to each of the Company and any Recourse Subsidiary, including,
without limitation, a waiver of the benefits of the provisions of Section
1111(b) of the Bankruptcy Code on or in respect of such Debt against the Company
or any Recourse Subsidiary of the Company and such waiver is a legal, valid and
binding obligations of the lender that is enforceable subject to certain
exceptions enumerated in an Opinion of Counsel, and the Company has delivered to
the Trustee an Opinion of Counsel by a law firm reasonably acceptable to the
Trustee and a Board Resolution confirming the foregoing, in each case in form
and substance satisfactory to the Trustee; and (iii) no default with respect to
such Debt (including any rights which the holder thereof may have to take
enforcement action against such Non-Recourse Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt of the Company or
any Recourse Subsidiary to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its stated maturity.
Notwithstanding the foregoing, a Non-Recourse Subsidiary may pledge its assets
as security for any Non-Recourse Debt issued by any Non-Recourse Subsidiary.

"Non-Recourse Subsidiary" means a Subsidiary of the Company or any of its
Subsidiaries formed to acquire securities or assets of a third party and which
(i) has no Debt other than Non-Recourse Debt, (ii) does not, directly or
indirectly, own any Debt, stock or securities of, and has no Investment in, the
Company or any Recourse Subsidiary and (iii) has not acquired any assets from
the Company or any of its Recourse Subsidiaries that are essential to the
steelmaking operations of the Company and its Recourse Subsidiaries.

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"Obsolete Assets" means machinery, equipment, furniture, apparatus, tools
or implements or other similar property which have become worn out, obsolete or
no longer necessary to the operation of the business of the Company or its
Subsidiaries, as the case may be.

"Officers' Certificate" means, when used with respect to the Company, a
certificate signed by the Chairman of the Board, the President, a Vice Chairman
of the Board or the Chief Financial Officer of the Company (or any other officer
identified by any of the foregoing officers in an Officers' Certificate to be an
executive officer of the Company) and the Secretary, an Assistant Secretary or
the Controller of the Company.

"Opinion of Counsel" means an opinion in writing signed by legal counsel,
who may be an employee of or of counsel to the Company, or who may be other
counsel reasonably satisfactory to the Trustee.

"Permitted Investments" means (i) Cash Equivalents; (ii) Investments in a
Wholly Owned Recourse Subsidiary of the Company (other than a Restricted
Subsidiary) or a Person that will become a Wholly Owned Recourse Subsidiary of
the Company (other than a Restricted Subsidiary) as a result of such Investment;
provided that any Person that becomes a Wholly Owned Recourse Subsidiary is
engaged in lines of businesses which the Board of Directors in good faith
determines to be related to those of the Company on the Issue Date; (iii) the
Company and its Subsidiaries may make advances and loans to officers and
employees in the ordinary course of business not to exceed $50,000 to any one
officer or employee or $100,000 in the aggregate at any one time outstanding;
(iv) the Company and its Subsidiaries may make payroll advances in the ordinary
course of business; (v) the Company may make advances or loans in connection
with Hedging Agreements provided such agreements are made in the ordinary course
of business; (vi) the Company may make advances or loans in connection with
Interest Rate Protection Agreements provided such agreements are made in the
ordinary course of business; (vii) the Company and its Subsidiaries may make
Investments representing the non-cash consideration received in connection with
the sale of assets disposed of in accordance with the provisions described under
"-- Restrictions on Asset Sales"; (viii) the Company and its Subsidiaries may
make Investments in the form of advances, extensions of credit, progress
payments and prepayments for asset purchases by it in the ordinary course of
business; (ix) accounts receivable arising and trade credit granted in the
ordinary course of business and any securities received in satisfaction or
partial satisfaction thereof from financially troubled account debtors to the
extent reasonably necessary in order to prevent or limit loss; (x) Investments
in Senior Secured Notes; and (xi) an Investment, if any, of up to $1.2 million
to improve property in connection with a coating facility to be leased to a
third party.

"Permitted Liens" means (a) Liens for taxes, assessments, governmental
charges or claims which are not yet delinquent or which are being contested in
good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor; (b) other Liens incidental to the conduct of the Company's and
its Subsidiaries' business or the ownership of its property and assets not
securing any Debt, and which do not in the aggregate materially detract from the
value of the Company's and its Subsidiaries' property or assets when taken as a
whole, or materially impair the use thereof in the operation of its business
(including, without limitation, Liens securing any obligation to landlords,
vendors, carriers, warehousemen, mechanics, laborers and materialmen and other
similar obligations arising by operation of law not yet delinquent or which are
being contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor); (c) Liens with respect to assets of a Subsidiary
granted by such Subsidiary to the Company to secure Debt owing to the Company;
(d) Liens on assets owned by Non-Recourse Subsidiaries to secure Non-Recourse
Debt; (e) Liens on assets not constituting Collateral with an aggregate book
value not in excess of 5% of the book value of the Company's total consolidated
assets as shown on the Company's most recent consolidated balance sheet; (f)
pledges and deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; (g) deposits made to secure the performance of tenders, bids, leases,
statutory obligations of a like nature

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incurred in the ordinary course of business (exclusive of obligations for the
payment of borrowed money); (h) zoning restrictions, servitudes, easements,
rights-of-way, restrictions and other similar charges or encumbrances incurred
in the ordinary course of business which, in the aggregate, do not materially
detract from the value of the property subject thereto or interfere with the
ordinary conduct of the business of the Company or its Subsidiaries; (i) Liens
arising out of judgments or awards against the Company of any Subsidiary with
respect to which the Company or such Subsidiary is prosecuting an appeal or
proceeding for review and the Company or such Subsidiary is maintaining adequate
reserves in accordance with GAAP; (j) any interest or title of a lessor in the
property subject to any Capital Lease Obligation or operating lease; and (k)
Liens in favor of the Company or the Holders with respect to the Intercompany
Notes.

"Permitted Payments" means, with respect to the Company or any of its
Subsidiaries, (a) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Disqualified Stock) or in options, warrants
or other rights to purchase Capital Stock (other than Disqualified Stock); (b)
any dividend, other distribution, loan or advance to the Company by any of its
Subsidiaries or by a Subsidiary to another Subsidiary (except to a Non-Recourse
Subsidiary or a Restricted Subsidiary); (c) any defeasance, redemption,
repurchase or other acquisition for value of any Debt of the Company with the
proceeds from the issuance of (i) Debt which is subordinate to the Senior
Secured Notes at least to the extent and in the manner as the Debt to be
defeased, redeemed, repurchased or otherwise acquired is subordinate in right of
payment to the Senior Secured Notes; provided, that (1) such newly-issued
subordinated Debt provides for no payments of principal by way of sinking fund,
mandatory redemption, defeasance or otherwise by the Company or its Subsidiaries
(including, without limitation, at the option of the holder thereof other than
an option given to a holder pursuant to a "Change of Control" covenant which (x)
is no more favorable to the holders of such Debt than the provisions in favor of
the Holders and (y) such Debt provides that the Company or its Subsidiaries will
not repurchase such Debt pursuant to such provisions prior to the Company's
repurchase of the Senior Secured Notes required to be repurchased by the Company
upon a Change of Control) prior to the maturity of the Debt being replaced and
(2) the proceeds of such new Debt are utilized for such purpose within 45 days
of issuance or (ii) Capital Stock (other than Disqualified Stock) issued in
accordance with the provisions of the Indenture; (d) the redemption or
repurchase by a Wholly-Owned Subsidiary of its Capital Stock owned by the
Company or a Wholly-Owned Recourse Subsidiary; (e) the redemption by the Company
of up to $12 million aggregate principal amount of the issue titled "11%
Subordinated Convertible Debenture Due October 4, 2005" relating to principal
payments due following maturity of the Senior Secured Notes, plus any accrued
interest thereon; and (f) payments with respect to the Intercompany Notes.

"Person" means any individual, corporation, partnership, joint venture,
association, joint stock company, trust unincorporated organization, government
or any agency or political subdivision thereof or any other entity.

"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now or hereafter outstanding, and
includes, without limitation, all classes and series of preferred or preference
stock.

"Public Equity Offering" means an underwritten public offering of Common
Stock of the Company for cash pursuant to an effective registration statement
under the Securities Act; provided that the Common Stock is not a Disqualified
Stock.

"Recourse Debt" means any Debt other than Non-Recourse Debt.

"Recourse Subsidiary" means any Subsidiary other than a Non-Recourse
Subsidiary.

"Restricted Payment" means, with respect to any Person, (a) any dividend or
other distribution on any shares of such Person's Capital Stock (other than
dividends or distributions payable in Capital Stock that is not Disqualified
Stock); (b) any payment on account of the purchase,

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redemption, retirement or other acquisition of (i) any shares of such Person's
Capital Stock or (ii) any option, warrant or other right to acquire shares of
such Person's Capital Stock; (c) any defeasance, redemption, repurchase or other
acquisition or retirement for value prior to scheduled maturity, scheduled
repayment or scheduled sinking fund payment of any Debt ranked pari passu or
subordinate in right of payment to the Senior Secured Notes and having a
maturity date subsequent to the maturity of the Senior Secured Notes; or (d) any
Investment other than a Permitted Investment; provided, that "Restricted
Payments" shall not include any payment described in (a), (b) and (c) above made
by a Subsidiary to the Company or a Wholly Owned Recourse Subsidiary of the
Company. Notwithstanding the foregoing, Restricted Payment shall not include any
Permitted Payment.

"Restricted Subsidiary" means any Subsidiary subject to consensual
restrictions, other than pursuant to the Credit Facility, direct or indirect, on
the declaration or payment of dividends or similar distributions by that
Subsidiary to the Company or any other consolidated Subsidiary of the Company.

"Sale and Leaseback Transaction" means, with respect to any Person, an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of Person or any of
its Subsidiaries which has been or is being sold or transferred by such Person
or such Subsidiary to such lender or investor or to any person to whom funds
have been or are to be advanced by such lender or investor on the security of
such property or asset.

"Security Documents" means, collectively, (i) the mortgages, (ii) the
security agreements, (iii) the subsidiary guarantees, (iv) the Intercompany
Notes and the pledge relating thereto and (v) the collateral agency and
intercreditor agreement entered into in connection with the offering of the
Senior Secured Notes.

"Subsidiary" means any corporation, association, partnership or other
business entity of which 50% or more of the total voting power of shares of
Capital Stock or other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) the Company, (ii) the Company and one or more
Subsidiaries or (iii) one or more Subsidiaries.

"Trust Moneys" means all cash or Cash Equivalents received by the
Collateral Agent (a) as Net Cash Proceeds received by the Company and its
Subsidiaries from Asset Sales to be subject to the Lien of the Security
Documents in accordance with "-- Restrictions on Asset Sales"; or (b) as
Condemnation Proceeds with respect to all or any part of the Collateral; or (c)
as Net Insurance Proceeds with respect to all or any part of the Collateral; or
(d) as proceeds of any other sale or other disposition of all or any part of the
Collateral by or on behalf of the Collateral Agent or any collection, recovery,
receipt, appropriation or other realization of or from all or any part of the
Collateral pursuant to the Security Documents or otherwise.

"Trustee" means the party named as such in the Indenture until a successor
replaces it and, thereafter, means the successor.

"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America, the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case, are
not callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act) as custodian with respect to any such U.S. Government
Obligation or a specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the holder of
such depository receipt; provided that (except as required by law) such
custodian is not authorized to make any deduction from the

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amount payable to the holder of such depository receipt from any amount received
by the custodian in respect of the U.S. Government Obligation or the specific
payment of principal of or interest on the U.S. Government Obligation evidenced
by such depository receipt.

"Wholly Owned Recourse Subsidiary" means a Wholly Owned Subsidiary that is
a Recourse Subsidiary.

"Wholly Owned Subsidiary" means a Subsidiary all the Capital Stock of which
(other than directors' qualifying shares), or in the case of a non-corporate
Subsidiary, other equity interests having ordinary voting power for the election
of directors or other governing body of such Subsidiary, is owned by the Company
or another Wholly Owned Subsidiary.

DESCRIPTION OF CERTAIN INDEBTEDNESS

CREDIT FACILITY

The following summary of certain provisions of the Credit Facility is
generalized, does not purport to be complete, and is subject to and is qualified
in its entirety by reference to the provisions of the Credit Facility, a copy of
which has been filed as an exhibit to the Registration Statement of which this
Prospectus is a part. Capitalized terms that are used but not otherwise defined
herein have the meanings assigned to them in the Credit Facility and those
definitions are incorporated herein by reference.

General. Prior to or concurrently with the Offering, Newport, Koppel and
Imperial (collectively, the "Borrowers"), the Company and its Subsidiaries that
are not Borrowers will enter into a Revolving Credit, Guaranty and Security
Agreement with The Bank of New York Commercial Corporation ("BNYCC") and PNC
Bank Ohio, N.A., as co-agents, and BNYCC as ACM Agent (the "Credit Facility").
The Company and the Subsidiaries (other than the Borrowers) will guaranty the
Borrowers' obligations under the Credit Facility. The Credit Facility will
provide that at any one time, the Borrowers may in the aggregate borrow up to
the lesser of the Maximum Revolving Advance Amount and the Formula Amount minus
reserves deemed proper and necessary by BNYCC (including reserves for certain
environmental matters). The Maximum Revolving Advance Amount will initially be
$45 million but may increase to $50 million if another lender agrees to lend at
least an additional $5 million on the terms of the Credit Facility. The Formula
Amount will be based on a percentage of the Borrowers' inventory and accounts
receivable which qualify for inclusion therein under certain tests contained in
the Credit Facility. An aggregate amount of $6 million will be available for the
issuance of Letters of Credit under the Credit Facility for the benefit of
Newport and Koppel, to the extent that availability exists under the Credit
Facility. The initial term of the Credit Facility will expire three years after
the Closing Date, but may be terminated earlier or extended for
successive one year periods. Upon termination of the Credit Facility, all
amounts outstanding under the Credit Facility will be due and payable together
with all accrued interest thereon to such date. Borrowings under the Credit
Facility will be used by Borrowers to repay certain outstanding indebtedness, to
provide working capital and for other general corporate purposes.

Interest. Interest on the revolving advances shall accrue at a rate per
annum equal to (a) the sum of the Alternate Base Rate plus one percent (1%) with
respect to Domestic Rate Loans or (b) the sum of the Eurodollar Rate plus two
and three quarters percent (2 3/4%) with respect to Eurodollar Rate Loans.

To the extent permitted by law, upon and after the occurrence and
declaration of an Event of Default under the Credit Facility, and during the
continuation thereof, the Borrowers' obligations under the Credit Facility will
bear interest at the applicable revolving interest rate plus two percent (2%)
per annum.

Security. The Advances and the guarantees thereof will be secured by a
first priority perfected security interest in the inventory, accounts and
certain intangible property of each of the Borrowers

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and the Guarantors. All proceeds of the foregoing will be required to be
deposited in lockbox or dominion accounts. The Borrowers will deliver an
irrevocable letter of instruction to the lockbox or dominion banks directing
such bank to transfer funds so deposited to the account of the ACM Agent.

Certain Covenants. The Credit Facility and related guarantees and security
agreements each will contain extensive affirmative and negative covenants,
including, among others, covenants (i) prescribing minimum levels of net worth
and working capital; (ii) requiring the maintenance of a certain interest
coverage ratio, current ratio and ratio of total liabilities to net worth; and
(iii) placing limits on the ability of the Company and each of its Subsidiaries
to incur indebtedness, create liens, guarantee indebtedness, make investments,
make loans or extensions of credit, make capital expenditures, declare, pay or
make dividends, substantially change the nature of its business, engage in
transactions with affiliates, enter into leases, and form subsidiaries. The
Credit Facility will require the Company to maintain as of the end of each
fiscal quarter an interest coverage ratio of 1.1 to 1.0 during fiscal 1995, 1.5
to 1.0 during fiscal 1996 and 1.75 to 1.0 during fiscal 1997, measured on a
rolling four-quarter basis. For the twelve month period ended April 1, 1995, the
interest coverage ratio was 1.65 to 1.0. In addition, the net worth covenant
under the Credit Facility will require the Company to maintain a net worth of at
least $70 million, less the after-tax effect of prepayment penalties associated
with the prepayment of debt with the proceeds of the Offering. At April 1, 1995,
the Company had a net worth of approximately $76.4 million. The Company
currently would be, and will be upon completion of the Offering, in compliance
with all covenants under the Credit Facility.

The Credit Facility will also contain covenants which limit the ability of
the Company and each of its Subsidiaries to sell assets other than sales in the
ordinary course of business, sales of obsolete or idle assets (other than the
collateral under the Credit Facility) and sales of certain non-steel related
assets (in which event the maximum revolving advance amount would be reduced),
and to enter into certain transactions among affiliates, among others. The
Credit Facility does not permit the Company or any of its Subsidiaries to (i)
merge, consolidate or reorganize (except that the Company and its Subsidiaries
may merge with each other under certain conditions) or (ii) acquire all or
substantially all of the stock or assets of any entity unless the Company has
working capital after such transaction of no less than the sum of $20,000,000
plus scheduled principal payments due within 36 months excluding obligations
arising under the Credit Facility. After giving effect to the Offering and the
application of certain cash balances of the Company to the payment of debt, as
of April 1, 1995, the Company would have had $67.6 million in working capital
and minimal term debt amortization requirements over the next five years. In
addition, the Credit Facility will restrict prepayment of indebtedness,
including the Senior Secured Notes, through optional redemptions, certain Asset
Sale Offers and Change of Control Offers.

Defaults. The Credit Facility will contain certain Events of Default
including, among others, (i) failure to pay the Obligations under the Credit
Facility when due, (ii) breach of any representation or warranty in any of the
loan documents, (iii) failure to comply with terms, provisions, conditions or
covenants in any of the loan documents (which in some cases do not include
notice or cure periods), (iv) issuance of liens or attachment which are not
stayed or lifted within 30 days or entry of judgment (over a threshold level)
which is not satisfied, stayed or discharged of record within 40 days, (v)
certain events of insolvency or bankruptcy or the written admission of inability
to pay debts when due, (vi) Liens created under the Credit Facility ceasing to
be first priority, perfected security interests or any portion of the Collateral
being seized, (vii) material defaults under other agreements to which the
Borrowers or any member of the Holdings Group are a party which have a material
adverse effect on the Company, (viii) Change of Ownership, (ix) revocation,
suspension, adverse modification or termination (or the institution of
proceedings to do so) of any material license, permit, patent, trademark or
tradename, (x) certain ERISA violations, and (xi) interruption of business
operations. In addition, any change in any Borrower's condition or affairs
(financial or otherwise) which in the Lenders' reasonable opinion materially
impairs the Collateral or the ability of

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the Borrowers, taken as a whole, to perform their Obligations under the Credit
Facility will constitute an Event of Default.

Upon the occurrence of the Event of Default relating to bankruptcy or
insolvency of a Borrower, all the Obligations under the Credit Facility will
become immediately due and payable and the Lenders' obligations to make Advances
will be terminated. Upon the occurrence of any other Event of Default, at the
option of a certain percentage of Lenders, all the Obligations under the Credit
Facility will become immediately due and payable and the Lenders' obligations to
make Advances will be terminated. Upon the filing of a petition against any
Borrower in any involuntary case under any state or federal bankruptcy laws, the
obligation of Lenders to make Advances under the Credit Facility will be
terminated other than as required by an appropriate order of the bankruptcy
court having jurisdiction over any Borrower. Upon the occurrence of an Event of
Default, the ACM Agent may exercise other rights and remedies as provided under
the Credit Facility and applicable law.

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES

The following summary describes certain United States federal income tax
consequences of the ownership of Senior Secured Notes as of the date hereof.
Except where noted, it deals only with Senior Secured Notes held as capital
assets by United States Holders and does not deal with special situations, such
as those of dealers in securities or currencies, financial institutions, life
insurance companies, persons holding Senior Secured Notes as a part of a hedging
or conversion transaction or a straddle or United States Holders whose
"functional currency" is not the U.S. dollar. Furthermore, the discussion below
is based upon the provisions of the Internal Revenue Code of 1986, as amended,
and regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed below.
The discussion below also assumes that the Senior Secured Notes will not be
issued with original issue discount ("OID"). PERSONS CONSIDERING THE PURCHASE,
OWNERSHIP OR DISPOSITION OF SENIOR SECURED NOTES SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR
PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION.

PAYMENTS OF INTEREST

Interest on a Senior Secured Note will generally be taxable to a United
States Holder as ordinary income from domestic sources at the time it is paid or
accrued in accordance with the United States Holder's method of accounting for
tax purposes. As used herein, a "United States Holder" of a Senior Secured Note
means a holder that is a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any political subdivision thereof, or an estate or
trust the income of which is subject to United States federal income taxation
regardless of its source.

ORIGINAL ISSUE DISCOUNT

The above discussion assumes that the Senior Secured Notes will not be
issued with OID. However, if the Senior Secured Notes are issued at a
substantial discount they will have OID. United States Holders generally will be
required to include OID in gross income in advance of the receipt of cash
attributable to that income. Accordingly, if the Senior Secured Notes are issued
at a substantial discount, United States Holders should consult their own tax
advisors regarding the U.S. federal income tax consequences of the holding and
disposition of such Notes.

MARKET DISCOUNT

If a United States Holder purchases a Senior Secured Note for an amount
that is less than its principal amount (generally other than at its original
issue), the amount of the difference will be treated as "market discount" for
federal income tax purposes, unless such difference is less than a specified de
minimis amount. Under the market discount rules, a United States Holder will be

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required to treat any principal payment on, or any gain on the sale, exchange,
retirement or other disposition of, a Senior Secured Note as ordinary income to
the extent of the market discount which has not previously been included in
income and is treated as having accrued on such Senior Secured Note at the time
of such payment or disposition. In addition, the United States Holder may be
required to defer, until the maturity of the Senior Secured Note or its earlier
disposition in a taxable transaction, the deduction of all or a portion of the
interest expense of any indebtedness incurred or continued to purchase or carry
such Senior Secured Note.

Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Senior Secured Note,
unless the United States Holder elects to accrue the market discount on a
constant interest method. A United States Holder of a Senior Secured Note may
elect to include market discount in income currently as it accrues (on either a
ratable or constant interest method), in which case the rule described above
regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service.

SALE, EXCHANGE AND RETIREMENT OF SENIOR SECURED NOTES

A United States Holder's tax basis in a Senior Secured Note will, in
general, be the United States Holder's cost therefor, increased by market
discount previously included in income by the United States Holder and reduced
by any amortized premium and any cash payments on the Senior Secured Note other
than qualified stated interest. Upon the sale, exchange or retirement of a
Senior Secured Note, a United States Holder will recognize gain or loss equal to
the difference between the amount realized upon the sale, exchange or retirement
(less any accrued qualified stated interest, which will be taxable as such) and
the adjusted tax basis of the Senior Secured Note. Except with respect to market
discount, such gain or loss will be capital gain or loss and will be long-term
capital gain or loss if at the time of sale, exchange or retirement the Senior
Secured Note has been held for more than one year. Under current law, net
capital gains of individuals are, under certain circumstances, taxed at lower
rates than items of ordinary income. The deductibility of capital losses is
subject to limitations.

BACKUP WITHHOLDING AND INFORMATION REPORTING

In general, information reporting requirements will apply to certain
payments of principal, interest, and premium paid on Senior Secured Notes and to
the proceeds of sale of a Senior Secured Note made to United States Holders
other than certain exempt recipients (such as corporations). A 31 percent backup
withholding tax will apply to such payments if the United States Holder fails to
provide a taxpayer identification number or certification of foreign or other
exempt status or fails to report in full dividend and interest income.

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UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement
(the "Underwriting Agreement") among the Company, Chemical Securities Inc. and
CS First Boston Corporation (the "Underwriters"), the Company has agreed to sell
to the Underwriters, and the Underwriters have severally agreed to purchase from
the Company, the following respective principal amounts of the Senior Secured
Notes:

<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITERS AMOUNT
------------------------------------------------------------------- ---------------
<S> <C>
Chemical Securities Inc............................................ $
CS First Boston Corporation........................................
---------------
Total......................................................... $ 125,000,000
===============
</TABLE>

In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Senior Secured Notes
offered hereby if any of the Senior Secured Notes are purchased. The Company has
been advised by the Underwriters that they propose initially to offer the Senior
Secured Notes to the public at the public offering price set forth on the cover
page of this Prospectus, and to certain dealers at such price less a discount
not in excess of % of the principal amount of the Senior Secured Notes. The
Underwriters may allow, and such dealers may reallow, a concession to certain
other dealers not in excess of % of the principal amount of the Senior
Secured Notes. After the initial public offering, the public offering price,
discount and concession may be changed.

The Senior Secured Notes are a new issue of securities with no established
trading market. The Company does not intend to apply for listing of the Senior
Secured Notes on a national securities exchange, but has been advised by the
Underwriters that the Underwriters intend to make a market in the Senior Secured
Notes, as permitted by applicable laws and regulations. No assurance can be
given, however, that the Underwriters will make a market in the Senior Secured
Notes or as to the liquidity of, or the trading market for, the Senior Secured
Notes.

The Company has agreed to indemnify the Underwriters against certain civil
liabilities, including liabilities under the Securities Act, or to contribute to
payments which the Underwriters may be required to make in respect thereof.

LEGAL MATTERS

The validity of the Senior Secured Notes and the Guarantees will be passed
upon for the Company and the Subsidiaries by Bryan Cave, LLP, St. Louis,
Missouri. Certain legal matters related to the Offering will be passed upon for
the Underwriters by Simpson Thacher & Bartlett (a partnership which includes
professional corporations), New York, New York. Certain other legal matters will
be passed upon for the Company by Kepley, MacConnell & Eyrich, Cincinnati, Ohio;
Eckert, Seamans, Cherin & Mellott, Pittsburgh, Pennsylvania; Brown, Sims, Wise &
White, Houston, Texas; and Huffman, Arrington, Kihle, Gaberino & Dunn, Tulsa,
Oklahoma.

INDEPENDENT AUDITORS

The audited financial statements and schedules of the Company included in
this Prospectus and elsewhere in the Registration Statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing.

105
<PAGE> 108

[THIS PAGE INTENTIONALLY LEFT BLANK]

106
<PAGE> 109

[THIS PAGE INTENTIONALLY LEFT BLANK]

107
<PAGE> 110

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

NS GROUP, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
I. CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED 1994, 1993 AND 1992
Report of Independent Public Accountants......................................... F-2
Consolidated Balance Sheets as of September 24, 1994 and September 25, 1993...... F-3
Consolidated Statements of Operations for the years ended September 24, 1994,
September 25, 1993, and September 26, 1992....................................... F-4
Consolidated Statements of Cash Flows for the years ended September 24, 1994,
September 25, 1993, and September 26, 1992....................................... F-5
Consolidated Statements of Common Shareholders' Equity........................... F-6
Notes to Consolidated Financial Statements....................................... F-7

II. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL QUARTERS ENDED APRIL 1, 1995
AND MARCH 26, 1994 (UNAUDITED)
Condensed Consolidated Balance Sheets............................................ F-19
Condensed Consolidated Statements of Operations.................................. F-20
Condensed Consolidated Statements of Cash Flows.................................. F-21
Notes to Condensed Consolidated Financial Statements............................. F-22
</TABLE>

F-1
<PAGE> 111

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To NS Group, Inc.:

We have audited the accompanying consolidated balance sheets of NS Group,
Inc. (a Kentucky corporation) and subsidiaries as of September 24, 1994 and
September 25, 1993, and the related consolidated statements of operations,
common shareholders' equity and cash flows for each of the three years in the
period ended September 24, 1994. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NS Group, Inc. and
subsidiaries as of September 24, 1994 and September 25, 1993, and the results of
their operations and their cash flows for each of the three years in the period
ended September 24, 1994 in conformity with generally accepted accounting
principles.

As explained in Note 12 to the consolidated financial statements, the
Company changed its method of accounting for income taxes effective September
26, 1993.

Cincinnati, Ohio ARTHUR ANDERSEN LLP
October 31, 1994

F-2
<PAGE> 112

NS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 24, 1994 AND SEPTEMBER 25, 1993

(Dollars in thousands)

<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents...................................... $ 4,405 $ 5,797
Short-term investments......................................... 40,071 3,457
Accounts receivable, less allowance for doubtful accounts of
$637 and $819, respectively................................... 42,651 48,602
Refundable income taxes........................................ 195 2,813
Inventories.................................................... 32,290 41,691
Operating supplies and other current assets.................... 11,721 18,358
Deferred tax assets............................................ 4,877 6,004
-------- --------
Total current assets...................................... 136,210 126,722
-------- --------
PROPERTY, PLANT AND EQUIPMENT -- AT COST
Land and buildings............................................. 27,841 27,559
Machinery and equipment........................................ 231,383 234,172
Construction in progress....................................... 3,497 3,362
Less -- accumulated depreciation............................... (102,182) (91,627)
-------- --------
Net property, plant and equipment............................ 160,539 173,466
-------- --------
OTHER ASSETS........................................................ 18,578 17,054
-------- --------
Total assets.............................................. $315,327 $317,242
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable.................................................. $ 28,872 $ 26,967
Accounts payable............................................... 27,312 28,300
Accrued liabilities............................................ 19,281 23,263
Current portion of long-term debt.............................. 15,543 9,132
-------- --------
Total current liabilities................................. 91,008 87,662
-------- --------
LONG-TERM DEBT...................................................... 138,110 156,056
-------- --------
DEFERRED TAXES...................................................... 9,745 10,902
-------- --------
COMMON SHAREHOLDERS' EQUITY
Common stock, no par value, 40,000,000 shares authorized,
13,809,413 and 13,696,104 shares issued and outstanding,
respectively.................................................. 48,988 48,284
Common stock options and warrants.............................. 262 208
Unrealized gain (loss) on available for sale securities........ (124) --
Retained earnings.............................................. 27,338 14,130
-------- --------
Common shareholders' equity.................................. 76,464 62,622
-------- --------
Total liabilities and shareholders' equity................ $315,327 $317,242
======== ========
</TABLE>

See notes to consolidated financial statements

F-3
<PAGE> 113

NS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED SEPTEMBER 24, 1994, SEPTEMBER 25, 1993 AND SEPTEMBER 26,
1992

(Dollars in thousands, except per share amounts)

<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
NET SALES...................................... $ 303,380 $ 353,082 $ 281,242
COST OF PRODUCTS SOLD.......................... 278,161 310,586 250,189
SELLING AND ADMINISTRATIVE EXPENSES............ 24,530 30,824 29,652
----------- ----------- -----------
Operating income.......................... 689 11,672 1,401
INTEREST INCOME................................ 1,733 277 722
INTEREST EXPENSE............................... (20,030) (21,096) (21,797)
OTHER INCOME (EXPENSE)......................... 1,191 (131) 258
GAIN ON SALE OF SUBSIDIARY..................... 35,292 -- --
----------- ----------- -----------
Income (loss) before income taxes,
extraordinary items and cumulative
effect of a change in accounting
principle............................... 18,875 (9,278) (19,416)
PROVISION (CREDIT) FOR INCOME TAXES............ 7,382 (3,382) (6,058)
----------- ----------- -----------
Income (loss) before extraordinary items
and cumulative effect of a change in
accounting principle.................... 11,493 (5,896) (13,358)
EXTRAORDINARY ITEMS, NET OF INCOME TAXES....... -- (1,095) (2,542)
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE.................................... 1,715 -- --
----------- ----------- -----------
Net income (loss)......................... $ 13,208 $ (6,991) $ (15,900)
=========== =========== ===========
PER COMMON SHARE
Income (loss) before extraordinary items
and cumulative effect of a change in
accounting principle.................... $ .84 $ (.44) $ (.99)
Extraordinary items....................... -- (.08) (.19)
Cumulative effect of a change in
accounting principle.................... .12 -- --
----------- ----------- -----------
Net income (loss)......................... $ .96 $ (.52) $ (1.18)
=========== =========== ===========

WEIGHTED AVERAGE SHARES OUTSTANDING............ 13,789,265 13,552,838 13,483,247
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE> 114

NS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 24, 1994, SEPTEMBER 25, 1993 AND SEPTEMBER 26,
1992

(Dollars in thousands)

<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................ $ 13,208 $ (6,991) $(15,900)
Adjustments to reconcile net income (loss) to net
cash flows from operating activities:
Depreciation and amortization............... 18,789 19,093 18,711
Decrease in long-term deferred taxes........ (1,157) (1,998) (1,675)
Gain on sale of subsidiary.................. (35,292) -- --
(Gain) loss on disposal of equipment........ (230) 323 381
Increase in accounts receivable, net........ (7,921) (11,461) (11,498)
(Increase) decrease in inventories.......... (3,168) 906 1,430
Decrease in refundable income taxes......... 2,618 2,012 7,067
(Increase) decrease in other current
assets.................................... 2,691 (7,203) (33)
Increase in accounts payable................ 5,782 958 6,442
Increase in accrued liabilities............. 351 6,753 3,590
-------- -------- --------
Net cash flows from operating
activities............................. (4,329) 2,392 8,515
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of subsidiary............ 50,426 -- --
Cash dividend from sold subsidiary.......... 6,818 -- --
Purchases of property, plant and
equipment................................. (11,760) (6,080) (4,148)
Proceeds from sale of equipment............. 631 619 1,246
(Increase) decrease in other assets......... (2,122) 999 (774)
(Increase) decrease in short-term
investments............................... (36,614) 208 2,303
-------- -------- --------
Net cash flows from investing
activities............................. 7,379 (4,254) (1,373)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable................... 1,905 6,286 3,989
Proceeds from issuance of long-term debt.... 431 2,012 6,379
Repayments on long-term debt................ (7,246) (9,896) (12,960)
Increase in debt issuance costs............. (236) (388) (259)
Proceeds from issuance of common stock...... 704 931 133
Dividends paid on common stock.............. -- -- (808)
-------- -------- --------
Net cash flows from financing
activities............................. (4,442) (1,055) (3,526)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents............................ (1,392) (2,917) 3,616
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR........ 5,797 8,714 5,098
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR.............. $ 4,405 $ 5,797 $ 8,714
======== ======== ========
Cash paid during the year for:
Interest.................................... $ 18,964 $ 18,434 $ 18,448
======== ======== ========
Income taxes................................ $ 4,868 $ 291 $ 177
======== ======== ========
</TABLE>

See notes to consolidated financial statements

F-5
<PAGE> 115

NS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED SEPTEMBER 24, 1994, SEPTEMBER 25, 1993 AND SEPTEMBER 26,
1992

(Dollars in thousands)

<TABLE>
<CAPTION>
Unrealized Gain
Common Stock Options (Loss) on
---------------------- and Available for Retained
Shares Amount Warrants Sale Securities Earnings Total
----------- ------- ------- --------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 28, 1991... 13,454,982 $47,220 $ 100 $ 37,829 $ 85,149
Stock option plans............ 49,575 133 133
Net loss...................... (15,900) (15,900)
Common stock dividends ($.06
per share).................. (808) (808)
----------- ------- ------ ----- -------- --------
BALANCE, SEPTEMBER 26, 1992... 13,504,557 $47,353 $ 100 $ 21,121 $ 68,574
Stock option plans............ 48,750 181 108 289
Common stock issuance......... 142,797 750 750
Net loss...................... (6,991) (6,991)
----------- ------- ------ ----- -------- --------
BALANCE, SEPTEMBER 25, 1993... 13,696,104 $48,284 $ 208 $ -- $ 14,130 $ 62,622
Stock option plans............ 56,145 290 54 344
Common stock issuance......... 57,164 414 414
Unrealized losses on
investments................. (124) (124)
Net income.................... 13,208 13,208
----------- ------- ------ ----- -------- --------
BALANCE, SEPTEMBER 24, 1994... 13,809,413 $48,988 $ 262 $(124) $ 27,338 $ 76,464
========== ======= ====== ===== ======== ========
</TABLE>

See notes to consolidated financial statements

F-6
<PAGE> 116

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

PRINCIPLES OF CONSOLIDATION

The consolidated financial statements include the accounts of NS Group,
Inc. and its wholly-owned subsidiaries (the Company): Newport Steel Corporation
(Newport), Koppel Steel Corporation (Koppel), Erlanger Tubular Corporation
(Erlanger), Imperial Adhesives, Inc. (Imperial), Northern Kentucky Management,
Inc., Northern Kentucky Air, Inc and NSub I, Inc., formerly known as Kentucky
Electric Steel Corporation. See Note 2. All significant intercompany accounts
and transactions have been eliminated.

CASH AND CASH EQUIVALENTS

Cash includes currency on hand and demand deposits with financial
institutions. Cash equivalents consist of investments with original maturities
of three months or less. Amounts are stated at cost, which approximates market
value.

SHORT-TERM AND OTHER INVESTMENTS

Short-term investments consist primarily of auction rate preferred stocks
and money market mutual funds for which market value approximates cost. At
September 24, 1994, approximately $8,309,000 in short-term investments were
restricted, primarily in connection with cash collateralized letters of credit.
Other investments consist of marketable equity securities and are classified as
"Other Assets" in the accompanying consolidated balance sheets. During the first
quarter of fiscal 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (Statement 115). Under Statement 115, the Company's investment in a
marketable equity security is classified as "available for sale" and is recorded
at current market value with an offsetting adjustment to common shareholders'
equity; all short-term investments are classified as "trading securities" and
are recorded at current market value, with unrealized gains and losses included
in results of operations. The impact on the Company's consolidated financial
statements from the adoption of Statement 115 was not material.

INVENTORIES

At September 24, 1994 and September 25, 1993, inventories stated at the
lower of LIFO (last-in, first-out) cost or market represent approximately 27%
and 23% of total inventories before the LIFO reserve, respectively. All other
inventories are stated at the lower of average cost or market, or the lower of
FIFO cost or market. Inventory costs include labor, material and manufacturing
overhead. Inventories consist of the following components (in thousands of
dollars):

<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Raw materials........................................... $ 6,699 $ 5,736
Semi-finished and finished goods........................ 27,695 37,830
------- -------
34,394 43,566
LIFO reserve............................................ (2,104) (1,875)
------- -------
Total inventories....................................... $32,290 $41,691
======= =======
</TABLE>

PROPERTY, PLANT AND EQUIPMENT AND DEPRECIATION

For financial reporting purposes, plant and equipment are depreciated on a
straight-line method over the estimated useful lives of the assets. Depreciation
claimed for income tax purposes is computed by use of accelerated methods.
Expenditures for maintenance and repairs are charged to expense as incurred.
Expenditures for equipment renewals which extend the life of an asset are

F-7
<PAGE> 117

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

capitalized. Included in property, plant and equipment at September 24, 1994,
are assets with a net book value of approximately $5,910,000 which are not
currently being used in the business. In management's opinion, the values
assigned to such assets are realizable.

INCOME TAXES

At September 24, 1994, deferred income tax balances represent the tax
effect of temporary differences between the financial reporting basis and the
tax basis of certain assets and liabilities. In fiscal 1993 and 1992, the
provision for deferred income taxes represents the tax effect of income and
expense items reported in one period for financial statement purposes and in
another period for tax reporting purposes. See Note 12.

ENVIRONMENTAL REMEDIATION AND COMPLIANCE

Environmental remediation costs are accrued, except to the extent
capitalizable, when incurrence of such costs is probable and the costs can be
reasonably estimated. Environmental compliance costs include maintenance and
operating costs associated with pollution control facilities, costs of ongoing
monitoring programs, permit costs and other similar costs. Such costs are
expensed as incurred.

RECENTLY ISSUED ACCOUNTING STANDARDS

Statement of Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits" (Statement 112) was issued in November, 1992 and
requires companies to accrue, during the period an employee renders service, the
expense of providing certain postemployment benefits. Currently, the Company
recognizes the expense of such benefits, to the extent provided, at the time
payment is deemed probable. Adoption of Statement 112 is required in fiscal
1995. Management does not expect adoption of Statement 112 to have a material
impact on the Company's consolidated financial condition or results of
operations.

FISCAL YEAR-END

The Company's fiscal year ends on the last Saturday of September.

EARNINGS PER SHARE

Earnings per share are calculated using the weighted average number of
shares outstanding during the period. The effect of common stock equivalents
arising from stock options and warrants on the computation of earnings per share
is not significant.

NOTE 2: SALE OF SUBSIDIARY

On October 6, 1993, the Company sold all of the assets and liabilities of
its wholly-owned subsidiary, Kentucky Electric Steel Corporation (KES), to a
newly formed public company in exchange for $45,626,000 in cash and 400,000
shares (approximately 8%) of the new entity, valued at $4,800,000. In addition,
the Company received $6,818,000 in cash from the new entity in satisfaction of a
dividend declared by KES prior to the sale.

Subsequent to the sale, the Company changed the name of KES to NSub I,
Inc., which currently holds a portion of the proceeds from the sale. The
accompanying consolidated financial statements include the financial position,
results of operations and changes in cash flows of KES for the periods prior to
the sale.

The sale of KES resulted in a pre-tax gain of $35,292,000. After giving
effect to the elimination of the pre-tax gain of $35,292,000, the related tax
effect of $13,764,000 and $123,000 of net income of

F-8
<PAGE> 118

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

KES for the eleven days of fiscal 1994 prior to sale, the Company's pro forma
net loss before cumulative effect of a change in accounting principle for the
fiscal year ended September 24, 1994 is $10,158,000, or a $.74 loss per share.

NOTE 3: OTHER ASSETS

Other assets at September 24, 1994 and September 25, 1993 includes
approximately $10,528,000 and $13,274,000, respectively, in costs associated
with land near Newport, Kentucky, held as investment property and listed for
sale. At September 24, 1994, other assets also include a marketable equity
security with a carrying value of $4,600,000 and a cost basis of $4,800,000.

NOTE 4: ACCRUED LIABILITIES

Accrued liabilities consist of the following (in thousands of dollars):

<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Accrued payroll and payroll taxes....................... $ 5,032 $ 6,339
Accrued interest........................................ 4,072 4,131
Accrued environmental remediation....................... 4,563 5,766
Accrued income taxes.................................... 711 --
Other................................................... 4,903 7,027
------- -------
$19,281 $23,263
======= =======
</TABLE>

NOTE 5: LONG-TERM DEBT AND LINES OF CREDIT

Long-term debt of the Company consists of the following (in thousands of
dollars):

<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Term loans due a non-bank financial institution, interest ranging
from 11.54% to 12.54%, due in varying quarterly installments
through 2001, secured by property, plant and equipment............ $ 59,125 $ 61,125
Senior Secured Notes due various insurance companies, interest at
10.65%, due in equal quarterly installments through 1999, secured
by property, plant and equipment.................................. 32,729 37,200
11% Subordinated Convertible Debentures, due in annual installments
from October, 2000 through 2005................................... 29,000 29,000
Capital Expenditure Loans due a non-bank financial institution,
interest ranging from 7.99% to 11.54%, due in equal quarterly
installments beginning December, 1994 through 2001, secured by
property, plant and equipment..................................... 14,626 14,626
Term loans due various states and municipalities, interest ranging
from 3% to 11%, due in varying monthly or quarterly installments
through 2010, secured by junior mortgages on property, plant and
equipment......................................................... 11,613 16,470
Other............................................................... 6,560 6,767
-------- --------
153,653 165,188
Less -- Current portion............................................. (15,543) (9,132)
-------- --------
$138,110 $156,056
======== ========
</TABLE>

Certain of the loan agreements contain a number of restrictive covenants
including, among other things, maintenance of minimum net worth, minimum fixed
charge coverage ratios, maximum

F-9
<PAGE> 119

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

ratios of indebtedness to total capitalization, minimum current ratio and
working capital requirements and restrictions on transferring assets between
affiliated companies. Certain term loans also require mandatory prepayments in
the event Koppel's cash flow exceeds certain defined levels. In addition,
certain of the loan agreements allow for redemption prior to maturity, at the
option of the Company, at amounts in excess of par.

Certain of the loan agreements contain covenants restricting the payment of
dividends. Under the most restrictive of these covenants, retained earnings
available for dividends is computed under a formula which is based in part on
the earnings and losses of the Company after fiscal 1988. Under this covenant,
the Company is currently prohibited from paying dividends.

The Subordinated Convertible Debentures are unsecured obligations of the
Company and are convertible into common shares of the Company at a price of $17
per share, or approximately 1,706,000 shares. Interest is payable quarterly. The
Debentures are redeemable by the Company at 110% of par.

Annual long-term debt maturities are $15,543,000 in fiscal 1995,
$18,952,000 in fiscal 1996, $18,644,000 in fiscal 1997, $21,792,000 in fiscal
1998 and $21,747,000 in fiscal 1999.

The Company has consolidated line of credit agreements with various lenders
totaling $34,915,000, including a $16,165,000 line of credit agreement
restricted for use at Koppel. The lines are secured by inventory and accounts
receivable, with interest rates ranging from 1/2% to 1 1/2% over prime.
Borrowings are due on demand and are limited under the agreements to defined
percentages of eligible inventory and receivable balances, as well as by certain
restrictive covenants. At September 24, 1994, $34,915,000 of the Company's
consolidated lines of credit were available for borrowing, of which $28,197,000
was outstanding. These credit lines expire in fiscal 1995 and 1996.

NOTE 6: FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value
of financial instruments:

Cash, cash equivalents and short-term investments -- The carrying amount
approximates fair value because of the short maturity of those instruments.

Other investments -- Other investments, consisting of marketable equity
securities totaling $4,600,000, are reported in other assets and are carried at
market value.

Notes payable -- The carrying amount approximates fair value because of the
short maturity and because such instruments contain interest rates that vary
with the prime rate.

Long-term debt -- The fair value of the Company's long-term debt was
estimated by calculating the present value of the remaining interest and
principal payments on the debt to maturity. The present value computation uses a
discount rate equal to Treasury rates with similar terms at the end of the
reporting period plus or minus the spread between the Treasury rates and the
rate negotiated on the debt at the inception of the loan. The carrying amounts
and fair values of the Company's long-term debt at September 24, 1994 were
$153,653,000 and $154,649,000, respectively.

NOTE 7: PREFERRED STOCK

The Company's authorized stock includes 2,000,000 shares of Class A
Preferred Stock, issuable in one or more series. The rights, preferences,
privileges and restrictions of any series of Class A Preferred Stock, the number
of shares constituting any such series and the designation thereof, are subject
to determination by the Board of Directors.

F-10
<PAGE> 120

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Four hundred thousand shares of the Class A Preferred Stock has been
designated as Series A Junior Participating Preferred Stock, par value $10 per
share, in connection with the Shareholders Protection Rights Plan (Plan) adopted
in fiscal 1989. Pursuant to the Plan, one Preferred Stock Purchase Right (Right)
is attached to each outstanding share of common stock of the Company.

The Plan includes provisions which are intended to protect shareholders
against certain unfair and abusive takeover attempts by anyone acquiring or
tendering for 30% or more of the Company's common stock. The Company may redeem
the Rights for one cent per Right at any time before a 30% position has been
acquired. The Rights will expire in November 1998.

NOTE 8: STOCK OPTIONS AND WARRANTS

The Company has Employee Incentive Stock Option Plans which provide for the
issuance of shares of common stock of the Company upon exercise of options
granted to certain employees. Under the terms of these plans, options have been
granted at fair market value at the grant date and are exercisable on a pro rata
basis over a period of nine years beginning one year after the date of grant. At
September 24, 1994, options outstanding are priced in a range from $3.25 to
$14.125 per share. Of the options expired in fiscal 1994, 295,030 options
expired in connection with the sale of KES.

A summary of transactions in the plans for fiscal 1994 and 1993 follows:

<TABLE>
<CAPTION>
1994 1993
--------- ---------
<S> <C> <C>
Options outstanding, beginning of year............... 1,185,525 960,020
Options granted...................................... 289,050 332,550
Options expired...................................... (369,725) (58,295)
Options exercised.................................... (56,145) (48,750)
--------- ---------
Options outstanding, end of year..................... 1,048,705 1,185,525
========= =========
Options exercisable, end of year..................... 509,525 644,500
========= =========
Available for grant.................................. 488,580 674,250
========= =========
</TABLE>

Under the NS Group, Inc. Non-Qualified Stock Option and Stock Appreciation
Rights Plan of 1988 the Company may grant to key employees options to purchase
(or stock appreciation awards corresponding to) an aggregate of 500,000 shares
of the Company's common stock. Options are to be issued at no less than 50% of
market value on the date of grant, are exercisable in yearly increments as
determined by the Stock Option Committee and expire ten years from the date of
grant. At September 24, 1994, options outstanding are priced in a range from
$3.75 to $13.43 per share. Grant prices have ranged from 64% to 110% of the
market price at the date of grant. Compensation expense is recorded by the
Company for grants of options with an exercise price less than the market price
of the common stock at the date of grant.

F-11
<PAGE> 121

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

A summary of transactions in the plan for fiscal 1994 and 1993 follows:

<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
Options outstanding beginning of year................... 366,760 262,000
Options granted......................................... 135,085 125,760
Options expired......................................... (26,220) (21,000)
Options exercised....................................... -- --
------- -------
Options outstanding, end of year........................ 475,625 366,760
======= =======
Options exercisable, end of year........................ 106,700 61,200
======= =======
Available for grant..................................... 24,375 133,240
======= =======
</TABLE>

The Company has common stock warrants outstanding, issued in connection
with the financing of the Koppel acquisition. The warrants are exercisable for
approximately 772,000 shares of the Company's common stock, at a price of $8.00
per share and expire October 4, 2000.

NOTE 9: COMMITMENTS AND CONTINGENCIES

The Company has various commitments for the purchase of materials, supplies
and energy arising in the ordinary course of business.

Newport is a co-defendant in a claim for breach of implied warranty in the
United States District Court for the Southern District of Texas arising from the
failure of two joints of welded pipe during testing of an off-shore pipeline.
The plaintiff is seeking damages in excess of $5 million for costs associated
with replacing the entire pipeline and lost production revenues. The Company
believes that it has meritorious defenses to this claim. Insurance may be
available for a portion, but not all, of any award for damages. In addition, the
Company is subject to various other claims, lawsuits and administrative
proceedings arising in the ordinary course of business with respect to
commercial, product liability and other matters, which seek remedies or damages.
Based upon its evaluation of available information, management does not believe
that any such matters are likely, individually or in the aggregate, to have a
material adverse effect upon the Company's consolidated financial position,
results of operations or cash flows. The ultimate effect of those matters,
however, individually or in the aggregate, on the Company's consolidated results
of operations and cash flows may be materially impacted by the amount and timing
of charges to operations as well as the amount and timing of cash flow
requirements resulting from new information as it becomes available.

The Company is subject to federal, state and local environmental laws and
regulations, including, among others, the Resource Conservation and Recovery Act
(RCRA), the Clean Air Act, the 1990 Amendments to the Clean Air Act (the 1990
Amendments), the Clean Water Act and all regulations promulgated in connection
therewith, including those concerning the discharge of contaminants as air
emissions or waste water effluents and the disposal of solid and/or hazardous
wastes such as electric arc furnace dust. As such, the Company is from time to
time involved in administrative and judicial proceedings and administrative
inquiries related to environmental matters.

As with other similar mills in the industry, the Company's steel mini-mills
produce dust which contains lead, cadmium and chromium, which is classified as a
hazardous waste. The Company currently collects the dust resulting from its
electric arc furnace operations through emission control systems and recycles it
through a waste recycling firm using EPA-approved processes. The Company also
has on its property at Newport a permitted hazardous waste disposal facility.

F-12
<PAGE> 122

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The occurrences of the accidental melting of radioactive materials, as
discussed in Note 10, have not resulted in any notice of violations from federal
or state environmental regulatory agencies. The Company is investigating and
evaluating various issues concerning storage, treatment and disposal of the
radiation contaminated baghouse dust; however, a final determination as to
method of treatment and disposal, cost and further regulatory requirements
cannot be made at this time. Depending on the ultimate timing and method of
treatment and disposal, which will require appropriate federal and state
regulatory approval, the actual cost of disposal could substantially exceed
current estimates and the Company's insurance coverage. As of September 24,
1994, claims recorded in connection with disposal costs substantially exhaust
available insurance coverage. Based on current knowledge, management believes
the recorded gross reserves of $4,354,000 for disposal costs pertaining to these
incidents are adequate.

In September 1994, the Company received a proposed Consent Agreement from
the EPA relating to an April 1990 RCRA facility assessment (the Assessment)
completed by the EPA and the Pennsylvania Department of Environmental Resources.
The Assessment was performed in connection with a permit application pertaining
to a landfill that is adjacent to the Koppel facilities. The Assessment
identified potential releases of hazardous constituents at or adjacent to the
Koppel facilities prior to the Company's acquisition of the Koppel facilities.
The proposed Consent Agreement establishes a schedule for investigating,
monitoring, testing and analyzing the potential releases. Contamination
documented as a result of the investigation may require cleanup measures.
Pursuant to various indemnity provisions in agreements entered into at the time
of the Company's acquisition of the Koppel facilities, certain parties have
agreed to indemnify the Company against various known and unknown environmental
matters. While such parties have not at this time acknowledged full
responsibility for potential costs under the proposed Consent Agreement, the
Company believes that the indemnity provisions provide for it to be fully
indemnified against all matters covered by the proposed Consent Agreement,
including all associated costs, claims and liabilities.

Subject to the uncertainties concerning the proposed Consent Agreement and
the storage and disposal of the radiation contaminated dust, the Company
believes that it is currently in compliance with all known material and
applicable environmental regulations.

Regulations under the 1990 Amendments to the Clean Air Act that will
pertain to the Company's operations are currently not expected to be promulgated
until 1997 or later. The Company cannot predict the level of required capital
expenditures or operating costs resulting from future environmental regulations
such as those forthcoming as a result of the 1990 Amendments. However, the
Company believes that while the 1990 Amendments may require additional
expenditures, such expenditures will not have a material impact on the Company's
business or consolidated financial position for the foreseeable future.

Capital expenditures for the succeeding fiscal year relating to
environmental control facilities are not expected to be material, however, such
expenditures could be influenced by new and revised environmental regulations
and laws.

As of September 24, 1994, the Company had environmental remediation
reserves of $4,563,000, of which $4,354,000 pertain to accrued disposal costs
for radiation contaminated baghouse dust. As of September 24, 1994, the possible
range of estimated losses related to the environmental contingency matters
discussed above in excess of those accrued by the Company is $0 to $3,000,000;
however, with respect to the proposed Consent Agreement matter, the Company
cannot estimate the possible range of losses should the Company ultimately not
be indemnified. Based upon its evaluation of available information, management
does not believe that any of the environmental contingency matters discussed
above are likely, individually or in the aggregate, to have a material adverse
effect upon the Company's consolidated financial position, results of

F-13
<PAGE> 123

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

operations or cash flows. However, the Company cannot predict with certainty
that new information or developments with respect to the proposed Consent
Agreement or its other environmental contingency matters, individually or in the
aggregate, will not have a material adverse effect on the Company's consolidated
financial position, results of operations or cash flows.

NOTE 10: EXTRAORDINARY ITEMS

During the fourth quarter of fiscal 1993, Newport shut down its melt shop
operations for nineteen days when it was discovered that a radioactive substance
was accidentally melted, resulting in the contamination of the melt shop's
electric arc furnace emission control facility, or "baghouse facility". A
similar incident, having occurred in the third quarter of fiscal 1992, shut down
Newport's melt shop facilities for twenty-three days. The source of the
radiation in these incidents was contained in incoming shipments of scrap steel
and was not detected by monitors that check incoming steel scrap. In response,
the Company incurred capital expenditures to install additional state-of-the-art
radiation detection systems in various locations throughout the Newport plant.

The Company incurred estimated losses as a result of the extended outages
and costs to restore the melt shop and related facilities back to operation,
including estimated costs to dispose of the radiation contaminated baghouse
dust, of $7,156,000 and $4,100,000, in fiscal 1993 and 1992, respectively. The
Company has recovered $3,460,000 through insurance, and expects to recover and
has recorded, with respect to the 1993 incident, a $2,302,000 receivable
relating to insurance claims for the recovery of disposal costs which will be
filed with the Company's insurance company at the time such disposal costs are
incurred. No recovery has been made nor recorded for the fiscal 1992 incident
and the Company is assessing the possibility of legal remedies against certain
parties. The losses and costs attributable to these incidents, net of insurance
claims, resulted in an extraordinary charge of $1,095,000, net of applicable
income tax benefit of $662,000, or an $.08 loss per share, in fiscal 1993 and an
extraordinary charge of $2,542,000, net of applicable income tax benefit of
$1,558,000, or a $.19 loss per share, in fiscal 1992.

NOTE 11: PROFIT SHARING PLANS

The Company has established various profit sharing plans at the operating
companies which are based on the earnings of the respective companies.
Generally, the plans require mandatory contributions at a specified percentage
of pretax profits (with a guaranteed minimum based on hours worked at Newport)
for the bargaining unit employees, and allow for a discretionary contribution
set by the Board of Directors for salaried employees. Expense for contributions
was approximately $497,000, $1,244,000 and $1,119,000 in fiscal years 1994, 1993
and 1992, respectively.

NOTE 12: INCOME TAXES

Effective September 26, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards No.109, "Accounting for Income Taxes
("Statement 109"). Prior to adoption of Statement 109, deferred tax expense was
based on items of income and expense that were reported in different years in
the financial statements and tax returns and were measured at the tax rate in
effect in the year the difference originated. Under Statement 109, deferred tax
liabilities and assets are based upon differences in the basis of assets and
liabilities for financial statements and tax returns and are determined based on
the enacted tax rates and laws that will be in effect when the differences are
expected to reverse. The cumulative effect of the change in accounting increased
net income by $1,715,000, or $.12 per share.

F-14
<PAGE> 124

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The provision (credit) for income taxes, including $662,000 and $1,558,000
allocated to extraordinary items in fiscal 1993 and 1992, respectively, consists
of the following (in thousands of dollars):

<TABLE>
<CAPTION>
1994 1993 1992
------ ------- --------
<S> <C> <C> <C>
Current:
Federal................................. $5,100 $(2,000) $ (4,000)
State................................... 323 (851) (287)
------ ------- --------
5,423 (2,851) (4,287)
------ ------- --------
Deferred:
Federal................................. 739 (1,526) (3,470)
State................................... 1,220 333 141
------ ------- --------
1,959 (1,193) (3,329)
------ ------- --------
Provision (credit) for income taxes.......... $7,382 $(4,044) $ (7,616)
====== ======= ========
</TABLE>

The income tax provision (credit) differs from the amount computed by
applying the statutory federal income tax rate to income (loss), including
extraordinary items, before income taxes for the following reasons (in thousands
of dollars):

<TABLE>
<CAPTION>
1994 1993 1992
------ ------- --------
<S> <C> <C> <C>
Income tax provision (credit) at statutory tax
rate of 35% in fiscal 1994 and 34% in fiscal
1993 and 1992................................... $6,606 $(3,752) $ (7,995)
Change in taxes resulting from:
State income taxes, net of federal effect.... 1,003 (342) (96)
Dividend income exclusion.................... (200) (6) (14)
Other, net................................... (27) 56 489
------ ------- --------
Total provision (credit) for income taxes......... $7,382 $(4,044) $ (7,616)
====== ======= ========
</TABLE>

The following represents the components of deferred tax liabilities and
assets at September 24, 1994. A valuation allowance has not been recorded
against deferred tax assets as it is estimated that such deferred tax assets
will be realized through a reduction of taxes otherwise payable upon the
reversal of existing taxable temporary differences.

<TABLE>
<CAPTION>
1994
-------------
(in thousands
of dollars)
<S> <C>
Deferred tax liabilities:
Property, plant and equipment....................... $27,774
Other items......................................... 2,222
-------
29,996
-------
Deferred tax assets:
Reserves and accruals............................... 3,904
Net operating tax loss carryforward................. 11,690
Alternative minimum tax and other tax credit
carryforwards..................................... 7,629
Other items......................................... 1,905
-------
25,128
-------
Net deferred tax liability............................... $ 4,868
=======
</TABLE>

F-15
<PAGE> 125

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

For federal income tax purposes, the Company has alternative minimum tax
credit carryforwards of approximately $7,237,000, which are not limited by
expiration dates, and other tax credit carryforwards of approximately $392,000,
which expire beginning in 2000. The Company also has net operating tax loss
carryforwards of approximately $33,399,000, which expire beginning in 2007.

The components of the credit for deferred income taxes for fiscal 1993 and
1992 are as follows (in thousands of dollars):

<TABLE>
<CAPTION>
1993 1992
------- -------
<S> <C> <C>
Excess of tax over book depreciation.................... $ 4,097 $ 7,778
Koppel start-up costs deferred for income tax
purposes.............................................. 177 533
Reserves and accruals not currently deductible.......... (299) (1,439)
Alternative minimum tax and other tax credit
carryforwards......................................... 1,684 (780)
Net operating tax loss carryforward..................... (7,034) (8,134)
Other, net.............................................. 182 (1,287)
------- -------
Total......................................... $(1,193) $(3,329)
======= =======
</TABLE>

NOTE 13: RELATED PARTY TRANSACTIONS

One of the Company's directors/shareholders has a controlling interest in a
company which purchases certain reject and limited service tubular products from
Newport. Sales to this customer were approximately $10,984,000, $10,914,000 and
$10,356,000 for fiscal years 1994, 1993, and 1992, respectively. Trade
receivables from this customer were $958,000 and $582,000 at the end of fiscal
1994 and 1993, respectively.

NOTE 14: BUSINESS SEGMENT INFORMATION

The Company operates primarily in two separate business segments:

Specialty Steel Products -- Includes welded tubular steel products and hot
rolled coils manufactured at a mini-mill located near Newport, Kentucky;
seamless tubular steel products, special bar quality products and semi-finished
steel products manufactured at a mini-mill located in western Pennsylvania and a
pipe finishing operation located near Tulsa, Oklahoma.

Adhesive Products -- Includes industrial adhesives manufactured principally
at plants in Cincinnati, Ohio and Nashville, Tennessee.

The operations of both segments are conducted principally in the United
States. The Company grants trade credit to customers, the most significant of
which are distributors serving the oil and natural gas exploration and
production industries which purchase tubular steel products from the Specialty
Steel Products segment. The following table sets forth selected financial
information by business segment for fiscal 1994, 1993 and 1992 (in thousands of
dollars):

F-16
<PAGE> 126

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
Operating Depreciation
Net Income Identifiable and Capital
Sales (Loss) Assets Amortization Expenditures
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
1994
Specialty steel products....... $270,441 $ 2,909 $246,295 $ 18,373 $ 11,380
Adhesives products............. 32,939 1,150 12,486 416 380
Corporate assets and alloca-
tions........................ -- (3,370) 56,546 -- --
-------- -------- -------- -------- --------
Total consolidated........ $303,380 $ 689 $315,327 $ 18,789 $ 11,760
======== ======== ======== ======== ========
1993
Specialty steel products....... $325,007 $ 13,379 $271,968 $ 18,691 $ 5,798
Adhesives products............. 28,075 1,059 12,228 402 282
Corporate assets and alloca-
tions........................ -- (2,766) 33,046 -- --
-------- -------- -------- -------- --------
Total consolidated $353,082 $ 11,672 $317,242 $ 19,093 $ 6,080
======== ======== ======== ======== ========
1992
Specialty steel products....... $256,360 $ 3,351 $271,477 $ 18,296 $ 3,948
Adhesives products............. 24,882 533 10,845 415 200
Corporate assets and alloca-
tions........................ -- (2,483) 36,757 -- --
-------- -------- -------- -------- --------
Total consolidated........ $281,242 $ 1,401 $319,079 $ 18,711 $ 4,148
======== ======== ======== ======== ========
</TABLE>

NOTE 15: QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly results of operations for 1994 and 1993 are as follows (in
thousands of dollars, except per share amounts):

<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
1994
Net sales........................................ $71,959 $66,012 $80,807 $84,602
Gross profit..................................... 7,791 1,831 7,203 8,394
Income (loss) before cumulative effect of a
change in accounting principle................. 20,026 (5,583) (1,990) (960)
Net income (loss)................................ 21,741 (5,583) (1,990) (960)
Income (loss) per common share before cumulative
effect of a change in accounting principle..... 1.46 (.40) (.14) (.07)
Net income (loss) per common share............... 1.58 (.40) (.14) (.07)

1993
Net sales........................................ $77,779 $86,735 $95,363 $93,205
Gross profit..................................... 7,366 10,282 12,686 12,162
Income (loss) before extraordinary item.......... (3,355) (2,115) 11 (437)
Net income (loss)................................ (3,355) (2,115) 11 (1,532)
Income (loss) per common share before extraordi-
nary item...................................... (.25) (.16) -- (.03)
Net income (loss) per common share............... (.25) (.16) -- (.11)
</TABLE>

F-17
<PAGE> 127

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The sale of KES increased fiscal 1994 first quarter net income by
$21,528,000. In addition, in the fiscal 1994 first quarter, the Company recorded
the cumulative effect of the adoption of Statement No. 109, which increased net
income by $1,715,000.

NOTE 16: PROPOSED OFFERING OF DEBT SECURITIES

The Company is currently pursuing a refinancing of a significant portion of
its long-term debt through the registration and sale of $125 million Senior
Secured Notes due 2003 (the Offering), which would substantially reduce
principal amortization requirements on term debt until the maturity of the
Senior Secured Notes. Completion of the Offering is subject to the Securities
and Exchange Commission allowing the registration of the Senior Secured Notes to
become effective, the entering into a firm commitment with the underwriters and
the existence of market conditions satisfactory to the Company.

NOTE 17: SUMMARIZED FINANCIAL INFORMATION

The Senior Secured Notes that the Company is proposing to offer for sale
will be guaranteed in full by each of the Company's subsidiaries (Subsidiary
Guarantors), each of which is wholly-owned. Full financial statements of the
Subsidiary Guarantors are not presented because they are not deemed material to
investors. The following is summarized financial information of the Subsidiary
Guarantors as of September 24, 1994 and September 25, 1993 and for each of the
three years in the period ended September 24, 1994. All significant intercompany
accounts and transactions between the Subsidiary Guarantors have been
eliminated.

<TABLE>
<CAPTION>
September 24 September 25
1994 1993
------------- -------------
<S> <C> <C>
Current assets............................................ $ 125,108 $ 112,660
Noncurrent assets......................................... 176,895 188,890

Current liabilities....................................... 88,230 86,542

Payable to parent......................................... $ 31,327 $ 30,587
Other noncurrent liabilities.............................. 102,893 121,270
------------- -------------
Total noncurrent liabilities............................ $ 134,220 $ 151,857
------------- -------------
</TABLE>

<TABLE>
<CAPTION>
Fiscal Year Ended
---------------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Net sales.............................................. $ 303,380 $ 353,082 $ 281,242
Gross profit........................................... 25,219 42,496 31,053
Income (loss) before extraordinary items and cumulative
effect of a change in accounting principle........... 14,689 (1,363) (8,976)
Net income (loss)...................................... 14,689 (2,458) (11,518)
</TABLE>

F-18
<PAGE> 128

NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF APRIL 1, 1995 AND SEPTEMBER 24, 1994

(Dollars in thousands)
(Unaudited)

<TABLE>
<CAPTION>
April 1, September 24,
1995 1994
------------ -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................... $ 1,350 $ 4,405
Short-term investments.................................. 20,082 40,071
Accounts receivable, less allowance for doubtful
accounts of $503 and $637, respectively.............. 49,050 42,651
Inventories............................................. 45,624 32,290
Other current assets.................................... 19,647 16,793
------------ -------------
Total current assets................................. 135,753 136,210
------------ -------------
PROPERTY, PLANT AND EQUIPMENT--AT COST.................... 270,038 262,721
Less - accumulated depreciation......................... (111,569) (102,182)
------------ -------------
158,469 160,539
------------ -------------
OTHER ASSETS.............................................. 18,391 18,578
------------ -------------
Total assets......................................... $312,613 $ 315,327
============== ==============
CURRENT LIABILITIES
Notes payable........................................... $ 29,913 $ 28,872
Accounts payable........................................ 33,454 27,312
Other current liabilities............................... 19,375 19,281
Current portion of long-term debt....................... 17,505 15,543
------------ -------------
Total current liabilities............................ 100,247 91,008
------------ -------------
LONG-TERM DEBT............................................ 126,395 138,110
------------ -------------
DEFERRED TAXES............................................ 9,607 9,745
------------ -------------
COMMON SHAREHOLDERS' EQUITY
Common stock, no par value, 40,000,000 shares
authorized; 13,762,013 shares issued and
outstanding.......................................... 48,988 48,988
Common stock options and warrants....................... 291 262
Unrealized gain (loss) on available for sale
securities........................................... (775) (124)
Retained earnings....................................... 27,860 27,338
------------ -------------
Total common shareholders' equity.................... 76,364 76,464
------------ -------------
Total liabilities and shareholders' equity........... $312,613 $ 315,327
============== ==============
</TABLE>

See notes to condensed consolidated financial statements.

F-19
<PAGE> 129

NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTH AND SIX MONTH PERIODS ENDED
APRIL 1, 1995 AND MARCH 26, 1994

(Dollars in thousands, except per share amounts)
(Unaudited)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
--------------------- ---------------------
April 1, March 26, April 1, March 26,
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
NET SALES....................................... $97,055 $66,012 $ 190,544 $137,971
COST AND EXPENSES
Cost of products sold......................... 86,910 64,181 168,909 128,349
Selling and administrative expenses........... 6,688 6,296 13,620 12,276
--------- --------- --------- ---------
Operating income (loss)....................... 3,457 (4,465) 8,015 (2,654)
OTHER INCOME (EXPENSE)
Gain on sale of subsidiary.................... -- -- -- 35,292
Interest expense.............................. (4,938) (5,068) (10,294) (10,079)
Interest income............................... 388 388 920 847
Other, net.................................... 1,819 70 2,208 623
--------- --------- --------- ---------
Income (loss) before income taxes and
cumulative effect of a change in accounting
principle.................................. 726 (9,075) 849 24,029
PROVISION (CREDIT) FOR INCOME TAXES............. 279 (3,492) 327 9,586
--------- --------- --------- ---------
Income (loss) before cumulative effect of a
change in accounting principle............. 447 (5,583) 522 14,443
CUMULATIVE EFFECT, AS OF SEPTEMBER 25, 1993, OF
A CHANGE IN THE METHOD OF ACCOUNTING FOR
INCOME TAXES.................................. -- -- -- 1,715
--------- --------- --------- ---------
Net income (loss)............................. $ 447 $ (5,583) $ 522 $ 16,158
========= ========== ========= ==========
PER COMMON SHARE
Income (loss) before cumulative effect of a
change in accounting principle............. $ .03 $ (.40) $ .04 $ 1.05
Cumulative effect of a change in the method of
accounting for income taxes................ -- -- -- .12
--------- --------- --------- ---------
Net income (loss).......................... $ .03 $ (.40) $ .04 $ 1.17
========= ========== ========= ==========
WEIGHTED AVERAGE SHARES OUTSTANDING (000'S)..... 13,795 13,802 13,803 13,772
</TABLE>

See notes to condensed consolidated financial statements.

F-20
<PAGE> 130

NS GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTH PERIODS ENDED
APRIL 1, 1995 AND MARCH 26, 1994

(Dollars in thousands)
(Unaudited)

<TABLE>
<CAPTION>
April 1, March 26,
1995 1994
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income....................................................... $ 522 $16,158
Adjustments to reconcile net income to net cash flows from
operating activities:
Depreciation and amortization................................. 9,695 9,307
Increase (decrease) in deferred taxes......................... 261 (1,325)
Gain on sale of subsidiary.................................... -- (35,292)
(Increase) decrease in accounts receivable, net............... (6,399) 1,614
Increase in inventories....................................... (13,334) (5,988)
(Increase) decrease in other current assets................... (2,854) 4,380
Increase in accounts payable.................................. 6,142 647
Increase in accrued liabilities............................... 94 4,675
--------- ---------
Net cash flows from operating activities................. (5,873) (5,824)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of subsidiary.............................. -- 50,426
Cash dividend from sold subsidiary............................ -- 6,818
Increase in property, plant and equipment, net................ (7,317) (3,655)
Increase in other assets...................................... (324) (4,818)
(Increase) decrease in short-term investments................. 19,989 (39,761)
--------- ---------
Net cash flows from investing activities................. 12,348 9,010
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable..................................... 1,041 1,317
Proceeds from issuance of long-term debt...................... -- 431
Repayments on long-term debt.................................. (9,753) (3,683)
Increase in deferred financing costs.......................... (818) (50)
Proceeds from issuance of common stock........................ -- 682
--------- ---------
Net cash flows from financing activities................. (9,530) (1,303)
--------- ---------
Net increase (decrease) in cash and cash equivalents..... (3,055) 1,883
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..................... 4,405 5,797
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................... $ 1,350 $ 7,680
========= ==========
Cash paid during the period for:
Interest...................................................... $ 12,059 $ 9,460
Income taxes.................................................. $ 724 $ 2,530
</TABLE>

See notes to condensed consolidated financial statements.

F-21
<PAGE> 131

NS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

NOTE 1: PRINCIPLES OF CONSOLIDATION

The condensed consolidated financial statements include the accounts of NS
Group, Inc. and its wholly-owned subsidiaries (the Company): Newport Steel
Corporation (Newport), Koppel Steel Corporation (Koppel), Erlanger Tubular
Corporation (Erlanger), Imperial Adhesives, Inc. (Imperial), Northern Kentucky
Management, Inc., Northern Kentucky Air, Inc. and NSub I, Inc., formerly known
as Kentucky Electric Steel Corporation. All significant intercompany balances
and transactions have been eliminated.

The accompanying information reflects, in the opinion of management, all
adjustments (which consist only of normal recurring adjustments) necessary to
present fairly the results for the interim periods. Reference should be made to
NS Group, Inc.'s audited annual financial statements and related notes thereto
on pages F-2 through F-18 for additional footnote disclosure, including a
summary of significant accounting policies.

In the first quarter of fiscal 1995, the Company adopted the provisions of
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" (Statement 112). The impact on the Company's financial
statements from the adoption of Statement 112 was not material.

The Company's fiscal year ends on the last Saturday of September. The first
quarter and six month periods of fiscal 1995 and 1994 are 14 and 13 week and 27
and 26 week periods, respectively.

NOTE 2: INVENTORIES

At April 1, 1995 and September 24, 1994, inventories stated at the lower of
LIFO (last-in, first-out) cost or market represent approximately 39% and 27% of
total inventories before the LIFO reserve, respectively. Inventories consist of
the following components ($000's):

April 1, September 24,
1995 1994
------- -------------
<S> <C> <C>
Raw materials..................................... $ 8,615 $ 6,699
Semi-finished and finished goods.................. 39,248 27,695
------- -------------
47,863 34,394
LIFO reserve...................................... (2,239) (2,104)
------- -------------
$45,624 $32,290
======== ==============
</TABLE>

NOTE 3: OTHER CURRENT ASSETS

Included in other current assets at April 1, 1995 are receivables for
various property casualty and business interruption insurance claims aggregating
approximately $6.3 million, which the Company believes are realizable under the
terms of its insurance policies.

NOTE 4: COMMITMENTS AND CONTINGENCIES

The Company has various commitments for the purchase of materials, supplies
and energy arising in the ordinary course of business.

F-22
<PAGE> 132

NS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

plaintiff's original claim and the litigation was dismissed. The Company is
subject to various claims, lawsuits and administrative proceedings arising in
the ordinary course of business with respect to commercial, product liability
and other matters, which seek remedies or damages. Based upon its evaluation of
available information, management does not believe that any such matters,
including the above-mentioned settlement, are likely, individually or in the
aggregate, to have a material adverse effect upon the Company's consolidated
financial position, results of operations or cash flows.

As with other similar mills in the industry, the Company's steel mini-mills
produce dust which contains lead, cadmium and chromium, which is classified as a
hazardous waste. The Company currently collects the dust resulting from its
electric arc furnace operations through emission control systems and contracts
with a company for treatment and disposal of the dust at an EPA-approved
facility. The Company also has on its property at Newport a permitted hazardous
waste disposal facility.

The occurrences of the accidental melting of radioactive materials, as
discussed in Note 10 to the audited annual financial statements, have not
resulted in any notice of violations from federal or state environmental
regulatory agencies. The Company is investigating and evaluating various issues
concerning storage, treatment and disposal of the radiation contaminated
baghouse dust; however, a final determination as to method of treatment and
disposal, cost and further regulatory requirements cannot be made at this time.
Depending on the ultimate timing and method of treatment and disposal, which
will require appropriate federal and state regulatory approval, the actual cost
of disposal could substantially exceed current estimates and the Company's
insurance coverage. As of April 1, 1995, claims recorded in connection with
disposal costs exhaust available insurance coverage. Based on current knowledge,
management believes the recorded gross reserves of $4,354,000 for disposal costs
pertaining to these incidents are adequate.

In March 1995, Koppel entered into a Consent Order with the EPA relating to
an April 1990 RCRA facility assessment (the Assessment) completed by the EPA and
the Pennsylvania Department of Environmental Resources. The Assessment was
performed in connection with a permit application pertaining to landfill that is
adjacent to the Koppel facilities. The Assessment identified potential releases
of hazardous constituents at or adjacent to the Koppel facilities prior to the
Company's acquisition of the Koppel facilities. The Consent Order establishes a
schedule for investigating, monitoring, testing and analyzing the potential
releases. Contamination documented as a result of the investigation may require
cleanup measures. Pursuant to various indemnity provisions in agreements entered
into at the time of the Company's acquisition of the Koppel facilities, certain
parties have agreed to indemnify the Company against various known and unknown
environmental matters. While such parties have not at this time acknowledged
full responsibility for potential costs under the Consent Order, the Company
believes that the indemnity provisions provide for it to be fully indemnified
against all matters covered by the Consent Order, including all associated
costs, claims and liabilities.

F-23
<PAGE> 133

NS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

Subject to the uncertainties concerning the Consent Order and the storage
and disposal of the radiation contaminated dust, the Company believes that it is
currently in compliance with all known material and applicable environmental
regulations.

Capital expenditures for fiscal 1995 relating to environmental control
facilities are not expected to be material; however, such expenditures could be
influenced by new and revised environmental regulations and laws.

As of April 1, 1995, the Company had environmental remediation reserves of
$4,718,000 of which $4,354,000 pertain to accrued disposal costs for radiation
contaminated baghouse dust. As of December 31, 1994, the possible range of
estimated losses related to the environmental contingency matters discussed
above in excess of those accrued by the Company is $0 to $3,000,000; however,
with respect to the Consent Order, the Company cannot estimate the possible
range of losses should the Company ultimately not be indemnified. Based upon its
evaluation of available information, management does not believe that any of the
environmental contingency matters discussed above are likely, individually or in
the aggregate, to have a material adverse effect upon the Company's consolidated
financial position, results of operations or cash flows. However, the Company
cannot predict with certainty that new information or developments with respect
to the Consent Order or its other environmental contingency matters,
individually or in the aggregate, will not have a material adverse effect on the
Company's consolidated financial position, results of operations or cash flows.

NOTE 4: SUMMARIZED FINANCIAL INFORMATION

The Senior Secured Notes that the Company is proposing to offer for sale
will be guaranteed in full by each of the Company's subsidiaries (Subsidiary
Guarantors), each of which is wholly-owned. Full financial statements of the
Subsidiary Guarantors are not presented because they are not deemed material to
investors. The following is summarized financial information of the Subsidiary
Guarantors as of April 1, 1995 and September 24, 1994 and for the three and six
month periods ended April 1, 1995 and March 26, 1994. All significant
intercompany accounts and transactions between the Subsidiary Guarantors.

<TABLE>
<CAPTION>
April 1, September 24,
1995 1994
-------- -------------
<S> <C> <C>
Current assets................................................. $121,663 $ 125,108
Noncurrent assets.............................................. 173,573 176,895

Current liabilities............................................ 98,317 88,230

Payable to parent.............................................. 15,478 $ 31,327
Other noncurrent liabilities................................... 91,369 102,893
-------- -------------
Total noncurrent liabilities................................. $106,847 $ 134,220
-------- -------------
</TABLE>

F-24
<PAGE> 134

NS GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)

<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------- ----------------------
March March
April 1, 26, April 1, 26,
1995 1994 1995 1994
-------- ------- --------- --------
<S> <C> <C> <C> <C>
Net sales.................................... $ 97,055 $66,012 $ 190,544 $137,971
Gross profit................................. 10,145 1,831 21,635 9,622
Income before cumulative effect of a change
in accounting principle.................... 1,185 (4,992) 2,117 15,746(1)
Net income................................... 1,185 (4,992) 2,117 15,746(1)
</TABLE>

- ---------------
(1) Includes an after-tax gain on the sale of KES of $21.5 million.

F-25
<PAGE> 135

The Company's steel-making and finishing facilities
<PAGE> 136

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.

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

--------------------------------------------------------------
TABLE OF CONTENTS

<TABLE>
<S> <C>
Prospectus Summary............................... 5
Risk Factors..................................... 17
Use of Proceeds.................................. 25
Summary of the Refinancing Transaction........... 25
Capitalization................................... 26
Selected Consolidated Financial Data............. 27
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 29
Business......................................... 41
Management....................................... 63
Principal Stockholders........................... 66
Compensation Committee Interlocks and Insider
Participation.................................. 67
Certain Transactions............................. 67
Description of the Senior Secured Notes.......... 68
Description of Certain Indebtedness.............. 101
Certain United States Federal Income Tax
Consequences................................... 103
Underwriting..................................... 105
Legal Matters.................................... 105
Independent Auditors............................. 105
Index to Consolidated Financial Statements....... F-1
</TABLE>

Prospectus
NS GROUP, INC.
$125,000,000
% SENIOR SECURED NOTES DUE 2003

[INSERT LOGO]
CHEMICAL SECURITIES INC.
CS FIRST BOSTON

Dated , 1995
<PAGE> 137

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

The following table sets forth the estimated (except for the Securities and
Exchange Commission registration fee and the National Association of Securities
Dealers, Inc. filing fee) fees and expenses in connection with the offering
described in this Registration Statement.

<TABLE>
<S> <C>
Securities and Exchange Commission registration fee................... $ 43,104
National Association of Securities Dealers filing fee................. 13,000
Trustee fees.......................................................... 5,000
Blue sky filing and counsel fees and expenses......................... 25,000
Printing and engraving expenses....................................... 150,000
Accountants' fees and expenses........................................ 130,500
Legal fees and expenses............................................... 548,000
Rating agency fees.................................................... 50,000
Miscellaneous......................................................... 10,396
--------
Total....................................................... $975,000
=========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Sections 271B.8-500 to 271B.8-589 of the Kentucky Business Corporation Act;
provides that, subject to restrictions contained in the statute, a corporation
may indemnify any person made or threatened to be made a party to any
threatened, pending or completed action, suit or proceeding by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise or employee benefit plan.
A person, who has been successful on the merits or otherwise in any suit or
matter covered by the indemnification statute, shall be indemnified against
expenses (including attorneys' fees) reasonably incurred by him in connection
therewith. Indemnification is authorized upon a determination that the person to
be indemnified has met the applicable standard of conduct required. Such
determination shall be made by the board of directors by a majority vote of a
quorum consisting of directors who were not parties to such action, suit or
proceeding; or if such a quorum cannot be obtained, by a majority vote of a
committee of the board, duly designated to so act by a majority of the full
board, consisting solely of two or more directors who are not parties to the
action; or by special legal counsel selected by the board or a committee
thereof; or by the shareholders who are not parties to such action, suit or
proceeding. Expenses incurred in defense may be paid in advance upon receipt by
the corporation of a written affirmation by the director of his good faith
belief that he has met the applicable standard of conduct required, a written
undertaking by or on behalf of the director to repay such advance if it is
ultimately determined that he did not meet the standard of conduct, and a
determination that the facts then known to those making the determination would
not preclude indemnification under the statute. The indemnification provided by
statute shall not be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under any by-law, agreement, vote of
shareholders or disinterested directors, or otherwise, which shall inure to the
benefit of the heirs, executors and administrators of such a person. Insurance
may be purchased on behalf of any person entitled to indemnification by the
corporation against any liability incurred in an official capacity regardless of
whether the person could be indemnified under the statute. References to the
corporation include all constituent corporations absorbed in a consolidation or
merger as well as the resulting or surviving corporation and anyone seeking
indemnification by virtue of acting in some capacity with a constituent
corporation would stand in the same position as if he had served the resulting
or surviving corporation in the same capacity.

II-1
<PAGE> 138

The By-Laws of the Company provide for indemnification of directors and
officers of the Company to the maximum extent permitted by the Kentucky Business
Corporation Act.

Statutory indemnification provisions in the states where the other
subsidiaries of the Company are incorporated, as well as in the bylaws of those
subsidiaries, may also provide for indemnification of the directors and
officers.

Section 1701.13(E) of the Ohio Revised Code provides that a corporation may
indemnify any person who is or has been a director, employee or agent of that
corporation, or of another corporation at the request of that corporation,
against expenses (including attorneys fees) actually and reasonably incurred by
him in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, to which
he was, is or may be made a party because of being or having been such director,
officer, employee or agent, provided that such person is determined to have
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation; that, in the case of an action
or suit by or in the right of the corporation, (i) no negligence or misconduct
shall have been adjudged unless a court determines that such person is fairly
and reasonably entitled to indemnity, and (ii) the action or suit is not one in
which the only liability asserted against such director relates to unlawful
loans, dividends and distributions of assets; and that, in the case of a
criminal matter, such person is determined to have had no reasonable cause to
believe that his conduct was unlawful. In any case, to the extent that such
person has been successful on the merits or otherwise in defense of any such
action, suit, or proceeding, or in defense of any claim, issue or matter
therein, he shall be indemnified. Section 1701.13(E) further provides that
unless a corporation has specifically elected to the contrary in its articles of
incorporation or code of regulations, expenses incurred by a director in
defending such an action, suit or proceeding shall be paid by the corporation as
they are incurred in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking (i) to repay such amounts if it is
proved by clear and convincing evidence in a court of competent jurisdiction
that such director acted, or failed to act, with deliberate intent to cause
injury to the corporation or with reckless disregard for the best interests of
the corporation and (ii) reasonably to cooperate with the corporation concerning
said action, suit or proceeding. The indemnification authorized by the statute
is not be exclusive of any other rights that directors, officers or employees
may have.

The Code of Regulations of Imperial Adhesives, Inc., an Ohio corporation,
provides for indemnification of any officer or director under the same
circumstances as defined in the Ohio Revised Code.

Subchapter D of Chapter 17 of the Pennsylvania Business Corporation Law
provides that a corporation may indemnify any person, including its directors,
officers and employees who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative (including actions by or in the right
of the corporation) by reason of the fact that he is or was a representative of
or serving at the request of the corporation, against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with the action or proceedings
if he is determined by the board of directors, or in certain circumstances by
independent legal counsel to the shareholders, to have acted in good faith and
in a manner he reasonably believed to be in, or not opposed to, the best
interests of the corporation and, with respect to any criminal proceeding, had
no reason to believe his conduct was unlawful. In the case of actions by or in
the right of the corporation, indemnification is not permitted in respect of any
claim, issue or matter as to which the person has been adjudged to be liable to
the corporation except to the extent a court determines that the person is
fairly and reasonably entitled to indemnification. In any case, to the extent
that the person has been successful on the merits or otherwise in defense of any
claim, issue or matter, he shall be indemnified against expenses (including
attorney's fees) actually and reasonably incurred by him or her in connection
therewith. Expenses incurred in defending any action or proceeding may be paid
by the corporation in advance of the final disposition of the action or
proceeding upon receipt of an undertaking to repay the

II-2
<PAGE> 139

amount if it is ultimately determined that he is not entitled to be indemnified.
Subchapter D also provides that the indemnification permitted or required by
Subchapter D is not exclusive of any other rights to which a person seeking
indemnification may be entitled.

The Bylaws of Koppel Steel Corporation, a Pennsylvania corporation, provide
that the corporation shall to the full extent permitted by, and in accordance
with the provisions of the Pennsylvania Business Corporation Law, indemnify each
director or officer of the corporation.

Section 1031 of the Oklahoma General Corporation Act permits (and the
Registrant's Certificate of Incorporation and Bylaws, which are incorporated by
reference herein, authorize) indemnification of directors and officers of the
Registrant and officers and directors of another corporation, partnership, joint
venture, trust or other enterprise who serve at the request of the Registrant,
against expenses, including attorneys fees, judgments, fines and amount paid in
settlement actually and reasonably incurred by such person in connection with
any action, suit or proceeding in which such person is a party by reason of such
person being or having been a director or officer of the Registrant or at the
request of the Registrant, if he conducted himself in good faith and in a manner
he reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The Registrant may not
indemnify an officer or a director with respect to any claim, issue or matter as
to which such officer or director shall have been adjudged to be liable to the
Registrant, unless and only to the extent that the court in which such action or
suit was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem property. To the extent that an officer or director is successful on
the merits or otherwise in defense of any action, suit or proceeding with
respect to which such person is entitled to indemnification, or in defense of
any claim, issue or matter therein, such person is entitled to be indemnified
against expenses, including attorney's fees, actually and reasonably incurred by
him in connection therewith.

The directors and officers of the Company and its subsidiaries are insured
under a policy of directors' and officers' liability insurance.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

Not applicable.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The exhibits and consolidated financial statements schedule filed as part
of this Registration Statement are as follows:

<TABLE>
<S> <C> <C>
(a) Exhibits.
See Index to Exhibits.

(b) Consolidated Financial Statement Schedule.
Report of Independent Public Accountants.................................... S-1
Schedule II -- Valuation and Qualifying Accounts............................ S-2
</TABLE>

All other consolidated financial statement schedules are omitted due to the
absence of conditions under which they are required or because the information
is shown in the financial statements or notes thereto.

ITEM 17. UNDERTAKINGS

(a) Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions of Item 14 or otherwise, the registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities

II-3
<PAGE> 140

(other than the payment by the registrants of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, each
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.

(b) The undersigned registrant's hereby undertake that:

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

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

II-4
<PAGE> 141

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Newport, Commonwealth of
Kentucky, on July 13, 1995.

NS GROUP, INC.
(Registrant)

By:/s/ JOHN R. PARKER
----------------------
John R. Parker
Vice President, Treasurer and
Chief Financial Officer

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Clifford R. Borland and John R. Parker and any of
them, his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities to sign any and all amendments (including post-effective
amendments) to this registration statement and any other documents and
instruments incidental thereto, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents and/or any of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 13, 1995.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>

CLIFFORD R. BORLAND* Director, President and Chief Executive
- -------------------------
Clifford R. Borland Officer

PATRICK J. B. DONNELLY* Director
- -------------------------
Patrick J. B. Donnelly

JOHN B. LALLY* Director
- -------------------------
John B. Lally

R. GLEN MAYFIELD* Director
- -------------------------
R. Glen Mayfield

RONALD R. NOEL* Director and Vice President
- -------------------------
Ronald R. Noel

/s/ JOHN R. PARKER Vice President, Treasurer and Chief
- -------------------------
John R. Parker Financial Officer (Principal Financial and
Accounting Officer)

* By:/s/ JOHN R. PARKER
- -------------------------
John R. Parker
Attorney-In-Fact
</TABLE>

II-5
<PAGE> 142

SIGNATURES

NEWPORT STEEL CORPORATION
(Registrant)

By: /s/ JOHN R. PARKER
-------------------------
John R. Parker
Treasurer (Principal Financial and
Accounting Officer)

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 13, 1995.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>

CLIFFORD R. BORLAND* Director
- -------------------------
Clifford R. Borland

RONALD R. NOEL* President
- -------------------------
Ronald R. Noel

/s/ JOHN R. PARKER Treasurer (Principal Financial and
- -------------------------
John R. Parker Accounting Officer)

* By:/s/ JOHN R. PARKER
- -------------------------
John R. Parker
Attorney-In-Fact
</TABLE>

II-6
<PAGE> 143

SIGNATURES

KOPPEL STEEL CORPORATION
(Registrant)

By: /s/ JOHN R. PARKER
-------------------------
John R. Parker
Treasurer (Principal Financial and
Accounting Officer)

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 13, 1995.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>

CLIFFORD R. BORLAND* Director
- -------------------------
Clifford R. Borland

PAUL C. BORLAND, JR.* President
- -------------------------
Paul C. Borland, Jr.

/s/ JOHN R. PARKER Treasurer (Principal Financial and
- -------------------------
John R. Parker Accounting Officer)

* By:/s/ JOHN R. PARKER
- -------------------------
John R. Parker
Attorney-In-Fact
</TABLE>

II-7
<PAGE> 144

SIGNATURES

ERLANGER TUBULAR CORPORATION
(Registrant)

By:/s/ JOHN R. PARKER
-------------------------
John R. Parker
Treasurer (Principal Financial and
Accounting Manager)

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 13, 1995.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>

CLIFFORD R. BORLAND* Director and President
- -------------------------
Clifford R. Borland

/s/ JOHN R. PARKER Treasurer (Principal Financial and
- -------------------------
John R. Parker Accounting Manager)

* By:/s/ JOHN R. PARKER
- -------------------------
John R. Parker
Attorney-In-Fact
</TABLE>

II-8
<PAGE> 145

SIGNATURES

IMPERIAL ADHESIVES, INC.
(Registrant)

By:/s/ JOHN R. PARKER
-------------------------
John R. Parker
Treasurer (Principal Financial and
Accounting Manager)

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 13, 1995.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>

CLIFFORD R. BORLAND* Director
- -------------------------
Clifford R. Borland

ROBERT D. JOHNSON* President
- -------------------------
Robert D. Johnson

/s/ JOHN R. PARKER Treasurer (Principal Financial and
- -------------------------
John R. Parker Accounting Manager)

* By:/s/ JOHN R. PARKER
- -------------------------
John R. Parker
Attorney-In-Fact
</TABLE>

II-9
<PAGE> 146

SIGNATURES

NORTHERN KENTUCKY AIR, INC.
(Registrant)

By:/s/ JOHN R. PARKER
-------------------------
John R. Parker
Treasurer (Principal Financial and
Accounting Manager)

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 13, 1995.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>

CLIFFORD R. BORLAND* Director and President
- -------------------------
Clifford R. Borland

/s/ JOHN R. PARKER Treasurer (Principal Financial and
- -------------------------
John R. Parker Accounting Manager)

* By:/s/ JOHN R. PARKER
- -------------------------
John R. Parker
Attorney-In-Fact
</TABLE>

II-10
<PAGE> 147

SIGNATURES

NORTHERN KENTUCKY MANAGEMENT, INC.
(Registrant)

By:/s/ JOHN R. PARKER
-------------------------
John R. Parker
Treasurer (Principal Financial and
Accounting Manager)

Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities indicated on July 13, 1995.

<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------------
<S> <C>

CLIFFORD R. BORLAND* Director and President
- -------------------------
Clifford R. Borland

/s/ JOHN R. PARKER Treasurer (Principal Financial and
- -------------------------
John R. Parker Accounting Manager)

* By:/s/ JOHN R. PARKER
- -------------------------
John R. Parker
Attorney-In-Fact
</TABLE>

II-11
<PAGE> 148

CONSOLIDATED FINANCIAL STATEMENT SCHEDULES

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To NS Group, Inc.:

We have audited in accordance with generally accepted auditing standards
the consolidated financial statements of NS Group, Inc. and subsidiaries
included in this registration statement and have issued our report thereon dated
October 31, 1994. Our audit was made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The schedule listed in Item
16(b) is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic financial statements. This schedule has been subjected to
the auditing procedures applied in the audit of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.

Cincinnati, Ohio ARTHUR ANDERSEN LLP
October 31, 1994

S-1
<PAGE> 149

SCHEDULE II

NS GROUP, INC. AND SUBSIDIARIES
------------------------------

VALUATION AND QUALIFYING ACCOUNTS

(Dollars in thousands)

<TABLE>
<CAPTION>
Reserves Deducted from
Assets in Balance Sheets
----------------------------
Allowance
for Allowance
Doubtful for Cash
Accounts(1) Discounts(1)
----------- ------------
<S> <C> <C>
BALANCE, September 28, 1991................................ $ 1,138 $ 97
Additions:
Charged to costs and expenses......................... 632 1,903
Deductions:
Net charges of nature for which
reserves were created............................... (463) (1,792)
----------- ------------
BALANCE, September 26, 1992................................ $ 1,307 $ 208
Additions:
Charged to costs and expenses......................... 572 2,338
Deductions:
Net charges of nature for which
reserves were created............................... (1,060) (2,293)
----------- ------------
BALANCE, September 25, 1993................................ $ 819 $ 253
Additions:
Charged to costs and expenses......................... 343 2,298
Deductions:
Sale of subsidiary.................................... (305) --
Net charges of nature for which
reserves were created............................... (220) (2,245)
----------- ------------
BALANCE, September 24, 1994................................ $ 637 $ 306
============ =============
</TABLE>

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

(1) Deducted from accounts receivable

S-2
<PAGE> 150

INDEX TO EXHIBITS

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ---------------------------------------------------------------------- ----------
<C> <S> <C>
1.1** Form of Underwriting Agreement between NS Group, Inc. (the "Company")
and Chemical Securities Inc. and CS First Boston Corporation
3.1** Amended and Restated Articles of Incorporation of the Company, filed
January 11, 1990
3.2 Amended and Restated By-laws of the Company, dated November 14, 1991,
filed as Exhibit 3(b) to Company's Form 10-K for the fiscal year ended
September 28, 1991, File No. 1-9383, and incorporated herein by this
reference
3.3** Articles of Incorporation of Erlanger Tubular Corporation
("Erlanger"), as amended June 4, 1987
3.4** Code of Regulations of Erlanger, as amended January 2, 1990
3.5** Articles of Incorporation of Imperial Adhesives, Inc. ("Imperial"), as
amended March 27, 1986
3.6** Code of Regulations of Imperial, as amended December 11, 1989
3.7** Articles of Incorporation of Koppel Steel Corporation ("Koppel"),
dated July 9, 1990
3.8** Bylaws of Koppel, as amended January 2, 1990
3.9** Articles of Incorporation of Newport Steel Corporation ("Newport"), as
amended April 15, 1987
3.10** Bylaws of Newport, as amended January 2, 1990
3.11** Articles of Incorporation of Northern Kentucky Air, Inc., dated March
3, 1984
3.12** Bylaws of Northern Kentucky Air, Inc., as amended January 2, 1990
3.13** Articles of Incorporation of Northern Kentucky Management, Inc., dated
May 21, 1981
3.14** Bylaws of Northern Kentucky Management, Inc., as amended January 2,
1990
4.1 Form of Indenture (including form of Senior Secured Note) between the
Company and Huntington National Bank, as trustee (the "Trustee")
4.2 Form of Leasehold and Fee Mortgage, Assignment of Rents and Leases and
Security Agreement from Newport to the Trustee (Kentucky)
4.3 Form of Mortgage, Assignment of Rents and Leases and Security
Agreement from Koppel to the Trustee (Pennsylvania)
4.4 Form of Deed of Trust, Assignment of Rents and Leases and Security
Agreement from Koppel to the Trustee (Texas)
4.5 Form of Leasehold Mortgage, Assignment of Rents and Leases and
Security Agreement from Erlanger to the Trustee (Oklahoma)
4.6 Form of Junior Leasehold and Fee Mortgage, Assignment of Rents and
Leases and Security Agreement from Newport to the Company (Kentucky)
4.7 Form of Junior Mortgage, Assignment of Rents and Leases and Security
Agreement from Koppel to the Company (Pennsylvania)
4.8 Form of Junior Deed of Trust, Assignment of Rents and Leases and
Security Agreement from Koppel to the Company (Texas)
4.9 Form of Junior Leasehold Mortgage, Assignment of Rents and Leases and
Security Agreement from Erlanger to the Company (Oklahoma)
4.10 Form of Subsidiary Security Agreement between Newport and the Trustee
</TABLE>

<PAGE> 151

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ---------------------------------------------------------------------- ----------
<C> <S> <C>
4.11 Form of Subsidiary Security Agreement between Koppel and the Trustee
4.12 Form of Subsidiary Security Agreement between Erlanger and the Trustee
4.13 Form of ICN Security Agreement between Newport and the Company
4.14 Form of ICN Security Agreement between Koppel and the Company
4.15 Form of ICN Security Agreement between Erlanger and the Company
4.16 Form of Pledge and Security Agreement between the Company and the
Trustee
4.17 Form of Subsidiary Guarantee
4.18 Form of Intercreditor Agreement between the Trustee and the Bank of
New York Commercial Corporation, as agent under the Credit Facility
4.19 Form of Agreement between the Trustee Koppel, and the Commonwealth of
Pennsylvania, Department of Commerce
4.20 Form of Subordination Agreement between the Trustee and the City of
Dayton, Kentucky
4.21 Form of Revolving Credit, Guaranty and Security Agreement among Bank
of New York Commercial Corporation, PNC Bank Ohio, N.A., Newport,
Koppel, Imperial, the Company, Erlanger, Northern Kentucky Air, Inc.
and Northern Kentucky Management, Inc.
5.1** Opinion of Bryan Cave
10.1 Company's Amended Employee Incentive Stock Option Plan, filed as
Exhibit 10(a) to Company's Form 10-K for the fiscal year ended
September 30, 1989, File No. 1-9838, and incorporated herein by this
reference
10.2 Company's Executive Bonus Plan, filed as Schedule B to Exhibit 10.4 to
Company's Registration Statement on Form S-18, File No. 2-90643, and
incorporated herein by this reference
10.3 Company's Non-Qualified Stock Option and Stock Appreciation Rights
Plan of 1988, filed as Exhibit 1 to Company's Proxy Statement dated
January 13, 1989, File No. 1-9838, and incorporated herein by this
reference
10.4 Rights Agreement dated as of November 17, 1988 between Company and
Pittsburgh National Bank, filed as Exhibit 1 to Company's Form 8-K
dated November 17, 1988, File No. 1-9838, and incorporated herein by
this reference, and Appointment and Amendment Agreement dated July 29,
1994 between Registrant and Registrar and Transfer Company, filed as
Exhibit 10(d) to Company's Form 10-Q dated May 29, 1994, File No.
1-9838, and incorporated herein by reference
10.5 Company's 1993 Incentive Stock Option Plan, filed as Exhibit 1 to
Company's Proxy Statement dated December 22, 1992, File No. 1-9838,
and incorporated herein by this reference
10.6 Transfer Agreement, dated September 29, 1993, filed on September 28,
1993 as Exhibit 10.2 to the Amendment No. 2 to the Registration
Statement on Form S-1 of Kentucky Electric Steel, Inc., File No.
33-67140, and incorporated herein by this reference
10.7 Tax Agreement, dated October 6, 1993, by and among NS Group, Inc.,
Kentucky Electric Steel, Inc. and NSub I, Inc. (formerly Kentucky
Electric Steel Corporation), filed as Exhibit 10(h) to Company's Form
10-K for the fiscal year ended September 25, 1993, File No. 1-9383,
and incorporated herein by this reference
</TABLE>

<PAGE> 152

<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ---------- ---------------------------------------------------------------------- ----------
<C> <S> <C>
10.8 Registration Rights Agreement dated October 6, 1993 among Kentucky
Electric Steel, Inc., NS Group, Inc. and NSub I, Inc. (formerly
Kentucky Electric Steel Corporation), filed as Exhibit 10(i) to
Company's Form 10-K for fiscal year ended September 25, 1993, File No.
1-9383, and incorporated herein by this reference
10.9 Form of 11% Subordinated Convertible Debenture due 2005, filed as
Exhibit 4.1 to Company's Form 8-K dated October 18, 1990, File No.
1-9838, and incorporated herein by this reference
10.10 Form of Warrant dated October 4, 1990, filed as Exhibit 4.2 to
Company's Form 8-K dated October 18, 1990, File No. 1-9838, and
incorporated herein by reference; and First Amendment to Warrant dated
September 26, 1992, filed as Exhibit 4(c) to Company's Form 10-K for
the fiscal year ended September 26, 1992, File No. 1-9838, and
incorporated herein by this reference
12.1** Computation of Earnings to Fixed Charges
21.1** Subsidiaries of the Company
23.1 Consent of Arthur Andersen LLP
23.2 Consent of Bryan Cave is included in the opinion of Bryan Cave, filed
as Exhibit 5.1
24.1 Powers of Attorney (reference is made to the signature page of this
Registration Statement)
25.1** Statement of Eligibility of Trustee under the Trust Indenture Act of
1939 on Form T-1
27 Financial Data Schedule, filed as Exhibit 27 to Company's Form 10-Q
for the fiscal quarter ended April 1, 1995, File No. 1-9838, and
incorporated herein by this reference
</TABLE>

- ---------------
* To be filed by Amendment

**Previously Filed

<PAGE> 1
EXHIBIT 4.1

________________________________________________________________________________

NS GROUP, INC.

THE HUNTINGTON NATIONAL BANK, as Trustee

___________________

Form of Indenture

Dated __________ __, 1995

____________________

$125,000,000

______% Senior Secured Notes due 2003

________________________________________________________________________________

<PAGE> 2
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:

<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section(s)
- --------------- -----------
<S> <C>
Section 310(a)(1) . . . . . . . . . . . . . . . . . . 9.9
(a)(2) . . . . . . . . . . . . . . . . . . . . . 9.9
(a)(3) . . . . . . . . . . . . . . . . . . . . . Not applicable
(a)(4) . . . . . . . . . . . . . . . . . . . . . Not applicable
(a)(5) . . . . . . . . . . . . . . . . . . . . . 9.9
(b) . . . . . . . . . . . . . . . . . . . . . 9.8; 9.10
(c) . . . . . . . . . . . . . . . . . . . . . Not applicable
Section 311(a) . . . . . . . . . . . . . . . . . . . . 9.13
(b) . . . . . . . . . . . . . . . . . . . . . 9.13
(c) . . . . . . . . . . . . . . . . . . . . . Not applicable
Section 312(a) . . . . . . . . . . . . . . . . . . . . 10.1; 10.2(a)
(b) . . . . . . . . . . . . . . . . . . . . . 10.2(b)
(c) . . . . . . . . . . . . . . . . . . . . . 10.2(c)
Section 313(a) . . . . . . . . . . . . . . . . . . . . 10.3(a)
(a)(4) . . . . . . . . . . . . . . . . . . . . . 1.1
(b) . . . . . . . . . . . . . . . . . . . . . 10.3(a)
(c) . . . . . . . . . . . . . . . . . . . . . 10.3(a)
(d) . . . . . . . . . . . . . . . . . . . . . 10.3(b)
Section 314(a) . . . . . . . . . . . . . . . . . . . . 10.4
(a)(4) . . . . . . . . . . . . . . . . . . . . . 6.5
(b) . . . . . . . . . . . . . . . . . . . . . 12.2
(c)(1) . . . . . . . . . . . . . . . . . . . . . 13.4
(c)(2) . . . . . . . . . . . . . . . . . . . . . 13.4
(c)(3) . . . . . . . . . . . . . . . . . . . . . 13.4
(d) . . . . . . . . . . . . . . . . . . . . . 12.2; 12.3; 12.4;
12.5; 13.2; 13.3;
13.4; 13.5
(e) . . . . . . . . . . . . . . . . . . . . . 13.6
(f) . . . . . . . . . . . . . . . . . . . . . Not applicable
Section 315(a) . . . . . . . . . . . . . . . . . . . . 9.1
(b) . . . . . . . . . . . . . . . . . . . . . 9.2
(c) . . . . . . . . . . . . . . . . . . . . . 9.1
(d) . . . . . . . . . . . . . . . . . . . . . 9.1
(e) . . . . . . . . . . . . . . . . . . . . . 8.14
Section 316(a) . . . . . . . . . . . . . . . . . . . . 1.1
(a)(1)(A) . . . . . . . . . . . . . . . . . . . 8.2; 8.12
(a)(1)(B) . . . . . . . . . . . . . . . . . . . 8.13
(a)(2) . . . . . . . . . . . . . . . . . . . . . Not applicable
</TABLE>

Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.

<PAGE> 3

<TABLE>
<CAPTION>
Trust Indenture Indenture
Act Section Section(s)
- --------------- -----------
<S> <C>
(b) . . . . . . . . . . . . . . . . . . . . . 8.8
(c) . . . . . . . . . . . . . . . . . . . . . 1.4
Section 317(a)(1) . . . . . . . . . . . . . . . . . . 8.3
(a)(2) . . . . . . . . . . . . . . . . . . . . . 8.4
(b) . . . . . . . . . . . . . . . . . . . . . 6.26
Section 318(a) . . . . . . . . . . . . . . . . . . . . 1.7
</TABLE>

Note: This reconciliation and tie shall not, for any purpose, be deemed to
be a part of the Indenture.

<PAGE> 4
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page(s)

ARTICLE I
<S> <C>
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION . . . . . . . . . . . . . . 1
SECTION 1.1.
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
"Accounts Receivable" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Acquired Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Affiliate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Appraiser" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
"Asset Acquisition" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Asset Disposition" or "Asset Sale" . . . . . . . . . . . . . . . . . . . . . . . . 3
"Average Life" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Asset Sale Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Asset Sale Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Authenticating Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Available Amount" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Board of Directors" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Board Resolution" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
"Business Day" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Capital Lease Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Capital Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Cash Equivalents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Caster Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Change of Control" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
"Change of Control Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Change of Control Offer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
"Change of Control Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Collateral" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Collateral Account" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Collateral Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Collateral Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Commission" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Common Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Company Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Company Request" or "Company Order" . . . . . . . . . . . . . . . . . . . . . . . . 6
"Condemnation Award" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
"Consolidated EBITDA Coverage Ratio" . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>

-i-
<PAGE> 5

<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
"Consolidated Income Tax Expense" . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Consolidated Interest Expense" . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Consolidated Interest Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Consolidated Net Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
"Consolidated Net Worth" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Consolidated Recourse Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . 9
"Corporate Trust Office" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Credit Facility" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Custodian" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
"Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Defaulted Interest" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Depositary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Disqualified Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"EBITDA" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Event of Default" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Exchange Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Excluded Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
"Excluded Company" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Financial Advisor" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"GAAP" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"GECC Loan" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Global Security" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Government Loans" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Guarantee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
"Hedging Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Holder" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"ICN Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"ICN Security Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Indenture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Independent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
"Intercompany Note" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Intercreditor Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Interest Payment Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Interest Rate Protection Agreement" . . . . . . . . . . . . . . . . . . . . . . . . 14
"Internal Revenue Code" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Inventory" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Investment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
"Issue" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Issue Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Joint Venture" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Lenders" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Lender Secured Property" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Lien" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>

-ii-
<PAGE> 6

<TABLE>
<CAPTION>
Page(s)
-------
<S> <C>
"Material Adverse Effect" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Maturity Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
"Mortgage" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Net Available Cash" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Net Cash Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Net Income" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
"Net Insurance Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"NK Subsidiaries" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"No. 3 Melt Shop" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Non-Collateral Proceeds" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Non-Recourse Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
"Non-Recourse Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Obsolete Assets" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Officers' Certificate" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Opinion of Counsel" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Outstanding" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Permitted Investments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
"Permitted Liens" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
"Permitted Payments" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Permitted Related Acquisition" . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Person" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Pledge Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Predecessor Security" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
"Preferred Stock" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Prospectus" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Public Equity Offering" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Recourse Debt" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Recourse Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Reference Period" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Regular Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Released Interests" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Released Trust Moneys" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Responsible Officer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Restricted Payment" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
"Restricted Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Retained Trust Moneys" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Sale and Leaseback Transaction" . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Security Documents" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Security Register" and "Security Registrar" . . . . . . . . . . . . . . . . . . . . 23
"Special Record Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Stated Maturity" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
"Steelmaking Subsidiaries" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>

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<TABLE>
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Page(s)
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<S> <C> <C>
"Subsidiary Guarantee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Subsidiary Security Agreement" . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Trade Payables" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
"Trustee" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Trust Indenture Act" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Trust Moneys" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Trust Moneys Release Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Trust Officer" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"U.S. Government Obligations" . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
"Valuation Date" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Vice President" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Wholly-Owned Recourse Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Wholly-Owned Subsidiary" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
"Withdrawal Notice" . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 1.2.
Compliance Certificates and Opinions . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 1.3.
Form of Documents Delivered to Trustee . . . . . . . . . . . . . . . . . . . . . 27
SECTION 1.4.
Acts of Holders; Record Dates . . . . . . . . . . . . . . . . . . . . . . . . . . 28

SECTION 1.5. Notices, Etc. to Trustee and Company . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 1.6.
Notice to Holders; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 1.7.
Conflict with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 1.8.
Effect of Headings and Table of Contents . . . . . . . . . . . . . . . . . . . . 30
SECTION 1.9.
Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 1.10.
Separability Clause . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 1.11.
Benefits of Indenture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 1.12.
Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 1.13.
Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

SECTION 1.14. Immunity of Incorporators, Stockholders, Officers and Directors . . . . . . . . . . 31

ARTICLE II

SECURITY FORMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>

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Page(s)
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<S> <C> <C>
SECTION 2.1.
Forms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
SECTION 2.2.
Form of Face of Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
SECTION 2.3.
Form of Trustee's Certificate of Authentication . . . . . . . . . . . . . . . . . 40

ARTICLE III

THE SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.1.
Title and Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
SECTION 3.2.
Denominations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

SECTION 3.3. Execution, Authentication, Delivery and Dating . . . . . . . . . . . . . . . . . . . 41
SECTION 3.4.
Temporary Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

SECTION 3.5. Registration; Registration of Transfer and Exchange . . . . . . . . . . . . . . . . 42
SECTION 3.6.
Mutilated, Destroyed, Lost and Stolen Securities . . . . . . . . . . . . . . . . 45
SECTION 3.7.
Payment of Interest; Interest Rights Preserved . . . . . . . . . . . . . . . . . 46
SECTION 3.8.
Persons Deemed Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 3.9.
Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
SECTION 3.10.
Computation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

ARTICLE IV

SATISFACTION AND DISCHARGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
SECTION 4.1.
Satisfaction and Discharge of Indenture . . . . . . . . . . . . . . . . . . . . . 48
SECTION 4.2.
Application of Monies for Satisfaction and Discharge . . . . . . . . . . . . . . 49

ARTICLE V
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Page(s)
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<S> <C> <C>
REDEMPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 5.1.
Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

SECTION 5.2. Selection of Securities To Be Redeemed . . . . . . . . . . . . . . . . . . . . . . . 49
SECTION 5.3.
Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
SECTION 5.4.
Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 5.5.
Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 5.6.
Securities Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 5.7.
Public Equity Offering . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

ARTICLE VI

COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
SECTION 6.1.
Payment of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 6.2.
Maintenance of Office or Agency . . . . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 6.3.
Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

SECTION 6.4. Payment of Taxes and Other Claims; Tax Consolidation . . . . . . . . . . . . . . . . 53
SECTION 6.5.
Compliance Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 6.6.
SEC Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 6.7.
Waiver of Stay, Extension or Usury Laws . . . . . . . . . . . . . . . . . . . . . 55

SECTION 6.8. Maintenance of Properties; Insurance; Books and Records; Compliance with Law . . . . 56

SECTION 6.9. Limitations on Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
SECTION 6.10.
Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

SECTION 6.11. Limitation on the Issuance of Preferred Stock by Subsidiaries . . . . . . . . . . . 60
SECTION 6.12.
Transfer of Assets to Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . 61
</TABLE>

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Page(s)
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<S> <C> <C>
SECTION 6.13.
Limitations on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . 61

SECTION 6.14. Limitations on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . 62
SECTION 6.15.
Restrictions on Assets Sales . . . . . . . . . . . . . . . . . . . . . . . . . . 63

SECTION 6.16. Limitation on Restrictions on Distributions from Recourse Subsidiaries . . . . . . . 66

SECTION 6.17. Limitation on Sale and Leaseback Transactions . . . . . . . . . . . . . . . . . . . 67
SECTION 6.18.
Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
SECTION 6.19.
Limitation on Issuance and Sale of Capital Stock of Recourse Subsidiaries . . . . 69
SECTION 6.20.
Limitations as to Non-Recourse Subsidiaries . . . . . . . . . . . . . . . . . . . 69
SECTION 6.21.
Impairment of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 6.22.
Conflicting Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 6.23.
Amendment to Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 6.24.
Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 6.25.
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
SECTION 6.26.
Money for Security Payments to Be Held in Trust . . . . . . . . . . . . . . . . . 72

ARTICLE VII

SUCCESSOR CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 7.1.
When Company May Merge, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 73
SECTION 7.2.
Surviving Person Substituted . . . . . . . . . . . . . . . . . . . . . . . . . . 74

ARTICLE VIII

EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>

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Page(s)
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<S> <C>
SECTION 8.1.
Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 8.2.
Acceleration of Maturity; Rescission and Annulment . . . . . . . . . . . . . . . 77
SECTION 8.3.
Collection of Debt and Suits for Enforcement by Trustee . . . . . . . . . . . . . 78
SECTION 8.4.
Trustee May File Proofs of Claims . . . . . . . . . . . . . . . . . . . . . . . . 79
SECTION 8.5.
Trustee May Enforce Claims Without Possession of Securities . . . . . . . . . . . 79
SECTION 8.6.
Application of Money Collected . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 8.7.
Limitation on Suits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
SECTION 8.8.
Unconditional Right of Holders to Receive Principal and Interest . . . . . . . . 81
SECTION 8.9.
Restoration of Rights and Remedies . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.10.
Rights and Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.11.
Delay or Omission Not Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.12.
Control by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82
SECTION 8.13.
Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 8.14.
Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
SECTION 8.15.
Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . 84

ARTICLE IX

THE TRUSTEE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.1.
Certain Duties and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.2.
Notice of Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
SECTION 9.3.
Certain Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
</TABLE>

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<TABLE>
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Page(s)
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<S> <C>
SECTION 9.4.
Not Responsible for Recitals or Issuance of Securities . . . . . . . . . . . . . 86
SECTION 9.5.
May Hold Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.6.
Money Held in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
SECTION 9.7.
Compensation and Reimbursement . . . . . . . . . . . . . . . . . . . . . . . . . 87
SECTION 9.8.
Disqualification; Conflicting Interests . . . . . . . . . . . . . . . . . . . . . 88
SECTION 9.9.
Corporate Trustee Required; Eligibility . . . . . . . . . . . . . . . . . . . . . 88
SECTION 9.10.
Resignation and Removal; Appointment of Successor . . . . . . . . . . . . . . . . 88
SECTION 9.11.
Acceptance of Appointment by Successor . . . . . . . . . . . . . . . . . . . . . 90
SECTION 9.12.
Merger, Conversion, Consolidation or Succession to Business . . . . . . . . . . . 90
SECTION 9.13.
Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . 90
SECTION 9.14.
Appointment of Authenticating Agent . . . . . . . . . . . . . . . . . . . . . . . 91

ARTICLE X

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY . . . . . . . . . . . . . . . . . 92
SECTION 10.1.
Company to Furnish Trustee Names and Addresses of Holders . . . . . . . . . . . . 92
SECTION 10.2.
Preservation of Information; Communications to Holders . . . . . . . . . . . . . 93
SECTION 10.3.
Reports by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
SECTION 10.4.
Reports by Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94

ARTICLE XI

SUPPLEMENTAL INDENTURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 94
</TABLE>

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<TABLE>
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Page(s)
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<S> <C>
SECTION 11.1.
Supplemental Indentures without Consent of Holders . . . . . . . . . . . . . . . 94
SECTION 11.2.
Supplemental Indentures with Consent of Holders . . . . . . . . . . . . . . . . . 95
SECTION 11.3.
Execution of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . 96
SECTION 11.4.
Effect of Supplemental Indentures . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 11.5.
Conformity with Trust Indenture Act . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 11.6.
Reference in Securities to Supplemental Indentures . . . . . . . . . . . . . . . 97

ARTICLE XII

COLLATERAL AND SECURITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 12.1.
Collateral and Security Documents . . . . . . . . . . . . . . . . . . . . . . . . 97
SECTION 12.2.
Recording and Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
SECTION 12.3.
Release of Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
SECTION 12.4.
Possession and Use of Collateral . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 12.5.
Specified Releases of Collateral . . . . . . . . . . . . . . . . . . . . . . . . 101
SECTION 12.6.
Disposition of Collateral Without Release . . . . . . . . . . . . . . . . . . . . 103
SECTION 12.7.
Form and Sufficiency of Release . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 12.8.
Purchaser Protected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 12.9.
Authorization of Actions To Be Taken by The Trustee Under the Security
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
SECTION 12.10.
Authorization of Receipt of Funds by the Trustee Under the Security
Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
</TABLE>

ARTICLE XIII

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<PAGE> 14
<TABLE>
<CAPTION>
Page(s)
-------
<S> <C> <C>
APPLICATION OF TRUST MONEYS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 13.1.
Collateral Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
SECTION 13.2.
Withdrawals of Insurance Proceeds and Condemnation Awards . . . . . . . . . . . . 105
SECTION 13.3.
Withdrawal of Trust Moneys for Asset Sale Offer . . . . . . . . . . . . . . . . . 108
SECTION 13.4.
Withdrawal of Trust Moneys for Permitted Related Acquisitions . . . . . . . . . . 108
SECTION 13.5.
Withdrawal of Trust Moneys for Retention by the Company or its Subsidiaries . . . 109
SECTION 13.6.
Withdrawal of Trust Moneys on Basis of Retirement of Securities . . . . . . . . . 111
SECTION 13.7.
Investment of Trust Moneys . . . . . . . . . . . . . . . . . . . . . . . . . . . 111

ARTICLE XIV

DEFEASANCE AND COVENANT DEFEASANCE . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 14.1.
Company's Option to Effect Defeasance or Covenant Defeasance . . . . . . . . . . 112
SECTION 14.2.
Defeasance and Discharge . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
SECTION 14.3.
Covenant Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113
SECTION 14.4.
Conditions to Defeasance or Covenant Defeasance . . . . . . . . . . . . . . . . . 113

SECTION 14.5. Deposited Money and U.S. Government Obligations to be held in
Trust; Other Miscellaneous Provisions . . . . . . . . . . . . . . . . . . . . . . 115
SECTION 14.6.
Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
SECTION 14.7.
Intervention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
</TABLE>

-xi-
<PAGE> 15
Page(s)

<TABLE>
<CAPTION>
EXHIBITS
<S> <C>
EXHIBIT Form of Intercompany Note
EXHIBIT Form of Mortgage
EXHIBIT Form of Mortgage (ICN)
EXHIBIT Form of Pledge Agreement
EXHIBIT Form of Subsidiary Guarantee
EXHIBIT Form of Subsidiary Security Agreement
EXHIBIT Form of Subsidiary Security Agreement (ICN)
EXHIBIT Form of Intercreditor Agreement
</TABLE>

-xii-
<PAGE> 16

INDENTURE, dated as of ______________ ___, 1995, between NS GROUP,
INC., a corporation duly organized and existing under the laws of the State of
Kentucky (herein called the "Company"), having its principal office at Ninth and
Lowell Streets, Newport, Kentucky 41072, and The Huntington National Bank, a
national banking association duly organized and existing under the laws of the
United States, as Trustee (herein called the "Trustee").

RECITALS OF THE COMPANY

The Company has duly authorized the creation of an issue of its
___% Senior Secured Notes due 2003 (herein called the "Securities") of
substantially the tenor and amount hereinafter set forth, and to provide
therefor the Company has duly authorized the execution and delivery of this
Indenture.

All things necessary to make the Securities, when executed by the
Company and authenticated and delivered hereunder and duly issued by the
Company, the valid obligations of the Company, and to make this Indenture a
valid agreement of the Company, in accordance with their and its terms, have
been done.

NOW, THEREFORE, THIS INDENTURE WITNESSETH:

For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually agreed, for the equal and
proportionate benefit of all Holders of the Securities, as follows:

ARTICLE I

DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION

SECTION 1.1. Definitions.

For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:

(1) the terms defined in this Article have the meanings assigned to
them in this Article and include the plural as well as the singular;

(2) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the meanings
assigned to them therein;

(3) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with generally accepted
accounting principles, and except as otherwise herein expressly provided,
the term "generally accepted accounting principles" with respect to any
computation required or permitted hereunder shall mean such accounting
principles as are generally accepted at the date of this instrument;

<PAGE> 17

(4) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Indenture as a whole and not to any
particular Article, Section or other subdivision; and

(5) all reference to the Collateral Agent shall be deemed to
include a reference to the Trustee, and the reverse thereof shall
similarly apply.

"Accounts Receivable" means, as to the Company and each Subsidiary
the following assets of each which arise out of or in connection with the sale
or lease of Inventory or the rendition of services: all accounts, contract
rights, instruments (including intercompany debt arising in connection with the
sale or lease of Inventory or the rendition of services), documents, chattel
paper, general intangibles relating to accounts, drafts and acceptances, and all
other forms of obligations owning to such person, including guarantees and other
security therefor, whether secured or unsecured, now existing or hereafter
created.

"Acquired Debt" means Debt of a Person existing at the time such
Person becomes a Subsidiary of the Company or assumed in connection with an
Asset Acquisition by such Person, including, without limitation, Debt incurred
in connection with, or in anticipation of, such Person becoming a Subsidiary of
the Company or such acquisition.

"Act" when used with respect to any Holder, has the meaning
specified in Section 1.4.

"Affiliate" of any specified Person means (i) any other Person
which, directly or indirectly, is in control of, is controlled by or is under
common control with such specified Person or (ii) any other Person who is a
director or officer (A) of such specified Person, (B) of any subsidiary of such
specified Person or (C) of any Person described in clause (i) above or (iii) any
Person in which such Person has, directly or indirectly, a 5% or greater voting
or economic interest or the power to control. For the purposes of this
definition, "control" of a Person means the power, direct or indirect, to direct
or cause the direction of the management or policies of such Person whether
through the ownership of voting securities, or by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the foregoing.

"Appraiser" means a Person who in the course of its business
appraises property and, where real property is involved, who is a member in good
standing of the American Institute of Real Estate Appraisers, recognized and
licensed to do business in the jurisdiction where the applicable real property
is situated, and who may be employed by the Company.

<PAGE> 18
3

"Asset Disposition" or "Asset Sale" means any sale, lease, transfer
or other disposition (or series of related sales, leases, transfers, or
dispositions) of shares of Capital Stock of a Subsidiary (other than directors'
qualifying shares), property or other assets (each referred to for the purposes
of this definition as a "disposition") by the Company or any of its
Subsidiaries, including any disposition by means of a merger, consolidation or
similar transaction, other than (i) a disposition by a Subsidiary to the Company
or by the Company or a Subsidiary to a Wholly-Owned Recourse Subsidiary, (ii) a
disposition of property or assets at fair market value in the ordinary course of
business or (iii) a disposition that constitutes a Restricted Payment or a Sale
and Leaseback Transaction.

"Average Life" means, as of the date of determination, with respect
to any Debt or Preferred Stock, the quotient obtained by dividing (i) the sum of
the products of the numbers of the years from the date of determination to the
dates of each successive scheduled principal payment of such Debt or redemption
or similar payment with respect to such Preferred Stock multiplied by the amount
of such payment by (ii) the sum of all such payments.

"Asset Sale Offer" has the meaning specified in Section 6.15(b).

"Asset Sale Payment Date" has the meaning specified in Section
6.15(c).

"Authenticating Agent" means any Person authorized by the Trustee
pursuant to Section 9.14 to act on behalf of the Trustee to authenticate
Securities.

"Available Amount" has the meaning specified in Section 6.15(b).

"Bankruptcy Law" means Title 11, United States Code or any similar
Federal or state law for the relief of debtors, as amended.

"Board of Directors" means the Board of Directors of the Company or
its Subsidiaries, as the case may be, or any committee thereof duly authorized
to act on behalf of such Board.

"Board Resolution" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or its Subsidiaries, as the
case

<PAGE> 19
4

may be, to have been duly adopted by the Board of Directors of the Company or
its Subsidiaries, as the case may be, and to be in full force and effect on the
date of such certification, and delivered to the Trustee.

"Business Day" means any day that is not a Saturday, a Sunday or a
day on which banking institutions are required to close in the State of New
York, the State of Ohio or the State of Kentucky.

"Capital Lease Obligations" of a Person means any obligation which
is required to be classified and accounted for as a capital lease on the face of
a balance sheet of such Person prepared in accordance with GAAP; the amount of
such obligation shall be the capitalized amount thereof, determined in
accordance with GAAP.

"Capital Stock" means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or interest
in (however designated and whether voting or non-voting) corporate stock of a
corporation and any and all equivalent ownership interests in a Person (other
than a corporation), in each case whether outstanding on the Issue Date or
thereafter issued, including any Preferred Stock.

"Cash Equivalents" means (i) investments in U.S. Government
Obligations maturing within 180 days of the date of acquisition thereof, (ii)
investments in certificates of deposit maturing within 90 days of the date of
acquisition thereof issued by a bank or trust company which is organized under
the laws of the United States or any state thereof having capital, surplus and
undivided profits aggregating in excess of $250,000,000, (iii) investments in
commercial paper rated at least A-1 by Standard & Poor's Corporation, Inc. and
P-1 by Moody's Investors Service, Inc. and maturing not more than 180 days from
the date of acquisition thereof, (iv) securities issued or fully guaranteed by
any state, commonwealth or territory of the United States, or by any political
subdivision or taxing authority thereof, which mature in the hands of the
Company within 180 days of acquisition thereof, and rated at least "A" by
Standard & Poor's Corporation, Inc. or "A" by Moody's Investors Service, Inc.
and (v) money market and auction rate preferred stocks which, at the date of
acquisition and at all times thereafter, are accorded ratings of at least AA- by
Standard and Poor's Corporation, Inc. or Aa3 by Moody's Investors Service, Inc.

"Caster Loan" means the Note Agreements, dated as of November 15,
1989, between Newport Steel Corporation and certain Noteholders pursuant to
which the Noteholders purchased from Newport $45 million in aggregate principal
amount of Newport's 10.40% Senior Secured Notes due November 15, 1999.

"Change of Control" means the occurrence of one or more of the
following events:

<PAGE> 20
5

(i) the direct or indirect sale, lease, exchange or other
transfer of all or substantially all of the assets of the Company
to any Person or entity or group of Persons or entities acting in
concert as a partnership or other group (a "Group of Persons")
other than a Person described in clause (i) of the definition of
Affiliate;

(ii) the consummation of any consolidation or merger of the
Company with or into another corporation with the effect that the
stockholders of the Company immediately prior to the date of the
consolidation or merger hold less than 51% of the combined voting
power of the outstanding voting securities of the surviving entity
of such merger or the corporation resulting from such consolidation
ordinarily having the right to vote in the election of directors
(apart from rights accruing under special circumstances)
immediately after such merger or consolidation;

(iii) the stockholders of the Company shall approve any plan
or proposal for the liquidation or dissolution of the Company;

(iv) a Person or Group of Persons acting in concert as a
partnership, limited partnership, syndicate or other group shall,
as a result of a tender or exchange offer, open market purchases,
privately negotiated purchases or otherwise, have become the direct
or indirect beneficial owner (within the meaning of Rule 13d-3
under the Exchange Act) of securities of the Company representing
30% or more of the combined voting power of the then outstanding
securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in
the election of directors; and

(v) a Person or Group of Persons, together with any
Affiliates thereof, shall succeed in having a sufficient number of
its nominees elected to the Board of Directors of the Company such
that such nominees, when added to any existing director remaining
on the Board of Directors of the Company after such election who is
an Affiliate of such Person or Group of Persons, will constitute a
majority of the Board of Directors of the Company;

provided that the Person or Group of Persons referred to in clauses (i), (iv)
and (v) shall not mean Clifford Borland or any Group of Persons the majority of
the voting equity interests of which is beneficially owned (within the meaning
of Rule 13d-3(a)(1) under the Exchange Act) by Clifford Borland.

"Change of Control Date" has the meaning specified in Section 6.18.

"Change of Control Offer" has the meaning specified in Section
6.18.

<PAGE> 21
6

"Change of Control Payment Date" has the meaning specified in
Section 6.18.

"Collateral" means, collectively, all of the property and assets
that are from time to time subject to the Liens of the Security Documents,
including, without limitation, Trust Moneys.

"Collateral Account" means the collateral account to be established
pursuant to this Indenture.

"Collateral Agent" means the Trustee acting in its capacity as
agent for the Holders with respect to the Collateral under the Security
Documents.

"Collateral Proceeds" means the Net Available Cash received by the
Collateral Agent or the Trustee, as the case may be, from the sale of
Collateral.

"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or, if at any time
after the execution of this instrument such Commission is not existing and
performing the duties now assigned to it under the Trust Indenture Act, then the
body performing such duties at such time.

"Common Stock" includes any stock of any class of the Company or
its Subsidiaries which has no preference in respect of dividends or of amounts
payable in the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company or its Subsidiaries and which is not subject to
redemption by the Company or its Subsidiaries.

"Company" means the Person named as the "Company" in the first
paragraph of this instrument until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.

"Company Obligations" has the meaning specified in Section 12.1(a).

"Company Request" or "Company Order" means a written request or
order signed in the name of the Company by its Chairman of the Board, its Vice
Chairman of the Board, its President or a Vice President, and by its Treasurer,
an Assistant Treasurer, its Secretary or an Assistant Secretary, and delivered
to the Trustee.

"Condemnation Award" means any proceeds, award or payment paid to
the mortgagee or beneficiary under the Security Documents relating to any taking
of the Collateral subject to such Security Document by condemnation or eminent
domain or similar action, together with interest accrued thereon.

<PAGE> 22
7

"Consolidated EBITDA Coverage Ratio" as of any date of
determination (the "Determination Date") means the ratio of (i) the aggregate
amount of EBITDA for the period of the most recent four consecutive fiscal
quarters ending prior to the date of such determination to (ii) Net Interest
Expense for such four fiscal quarters; provided, however, that (1) if the
Company or any Recourse Subsidiary has issued any Debt since the beginning of
such period that remains outstanding or if the transaction giving rise to the
need to calculate the Consolidated EBITDA Coverage Ratio is an issuance of Debt,
or both, EBITDA and Consolidated Interest Expense for such period shall be
calculated after giving effect on a pro forma basis to such Debt as if such Debt
had been issued on the first day of such period and as if the discharge of any
other Debt repaid, repurchased, defeased or otherwise discharged with the
proceeds of such new Debt had occurred on the first day of such period, (2) if
since the beginning of such period the Company or any Recourse Subsidiary shall
have made any Asset Disposition which constitutes all or substantially all of an
operating unit of a business, the EBITDA for such period shall be reduced by an
amount equal to the EBITDA (if positive) directly attributable to the assets
which are the subject of such Asset Disposition for such period, or increased by
an amount equal to the EBITDA (if negative), directly attributable thereto for
such period, and Consolidated Interest Expense for such period shall be reduced
by an amount equal to the Consolidated Interest Expense directly attributable to
any Debt of the Company or any Recourse Subsidiary repaid, repurchased, defeased
or otherwise discharged with respect to the Company and its continuing Recourse
Subsidiaries in connection with such Asset Dispositions for such period (or, if
the Capital Stock of any Recourse Subsidiary is sold, the Consolidated Interest
Expense for such period directly attributable to the Debt of such Recourse
Subsidiary to the extent the Company and its continuing Recourse Subsidiaries
are no longer liable for such Debt after such sale), as if such Asset
Disposition occurred on the first day of such period, (3) if since the beginning
of such period the Company or any Recourse Subsidiary (by merger or otherwise)
shall have made an Investment in any Recourse Subsidiary (or any Person which
becomes a Recourse Subsidiary) or an Asset Acquisition, including any
acquisition of assets occurring in connection with a transaction causing a
calculation to be made hereunder, EBITDA and Consolidated Interest Expense for
such period shall be calculated after giving pro forma effect thereto (including
the issuance of any Debt) as if such Investment or Asset Acquisition occurred on
the first day of such period, (4) if since the beginning of such period any
Person (that subsequently became a Recourse Subsidiary or was merged with or
into the Company or any Recourse Subsidiary since the beginning of such period)
shall have made any Asset Disposition or any Investment or Asset Acquisition
that would have required an adjustment pursuant to clause (2) or (3) above if
made by the Company or a Recourse Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition or Investment or Asset
Acquisition occurred on the first day of such period and (5) there shall be
excluded from Consolidated Interest Expense any Consolidated Interest Expense
related to any Debt which was outstanding during the period but is not
outstanding on the Determination Date, except for Consolidated Interest Expense
actually incurred with respect to Debt borrowed under a revolving credit or
similar

<PAGE> 23
8

arrangement to the extent the commitment thereunder remains in effect on the
Determination Date. For purposes of this definition, whenever pro forma effect
is to be given to an Asset Disposition, an Investment or an Asset Acquisition,
the amount of income or earnings relating thereto, and the amount of
Consolidated Interest Expense associated with any Debt issued, redeemed or
defeased in connection therewith, the pro forma calculations shall be determined
in good faith by a responsible financial or accounting officer of the Company.
If any Debt bears a floating rate of interest and is being given pro forma
effect, the interest of such Debt shall be calculated as if the rate in effect
on the Determination Date had been the applicable rate for the entire period
(taking into account any Interest Rate Protection Agreement applicable to such
Debt if such Interest Rate Protection Agreement has a remaining term in excess
of 12 months).

"Consolidated Income Tax Expense" of any Person for any period
means, without duplication, the aggregate amount of net taxes based on income or
profits for such period of the operations of such Person and its Consolidated
Recourse Subsidiaries actually payable with respect to such period, determined
in accordance with GAAP (to the extent such income or profits were included in
computing Consolidated Net Income).

"Consolidated Interest Expense" of any Person means, for any
period, the total interest expense of the Company and its Consolidated Recourse
Subsidiaries, including, without duplication, (i) interest expense attributable
to Capital Lease Obligations, (ii) amortization of debt discount and debt
issuance cost, (iii) capitalized interest, (iv) non-cash interest payment or
accruals, (v) commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, (vi) net costs
under Interest Rate Protection Agreements and Hedging Agreements (including
amortization of fees), (vii) Preferred Stock dividends paid in respect of all
Preferred Stock issued by the Company or its Recourse Subsidiaries held by
Persons other than the Company or a Wholly-Owned Recourse Subsidiary, (viii)
amortization of other financing fees and expenses and the interest portion of
any deferred payment obligations and (ix) interest actually paid by the Company
or any of its Consolidated Recourse Subsidiaries under any Guarantee of Debt or
other obligation of any other Person.

"Consolidated Interest Income" of any Person means, for any period,
all amounts that would be included under interest income on a consolidated
income statement of such Person and its Consolidated Recourse Subsidiaries
determined in accordance with GAAP, less accreted amounts attributable to
original issue discount securities prior to the receipt thereof and other
non-cash interest payments.

"Consolidated Net Income" of any Person for any period means the
Net Income of such Person and its Consolidated Recourse Subsidiaries for such
period, determined on a consolidated basis in accordance with GAAP; provided,
that (a) there shall be excluded (i) the Net Income of any Person (other than a
Consolidated Recourse Subsidiary) in which such Person or any of its
Consolidated Recourse

<PAGE> 24
9

Subsidiaries has a joint interest with a third party except to the extent of the
amount of dividends or distributions actually paid to such Person or its
Consolidated Recourse Subsidiary during such period; (ii) except to the extent
includable pursuant to the foregoing clause (i), the Net Income of any Person
accrued prior to the date it becomes a Recourse Subsidiary of such Person or is
merged into or consolidated with such Person or any of its Recourse Subsidiaries
or that Person's assets are acquired by such Person or any of its Recourse
Subsidiaries; (iii) the Net Income (if positive), or any portion thereof, of any
Recourse Subsidiary of such Person to the extent that the declaration or payment
of dividends or similar distributions by that Recourse Subsidiary to such Person
or to any other Recourse Subsidiary of such Net Income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Recourse Subsidiary, except that (A) the Company's equity in the Net Income
of any such Recourse Subsidiary for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually distributed
by such Recourse Subsidiary during such period to the Company or another
Recourse Subsidiary as a dividend or other distribution (subject, in the case of
a dividend or other distribution to a Recourse Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any such
Recourse Subsidiary for such period shall be included in determining such
Consolidated Net Income; (iv) without duplication, any gains or losses
attributable to Asset Sales; (v) Net Income (if positive) arising from the
adoption of changes in accounting policy to comply with GAAP or voluntarily by
the Company with the consent of its independent auditors that so qualify under
Regulation S-X of the Securities Act; (vi) Net Income arising for periods prior
to the date of a transaction in connection with the accounting treatment for a
merger, combination or consolidation under the pooling of interests method and
(vii) foreign currency translation gains and losses and (b) there shall be
included the Company's equity in the Net Income of a Non-Recourse Subsidiary up
to the aggregate amount of cash actually distributed by such Non-Recourse
Subsidiary during such period to the Company or a Consolidated Recourse
Subsidiary as a dividend or other distribution.

"Consolidated Net Worth" of any Person means the total of the
amounts shown on the balance sheet of such Person and its Consolidated Recourse
Subsidiaries, determined on a consolidated basis in accordance with GAAP, as of
the end of the most recent fiscal quarter of such Person prior to the taking of
any action for the purpose of which the determination is being made, as (i) the
par or stated value of all outstanding Capital Stock of such Person plus (ii)
paid-in capital or capital surplus relating to such Capital Stock plus (iii) any
retained earnings or earned surplus less (A) any accumulated deficit and (B) any
amounts attributable to Disqualified Stock.

"Consolidated Recourse Subsidiary" of any Person means a Recourse
Subsidiary which for financial reporting purposes is or, in accordance with
GAAP, should be, accounted for by such Person as a consolidated Subsidiary.

<PAGE> 25
10

"Corporate Trust Office" means the principal office of the Trustee
in Columbus, Ohio at which at any particular time its corporate trust business
shall be administered.

"Credit Facility" means the Revolving Credit Guaranty and Security
Agreement dated July __, 1995 among The Bank of New York Commercial Corporation,
as lender, ACM co-agent and ACM agent, PNC Bank Ohio, National Association, as
lender and co-agent, with Newport Steel Corporation, Koppel Steel Corporation
and Imperial Adhesives, Inc. as borrowers thereunder, and NS Group, Inc.,
Erlanger Tubular Corporation, Northern Kentucky Air, Inc. and NK Management,
Inc. as guarantors thereunder, and any renewals, extensions or refinancings
thereof.

"Custodian" means any receiver, trustee, assignee, liquidator or
similar official under any Bankruptcy Law.

"Debt" of any Person means, without duplication:

(i) the principal of and any premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for
the payment of which such Person is responsible or liable;

(ii) all Capital Lease Obligations of such Person;

(iii) all obligations of such Person issued or assumed as the
deferred purchase price of property, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business);

(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in (i) through
(iii) above) entered into in the ordinary course of business of such
Person to the extent such letters of credit are not drawn upon or, if and
to the extent drawn upon, such drawing is reimbursed no later than the
third Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);

(v) the amount of all obligations of such Person with respect to
the redemption, repayment or other repurchase of any Disqualified Stock
(the amount of Debt represented by any Disqualified Stock will be the
liquidation preference, plus accrued and unpaid dividends);

<PAGE> 26
11

(vi) to the extent not otherwise included, all obligations under
Interest Rate Protection Agreements and Hedging Agreements;

(vii) all obligations of the type referred to in clauses (i)
through (vi) of other Persons and all dividends of other persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by
means of any Guarantee; and

(viii) all obligations of the type referred to in clauses (i)
through (vii) of other Persons secured by any Lien on any property or
asset of such Person (whether or not such obligation is assumed by such
Person); provided, that if recourse with respect to such Debt is limited
to such asset, the amount of such Debt being deemed to be the lesser of
the value of such property or assets or the amount of the obligation so
secured.

"Default" means any event which is, or after the giving of notice
or passage of time or both would be, an Event of Default.

"Defaulted Interest" has the meaning specified in Section 3.7.

"Depositary" means The Depository Trust Company or any successor
thereto.

"Disqualified Stock" means any Capital Stock which, by its terms
(or by the terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the holder thereof, in whole or in part on, or prior to, the final
maturity date of the Securities.

"EBITDA" for any period means the Consolidated Net Income for such
period (but without giving effect to adjustments, accruals, deductions or
entries resulting from purchase accounting), plus the following to the extent
deducted in calculating such Consolidated Net Income for such period (i)
Consolidated Income Tax Expense; (ii) Consolidated Interest Expense; and (iii)
depreciation and amortization expense determined on a consolidated basis for
such Person and its Consolidated Recourse Subsidiaries in accordance with GAAP
for such period.

"Event of Default" has the meaning specified in Section 8.1.

"Exchange Act" means the Securities Exchange Act of 1934, as
amended.

"Excluded Assets" means the stock of Kentucky Electric Steel, Inc.
held on the Issue Date by the Company or its Subsidiaries and the stock and
assets of Imperial Adhesives, Inc. and the NK Subsidiaries.

<PAGE> 27
12

"Excluded Company" means any existing or future Subsidiary, each of
which is executing, or will execute upon becoming a Subsidiary, the Subsidiary
Guarantee in respect of the obligations of the Company, but that does not
execute security agreements and/or mortgages in favor of the Collateral Agent
for the benefit of the Holders relating to substantially all of its real
property, fixtures, machinery, tools, equipment and similar property or a
negative pledge with respect to certain intangibles.

"Financial Advisor" means an investment banking firm of national
reputation which (except as otherwise expressly provided in this Indenture) may
be employed by the Company.

"GAAP" means generally accepted accounting principles in the United
States as in effect from time to time, including, without limitation, those set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are applicable as of the
date of determination.

"GECC Loan" means (i) the Loan Agreement, dated as of October 4,
1990, among Koppel Steel Corporation and GECC, in its capacity as agent for the
benefit of itself and any other lenders from time to time party to such Loan
Agreement and (ii) the Loan Agreement, dated as of October 4, 1990, among
Newport Steel Corporation and GECC.

"Global Security" means a Security evidencing all or part of a
series of Securities which is issued to the Depositary or its nominee and is
registered in the name of the Depositary or its nominee.

"Government Loans" means any Debt issued, guaranteed or otherwise
sponsored by any state or local governmental entity that carries an annual
interest rate not in excess of the rate which is 2% less than the prime rate of
interest charged by the Trustee at the time such Debt is incurred.

<PAGE> 28
13

term "Guarantee" shall not include endorsements for collection or deposits in
the ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The amount of any Guarantee shall be deemed to be an
amount equal to the stated or determinable amount of the primary obligation in
respect of which such Guarantee is made (unless such Guarantee shall be
expressly limited to a lesser amount, in which case such lesser amount shall
apply) or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof as determined by such Person in good faith.

"Holder" means a Person in whose name a Security is registered in
the Security Register.

"ICN Mortgage" means each mortgage (or deed of trust) dated as of
the date hereof, between a Steelmaking Subsidiary and the Company, in either
case in substantially the form of Exhibit __, as the same may be amended,
supplemented or otherwise modified from time to time.

"ICN Security Agreement" means each security agreement dated as of
the date hereof between a Steelmaking Subsidiary and the Company, substantially
in the form of Exhibit __, as the same may be amended, supplemented or otherwise
modified from time to time.

"Indenture" means this instrument as originally executed or as it
may from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this instrument and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this instrument and any such supplemental indenture,
respectively.

"Independent" when used with respect to any specified Person means
such a Person who (i) is in fact independent, (ii) does not have any direct
financial interest or any material indirect financial interest in the Company or
in any other obligor in respect of the Securities or in any Affiliate of the
Company or such other obligor and (iii) is not an officer, employee, promotor,
underwriter, trustee, partner, director or person performing similar functions
to any of the foregoing for the Company or such other obligor or any Affiliate
thereof. Whenever it is provided in this Indenture that any Independent Person's
opinion or certificate shall be furnished to the Trustee, such Person shall be
appointed by the Company and approved by the Trustee in the exercise of
reasonable care, and such opinion or certificate shall state

<PAGE> 29
14

that the signer has read this definition and that the signer is Independent
within the meaning thereof.

"Intercompany Note" means each Intercompany Note dated as of the
date hereof, between the Company and each of the Steelmaking Subsidiaries in an
aggregate amount at least equal to the principal amount of the Securities,
substantially in the Form of Exhibit A hereto, as the same may be amended,
supplemented or otherwise modified from time to time.

"Intercreditor Agreement" means the Intercreditor Agreement dated
as of the date hereof among the Company, the Bank of New York Commercial
Corporation, as ACM agent for the financial institutions parties to the Credit
Facility, and The Huntington National Bank, in substantially the form of Exhibit
__ hereto, as the same may be amended, supplemented or otherwise modified from
time to time.

"Interest Payment Date" means the Stated Maturity of an installment
of interest on the Securities.

"Interest Rate Protection Agreement" means any interest rate swap
agreement, interest rate cap agreement or other financial agreement or
arrangement designed to protect the Company or any Subsidiary against
fluctuations in interest rates, to or under which the Company or any of its
Subsidiaries is a party or a beneficiary on the date of the Indenture or becomes
a party or a beneficiary thereafter.

"Internal Revenue Code" means the Internal Revenue Code of 1986, as
amended.

"Inventory" means all inventory of the Company and its Subsidiaries
now owned or hereafter acquired goods, merchandise and other personal property,
wherever located, which goods, merchandise and other personal property are to be
furnished under any contract of service or held for sale or lease in the
ordinary course of such Person's business, all raw materials, work in process,
finished goods and materials and supplies of any kind, nature or description
which are or might be used or consumed in such Person's business or used in
selling or furnishing such goods, merchandise and other personal property, and
all documents of title or other documents representing them.

"Investment" of any Person means (i) all investments by such Person
in any other Person in the form of loans, advances or capital contributions
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business) or (ii) all purchases (or other
acquisitions for consideration) by such Person of Debt, Capital Stock or other
securities of any other Person or (iii) all other items that would be classified
as investments on a balance sheet of such Person prepared in accordance with
GAAP.

<PAGE> 30
15

"Issue" means issue, assume, guarantee, incur or otherwise become
liable for; provided, however, that any Debt or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be issued by such
Subsidiary at the time it becomes a Subsidiary.

"Issue Date" means the original date of issuance of the Securities.

"Lenders" means the lenders who are from time to time parties to
the Credit Facility.

"Lender Secured Property" means the Accounts Receivable, Inventory
and certain intangibles of the Company, Newport Steel Corporation, Koppel Steel
Corporation, Imperial Adhesives, Inc., Erlanger Tubular Corporation and the NK
Subsidiaries, and the proceeds thereof, that secure the obligations of Newport
Steel Corporation, Koppel Steel Corporation and Imperial Adhesives, Inc. with
respect to the Credit Facility.

"Lien" means, with respect to any property, any mortgage, deed of
trust, lien, pledge, security interest, lease, easement, restriction, covenant,
right-of-way, charge, encumbrance, conditional sale or other title retention
agreement or other similar lien. For the purposes of this Indenture and the
Security Documents, the Company and its Subsidiaries shall be deemed to own
subject to a Lien any property which they have acquired or hold subject to the
interests of a vendor or lessor under any conditional sales agreement, capital
lease or other title retention agreement relating to such property.

"Material Adverse Effect" means a material adverse effect on (i)
the business, operations, property, condition (financial or otherwise) or
prospects of the Company and its Recourse Subsidiaries taken as a whole, (ii)
the ability of the Company and its Subsidiaries to perform their respective
obligations under the Securities and the Security Documents or (iii) the
validity or enforceability of the Securities or any of the Security Documents.

"Maturity Date" when used with respect to any Security, means the
date on which the principal of such Security becomes due and payable as therein
or herein provided, whether at the Stated Maturity or by declaration of
acceleration, call for redemption, Asset Sales Offer, Change of Control Offer or
otherwise.

<PAGE> 31
16

"Mortgage" means each mortgage (or deed of trust), dated as of the
date hereof, or with respect to Persons that become Recourse Subsidiaries of the
Company after the date hereof, as of such subsequent date, between a Subsidiary
of the Company and the Collateral Agent, in either case in substantially the
form of Exhibit __, as the same may be amended, supplemented or otherwise
modified from time to time in accordance with its terms.

"Net Available Cash" from an Asset Disposition means cash payments
received (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only as
and when received (including any cash received upon sale or disposition of such
note or receivable), but excluding any other consideration received in the form
of assumption by the acquiring Person of Debt or other obligations relating to
such properties or assets or received in any other non-cash form) therefrom, in
each case net of all legal, title and recording tax expenses, commissions and
other fees and expenses incurred, and all Federal, state, provincial, foreign
and local taxes required to be accrued as a liability under GAAP, as a
consequence of such Asset Disposition, and in each case net of appropriate
amounts to be provided by the Company or its Subsidiaries as a reserve, in
accordance with GAAP, against any liabilities associated with such assets and
retained by the Company or any Subsidiary after such Asset Disposition,
including, without limitation, pension and other post-employment benefit
liabilities and liabilities related to environmental matters and the after-tax
cost of any indemnification payments (fixed or contingent) attributable to the
seller's indemnities to the purchaser undertaken by the Company or any of its
Subsidiaries in connection with such Asset Disposition (but excluding any
payments, which by the terms of the indemnities will not, under any
circumstances, be made during the term of the Securities) and net of all
payments made on any Debt which is secured by any assets subject to such Asset
Disposition, in accordance with the terms of any Lien upon or other security
agreement of any kind with respect to such assets, or which must by its terms,
or in order to obtain a release of such Lien or a necessary consent to such
Asset Disposition, or by applicable law be repaid out of the proceeds from such
Asset Disposition, and net of all distributions and other payments required to
be made to minority interest holders in Subsidiaries or Joint Ventures as a
result of such Asset Disposition.

"Net Cash Proceeds" means, with respect to any issuance or sale of
Capital Stock, the cash proceeds of such issuance or sale net of attorneys'
fees, accountants' fees, underwriters' or placement agents' fees, discounts and
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.

"Net Income" of any Person for any period means the net income
(loss) of such Person for such period, determined in accordance with GAAP,
except that extraordinary, unusual and non-recurring gains and losses as
determined in accordance with GAAP shall be excluded.

<PAGE> 32
17

"Net Insurance Proceeds" means all proceeds paid to either the
Company, its Subsidiaries and/or the Collateral Agent or any mortgagee or
beneficiary under the Security Documents relating to damage to, or loss or
destruction of, Collateral (but not including those proceeds which, in the
reasonable judgment of the Trustee, constitute proceeds of "business
interruption insurance" and exclusively relate to economic losses), together
with interest earned thereon, less expenses related to the receipt of such Net
Insurance Proceeds.

"Net Interest Expense" means the difference between Consolidated
Interest Expense and Consolidated Interest Income; provided, that such amount
shall not be less than zero.

"NK Subsidiaries" means Northern Kentucky Management, Inc. and
Northern Kentucky Air, Inc.

"No. 3 Melt Shop" means the No. 3 Melt Shop and Blooming Mill owned
by Koppel Steel Corporation which is the subject of the Agreement by and between
Koppel Steel Corporation and The Commonwealth of Pennsylvania, dated as of the
date hereof, as may be amended, modified or supplemented from time to time.

"Non-Collateral Proceeds" means the Net Available Cash of any Asset
Disposition that does not represent Collateral Proceeds.

"Non-Recourse Debt" means Debt or the portion of Debt of a
Non-Recourse Subsidiary (i) as to which neither the Company nor any Recourse
Subsidiary (a) provides credit support or a Guarantee (including any
undertaking, agreement or instrument which would constitute Debt), (b) is
directly or indirectly liable, or (c) constitutes the lender, (ii) the holders
of such Debt expressly waive all claims and any recourse which they may have, in
law, equity or otherwise, whether based on misrepresentation, control, ownership
or otherwise, to each of the Company and any Recourse Subsidiary, including,
without limitation, a waiver of the benefits of the provisions of Section
1111(b) of the Bankruptcy Code (Title 11, United States Code), as amended, on or
in respect of such Debt against the Company or any Recourse Subsidiary of the
Company and such waiver is a legal, valid and binding obligations of the lender
that is enforceable subject to certain exceptions required by law and enumerated
in an Opinion of Counsel, and the Company has delivered to the Trustee an
Opinion of Counsel to such effect by a law firm reasonably acceptable to the
Trustee and a Board Resolution confirming the foregoing, in each case in form
and substance satisfactory to the Trustee; and (iii) no default with respect to
such Debt (including any rights which the holder thereof may have to take
enforcement action against such Non-Recourse Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Debt of the Company or
any Recourse Subsidiary to declare a default on such other Debt or cause the
payment thereof to be accelerated or payable prior to its stated maturity.
Notwithstanding the foregoing, a Non-Recourse Subsidiary may pledge its assets
as security for any Non-Recourse Debt issued by any Non-Recourse Subsidiary.

<PAGE> 33
18

"Non-Recourse Subsidiary" means a Subsidiary of the Company or any
of its Subsidiaries formed to acquire securities or assets of a third party and
which (i) has no Debt other than Non-Recourse Debt and (ii) does not, directly
or indirectly, own any Debt, stock or securities of, and has no Investment in,
the Company or any Recourse Subsidiary and (iii) has not acquired any assets
from the Company or any of its Recourse Subsidiaries that are essential to the
steelmaking operations of the Company and its Recourse Subsidiaries.

"Obsolete Assets" means machinery, equipment, furniture, apparatus,
tools or implements or other similar property which a Subsidiary reasonably
determines to have become worn out, obsolete or no longer necessary to the
operation of the business of the Company or its Subsidiaries, as the case may
be.

"Officers' Certificate" means, when used with respect to the
Company, a certificate signed by the Chairman of the Board, the President, a
Vice Chairman of the Board or the Chief Financial Officer of the Company (or any
other officer identified by any of the foregoing officers in an Officers'
Certificate to be an executive officer of the Company) and the Secretary, an
Assistant Secretary or the Controller of the Company. One of the officers
signing an Officers' Certificate given pursuant to Section 6.5 shall be the
principal executive, financial or accounting officer of the Company.

"Opinion of Counsel" means an opinion in writing signed by legal
counsel, who may be an employee of or of counsel to the Company, or who may be
other counsel reasonably satisfactory to the Trustee.

"Outstanding", when used with respect to Securities, means, as of
the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except:

(i) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;

(ii) Securities for whose payment or redemption money in the
necessary amount has been theretofore deposited with the Trustee or any
Paying Agent (other than the Company) in trust or set aside and
segregated in trust by the Company (if the Company shall act as its own
Paying Agent) for the Holders of such Securities; provided, that if such
Securities are to be redeemed, notice of such redemption has been duly
given pursuant to this Indenture or provision therefor satisfactory to
the Trustee has been made; and

(iii) Securities which have been paid pursuant to Section 3.6 or in
exchange for or in lieu of which other Securities have been authenticated
and delivered pursuant to this Indenture, other than any such Securities
in respect of which there shall have been presented to the Trustee proof
satisfactory to it

<PAGE> 34
19

that such Securities are held by a bona fide purchaser in whose hands
such Securities are valid obligations of the Company;

provided, however, that in determining whether the Holders of the requisite
principal amount of the Outstanding Securities have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or of such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in relying upon any such request, demand, authorization, direction, notice,
consent or waiver, only Securities which the Trustee knows to be so owned shall
be so disregarded. Securities so owned which have been pledged in good faith may
be regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Securities and that
the pledgee is not the Company or any other obligor upon the Securities or any
Affiliate of the Company or of such other obligor.

"Patent License" means all agreements, whether written or oral,
providing for the grant by or to the Company or any Subsidiary of any right to
manufacture, use or sell any invention covered by a Patent.

"Patents" means (a) all letters patent of the United States or any
other country and all reissues and extensions thereof and (b) all applications
for letters patent of the United States or any other country and all divisions,
continuations and continuations-in-part thereof.

"Paying Agent" means any Person authorized by the Company to pay
the principal of or interest on any Securities on behalf of the Company.

"Permitted Investments" means (i) Cash Equivalents; (ii)
Investments in a Wholly-Owned Recourse Subsidiary of the Company (other than a
Restricted Subsidiary) or a Person that will become a Wholly-Owned Recourse
Subsidiary of the Company (other than a Restricted Subsidiary) as a result of
such Investment; provided that any Person that becomes a Wholly-Owned Recourse
Subsidiary is engaged in lines of businesses which the Board of Directors in
good faith determines to be related to those of the Company on the Issue Date;
(iii) the Company and its Subsidiaries may make advances and loans to officers
and employees in the ordinary course of business not to exceed $50,000 to any
one officer or employee or $100,000 in the aggregate at any one time
outstanding; (iv) the Company and its Subsidiaries may make payroll advances in
the ordinary course of business; (v) the Company may make advances or loans in
connection with Hedging Agreements provided such agreements are made in the
ordinary course of business; (vi) the Company may make advances or loans in
connection with Interest Rate Protection Agreements provided such agreements are
made in the ordinary course of business; (vii) the Company and its Subsidiaries
may make Investments representing the non-cash consideration received in
connection with the sale of assets disposed of in accordance with Section 6.15;
(viii) the Company and its Subsidiaries may make Investments in the form of

<PAGE> 35
20

advances, extensions of credit, progress payments and prepayments for asset
purchases by it in the ordinary course of business; (ix) accounts receivable
arising and trade credit granted in the ordinary course of business and any
securities received in satisfaction or partial satisfaction thereof from
financially troubled account debtors to the extent reasonably necessary in order
to prevent or limit loss; (x) Investments in the Securities; and (xi) an
Investment, if any, of up to $1.2 million to improve property in connection with
a coating facility to be leased to a third party.

"Permitted Liens" means (i) Liens for taxes, assessments,
governmental charges or claims which are not yet delinquent or which are being
contested in good faith by appropriate proceedings, if a reserve or other
appropriate provision, if any, as shall be required in conformity with GAAP
shall have been made therefor; (ii) other Liens incidental to the conduct of the
Company's and its Subsidiaries' business or the ownership of its property and
assets not securing any Debt, and which do not in the aggregate materially
detract from the value of the Company's and its Subsidiaries' property or assets
when taken as a whole, or materially impair the use thereof in the operation of
its business (including, without limitation, Liens securing any obligation to
landlords, vendors, carriers, warehousemen, mechanics, laborers and materialmen
and other similar obligations arising by operation of law not yet delinquent or
which are being contested in good faith by appropriate proceedings, if a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made therefor); (iii) Liens with respect to assets of a
Subsidiary granted by such Subsidiary to the Company to secure Debt owing to the
Company; (iv) Liens on assets owned by Non-Recourse Subsidiaries to secure
Non-Recourse Debt; (v) Liens on assets not constituting Collateral with an
aggregate book value not in excess of 5% of the book value of the Company's
total consolidated assets as shown on the Company's most recent consolidated
balance sheet; (vi) pledges and deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other types
of social security; (vii) deposits made to secure the performance of tenders,
bids, leases and statutory obligations of a like nature incurred in the ordinary
course of business (exclusive of obligations for the payment of borrowed money);
(viii) zoning restrictions, servitudes, easements, rights-of-way, restrictions
and other similar charges or encumbrances incurred in the ordinary course of
business, or easements in favor of any state or federal environmental agencies
for environmental remediation work, which, in the aggregate, do not materially
detract from the value of the property subject thereto or interfere with the
ordinary conduct of the business of the Company or its Subsidiaries; (ix) Liens
arising out of judgments or awards against the Company or any Subsidiary with
respect to which the Company or such Subsidiary is prosecuting an appeal or
proceeding for review and the Company or such Subsidiary is maintaining adequate
reserves in accordance with GAAP; (x) any interest or title of a lessor in the
property subject to any Capital Lease Obligation or operating lease; and (xi)
Liens in favor of the Company (and pledged to the Trustee for the benefit of the
Holders pursuant to the Pledge Agreement) with respect to the Intercompany
Notes.

<PAGE> 36
21

"Permitted Payments" means, with respect to the Company or any of
its Subsidiaries, (i) any dividend on shares of Capital Stock payable solely in
shares of Capital Stock (other than Disqualified Stock) or in options, warrants
or other rights to purchase Capital Stock (other than Disqualified Stock); (ii)
any dividend, other distribution, loan or advance to the Company by any of its
Subsidiaries or by a Subsidiary to another Subsidiary (except to a Non-Recourse
Subsidiary or a Restricted Subsidiary); (iii) any defeasance, redemption,
repurchase or other acquisition for value of any Debt of the Company with the
proceeds from the issuance of (a) Debt which is subordinate to the Securities at
least to the extent and in the manner as the Debt to be defeased, redeemed,
repurchased or otherwise acquired is subordinate in right of payment to the
Securities; provided, that (1) such newly-issued subordinated Debt provides for
no payments of principal by way of sinking fund, mandatory redemption,
defeasance or otherwise by the Company or its Subsidiaries (including, without
limitation, at the option of the holder thereof other than an option given to a
holder pursuant to a "Change of Control" covenant which (x) is no more favorable
to the holders of such Debt than the provisions in favor of the Holders and (y)
such Debt provides that the Company or its Subsidiaries will not repurchase such
Debt pursuant to such provisions prior to the Company's repurchase of the
Securities required to be repurchased by the Company upon a Change of Control)
prior to the maturity of the Debt being replaced and (2) the proceeds of such
new Debt are utilized for such purpose within 45 days of issuance or (b) Capital
Stock (other than Disqualified Stock); (iv) the redemption or repurchase by a
Wholly-Owned Subsidiary of its Capital Stock owned by the Company or a
Wholly-Owned Recourse Subsidiary; (v) the redemption by the Company of up to $12
million aggregate principal amount of the issue titled "11% Subordinated
Convertible Debenture Due October 4, 2005" relating to principal payments due
following maturity of the Securities, plus any accrued interest thereon and (vi)
payments with respect to the Intercompany Notes.

"Permitted Related Acquisition" has the meaning specified in
Section 6.15(b).

"Person" means any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.

"Pledge Agreement" means the Pledge and Security Agreement dated as
of the date hereof between the Collateral Agent and the Company, substantially
in the form of Exhibit __ hereto, as the same may be amended, supplemented or
otherwise modified from time to time.

"Predecessor Security" of any particular Security means every
previous Security evidencing all or a portion of the same debt as that evidenced
by such particular Security; and, for the purposes of this definition, any
Security authenticated and delivered under Section 3.6 in exchange for or in
lieu of a mutilated, destroyed, lost or stolen Security shall be deemed to
evidence the same debt as the mutilated, destroyed, lost or stolen Security.

<PAGE> 37
22

"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock whether now outstanding or hereafter
outstanding, and includes, without limitation, all classes and series of
preferred or preference stock.

"Prospectus" means the Prospectus dated ________ __, 1995 pursuant
to which the Securities were offered.

"Public Equity Offering" means an underwritten public offering of
Common Stock of the Company for cash pursuant to an effective registration
statement under the Securities Act of 1933, as amended; provided that the Common
Stock is not a Disqualified Stock.

"Recourse Debt" means any Debt other than Non-Recourse Debt.

"Recourse Subsidiary" means any Subsidiary other than a
Non-Recourse Subsidiary.

"Reference Period" means the four fiscal quarters for which
financial information is available preceding the date of a transaction giving
rise to the need to make a financial calculation.

"Regular Record Date" for the interest payable on any Interest
Payment Date means the [ ] or [ ] (whether or not a Business Day), as the case
may be, next preceding such Interest Payment Date.

"Released Interests" has the meaning specified in Section 12.5(b).

"Released Trust Moneys" has the meaning specified in Section 13.4.

"Responsible Officer", when used with respect to the Trustee, means
the chairman or any vice-chairman of the board of directors, the chairman or any
vice-chairman of the executive committee of the board of directors, the chairman
of the trust committee, the president, any vice president, the secretary, any
assistant secretary, the treasurer, any assistant treasurer, the cashier, any
assistant cashier, any Trust Officer or assistant Trust Officer, the controller
or any assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.

"Restricted Payment" means, with respect to any Person, (i) any
dividend or other distribution on any shares of such Person's Capital Stock
(other than dividends or distributions payable in Capital Stock that is not
Disqualified Stock); (ii) any payment on account of the purchase, redemption,
retirement or other acquisition of (a) any shares of such Person's Capital Stock
or (b) any option, warrant

<PAGE> 38
23

or other right to acquire shares of such Person's Capital Stock; (iii) any
defeasance, redemption, repurchase or other acquisition or retirement for value
prior to scheduled maturity, scheduled repayment or scheduled sinking fund
payment of any Debt ranked pari passu or subordinate in right of payment to the
Securities and having a maturity date subsequent to the maturity of the
Securities; or (iv) any Investment (other than a Permitted Investment);
provided, that "Restricted Payments" shall not include any payment described in
(i), (ii) or (iii) above made by a Subsidiary to the Company or to a
Wholly-Owned Recourse Subsidiary of the Company. Notwithstanding the foregoing,
Restricted Payment shall not include any Permitted Payment.

"Retained Trust Moneys" has the meaning specified in Section 13.5.

"Sale and Leaseback Transaction" means, with respect to any Person,
an arrangement with any bank, insurance company or other lender or investor or
to which such lender or investor is a party, providing for the leasing by such
Person or any of its Subsidiaries of any property or asset of such Person or any
of its Subsidiaries which has been or is being sold or transferred by such
Person or such Subsidiary to such lender or investor or to any person to whom
funds have been or are to be advanced by such lender or investor on the security
of such property or asset.

"Security Documents" means, collectively, (i) the Mortgages, (ii)
the ICN Mortgages; (iii) the Subsidiary Security Agreements, (iv) the ICN
Security Agreements; (v) the Subsidiary Guarantee, (vi) the Intercompany Notes,
(vii) the Pledge Agreement and the assignment executed in connection therewith,
(viii) the Intercreditor Agreement, and (ix) any other mortgage, security
agreement or other agreement evidencing a security interest executed in
accordance with Section 12.1 after the Issue Date.

"Security Register" and "Security Registrar" have the respective
meanings specified in Section 3.5.

"Special Record Date" for the payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 3.7.

"Stated Maturity", when used with respect to any Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.

<PAGE> 39
24

"Steelmaking Subsidiaries" means Newport Steel Corporation, Koppel
Steel Corporation and Erlanger Tubular Corporation.

"Subsidiary" means any corporation, association, partnership, or
other business entity of which 50% or more of the total voting power of shares
of Capital Stock or other ownership interests (including partnership interests)
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by (i) the Company, (ii) the Company and one
or more Subsidiaries, or (iii) one or more Subsidiaries.

"Subsidiary Guarantee" means the guarantee dated as of the date
hereof, or with respect to Persons that become Recourse Subsidiaries of the
Company subsequent to the Issue Date, as of such subsequent date, between the
Collateral Agent and each Recourse Subsidiary of the Company, substantially in
the form of Exhibit __ hereto, as the same may be amended, supplemented or
otherwise modified from time to time.

"Subsidiary Security Agreement" means each Security Agreement dated
as of the date hereof, or with respect to Persons that become Recourse
Subsidiaries of the Company subsequent to the Issue Date, as of such subsequent
date, between the Collateral Agent and each Recourse Subsidiary of the Company,
substantially in the form of Exhibit ___ hereto, as the same may be amended,
supplemented or otherwise modified from time to time.

"Trade Payables" means accounts payable or any other Debt or
monetary obligations to trade creditors created or assumed by the Company or its
Subsidiaries in the ordinary course of business in connection with the obtaining
of materials or services.

"Trade Secrets" means any proprietary information, process or
system now or hereafter created which is within the possession of the Company
and its Subsidiaries, including, without limitation, manufacturing processes or
methods, all formulae, processes, compounds, drawings, designs, blueprints,
surveys, reports, manuals, and operating standards relating to or used in the
operating standards relating to or used in the operation of the Company's and
its Subsidiaries' business, rights in works of authorship, and contract rights
relating to computer software programs, in whatever form created or maintained.

"Trademark License" means any agreement, written or oral, providing
for the grant by or to the Company or any of its Subsidiaries of any right to
use any Trademark.

"Trademarks": (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, service
marks, logos and other source or business identifiers, and the goodwill
associated

<PAGE> 40
25

therewith, now existing or hereafter adopted or acquired, all registrations and
recordings thereof, and all applications in connection therewith, whether in the
United States Patent and Trademark Office or in any similar office or agency of
the United States, any State thereof or any other country or any political
subdivision thereof, or otherwise, and (b) all renewals thereof.

"Trustee" means the Person named as the "Trustee" in the first
paragraph of this instrument until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.

"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended, and as in force at the date as of which this instrument was executed;
provided, however, that in the event the Trust Indenture Act is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939, as so amended.

"Trust Moneys" means all cash or Cash Equivalents received by the
Collateral Agent (i) from Asset Sales with such proceeds to be subject to the
Lien of the Security Documents in accordance with Section 6.15; or (ii) as
Condemnation Proceeds with respect to all or any part of the Collateral; or
(iii) as Net Insurance Proceeds with respect to all or any part of the
Collateral; or (iv) as proceeds of any other sale or other disposition of all or
any part of the Collateral by or on behalf of the Collateral Agent or any
collection, recovery, receipt, appropriation or other realization of or from all
or any part of the Collateral pursuant to the Security Documents or otherwise;
or (e) for application under Article XIII as elsewhere provided in this
Indenture or the Security Documents or whose disposition is not elsewhere
otherwise specifically provided for in the Indenture or in the Security
Documents; provided, however, that Trust Moneys shall not include any property
deposited with the Trustee pursuant to Article IV or XIV or Section 5.5 or
delivered to or received by the Trustee for application in accordance with
Section 8.6 hereof. Trust Moneys shall be held by the Collateral Agent for the
benefit of the Holders as a part of the Collateral and, upon any entry upon or
sale or other disposition of the Collateral or any part thereof pursuant to the
Security Documents, said Trust Moneys shall be applied in accordance with
Section 8.6; but, prior to any such entry, sale or other disposition, all or any
part of the Trust Moneys may be withdrawn, and shall be released, paid or
applied by the Trustee, from time to time as provided in Article XIII.

"Trust Moneys Release Notice" has the meaning specified in Section
13.4.

"Trust Officer" means any Vice President, any Assistant Vice
President or any other officer or assistant officer of the Trustee assigned by
the Trustee to administer its corporate trust matters.

"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and

<PAGE> 41
26

credit is pledged or (y) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America, the
payment of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America, which, in either case, are not
callable or redeemable at the option of the issuer thereof, and shall also
include a depository receipt issued by a bank (as defined in Section 3(a)(2) of
the Securities Act of 1933, as amended) as custodian with respect to any such
U.S. Government Obligation or a specific payment of principal of or interest on
any such U.S. Government Obligation held by such custodian for the account of
the holder of such depository receipt; provided, that (except as required by
law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by such
depository receipt.

"Valuation Date" has the meaning specified in Section 12.5(b).

"Vice President", when used with respect to the Company or the
Trustee, means any vice president, whether or not designated by a number or a
word or words added before or after the title "vice president".

"Wholly-Owned Recourse Subsidiary" means a Wholly-Owned Subsidiary
that is a Recourse Subsidiary.

"Wholly-Owned Subsidiary" means a Subsidiary all the Capital Stock
of which (other than any director's qualifying stock) or, in the case of a
non-corporate Subsidiary, other equity interests having ordinary voting power
for the election of directors or other governing body of such Subsidiary, is
owned by the Company or another Wholly-Owned Subsidiary of the Company.

"Withdrawal Notice" has the meaning specified in Section 13.5.

SECTION 1.2. Compliance Certificates and Opinions.

Upon any application or request by the Company to the Trustee to
take any action under any provision of this Indenture, the Company shall furnish
to the Trustee such certificates and opinions as may be required under the Trust
Indenture Act or under this Indenture. Each such certificate or opinion shall be
given in the form of an Officers' Certificate, if to be given by officers of the
Company, or an Opinion of Counsel, if to be given by counsel, and shall comply
with the requirements of the Trust Indenture Act and any other requirement set
forth in this Indenture.

Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:

<PAGE> 42
27

(i) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein
relating thereto;

(ii) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;

(iii) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and

(iv) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.

SECTION 1.3. Form of Documents Delivered to Trustee.

In any case where several matters are required to be certified by,
or covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.

Any certificate or opinion of an officer of the Company may be
based, insofar as it relates to legal matters, upon a certificate or opinion of,
or representations by, counsel, unless such officer knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to the matters upon which his certificate or opinion is based are
erroneous. Any such certificate or opinion of counsel may be based, insofar as
it relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company stating that the
information with respect to such factual matters is in the possession of the
Company, unless such counsel knows, or in the exercise of reasonable care should
know, that the certificate or opinion or representations with respect to such
matters are erroneous.

Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.

<PAGE> 43
28

SECTION 1.4. Acts of Holders; Record Dates.

(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in person or by one or more
agents duly appointed in writing; and, except as herein otherwise expressly
provided, such action shall become effective when such instrument or instruments
are delivered to the Trustee and, where it is hereby expressly required, to the
Company. Such instrument or instruments (and the action embodied therein and
evidenced thereby) are herein sometimes referred to as the "Act" of the Holders
signing such instrument or instruments. Proof of execution of any such
instrument or of a writing appointing any such agent shall be sufficient for any
purpose of this Indenture and (subject to Section 9.1) conclusive in favor of
the Trustee and the Company, if made in the manner provided in this Section 1.4.

(b) The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may be proved in any
manner which the Trustee deems sufficient.

(c) The Company may, in the circumstances permitted by the Trust
Indenture Act, fix any day as the record date for the purpose of determining the
Holders entitled to give or take any request, demand, authorization, direction,
notice, consent, waiver or other action, or to vote on any action, authorized or
permitted to be given or taken by Holders. If not set by the Company prior to
the first solicitation of a Holder made by any Person in respect of any such
action, or, in the case of any such vote, prior to such vote, the record date
for any such action or vote shall be the 30th day (or, if later, the date of the
most recent list of Holders required to be provided pursuant to Section 10.1)
prior to such first solicitation or vote, as the case may be. With regard to any
record date, only the Holders on such date (or their duly designated proxies)
shall be entitled to give or take, or vote on, the relevant action.

(d) The ownership of Securities shall be proved by the Security
Register.

(e) Any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future Holder
of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the Trustee or the
Company in reliance thereon, whether or not notation of such action is made upon
such Security.

<PAGE> 44
29

SECTION 1.5. Notices, Etc. to Trustee and Company.

Any request, demand, authorization, direction, notice, consent,
waiver or Act of Holders or other document provided or permitted by this
Indenture to be made upon, given or furnished to, or filed with:

(i) the Trustee by any Holder or by the Company pursuant to any of
the Security Documents shall be sufficient for every purpose hereunder if
made, given, furnished or filed in writing to or with the Trustee at its
Corporate Trust Office, Attention: Corporate Trustee, The Huntington
National Bank, 540 Madison Avenue, Covington, Kentucky 41011.

(ii) the Company or the Subsidiary by the Trustee or by any Holder
shall be sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Company addressed to the attention of its Secretary at
the address of its principal office specified in the first paragraph of
this instrument or at any other address previously furnished in writing
to the Trustee by the Company.

SECTION 1.6. Notice to Holders; Waiver.

Where this Indenture provides for notice to Holders of any event,
such notice shall be sufficiently given (unless otherwise herein expressly
provided) if in writing and mailed, first-class postage prepaid, to each Holder
affected by such event, at his address as it appears in the Security Register,
not later than the latest date (if any), and not earlier than the earliest date
(if any), prescribed for the giving of such notice. In any case where notice to
Holders is given by mail, neither the failure to mail such notice, nor any
defect in any notice so mailed, to any particular Holder shall affect the
sufficiency of such notice with respect to other Holders. Where this Indenture
provides for notice in any manner, such notice may be waived in writing by the
Person entitled to receive such notice, either before or after the event, and
such waiver shall be the equivalent of such notice. Waivers of notice by Holders
shall be filed with the Trustee, but such filing shall not be a condition
precedent to the validity of any action taken in reliance upon such waiver.

In case by reason of the suspension of regular mail service or by
reason of any other cause it shall be impracticable to give such notice by mail,
then such notification as shall be made with the approval of the Trustee shall
constitute a sufficient notification for every purpose hereunder.

<PAGE> 45
30

SECTION 1.7. Conflict with Trust Indenture Act.

If any provision hereof limits, qualifies or conflicts with a
provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall be
deemed to apply to this Indenture as so modified or to be excluded, as the case
may be.

SECTION 1.8. Effect of Headings and Table of Contents.

The Article and Section headings herein and the Table of Contents
are for convenience only and shall not affect the construction hereof.

SECTION 1.9. Successors and Assigns.

All covenants and agreements in this Indenture by the Company shall
bind its successors and assigns, whether so expressed or not.

SECTION 1.10. Separability Clause.

In case any provision in this Indenture or in the Securities shall
be invalid, illegal or unenforceable, the validity, legality and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.

SECTION 1.11. Benefits of Indenture.

Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and the Holders of Securities, any benefit or any legal or equitable
right, remedy or claim under this Indenture.

SECTION 1.12. Governing Law.

This Indenture and the Securities shall be governed by and
construed in accordance with the laws of the State of New York.

<PAGE> 46
31

SECTION 1.13. Legal Holidays.

In any case where any Interest Payment Date, Maturity Date or
Stated Maturity of any Security shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal need not be made on such date, but may be made
on the next succeeding Business Day with the same force and effect as if made on
the Interest Payment Date or Maturity Date, or at the Stated Maturity; provided,
that no interest shall accrue for the period from and after such Maturity Date
or Stated Maturity, as the case may be.

SECTION 1.14. Immunity of Incorporators, Stockholders, Officers and Directors.

No recourse shall be had for the payment of the principal of or
interest on any Security or for any claim based thereon, or upon any obligation,
covenant or agreement of this Indenture, against any incorporator, stockholder,
officer or director, as such, past, present or future, of the Company or of any
successor corporation, either directly or indirectly through the Company or any
successor corporation, whether by virtue of any constitution, statute or rule of
law or by the enforcement of any assessment of penalty or otherwise; it being
expressly agreed and understood that this Indenture and all the Securities are
solely corporate obligations, and that no personal liability whatever shall
attach to, or is incurred by, any incorporator, stockholder, officer or
director, past, present or future, of the Company or of any successor
corporation, either directly or indirectly through the Company or any successor
corporation, because of the incurring of the indebtedness hereby authorized or
under or by reason of any of the obligations, covenants or agreements contained
in this Indenture or in any of the Securities, or to be implied herefrom or
therefrom; and that all such personal liability is hereby expressly released and
waived as a condition of, and as part of the consideration for, the execution of
this Indenture and the issuance of the Securities.

ARTICLE II

SECURITY FORMS

SECTION 2.1. Forms Generally.

The Securities and the Trustee's certificates of authentication
shall be in substantially the forms set forth in this Article, with such
appropriate insertions, omissions, substitutions and other variations as are
required or permitted by this Indenture, and may have such letters, numbers or
other marks of identification and such legends or endorsements placed thereon as
may be required to comply with the rules of any securities exchange or as may,
consistently herewith, be determined by the officers executing such Securities,
as evidenced by their execution of the Securities.

<PAGE> 47
32

The definitive Securities shall be printed, lithographed or
engraved or produced by any combination of these methods on steel engraved
borders or may be produced in any other manner permitted by the rules of any
securities exchange on which the Securities may be listed, if any, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities.

SECTION 2.2. Form of Face of Security.

NS GROUP, INC.

Registered Registered
No. ___ $__________

[Insert if the Security is to be a Global Security -- This Security
is a Global Security within the meaning of the Indenture hereinafter referred to
and is registered in the name of The Depository Trust Company (the "Depositary")
or a nominee of the Depositary. This Global Security is exchangeable for
Securities registered in the name of a Person other than the Depositary or its
nominee only in the limited circumstances described in the Indenture, and no
transfer of this Security (other than a transfer of this Security as a whole by
the Depositary to a nominee of the Depositary or by a nominee of the Depositary
to the Depositary or another nominee of the Depositary) may be registered except
in such limited circumstances.

Unless this Security is presented by an authorized representative
of the Depositary (55 Water Street, New York, New York) to the issuer or its
agent for registration of transfer, exchange or payment, and any Security issued
upon registration or transfer of, or in exchange for, or in lieu of, this
Security is registered in the name of Cede & Co. or such other name as requested
by an authorized representative of the Depositary and any payment hereon is made
to Cede & Co., ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL since the registered owner hereof, Cede & Co.,
has an interest herein.]

NS GROUP, INC., a corporation duly organized and existing under the
laws of Kentucky (herein called the "Company", which term includes any successor
Person under the Indenture hereinafter referred to), for value received, hereby
promises to pay to [Insert if the Security is to be a Global Security -- Cede &
Co., as nominee for the Depositary] ________________, or registered assigns, the
principal sum of ________________ on _______ __, 2003, and to pay interest
thereon from ______ __, 1995 or from the most recent Interest Payment Date to
which interest has been paid or duly provided for, semi-annually on ________ __
and __________ __ in each year, commencing __________ __, 1996, at the rate of
______% per annum, until the principal hereof is paid or made available for
payment. The interest so payable, and punctually paid or duly provided for, on
any Interest Payment Date will, as provided in such Indenture, be paid to the
Person in whose name this Security (or one or more

<PAGE> 48
33

Predecessor Securities) is registered at the close of business on the Regular
Record Date for such interest, which shall be the __________ __ or _________ __
(whether or not a Business Day), as the case may be, next preceding such
Interest Payment Date. Interest will be computed on the basis of a 360-day year
of twelve 30-day months. Any such interest not so punctually paid or duly
provided for will forthwith cease to be payable to the Holder on such Regular
Record Date and may either be paid to the Person in whose name this Security (or
one or more Predecessor Securities) is registered at the close of business on a
Special Record Date for the payment of such Defaulted Interest to be fixed by
the Trustee, notice whereof shall be given to Holders of Securities not less
than 10 days prior to such Special Record Date, or be paid at any time in any
other lawful manner not inconsistent with the requirements of any securities
exchange on which the Securities may be listed, and upon such notice as may be
required by such exchange, all as more fully provided in said Indenture. The
Company will pay interest on overdue principal and on overdue interest (to the
full extent permitted by law) at a rate of ____% per annum.

Payment of the principal of and interest on this Security will be
made at the office or agency of The Huntington National Bank, acting as Paying
Agent, maintained for that purpose in Columbus, Ohio, in such coin or currency
of the United States of America as at the time of payment is legal tender for
payment of public or private debts; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register;
provided further, that a Holder of $10,000,000 in aggregate principal amount of
the Securities shall be entitled to receive payments of interest by wire
transfer in immediately available funds (but only if appropriate payment
instructions have been received in writing by the Paying Agent not less than 15
calendar days prior to the applicable Interest Payment Date). Holders must
surrender the Security at maturity, whether such date occurs by acceleration or
otherwise, to the Paying Agent.

[Insert in place of preceding paragraph if the Security is to be a
Global Security -- Immediately available funds for the payment of the principal
of (and premium, if any) and interest on this Security due on any Interest
Payment Date, Maturity Date or on Stated Maturity will be made available to the
Paying Agent to permit the Paying Agent to pay such funds to the Depositary on
such respective dates. The Depositary will allocate and pay such funds to the
owners of beneficial interests in the Security in accordance with its existing
operating procedures.]

Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.

Unless the certificate of authentication hereon has been executed
by the Trustee referred to on the reverse hereof by manual signature, this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

<PAGE> 49
34

By acceptance of this Security, the Holder hereby irrevocably
appoints the Trustee as its special attorney-in-fact for the Holder and vests
the Trustee (and the Collateral Agent) on behalf of the Holder with full power
to act on such Holder's behalf and enforce the Security Documents for the
benefit of the Holder.

The Company will appoint and at all times maintain a Paying Agent
(which may be the Trustee) authorized by the Company to pay the principal of
(and premium, if any) and interest on any Securities on behalf of the Company
and having an office or agency in the City of Columbus, Ohio, where Securities
may be presented or surrendered for payment and where notice, designations or
requests in respect of payments with respect to Securities may be served. The
Company has initially appointed the Huntington National Bank as such Paying
Agent, with its Corporate Trust Office currently at 41 S. High Street, Columbus,
Ohio 43214. In addition, the Company has initially appointed the Huntington
National Bank as Security Registrar. The Company will give prompt written notice
to the Trustee of any such change in appointments.

NS GROUP, INC.

By:
-------------------------------------
President and Chief Executive Officer

Attest by:
----------------------------
Secretary

TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Securities issued
under the Indenture described herein.

THE HUNTINGTON NATIONAL BANK,
AS TRUSTEE

By
----------------------------------------
Authorized Signor

[Form of Reverse of Security]

This Security is one of a duly authorized issue of Securities of
the Company designated as its ____% Senior Secured Notes due 2003 (herein called
the "Securities"), limited in aggregate principal amount to $125,000,000, issued
and to be issued under an Indenture, dated as of ________ __, 1995 (herein
called the "Indenture"), among the Company, each of the Company's Subsidiaries
and Huntington National Bank, as Trustee (herein called the "Trustee", which
term

<PAGE> 50
35

includes any successor trustee under the Indenture), to which Indenture and all
indentures supplemental thereto reference is hereby made for a statement of the
respective rights, limitations of rights, duties and immunities thereunder of
the Company, the Trustee and the Holders of the Securities and of the terms upon
which the Securities are, and are to be, authenticated and delivered. The terms
of this Security include those stated in the Indenture and those made part of
the Indenture by reference to the Trust Indenture Act. This Security is subject
to all such terms, and the Holders of the Securities are referred to the
Indenture and the Trust Indenture Act for a statement of them. Capitalized and
certain other terms used herein and not otherwise defined have the meanings set
forth in the Indenture.

This Security is a secured obligation of the Company limited in
aggregate principal amount to $125,000,000. The Indenture limits, among other
things, the ability of the Company and its Subsidiaries to incur additional
Debt; create Liens; make restricted payments; engage in certain transactions
with Affiliates; engage in Sale and Leaseback Transactions; dispose of assets;
issue Preferred Stock of Subsidiaries; issue and sell Capital Stock of
Subsidiaries; transfer assets to its Subsidiaries; enter into agreements that
restrict the ability of its Subsidiaries to make dividends and distributions;
engage in mergers, consolidations and transfers of substantially all of its
assets; make certain Investments, loans, and advances; and create Non-Recourse
Subsidiaries. These limitations are subject to a number of important
qualifications and exceptions. The Company must report to the Trustee quarterly
its compliance with the limitations contained in the Indenture.

The Company, at its option, may redeem this Security, in whole or
in part, from time to time on and after ________ __, 1999, at the redemption
prices set forth below (expressed as a percentage of the principal amount
thereof), in each case together with accrued interest, if any, to the date of
redemption, if redeemed during the twelve-month period beginning __________ __
of the years indicated below:

<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
1999 ___%
2000 ___%

2001 and thereafter 100%
</TABLE>

provided, that if the date fixed for redemption is _____ __ or _______ __, then
the interest payable on such date shall be paid to the Holder of record on the
next preceding ________ __ or ________ __.

Until ________ ___, 1998, the Company may redeem up to 40% of the
principal amount of the Securities with the net proceeds of a Public Equity
Offering of Common Stock at ___% of the principal amount thereof plus accrued
interest to the redemption date; provided that at least $75,000,000 of the
Securities remain outstanding following the redemption.

<PAGE> 51
36

In the event that less than all of the Securities are to be
redeemed at any time, selection of Securities for redemption will be made by the
Trustee on a pro rata basis, by lot or by such method as the Trustee shall deem
fair and appropriate; provided, however, that no Securities of $1,000 or less
shall be redeemed in part. Notice of redemption shall be mailed by first class
mail at least 30 but not more than 60 days before the redemption date to each
Holder to be redeemed at its registered address. If any Security is to be
redeemed in part only, the notice of redemption that relates to such Security
shall state the portion of the principal amount thereof to be redeemed. A new
Security in a principal amount equal to the unredeemed portion thereof will be
issued in the name of the Holder thereof upon cancellation of the original
Security. On and after the redemption date, interest will cease to accrue on
Securities or the portion thereof called for redemption unless the Company
defaults in the payment of the redemption price or accrued interest.

Sections 6.15 and 6.18 of the Indenture provide that after certain
Asset Sales and upon the occurrence of a Change of Control, and subject to
further limitations contained therein, the Company may be required to make an
offer to purchase certain amounts of Securities in accordance with the
procedures set forth in the Indenture.

In order to secure the due and punctual payment of the principal of
and interest on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same become due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Company, subject to certain
exceptions, has pledged the Intercompany Notes and granted security interests in
and Liens on the Intercompany Notes, and pledged the security interests securing
the Intercompany Notes, to the Collateral Agent for the benefit of the Holders
pursuant to the Indenture and the Security Documents. The obligations of the
Steelmaking Subsidiaries under the Intercompany Notes will be secured by a
second priority security interest in the Collateral assigned by such
Subsidiaries pursuant to the ICN Security Agreements and the ICN Mortgages. The
existing and future Recourse Subsidiaries of the Company shall execute a
Subsidiary Guarantee to guarantee the obligations of the Company with respect to
the Securities. The obligations of the Steelmaking Subsidiaries and all future
Recourse Subsidiaries under the Subsidiary Guarantee will be secured by a first
priority security interest in and Liens on the Collateral granted by such
Subsidiaries pursuant to respective Subsidiary Security Agreements.

Each Holder, by accepting a Security, agrees to all of the terms
and provisions of the Security Documents, as the same may be amended from time
to time pursuant to the respective provisions thereof and the Indenture.

The Trustee, the Collateral Agent and each Holder acknowledge that
a release of any of the Collateral or any Lien strictly in accordance with the
terms and

<PAGE> 52
37

provisions of the Indenture and Security Documents will not be deemed for any
purpose to be an impairment of the Security under the Indenture.

If an Event of Default (other than an Event of Default specified in
Section 8.1(ix) or (x)) occurs and is continuing, the Trustee or the Holders of
at least 25% of the principal amount of the Outstanding Securities by notice to
the Company (and to the Trustee if such notice is given by the Holders) may
declare the principal amount and accrued interest on the Securities to be
immediately due and payable. If an Event of Default specified in Section 8.1(ix)
or (x) occurs, the principal amount and accrued interest shall ipso facto become
and be immediately due and payable on all Outstanding Securities without any
declaration or other act on the part of the Trustee or any Holder. The Holders
of a majority in principal amount of the then Outstanding Securities by notice
to the Trustee and the Company may rescind an acceleration and its consequences
if the Company has paid or deposited with the Trustee a sum sufficient to pay
all amounts due, other than amounts due by declaration of acceleration, and all
existing Events of Default, other than the nonpayment of the principal of the
Securities which have became due solely by such declaration of acceleration,
have been cured or waived. The Holders of a majority in principal amount of the
outstanding Securities also have the right to waive certain past defaults under
the Indenture, except a default in the payment of the principal of, premium, if
any, or interest on the Security, or in respect of a covenant or a provision
which cannot be modified or amended without the consent of all Holders.

From time to time, the Company when authorized by a Board
Resolution, and the Trustee (or the Collateral Agent, if a party thereto), may,
without the consent of any Holders, amend, waive, or supplement the Indenture,
the Security Documents or the Securities or cause the Recourse Subsidiaries to
amend, waive or supplement the Security Documents for certain specified
purposes, including, among other things, curing ambiguities, defects or
inconsistences, maintaining the qualification of the Indenture under the Trust
Indenture Act, making any change that does not adversely affect the rights of
any Holder making any change that does not adversely affect the rights of any
Holder, giving effect to the release of any Released Collateral, evidencing the
succession of another Person to the Company or any Subsidiary of the Company and
the assumption by any such successor of the covenants of the Company or such
Subsidiary, as the case may be, to evidence the release and discharge of the
obligations of any Subsidiary of the Company the Capital Stock of which has been
sold or otherwise disposed of in accordance with the applicable provisions of
the Indenture, pledging or granting a security interest in favor of the
Collateral Agent as additional security for the payment and performance of the
obligations under the Indenture, in any property or assets, including any which
are required to be mortgaged, pledged or hypothecated, or in which a security
interest is required to be granted, to the Collateral Agent pursuant to any
Security Document or otherwise; provided, that the Company delivers to the
Trustee an Opinion of Counsel as required by the Indenture which shall state
that such change does not adversely affect the rights of any Holder. Other
amendments and modifications of the Indenture, the Securities or the Security
Documents may be

<PAGE> 53
38

made by the Company, the Collateral Agent (if a party thereto) and the Trustee
with the consent of the Holders of not less than a majority of the aggregate
principal amount of the outstanding Senior Secured Notes; provided, that no such
modification or amendment may, without the consent of the Holder of each
outstanding Security affected thereby, (i) reduce the principal amount of,
change the time or place for payment, extend the final maturity of, alter the
redemption provisions of, or alter the provisions with respect to Change of
Control Offers or Asset Sale Offers for the Securities, (ii) change the currency
in which any Securities or any premium thereon is payable, (iii) reduce the
percentage in principal amount of outstanding Securities that must consent to an
amendment, supplement or waiver or consent to take any action under the
Indenture, the Securities or the Security Documents, (iv) impair the right to
institute suit for the enforcement of any payment on or with respect to the
Securities, (v) waive a default in payment with respect to the Securities, (vi)
reduce or change the rate or time for payment of interest on the Securities,
(vii) affect the ranking of the Securities or the security for the Subsidiary
Guarantee or the Intercompany Notes, or (viii) modify any of the foregoing
provisions or reduce the principal amount of outstanding Securities necessary to
waive any covenant or past Default.

No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and
interest on this Security at the times, place and rate, and in the coin or
currency, herein prescribed.

If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent will pay the money back to the
Company at its request. After that, Holders entitled to the money must look to
the Company for payment as unsecured general creditors.

As provided in the Indenture and subject to certain limitations set
forth therein (including in case of any Global Security, certain additional
limitations) and as may be set forth on the face hereof, the transfer of this
Security is registrable in the Security Register upon surrender of this Security
for registration of transfer at the office or agency of the Company in any place
where the principal of and interest on this Security are payable, duly endorsed
by, or accompanied by a written instrument of transfer in form satisfactory to
the Company and the Security Registrar, duly executed by the Holder hereof or
his attorney duly authorized in writing, and thereupon one or more new
Securities in an authorized denomination and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.

The Securities are issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof. As provided in the
Indenture and subject to certain limitations therein and herein set forth,
Securities are exchangeable for a like aggregate principal amount of Securities
of different authorized denominations, as requested by the Holder surrendering
the same.

<PAGE> 54
39

No service charge shall be made for any such registration of
transfer or exchange, but the Company may require appropriate endorsements and
the payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith, other than exchanges pursuant to Section 3.4 or
11.6 not including any transfer. During the period of 15 days preceding any
Interest Payment Date or Maturity Date, the Company shall not be required to
register the transfer of or to exchange any Securities. In addition, the Company
shall not be required (i) to register the transfer of or to exchange any
Securities for a period of 15 days immediately preceding any date fixed for any
selection of Securities of such series to be redeemed and (ii) to register the
transfer of or to exchange any Securities selected for redemption, except the
unredeemed portion of any Security being redeemed in part.

Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this Security is registered as the owner
hereof for all purposes, whether or not this Security be overdue, and neither
the Company, the Trustee nor any such agent shall be affected by notice to the
contrary.

The Indenture and the Securities endorsed thereon shall be governed
by and construed in accordance with the laws of the State of New York.

When a successor corporation assumes all the obligations of its
predecessor under the Securities and the Indenture and the transaction complies
with the terms of Article VII of the Indenture, the predecessor corporation will
be released from those obligations.

The Trustee, in its individual or any other capacity, may make
loans to, accept deposits and pledges from, and perform services for the Company
or its Affiliates, and may otherwise deal with the Company or its Affiliates, as
if it were not Trustee.

Directors, officers, employees or shareholders of the Company shall
not have any liability for any obligations of the Company under the Securities,
the Indenture or the Security Documents or for any claim based on, in respect
of, or by reason of, such obligation or their creation. The Holder of this
Security, or any beneficial interests in this Security, hereby waives and
releases all such liability. Such waiver and release are part of the
consideration for the issue of the Securities.

Customary abbreviations may be used in the name of a holder or an
assignee, such as TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with rights of survivorship and not as
tenants in common), CUST (= custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).

Pursuant to a recommendation promulgated by the Committee on
Uniform Security Identification Procedures the Company has caused CUSIP numbers

<PAGE> 55
40

to be printed on the Securities and has directed the Trustee to use CUSIP
numbers in notices of redemption as a convenience to Holders. No representation
is made as to the accuracy of such numbers either as printed in the Securities
or as contained in any notice of redemption, and reliance may be placed only on
the other identification numbers placed thereon.

SECTION 2.3. Form of Trustee's Certificate of Authentication.

This is one of the Securities referred to in the within-mentioned
Indenture.

TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the Securities
issued under the Indenture
described herein.

HUNTINGTON NATIONAL BANK,
as Trustee

By
----------------------------------
Authorized Signor

Date of Authentication:

ARTICLE III

THE SECURITIES

SECTION 3.1. Title and Terms.

The aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $125,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities. Subject to Section 3.5,
the Securities will be represented by a Global Security in the name of the
Depositary or its nominee.

The Securities shall be known and designated as the "___% Senior
Secured Notes due 2003" of the Company. Their Stated Maturity shall be _____ __,
2003, and they shall bear interest at the rate of _____% per annum, from ______
__, 1995 or from the most recent Interest Payment Date to which interest has
been paid or duly provided for, as the case may be, payable semi-annually on
________ __ and

<PAGE> 56
41

__________ __ in each year, commencing __________ __, 1996, until the principal
thereof is paid or made available for payment.

The principal of and interest on the Securities shall be payable at
the office or agency of the Paying Agent in The City of Columbus Ohio,
maintained for such purpose; provided, however, that at the option of the
Company payment of interest may be made by check mailed to the address of the
Person entitled thereto as such address shall appear in the Security Register;
provided, further, that a Holder of $10,000,000 in aggregate principal amount of
the Securities shall be entitled to receive payments of interest by wire
transfer in immediately available funds (but only if appropriate payment
instructions have been received in writing by the Paying Agent not less than 15
calendar days prior to the applicable Interest Payment Date).

Notwithstanding any other provision of this Section 3.1, if the
Security is in the form of a Global Security, immediately available funds for
the payment of the principal of (and premium, if any) and interest on the
Security due on any Interest Payment Date or Maturity Date, as the case may be,
will be made available to the Paying Agent to permit the Paying Agent to pay
such funds to the Depositary on such respective dates. The Depositary will
allocate and pay such funds to the owners of beneficial interests in the
Security in accordance with its existing operating procedures.

The Securities shall be subject to redemption and repurchase by the
Company as provided herein.

SECTION 3.2. Denominations.

The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.

SECTION 3.3. Execution, Authentication, Delivery and Dating.

The Securities shall be executed on behalf of the Company by its
Chairman of the Board, its Vice Chairman of the Board, its President or its
Chief Financial Officer, under its corporate seal reproduced thereon and
attested by its Secretary or one of its Assistant Secretaries. The signature of
any of these officers on the Securities may be manual or facsimile.

Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased to
hold such offices prior to the authentication and delivery of such Securities or
did not hold such offices on the date of such Securities.

<PAGE> 57
42

At any time and from time to time after the execution and delivery
of this Indenture, the Company may deliver Securities executed by the Company to
the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Securities; and the Trustee in accordance
with such Company Order shall authenticate and deliver such Securities as in
this Indenture provided and not otherwise.

Each Security shall be dated the date of its authentication.

No Security shall be entitled to any benefit under this Indenture
or be valid or obligatory for any purpose unless there appears on such Security
a certificate of authentication substantially in the form provided for herein
executed by the Trustee by manual signature (except as otherwise provided in
Section 9.14), and such certificate upon any Security shall be conclusive
evidence, and the only evidence, that such Security has been duly authenticated
and delivered hereunder.

SECTION 3.4. Temporary Securities.

Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as evidenced by their
execution of such Securities.

If temporary Securities are issued, the Company will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Company designated pursuant to Section
6.2, without charge to the Holder. Upon surrender for cancellation of any one or
more temporary Securities the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.

SECTION 3.5. Registration; Registration of Transfer and Exchange.

The Company shall cause to be kept at the Corporate Trust Office of
the Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 6.2 being herein sometimes
collectively referred to as the "Security Register") in which, subject to such
reasonable regulations as it may prescribe, the Company shall provide for the
registration of Securities and

<PAGE> 58
43

of transfers of Securities. The Trustee is hereby appointed Security Registrar
for the purpose of registering Securities and transfers of Securities as herein
provided.

Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated pursuant to Section 6.2 for such
purpose, the Company shall execute, and the Trustee shall authenticate and
deliver, in the name of the designated transferee or transferees, one or more
new Securities of any authorized denominations and of a like aggregate principal
amount.

Notwithstanding any other provision of this Section 3.5, unless and
until it is exchanged in whole or in part for Securities in definitive form, a
Global Security representing all or a portion of the Securities may not be
transferred except as a whole by the Depositary to a nominee of such Depositary
or by a nominee of such Depositary to such Depositary or another nominee of such
Depositary or by such Depositary or any such nominee to a successor Depositary
or a nominee of such successor Depositary. Unless otherwise provided as
contemplated by Section 3.1 with respect to Securities evidenced in whole or in
part by a Global Security, the Depositary may not sell, assign, transfer or
otherwise convey any beneficial interest in a Global Security evidencing all or
part of the Securities unless such beneficial interest is in an amount equal to
an authorized denomination for the Securities.

If at any time the Depositary for the Securities notifies the
Company that it is unwilling or unable to continue as a Depositary for the
Securities or if at any time the Depositary for Securities shall no longer be
registered or in good standing under the Exchange Act or other applicable
statute or regulation, the Company shall appoint a successor Depositary with
respect to the Securities. If a successor Depositary for the Securities is not
appointed by the Company within 90 days after the Company receives such notice
or becomes aware of such condition, the Company will execute, and the Trustee,
upon the written request or authorization of any officer of the Company, will
authenticate and deliver Securities in definitive form in an aggregate principal
amount equal to the principal amount of the Global Security representing
Securities in exchange for such Global Security.

In the event that (i) the Company at any time and in its sole
discretion determines that the Securities issued in the form of a Global
Security shall no longer be represented by such Global Security or (ii) there
shall have occurred and be continuing a Default or an Event of Default, the
Company will execute, and the Trustee, upon the written request or authorization
of any officer of the Company, will authenticate and deliver Securities in
definitive form and in an aggregate principal amount equal to the principal
amount of the Global Security representing the Securities in exchange for such
Global Security.

The Depositary may surrender a Global Security in exchange, in
whole or in part, for Securities in definitive form on such terms as are
acceptable to the Company and such Depositary. Thereupon, the Company shall
execute and the Trustee shall authenticate and deliver, without charge,

<PAGE> 59
44

(i) to each Person specified by the Depositary, a new Security or
Securities in definitive form in an aggregate principal amount equal to
and in exchange for such Person's beneficial interest in the surrendered
Global Security; and

(ii) to the Depositary, a new Global Security in a denomination
equal to the difference, if any, between the principal amount of the
surrendered Global Security and the aggregate principal amount of
Securities of such series delivered in definitive form to Holders
pursuant to clause (i) above.

Upon the exchange of a Global Security for Securities in definitive
form, such Global Security shall be cancelled by the Trustee. Securities issued
in definitive form in exchange for a Global Security pursuant to this Section
3.5 shall be registered in such names and in such authorized denominations as
the Depositary, pursuant to instructions from its direct or indirect
participants or otherwise, shall instruct the Trustee. The Trustee shall deliver
such Securities in definitive form to the Person in whose name such Securities
are so registered.

At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denominations and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange, the Company
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive.

All Securities issued upon any registration of transfer or exchange
of Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.

Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Company or the Trustee) be
duly endorsed, or be accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar, duly executed by the
Holder thereof or his attorney duly authorized in writing.

No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer or exchange of Securities, other than
exchanges pursuant to this Section 3.4 or 11.6 not involving any transfer.

During the period of 15 days preceding any Interest Payment Date or
Maturity Date, the Company shall not be required to register the transfer of or
to exchange any Securities. In addition, the Company shall not be required (i)
to

<PAGE> 60
45

register the transfer of or to exchange any Securities for a period of 15 days
immediately preceding any date fixed for any selection of Securities of such
series to be redeemed and (ii) to register the transfer of or to exchange any
Securities selected for redemption, except the unredeemed portion of any
Security being redeemed in part.

SECTION 3.6. Mutilated, Destroyed, Lost and Stolen Securities.

If any mutilated Security is surrendered to the Trustee, the
Company shall execute and the Trustee shall authenticate and deliver in exchange
therefor a new Security of like tenor and principal amount and bearing a number
not contemporaneously outstanding.

If there shall be delivered to the Company and the Trustee (i)
evidence to their satisfaction of the destruction, loss or theft of any Security
and (ii) such security or indemnity as may be required by them to save each of
them and any agent of either of them harmless, then, in the absence of notice to
the Company or the Trustee that such Security has been acquired by a bona fide
purchaser, the Company shall execute and the Trustee shall authenticate and
deliver, in lieu of any such destroyed, lost or stolen Security, a new Security
of like tenor and principal amount and bearing a number not contemporaneously
outstanding.

In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.

Upon the issuance of any new Security under this Section 3.6, the
Company may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including the fees and expenses of the Trustee) connected therewith.

Every new Security issued pursuant to this Section 3.6 in lieu of
any destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.

The provisions of this Section are exclusive and shall preclude (to
the extent lawful) all other rights and remedies with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities.
<PAGE> 61
46

SECTION 3.7. Payment of Interest; Interest Rights Preserved.

Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date for such
interest.

Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Company, at its election in each
case, as provided in Clause (1) or (2) below:

(1) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
Clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not more than
15 days and not less than 10 days prior to the date of the proposed
payment and not less than 10 days after the receipt by the Trustee of
the notice of the proposed payment. The Trustee shall promptly notify
the Company of such Special Record Date and, in the name and at the
expense of the Company, shall cause notice of the proposed payment of
such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at his address as
it appears in the Security Register, not less than 10 days prior to
such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been so
mailed, such Defaulted Interest shall be paid to the Persons in whose
names the Securities (or their respective Predecessor Securities) are
registered at the close of business on such Special Record Date and
shall no longer be payable pursuant to the following Clause (2).

(2) The Company may make payment of any Defaulted
Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be
listed, and upon such notice as may be required by such exchange, if,
after notice given by the

<PAGE> 62

Company to the Trustee of the proposed payment pursuant to this
Clause, such manner of payment shall be deemed practicable by the
Trustee.

Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue, which were carried by such other
Security.

SECTION 3.8. Persons Deemed Owners.

Prior to due presentment of a Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name such Security is registered as the owner of
such Security for the purpose of receiving payment of principal of and (subject
to Section 3.7) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and neither the Company,
the Trustee nor any agent of the Company or the Trustee shall be affected by
notice to the contrary.

SECTION 3.9. Cancellation.

All Securities surrendered for payment, redemption,
repurchase, registration of transfer or exchange shall, if surrendered to any
Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. The Company may at any time deliver to the Trustee
for cancellation any Securities previously authenticated and delivered
hereunder which the Company may have acquired in any manner whatsoever, and all
Securities so delivered shall be promptly cancelled by the Trustee. No
Securities shall be authenticated in lieu of or in exchange for any Securities
cancelled as provided in this Section, except as expressly permitted by this
Indenture. All cancelled Securities held by the Trustee shall be destroyed and
certification of their destruction delivered to the Company unless by a Company
Order the Company shall direct that cancelled Securities be returned to it.

SECTION 3.10. Computation of Interest.

Interest on the Securities shall be computed on the basis of a
360-day year of twelve 30-day months.

<PAGE> 63

ARTICLE IV

SATISFACTION AND DISCHARGE

SECTION 4.1. Satisfaction and Discharge of Indenture.

This Indenture shall cease to be of further effect (except as
to any surviving rights of registration of transfer or exchange of Securities
herein expressly provided for), and the Trustee, on demand of and at the
expense of the Company, shall execute proper instruments acknowledging
satisfaction and discharge of this Indenture and the Security Documents, when

(1) either

(A) all Securities theretofore authenticated and issued
(other than (i) Securities which have been destroyed, lost or stolen
and which have been replaced or paid as provided in Section 3.6 and
(ii) Securities for whose payment money has theretofore been deposited
in trust or segregated and held in trust by the Company and thereafter
repaid to the Trustee or discharged from such trust, as provided in
Section 6.26) have been delivered to the Trustee for cancellation; or

(B) all such Securities not theretofore delivered to the
Trustee for cancellation

(i) have become due and payable; or

(ii) will become due and payable within one year,

and the Company, in the case of (B) (i) or (ii) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust an amount sufficient to pay and discharge the
entire indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal, premium and interest to
the date of such deposit (in the case of Securities which have become
due and payable) or to the Maturity Date, as the case may be;

(2) the Company has paid or caused to be paid all other
sums payable hereunder by the Company; and

(3) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all
conditions precedent herein provided for relating to the satisfaction
and discharge of this Indenture have been complied with.

<PAGE> 64

Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 9.7, the obligations of
the Trustee to any Authenticating Agent under Section 9.14 and, if money shall
have been deposited with the Trustee pursuant to subclause (B) of Clause (1) of
this Section 4.1, the obligations of the Trustee under Section 4.2 and the last
paragraph of Section 6.26 shall survive.

SECTION 4.2. Application of Monies for Satisfaction and Discharge.

Subject to the provisions of the last paragraph of Section
6.26, all money deposited with the Trustee pursuant to Section 4.1 shall be
held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal,
premium and interest for whose payment such money has been deposited with the
Trustee.

ARTICLE V

REDEMPTION

SECTION 5.1. Notices to Trustee.

If the Company elects to redeem Securities, it shall notify
the Trustee and the Paying Agent in writing of the redemption date and the
principal amount of Securities to be redeemed.

The Company shall give each notice provided for in this
Section 5.1 at least 75 days before the redemption date (unless a shorter
notice shall be agreed to by the Trustee in writing), together with an
Officers' Certificate stating that such redemption shall comply with the
conditions contained herein and in the Securities.

SECTION 5.2. Selection of Securities To Be Redeemed.

If less than all of the Securities are to be redeemed, the
Trustee shall select the Securities to be redeemed in compliance with the
requirements of the principal national securities exchange, if any, on which
the Securities being redeemed are listed or, if the Securities are not listed
on a national securities exchange, on a pro rata basis, by lot or by such
method as the Trustee shall deem fair and appropriate; provided, that no
Securities of $1,000 or less shall be redeemed in part.

The Trustee shall make the selection from the Outstanding
Securities not previously called for redemption. The Trustee shall promptly
notify the Company in

<PAGE> 65

writing of such Securities and, in the case of Securities selected for partial
redemption, the principal amount to be redeemed. The Trustee may select for
redemption portions (equal to $1,000 or any integral multiple thereof) of the
principal of Securities that have denominations larger than $1,000. The
Securities and portions of them the Trustee selects shall be in amounts of
$1,000 or integral multiples of $1,000. Provisions of this Indenture that
apply to Securities called for redemption also apply to portions of Securities
called for redemption.

SECTION 5.3. Notice of Redemption.

At least 30 days but not more than 60 days prior to a
redemption date, the Company shall mail or cause the mailing of a notice of
redemption by first-class mail to each Holder of Securities to be redeemed at
its registered address.

The notice shall identify the Securities to be redeemed and
shall state:

(1) the redemption date;

(2) the redemption price and the amount of accrued interest,
if any, to be paid;

(3) the name and address of the Paying Agent;

(4) that the Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price and
accrued interest, if any;

(5) that, unless the Company defaults in making the
redemption payment, interest on Securities called for redemption
ceases to accrue on and after the redemption date and the only
remaining right of the Holders is to receive payment of the redemption
price upon surrender to the Trustee or the Paying Agent of the
Securities redeemed;

(6) if any Security is being redeemed in part, the portion of
the principal amount (equal to $1,000 or any integral multiple
thereof) of such Security to be redeemed and that, on and after the
redemption date, upon surrender of such Security, a new Security or
Securities in principal amount equal to the unredeemed portion thereof
shall be issued without charge to the Holder; and

(7) if less than all of the Securities are to be redeemed,
the identification of the particular Securities (or portion thereof)
to be redeemed as well as the aggregate principal amount of Securities
to be redeemed and the aggregate principal amount of the Securities
estimated to be outstanding after the redemption.

<PAGE> 66

SECTION 5.4. Effect of Notice of Redemption.

Once notice of redemption is mailed, Securities called for
redemption become due and payable on the redemption date and at the redemption
price and shall cease to bear interest from and after the redemption date
(unless the Company shall default in the payment of the redemption price or
accrued interest). Upon surrender to the Paying Agent, such Securities shall
be paid at the redemption price, plus accrued interest to the redemption date;
provided, that if the redemption date is ________ __ or ________ __, then the
interest payable on such date shall be paid to the Holder of record on the next
preceding __________ __ or _________ __.

SECTION 5.5. Deposit of Redemption Price.

At least one Business Day prior to the redemption date, the
Company shall deposit with the Paying Agent in immediately available funds
money sufficient to pay the redemption price of and accrued interest on all
Securities or portions thereof to be redeemed on the redemption date.

If any Security surrendered for redemption in the manner
provided in the Securities shall not be so paid on the redemption date due to
the failure of the Company to deposit sufficient funds with the Paying Agent,
interest shall continue to accrue from the redemption date until such payment
is made on the unpaid principal and, to the extent lawful, on any interest not
paid on such unpaid principal, in each case at the rate and in the manner
provided in the Securities.

SECTION 5.6. Securities Redeemed in Part.

Upon surrender of a Security that is redeemed in part, the
Company shall issue and the Trustee shall authenticate for the Holder a new
Security equal in principal amount to the unredeemed portion of the Security
surrendered.

SECTION 5.7. Public Equity Offering. [to come]

ARTICLE VI

COVENANTS

<PAGE> 67

SECTION 6.1. Payment of Securities.

The Company shall pay, or cause to be paid, the principal of
and interest on the Securities on the dates and in the manner provided in the
Securities and this Indenture. If the Securities are [not] represented by one
or more global Securities, an installment of principal or interest shall be
considered paid on the date due if the Trustee or Paying Agent (other than the
Company or any Subsidiary) holds on that date money in immediately available
funds designated for and sufficient to pay such installment. The Company
agrees with the Trustee to deposit such funds with the Trustee or Paying Agent
prior to the close of business on the Business Day immediately preceding the
date such payment is due.

The Company shall pay interest on overdue principal and (to
the extent permitted by law) on overdue installments of interest at a rate
equal to ______%.

SECTION 6.2. Maintenance of Office or Agency.

The Company shall maintain in the City of [___ _______,
_________] an office or agency where Securities may be surrendered for
registration of transfer or exchange or for presentation for payment and where
notices and demands to or upon the Company in respect of the Securities and
this Indenture may be served. The Company shall give prompt written notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time the Company shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at
the address of the Trustee as set forth in Section 1.5 hereof.

The Company may also from time to time designate one or more
other offices or agencies where the Securities may be presented or surrendered
for any or all such purposes and may from time to time rescind such
designations; provided, however, that no such designation or rescission shall
in any manner relieve the Company of its obligation to maintain an office or
agency in the City of [___ _______, _________] for such purposes. The Company
shall give prompt written notice to the Trustee of such designation or
rescission and of any change in the location of any such other office or
agency.

The Company hereby initially designates the Corporate Trust
Office of the Trustee located at 41 S. High Street, Columbus, Ohio 43215 as
such offices of the Company in accordance with Section 3.5 hereof.

<PAGE> 68

SECTION 6.3. Corporate Existence.

Subject to Article VII, the Company shall do or cause to be
done, at its own cost and expense, all things necessary to, and shall cause
each Subsidiary to, preserve and keep in full force and effect the corporate
existence and the rights (charter and statutory), licenses and franchises of
the Company and its Subsidiaries; provided, however, that the Company shall not
be required to preserve any such right, license or franchise, or the corporate
existence of any Subsidiary, if in the judgment of the Board of Directors of
the Company, (a) such preservation or existence is not desirable in the conduct
of business of the Company or such Subsidiary and (b) the loss of such right,
license or franchise or the dissolution of such Subsidiary is not adverse in
any material respect to the Holders.

SECTION 6.4. Payment of Taxes and Other Claims; Tax Consolidation.

The Company shall, and shall cause each Subsidiary to, pay or
discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all taxes, assessments and governmental charges levied or
imposed upon the Company or any Subsidiary or upon the income, profits or
property of the Company or any Subsidiary, and (b) all lawful claims for labor,
materials and supplies that, if unpaid, might by law become a Lien upon the
property of the Company or any Recourse Subsidiary; provided, however, that,
subject to the terms of the applicable Security Documents, the Company or any
Subsidiary shall not be required to pay or discharge or cause to be paid or
discharged any such tax, assessment, charge or claim whose amount,
applicability or validity is being contested in good faith by appropriate
proceedings and for which adequate reserves (in the good faith judgment of the
Board of Directors of the Company) have been made.

SECTION 6.5. Compliance Certificates.

(a) The Company shall deliver to the Trustee, within 45 days
after the end of each of the respective first three quarters of the Company's
fiscal year, and within 90 days after the end of its respective fiscal year,
Officers' Certificates of the Company stating (i) that a review of the
activities of the Company and its Subsidiaries during the preceding fiscal
quarter or year, as the case may be, has been made under the supervision of the
signing officers with a view to determining whether the Company and its
Subsidiaries have kept, observed, performed and fulfilled their obligations
under this Indenture, and further stating, as to each such Responsible Officer
signing such certificate, (ii) that, to the best knowledge of such Responsible
Officer, the Company and its Subsidiaries have kept, observed, performed and
fulfilled each and every covenant contained in this Indenture and are not in
default in the performance or observance of any of the terms, provisions and
conditions hereof (or, if a Default or Event of Default shall have occurred,
describing

<PAGE> 69

all such Defaults or Events of Default of which such Responsible Officer may
have knowledge, their status and what action the Company is taking or proposes
to take with respect thereto) and (iii) that to the best of his knowledge no
event has occurred and remains in existence by reason of which payments on
account of the principal of or interest, if any, on the Securities are
prohibited (or, if such event has occurred, describing the event and what
action the Company is taking or proposes to take with respect thereto).

(b) So long as (and to the extent) not contrary to the then
current recommendations of the American Institute of Certified Public
Accountants, the annual financial statements delivered pursuant to Section 6.6
shall be accompanied by a written statement of the Company's independent public
accountants that in making the examination necessary for certification of such
annual financial statements nothing has come to their attention that would lead
them to believe that the Company and its Subsidiaries have violated any
provisions of this Indenture or, if any such violation has occurred, specifying
the nature and period of existence thereof, it being understood that such
accountants shall not be liable directly or indirectly to any Person for any
failure to obtain knowledge of any such violation that would not be disclosed
in the course of an audit examination conducted in accordance with generally
accepted auditing standards.

(c) The Company shall, so long as any of the Securities are
outstanding, deliver to the Trustee, forthwith upon any officer becoming aware
of any Default or Event of Default, an Officers' Certificate specifying such
Default or Event of Default and what action the Company is taking or proposes
to take with respect thereto.

SECTION 6.6. SEC Reports.

(a) In accordance with the provisions of Section 314(a) of
the Trust Indenture Act, at any time that the Company is required to file
periodic reports with the Commission pursuant to Section 13 or 15(d) of the
Exchange Act, the Company shall file with the Trustee, within 5 days after it
files them with the Commission, copies of annual reports and of the
information, documents and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) which
the Company is required to file with the Commission. The Company also shall
comply with the other provisions of Section 314(a) of the Trust Indenture Act.
In addition, at any time that the Company has a class of equity securities
registered under the Exchange Act, the Company shall cause its annual report to
stockholders and any quarterly or other financial reports furnished by it to
stockholders generally to be filed with the Trustee and mailed, no later than
the date such materials are mailed or made available to the Company's
stockholders, to the Holders at their addresses as set forth in the Securities
Register.

(b) At any time that the Company does not have a class of
securities registered under the Exchange Act, the Company shall furnish to the
Trustee (who is

<PAGE> 70

hereby authorized and directed to furnish a copy thereof to any person
requesting the same in writing) and shall mail (or cause to be mailed by the
Trustee at the Company's expense) to each of the Holders at their addresses as
set forth in the Securities Register maintained by the Securities Registrar
within 60 days after the close of each of the first three quarters of each
fiscal year and within 105 days after the close of each fiscal year
consolidated balance sheets of the Company as of the end of each such quarter
or fiscal year, as the case may be, and consolidated statements of income and
changes in financial position of the Company for the period commencing at the
end of the Company's previous fiscal year and ending with the end of such
quarter or fiscal year, as the case may be, all such financial statements
setting forth in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, all in reasonable detail and
duly certified (subject to year-end adjustments) by a Responsible Officer of
the Company as having been prepared in accordance with GAAP consistently
applied, and, in the case of annual consolidated financial statements,
certified by independent public accountants of recognized standing and a
discussion and analysis of the results of operations and financial condition of
the Company and its Subsidiaries for the periods presented, which discussion
and analysis shall be prepared by the management of the Company in a manner
responsive to the requirements of Item 303 (or any successor item or section)
of Regulation S-K. All financial statements shall be prepared in accordance
with GAAP consistently applied, except for changes with which the Company's
independent public accountants concur and except that quarterly statements may
be subject to year-end adjustments.

SECTION 6.7. Waiver of Stay, Extension or Usury Laws.

The Company covenants (to the extent that it may lawfully do
so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or extension law
or any usury law or other law that would prohibit or forgive the Company from
paying all or any portion of the principal of (and premium, if any) or interest
on the Securities as contemplated herein, wherever enacted, now or at any time
hereafter in force, or that may affect the covenants or the performance of this
Indenture; and (to the extent that it may lawfully do so) the Company hereby
expressly waives all benefit or advantage of any such law, and covenants that
it shall not hinder, delay or impede the execution of any power herein granted
to the Trustee but shall suffer and permit the execution of every such power as
though no such law had been enacted.

<PAGE> 71

SECTION 6.8. Maintenance of Properties; Insurance; Books and Records;
Compliance with Law.

(a) Subject to the applicable provisions of the Security
Documents, the Company shall, and shall cause each Subsidiary to, at all times
cause all properties used or useful in the conduct of its business to be
maintained and kept in good working order and condition, ordinary wear and tear
excepted, and shall cause to be made all necessary (in the good faith opinion
of management) repairs, renewals, replacements, additions, betterments and
improvements thereto.

(b) The Company shall and shall cause each Subsidiary to
maintain insurance with insurance companies or associations with a rating of
"A-" or better, as established by Best's Rating Guide (or an equivalent rating
with such other publication of a similar nature as shall be in current use),
subject to the provisions of the applicable Security Documents, in such amounts
and covering such risks as are usually and customarily carried with respect to
similar facilities according to their respective locations.

(c) The Company shall and shall cause each Subsidiary to keep
proper books of record and account in which full and correct entries shall be
made of all financial transactions and the assets and business of the Company
and each Subsidiary, in accordance with GAAP consistently applied to the
Company and its Subsidiaries taken as a whole.

(d) The Company shall and shall cause each Subsidiary to
comply with all statutes, laws, ordinances, or government rules and regulations
to which it is subject, non-compliance with which would adversely affect the
business, prospects, earnings, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole.

SECTION 6.9. Limitations on Debt.

(a) The Company shall not, and shall not permit any
Subsidiary to, Issue (each event, an "incurrence"), directly or indirectly, any
Debt (including Acquired Debt) unless (a) the pro forma Consolidated EBITDA
Coverage Ratio of the Company and its Recourse Subsidiaries for the Reference
Period prior to the incurrence of such Debt would have been greater than (i)
2.0 to 1.0 and (b) no Default or Event of Default shall have occurred and be
continuing at the time of, or after giving effect to, the incurrence of such
Debt.

(b) The limitation set forth in paragraph (a) shall not apply
to:

(i) Debt evidenced by the Securities and the obligations
of the Company and its Subsidiaries under the Indenture and the
Security Documents;

<PAGE> 72

(ii) Debt issued pursuant to the Credit Facility in the
aggregate principal amount outstanding at any time not to exceed the
greater of (a) $50 million or (b) the sum of (1) 85% of the aggregate
face amount of Accounts Receivable plus (2) 50% of the aggregate book
value of Inventory, in each case, measured as of the end of the most
recent fiscal month for which information regarding Accounts
Receivable and Inventory is then available;

(iii) Debt of the Company issued to any Wholly-Owned
Recourse Subsidiary; provided, that (a) any such Debt is unsecured and
is subordinated to the Securities and (b) that any subsequent issuance
or transfer of any Capital Stock which results in any such Wholly-Owned
Recourse Subsidiary ceasing to be a Wholly-Owned Recourse Subsidiary or
any transfer of such Debt by any Wholly-Owned Recourse Subsidiary to a
Person not a Wholly-Owned Recourse Subsidiary will, in each case, be
deemed an incurrence of such Debt under the Indenture;

(iv) Debt of a Wholly-Owned Recourse Subsidiary issued to
and held by the Company or any Wholly-Owned Recourse Subsidiary of the
Company; provided, that any subsequent issuance or transfer of any
Capital Stock which results in any such Wholly-Owned Recourse
Subsidiary ceasing to be a Wholly-Owned Recourse Subsidiary or any
transfer of such Debt by the Company or any Wholly-Owned Recourse
Subsidiary to a Person not a Wholly-Owned Recourse Subsidiary will, in
each case, be deemed an incurrence of Debt under the Indenture;

(v) Debt of the Company and its Subsidiaries which is
existing immediately following the issuance of the Securities and the
application of the proceeds of the Securities (in no event shall this
clause be deemed to permit Debt in connection with the GECC Loans or
to the Caster Loan to remain outstanding);

(vi) Debt issued pursuant to (a) Interest Rate Protection
Agreements in respect of Debt of the Company or any of its
Subsidiaries that is permitted under this covenant to the extent the
notional principal amount of such Interest Rate Protection Agreements
does not exceed the aggregate principal amount of the Debt to which
such Interest Rate Protection Agreements relate and (b) Hedging
Agreements in respect of foreign exchange or commodity exposures
incurred by the Company or any of its Subsidiaries in the ordinary
course of business;

(vii) Debt evidenced by Industrial Development Bonds
(including Pollution Control Bonds) as such terms are defined under
the Internal Revenue Code, or Government Loans in an aggregate
principal amount not to exceed $20,000,000;

<PAGE> 73

(viii) Non-Recourse Debt of a Non-Recourse Subsidiary;
provided, however, that if any such Debt thereafter ceases to be a
Non-Recourse Debt of a Non-Recourse Subsidiary, then such event shall
be deemed to constitute the issuance of such Debt by the issuer
thereof;

(ix) Debt incurred with respect to the deferred purchase
price of machinery and equipment (including all capitalized costs
incurred in connection therewith, such as engineering studies and
installation thereof) related to the business of the Company or its
Subsidiaries at the time of purchase and other purchase money
obligations (including Capital Lease Obligations) not to exceed, in the
aggregate, $20,000,000 outstanding at any time; provided, that the
maturity of any such obligation does not exceed the anticipated useful
life of the asset being financed; and

(x) any renewal, extension or refinancing (and subsequent
renewals, extensions or refinancings) of any Debt permitted at the
time incurred of the Company and its Subsidiaries; provided, however,
that (a) the principal amount of the Debt so issued shall not exceed
the maximum principal amount of the Debt so exchanged, refunded or
refinanced, (b) Debt which constitutes a renewal, extension or
refinancing of Debt of the Company shall be pari passu or subordinated
in right of payment to the Securities, (c) Debt which constitutes a
renewal, extension or refinancing of Debt of Subsidiaries shall be
pari passu or subordinated in right of payment to the Subsidiary
Guarantee and (d) the Debt so issued (1) shall not mature prior to the
maturity of the Debt so exchanged, refunded or refinanced and (2)
shall have an Average Life equal to or greater than the remaining
Average Life of the Debt so exchanged, refunded or refinanced; and
provided, further, that in no event may Debt be renewed, extended or
refinanced by means of Debt of any Subsidiary of the Company if such
Debt was originally incurred by the Company.

SECTION 6.10. Limitation on Liens.

The Company shall not, and shall not permit, cause or suffer
any of its Subsidiaries to, create, incur, assume or suffer to exist any Liens
of any kind upon any property or assets of the Company or any Subsidiary,
whether now owned or hereafter acquired, except for:

(i) Liens in favor of the Collateral Agent or the
Holders, including Liens created by the Securities, the Indenture and
the Security Documents;

(ii) Liens on the Lender Secured Property to secure the
Credit Facility and the guarantees executed in connection therewith;

(iii) Permitted Liens;

<PAGE> 74

(iv) Liens on the property of the Company or any of its
Subsidiaries created solely for the purpose of securing purchase money
obligations for property acquired in the ordinary course of business;
provided, that (a) such property so acquired for use in the ordinary
course of business is for use in lines of business related to the
Company's or its Subsidiaries' business as it exists immediately prior
to the issuance of the related Debt, (b) no such Lien shall extend to
or cover other property or assets of the Company and its Subsidiaries
other than the respective property or assets so acquired and (c) the
principal amount of Debt secured by any such Lien shall at no time
exceed the original purchase price of such property or assets;

(v) Liens on the property or assets of a Subsidiary
acquired after the Issue Date or on property or assets acquired in an
asset purchase transaction with a Person that is not an Affiliate
created solely to secure the obligations that financed the acquisition
of such Subsidiary or such property and assets; provided that (a) no
such Lien shall extend to or cover property or assets of the Company
and its Subsidiaries other than the property or assets of the
Subsidiary so acquired or the property or assets so acquired and (b)
no such Lien shall extend to the Capital Stock of any Subsidiary so
acquired and (c) the principal amount of Debt secured by any such Lien
shall not exceed the original purchase price of such Subsidiary or
such property or assets;

(vi) Liens on the assets of any entity existing at the
time such entity or assets are acquired by the Company or any of its
Subsidiaries, whether by merger, consolidation, purchase of assets or
otherwise; provided, that such Liens (a) are not created, incurred or
assumed in connection with, or in contemplation of, such assets being
acquired by the Company or any of its Subsidiaries and (b) do not
extend to any other property of the Company or any of its
Subsidiaries;

(vii) Liens in existence on the date of the Indenture
(excluding Liens relating to all or any portion of Debt incurred in
connection with the GECC Loans or the Caster Loan);

(viii) Liens securing Industrial Development Bonds
(including Pollution Control Bonds) as such terms are defined in the
Internal Revenue Code; provided, that any Lien permitted by this
clause (viii) shall not extend to any other property of the Company or
any of its Subsidiaries; and

(ix) Liens on No. 3 Melt Shop to secure Government Loans;
and

(x) any extension, renewal or replacement (or successive
extensions, renewals or replacements), in whole or in part, of any
Lien referred to in the foregoing clauses; provided, that the
principal amount of Debt secured thereby shall not exceed the
principal amount of Debt so secured immediately prior to the time of
such extension, renewal or replacement (or with respect to the

<PAGE> 75

Credit Facility, the maximum amount permitted to be borrowed
thereunder) and that such extension, renewal, or replacement Lien
shall be limited to all or a part of the property which secured the
Lien so extended, renewed or replaced (plus improvements on such
property).

SECTION 6.11. Limitation on the Issuance of Preferred Stock by Subsidiaries.

The Company shall not permit any of its Recourse Subsidiaries
to issue, directly or indirectly, any Preferred Stock, except:

(i) Preferred Stock issued to and held by the Company or
a Wholly-Owned Recourse Subsidiary, except that any subsequent
issuance or transfer of any Capital Stock which results in any
Wholly-Owned Recourse Subsidiary ceasing to be a Wholly-Owned Recourse
Subsidiary or any transfer of such Preferred Stock by any Wholly-Owned
Recourse Subsidiary to a Person not a Wholly-Owned Recourse Subsidiary
will, in each case, be deemed an issuance of Preferred Stock under the
Indenture;

(ii) Preferred Stock issued by a Person prior to the time
(a) such Person became a Subsidiary, (b) such Person merges with or
into a Subsidiary or (c) a Subsidiary merges with or into such Person
(in a transaction in which such Person becomes a Subsidiary), in each
case if such Preferred Stock was not issued in anticipation of such
transaction; and

(iii) Preferred Stock issued in exchange for, or the
proceeds of which are used to refund Debt or refinance Preferred Stock
issued pursuant to clauses (i) or (ii) (other than Preferred Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) that is redeemable at the
option of the holder thereof or that is otherwise redeemable, pursuant
to sinking fund obligations or otherwise, prior to the date of
redemption or maturity of the Preferred Stock or Debt being so
refunded or refinanced); provided, that (a) the liquidation value of
such Preferred Stock so issued shall not exceed the principal amount
or the liquidation value of the Debt or Preferred Stock, as the case
may be, so refunded or refinanced and (b) the Preferred Stock so
issued (i) shall have a stated maturity not earlier than the stated
maturity of the Debt or Preferred Stock being refunded or refinanced
and (2) shall have an Average Life equal to or greater than the
remaining Average Life of the Debt or Preferred Stock being refunded
or refinanced.

<PAGE> 76

SECTION 6.12. Transfer of Assets to Subsidiaries.

Notwithstanding the covenant restricting Asset Sales,
Restricted Payments and transactions with Affiliates, the Company shall not,
and shall not permit any of its Recourse Subsidiaries to, make any sale,
transfer or other disposition (including by way of Sale and Leaseback
Transaction) to any of its Subsidiaries (other than in the ordinary course of
business) of (i) any assets of the Company or its Recourse Subsidiaries or (ii)
any shares of Capital Stock of any of the Company's Recourse Subsidiaries, in
either case with an aggregate fair market value in excess of $1,000,000 (as
determined in good faith by the Company) unless the Company or its Recourse
Subsidiaries shall receive consideration from the Subsidiary acquiring such
assets or Capital Stock by way of any such sale, transfer or otherwise in cash
or Cash Equivalents equal to the amount in excess of $1,000,000 (the fair
market value of such assets or Capital Stock to be determined in good faith by
an Independent Appraiser or Independent Financial Advisor, as the circumstances
dictate, with respect to a transaction with a fair market value in excess of
$1,000,000); provided, that there shall be no restriction on the transfer of
assets of Erlanger Tubular Corporation to either Koppel Steel Corporation or
Newport Steel Corporation; and provided further, that assets may not be
transferred by any Recourse Subsidiary to any Excluded Company.

SECTION 6.13. Limitations on Restricted Payments.

The Company shall not, and shall not permit any Recourse
Subsidiary, directly or indirectly, to declare, pay or set apart for payment,
any Restricted Payment, if after giving effect thereto: (i) a Default shall
have occurred and be continuing (or would result therefrom); or (ii) the
aggregate amount of such Restricted Payment and all other Restricted Payments
made by the Company or any of its Recourse Subsidiaries (the amount expected or
distributed for such purposes, if other than in cash, to be valued at its fair
market value as determined in good faith by the Board of Directors of the
Company, whose determination shall be conclusive and evidenced by a Board
Resolution delivered to the Trustee) since the Issue Date would exceed the sum
of:

(i) 50% of the Company's Consolidated Net Income accrued
for the period (treated as one accounting period) from the first day
of the fiscal quarter succeeding the Issue Date to the end of the most
recent fiscal quarter ending prior to the date of such Restricted
Payment (or, in case such Consolidated Net Income shall be a deficit,
minus 100% of such deficit); and

(ii) the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than
Disqualified Stock) subsequent to the Issue Date (other than to a
Subsidiary of the Company or an employee stock ownership plan or
similar trust), including Net Cash Proceeds from the exercise of
warrants; and

<PAGE> 77

(iii) the aggregate Net Cash Proceeds received by the
Company from the issuance or sale of its Capital Stock (other than
Disqualified Stock) to an employee stock ownership plan subsequent to
the Issue Date; provided, that if such employee stock ownership plan
issues any Debt, only to the extent that any such proceeds are equal
to any increase in the Consolidated Net Worth of the Company resulting
from principal repayments made by such employee stock ownership plan
with respect to Debt issued by it to finance the purchase of such
Capital Stock; and

(iv) the aggregate Net Cash Proceeds received by the
Company from the issuance of its Capital Stock upon the conversion of
or exchange for (other than by a Subsidiary of the Company),
securities evidencing Debt of the Company subsequent to the Issue
Date, calculated on the assumption that the gross proceeds from such
issuance are equal to the aggregate principal amount (or if discounted
Debt, the accreted principal amount) of Debt evidenced by such
securities converted or exchanged, plus any additional sums payable
upon conversion or exchange (less the amount of any cash, or the fair
market value of other property, distributed to the holder of such Debt
by the Company or any of its Subsidiaries upon such conversion or
exchange).

Notwithstanding the foregoing, this provision shall not
prevent (i) the payment of any dividend within 60 days after the date of its
declaration (if the declaration of such dividend was permitted by the foregoing
provision at the time of such declaration); or (ii) the repurchase, retirement
or other acquisition of any shares of the Company's Capital Stock, or any
option, warrant or other right to purchase shares of the Company's Capital
Stock, or the repayment of any Debt of the Company solely in exchange for
shares of, or out of the proceeds of a substantially contemporaneous issuance
of, Capital Stock (other than Disqualified Stock).

SECTION 6.14. Limitations on Transactions with Affiliates.

The Company shall not, and shall not permit any Recourse
Subsidiary to, conduct any business or enter into or permit to exist any
transaction or series of related transactions, including, without limitation,
any loan, advance, Guarantee or capital contribution to, or for the benefit of,
or any sale, purchase, lease, exchange or other disposition of any property or
the rendering of any service, or any other direct or indirect payment, transfer
or other disposition) with any Affiliate of the Company or any legal or
beneficial owner of 5% or more of any class of Capital Stock of the Company or
with an Affiliate of any such owner unless the terms of such business,
transaction or series of transactions are (i) set forth in writing, (ii) as
favorable to the Company or such Recourse Subsidiary as terms that would be
obtainable at the time for a comparable transaction or series of similar
transactions in arms-length dealings with an unrelated third Person and (iii)
the Board of Directors has, by resolution, determined in good faith that such
business or transaction or series of transactions meets the criteria set forth
in (ii) above; except that (a) the requirements of clauses (i)

<PAGE> 78

and (iii) shall not apply to transactions involving the sale of goods and
services in the ordinary course of business that are consistent with the
Company's and its Recourse Subsidiaries' past practices and (b) the foregoing
shall not prohibit (1) Restricted Payments, Permitted Investments and Permitted
Payments otherwise permitted by the Indenture, (2) transactions between the
Company and one or more of its Wholly-Owned Recourse Subsidiaries, provided
that such transactions are not otherwise prohibited, (3) payments of reasonable
and customary compensation for services, directors fees, meeting expenses,
insurance premiums and indemnities to the extent permitted by applicable law,
(4) the issuance of stock options (and shares of stock upon the exercise
thereof) pursuant to any stock option plan approved by the Board of Directors
and stockholders of the Company and (5) loans or advances to employees for
relocation or travel related expenses consistent with ordinary practices of the
Company.

SECTION 6.15. Restrictions on Assets Sales.

(a) The Company shall not, and shall not permit any of
its Recourse Subsidiaries to, make any Asset Sale, unless (i) the Company (or
its Recourse Subsidiary, as the case may be) receives consideration at the time
of such Asset Sale at least equal to the fair market value of the Capital Stock
or assets to be sold (as determined in good faith by its Board of Directors);
(ii) at least 85% of the consideration therefor is received by the Company or
such Recourse Subsidiary in the form of cash or Cash Equivalents; and (iii)
100% of the consideration therefor is received by the Company or such Recourse
Subsidiary in the form of cash, Cash Equivalents or instruments with respect to
which a security interest therein may be perfected by possession; provided,
that the limitations set forth in (ii) and (iii) above shall not be applicable
to the sale of Excluded Assets.

(b) Within 360 days of the date that the sum of the Net
Available Cash of Asset Sales by the Company and its Recourse Subsidiaries
(excluding the Net Available Cash (i) previously applied to the acquisition of
property and assets used in lines of business related to the Company's or the
Recourse Subsidiaries' business at such time (each a "Permitted Related
Acquisition") and (ii) from the sale of Obsolete Assets not exceeding an
aggregate fair market value of $1,000,000 in any year), together with
Condemnation Awards and Net Insurance Proceeds (the "Available Amount"), equals
or exceeds $5,000,000, the Company will elect to either (a) apply or cause to
be applied the Available Amount to a Permitted Related Acquisition or the
commencement thereof (provided that such project is completed within a
reasonable time of the commencement thereof), (b) make an offer to purchase
Securities from all Holders up to an amount equal to the Available Amount
(rounded to the next lowest multiple of $1,000) at a purchase price equal to
100% of the principal amount thereof plus accrued interest thereon, if any, to
the date of purchase (an "Asset Sale Offer") or (c) any combination of clauses
(a) and (b) above; provided, that (i) property acquired at any time as a
Permitted Related Acquisition that has been acquired with Collateral Proceeds
shall be subject to a first priority Lien

<PAGE> 79

in favor of the Collateral Agent for the benefit of the Trustee and the
Holders; (ii) pending application to a Permitted Related Acquisition or an
Asset Sale Offer, the Collateral Proceeds, together with all Condemnation
Awards and Net Insurance Proceeds received by the Collateral Agent, will be
retained by the Collateral Agent in Collateral Accounts; and (iii)
notwithstanding the foregoing, the Company and its Subsidiaries, in the
aggregate, shall be permitted to retain (x) $1,000,000 of Net Available Cash
from Asset Sales other than sales of Obsolete Assets and (y) the Net Available
Cash from the sale of the Excluded Assets. To the extent that Holders do not
subscribe to an Asset Sale Offer, the Company may retain the unutilized
Available Amount free of the Lien of the Security Documents. The Company and
its Subsidiaries collectively may retain the Net Available Cash from the sale
of Obsolete Assets in an aggregate amount not to exceed $1,000,000 in any year.

(c) The Company shall provide the Trustee with notice of
any Asset Sale Offer at least 10 days before any notice of an Asset Sale Offer
is mailed to Holders of the Securities (unless shorter notice is acceptable to
the Trustee). If the Company elects to make an Asset Sale Offer, notice of
such Asset Sale Offer shall be mailed by the Company to all Holders of
Securities, with a copy to the Trustee and the Paying Agent, not more than 370
days after the Available Amount equals or exceeds $5,000,000 which notice shall
specify the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed (the "Asset Sale Payment
Date"). The Asset Sale Offer shall remain open from the time of mailing for at
least 20 Business Days and until at least 5:00 p.m., Eastern time, on the
Business Day immediately preceding the Asset Sale Payment Date. The notice,
which shall govern the terms of the Asset Sale Offer, shall include such
disclosures as are required by law and shall state:

(i) that the Asset Sale Offer is being made pursuant to
this Section 6.15;

(ii) the purchase price (including the amount of accrued
interest, if any) for each Security and the Asset Sale Payment Date;

(iii) that any Security not tendered or accepted for
payment shall continue to accrue interest in accordance with the terms
thereof;

(iv) that any Security accepted for payment pursuant to
the Asset Sale Offer shall cease to accrue interest after the Asset
Sale Payment Date;

(v) that Holders electing to have Securities purchased
pursuant to an Asset Sale Offer must surrender their Securities with
the form "Option of Holder to Elect Purchase" on the reverse of the
Securities completed, to the Paying Agent at the address specified in
the notice prior to 5:00 p.m., Eastern time, on the Business Day
immediately preceding the Asset Sale Payment Date and must complete
any form letter of transmittal proposed by the Company and acceptable
to the Trustee and the Paying Agent;

<PAGE> 80

(vi) that Holders shall be entitled to withdraw their
elections if the Paying Agent receives, not later than 5:00 p.m.,
Eastern time, on the third Business Day immediately preceding the
Asset Sale Payment Date, a telegram, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of
Securities the Holder delivered for purchase, the Security certificate
number (if any) and a statement that such Holder is withdrawing his
election to have such Securities purchased;

(vii) that if Securities in a principal amount in excess of
the Holders' pro rata share of the Available Amount are tendered
pursuant to the Asset Sale Offer, the Company shall purchase on a pro
rata basis among the Securities tendered (with such adjustments as may
be deemed appropriate by the Company so that only Securities in
denominations of $1,000 or integral multiples of $1,000 shall be
acquired);

(viii) that Holders whose Securities are purchased only in
part shall be issued new Securities equal in principal amount to the
unpurchased portion of the Securities surrendered; and

(ix) the instructions that Holders must follow to tender
their Securities.

On or about the Asset Sale Payment Date, the Company shall (i)
accept for payment, on a pro rata basis among the Securities tendered,
Securities or portions thereof pursuant to the Asset Sale Offer in an amount
equal to the Available Amount (ranked to the next lowest multiple of $1,000)
and (ii) deliver to the Paying Agent the Securities so accepted together with
an Officers' Certificate setting forth the Securities or portions thereof
tendered to and accepted for payment by the Company. The Paying Agent shall
promptly mail or deliver (or, in the case of a Global Security, transfer
immediately available funds, on the Asset Sale Payment Date to the Depositary)
to each Holder of the Securities so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail or deliver
to each such Holder a new Security equal in principal amount to any unpurchased
portion of the Securities surrendered upon receipt from the Company thereof.
Any Security not so accepted shall be promptly mailed or delivered by the
Company to the Holder thereof. The Company shall publicly announce the results
of the Asset Sale Offer on the first Business Day following the Asset Sale
Payment Date. To the extent an Asset Sale Offer is not fully subscribed to by
such Holders, the Company may retain (free and clear of the Lien of this
Indenture and the Security Documents) such unutilized portion. The Paying
Agent shall promptly deliver to the Company the balance of any such Trust
Moneys held by the Paying Agent after payment to the Holders as aforesaid. For
purposes of this Section 6.15, so long as the Collateral Agent is also the
Trustee, the Collateral Agent shall act as the Paying Agent and, otherwise, the
Trustee shall act as Paying Agent.

<PAGE> 81

The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to the
Asset Sale Offer. To the extent that the provisions of any securities laws or
regulations conflict with provisions of this Section 6.15, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section 6.15 by virtue
thereof.

SECTION 6.16. Limitation on Restrictions on Distributions from Recourse
Subsidiaries.

The Company shall not, and shall not permit any Recourse
Subsidiary to, create, or permit to exist or become effective any encumbrance
or restriction on the ability of any Recourse Subsidiary to (a) pay dividends,
in cash or otherwise, or make any other distributions on its Capital Stock; (b)
make payments in respect of any Debt owed to the Company or any of the
Company's Recourse Subsidiaries; (c) make any loans or advances to the Company
or any of the Company's Recourse Subsidiaries; or (d) transfer any of its
property or assets to the Company or any of the Company's Subsidiaries, except:
(i) any encumbrance or restriction pursuant to the Securities, the Indenture or
the Security Documents; (ii) any encumbrance or restriction pursuant to an
agreement in effect at or entered into on the Issue Date (including, without
limitation, the Credit Facility); (iii) any encumbrance or restriction with
respect to a Recourse Subsidiary pursuant to an agreement relating to any Debt
issued by such Recourse Subsidiary on or prior to the date on which such
Recourse Subsidiary was acquired by the Company (other than Debt issued as
consideration in, or to provide all or any portion of the funds utilized to
consummate, the transaction or series of related transactions pursuant to which
such Recourse Subsidiary became a Recourse Subsidiary or was acquired by the
Company) and outstanding on such date; (iv) any encumbrance or restriction
pursuant to an agreement effecting a refinancing of Debt issued pursuant to an
agreement referred to in clause (ii) or (iii) or contained in any amendment to
an agreement referred to in clause (ii) or (iii); provided, however, that the
encumbrances and restrictions contained in any such refinancing agreement or
amendment are not more restrictive than encumbrances and restrictions contained
in the refinanced or amended agreements; (v) customary non-assignment
provisions restricting subletting or assignment of any lease or assignment
entered into by a Recourse Subsidiary; and (vi) any restrictions with respect
to a Recourse Subsidiary of the Company imposed pursuant to an agreement which
has been entered into for the sale or disposition of all or substantially all
of the Capital Stock or assets of such Recourse Subsidiary.

<PAGE> 82

SECTION 6.17. Limitation on Sale and Leaseback Transactions.

The Company shall not, and shall not permit any of its
Recourse Subsidiaries to, enter into, directly or indirectly, any Sale and
Leaseback Transaction, with respect to any real or tangible personal property,
other than (i) a Sale and Leaseback Transaction entered into between the
Company and any of its Wholly-Owned Recourse Subsidiaries or between
Wholly-Owned Recourse Subsidiaries; provided that upon either (a) the transfer
or other disposition by such Wholly-Owned Recourse Subsidiary of any such lease
to a Person other than the Company or another Wholly-Owned Recourse Subsidiary
or (b) the issuance, sale, lease, transfer or other disposition of Capital
Stock (including by way of consolidation or merger) of such Wholly-Owned
Recourse Subsidiary to a Person other than the Company or another Wholly-Owned
Recourse Subsidiary, the provisions of this clause (i) shall no longer be
applicable to such lease and such lease shall be deemed for purposes of this
paragraph to constitute the entering into of such Sale and Leaseback
transaction by the parties thereto; and (ii) Capital Lease Obligations
permitted to be incurred by the Company or any of its Subsidiaries pursuant to
the limitations on Debt set forth in Section 6.9.

SECTION 6.18. Change of Control.

In the event of a Change of Control (the date of such
occurrence, the "Change of Control Date"), the Company shall notify the Holders
of Securities in writing of such occurrence and shall make an offer to purchase
(the "Change of Control Offer") on a Business Day (the "Change of Control
Payment Date") not earlier than 30 days nor later than 60 days from the date
such notice is mailed all Securities then outstanding at a purchase price equal
to 101% of the principal amount thereof plus accrued interest to the Change of
Control Payment Date, if any.

Notice of a Change of Control Offer shall be mailed by the
Company within 30 days following the Change of Control Date to the Holders of
Securities at their last registered addresses with a copy to the Trustee and
the Paying Agent. The Change of Control Offer shall remain open from the time
of mailing for at least 20 Business Days and until 5:00 p.m., Eastern time, on
the Business Day immediately preceding the Change of Control Payment Date. The
notice, which shall govern the terms of the Change of Control Offer, shall
include such disclosures as are required by law and shall state:

(i) that the Change of Control Offer is being made
pursuant to this Section 6.18 and that all Securities tendered shall
be accepted for payment;

(ii) the purchase price (including the amount of accrued
interest, if any) for each Security and the Change of Control Payment
Date;

<PAGE> 83

(iii) that any Security not tendered or accepted for
payment shall continue to accrue interest in accordance with the terms
thereof;

(iv) that any Security accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;

(v) that Holders electing to have Securities purchased
pursuant to a Change of Control Offer must surrender their Securities
with the form "Option of Holder to Elect Purchase" on the reverse of
the Securities completed, to the Paying Agent at the address specified
in the notice prior to 5:00 p.m., Eastern time, on the Business Day
immediately preceding the Change of Control Payment Date and must
complete any form letter of transmittal proposed by the Company and
acceptable to the Trustee and the Paying Agent;

(vi) that Holders shall be entitled to withdraw their
election if the Paying Agent receives, not later than 5:00 p.m.,
Eastern time, on the third Business Day (or such shorter period as may
be required by applicable law) immediately preceding the Change of
Control Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of
Securities the Holder delivered for purchase, the Security certificate
number (if any), and a statement that such Holder is withdrawing his
election to have such Securities purchased;

(vii) that Holders whose Securities are purchased only in
part shall be issued Securities equal in principal amount to the
unpurchased portion of the Securities surrendered;

(viii) the instructions that Holders must follow to tender
their Securities; and

(ix) the circumstances and relevant facts regarding such
Change of Control (including, but not limited to, information with
respect to pro forma historical financial information, including
income, cash flow and capitalization, after giving effect to such
Change of Control, information regarding the Persons acquiring control
and such Person's business plans going forward).

On or before the Change of Control Payment Date, the Company
shall (i) accept for payment Securities or portions thereof tendered pursuant
to the Change of Control Offer, (ii) deposit with the Paying Agent money
sufficient to pay the purchase price of all Securities or portions thereof so
tendered and accepted and (iii) deliver to the Trustee the Securities so
accepted together with an Officers' Certificate setting forth the Securities or
portions thereof tendered to and accepted for payment by the Company. The
Paying Agent shall promptly mail or deliver (or, in the case of a Global
Security, transfer immediately available funds on the Change of Control Payment
Date to the Depositary) to the Holders of Securities so accepted for payment

<PAGE> 84

in an amount equal to the purchase price, and the Trustee shall promptly
authenticate and mail or deliver to such Holders a new Security equal in
principal amount to any unpurchased portion of the Security surrendered upon
receipt from the Company thereof. The Company shall publicly announce the
results of the Change of Control Offer not later than the first Business Day
following the Change of Control Payment Date.

The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act, and any other securities
laws or regulations in connection with the repurchase of Securities pursuant to
a Change of Control Offer. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section 6.18, the Company
shall comply with the applicable securities laws and regulations and shall not
be deemed to have breached its obligations under this Section 6.18 by virtue
thereof.

SECTION 6.19. Limitation on Issuance and Sale of Capital Stock of Recourse
Subsidiaries.

The Company shall not sell any Capital Stock of a Recourse
Subsidiary, and shall not permit any Recourse Subsidiary to issue or sell any
Capital Stock, or permit any Person, other than the Company and its Recourse
Subsidiaries, to own or hold any such interest, other than any interest owned
or held on the Issue Date by a Person other than the Company and its Recourse
Subsidiaries in any Capital Stock of any Recourse Subsidiary (other than a
Joint Venture); provided, that the foregoing limitation shall not apply to (i)
the sale of 100% of the Capital Stock of any Subsidiary made in accordance with
Section 6.15, (ii) the sale or issuance of any Capital Stock of Imperial
Adhesives, Inc. and (iii) issuances of Preferred stock permitted pursuant to
clauses (i) or (iii) of Section 6.11.

SECTION 6.20. Limitations as to Non-Recourse Subsidiaries.

The Company shall not permit any Non-Recourse Subsidiary to
Issue create, assume, incur, Guarantee or otherwise become liable in respect to
any Debt other than Non-Recourse Debt. Neither the Company nor any of its
Recourse Subsidiaries will sell, lease, convey or otherwise transfer to any
Non-Recourse Subsidiary any asset which is essential to the steelmaking
operations of the Company or its Recourse Subsidiaries. The Company will not
permit any Non-Recourse Subsidiary to acquire from any Person any asset
essential to the steelmaking operations of the Company or its Recourse
Subsidiaries or all or any porion of its Recourse Subsidiaries.

<PAGE> 85

SECTION 6.21. Impairment of Security Interest.

Subject to Section 12.5, the Company shall not, and shall not
permit any of its Subsidiaries to, take or omit to take any action, which
action or omission would have the result of affecting or impairing the security
interest in favor of the Collateral Agent with respect to the Collateral, and
the Company shall not grant to any Person (other than the Collateral Agent and
the Holders) any interest whatsoever in the Collateral, except, in either case,
as expressly permitted by Section 6.10 and the Security Documents.

SECTION 6.22. Conflicting Agreements.

The Company shall not, and shall not permit any of its
Subsidiaries to, enter into any agreement or instrument that by its terms
expressly (i) prohibits the Company from redeeming or otherwise making any
payments on or in respect of the Securities in accordance with the terms
thereof or hereof, as in effect from time to time, or (ii) requires that the
proceeds received from the sale of any Collateral be applied to repay, redeem
or otherwise retire any Debt of any Person other than the Debt represented by
the Securities, except as expressly permitted hereby or by the Security
Documents.

SECTION 6.23. Amendment to Security Documents.

The Company shall not, and shall not permit any of its other
Subsidiaries to, amend, modify or supplement, or permit or consent to any
amendment, modification or supplement of, any of the Security Documents in any
way which would be adverse to the Holders or which would constitute a Default
hereunder or a default under any Security Document. The Company shall not
amend, modify or supplement the Pledge Agreement, ICN Security Agreements, ICN
Mortgages or the Intercompany Notes, or waive or consent to any default in
respect of the foregoing, without the express written consent of the Trustee,
which consent shall not be unreasonably withheld if such amendment,
modification, supplement, waiver or consent is in a form satisfactory to the
Trustee and is for any of the following purposes:

(i) to evidence succession of another Person to the
Company or any Subsidiary of the Company and the assumption by any
such succession of the covenants of the Company or such Subsidiary, as
the case may be, under the Intercompany Notes, the ICN Security
Agreements or the ICN Mortgages; or

(ii) to add to the covenants of the Subsidiaries for the
benefit of the Company, or to surrender any right or power of the
Subsidiaries; or

<PAGE> 86

(iii) to pledge or grant a security interest in favor of
the Company as additional security for the payment and performance of
the Steelmaking Subsidiaries' obligations with respect to the
Intercompany Notes in any property or assets, including any that are
required to be mortgaged, pledged or hypothecated or in which a
security interest is required to be granted, to the Company pursuant
to the ICN Security Agreements or the ICN Mortgages;

(iv) To cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under the ICN Security Agreements or ICN Mortgages
which shall not be inconsistent with the provisions thereof; provided,
that such action pursuant to this Clause (iv) shall not adversely
affect the interests of the Holders assuming the foreclosure by the
Collateral Agent under the Pledge Agreement on the Company's rights
and obligations under the Intercompany Notes, the ICN Security
Agreements or the ICN Mortgages; or

(v) to evidence the full release and discharge of a
Subsidiary under the Indenture, the Securities and the Security
Documents upon the sale or other disposition of all of the Capital
Stock of the Subsidiary or all or substantially all of its assets and
all terms and conditions contained in this Indenture relating to such
sale or other disposition have been complied with in all respects.

SECTION 6.24. Inspection.

The Company shall, and shall cause each of its Subsidiaries
to, permit authorized representatives of the Trustee and the Collateral Agent
to visit and inspect the properties of the Company or its Subsidiaries, and any
or all books, records and documents in the possession of the Company relating
to the Collateral, and to make copies and take extracts therefrom and to visit
and inspect the Collateral, all upon reasonable prior notice and at such
reasonable times during normal business hours and as often as may be reasonably
requested.

SECTION 6.25. Use of Proceeds.

The Company shall use the proceeds of the Securities in the
manner described in the Prospectus. The Company shall not use any part of such
proceeds to purchase or carry any margin stock or to extend credit to others
for the purpose of purchasing or carrying any margin stock. Neither the
issuance of any Security nor the use of the proceeds thereof shall violate or
be inconsistent with the provisions of Regulations G, T, U or X of the Board of
Governors of the Federal Reserve System.

<PAGE> 87

SECTION 6.26. Money for Security Payments to Be Held in Trust.

If the Company shall at any time act as its own Paying Agent,
it will, on or before each due date of the principal of or interest on any of
the Securities, segregate and hold in trust for the benefit of the Persons
entitled thereto a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due until such sums shall be paid to such Persons or
otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.

Whenever the Company shall have one or more Paying Agents, it
will, on or prior to each due date of the principal of or interest on any
Securities, deposit with a Paying Agent a sum sufficient to pay such amount,
such sum to be held as provided by the Trust Indenture Act, and (unless such
Paying Agent is the Trustee) the Company will promptly notify the Trustee of
its action or failure so to act.

The Company will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will (i) comply with the provisions of Section
317 of the Trust Indenture Act applicable to it as a Paying Agent and (ii)
during the continuance of any default by the Company (or any other obligor upon
the Securities) in the making of any payment in respect of the Securities, upon
the written request of the Trustee, forthwith pay to the Trustee all sums held
in trust by such Paying Agent as such.

The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held
in trust by the Company or such Paying Agent, such sums to be held by the
Trustee upon the same terms as those upon which such sums were held by the
Company or such Paying Agent; and, upon such payment by any Paying Agent to the
Trustee, such Paying Agent shall be released from all further liability with
respect to such money.

Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of the principal of (and
premium, if any) or interest on any Security and remaining unclaimed for two
years after such principal (and premium, if any) or interest has become due and
payable shall be paid to the Company on Company Request, or (if then held by
the Company) shall be discharged from such trust; and the Holder of such
Security shall thereafter, as an unsecured general creditor, look only to the
Company for payment thereof, and all liability of the Trustee or such Paying
Agent with respect to such trust money, and all liability of the Company as
trustee thereof, shall thereupon cease; provided, however, that the Trustee or
such Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in a newspaper published in
the English language, customarily published on each Business Day and of general
circulation in [ ] and New York City, or give by mail to each Holder,
notice that such money remains unclaimed and that, after a date

<PAGE> 88

specified therein, which shall not be less than 30 days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Company.

ARTICLE VII

SUCCESSOR CORPORATION

SECTION 7.1. When Company May Merge, etc.

The Company shall not consolidate with or merge with or into
any Person (other than a Recourse Subsidiary that is not an Excluded Company),
and the Company will not, and will not permit, any of its Subsidiaries to sell,
assign, transfer, lease or convey or otherwise dispose of all or substantially
all of its properties and assets (determined on a consolidated basis for the
Company and its Subsidiaries taken as a whole) in one transaction or a series
of transactions to any other Person or Persons (other than a Recourse
Subsidiary that is not an Excluded Company), or permit any Person (other than a
Recourse Subsidiary) to consolidate with or merge with or into the Company, or
convey, sell, assign, transfer or lease all or substantially all of such
Person's properties and assets in one transaction or a series of transactions
to the Company, unless:

(i) the resulting, surviving or transferee Person shall be a
solvent Person organized and existing under the laws of the United
States of America, any State thereof or the District of Columbia;

(ii) the resulting, surviving or transferee Person (if other
than the Company) shall expressly assume by an indenture supplemental
to the Indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the Company's obligations under
the Securities, the Indenture and the Security Documents;

(iii) immediately before and after giving effect to such
transaction or series of transactions, no Default shall have occurred
and be continuing;

(iv) immediately after giving effect to such transaction or
series of transactions (including, without limitation, any Debt
incurred or anticipated to be incurred in connection with or in
respect of the transaction or series of transactions), the resulting,
surviving or transferee Person would be permitted to incur at least
$1.00 of Debt pursuant to the Indenture;

(v) immediately after giving effect to such transaction
or series of transactions, the resulting, surviving or transferee
Person shall have a Consolidated Net Worth in an amount which is not
less than the Consolidated Net Worth of the Company prior to such
transaction;

<PAGE> 89

(vi) each Recourse Subsidiary shall expressly confirm that
its Guarantee shall apply to the obligations under the Securities of
any successor to the Company; and

(vii) the Company or the surviving entity shall have
delivered to the Trustee an Officer's Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance,
sale, transfer or lease and, if a supplemental indenture has been
executed in connection with such transaction or series of
transactions, such supplemental indenture complies with this covenant
and that all conditions precedent in the Indenture relating to the
transaction or series of transactions have been satisfied.

Notwithstanding the foregoing, clause (iv) shall not prohibit
a transaction, the principal purpose of which is (as determined in good faith
by the Board of Directors of the Company and evidenced by the Board Resolution
or Board Resolutions thereof) to change the state of incorporation of the
Company, and such transaction does not have as one of its purposes the evasion
of the limitation on merger, consolidations and sales of assets contained
herein. Nothing contained in this Article shall be deemed to prevent the
Company or any Subsidiary from granting a security interest in, or a mortgage
or Lien upon, or otherwise encumbering, any of its assets, subject to the
limitations on Liens set forth in Section 6.10. Notwithstanding the foregoing,
the Company and its Recourse Subsidiaries may not consolidate with or merge
with or into a Non-Recourse Subsidiary or any Excluded Company or convey, sell,
assign, transfer or lease all or substantially all of their properties and
assets (determined, with respect to the Company, on a consolidated basis for
the Company and its Subsidiaries taken as a whole) in one transaction or a
series of transactions to any Non-Recourse Subsidiary or Excluded Company, or
unless such transaction satisfies the restrictions under Sections 6.9, 6.13 and
the other covenants (treating, under each covenant, any Non-Recourse Debt as
Recourse Debt), permit any Non- Recourse Subsidiary to consolidate with or
merge with or into the Company or any of its Recourse Subsidiaries or convey,
sell, assign, transfer or lease all or substantially all of such Non-Recourse
Subsidiary's properties and assets in one transaction or a series of
transactions to the Company or any of its Recourse Subsidiaries.

SECTION 7.2. Surviving Person Substituted.

Upon any consolidation or merger or any transfer of all or
substantially all of the assets of the Company in accordance with Section 7.1,
the surviving person formed by such consolidation or into which the Company is
merged or to which such transfer is made shall succeed to, and be substituted
for, and may exercise every right and power of, the Company under this
Indenture with the same effect as if such surviving person had been named as
the Company herein.

<PAGE> 90

ARTICLE VIII

EVENTS OF DEFAULT

SECTION 8.1. Events of Default.

"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or
pursuant to any judgment, decree or order of any court or any order, rule or
regulation of any administrative or governmental body):

(i) default in the payment of any interest upon any
Security when it becomes due and payable, and continuance of such
default for a period of 30 days; or

(ii) default in the payment of the principal, or premium,
if any, of any Security on a Maturity Date; or

(iii) failure to redeem or purchase Securities when
required pursuant to the Indenture and the Securities (including,
without limitation, failure to make payments when due pursuant to a
Change of Control Offer or Asset Sale Offer); or

(iv) default in the performance, or breach, of any
covenant or agreement described in Section 7.1 of this Indenture; or

(v) default in the performance, or breach, of any
covenant or agreement described in Sections 6.15 or 6.18 of this
Indenture, and continuance of such default or breach for a period of
five days after the Company has received notice of such noncompliance;
or

(vi) failure to observe or perform any covenant, condition
or agreement in the Securities, the Indenture or the Security
Documents by the Company or any of its Subsidiaries (other than as
described in clause (i), (ii), (iii), (iv) or (v)) and such failure to
observe or perform continues for a period of 60 days after there has
been given to the Company by the Trustee, or has been received by the
Company and the Trustee from the Holders of at least 25% of the
principal amount of the Securities then outstanding, a written notice
specifying such default, demanding that it be remedied and stating
that the notice is a "Notice of Default", unless, with respect to
defaults under the Security Documents, the remedy or cure of such
default requires work to be performed, acts to be done or conditions
to be removed which cannot, by their nature, reasonably be performed,
done or removed within such 60-day period, or if such remedy or cure
is prevented by causes outside of the control or responsibility of the
Company, or its Subsidiaries, as the case may be, in which

<PAGE> 91

case no "Event of Default" shall be deemed to exist until the date
that is 90 days after such written notice so long as the Company or
its Subsidiaries, as the case may be, shall have commenced cure within
such 90-day period and shall diligently prosecute the same to
completion; or

(vii) a default in the payment of principal at final
maturity under any bond, debenture, note or other evidence of Debt,
including any mortgage, indenture or instrument (other than this
Indenture or the Securities) under which there may be issued or by
which there may be secured or evidenced any Debt of the Company or any
of its Recourse Subsidiaries (or the payment of which is Guaranteed
now or hereafter by the Company or any of its Recourse Subsidiaries),
whether such Debt or Guarantee now exists or shall hereafter be
created, which default shall constitute a failure to pay any portion
of the principal of such Debt in a principal amount of at least
$2,000,000 when due and payable after the expiration of any applicable
grace period with respect thereto; or

(viii) a default under any bond, debenture, note or other
evidence of Debt, including any mortgage, indenture or instrument
(other than this Indenture or the Securities) under which there may be
issued or by which there may be secured or evidenced any Debt
(including any interest thereon) of the Company or its Recourse
Subsidiaries or the payment of which is Guaranteed now or hereafter by
the Company or any of its Recourse Subsidiaries, whether such Debt or
Guarantee now exists or shall hereafter be created if (i) as a result
of such event of default the maturity of such Debt has been
accelerated prior to its stated maturity and (ii) the principal amount
of such Debt, together with the principal amount of any other Debt of
the Company and its Recourse Subsidiaries the maturity of which has
been so accelerated, aggregates $5,000,000 or more; or

(ix) the Company or any Subsidiary (other than a
Non-Recourse Subsidiary, unless such action or proceeding has a
Material Adverse Effect on the interests of the Company or any
Recourse Subsidiary) pursuant to or within the meaning of any
Bankruptcy Law: (a) commences a voluntary case or proceeding; (b)
consents to the entry of an order for relief against it in an
involuntary case or proceeding; (c) consents to the appointment of a
Custodian of it or for all or substantially all of its property; (d)
makes a general assignment for the benefit of its creditors; or (e)
admits in writing its inability to pay its debts as the same become
due; or

(x) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that remains unstayed and in effect
for 60 days and: (a) is for relief against the Company or any
Subsidiary in an involuntary case; (b) appoints a Custodian of the
Company or any Subsidiary for all or substantially all of its
property; or (c) orders the liquidation of the Company or any
Subsidiary; provided, that clauses (a), (b) and (c) shall not apply to
a Non-

<PAGE> 92

Recourse Subsidiary, unless such action or proceeding has a Material
Adverse Effect on the interests of the Company or any Recourse
Subsidiary; or

(xi) the Company or any Recourse Subsidiary shall fail to
discharge any one or more judgments not covered by insurance (from
which no further appeal may be taken) in excess of $1,000,000, and
either (A) an enforcement proceeding has been commenced by any
creditor upon such judgments or (B) such judgments shall remain in
force, undischarged, unsatisfied, unstayed and unbonded for more than
30 days; or

(xii) the Security Documents shall cease, for any reason,
to be in full force and effect or shall cease to be effective to grant
a perfected Lien on the Collateral with the priority purported to be
created thereby (unless the cessation of effectiveness is due to the
failure by the Trustee (or any agent or representative of the Trustee)
to file continuation statements or similar filings or due to the gross
negligence of the Trustee) with respect to any Collateral that,
individually or in the aggregate, represents more than 1% of the book
value of the consolidated assets of the Company and the Resource
Subsidiaries constituting Collateral or is material to the lines of
business in which the Company and the Recourse Subsidiaries are
engaged; or

(xiii) cessation of all or any portion of the Subsidiary
Guarantee to be in full force and effect or the declaration of all or
any portion of the Subsidiary Guarantee to be null and void and
unenforceable or the finding that all or any portion of the Subsidiary
Guarantee to be invalid on the denial of any Subsidiary of its
liability under the Subsidiary Guarantee (other than by reason of
release of a Subsidiary in accordance with its terms).

SECTION 8.2. Acceleration of Maturity; Rescission and Annulment.

If an Event of Default (other than an Event of Default
specified in subparagraph (ix) or (x) of Section 8.1) occurs and is continuing,
then and in every such case the Trustee or the Holders of at least 25% of the
principal amount of the Outstanding Securities may declare the principal amount
and accrued interest on all the Securities to be immediately due and payable,
by a notice in writing to the Company (and to the Trustee if given by the
Holders), and upon any such declaration such principal shall become immediately
due and payable. If an Event of Default specified in clause (ix) or (x) of
Section 8.1 occurs, the principal amount and accrued interest shall ipso facto
become and be immediately due and payable on all Outstanding Securities without
any declaration or other act on the part of the Trustee or any Holder.

At any time after such a declaration of acceleration has been
made and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter in this Article provided, the Holders of
a majority in principal

<PAGE> 93

amount of the Outstanding Securities, by written notice to the Company and the
Trustee, may rescind and annul such declaration and its consequences if:

(i) the Company has paid or deposited with the Trustee a
sum sufficient to pay:

(a) all overdue interest on all Securities;

(b) the principal of any Securities which have
become due otherwise than by such declaration of acceleration
and interest thereon at the rate borne by the Securities;

(c) to the extent that payment of such interest is
lawful, interest up on overdue interest at the rate borne by
the Securities; and

(d) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and

(ii) all Events of Default, other than the non-payment of
the principal of Securities which have become due solely by such
declaration of acceleration, have been cured or waived as provided in
Section 8.13.

No such rescission shall affect any subsequent default or impair any right
consequent thereon.

SECTION 8.3. Collection of Debt and Suits for Enforcement by Trustee.

The Company covenants that if:

(i) default is made in the payment of any interest on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days; or

(ii) default is made in the payment of the principal of
any Security on a Maturity Date,

the Company will, upon demand of the Trustee, pay to it, for the benefit of the
Holders of such Securities, the whole amount then due and payable on such
Securities for principal and interest, and, to the extent that payment of such
interest shall be legally enforceable, interest on any overdue principal and on
any overdue interest, at the rate set forth in Section 6.1, and, in addition
thereto, such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.

<PAGE> 94

If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or the
Security Documents or in aid of the exercise of any power granted herein, or to
enforce any other proper remedy.

Each Holder, by accepting a Security, acknowledges that the
exercise of remedies by the Trustee with respect to the Collateral is subject
to the terms and conditions of the Security Documents and the proceeds received
upon realization of the Collateral shall be applied by the Trustee in
accordance with Section 8.6.

SECTION 8.4. Trustee May File Proofs of Claims.

In case of any judicial proceeding relative to the Company (or
any other obligor upon the Securities), its property or its creditors, the
Trustee shall be entitled and empowered, by intervention in such proceeding or
otherwise, to take any and all actions authorized under the Trust Indenture Act
in order to have claims of the Holders and the Trustee allowed in any such
proceeding. In particular, the Trustee shall be authorized to collect and
receive any moneys or other property payable or deliverable on any such claims
and to distribute the same; and any custodian, receiver, assignee, trustee,
liquidator, sequestrator or other similar official in any such judicial
proceeding is hereby authorized by each Holder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Holders, to pay to the Trustee any amount due it for
the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee under
this Article VIII and Section 9.7.

No provision of this Indenture shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.

SECTION 8.5. Trustee May Enforce Claims Without Possession of Securities.

All rights of action and claims under this Indenture, the
Security Documents, or the Securities may be prosecuted and enforced by the
Trustee without the possession of any of the Securities or the production
thereof in any proceeding relating thereto, and any such proceeding instituted
by the Trustee shall be brought in its own name as trustee of an express trust,
and any recovery of judgment shall, after provision for the payment of the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel, be for the ratable

<PAGE> 95

benefit of the Holders of the Securities in respect of which such judgment has
been recovered.

SECTION 8.6. Application of Money Collected.

Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
(and premium, if any) or interest, upon presentation of the Securities and the
notation thereon of the payment if only partially paid and upon surrender
thereof if fully paid:

FIRST: To the payment of all amounts due the Trustee
under this Article VIII and Section 9.7 and, in its capacity
as Collateral Agent, for amounts due under the Security
Documents;

SECOND: To the payment of unpaid interest accrued on
the Securities in respect of which or for the benefit of which
such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable
on such Securities for interest;

THIRD: To the payment of the unpaid principal of the
Securities in respect of which or for the benefit of which
such money has been collected, ratably, without preference or
priority of any kind, according to the amounts due and payable
on such Securities for principal;

FOURTH: To the payment of the unpaid premium in
respect of which or for the benefit of which such money has
been collected, ratably, without preference or priority of any
kind, according to the amounts due and payable on such
Securities for principal; and

FIFTH: To the Company or any other obligors on the
Securities, as their interests may appear, or as a court of
competent jurisdiction may direct.

SECTION 8.7. Limitation on Suits.

Except as provided in Section 8.8, no Holder of any Security
shall have any right to institute any proceeding, judicial or otherwise, with
respect to this Indenture or the Security Documents, or for the appointment of
a receiver or trustee, or for any other remedy hereunder, unless:

<PAGE> 96

(i) such Holder has previously given written notice to
the Trustee of a continuing Event of Default;

(ii) the Holders of at least 25% in principal amount of
the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;

(iii) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to be
incurred in compliance with such request;

(iv) the Trustee for 15 days after its receipt of such
notice, request and offer of indemnity has failed to institute any
such proceeding; and

(v) no direction inconsistent with such written request
has been given to the Trustee during such 15- day period by the
Holders of a majority in principal amount of the Outstanding
Securities;

it being understood and intended that no one or more Holders shall have any
right in any manner whether by virtue of, or by availing of, any provision of
this Indenture or the Security Documents to affect, disturb or prejudice the
rights of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this Indenture
or the Security Documents, except in the manner herein provided and for the
equal and ratable benefit of all the Holders.

The foregoing limitations shall not apply to a suit instituted
by a Holder for the enforcement of the payment of principal of (and premium, if
any) or accrued interest on such Securities on or after the respective due
dates set forth in such Securities.

SECTION 8.8. Unconditional Right of Holders to Receive Principal and
Interest.

Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of (and premium, if any) and
(subject to Section 3.7) interest on such Security on the respective Maturity
Dates expressed in such Security and to institute suit for the enforcement of
any such payment, and such rights shall not be impaired or affected without the
consent of such Holder, except to the extent that the institution or
prosecution of such suit or entry of judgment therein would, under applicable
law, result in the surrender, impairment or waiver of the Lien of this
Indenture and the Security Documents upon the Collateral.

<PAGE> 97

SECTION 8.9. Restoration of Rights and Remedies.

If the Trustee or any Holder has instituted any proceeding to
enforce any right or remedy under this Indenture or the Security Documents and
such proceeding has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every such
case, subject to any determination in such proceeding, the Company, the Trustee
and the Holders shall be restored severally and respectively to their former
positions hereunder and thereafter all rights and remedies of the Trustee and
the Holders shall continue as though no such proceeding had been instituted.

SECTION 8.10. Rights and Remedies Cumulative.

Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 3.6, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other right
or remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent
the concurrent assertion or employment of any other appropriate right or
remedy.

SECTION 8.11. Delay or Omission Not Waiver.

No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.

SECTION 8.12. Control by Holders.

The Holders of a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee under this Indenture or
the Security Documents or available at law or equity; provided, that the
Trustee may refuse to follow any direction that:

(i) conflicts with any rule of law or with this Indenture
or the Security Documents;

<PAGE> 98

(ii) the Trustee determines may be unduly prejudicial to
the rights of another Holder; or

(iii) may involve the Trustee in personal liability unless
the Trustee has indemnification satisfactory to it in its sole
discretion against any loss or expense caused by it following such
directions;

provided, further, that the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.

SECTION 8.13. Waiver of Past Defaults.

The Holders of a majority in principal amount of the
Outstanding Securities may on behalf of the Holders of all the Securities waive
any past default hereunder and its consequences, except a default

(i) in the payment of the principal of (or premium, if
any) or interest on any Security; or

(ii) in respect of a covenant or provision hereof which
under Article XI cannot be modified or amended without the consent of
the Holder of each Outstanding Security affected by such a
modification or amendment.

Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.

SECTION 8.14. Undertaking for Costs.

In any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, a court may require any party litigant in
such suit to file an undertaking to pay the costs of such suit, and may assess
reasonable costs, including reasonable attorneys' fees, against any such party
litigant, in the manner and to the extent provided in the Trust Indenture Act;
provided, that neither this Section nor the Trust Indenture Act shall be deemed
to authorize any court to require such an undertaking or to make such an
assessment in any suit instituted by the Trustee, a suit by a Holder pursuant
to Section 8.8, or a suit by a Holder or Holders of more than 10% in aggregate
principal amount of the Outstanding Securities.

<PAGE> 99

SECTION 8.15. Collection Suit by Trustee.

If an Event of Default specified in Section 8.1(i) or 8.1(ii)
or 8.1(iii) occurs and is continuing, the Trustee may recover judgment in its
own name and as trustee of an express trust against the Company (or any other
obligor upon the Securities) for the whole amount of principal and accrued
interest remaining unpaid, together with interest overdue on principal and, to
the extent that payment of such interest is lawful, interest on overdue
installments of interest, in each case at the default rate set forth in Section
6.1, and such further amount as shall be sufficient to cover the costs and
expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.

ARTICLE IX

THE TRUSTEE

SECTION 9.1. Certain Duties and Responsibilities.

The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act. Notwithstanding the foregoing, no
provision of this Indenture shall require the Trustee to expend or risk its own
funds or otherwise incur any financial liability in the performance of any of
its duties hereunder, or in the exercise of any of its rights or powers, if it
shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section
9.1. If an Event of Default has occurred and is continuing, the Trustee shall
exercise such of the rights and powers vested in it by this Indenture and the
Security Documents and use the same degree of care and skill in its exercise as
a prudent Person would exercise or use under the circumstances in the conduct
of its own affairs.

SECTION 9.2. Notice of Defaults.

The Trustee shall give the Holders notice of any default
hereunder as and to the extent provided by Section 315(b) of the Trust
Indenture Act. Except in the case of a Default or an Event of Default in
payment of principal of or interest on any Security (including the failure to
make payments with respect to redemptions, Asset Sale Offers or a Change of
Control Offer), the Trustee may withhold the notice if and so long as the
Trustee in good faith determines that withholding the notice is in the interest
of Holders.

<PAGE> 100

SECTION 9.3. Certain Rights of Trustee.

Subject to Sections 315(a) through (d) of the Trust Indenture
Act, the terms of which are hereby incorporated herein by this reference:

(a) the Trustee may rely and shall be protected in acting
or refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been signed
or presented by the proper party or parties;

(b) any request or direction of the Company mentioned
herein shall be sufficiently evidenced by a Company Request or Company
Order and any resolution of the Board of Directors may be sufficiently
evidenced by a Board Resolution;

(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate;

(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;

(e) the Trustee shall be under no obligation to exercise
any of the rights or powers vested in it by this Indenture at the
request or direction of any of the Holders pursuant to this Indenture,
unless such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which might be incurred by it in compliance with such request or
direction;

(f) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the Trustee, in its
discretion, may make such further inquiry or investigation into such
facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company,
personally or by agent or attorney;

<PAGE> 101

(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and

(h) subject to Section 11.2 hereof, the Trustee may (but
shall not be obligated to), without the consent of the Holders, give
any consent, waiver or approval required under the Security Documents
or by the terms hereof with respect to the Collateral, but shall not
without the consent of the Holders of a majority in aggregate
principal amount of the Outstanding Securities at the time (i) give
any consent, waiver or approval or (ii) agree to any amendment or
modification of the Security Documents, in each case, that shall have
an adverse effect on the interests of any Holder. The Trustee shall
be entitled to request and conclusively rely on an Opinion of Counsel
with respect to whether any consent, waiver, approval, amendment or
modification shall have an adverse effect on the interests of any
Holder.

SECTION 9.4. Not Responsible for Recitals or Issuance of Securities.

The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee shall not be
accountable for the use or application by the Company of Securities or the
proceeds thereof.

SECTION 9.5. May Hold Securities.

The Trustee, any Authenticating Agent, any Paying Agent, any
Security Registrar or any other agent of the Company, in its individual or any
other capacity, may become the owner or pledgee of Securities and, subject to
Section 9.8 and 9.13, may otherwise deal with the Company with the same rights
it would have if it were not Trustee, Authenticating Agent, Paying Agent,
Security Registrar or such other agent.

SECTION 9.6. Money Held in Trust.

Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed in writing with the Company.

<PAGE> 102

SECTION 9.7. Compensation and Reimbursement.

The Company agrees:

(i) to pay to the Trustee from time to time reasonable
compensation for all services rendered by it hereunder and under the
Security Documents (which compensation shall not be limited by any
provision of law in regard to the compensation of a trustee of an
express trust);

(ii) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture or the Security
Documents (including the reasonable compensation and the expenses and
disbursements of its agents and counsel), except any such expense,
disbursement or advance as may be attributable to its negligence or
bad faith; and

(iii) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this Indenture or the Security
Documents, including the costs and expenses of defending itself
against any claim or liability in connection with the exercise or
performance of any of its powers or duties hereunder or thereunder.

The Trustee shall notify the Company promptly of any claim
asserted against it for which it may seek indemnity.

As security for the performance of the obligations of the
Company under this Section the Trustee shall have a Lien prior to the
Securities on all properties and funds held or collected by the Trustee as
such, except funds held in trust for the payment of principal of (or premium,
if any) or interest on particular Securities.

If the Trustee incurs expenses or renders services after an
Event of Default specified in Section 8.1(ix) or (x) occurs, the expenses and
compensation for the services will be intended to constitute expenses of
administration under any applicable Bankruptcy Law or other similar law.

The Company's obligations under this Section 9.7 and any Lien
arising hereunder shall survive the resignation or removal of any Trustee, the
discharge of the Company's obligations pursuant to Articles IV or XIV of this
Indenture and/or the termination of this Indenture. Furthermore, the Holders
shall be subrogated to the rights of the Trustee under this Section 9.7, and
this Section 9.7 shall enure to the benefit of the Holders in connection with
any actions by the Holders as permitted under Sections 8.7 and 8.8.

<PAGE> 103

SECTION 9.8. Disqualification; Conflicting Interests.

If the Trustee has or shall acquire a conflicting interest
within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee
shall either eliminate such interest or resign, to the extent and in the manner
provided by, and subject to the provisions of, the Trust Indenture Act and this
Indenture.

SECTION 9.9. Corporate Trustee Required; Eligibility.

There shall at all times be a Trustee hereunder which shall be
a Person that is eligible pursuant to Section 310(a) of the Trust Indenture Act
to act as such and has a combined capital and surplus of at least $50,000,000
and its Corporate Trust Office in Columbus, Ohio. If such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of any supervising or examining authority, then for the purposes of this
Section 9.9, the combined capital and surplus of such Person shall be deemed to
be its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section 9.9, it shall resign
immediately in the manner and with the effect hereinafter specified in this
Article.

SECTION 9.10. Resignation and Removal; Appointment of Successor.

(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 9.11.

(b) The Trustee may resign at any time by giving written
notice thereof to the Company. If an instrument of acceptance by a successor
Trustee shall not have been delivered to the Trustee within 30 days after the
giving of such notice of resignation, the resigning Trustee may petition any
court of competent jurisdiction for the appointment of a successor Trustee.

(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.

(d) If at any time:

(i) the Trustee shall fail to comply with Section
9.8 after written request therefor by the Company or by any Holder who
has been a bona fide Holder of a Security for at least six months; or

<PAGE> 104

(ii) the Trustee shall cease to be eligible under
Section 9.9 and shall fail to resign after written request therefor by
the Company or by any such Holder; or

(iii) the Trustee shall become incapable of acting
or shall be adjudged a bankrupt or insolvent, or a receiver of the
Trustee or of its property shall be appointed or any public officer
shall take charge or control of the Trustee or of its property or
affairs for the purpose of rehabilitation, conservation or
liquidation;

then, in any such case, (1) the Company by a Board Resolution may remove the
Trustee, or (2) subject to Section 8.14, any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.

(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, the Company, by a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner
hereinafter provided, any Holder who has been a bona fide Holder of a Security
for at least six months may, on behalf of himself and all others similarly
situated, petition any court of competent jurisdiction for the appointment of a
successor Trustee.

(f) The Company shall give notice of each resignation and
each removal of the Trustee and each appointment of a successor Trustee to all
Holders in the manner provided in Section 1.6. Each notice shall include the
name of the successor Trustee and the address of its Corporate Trust Office.

(g) Any resignation or removal of the Trustee pursuant to
this Indenture shall be deemed to be a resignation or removal of the Trustee in
its capacity as Collateral Agent under the Security Documents and any
appointment of a successor Trustee pursuant to this Indenture shall be deemed
to be an appointment of a successor Collateral Agent under the Security
Documents and such successor shall assume all of the obligations of the Trustee
in its capacity as Collateral Agent under the Security Documents.

<PAGE> 105

SECTION 9.11. Acceptance of Appointment by Successor.

Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Company and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or removal
of the retiring Trustee shall become effective and such successor Trustee,
without any further act, deed or conveyance, shall become vested with all the
rights, powers, trusts and duties of the retiring Trustee; but, on request of
the Company or the successor Trustee, such retiring Trustee shall, upon payment
of its charges, execute and deliver an instrument transferring to such
successor Trustee all the rights, powers and trusts of the retiring Trustee and
shall duly assign, transfer and deliver to such successor Trustee all property
and money held by such retiring Trustee hereunder, subject nevertheless to its
Lien, if any, provided for in Section 9.7. Upon request of any such successor
Trustee, the Company shall execute any and all instruments for more fully and
certainly vesting in and confirming to such successor Trustee all such rights,
powers and trusts.

No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.

SECTION 9.12. Merger, Conversion, Consolidation or Succession to Business.

Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee hereunder;
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities.

SECTION 9.13. Preferential Collection of Claims Against Company.

If and when the Trustee shall be or become a creditor of the
Company (or any other obligor upon the Securities), the Trustee shall be
subject to the provisions of Section 311 of the Trust Indenture Act regarding
the collection of claims against the Company (or any such other obligor).

<PAGE> 106

SECTION 9.14. Appointment of Authenticating Agent.

The Trustee may appoint an Authenticating Agent or Agents
which shall be authorized to act on behalf of the Trustee to authenticate
Securities issued upon original issue and upon exchange, registration of
transfer or partial repurchase or pursuant to Section 3.6, and Securities so
authenticated shall be entitled to the benefits of this Indenture and shall be
valid and obligatory for all purposes as if authenticated by the Trustee
hereunder. Wherever reference is made in this Indenture to the authentication
and delivery of Securities by the Trustee or the Trustee's certificate of
authentication, such reference shall be deemed to include authentication and
delivery on behalf of the Trustee by an Authenticating Agent and a certificate
of authentication executed on behalf of the Trustee by an Authenticating Agent.
Each Authenticating Agent shall be acceptable to the Company and shall at all
times be a corporation organized and doing business under the laws of the
United States of America, any State thereof or the District of Columbia,
authorized under such laws to act as Authenticating Agent, having a combined
capital and surplus of not less than $50,000,000 and subject to supervision or
examination by Federal or State authority. If such Authenticating Agent
publishes reports of condition at least annually, pursuant to law or to the
requirements of said supervising or examining authority, then for the purposes
of this Section 9.14, the combined capital and surplus of such Authenticating
Agent shall be deemed to be its combined capital and surplus as set forth in
its most recent report of condition so published. If at any time an
Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 9.14, such Authenticating Agent shall resign
immediately in the manner and with the effect specified in this Section.

Any corporation into which an Authenticating Agent may be
merged or converted or with which it may be consolidated, or any corporation
resulting from any merger, conversion or consolidation to which such
Authenticating Agent shall be a party, or any corporation succeeding to the
corporate agency or corporate trust business of an Authenticating Agent, shall
continue to be an Authenticating Agent, provided such corporation shall be
otherwise eligible under this Section 9.14, without the execution or filing of
any paper or any further act on the part of the Trustee or the Authenticating
Agent.

An Authenticating Agent may resign at any time by giving
written notice thereof to the Trustee and to the Company. The Trustee may at
any time terminate the agency of an Authenticating Agent by giving written
notice thereof to such Authenticating Agent and to the Company. Upon receiving
such a notice of resignation or upon such a termination, or in case at any time
such Authenticating Agent shall cease to be eligible in accordance with the
provisions of this Section 9.14, the Trustee may appoint a successor
Authenticating Agent which shall be acceptable to the Company and shall mail
written notice of such appointment by first- class mail, postage prepaid, to
all Holders as their names and addresses appear in the Security Register. Any
successor Authenticating Agent upon acceptance of its appointment hereunder
shall become vested with all the rights, powers and duties of its

<PAGE> 107

predecessor hereunder, with like effect as if originally named as an
Authenticating Agent. No successor Authenticating Agent shall be appointed
unless eligible under the provisions of this Section 9.14.

The Trustee agrees to pay to each Authenticating Agent from
time to time reasonable compensation for its services under this Section 9.14,
and the Trustee shall be entitled to be reimbursed for such payments, subject
to the provisions of Section 9.7.

If an appointment is made pursuant to this Section 9.14, the
Securities may have endorsed thereon, in addition to the Trustee's certificate
of authentication, an alternative certificate of authentication in the
following form:

This is one of the Securities described in the
within-mentioned Indenture.

TRUSTEE'S CERTIFICATE OF
AUTHENTICATION
This is one of the Securities
issued under the Indenture
described herein.

HUNTINGTON NATIONAL BANK,
As Trustee

By_______________________________
As Authenticating Agent

By_______________________________
Authorized Signor

ARTICLE X

HOLDERS' LISTS AND REPORTS BY TRUSTEE AND COMPANY

SECTION 10.1. Company to Furnish Trustee Names and Addresses of Holders.

The Company will furnish or cause to be furnished to the
Trustee:

(i) semi-annually, not more than 15 days after each
Regular Record Date, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of
such Regular Record Date; and

<PAGE> 108

(ii) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Company of any such
request, a list of similar form and content as of a date not more than
15 days prior to the time such list is furnished;

provided, no such list need be furnished if the Trustee is acting as Security
Registrar.

SECTION 10.2. Preservation of Information; Communications to Holders.

(a) The Trustee shall preserve, in as current a form as
is reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 10.1 and the
names and addresses of Holders received by the Trustee in its capacity as
Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 10.1 upon receipt of a new list so furnished.

(b) The rights of Holders to communicate with other
Holders with respect to their rights under this Indenture or under the
Securities, and the corresponding rights and duties of the Trustee, shall be as
provided by Section 312 of the Trust Indenture Act.

(c) Every Holder of Securities, by receiving and holding
the same, agrees with the Company and the Trustee that neither the Company nor
the Trustee nor any agent of either of them shall be held accountable by reason
of any disclosure of information as to names and addresses of Holders made
pursuant to Section 312 of the Trust Indenture Act.

SECTION 10.3. Reports by Trustee.

(a) Within 60 days after each ___ __ beginning with ___
__, 1995, the Trustee shall transmit to Holders such reports concerning the
Trustee and its actions under this Indenture as may be required pursuant to
Section 313 of the Trust Indenture Act at the times and in the manner provided
pursuant thereto.

(b) A copy of each such report shall, at the time of such
transmission to Holders, be filed by the Trustee with each stock exchange upon
which the Securities are listed, with the Commission and with the Company. The
Company will notify the Trustee when the Securities are listed on any stock
exchange.

<PAGE> 109

SECTION 10.4. Reports by Company.

The Company shall file with the Trustee and the Commission,
and transmit to Holders, such information, documents and other reports, and
such summaries thereof, as may be required pursuant to Section 314 of the Trust
Indenture Act at the times and in the manner provided pursuant to such Act;
provided, that any such information, documents or reports required to be filed
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act shall
be filed with the Trustee within 5 days after the same shall be so required to
be filed with the Commission; provided further that if the Company is not
subject to the periodic reporting and information requirements of the Exchange
Act, it will provide to Holders annual reports containing audited consolidated
financial statements and an opinion thereon by the Company's independent
certified public accountants, and quarterly reports for the first three
quarters of each fiscal year containing unaudited condensed consolidated
financial statements.

ARTICLE XI

SUPPLEMENTAL INDENTURES

SECTION 11.1. Supplemental Indentures without Consent of Holders.

Without the consent of any Holders, the Company and the
Recourse Subsidiaries (if a party thereto), when authorized by a Board
Resolution, and the Trustee and the Collateral Agent (if a party thereto) from
time to time, may enter into one or more indentures supplemental hereto or
amendments to the Security Documents or the Securities, in form satisfactory to
the Trustee, for any of the following purposes:

(i) to evidence the succession of another Person to the
Company or any Subsidiary of the Company and the assumption by any
such successor of the covenants of the Company or such Subsidiary, as
the case may be, herein and in the Securities; or

(ii) to add to the covenants of the Company for the
benefit of the Holders, or to surrender any right or power herein
conferred upon the Company; or

(iii) to comply with any requirements of the Commission in
order to maintain the qualification of this Indenture under the Trust
Indenture Act, as contemplated by Section 11.5; or

(iv) to pledge or grant a security interest in favor of
the Collateral Agent as additional security for the payment and
performance of (A) the Company's obligations with respect to this
Indenture, (B) the

<PAGE> 110

Recourse Subsidiaries' obligations with respect to the Subsidiary
Guarantee or (C) the Steelmaking Subsidiaries with respect to the
Intercompany Notes, in any property or assets, including any that are
required to be mortgaged, pledged or hypothecated or in which a
security interest is required to be granted, to the Collateral Agent
pursuant to the Security Documents or otherwise; or

(v) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be inconsistent
with the provisions of this Indenture; provided, that such action
pursuant to this Clause (v) shall not adversely affect the interests
of the Holders; or

(vi) to evidence the full release and discharge of a
Subsidiary under the Indenture, the Securities and the Security
Documents upon the sale or other disposition of all of the capital
stock of the Subsidiary or all or substantially all of its assets and
all terms and conditions contained in this Indenture relating to such
sale or other disposition have been complied with in all respects; or

(vii) to reflect any Permitted Related Acquisition pursuant
to Section 6.15(b) or any transfer of assets pursuant to Section 6.12,
or any other release or transfer of property or assets which is
permitted by this Indenture.

SECTION 11.2. Supplemental Indentures with Consent of Holders.

(a) With the consent of the Holders of not less than a
majority in principal amount of the Outstanding Securities, by Act of said
Holders delivered to the Company and the Trustee, the Company, when authorized
by a Board Resolution, the Recourse Subsidiaries (if a party thereto), the
Collateral Agent (if a party thereto) and the Trustee may enter into an
indenture or indentures supplemental hereto or amendments, waivers and
modifications to the Security Documents for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture, the Securities or the Security Documents or of modifying in any
manner the rights of the Holders under this Indenture, the Securities or the
Security Documents; provided, however, that no such supplemental indenture
shall, without the consent of the Holder of each Outstanding Security affected
thereby:

(i) change the Stated Maturity of the principal of, or
any installment of interest on, any Security, or alter the redemption
provisions or reduce the principal amount thereof or the rate of
interest

<PAGE> 111

thereon, or change the time or place of payment where, or the coin or
currency in which, any Security or premium or interest thereon is
payable, impair the right to institute suit for the enforcement of any
such payment on or after the Maturity Date thereof; or

(ii) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of this
Indenture, the Securities or the Security Documents or certain
defaults hereunder or thereunder and their consequences) or the
consent of whose Holders is required to take any action under the
Indenture, the Securities or the Security Documents; or

(iii) modify the provisions of Section 6.15 or 6.18; or

(iv) modify any of the provisions of this Section 11.2 or
Section 8.8 or 8.13, except to increase any such percentage or to
provide that certain other provisions of this Indenture cannot be
modified or waived without the consent of the Holder of each
Outstanding Security affected thereby; or

(v) affect the ranking of the Securities, the Subsidiary
Guarantee or the Liens in favor of the Trustee, the Collateral Agent
and the Holders in a manner adverse to the Holders or release all or
substantially all of the Collateral.

(b) It shall not be necessary for any Act of Holders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such Act shall approve the substance
thereof.

(c) After an amendment, supplement or waiver under this
Section 11.2 becomes effective, the Company shall mail to the Holders affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amendment,
supplement or waiver.

SECTION 11.3. Execution of Supplemental Indentures.

In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 9.1) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such

<PAGE> 112

supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.

SECTION 11.4. Effect of Supplemental Indentures.

Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Securities theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.

SECTION 11.5. Conformity with Trust Indenture Act.

Every supplemental indenture executed pursuant to this Article
shall conform to the requirements of the Trust Indenture Act.

SECTION 11.6. Reference in Securities to Supplemental Indentures.

Securities authenticated and delivered after the execution of
any supplemental indenture pursuant to this Article may, and shall if required
by the Trustee, bear a notation in form approved by the Trustee as to any
matter provided for in such supplemental indenture. If the Company shall so
determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Company, to any such supplemental indenture may be prepared and
executed by the Company and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.

ARTICLE XII

COLLATERAL AND SECURITY

SECTION 12.1. Collateral and Security Documents.

(a) In order to secure the due and punctual payment of the
principal of (and premium, if any) and interest on the Securities when and as
the same shall be due and payable, whether on an Interest Payment Date,
Maturity Date, by acceleration, redemption or otherwise, and interest on the
overdue principal of (and premium, if any) and interest (to the extent
permitted by law), if any, on the Securities and the performance of all other
obligations of the Company to the Holders or the Trustee under this Indenture
and the Securities (the "Company Obligations"), the Company and the Trustee
have simultaneously with the execution of this Indenture entered into the
Pledge Agreement pursuant to which the Company has granted to

<PAGE> 113

the Trustee, in its capacity as Collateral Agent, for the benefit of the
Holders, a first priority Lien on and security interest in the Collateral
described therein, subject to the exceptions permitted by Section 6.10.
Simultaneously with the execution of the Indenture, or if later, the date on
which a Person becomes a Subsidiary of the Company (with the exception of
Non-Recourse Subsidiaries), each Subsidiary of the Company shall guarantee the
Company Obligations pursuant to the Subsidiary Guarantee. On the Issue Date,
each of the Steelmaking Subsidiaries of the Company shall enter into a
Subsidiary Security Agreement and Mortgages (if such Subsidiary holds title to
or leases real property) to secure its obligations under the Subsidiary
Guarantee, pursuant to which such Subsidiary shall grant to the Trustee for the
benefit of the Holders a first priority Lien on and security interest in the
Collateral described in such Subsidiary Security Agreement or Mortgage(s),
subject to the exceptions permitted by Section 6.10. On the Issue Date, each
of the Steelmaking Subsidiaries of the Company shall enter into an ICN Security
Agreement and an ICN Mortgage(s) (if such Subsidiary holds title to or leases
real property) to secure its obligations under its executed Intercompany Note,
pursuant to which such Subsidiary shall grant to the Company a second priority
Lien on and security interest in the Collateral described in such ICN Security
Agreement or ICN Mortgage(s), subject to the exceptions permitted by Section
6.10. Subsequent to the Issue Date, the Company shall cause newly-formed or
acquired Subsidiaries of the Company (with the exception of Non-Recourse
Subsidiaries) to execute, as soon as practicable, a supplement to the
Subsidiary Guarantee to become a party thereunder and any further security
agreements (substantially in the form of the Subsidiary Security Agreement),
Mortgages, or other agreements (including any filings) necessary to create an
effective security interest in the entirety of their real property, machinery,
equipment (including, without limitation, (i) furniture, furnishings, tools,
lubricants, spare parts, shelving, displays, cases, accessories, motors and
engines, (ii) all attachments, components, parts and accessories installed
thereon or affixed thereto and (iii) equipment and fixtures, as such terms are
defined in the Uniform Commercial Code as from time to time is in effect in the
State of New York), Patents, Patent Licenses, Trade Secrets, Trademarks,
Trademark Licenses and proceeds thereof. In the event the Company becomes the
owner of the types of assets referred to in the immediately preceding the
sentence for any reason whatsoever, the Company shall execute and deliver as
soon as practicable a security agreement (substantially in the form of the
Subsidiary Security Agreement) and/or mortgages (substantially in the form of
the Mortgages) or other agreements (including any filings) necessary to create
an effective security interest in favor of the Collateral Agent for the benefit
of the Holders to secure the Company's obligations arising in connection with
the Securities or the Security Documents. The Trustee, the Company and the
Subsidiaries hereby agree that the Trustee, as Collateral Agent, holds the
Collateral in trust for the benefit of the Holders pursuant to the terms of the
Security Documents.

(b) The Trustee is authorized and directed by the Holders to
enter into and comply with the provisions of the Intercreditor Agreement.
Compliance with the Intercreditor Agreement shall in no event serve as the
basis for any claim by the

<PAGE> 114

Company or any other party having an interest in the Collateral that the
Collateral was sold or otherwise disposed of in a commercially unreasonable
manner. The Trustee is authorized to execute and deliver the documents
referred to in Section [ ] of the Intercreditor Agreement upon receipt of
such documents and an Officer's Certificate and an Opinion of Counsel, each to
the effect that such documents comply with the requirements of the
Intercreditor Agreement and the conditions contained herein with respect to the
execution of such documents have been complied with and that such documents do
not release property subject to the Lien of this Indenture or the Security
Documents in contravention of the provisions of this Indenture or such Security
Documents.

(c) [The Trustee, as Collateral Agent, is authorized and
directed by the Holders to obtain a written consent of the Commonwealth of
Pennsylvania, acting by and through its Department of Commerce, with respect to
Pennsylvania's security interest in and mortgages on certain of the property of
Koppel Steel Corporation. The Trustee, as Collateral Agent, is authorized and
directed by the Holders to enter into a subordination agreement with the City
of Dayton, Kentucky in which a mortgage on certain property and security
interests held by Dayton in certain machinery and equipment of Newport Steel
Corporation will be subordinated to the Liens in favor of the Holders.]

(d) Each Holder, by accepting a Security, agrees to all of
the terms and provisions of the Security Documents, as the same may be amended
from time to time pursuant to the provisions of the Security Documents and this
Indenture.

SECTION 12.2. Recording and Opinions.

(a) The Company shall, and shall cause its Subsidiaries, as
soon as practicable to take or cause to be taken all action required to
perfect, maintain, preserve and protect the Liens on and security interests in
the Collateral, subject to the exceptions set forth in Section 6.10, granted by
the Security Documents, including without limitation, the filing of financing
statements, continuation statements and any instruments of further assurance,
in such manner and in such places as may be required by law fully to preserve
and protect the rights of the Holders and the Trustee under this Indenture and
the Security Documents (and the Company with respect to the ICN Security
Agreements and ICN Mortgages) to all property comprising the Collateral. The
Company shall from time to time promptly pay all financing and continuation
statement recording and/or filing fees, charges and taxes relating to this
Indenture and the Security Documents, any amendments thereto and any other
instruments of further assurance required pursuant to the Security Documents.

(b) The Company shall furnish to the Trustee promptly after
the time of execution and delivery of this Indenture, Opinion(s) of Counsel
either (i) substantially to the effect that, in the opinion of such Counsel,
this Indenture and the grant of a

<PAGE> 115

100

security interest in the Collateral intended to be made by the Security
Documents and all other instruments of further assurance, including, without
limitation, financing statements, have been properly recorded and filed to the
extent necessary to perfect the security interests in the Collateral created by
the Security Documents and reciting the details of such action, and stating
that as to the security interests created pursuant to the Security Documents,
such recordings and filings are the only recordings and filings necessary to
give notice thereof and that no re-recordings or refilings are necessary to
maintain such notice (other than as stated in such opinion), or (ii) to the
effect that, in the opinion of such counsel, no such action is necessary to
perfect such security interests. Promptly after the execution and delivery of
this Indenture, the Company shall deliver the opinion(s) required by Section
314(b) of the Trust Indenture Act. Subsequent to the Issue Date, at the time
of the execution of any Security Document, Opinion(s) of Counsel with respect
to the identical matters set forth in this paragraph (b) and an Opinion of
Counsel to the effect that the Security Documents executed on such date
constitute the legally valid, binding and enforceable obligation of the Company
or such Subsidiary, as the case may be, subject to acceptable bankruptcy and
similar exceptions, shall be delivered to the Trustee.

(c) The Company shall furnish to the Trustee on [_____ __] in
each year, beginning with [______ __], 1996, an Opinion of Counsel, dated as of
such date, either (i)(A) stating that, in the opinion of such counsel, action
has been taken with respect to the recording, filing, re-recording and refiling
of all supplemental indentures, financing statements and continuation
statements as is necessary to maintain the Lien of the Security Documents and
reciting with respect to the security interests in the Collateral the details
of such action or referring to prior Opinions of Counsel in which such details
are given, and (B) stating that, based on relevant laws as in effect on the
date of such Opinion of Counsel, all financing statements and continuation
statements have been executed and filed that are necessary as of such date and
during the succeeding 12 months fully to maintain the security interest of the
Holders and the Trustee hereunder and under the Security Documents (or to
maintain the security interest of the Company under the ICN Security Agreements
and ICN Mortgages) with respect to the Collateral, or (ii) stating that, in the
opinion of such Counsel, no such action is necessary to maintain such Lien.

SECTION 12.3. Release of Collateral.

(a) The Trustee, in its capacity as Collateral Agent under
the Security Documents, and the Company (with respect to the ICN Security
Agreements and ICN Mortgages) shall not at any time release Collateral from the
security interest created by this Indenture and the Security Documents unless
such release is in accordance with the provisions of this Indenture and the
Security Documents.

<PAGE> 116

101

(b) At any time when an Event of Default shall have occurred
and be continuing, no release of Collateral pursuant to the provisions of this
Indenture and the Security Documents shall be effective as against the Holders
of the Securities.

(c) The release of any Collateral from the terms of the
Security Documents shall not be deemed to impair the security under this
Indenture in contravention of the provisions hereof if and to the extent the
Collateral is released in accordance with this Indenture and the Security
Documents. To the extent applicable, the Company shall cause Section 314(d) of
the Trust Indenture Act relating to the release of property from the Lien of
the Security Documents and relating to the substitution therefor of any
property to be subjected to the Lien of the Security Documents to be complied
with. Any certificate or opinion required by Section 314(d) of the Trust
Indenture Act may be made by a Responsible Officer of the Company, except in
cases where Section 314(d) of the Trust Indenture Act requires that such
certificate or opinion be made by an independent Person, which Person shall be
an independent engineer, or other expert selected or approved by the Trustee in
the exercise of reasonable care.

SECTION 12.4. Possession and Use of Collateral.

Subject to and in accordance with the provisions of this
Indenture and the Security Documents, so long as no Event of Default shall have
occurred and be continuing the Company and its Subsidiaries shall have the
right to remain in possession and retain exclusive control of the Collateral
(other than Trust Moneys and other personal property held by, or required to be
deposited or pledged with, the Collateral Agent under the Indenture or any
Security Document), to freely operate, manage, develop, lease, use, consume and
enjoy the Collateral (other than Trust Moneys and other personal property held
by, or required to be deposited or pledged with, the Collateral Agent under the
Indenture or any Security Document), to alter or repair any Collateral
consisting of machinery or equipment so long as such alterations and repairs do
not diminish the value thereof or impair the Lien of the Security Documents
thereon and to collect, receive, use, invest and dispose of the reversions,
remainders, interest, rents, lease payments, issues, profits, revenues,
proceeds and other income thereof.

SECTION 12.5. Specified Releases of Collateral.

(a) Satisfaction and Discharge; Defeasance. The Company and
its Subsidiaries shall be entitled to obtain a full release of all of the
Collateral from the Liens of this Indenture and of the Security Documents upon
compliance with the conditions precedent set forth in Article IV for
satisfaction and discharge of this Indenture or for legal defeasance pursuant
to Section 14.2. Upon delivery by the Company to the Trustee of an Officers'
Certificate and Opinion of Counsel, each to the effect that such conditions
precedent have been complied with (and which may

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be the same Officers' Certificate and Opinion of Counsel required by Section
4.1 or 14.4), the Trustee shall forthwith take all necessary action (at the
request of and the expense of the Company) to release and reconvey to the
Company and its Subsidiaries all of the Collateral, and shall deliver such
Collateral in its possession to the Company and its Subsidiaries including,
without limitation, the execution and delivery of releases and satisfactions
whenever required.

(b) Sales of Collateral Permitted by Section 6.15. The
Company and its Subsidiaries shall be entitled to obtain a release of items of
Collateral (the "Released Interests") subject to an Asset Sale upon compliance
with the condition precedent that the Company shall have delivered to the
Trustee the following:

(i) Company Order. A Company Order requesting release of
Released Interests, such Company Order (A) specifically describing the
proposed Released Interests, (B) specifying the fair value of such
Released Interests on a date within 60 days of the Company Order (the
"Valuation Date"), (C) stating that the purchase price received is at
least equal to the fair value of the Released Interest, (D) stating
that the release of such Released Interests will not interfere with or
impede the Trustee's ability to realize the value of the remaining
Collateral and will not impair the maintenance and operation of the
remaining Collateral, (E) confirming the sale of, or an agreement to
sell, such Released Interests in a bona fide sale to a Person that is
not an Affiliate of the Company or, in the event that such sale is to
a Person that is an Affiliate, that such sale is being made in
accordance with Section 6.14, (F) certifying that such Asset Sale
complies with the terms and conditions of Section 6.15 hereof and (G)
in the event that there is to be a substitution of property for the
Collateral to be sold, specifying the property intended to be
substituted for the Collateral to be sold;

(ii) Officers' Certificate. An Officers' Certificate
certifying that (A) such Asset Sale covers only the Released Interests
and complies with the terms and conditions of an Asset Sale pursuant
to Section 6.15, (B) all Net Available Cash from the sale of any of
the Released Interests constitutes Collateral and will be deposited in
the Collateral Account for application in accordance with Section
6.15, (C) there is no Default or Event of Default in effect or
continuing on the date thereof, the Valuation Date or the date of such
Asset Sale, (D) the release of the Collateral will not result in a
Default or Event of Default hereunder and (E) all conditions precedent
to such release have been complied with; and

(iii) Other Documents. All documentation required by
Section 314(d) of the Trust Indenture Act.

(c) Eminent Domain and Other Governmental Takings. The
Company and its Subsidiaries shall be entitled to obtain a release of, and the
Trustee shall release, items of Collateral taken by eminent domain or sold
pursuant to the exercise

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by the United States of America or any State, municipality or other
governmental authority of any right which such authorities may then have to
purchase, or to designate a purchaser or to order a sale of, all or any part of
the Collateral, upon compliance with the condition precedent that the Company
shall have delivered to the Trustee the following:

(i) Officer's Certificate. An Officer's Certificate (A)
stating that such property has been taken by eminent domain and the
amount of the award therefor, or that such property has been sold
pursuant to a right vested in the United States of America, or a
State, municipality or other governmental authority to purchase, or to
designate a purchaser, or order a sale of such property and the amount
of the proceeds of such sale, and (B) stating that all conditions
precedent to such release have been complied with;

(ii) Opinion of Counsel. An Opinion of Counsel to the
effect that (A) such property has been lawfully taken by exercise of
the right of eminent domain, or has been sold pursuant to the exercise
of a right vested in the United States of America or a State,
municipality or other governmental authority to purchase, or to
designate a purchaser or order a sale of, such property, (B) in the
case of any such taking by eminent domain, the award for such property
has become final or an appeal therefrom is not advisable in the
interests of the Company or the Holders, and (C) all conditions
precedent herein provided relating to such release have been complied
with; and

(iii) Eminent Domain Award. Subject to the requirements of
any prior Lien on the Collateral so taken, cash equal to the amount of
the award for such property or the proceeds of such sale, to be held
as Trust Moneys subject to the disposition thereof pursuant to Article
XIII hereof.

Upon compliance by the Company or its Subsidiaries as the case
may be, with the conditions precedent set forth above, and upon delivery by the
Company to the Trustee of an Opinion of Counsel to the effect that such
conditions precedent have been complied with, the Trustee shall cause to be
released and reconveyed to the Company, or its subsidiaries, as the case may
be, the Released Interests.

SECTION 12.6. Disposition of Collateral Without Release.

So long as no Event of Default shall have occurred and be
continuing, the Subsidiaries, collectively, may, upon delivery by the Company
to the Trustee of an Officer's Certificate stating that the release of such
Obsolete Assets will not interfere with or impair the aggregate value of the
Collateral or the Trustee's rights therein, such Obsolete Assets shall be
released, so that such Subsidiary may sell or otherwise dispose of such
Obsolete Assets subject to the Lien of the Security Documents, not exceeding
individually, in fair market value, $25,000.

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SECTION 12.7. Form and Sufficiency of Release.

In the event that any of the Subsidiaries have sold, exchanged
or otherwise disposed of or proposes to sell, exchange or otherwise dispose of
any portion of the Collateral that under the provisions of Section 12.5 or 12.6
may be sold, exchanged or otherwise disposed of by the Subsidiary, and the
Subsidiary requests the Trustee to furnish a written disclaimer, release or
quit-claim of any interest in such property under this Indenture and the
Security Documents, the Trustee, in its capacity as Collateral Agent under the
Security Documents, shall execute, acknowledge and deliver to the Subsidiary
(in proper and recordable form) such an instrument promptly after satisfaction
of the conditions set forth herein for delivery of any such release.
Notwithstanding the preceding sentence, all purchasers and grantees of any
property or rights purporting to be released herefrom shall be entitled to rely
upon any release executed by the Trustee hereunder as sufficient for the
purpose of this Indenture and as constituting a good and valid release of the
property therein described from the Lien of this Indenture or of the Security
Documents.

SECTION 12.8. Purchaser Protected.

No purchaser or grantee of any property or rights purporting
to be released herefrom shall be bound to ascertain the authority of the
Trustee to execute the release or to inquire as to the existence of any
conditions herein prescribed for the exercise of such authority; nor shall any
purchaser or grantee of any property or rights permitted by this Indenture to
be sold or otherwise disposed of by the Subsidiaries be under any obligation to
ascertain or inquire into the authority of the Subsidiary to make such sale or
other disposition.

SECTION 12.9. Authorization of Actions To Be Taken by The Trustee Under the
Security Documents.

Subject to the provisions of the Security Documents, (a) the
Trustee may, in its sole discretion and without the consent of the Holders,
take all actions it deems necessary or appropriate in order to (i) enforce any
of the terms of the Security Documents and (ii) to collect and receive any and
all amounts payable in respect of the obligations of the Company hereunder or
of the Subsidiaries of the Company under the Subsidiary Guarantee (or under the
Intercompany Note upon the occurrence of an Event of Default under the
Indenture or the Securities) and (b) the Trustee shall have power to institute
and to maintain such suits and proceedings as it may deem expedient to prevent
any impairment of the Collateral by any acts that may be unlawful or in
violation of any of the Security Documents or this Indenture, and such suits
and proceedings as the Trustee may deem expedient to preserve or protect its
interests and the interests of the Holders in the Collateral (including the
power to institute and maintain suits or proceedings to restrain the
enforcement of or

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compliance with any legislative or other governmental enactment, rule or order
that may be unconstitutional or otherwise invalid if the enforcement of, or
compliance with, such enactment, rule or order would impair the security
interest thereunder or be prejudicial to the interests of the Holders or of the
Trustee).

SECTION 12.10. Authorization of Receipt of Funds by the Trustee Under the
Security Documents.

The Trustee is authorized to receive any funds for the benefit
of Holders distributed under the Security Documents, and to make further
distributions of such funds to the Holders in accordance with the provisions of
Article XIII and the other provisions of this Indenture.

ARTICLE XIII

APPLICATION OF TRUST MONEYS

SECTION 13.1. Collateral Account.

On the Issue Date there shall be established and, at all times
hereafter until this Indenture shall have terminated, there shall be maintained
with, and in the sole dominion and control of, the Trustee an account or
accounts which shall be entitled the "Collateral Account" (the "Collateral
Account"). The Collateral Account(s) shall be established and maintained by
the Trustee at its corporate trust offices. All Trust Moneys which are
received by the Trustee shall be deposited in the Collateral Account and
thereafter shall be held, applied and/or disbursed by the Trustee in accordance
with the terms of this Article.

SECTION 13.2. Withdrawals of Insurance Proceeds and Condemnation Awards.

To the extent that any Trust Moneys consist of either (i) Net
Insurance Proceeds or (ii) Condemnation Awards, such Trust Moneys may be
withdrawn by the Company (or by a Subsidiary of the Company if title to the
property damaged or taken was held by such Subsidiary, but only to the extent
of the Net Insurance Proceeds or Condemnation Proceeds relating thereto) and
shall be paid by the Trustee upon a Company Order to reimburse the Company or
its Subsidiary, as the case may be, for expenditures made, or to pay costs
incurred, by the Company or its Subsidiary to repair, rebuild or replace the
property destroyed, damaged or taken, upon receipt by the Trustee of the
following:

(a) an Officers' Certificate of the Company or its
Subsidiary, as the case may be, dated not more than 30 days prior to
the date of the application for the withdrawal and payment of such
Trust Moneys stating:

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(i) that expenditures have been made or costs
incurred, by the Company or its Subsidiary in a specified
amount for the purpose of making certain repairs, rebuildings
and replacements of the Collateral, which shall be briefly
described, and stating the fair value thereof to the Company
or its Subsidiary at the date of the expenditure or incurrence
thereof by the Company or its Subsidiary;

(ii) that no part of such expenditures or costs
has been or is being made the basis for the withdrawal of any
Trust Moneys in any previous or then pending application
pursuant to this Section 13.2;

(iii) that there is no outstanding Debt, other than
costs for which payment is being requested, known to the
Company or its Subsidiary, after due inquiry, for the purchase
price or construction of such repairs, rebuildings or
replacements, or for labor, wages, materials or supplies in
connection with the making thereof, which, if unpaid, might
become the basis of a vendors', mechanics', laborers',
materialmen's, statutory or other similar Lien upon any of
such repairs, rebuildings or replacement, which Lien might, in
the opinion of the signers of such certificate, materially
impair the security afforded by such repairs, rebuildings or
replacements;

(iv) that the property to be repaired, rebuilt or
replaced is necessary or desirable in the conduct of the
Company's or its Subsidiary's business;

(v) whether any part of such repairs, rebuildings
or replacements within six months before the date of
acquisition thereof by the Company or its Subsidiary has been
used or operated by others than the Company or its Subsidiary
in a business similar to that in which such property has been
or is to be used or operated by the Company or its Subsidiary,
and whether the fair value to the Company or its Subsidiary,
at the date of such acquisition of such part of such repairs,
rebuildings or replacement is less than $25,000, or 1% of the
aggregate principal amount of the Outstanding Securities;

(vi) that no Default or Event of Default shall
have occurred and be continuing; and

(vii) that all conditions precedent herein provided
for relating to such withdrawal and payment have been complied
with.

(b) all documentation required under Section 314(d) of the
Trust Indenture Act; and

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(i) that the instruments that have been or are
therewith delivered to the Trustee conform to the requirements
of this Indenture, and the Security Documents and the Trust
Indenture Act, and that, upon the basis of such request of the
Company or its Subsidiary and the accompanying documents
specified in this Section 13.2, all conditions precedent
herein provided for relating to such withdrawal and payment
have been complied with, and the Trust Moneys whose withdrawal
is then requested may be lawfully paid over under this Section
13.2;

(ii) that the Trustee has a valid and perfected
Lien on such repairs, rebuilding and replacements, that the
same and every part thereof are subject to no Liens prior to
the Lien of the Security Documents, except Liens of the type
permitted under the Security Documents to which the property
so destroyed or damaged shall have been subject at the time of
such destruction or damage; and

(iii) that all of the Company's or its Subsidiary's
right, title and interest in and to said repairs, rebuildings
or replacements, or combination thereof, are then subject to
the Lien of the Security Documents.

Upon compliance with the foregoing provisions of this Section
13.2, the Trustee shall pay on the written request of the Company or its
Subsidiary an amount of Trust Moneys of the character aforesaid equal to the
amount of the expenditures or costs stated in the Officers' Certificate
required by clause (i) of subsection (a) of this Section 13.2, or the fair
value to the Company or its Subsidiary of such repairs, rebuildings and
replacements stated in such Officers' Certificate (or in such Independent
Appraiser's or Independent Financial Advisor's certificate, if required by the
Trust Indenture Act), whichever is less; provided, however, that
notwithstanding the above, so long as no Default or Event of Default shall have
occurred and be continuing, in the event that any Net Insurance Proceeds or
Condemnation Award for such property or proceeds of such sale does not exceed
the lesser of $25,000 or 1% of the principal amount of the Outstanding
Securities, and, in the good faith estimate of the Company, such destruction or
damage resulting in such Net Insurance Proceeds or Condemnation Award does not
detrimentally affect the value or use of the applicable Collateral in any
material respect, upon delivery to the Trustee of an Officers' Certificate of
the Company or its Subsidiary to such effect, the Trustee shall release to the
Company or its Subsidiary such Net Insurance Proceeds or Condemnation Award for
such property or proceeds of such sale, free of the Lien hereof and of the
Security Documents.

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SECTION 13.3. Withdrawal of Trust Moneys for Asset Sale Offer.

Trust Moneys may be withdrawn by the Company and shall be paid
by the Trustee to the Company (or as otherwise directed by the Company) upon a
Company Order to the Trustee and upon receipt by the Trustee of the following:

(a) an Officers' Certificate, dated not more than five days
prior to the Asset Sale Payment Date stating:

(i) that no Event of Default exists;

(ii) (A) that pursuant to and in accordance with
Section 6.15, the Company has made an Asset Sale Offer, (B)
the amount of money to be applied to the repurchase of the
Securities pursuant to the Asset Sale Offer, and (C) the
amount of money to be retained by the Company;

(iii) the Asset Sale Payment Date; and

(iv) that all conditions precedent and covenants
herein provided for relating to such application of Trust
Moneys have been complied with; and

(b) all documentation required under Section 314(d) of the
Trust Indenture Act; and

(c) an Opinion of Counsel stating that the documents that
have been or are therewith delivered to the Trustee in connection with
the Asset Sale Offer pursuant to this Section 13.3 conform to the
requirements of this Indenture and the Trust Indenture Act and that
all conditions precedent herein provided for relating to such
application of Trust Moneys have been complied with.

Upon compliance with the foregoing provisions of this Section
13.3, the Trustee shall apply the Trust Moneys as directed and specified by
such Company Order.

SECTION 13.4. Withdrawal of Trust Moneys for Permitted Related Acquisitions.

In the event the Company (or a Subsidiary of the Company if
such Subsidiary has engaged in the Asset Sale) intends to reinvest Net
Available Cash of an Asset Sale in a manner that would constitute a Permitted
Related Acquisition (the "Released Trust Moneys"), such Net Available Cash
constituting Trust Moneys may be withdrawn by the Company (or, to the extent
that the legal title to the property transferred in an Asset Sale is held by a
Subsidiary, by such Subsidiary; provided, that the aggregate cost of the
Permitted Related Acquisitions to be made by such Subsidiary shall not exceed
the Net Available Cash of such Asset Sale) and shall be

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paid by the Trustee to the Company or its Subsidiary (or as otherwise directed
by the Company or its Subsidiary) upon a Company Order to the Trustee and upon
receipt by the Trustee of the following:

(a) A notice (each, a "Trust Moneys Release Notice"), which
shall (i) refer to this Section 13.4, (ii) contain all documents
referred to below, (iii) describe with particularity the Released
Trust Moneys, (iv) describe with particularity the Permitted Related
Acquisition to be made with respect to the Released Trust Moneys and
(v) be accompanied by a counterpart of the instruments proposed to
give effect to the release fully executed and acknowledged (if
applicable) by all parties thereto other than the Trustee;

(b) An Officer's Certificate certifying that (i) the release
of the Released Trust Moneys complies with the terms and conditions of
Section 6.15 of this Indenture, (ii) there is no Default or Event of
Default in effect or continuing on the date thereof, (iii) the release
of the Released Trust Moneys will not result in a Default or Event of
Default hereunder and (iv) all conditions precedent to such release
have been complied with;

(d) An Opinion of Counsel stating that the documents that
have been or are therewith delivered to the Collateral Agent and the
Trustee in connection with a Permitted Related Acquisition conform to
the requirements of this Indenture and the Trust Indenture Act and
that all conditions precedent herein provided for relating to such
application of Trust Moneys have been complied with.

Upon compliance with the foregoing provisions of this
Indenture, the Trustee shall apply the Released Trust Moneys as directed and
specified by the Company or its Subsidiary.

SECTION 13.5. Withdrawal of Trust Moneys for Retention by the Company or its
Subsidiaries.

To the extent that any Trust Moneys consist of Net Available
Cash received by the Trustee pursuant to the provisions of Section 6.15
(including Asset Sales relating to Obsolete Assets), and the Company (or a
Subsidiary of the Company if such Subsidiary has engaged in an Asset Sale,
including an Asset Sale relating to Obsolete Assets) intends to retain, subject
to the limitations set forth in Section 6.15, all or a portion of such Net
Available Cash (the "Retained Trust Moneys"), such Trust Moneys may be
withdrawn by the Company or its Subsidiary and shall be paid by the Trustee to
the Company or its Subsidiary (or as otherwise directed by the

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Company or its Subsidiary) upon a Company Order to the Trustee and upon receipt
by the Trustee of the following:

(a) A notice (each, a "Withdrawal Notice"), which shall (i)
refer to this Section 13.5, (ii) contain all documents referred to
below, (iii) describe with particularity the Retained Trust Moneys and
the Asset Sale from which such Retained Trust Moneys were held as
Collateral and (iv) be accompanied by a counterpart of the instruments
proposed to give effect to the release fully executed and acknowledged
(if applicable) by all parties thereto other than the Trustee;

(b) An Officer's Certificate certifying that (i) the release
of the Retained Trust Moneys complies with the terms and conditions of
Section 6.15 of the Indenture (including, but not limited to, a
specific statement that (A) the Net Available Cash from the sale of
Obsolete Assets retained by the Company and its Subsidiaries does not
exceed $1,000,000 in the aggregate in any given year and (B) from the
Issue Date, the aggregate of the Net Available Cash of Asset Sales
(other than from Asset Sales relating to Obsolete Assets) retained by
the Companies and its Subsidiaries does not exceed $1,000,000,
regardless of whether the funds retained by the Company and its
Subsidiaries constitute Collateral Proceeds or Non-Collateral
Proceeds), (ii) there is no Default or Event of Default in effect or
continuing on the date thereof, (iii) the release of the Retained
Trust Moneys will not result in a Default or Event of Default
hereunder and (iv) all conditions precedent to such release have been
complied with;

(d) An Opinion of Counsel stating that the documents that
have been or are therewith delivered to the Collateral Agent and the
Trustee in connection with a release of Retained Trust Moneys conform
to the requirements of this Indenture and the Trust Indenture Act and
that all conditions precedent herein provided for relating to such
application of Trust Moneys have been complied with.

Upon compliance with the foregoing provisions of this
Indenture, the Trustee shall apply the Retained Trust Moneys as directed and
specified by the Company or its Subsidiary.

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SECTION 13.6. Withdrawal of Trust Moneys on Basis of Retirement of
Securities.

Trust Moneys may be withdrawn by the Company to be applied to
the redemption and retirement of the Securities under the circumstances
permitted by this Indenture and shall be paid by the Trustee to the Company (or
as otherwise directed by the Company) upon a Company Order to the Trustee and
upon receipt by the Trustee of the following:

(a) a Board Resolution requesting the withdrawal and payment
of a specified amount of Trust Moneys for the purpose of retiring or
redeeming a portion of the Securities under the circumstances
permitted by this Indenture;

(b) an Officer's Certificate, dated not more than 30 days
prior to the date of the application for the withdrawal and payment of
such Trust Moneys, certifying that (i) redemption or retirement of the
Securities complies with the provisions of the Indenture, (ii) there
is no Default or Event of Default in effect or continuing on the date
thereof, (iii) the release of the Trust Moneys for the purpose of
retiring or redeeming Securities will not result in a Default or Event
of Default hereunder and (iv) all conditions precedent herein provided
relating to such withdrawal and application have been complied with;

(d) an Opinion of Counsel stating that the Trust Moneys
whose withdrawal and payment is then requested may be lawfully paid
over under this Section 13.6 and that all conditions precedent herein
provided relating to such withdrawal have been complied with.

Upon compliance with the foregoing provisions of this
Indenture, the Trustee shall apply the Trust Moneys as directed and specified
by such Company Order.

SECTION 13.7. Investment of Trust Moneys.

All or any part of any Trust Moneys held by the Trustee shall
from time to time be invested or reinvested by the Trustee in any Cash
Equivalents pursuant to the written or confirmed facsimile direction of the
Company, which shall specify the Cash Equivalents in which such Trust Moneys
shall be invested. Unless an Event of Default occurs and is continuing, any
interest in such Cash Equivalents (in excess of any accrued interest paid at
the time of purchase) that may be received by the Trustee shall be forthwith
paid to the Company. Such Cash Equivalents shall be held by the Trustee as a
part of the Collateral, subject to the same provisions hereof as the cash used
by it to purchase such Cash Equivalents.

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112

The Trustee shall not be liable or responsible for any loss
resulting from such investments or sales except only for its own grossly
negligent action, its own grossly negligent failure to act or its own willful
misconduct in complying with this Section 13.7.

ARTICLE XIV

DEFEASANCE AND COVENANT DEFEASANCE

SECTION 14.1. Company's Option to Effect Defeasance or Covenant Defeasance.

The Company may at its option by Board Resolution, at any
time, elect to have either Section 14.2 or Section 14.3 applied to the
Outstanding Securities upon compliance with the applicable conditions set forth
below in this Article XIV.

SECTION 14.2. Defeasance and Discharge.

Upon the Company's exercise of the option provided in Section
14.1 applicable to this Section 14.2, the Company shall be deemed to have been
discharged from its obligations with respect to the Outstanding Securities
(other than those specified in the next sentence) on the date the applicable
conditions set forth below are satisfied (hereinafter, "defeasance"). For this
purpose, such defeasance means that the Company shall be deemed to have paid
and discharged the entire indebtedness represented by the Outstanding
Securities and to have satisfied all its other obligations under such
Securities and this Indenture insofar as such Securities are concerned (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), except for the following which shall survive until
otherwise terminated or discharged hereunder: (A) the rights of Holders of
such Securities to receive, solely from the trust fund described in Section
14.4 and as more fully set forth in such Section, payments in respect of the
principal of and interest on such Securities when such payments are due, (B)
the Company's obligations with respect to such Securities under Sections 3.4,
3.5, 3.6, 6.2 and 6.26 and with respect to the Trustee under Section 9.7, (C)
the rights, powers, trusts, duties and immunities of the Trustee hereunder and
(D) this Article XIV. Subject to compliance with the applicable conditions
under this Article XIV, the Company may exercise its option under this Section
14.2 notwithstanding the prior exercise of its option under Section 14.3.

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SECTION 14.3. Covenant Defeasance.

Upon the Company's exercise of the option provided in Section
14.1 applicable to this Section 14.3, (i) the Company shall be released from
its obligations under Sections 6.9 through 6.25 and (ii) the occurrence of an
event specified in Section 8.1(vi) (with respect to any of Section 6.9 through
6.25), 8.1(vii) and (viii)) shall not be deemed to be an Event of Default
(hereinafter, "covenant defeasance"). For this purpose, such covenant
defeasance means that the Company may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
Section, whether directly, or indirectly by reason of any reference elsewhere
herein to any such Section or by reason of any reference in any such Section to
any other provision herein or in any other document, but the remainder of this
Indenture and such Securities shall be unaffected thereby.

SECTION 14.4. Conditions to Defeasance or Covenant Defeasance.

Except as otherwise indicated below, the following shall be
the conditions to application of either Section 14.2 or Section 14.3 to the
then Outstanding Securities:

The Company may exercise its legal defeasance option or its
covenant defeasance option only if:

(1) the Company shall irrevocably have deposited or caused to
be deposited in trust with the Trustee (or another trustee satisfying
the requirements of Section 9.9 who shall agree to comply with the
provisions of this Article applicable to the Trustee) as trust funds
in trust for the purpose of making the following payments,
specifically pledged as security for, and dedicated solely to, the
benefit of the Holders of such Securities, (A) money in an amount, or
(B) U.S. Government Obligations which through the scheduled payment of
principal and interest in respect thereof in accordance with their
terms will provide, not later than one day before the due date of any
payment, money in an amount sufficient to pay the principal of and
each installment of interest on the Securities on the Maturity Date of
such principal or Interest Payment Date, as the case may be, in
accordance with the terms of this Indenture and of the Securities, or
(C) a combination of (A) and (B);

(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the payments of principal and interest
when due and without reinvestment of the deposited U.S. Government
Obligations plus any deposited money without investment will provide
cash at such times and in such amounts as will be sufficient to pay
principal and interest when due on all the Securities to maturity or
redemption, as the case may be;

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(3) 123 days pass after the deposit is made and during the
123-day period no Default relating to bankruptcy and insolvency events
with respect to the Company occurs which is continuing at the end of
the period;

(4) no Default has occurred and is continuing on the date of
such deposit and after giving effect thereto;

(5) the Company delivers to the Trustee an Opinion of Counsel
to the effect that (i) the trust resulting from the deposit does not
constitute, or is qualified as, a regulated investment company under
the Investment Company Act of 1940, (ii) the Holders have a valid
first priority perfected security interest in the trust funds, and
(iii) after passage of 123 days following the deposit (except, with
respect to any trust funds for the account of any Holder who may be
deemed to be an "insider" for purposes of the Bankruptcy Code, after
one year following the deposit), the trust funds will not be subject
to the effect of Section 547 of the Bankruptcy Law or Section 15 of
the New York Debtor and Creditor Law in a case commenced by or against
the Company under either such statute, and either (A) the trust funds
will no longer remain the property of the Company (and therefore, will
not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally)
or (B) if a court were to rule under any such law in any case or
proceeding that the trust funds remained property of the Company, (x)
assuming such trust funds remained in the possession of the Trustee
prior to such court ruling to the extent not paid to Holders, the
Trustee will hold, for the benefit of the Holders, a valid first
priority perfected security interest in such trust funds that is not
avoidable in bankruptcy or otherwise except for the effect of Section
552(b) of the Bankruptcy Law on interest on the trust funds accruing
after the commencement of a case under such statute and (y) the
Holders will be entitled to receive adequate protection of their
interests in such trust funds if such trust funds are used in such
case or proceeding;

(6) in the case of the legal defeasance option, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(i) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (ii) since the date of the
Indenture there has been a change in the applicable U.S. Federal
income tax law or a regulation clarifying existing law, in either case
to the effect that, and based thereon such Opinion of Counsel shall
confirm that, the Holders will not recognize income, gain or loss for
U.S. Federal income tax purposes as a result of such defeasance and
will be subject to U.S. Federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such
defeasance had not occurred;

(7) in the case of the covenant defeasance option, the
Company shall have delivered to the Trustee an Opinion of Counsel to
the effect that the

<PAGE> 130

115

Holders will not recognize income, gain or loss for U.S. Federal
income tax purposes as a result of such covenant defeasance and will
be subject to U.S. Federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
covenant defeasance had not occurred; and

(8) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent to the defeasance and discharge of the Securities
have been complied with.

SECTION 14.5. Deposited Money and U.S. Government Obligations to be held in
Trust; Other Miscellaneous Provisions.

Subject to the provisions of the last paragraph of Section
6.26, all money and U.S. Government Obligations (including the proceeds
thereof) deposited with the Trustee (or other qualifying trustee --
collectively, for purposes of this Section 14.5 and Section 14.6, the
"Trustee") pursuant to Section 14.4 in respect of the Securities shall be held
in trust and applied by the Trustee, in accordance with the provisions of such
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Holders of such Securities, of all sums due and
to become due thereon in respect of principal and interest.

The Company shall pay and indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against the U.S. Government
Obligations deposited pursuant to Section 14.4 or the principal and interest
received in respect thereof other than any such tax, fee or other charge which
by law is for the account of the Holders of the Outstanding Securities.

Anything in this Article XIV to the contrary notwithstanding,
the Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 14.4 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance.

The provisions of the last paragraph of Section 6.26 shall
apply to any money held by the Trustee or any Paying Agent under this Article
XIV that remains unclaimed for two years after the Maturity Date of any
Securities for which money or Government Obligations have been deposited
pursuant to Section 14.4.

<PAGE> 131

116

SECTION 14.6. Reinstatement.

If the Trustee or the Paying Agent is unable to apply any
money in accordance with Section 14.5 by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, then the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to this Article until such time as the Trustee or Paying Agent is
permitted to apply all such money in accordance with Section 14.5; provided,
however, that if the Company makes any payment of principal of or interest on
any Security following the reinstatement of the Company's obligations, the
Company shall be subrogated to the rights of the Holders of such Securities to
receive such payment from the money held by the Trustee or the Paying Agent.

SECTION 14.7. Intervention.

The Company's Wholly-Owned Subsidiaries, Erlanger Tubular
Corporation, Imperial Adhesives, Inc., Koppel Steel Corporation, Newport Steel
Corporation, Northern Kentucky Air, Inc., and Northern Kentucky Management,
Inc., hereby intervene in this Indenture in furtherance of the purposes hereof
and in the Security Documents to which each is a party.

<PAGE> 132

117

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

THUS DONE AND PASSED in multiple originals, on the date first
above written, at [INSERT CITY AND STATE], in the presence of the undersigned
competent witnesses, and of the undersigned Notary Public, after due reading of
the whole.

WITNESSES TO ALL NS GROUP, INC.
SIGNATURES:

- ------------------------------ BY:
-----------------------------------
PRINTED NAME: PRINTED NAME:
----------------- -------------------------
TITLE:
-------------------------------

THE HUNTINGTON NATIONAL BANK,
AS TRUSTEE

- ------------------------------ BY:
-----------------------------------
PRINTED NAME: PRINTED NAME:
----------------- -------------------------
TITLE:
--------------------------------

ACCEPTED TO AND AGREED TO BY:

ERLANGER TUBULAR CORPORATION

BY:
-----------------------------------
PRINTED NAME:
-------------------------
TITLE:
--------------------------------

<PAGE> 133

118

IMPERIAL ADHESIVES, INC.

BY:
---------------------------------
PRINTED NAME:
-----------------------
TITLE:
------------------------------

KOPPEL STEEL CORPORATION

BY:
---------------------------------
PRINTED NAME:
-----------------------
TITLE:
------------------------------

NEWPORT STEEL CORPORATION

BY:
---------------------------------
PRINTED NAME:
-----------------------
TITLE:
------------------------------

NORTHERN KENTUCKY AIR, INC.

BY:
---------------------------------
PRINTED NAME:
-----------------------
TITLE:
------------------------------

<PAGE> 134

119

NORTHERN KENTUCKY MANAGEMENT,
INC.

BY:
---------------------------------

PRINTED NAME:
-----------------------

TITLE:
------------------------------

-------------------------
NOTARY PUBLIC

PRINTED NAME:
-------------------------------

MY COMMISSION IS ISSUED FOR LIFE.

<PAGE> 1
EXHIBIT 4.2

DRAFT
7/07/95
{Kentucky}

LEASEHOLD AND FEE MORTGAGE,
ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

from

NEWPORT STEEL CORPORATION, Mortgagor

THE HUNTINGTON NATIONAL BANK,

as Trustee and Collateral Agent, Mortgagee

DATED AS OF __________ __, 1995

This instrument was prepared by
and after recording should be returned to:

F. Robert Wheeler, Jr., Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

---------------------------
F. Robert Wheeler, Jr., Esq.

{NOTE; A PORTION OF THE
MORTGAGED PROPERTY
CONSISTS OF A LEASEHOLD
INTEREST. CUSTOMARY
LEASEHOLD PROVISIONS
SHALL BE INCORPORATED}

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<S> <C>
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Granting Clauses . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Warranty of Title . . . . . . . . . . . . . . . . . . . . . . 6

2. Payment and Performance of Obligations . . . . . . . . . . . . 7

3. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. Payment of Taxes and Other Impositions . . . . . . . . . . . . 7

5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . 9

6. Restrictions on Liens, Encumbrances and Sales . . . . . . . . 13

7. Relationship of Mortgagee and Mortgagor . . . . . . . . . . . 14

8. Maintenance; No Alteration; Inspection; Utilities . . . . . . 14

9. Condemnation/Eminent Domain . . . . . . . . . . . . . . . . . 14

10. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

11. Further Assurances/Estoppel Certificates . . . . . . . . . . . 17

12. Mortgagee's Right to Perform . . . . . . . . . . . . . . . . . 17

13. Hazardous Material . . . . . . . . . . . . . . . . . . . . . . 17

14. Asbestos . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

15. Event of Default . . . . . . . . . . . . . . . . . . . . . . . 19

16. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

17. Right of Mortgagee to Credit Sale . . . . . . . . . . . . . . 21

18. Appointment of Receiver . . . . . . . . . . . . . . . . . . . 22

19. Extension, Release, etc. . . . . . . . . . . . . . . . . . . . 22

20. Assignment of Rents . . . . . . . . . . . . . . . . . . . . . 23

21. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . 24

22. Additional Rights . . . . . . . . . . . . . . . . . . . . . . 24

23. Changes in Method of Taxation . . . . . . . . . . . . . . . . 24

24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>

<PAGE> 3

<TABLE>
<S> <C>
25. No Oral Modification . . . . . . . . . . . . . . . . . . . . . 24

26. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . 25

27. Waiver of Right of Redemption and Other Rights . . . . . . . . 25

28. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . 26

29. Multiple Security . . . . . . . . . . . . . . . . . . . . . . 26

30. Expenses; Indemnification . . . . . . . . . . . . . . . . . . 28

31. Successors and Assigns . . . . . . . . . . . . . . . . . . . . 29

32. No Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . 29

33. Governing Law, etc. . . . . . . . . . . . . . . . . . . . . . 29

34. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . 30

35. Certain Definitions . . . . . . . . . . . . . . . . . . . . . 30

36. Security Agreement under Uniform Commercial Code . . . . . . 30

37. Release Upon Payment and Discharge of Mortgagor's Obligations 32

Consistency with Other Documents . . . . . . . . . . . . . . . 32
</TABLE>

SCHEDULES

Schedule A - Description of Real Property

<PAGE> 4

LEASEHOLD AND FEE MORTGAGE, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT
----------------------------------------------------------

THIS LEASEHOLD AND FEE MORTGAGE, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT, dated as of __________ __, 1995 is made by NEWPORT STEEL
CORPORATION, a Kentucky corporation ("Mortgagor"), whose address is
___________________, to THE HUNTINGTON NATIONAL BANK, as Trustee (in such
capacity, the "Trustee") under the Indenture referred to below, as collateral
agent ("Mortgagee"), whose mailing address is 540 Madison Avenue, Covington,
Kentucky 41011, ___________ County, Kentucky. References to this "Mortgage"
shall mean this instrument and any and all renewals, modifications, amendments,
supplements, extensions, consolidations, substitutions, spreaders and
replacements of this instrument.

Background

A. Mortgagor is the owner of the parcel(s) of real property
described on Schedule A attached (such real property, together with all of the
buildings, improvements, structures and fixtures now or subsequently located
thereon (the "Improvements"), being collectively referred to as the "Real
Estate").

B. Mortgagor is a wholly owned subsidiary of NS Group, Inc., a
Kentucky corporation (the "Company") and is a Recourse Subsidiary (as defined in
the Indenture referred to below).

C. The Company and Mortgagee are parties to that Indenture
dated as of _______________ __, 1995 (as the same may be amended, modified or
otherwise supplemented from time to time, the "Indenture"; capitalized terms not
defined herein shall have the meanings ascribed thereto in the Indenture) for
the benefit of Holders of _____% Senior Secured Notes due 2003 in the aggregate
principal amount of $125,000,000.00 (the "Securities") issued by the Company,
which Securities mature on _______________.

D. It is a condition precedent to the purchase of the
Securities from the Company that the Mortgagor shall have (i) executed and
delivered that certain Guaranty of even date herewith in favor of Mortgagee (the
"Guaranty") and (ii) executed and delivered this Mortgage to Mortgagee for the
ratable benefit of the Holders in order to secure Mortgagor's obligations under
the Guaranty. References in this Mortgage to the "Default Rate" shall mean the
interest rate of _____% per annum.

E. It is a condition precedent to the purchase of the
Securities from the Company that the Mortgagor shall have executed and delivered
that certain Subsidiary Security Agreement

<PAGE> 5

(the "Subsidiary Security Agreement") of even date herewith in favor of
Mortgagee, which Subsidiary Security Agreement shall grant Mortgagee a security
interest in and to certain personal property now or subsequently used in
connection with the operation of the Real Estate.

NOW, THEREFORE, in consideration of the premises and to induce
the Mortgagee to enter into the Indenture and to induce the Holders to purchase
the Securities from the Company, the Mortgagor hereby agrees with the Mortgagee,
for the ratable benefit of the Holders, as follows:

Granting Clauses

For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mortgagor agrees that to secure
all of Mortgagor's obligations and liabilities under the Guaranty and all other
obligations and liabilities of the Mortgagor to the Trustee, the Mortgagee and
the Holders (including, without limitation, interest accruing after the maturity
of the Securities and interest accruing after the filing of any petition in
bankruptcy, or the commencement of any insolvency, reorganization or like
proceeding, relating to the Mortgagor, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding and interest, to the extent
permitted by law, on the unpaid interest), whether direct or indirect, absolute
or contingent, due or to become due, or now existing or hereafter incurred,
which may arise under, out of, or in connection with, the Indenture, the
Securities, the Guaranty, this Mortgage, the other Security Documents or any
other document made, delivered or given in connection therewith, in each case
whether on account of principal, interest, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements of counsel
to the Trustee and the Mortgagee that are required to be paid by the Mortgagee
pursuant to the terms of the Indenture, the Guaranty or this Mortgage or any
other Security Document) (collectively, the "Obligations").

MORTGAGOR BARGAINS, SELLS, MORTGAGES, WARRANTS, CONVEYS, GRANTS, ASSIGNS,
TRANSFERS AND SETS OVER AND BY THESE PRESENTS DOES HEREBY BARGAIN, SELL,
MORTGAGE, WARRANT, CONVEY, GRANT, ASSIGN, TRANSFER AND SET OVER UNTO MORTGAGEE
FOR THE RATABLE BENEFIT OF THE HOLDERS AND HEREBY GRANTS TO MORTGAGEE FOR THE
RATABLE BENEFIT OF THE HOLDERS A CONTINUING SECURITY INTEREST IN AND TO ALL OF
THE FOLLOWING:

(A) all right, title and interest of Mortgagor in and to the
Real Estate;

2
<PAGE> 6

(B) all the estate, right, title, claim or demand whatsoever of
Mortgagor, in possession or expectancy, in and to the Real Estate or
any part thereof;

(C) all right, title and interest of Mortgagor in, to and under
all easements, rights of way, gores of land, streets, ways, alleys,
passages, sewer rights, waters, water courses, water and riparian
rights, development rights, air rights, mineral rights and all estates,
rights, titles, interests, privileges, licenses, tenements,
hereditaments and appurtenances belonging, relating or appertaining to
the Real Estate, and any reversions and remainders thereof and all land
lying in the bed of any street, road or avenue, in front of or
adjoining the Real Estate to the center line thereof;

(D) all right, title and interest of Mortgagor in and to all of
the fixtures, chattels, business machines, machinery, apparatus,
equipment, furnishings, fittings and articles of personal property of
every kind and nature whatsoever, and all appurtenances and additions
thereto and substitutions or replacements thereof (together with, in
each case, attachments, components, parts and accessories) currently
owned or subsequently acquired by Mortgagor and now or subsequently
attached to, or contained in or used or usable in any way in connection
with any operation or letting of the Real Estate, including but without
limiting the generality of the foregoing, all screens, awnings, shades,
blinds, curtains, draperies, artwork, carpets, rugs, storm doors and
windows, furniture and furnishings, heating, electrical, and mechanical
equipment, lighting, switchboards, plumbing, ventilating, air
conditioning and air-cooling apparatus, refrigerating, and incinerating
equipment, escalators, elevators, loading and unloading equipment and
systems, stoves, ranges, laundry equipment, cleaning systems (including
window cleaning apparatus), telephones, communication systems
(including satellite dishes and antennae), televisions, computers,
sprinkler systems and other fire prevention and extinguishing apparatus
and materials, security systems, motors, engines, machinery, pipes,
pumps, tanks, conduits, appliances, fittings and fixtures of every kind
and description (all of the foregoing in this paragraph (D) being
referred to as the "Equipment");

3
<PAGE> 7

limitation, any and all building materials whether stored at the Real
Estate or offsite, and, in each such case, without any further
mortgage, conveyance, assignment or other act by Mortgagor;

(F) all right, title and interest of Mortgagor in, to and under
all leases, subleases, underlettings, concession agreements, management
agreements, licenses and other agreements relating to the use or
occupancy of the Real Estate or the Equipment or any part thereof, now
existing or subsequently entered into by Mortgagor and whether written
or oral and all guarantees of any of the foregoing (collectively, as
any of the foregoing may be amended, restated, extended, renewed or
modified from time to time, the "Leases"), and all rights of Mortgagor
in respect of cash and securities deposited thereunder and the right to
receive and collect the revenues, income, rents, issues and profits
thereof, together with all other rents, royalties, issues, profits,
revenue, income and other benefits arising from the use and enjoyment
of the Mortgaged Property (as defined below) (collectively, the "
Rents");

(G) all right, title and interest of Mortgagor in and to all
trade names, trade marks, logos, copyrights, good will and books and
records relating to or used in connection with the operation of the
Real Estate or the Equipment or any part thereof; all right, title and
interest of Mortgagor in and to all general intangibles related to the
operation of the Improvements now existing or hereafter arising;

(H) all right, title and interest of Mortgagor in and to all
unearned premiums under insurance policies now or subsequently obtained
by Mortgagor relating to the Real Estate or Equipment and Mortgagor's
interest in and to any such insurance policies and all proceeds of any
such insurance policies (including title insurance policies) including
the right to collect and receive such proceeds, subject to the
provisions relating to insurance generally set forth below and
otherwise following and during the continuance of an Event of Default;
and all right, title and interest of Mortgagor in and to all awards and
other compensation, including the interest payable thereon and the
right to collect and receive the same, made to the present or any
subsequent owner of the Real Estate or Equipment for the taking by
eminent domain, condemnation or otherwise, of all or any part of the
Real Estate or any easement or other right therein, subject to the
provisions relating to condemnation generally set forth below;

(I) all right, title and interest of Mortgagor in and to (i)
all contracts from time to time executed by Mortgagor or any manager or
agent on its behalf relating to the

4
<PAGE> 8

ownership, construction, maintenance, repair, operation, occupancy,
sale or financing of the Real Estate or Equipment or any part thereof
and all agreements relating to the purchase or lease of any portion of
the Real Estate or any property which is adjacent or peripheral to the
Real Estate, together with the right to exercise such options and all
leases of Equipment, (ii) all consents, licenses, building permits,
certificates of occupancy and other governmental approvals relating to
construction, completion, occupancy, use or operation of the Real
Estate or any part thereof and (iii) all drawings, plans,
specifications and similar or related items relating to the Real
Estate;

(J) all right, title and interest of Mortgagor in and to any
and all monies now or subsequently on deposit for the payment of real
estate taxes or special assessments against the Real Estate or for the
payment of premiums on insurance policies covering the foregoing
property or otherwise on deposit with or held by Mortgagee as provided
in this Mortgage; all capital, operating, reserve or similar accounts
held by or on behalf of Mortgagor and related to the operation of the
Mortgaged Property, whether now existing or hereafter arising and all
monies held in any of the foregoing accounts and any certificates or
instruments related to or evidencing such accounts;

(K) all right, title and interest of Mortgagor in and to all
accounts and revenues arising from the operation of the Improvements
including, without limitation, (i) any right to payment now existing or
hereafter arising for rental of hotel rooms or other space or for
services rendered, whether or not yet earned by performance, arising
from the operation of the Improvements or any other facility on the
Mortgaged Property and (ii) all rights to payment from any consumer
credit-charge card organization or entity including, without
limitation, payments arising from the use of the American Express Card,
the Visa Card, the Carte Blanche Card, the Mastercard or any other
credit card, including those now existing or hereafter created,
substitutions therefor, proceeds thereof (whether cash or non-cash,
movable or immovable, tangible or intangible) received upon the sale,
exchange, transfer, collection or other disposition or substitution
thereof and any and all of the foregoing and proceeds therefrom
(collectively, the "Additional Rents"); and

(L) all proceeds, both cash and noncash, of the foregoing;

excluding, however, notwithstanding any provision set forth in
the foregoing clauses (A) through (L), [DESCRIBE COLLATERAL SECURING WORKING
CAPITAL CREDIT FACILITY]

5
<PAGE> 9

(collectively, the "Excluded Property") (all of the foregoing property
and rights and interests now owned or held or subsequently acquired by Mortgagor
and described in the foregoing clauses (A) through (E), excluding the Excluded
Property, are collectively referred to as the "Premises", and those
described in the foregoing clauses (A) through (L), excluding the Excluded
Property, are collectively referred to as the "Mortgaged Property").

All of the Mortgaged Property hereinabove described, real,
personal and mixed, whether affixed or annexed to the Real Estate or not and all
rights hereby conveyed and mortgaged are intended so to be as a unit and are
hereby understood, agreed and declared, to the maximum extent permitted by law,
to form a part and parcel of the Real Estate and to be appropriated to the use
of the Real Estate, and shall be for the purposes of this Mortgage deemed to be
real estate and conveyed and mortgaged hereby; provided, however, as to any of
the property aforesaid which does not so form a part and parcel of the Real
Estate or does not constitute a "fixture" (as defined in the Uniform Commercial
Code of Kentucky (the "Code")), this Mortgage is hereby deemed to also
be a Security Agreement under the Code for purposes of granting a security
interest in such property, which Mortgagor hereby grants to Mortgagee, as
Secured Party (as defined in the Code), as more particularly provided below in
this Mortgage.

TO HAVE AND TO HOLD the Mortgaged Property and the rights and
privileges hereby mortgaged, together with the right to retain possession of the
Mortgaged Property upon and during the continuance of an Event of Default
hereunder, unto Mortgagee, its successors and assigns for the uses and purposes
set forth, until the Obligations are fully paid and performed.

Terms and Conditions

Mortgagor further represents, warrants, covenants and agrees
with Mortgagee as follows:

1. Warranty of Title. Mortgagor warrants that Mortgagor
has good title to the Real Estate in fee simple and good title to the rest of
the Mortgaged Property, subject only to the matters that are set forth in
Schedule B of the title insurance policy or policies being issued to Mortgagee
to insure the lien of this Mortgage and liens permitted pursuant to subsection
6.10 of the Indenture (collectively, the "Permitted Exceptions"), and
Mortgagor shall warrant, defend and preserve such title and the lien of the
Mortgage thereon against all claims of all persons and entities, excepting,
however, the Permitted Exceptions. Mortgagor further warrants that it has the
right to mortgage the Mortgaged Property.

6
<PAGE> 10

2. Payment and Performance of Obligations. Mortgagor shall pay
the Obligations at the times and places and in the manner specified in the
Guaranty and shall perform all the Obligations.

3. Requirements. (a) Mortgagor shall comply with, or cause to
be complied with, and conform to all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, rules, regulations and requirements, and
irrespective of the nature of the work to be done, of each of the United States
of America, any State and any municipality, local government or other political
subdivision thereof and any agency, department, bureau, board, commission or
other instrumentality of any of them, now existing or subsequently created
(collectively, "Governmental Authority") which has jurisdiction over the
Mortgaged Property and all covenants, restrictions and conditions now or later
of record which may be applicable to any of the Mortgaged Property, or to the
use, manner of use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of any of the Mortgaged Property, except where the
failure to so comply with any of the foregoing would not have a Material Adverse
Effect on the business, prospects, earnings, properties, assets or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole.
All present and future laws, statutes, codes, ordinances, orders, judgments,
decrees, rules, regulations and requirements of every Governmental Authority
applicable to Mortgagor or to any of the Mortgaged Property and all covenants,
restrictions, and conditions which now or later may be applicable to any of the
Mortgaged Property are collectively referred to as the "Legal Requirements".

(b) From and after the date of this Mortgage, Mortgagor shall
not by act or omission permit any building or other improvement on any premises
not subject to the lien of this Mortgage to rely on the Premises or any part
thereof or any interest therein to fulfill any Legal Requirement and Mortgagor
hereby assigns to Mortgagee any and all rights to give consent for all or any
portion of the Premises or any interest therein to be so used. Mortgagor shall
not by act or omission impair the integrity of any of the Real Estate as a
single zoning lot separate and apart from all other premises. Mortgagor
represents that each parcel of the Real Estate constitutes a legally subdivided
lot, in compliance with all subdivision laws and similar Legal Requirements. Any
act or omission by Mortgagor which would result in a violation of any of the
provisions of this subsection shall be void.

7
<PAGE> 11

gains, profits and gross receipts taxes), all charges for any easement or
agreement maintained for the benefit of any of the Mortgaged Property, all
general and special assessments, levies, permits, inspection and license fees,
all water and sewer rents and charges and all other public charges even if
unforeseen or extraordinary, imposed upon or assessed against or which may
become a lien on any of the Mortgaged Property, or arising in respect of the
occupancy, use or possession thereof, together with any penalties or interest on
any of the foregoing (all of the foregoing are collectively referred to as the
"Impositions"). Upon request by Mortgagee, Mortgagor shall deliver to
Mortgagee (i) original or copies of receipted bills and cancelled checks
evidencing payment of such Imposition if it is a real estate tax or other public
charge and (ii) evidence acceptable to Mortgagee showing the payment of any
other such Imposition. If by law any Imposition, at Mortgagor's option, may be
paid in installments (whether or not interest shall accrue on the unpaid balance
of such Imposition), Mortgagor may elect to pay such Imposition in such
installments and shall be responsible for the payment of such installments with
interest, if any.

(b) Nothing herein shall affect any right or remedy of
Mortgagee under this Mortgage or otherwise, without notice or demand to
Mortgagor, to pay any Imposition after the date such Imposition shall have
become due, and to add to the Obligations the amount so paid, together with
interest from the time of payment at the Default Rate. Any sums paid by
Mortgagee in discharge of any Impositions shall be (i) a lien on the Premises
secured hereby prior to any right or title to, interest in, or claim upon the
Premises subordinate to the lien of this Mortgage, and (ii) payable on demand by
Mortgagor to Mortgagee together with interest at the Default Rate as set forth
above.

(c) Mortgagor shall not claim, demand or be entitled to receive
any credit or credits toward the satisfaction of this Mortgage or on any
interest payable thereon for any taxes assessed against the Mortgaged Property
or any part thereof, and shall not claim any deduction from the taxable value of
the Mortgaged Property by reason of this Mortgage if any such claim would
adversely affect the interest of Mortgagee.

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<PAGE> 12

any part thereof, to satisfy such Imposition prior to final determination of
such proceedings and (iii) Mortgagor shall furnish a good and sufficient bond or
surety as requested by and reasonably satisfactory to Mortgagee in the amount of
the Impositions which are being contested plus any interest and penalty which
may be imposed thereon and which could become a lien against the Real Estate or
any part of the Mortgaged Property.

(e) Upon written notice to Mortgagor, Mortgagee, after an Event
of Default (as defined below), shall be entitled to require Mortgagor to pay
monthly in advance to Mortgagee the equivalent of 1/12th of the estimated annual
Impositions. Mortgagee may commingle such funds with its own funds and Mortgagor
shall not be entitled to interest thereon.

5. Insurance. (a) Mortgagor shall maintain or cause to be
maintained on all of the Premises

(i) property insurance against loss or damage by (A) fire,
lightning, windstorm, tornado, water damage and by such other further
risks and hazards as now are or subsequently may be covered by an "all
risk" policy or a fire policy covering "special" causes of loss, which
policy shall include building ordinance law endorsements and shall be
automatically reinstated after each loss, and (B) flood and earthquake
in annual aggregates of $25,000,000 for flood and $50,000,000 for
earthquake;

(ii) comprehensive general liability insurance under a policy
covering all claims for personal injury, bodily injury or death, or
property damage occurring on, in or about the Premises in an amount not
less than $10,000,000 combined single limit with respect to injury and
property damage relating to any one occurrence plus such excess limits
as Mortgagee shall reasonably request from time to time;

(iii) when and to the extent reasonably required by Mortgagee,
insurance against loss or damage by any other risk commonly insured
against by persons occupying or using like properties in the locality
or localities in which the Real Estate is situated;

(iv) insurance against rent loss, extra expense or business
interruption (and/or soft costs, in the case of new construction), if
applicable, in amounts reasonably satisfactory to Mortgagee, but not
less than one year's gross rent or gross income;

(v) during the course of any construction or repair of
Improvements, comprehensive general liability insurance

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<PAGE> 13

(including coverage for elevators and escalators, if any). The policy
shall provide coverage for independent contractors and completed
operations. The completed operations coverage shall stay in effect for
two years after construction of any Improvements has been completed.
The policy shall provide coverage on an occurrence basis against claims
for personal injury, such insurance to afford immediate minimum
protection to a limit of not less than that required by Mortgagee with
respect to personal injury, bodily injury or death to any one or more
persons or damage to property;

(vi) during the course of any construction or repair of the
Improvements, workers' compensation insurance (including employer's
liability insurance) for all employees of Mortgagor engaged on or with
respect to the Premises in such amounts as are reasonably satisfactory
to Mortgagee, but in no event less than the limits established by law;

(vii) during the course of any construction, addition, alteration or
repair of the Improvements, builder's risk completed value form
insurance against "all risks of physical loss," including collapse,
water damage, flood and earthquake and transit coverage, during
construction or repairs of the Improvements, with deductibles
reasonably approved by Mortgagee, in nonreporting form, covering the
total value of work performed and equipment, supplies and materials
furnished (with an appropriate limit for soft costs in the case of
construction);

(viii) boiler and machinery property insurance covering pressure
vessels, air tanks, boilers, machinery, pressure piping, heating, air
conditioning and elevator equipment and escalator equipment, provided
the Improvements contain equipment of such nature, and insurance
against rent, extra expense, business interruption and soft costs, if
applicable, arising from any such breakdown, in such amounts as are
reasonably satisfactory to Mortgagee but not less than the lesser of
$1,000,000 or 10% of the value of the Improvements;

(ix) if any portion of the Premises are located in an area
identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, flood insurance in an
amount reasonably satisfactory to Mortgagee, but in no event less than
the maximum limit of coverage available under the National Flood
Insurance Act of 1968, as amended; and

(x) such other insurance in such amounts as Mortgagee may
reasonably request from time to time; provided, however, such insurance
is usually and customarily carried with

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<PAGE> 14

respect to similar facilities in the same general area as the Premises.

Each insurance policy (other than flood insurance written under the National
Flood Insurance Act of 1968, as amended, in which case to the extent available)
shall (i) provide that it shall not be cancelled without 30 days' prior written
notice to Mortgagee, (ii) with respect to all property insurance, provide for
deductibles in amounts reasonably satisfactory to Mortgagee (which deductibles
shall not exceed $250,000, with the exception of the deductible for boiler and
machinery, which deductible shall not exceed a ten (10) day waiting period
deductible), contain a "Replacement Cost Endorsement" (predicated upon
rebuilding) without any deduction made for depreciation and with no co-insurance
penalty (or attaching an agreed amount endorsement satisfactory to Mortgagee),
with loss payable to Mortgagor and Mortgagee with respect to the Mortgaged
Property as their respective interests may appear, without contribution, under a
"standard" or "New York" mortgagee clause reasonably acceptable to Mortgagee and
be written by insurance companies having an A.M. Best Company, Inc. rating of A
or higher and a financial size category of not less than XII, or otherwise as
approved by Mortgagee. Liability insurance policies shall name Mortgagee as an
additional insured with respect to the Mortgaged Property and contain a waiver
of subrogation against Mortgagee; all such policies shall indemnify and hold
Mortgagee harmless from all liability claims occurring on, in or about the
Premises and the adjoining streets, sidewalks and passageways. Each policy shall
expressly provide that any proceeds which are payable to Mortgagee pursuant to
the terms hereof shall be paid by check payable to the order of Mortgagee only
and shall require the endorsement of Mortgagee only. The amounts of each
insurance policy and the form of each such policy shall at all times be
reasonably satisfactory to Mortgagee. If any required insurance shall expire, be
withdrawn, become void by breach of any condition thereof by Mortgagor or by any
lessee of any part of the Mortgaged Property or become void or unsafe by reason
of the failure or impairment of the capital of any insurer, Mortgagor shall
immediately obtain new or additional insurance satisfactory to Mortgagee.
Mortgagor shall not take out any separate or additional insurance which is
contributing in the event of loss unless it is properly endorsed and otherwise
reasonably satisfactory to Mortgagee in all respects.

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<PAGE> 15

such insurance reasonably acceptable to Mortgagee, accompanied by evidence of
payment reasonably satisfactory to Mortgagee. Upon request of Mortgagee,
Mortgagor shall cause its insurance underwriter or broker to certify to
Mortgagee in writing that all the requirements of this Mortgage governing
insurance have been satisfied.

(c) If Mortgagor is in default of its obligations to insure or
deliver any such policy or a certificate thereof under this Section 5, then
Mortgagee, at its option and following written notice to Mortgagor, may effect
such insurance from year to year, and pay the premium or premiums therefor, and
Mortgagor shall pay to Mortgagee on demand such premium or premiums so paid by
Mortgagee with interest from the time of payment at the Default Rate and the
same shall be deemed to be secured by this Mortgage and shall be collectible in
the same manner as the Obligations secured by this Mortgage.

(d) Mortgagor promptly shall comply with and conform to (i) all
provisions of each such insurance policy, and (ii) all requirements of the
insurers applicable to Mortgagor or to any of the Mortgaged Property or to the
use, manner of use, occupancy, possession, operation, maintenance, alteration or
repair of any of the Mortgaged Property. Mortgagor shall not use or permit the
use of the Mortgaged Property in any manner which would permit any insurer to
cancel any insurance policy or void coverage required to be maintained by this
Mortgage.

(e) If the Mortgaged Property in its entirety, or any material
part thereof, shall be destroyed or damaged by fire or any other casualty,
whether insured or uninsured, or in the event any claim in excess of $5,000,000
is made against Mortgagor for any personal injury, bodily injury or property
damage incurred on or about the Premises, Mortgagor shall give prompt notice
thereof to Mortgagee. If the Mortgaged Property is damaged by fire or other
casualty, then provided that no Event of Default shall have occurred and be
continuing, Mortgagor shall have the right to adjust such loss. If the Mortgaged
Property is damaged by fire or other casualty, and if an Event of Default shall
have occurred and be continuing, then Mortgagor authorizes and empowers
Mortgagee, at Mortgagee's option and in Mortgagee's sole discretion, as
attorney-in-fact for Mortgagor, to make proof of loss, to adjust and compromise
any claim under any insurance policy with respect to the Mortgaged Property, to
appear in and prosecute any action arising from any policy, and to deduct from
any insurance proceeds Mortgagee's expenses incurred in the collection process.
The insurance proceeds or any part thereof with respect to the Mortgaged
Property received by Mortgagee and/or Mortgagor shall constitute Trust Moneys
which shall be paid and/or applied in accordance with subsection 13.2 of the
Indenture.

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(f) In the event of foreclosure of this Mortgage or other
transfer of title to the Mortgaged Property in extinguishment of the
Obligations, all right, title and interest of Mortgagor in and to any insurance
policies then in force with respect to the Mortgaged Property shall pass to the
purchaser or grantee and Mortgagor hereby appoints Mortgagee its
attorney-in-fact, in Mortgagor's name, to assign and transfer all such policies
and proceeds to such purchaser or grantee.

(g) Upon written notice to Mortgagor, Mortgagee, after an Event
of Default, shall be entitled to require Mortgagor to pay monthly in advance to
Mortgagee the equivalent of 1/12th of the estimated annual premiums due on such
insurance. Mortgagee may commingle such funds with its own funds and Mortgagor
shall not be entitled to interest thereon.

(h) Mortgagor may maintain insurance required under this
Mortgage by means of one or more blanket insurance policies maintained by
Mortgagor; provided, however, that (A) any such policy shall
specify, or Mortgagor shall furnish to Mortgagee a written statement from the
insurer so specifying, the maximum amount of the total insurance afforded by
such blanket policy which shall be applicable on an occurrence basis and (B) the
protection afforded under any such blanket policy shall be no less than that
which would have been afforded under a separate policy or policies relating only
to the Mortgaged Property.

6. Restrictions on Liens, Encumbrances and Sales.
Mortgagor acknowledges that any secondary or junior financing placed on the
Mortgaged Property (a) may divert funds that would otherwise be available for
payment of the Obligations, (b) could, if foreclosed, force Mortgagee to incur
expenses to protect its security, and (c) would impair Mortgagee's right to
accept a deed in lieu of foreclosure or otherwise to take actions to further its
economic interest prior to foreclosure, because a foreclosure by Mortgagee would
be required to clear title to the Mortgaged Property of any such secondary or
junior lien or encumbrance. In accordance with the foregoing and for the purpose
of (i) protecting Mortgagee's security, both of repayment and of value in the
Mortgaged Property, (ii) giving Mortgagee the full benefit of its bargain and
contract with Mortgagor, and (iii) keeping the Mortgaged Property free of
subordinate financing liens, Mortgagor agrees that if the following provisions
of this paragraph should be deemed a restraint on alienation, that such
provisions are reasonable restraints.

(1) Except for the lien of this Mortgage, the Permitted
Exceptions and liens permitted pursuant to subsection 6.10 of the Indenture,
Mortgagor shall not further mortgage, nor otherwise encumber the Mortgaged
Property nor create or suffer to exist any lien, charge or encumbrance on the
Mortgaged Property,

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<PAGE> 17

or any part thereof, whether superior or subordinate to the lien of this
Mortgage and whether recourse or non-recourse.

(2) Except as may be permitted pursuant to the Indenture,
including, without limitation, subsection 6.15 thereof, Mortgagor shall not make
any Asset Sale.

7. Relationship of Mortgagee and Mortgagor. Mortgagee
shall in no event be construed for any purpose to be a partner, joint venturer,
agent or associate of Mortgagor or of any beneficiary, tenant, subtenant,
operator, concessionaire or licensee of Mortgagor in the conduct of their
respective businesses, and without limiting the foregoing, Mortgagee shall not
be deemed to be such partner, joint venturer, agent or associate on account of
Mortgagee becoming a Mortgagee in possession or exercising any rights pursuant
to this Mortgage, any of the other Security Documents, or otherwise.

8. Maintenance; No Alteration; Inspection; Utilities.
(a) Mortgagor shall maintain or cause to be maintained all the Improvements in
good working order and condition, ordinary wear and tear excepted, and shall
cause to be made all necessary (in the good faith opinion of management of
Mortgagor) repairs, renewals, replacements, additions, betterments and
improvements thereto. Mortgagor shall not commit any waste of the Improvements
and shall not demolish or materially alter the Improvements without the prior
written consent of Mortgagee.

(b) Mortgagee and any persons authorized by Mortgagee, at all
reasonable times after reasonable notice, shall have the right to enter and
inspect the Premises and the right to inspect all work done, labor performed and
materials furnished in and about the Improvements and the right to inspect and
make copies of all books, contracts and records of Mortgagor relating to the
Mortgaged Property.

(c) Mortgagor shall pay or cause to be paid when due all
utility charges which are incurred for gas, electricity, water or sewer services
furnished to the Premises and all other assessments or charges of a similar
nature, whether public or private, affecting the Premises or any portion
thereof, whether or not such assessments or charges are liens thereon.

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in its entirety, or any portion thereof. If the Mortgaged Property in its
entirety or any part thereof shall be the subject of condemnation proceedings,
Mortgagee, as attorney-in-fact for Mortgagor, shall have the right to settle or
compromise any claim in connection with such condemnation. If Mortgagee elects
not to participate in such condemnation proceeding, then Mortgagor shall, at its
expense, diligently prosecute any such proceeding and shall consult with
Mortgagee, its attorneys and experts and cooperate with them in any defense of
any such proceedings. All awards and proceeds of condemnation received by
Mortgagee and/or Mortgagor shall constitute Trust Moneys which shall be paid
and/or applied in accordance with Subsection 13.2 of the Indenture.

10. Leases. (a) Mortgagor shall not (i) execute an assignment
or pledge of any Lease relating to all or any portion of the Mortgaged Property
other than in favor of Mortgagee or with Mortgagee's prior written consent or
(ii) without the prior written consent of Mortgagee, execute any Lease of any of
the Mortgaged Property.

(b) As to any Lease relating to all or any portion of the
Mortgaged Property, Mortgagor shall:

(i) promptly perform all of the material provisions of the
Lease on the part of the lessor thereunder to be performed;

(ii) enforce, in accordance with sound business practice, all of
the material provisions of the Lease on the part of the lessee
thereunder to be performed;

(iii) appear in and defend, in accordance with sound business
practice, any action or proceeding arising under or in any manner
connected with the Lease or the obligations of Mortgagor as lessor or
of the lessee thereunder;

(iv) exercise, within 5 days after receipt of a request by
Mortgagee, any right to request from the lessee a certificate with
respect to the status thereof;

(v) promptly deliver to Mortgagee copies of any notices of
default which Mortgagor may at any time forward to or receive from the
lessee;

(vi) promptly deliver to Mortgagee a fully executed counterpart of
the Lease; and

(vii) promptly deliver to Mortgagee, upon Mortgagee's request, an
assignment of the Mortgagor's interest under such Lease.

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<PAGE> 19

(c) Mortgagor shall deliver to Mortgagee, within 10 days after
receipt of a request by Mortgagee, a written statement, certified by Mortgagor
as being true, correct and complete, containing the names of all lessees and
other occupants of the Mortgaged Property, the terms of all Leases and the
spaces occupied and rentals payable thereunder, and a list of all Leases which
are then in default, including the nature and magnitude of the default; such
statement shall be accompanied by credit information with respect to the lessees
and such other information as Mortgagee may request.

(d) All Leases entered into by Mortgagor after the date hereof,
if any, and all rights of any lessees thereunder shall be subject and
subordinate in all respects to the lien and provisions of this Mortgage unless
Mortgagee shall otherwise elect in writing.

(e) As to any Lease now in existence or subsequently consented
to by Mortgagee, Mortgagor shall not, without the prior written consent of
Mortgagee, accept a surrender or terminate, cancel, rescind, supplement, alter,
revise, modify or amend such Lease or permit any such action to be taken nor
shall Mortgagor accept the payment of rent more than thirty (30) days in advance
of its due date.

(f) In the event of the enforcement by Mortgagee of any remedy
under this Mortgage, the lessee under each Lease entered into after the date of
this Mortgage shall, if requested by Mortgagee or any other person succeeding to
the interest of Mortgagee as a result of such enforcement, attorn to Mortgagee
or to such person and shall recognize Mortgagee or such successor in interest as
lessor under the Lease without change in the provisions thereof; provided
however, that Mortgagee or such successor in interest shall not be: (i) bound by
any payment of an installment of rent or additional rent which may have been
made more than 30 days before the due date of such installment; (ii) bound by
any amendment or modification to the Lease made without the consent of Mortgagee
or such successor in interest; (iii) liable for any previous act or omission of
Mortgagor (or its predecessors in interest); (iv) responsible for any monies
owing by Mortgagor to the credit of such lessee or subject to any credits,
offsets, claims, counterclaims, demands or defenses which the lessee may have
against Mortgagor (or its predecessors in interest); (v) bound by any covenant
to undertake or complete any construction of the Premises or any portion
thereof; or (vi) obligated to make any payment to such lessee other than any
security deposit actually delivered to Mortgagee or such successor in interest.
Each lessee or other occupant under each Lease entered into after the date of
this Mortgage, upon request by Mortgagee or such successor in interest, shall
execute and deliver an instrument or instruments confirming such attornment. In
addition, Mortgagor agrees that each Lease entered into after

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<PAGE> 20

the date of this Mortgage shall include language to the effect of subsections
(d)-(f) of this Section.

11. Further Assurances/Estoppel Certificates. To further assure
Mortgagee's rights under this Mortgage, Mortgagor agrees upon demand of
Mortgagee to do any act or execute any additional documents (including, but not
limited to, security agreements on any personalty included or to be included in
the Mortgaged Property and a separate assignment of each Lease in recordable
form) as may be required by Mortgagee to confirm the lien of this Mortgage and
all other rights or benefits conferred on Mortgagee. Mortgagor, within 5
business days after request, shall deliver, in form and substance satisfactory
to Mortgagee, a written statement, duly acknowledged, setting forth the amount
of the Obligations, and whether any offsets, claims, counterclaims or defenses
exist against the Obligations and certifying as to such other matters as
Mortgagee shall reasonably request.

12. Mortgagee's Right to Perform. If Mortgagor fails to perform
any of the covenants or agreements of Mortgagor hereunder, Mortgagee, without
waiving or releasing Mortgagor from any obligation or default under this
Mortgage, may, at any time (but shall be under no obligation to) pay or perform
the same, and the amount or cost thereof, with interest at the Default Rate,
shall immediately be due from Mortgagor to Mortgagee and the same shall be
secured by this Mortgage and shall be a lien on the Mortgaged Property prior to
any right, title to, interest in or claim upon the Mortgaged Property attaching
subsequent to the lien of this Mortgage. No payment or advance of money by
Mortgagee under this Section shall be deemed or construed to cure Mortgagor's
default or waive any right or remedy of Mortgagee.

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<PAGE> 21

Mortgagee and its agents and employees access to the Premises to remove
Hazardous Material if required by applicable Legal Requirements and if Mortgagor
has failed to so remove after notice. Mortgagor agrees to defend, indemnify and
hold Mortgagee free and harmless from and against all loss, costs, damage and
expense (including attorneys' fees and costs and consequential damages)
Mortgagee may sustain by reason of (i) the imposition or recording of a lien by
any Governmental Authority with respect to the Mortgaged Property pursuant to
any Legal Requirement relating to hazardous or toxic wastes or substances or the
removal thereof ("Hazardous Material Laws"); (ii) claims of any private
parties regarding violations of Hazardous Material Laws with respect to the
Mortgaged Property; (iii) costs and expenses (including, without limitation,
attorneys' fees and fees incidental to the securing of repayment of such costs
and expenses) incurred by Mortgagor or Mortgagee in connection with the removal
of any such lien with respect to the Mortgaged Property or in connection with
Mortgagor's or Mortgagee's compliance with any Hazardous Material Laws with
respect to the Mortgaged Property; and (iv) the assertion against Mortgagee by
any party of any claim in connection with Hazardous Material with respect to the
Mortgaged Property.

(b) For the purposes of this Mortgage, "Hazardous Material"
means and includes any hazardous, nuclear, toxic or dangerous waste, substance
or material defined as such in (or for purposes of) the Comprehensive
Environmental Response, Compensation, and Liability Act, any so-called
"Superfund" or "Superlien" law, or any other Legal Requirement regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, nuclear, toxic or dangerous waste, substance or material, as now or
at any time in effect.

(c) The foregoing indemnification shall be a recourse
obligation of Mortgagor and shall survive repayment of the Obligations,
notwithstanding any limitations on recourse which may be contained herein or in
any Security Documents or the delivery of any satisfaction, release or release
deed, discharge or deed of reconveyance, or the assignment of this Mortgage by
Mortgagee; provided, however, that the foregoing indemnification shall apply
only to matters arising prior to any taking of possession of the Premises by
Mortgagee or any other person succeeding to the interest of Mortgagee pursuant
to the terms hereof; further provided, that the foregoing indemnification shall
not apply to loss, costs and the like arising from the gross negligence or
wilful misconduct of the party seeking indemnification.

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<PAGE> 22

currently present in the Premises, shall promptly comply with such Legal
Requirements, at Mortgagor's expense. If Mortgagor shall fail to so comply,
Mortgagee may do whatever is necessary to comply with the applicable Legal
Requirement, and the costs thereof, with interest at the Default Rate, shall be
immediately due from Mortgagor to Mortgagee and the same shall be added to the
Obligations and be secured by this Mortgage. Mortgagor shall give Mortgagee and
its agents and employees, upon prior notice and at reasonable times, access to
the Premises to remove such asbestos or substances if required by applicable
Legal Requirements and if Mortgagor has failed to so remove after notice.
Mortgagor shall defend, indemnify, and save Mortgagee harmless from all loss,
costs, damages and expense (including attorneys' fees and costs and
consequential damages) asserted or proven against Mortgagee by any party, as a
result of the presence of such substances or any removal or compliance with such
Legal Requirements. The foregoing indemnification shall be a recourse obligation
of Mortgagor and shall survive repayment of the Obligations, notwithstanding any
limitation on recourse which may be contained herein or in any of the Security
Documents or the delivery of any satisfaction, release or release deed,
discharge or deed of reconveyance, or the assignment of this Mortgage by
Mortgagee; provided, however, that the foregoing indemnification shall apply
only to matters arising prior to any taking of possession of the Premises by
Mortgagee or any other person succeeding to the interest of Mortgagee pursuant
to the terms hereof; further provided, that the foregoing indemnification shall
not apply to loss, costs and the like arising from the gross negligence or
wilful misconduct of the party seeking indemnification.

15. Event of Default. The occurrence of an "Event of Default"
(as defined in the Indenture) shall constitute an Event of Default hereunder.

16. Remedies. (a) Upon the occurrence of any Event of
Default, in addition to any other rights and remedies Mortgagee may have
pursuant to the Security Documents, or as provided by law, and without
limitation, (a) if such event is an Event of Default described in subsections
8.1(ix) or 8.1(x) of the Indenture, automatically the Obligations immediately
shall become due and payable, and (b) if such event is any other Event of
Default, by notice to Mortgagor, Mortgagee may declare the Obligations to be
immediately due and payable. Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived. In addition, upon and during the continuance of any Event of
Default, Mortgagee may immediately take such action, without notice or demand,
as it deems advisable to protect and enforce its rights against Mortgagor and in
and to the Mortgaged Property, including, but not limited to, the following
actions, each of which may be pursued concurrently or otherwise, at such

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time and in such manner as Mortgagee may determine, in its sole discretion,
without impairing or otherwise affecting the other rights and remedies of
Mortgagee:

(i) Mortgagee may, to the extent permitted by applicable law,
(A) institute and maintain an action of mortgage foreclosure against
all or any part of the Mortgaged Property, (B) institute and maintain
an action on the Guaranty, (C) sell all or part of the Mortgaged
Property (Mortgagor expressly granting to Mortgagee the power of sale),
or (D) take such other action at law or in equity for the enforcement
of this Mortgage or any of the Security Documents as the law may allow.
Mortgagee may proceed in any such action to final judgment and
execution thereon for all sums due hereunder, together with interest
thereon at the Default Rate and all costs of suit, including, without
limitation, reasonable attorneys' fees and disbursements. Interest at
the Default Rate shall be due on any judgment obtained by Mortgagee
from the date of judgment until actual payment is made of the full
amount of the judgment.

(ii) Mortgagee may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the
Mortgaged Property or any other collateral as security for the
Obligations, enter into and upon the Mortgaged Property and each and
every part thereof and exclude Mortgagor and its agents and employees
therefrom without liability for trespass, damage or otherwise
(Mortgagor hereby agreeing to surrender possession of the Mortgaged
Property to Mortgagee upon demand at any such time) and use, operate,
manage, maintain and control the Mortgaged Property and every part
thereof. Following such entry and taking of possession, Mortgagee shall
be entitled, without limitation, (x) to lease all or any part or parts
of the Mortgaged Property for such periods of time and upon such
conditions as Mortgagee may, in its discretion, deem proper, (y) to
enforce, cancel or modify any Lease and (z) generally to execute, do
and perform any other act, deed, matter or thing concerning the
Mortgaged Property as Mortgagee shall deem appropriate as fully as
Mortgagor might do.

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as provided herein, such sale may be made subject to the continuing
lien of this Mortgage for the unmatured portion of the secured
Obligations, but as to such unmatured part, this Mortgage, and the lien
hereof, shall remain in full force and effect just as though no partial
foreclosure sale had been made under the provisions of this Section.
Notwithstanding the filing of any partial foreclosure or entry of a
decree of sale therein, Mortgagee may elect at any time prior to a
partial foreclosure sale pursuant to such decree, to discontinue such
partial foreclosure and to accelerate the Obligations secured hereby by
reason of any uncured Event of Default upon which such partial
foreclosure was predicated or by reason of any other Event of Default,
and proceed with full foreclosure proceedings. It is further agreed
that one or more foreclosure sales may be made pursuant to partial
foreclosures without exhausting the right of full or partial
foreclosure sale for any unmatured part of the secured Obligations, it
being the purpose to provide for a partial foreclosure sale of the
Obligations secured hereby without exhausting the power to foreclose
for any other part of the Obligations whether matured at the time or
subsequently maturing, and without exhausting any right of acceleration
and full foreclosure.

(b) The holder of this Mortgage, in any action to foreclose it,
shall be entitled to the appointment of a receiver. In case of a foreclosure
sale, the Real Estate may be sold, at Mortgagee's election, in one parcel or in
more than one parcel and Mortgagee is specifically empowered, (without being
required to do so, and in its sole and absolute discretion) to cause successive
sales of portions of the Mortgaged Property to be held.

(c) In the event of any breach of any of the covenants,
agreements, terms or conditions contained in this Mortgage, and notwithstanding
to the contrary any exculpatory or non-recourse language which may be contained
herein, Mortgagee shall be entitled to enjoin such breach and obtain specific
performance of any covenant, agreement, term or condition and Mortgagee shall
have the right to invoke any equitable right or remedy as though other remedies
were not provided for in this Mortgage.

(d) The proceeds of any foreclosure or sale of the Mortgaged
Property, or any portion thereof, shall be distributed and applied in accordance
with all applicable provisions of the Indenture.

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<PAGE> 25

bid for and acquire the Mortgaged Property or any part thereof. In lieu of
paying cash therefor, Mortgagee may make settlement for the purchase price by
crediting upon the Obligations or other sums secured by this Mortgage the net
sales price after deducting therefrom the expenses of sale and the cost of the
action and any other sums which Mortgagee is authorized to deduct under this
Mortgage. In such event, this Mortgage, the Guaranty and documents evidencing
expenditures secured hereby may be presented to the person or persons conducting
the sale in order that the amount so used or applied may be credited upon the
Obligations as having been paid.

18. Appointment of Receiver. If an Event of Default shall have
occurred and be continuing, Mortgagee as a matter of right and without notice to
Mortgagor, unless otherwise required by applicable law, and without regard to
the adequacy or inadequacy of the Mortgaged Property or any other collateral as
security for the Obligations or the interest of Mortgagor therein, shall have
the right to apply to any court having jurisdiction to appoint a receiver or
receivers or other manager of the Mortgaged Property, and Mortgagor hereby
irrevocably consents to such appointment and waives notice of any application
therefor (except as may be required by law). Any such receiver or receivers
shall have all the usual powers and duties of receivers in like or similar cases
and all the powers and duties of Mortgagee in case of entry as provided in this
Mortgage, including, without limitation and to the extent permitted by law, the
right to enter into leases of all or any part of the Mortgaged Property, and
shall continue as such and exercise all such powers until the date of
confirmation of sale of the Mortgaged Property unless such receivership is
sooner terminated.

19. Extension, Release, etc. (a) Without affecting the lien or
charge of this Mortgage upon any portion of the Mortgaged Property not then or
theretofore released as security for the full amount of the Obligations,
Mortgagee may, from time to time and without notice, agree to (i) release any
person liable for the Obligations, (ii) extend the maturity or alter any of the
terms of the Obligations or any guaranty thereof, (iii) grant other indulgences,
(iv) release or reconvey, or cause to be released or reconveyed at any time at
Mortgagee's option any parcel, portion or all of the Mortgaged Property, (v)
take or release any other or additional security for any obligation herein
mentioned, or (vi) make compositions or other arrangements with debtors in
relation thereto. If at any time this Mortgage shall secure less than all of the
principal amount of the Obligations, it is expressly agreed that any repayments
of the principal amount of the Obligations shall not reduce the amount of the
lien of this Mortgage until the lien amount shall equal the principal amount of
the Obligations outstanding.

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<PAGE> 26

(b) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged Property or upon any other
property of Mortgagor shall affect the lien of this Mortgage or any liens,
rights, powers or remedies of Mortgagee hereunder, and such liens, rights,
powers and remedies shall continue unimpaired.

(c) If Mortgagee shall have the right to foreclose this
Mortgage, Mortgagor authorizes Mortgagee at its option to foreclose the lien of
this Mortgage subject to the rights of any tenants of the Mortgaged Property.
The failure to make any such tenants parties defendant to any such foreclosure
proceeding and to foreclose their rights will not be asserted by Mortgagor as a
defense to any proceeding instituted by Mortgagee to collect the Obligations or
to foreclose the lien of this Mortgage.

(d) Unless expressly provided otherwise, in the event that
ownership of this Mortgage and title to the Mortgaged Property or any estate
therein shall become vested in the same person or entity, this Mortgage shall
not merge in such title but shall continue as a valid lien on the Mortgaged
Property for the amount secured hereby.

20. Assignment of Rents. Mortgagor hereby assigns to
Mortgagee the Rents and Additional Rents as further security for the payment of
the Obligations and performance of the Obligations, and Mortgagor grants to
Mortgagee the right to enter the Mortgaged Property for the purpose of
collecting the same and to let the Mortgaged Property or any part thereof, and
to apply the Rents and Additional Rents on account of the Obligations. The
foregoing assignment and grant is present and absolute and shall continue in
effect until the Obligations are paid in full, but Mortgagee hereby waives the
right to enter the Mortgaged Property for the purpose of collecting the Rents
and Additional Rents and Mortgagor shall be entitled to collect, receive, use
and retain the Rents and Additional Rents; such right of Mortgagor to collect,
receive, use and retain the Rents and Additional Rents may be revoked by
Mortgagee upon and during the continuance of any Event of Default under this
Mortgage by giving not less than five days' written notice of such revocation to
Mortgagor; in the event such notice is given, Mortgagor shall pay over to
Mortgagee, or to any receiver appointed to collect the Rents, any lease security
deposits, shall pay monthly in advance to Mortgagee, or to any such receiver,
the fair and reasonable rental value as determined by Mortgagee for the use and
occupancy of the Mortgaged Property or such part thereof as may be in the
possession of Mortgagor or any affiliate of Mortgagor, and upon default in any
such payment Mortgagor and any such affiliate will vacate and surrender the
possession of the Mortgaged Property to Mortgagee or to such receiver, and in
default thereof may be evicted by summary proceedings or otherwise. Mortgagor
shall not accept prepayments of installments of Rent to become due for a

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<PAGE> 27

period of more than one month in advance (except for security deposits and
estimated payments of percentage rent, if any).

21. Trust Funds. All lease security deposits of the
Real Estate held by Mortgagor shall be treated as trust funds not to be
commingled with any other funds of Mortgagor. Within 10 days after request by
Mortgagee, Mortgagor shall furnish Mortgagee satisfactory evidence of compliance
with this subsection, together with a statement of all lease security deposits
by lessees and copies of all Leases not previously delivered to Mortgagee, which
statement shall be certified by Mortgagor.

22. Additional Rights. The holder of any subordinate
lien on the Mortgaged Property shall have no right to terminate any Lease
whether or not such Lease is subordinate to this Mortgage nor shall any holder
of any subordinate lien join any tenant under any Lease in any action to
foreclose the lien or modify, interfere with, disturb or terminate the rights of
any tenant under any Lease. By recordation of this Mortgage all subordinate
lienholders are subject to and notified of this provision, and any action taken
by any such lienholder contrary to this provision shall be null and void. Upon
and during the continuance of any Event of Default, Mortgagee may, in its sole
discretion and without regard to the adequacy of its security under this
Mortgage, apply all or any part of any amounts on deposit with Mortgagee under
this Mortgage against all or any part of the Obligations. Any such application
shall not be construed to cure or waive any Default or Event of Default or
invalidate any act taken by Mortgagee on account of such Default or Event of
Default.

23. Changes in Method of Taxation. In the event of the
passage after the date hereof of any law of any Governmental Authority deducting
from the value of the Premises for the purposes of taxation any lien thereon, or
changing in any way the laws for the taxation of mortgages or debts secured
thereby for federal, state or local purposes, or the manner of collection of any
such taxes, and imposing a tax, either directly or indirectly, on mortgages or
debts secured thereby, Mortgagor shall, if permitted by applicable law, assume
as an Obligation hereunder the payment of any tax so imposed until full payment
of the Obligations.

24. Notices. All notices, requests, demands and other
communications hereunder shall be given in the manner provided in the Indenture.

25. No Oral Modification. This Mortgage may not be changed or
terminated orally. Any agreement made by Mortgagor and Mortgagee after the date
of this Mortgage relating to this

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<PAGE> 28

Mortgage shall be superior to the rights of the holder of any intervening or
subordinate lien or encumbrance.

26. Partial Invalidity. In the event any one or more of
the provisions contained in this Mortgage shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but each shall be
construed as if such invalid, illegal or unenforceable provision had never been
included. Notwithstanding anything to the contrary contained in this Mortgage or
in any provisions of the Obligations or Security Documents, the obligations of
Mortgagor and of any other obligor under the Obligations or Security Documents
shall be subject to the limitation that Mortgagee shall not charge, take or
receive, nor shall Mortgagor or any other obligor be obligated to pay to
Mortgagee, any amounts constituting interest in excess of the maximum rate
permitted by law to be charged by Mortgagee.

27. Waiver of Right of Redemption and Other Rights. (a)
Mortgagor hereby voluntarily and knowingly releases and waives any and all
rights to retain possession of the Mortgaged Property upon and during the
continuance of an Event of Default hereunder and any and all rights of
redemption from sale under any order or decree of foreclosure (whether full or
partial), on its own behalf, on behalf of all persons claiming or having an
interest (direct or indirectly) by, through or under each constituent of
Mortgagor and on behalf of each and every person acquiring any interest in the
Mortgaged Property subsequent to the date hereof, it being the intent hereof
that any and all such rights of redemption of each constituent of Mortgagor and
all such other persons are and shall be deemed to be hereby waived to the
fullest extent permitted by applicable law or replacement statute. Each
constituent of Mortgagor shall not invoke or utilize any such law or laws or
otherwise hinder, delay, or impede the execution of any right, power, or remedy
herein or otherwise granted or delegated to the Mortgagee, but shall permit the
execution of every such right, power, and remedy as though no such law or laws
had been made or enacted.

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<PAGE> 29

redemption, or requiring foreclosure of this Mortgage before exercising any
other remedy granted hereunder and Mortgagor, for Mortgagor and its successors
and assigns, and for any and all persons ever claiming any interest in the
Mortgaged Property, to the extent permitted by law, hereby waives and releases
all rights of redemption, valuation, appraisement, stay of execution, notice of
election to mature or declare due the whole of the secured indebtedness and
marshalling in the event of foreclosure of the liens hereby created.

28. Remedies Not Exclusive. Mortgagee shall be entitled
to enforce payment of the Obligations and performance of the Obligations and to
exercise all rights and powers under this Mortgage or under any of the other
Security Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the Obligations may now or hereafter be otherwise
secured, whether by mortgage, security agreement, pledge, lien, assignment or
otherwise. Neither the acceptance of this Mortgage nor its enforcement, shall
prejudice or in any manner affect Mortgagee's right to realize upon or enforce
any other security now or hereafter held by Mortgagee, it being agreed that
Mortgagee shall be entitled to enforce this Mortgage and any other security now
or hereafter held by Mortgagee in such order and manner as Mortgagee may
determine in its absolute discretion. No remedy herein conferred upon or
reserved to Mortgagee is intended to be exclusive of any other remedy herein or
by law provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute. Every power or remedy given by any of the
Security Documents to Mortgagee or to which it may otherwise be entitled, may be
exercised, concurrently or independently, from time to time and as often as may
be deemed expedient by Mortgagee. In no event shall Mortgagee, in the exercise
of the remedies provided in this Mortgage (including, without limitation, in
connection with the assignment of Rents to Mortgagee, or the appointment of a
receiver and the entry of such receiver on to all or any part of the Mortgaged
Property), be deemed a "mortgagee in possession," and Mortgagee shall not in any
way be made liable for any act, either of commission or omission, in connection
with the exercise of such remedies.

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<PAGE> 30

its election, commence or consolidate in a single foreclosure action all
foreclosure proceedings against all such collateral securing the Obligations
(including the Mortgaged Property), which action may be brought or consolidated
in the courts of any county in which any of such collateral is located.
Mortgagor acknowledges that the right to maintain a consolidated foreclosure
action is a specific inducement to Mortgagee to extend the Obligations, and
Mortgagor expressly and irrevocably waives any objections to the commencement or
consolidation of the foreclosure proceedings in a single action and any
objections to the laying of venue or based on the grounds of forum
non conveniens which it may now or hereafter have. Mortgagor
further agrees that if Mortgagee shall be prosecuting one or more foreclosure or
other proceedings against a portion of the Mortgaged Property or against any
collateral other than the Mortgaged Property, which collateral directly or
indirectly secures the Obligations, or if Mortgagee shall have obtained a
judgment of foreclosure and sale or similar judgment against such collateral,
then, whether or not such proceedings are being maintained or judgments were
obtained in or outside the State in which the Premises are located, Mortgagee
may commence or continue foreclosure proceedings and exercise its other remedies
granted in this Mortgage against all or any part of the Mortgaged Property and
Mortgagor waives any objections to the commencement or continuation of a
foreclosure of this Mortgage or exercise of any other remedies hereunder based
on such other proceedings or judgments, and waives any right to seek to dismiss,
stay, remove, transfer or consolidate either any action under this Mortgage or
such other proceedings on such basis. Neither the commencement nor continuation
of proceedings to foreclose this Mortgage nor the exercise of any other rights
hereunder nor the recovery of any judgment by Mortgagee in any such proceedings
shall prejudice, limit or preclude Mortgagee's right to commence or continue one
or more foreclosure or other proceedings or obtain a judgment against any other
collateral (either in or outside the State in which the Premises are located)
which directly or indirectly secures the Obligations, and Mortgagor expressly
waives any objections to the commencement of, continuation of, or entry of a
judgment in such other proceedings or exercise of any remedies in such
proceedings based upon any action or judgment connected to this Mortgage, and
Mortgagor also waives any right to seek to dismiss, stay, remove, transfer or
consolidate either such other proceedings or any action under this Mortgage on
such basis. It is expressly understood and agreed that to the fullest extent
permitted by law, Mortgagee may, at its election, cause the sale of all
collateral which is the subject of a single foreclosure action at either a
single sale or at multiple sales conducted simultaneously and take such other
measures as are appropriate in order to effect the agreement of the parties to
dispose of and administer all collateral securing the Obligations (directly or
indirectly) in the most economical and least time-consuming manner.

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<PAGE> 31

30. Expenses; Indemnification. (a) Mortgagor shall pay
or reimburse Mortgagee for all expenses incurred by Mortgagee before and after
the date of this Mortgage with respect to any and all transactions contemplated
by this Mortgage including without limitation, the preparation of any document
reasonably required hereunder or any amendment, modification, restatement or
supplement to this Mortgage, the delivery of any consent, non-disturbance
agreement or similar document in connection with this Mortgage or the
enforcement of any of Mortgagee's rights. Such expenses shall include, without
limitation, all title and conveyancing charges, recording and filing fees and
taxes, mortgage taxes, intangible personal property taxes, escrow fees, revenue
and tax stamp expenses, insurance premiums (including title insurance premiums),
title search and title rundown charges, brokerage commissions, finders' fees,
placement fees, court costs, surveyors', photographers', appraisers',
architects', engineers', consulting professional's, accountants' and attorneys'
fees and disbursements. Mortgagor acknowledges that from time to time Mortgagor
may receive statements for such expenses, including without limitation
attorneys' fees and disbursements. Mortgagor shall pay such statements promptly
upon receipt.

(b) If (i) any action or proceeding shall be commenced by
Mortgagee (including but not limited to any action to foreclose this Mortgage or
to collect the Obligations), or any action or proceeding is commenced to which
Mortgagee is made a party, or in which it becomes necessary to defend or uphold
the lien of this Mortgage (including, without limitation, any proceeding or
other action relating to the bankruptcy, insolvency or reorganization of
Mortgagor and/or any Subsidiary), or in which Mortgagee is served with any legal
process, discovery notice or subpoena and (ii) in each of the foregoing
instances such action or proceeding in any manner relates to or arises out of
this Mortgage or Mortgagee's acceptance of the Guaranty, then Mortgagor will
promptly reimburse or pay to Mortgagee all of the expenses which have been
incurred by Mortgagee with respect to the foregoing (including reasonable
counsel fees and disbursements), together with interest thereon at the Default
Rate, and any such sum and the interest thereon shall be a lien on the Mortgaged
Property, prior to any right, or title to, interest in or claim upon the
Mortgaged Property attaching or accruing subsequent to the lien of this
Mortgage, and shall be deemed to be secured by this Mortgage. In any action or
proceeding to foreclose this Mortgage, or to recover or collect the Obligations,
the provisions of law respecting the recovering of costs, disbursements and
allowances shall prevail unaffected by this covenant.

(c) Mortgagor shall indemnify and hold harmless Mortgagee and
Mortgagee's affiliates, and the respective directors, officers, agents and
employees of Mortgagee and its

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<PAGE> 32

affiliates from and against all claims, damages, losses and liabilities
(including, without limitation, reasonable attorneys' fees and expenses) arising
out of or based upon any matter related to this Mortgage, the Mortgaged Property
or the occupancy, ownership, maintenance or management of the Mortgaged Property
by Mortgagor, including, without limitation, any claims based on the alleged
acts or omissions of any employee or agent of Mortgagor; provided, however, that
the foregoing indemnification shall not apply to claims, damages and the like
arising from the gross negligence or wilful misconduct of the party seeking
indemnification. This indemnification shall be in addition to any other
liability which Mortgagor may otherwise have to Mortgagee.

31. Successors and Assigns. All covenants of Mortgagor
contained in this Mortgage are imposed solely and exclusively for the benefit of
Mortgagee and its successors and assigns, and no other person or entity shall
have standing to require compliance with such covenants or be deemed, under any
circumstances, to be a beneficiary of such covenants, any or all of which may be
freely waived in whole or in part by Mortgagee at any time if in its sole
discretion it deems such waiver advisable. All such covenants of Mortgagor shall
run with the land and bind Mortgagor, the successors and assigns of Mortgagor
(and each of them) and all subsequent owners, encumbrancers and tenants of the
Mortgaged Property, and shall inure to the benefit of Mortgagee, its successors
and assigns. The word "Mortgagor" shall be construed as if it read "Mortgagors"
whenever the sense of this Mortgage so requires and if there shall be more than
one Mortgagor, the obligations of the Mortgagors shall be joint and several.

32. No Waivers, etc. Any failure by Mortgagee to insist upon
the strict performance by Mortgagor of any of the terms and provisions of this
Mortgage shall not be deemed to be a waiver of any of the terms and provisions
hereof, and Mortgagee, notwithstanding any such failure, shall have the right
thereafter to insist upon the strict performance by Mortgagor of any and all of
the terms and provisions of this Mortgage to be performed by Mortgagor.
Mortgagee may release, regardless of consideration and without the necessity for
any notice to or consent by the holder of any subordinate lien on the Mortgaged
Property, any part of the security held for the Obligations secured by this
Mortgage without, as to the remainder of the security, in anywise impairing or
affecting the lien of this Mortgage or the priority of such lien over any
subordinate lien.

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<PAGE> 33

laws of the State of New York, without regard to principles of conflict of law,
and for purposes of consistency, Mortgagor agrees that in any in personam
proceeding related to this Mortgage the rights of the parties to this Mortgage
shall also be governed by and construed in accordance with the laws of the State
of New York governing contracts made and to be performed in that State, without
regard to principles of conflict of law.

34. Waiver of Trial by Jury. Mortgagor and Mortgagee each
hereby irrevocably and unconditionally waive trial by jury in any action, claim,
suit or proceeding relating to this Mortgage and for any counterclaim brought
therein. Mortgagor hereby waives all rights to interpose any counterclaim in any
suit brought by Mortgagee hereunder (other than compulsory counterclaims and
other counterclaims that must be interposed in connection with such suit under
applicable law) and all rights to have any such suit consolidated with any
separate suit, action or proceeding (it being understood and agreed, however,
that Mortgagor shall have the right to raise any such claim in a separate suit,
action or proceeding).

35. Certain Definitions. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Mortgage shall be used interchangeably in singular or plural form and the
word "Mortgagor" shall mean "each Mortgagor or any subsequent owner or owners of
the Mortgaged Property or any part thereof or interest therein," the word
"Mortgagee" shall mean "Mortgagee or any successor collateral agent to the
Mortgagee," the word "person" shall include any individual, corporation,
partnership, trust, unincorporated association, government, governmental
authority, or other entity, and the words "Mortgaged Property" shall include any
portion of the Mortgaged Property or interest therein. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa. The captions in this Mortgage are for
convenience of reference only and in no way limit or amplify the provisions
hereof.

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<PAGE> 34

respect to both the real and personal property constituting the Mortgaged
Property in accordance with Mortgagee's rights, powers and remedies with respect
to the real property (in which event the default provisions of the Code shall
not apply). If Mortgagee shall elect to proceed under the Code, then five days'
notice of sale of the personal property shall be deemed reasonable notice and
the reasonable expenses of retaking, holding, preparing for sale, selling and
the like incurred by Mortgagee shall include, but not be limited to, attorneys'
fees and legal expenses. At Mortgagee's request, Mortgagor shall assemble the
personal property and make it available to Mortgagee at a place designated by
Mortgagee which is reasonably convenient to both parties.

(b) Mortgagor and Mortgagee agree, to the extent permitted by
law, that: (i) all of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) this Mortgage
upon recording or registration in the real estate records of the proper office
shall constitute a financing statement filed as a "fixture filing" within the
meaning of the Code; and (iii) the addresses of Mortgagor and Mortgagee are as
set forth on the first page of this Mortgage.

(c) Mortgagor, upon request by Mortgagee from time to time,
shall execute, acknowledge and deliver to Mortgagee one or more separate
security agreements, in form satisfactory to Mortgagee, covering all or any part
of the Mortgaged Property and will further execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, any financing statement,
affidavit, continuation statement or certificate or other document as Mortgagee
may request in order to perfect, preserve, maintain, continue or extend the
security interest under and the priority of this Mortgage and such security
instrument. Mortgagor further agrees to pay to Mortgagee on demand all costs and
expenses incurred by Mortgagee in connection with the preparation, execution,
recording, filing and re-filing of any such document and all reasonable costs
and expenses of any record searches for financing statements Mortgagee shall
reasonably require. Mortgagor shall from time to time, on request of Mortgagee,
deliver to Mortgagee an inventory in reasonable detail of any of the Mortgaged
Property which constitutes personal property. If Mortgagor shall fail to furnish
any financing or continuation statement within 10 days after request by
Mortgagee, then pursuant to the provisions of the Code, Mortgagor hereby
authorizes Mortgagee, without the signature of Mortgagor, to execute and file
any such financing and continuation statements. The filing of any financing or
continuation statements in the records relating to personal property or chattels
shall not be construed as in any way impairing the right of Mortgagee to proceed
against any personal property encumbered by this Mortgage as real property, as
set forth above.

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<PAGE> 35

37. Release Upon Payment and Discharge of Mortgagor's
Obligations. Mortgagee shall release this Mortgage and the lien hereof by proper
instrument upon payment and discharge of all Obligations secured hereby
(including payment of reasonable expenses incurred by Mortgagee in connection
with the execution of such release) and upon full and complete performance of
all of the Obligations. Mortgagee shall otherwise release this Mortgage and the
lien hereof in accordance with the terms of Section __ of the Indenture.

38. Maximum Additional Indebtedness. This Mortgage secures not
only said indebtedness but also any renewal or extension of any part or all of
said indebtedness; any interest on any such renewal or extension; and any
"Future Advances," as hereinafter defined. Any portion of said indebtedness
which is incurred after the execution of this Mortgage pursuant to any
instrument referring to this Mortgage, or which is evidenced by any instrument
stating that said indebtedness is secured by this Mortgage, shall be defined as
a "Future Advance". The maximum additional indebtedness which may be secured
hereby shall not exceed $50,000,000.00. This Section shall serve as a notice to
any subsequent holder of a lien, encumbrance, security title or other claim in
and to the Mortgaged Property, or of the Mortgaged Property, that Mortgagee
claims the priority of the lien of this Mortgage for all such Future Advances,
as well as for all other obligations secured hereby. This Section shall also be
notice that Mortgagee reserves the right, upon agreement thereto with the
Mortgagor, to modify, extend, consolidate, and renew the said indebtedness, or
any portions thereof, and the rate of interest charged thereon, without
affecting the priority of the lien created by this Mortgage.

39. Consistency with Other Documents. If any provision hereof
conflicts with any provisions of the Indenture, then the terms of the Indenture
shall control to the extent of such conflict.

This Mortgage has been duly executed by Mortgagor on the date
first above written.

ATTEST: NEWPORT STEEL CORPORATION

By: ________________________ By: ________________________
Name: Name:
Title: [Assistant] Secretary Title: [Vice] President

[SEAL]

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<PAGE> 36

STATE OF ______________ )
) SS.
COUNTY OF _____________ )

The foregoing instrument was acknowledged before me this ___
day of ___________________, 1995, by _________________ and _________________,
[Vice] President and [Assistant] Secretary, respectively, of Newport Steel
Corporation, a Kentucky corporation, on behalf of said corporation.

_____________________________
Notary Public

[Notarial Seal]

My Commission Expires:

_____________________

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<PAGE> 37

Schedule A

Description of Real Property

[Attach Legal Description of all parcels]

BEING the same property acquired by Mortgagor, a
____________________ corporation, by Deed dated ______________, recorded on
_________________, in Deed Book ________, Page ____________, in the Office of
the County Clerk of ______________ County, Kentucky.

<PAGE> 1
EXHIBIT 4.3

DRAFT
7/07/95
Recording requested by, and {Pennsylvania}
when recorded return to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

ATTN: F. Robert Wheeler, Jr., Esq.

MORTGAGE,
ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

from

KOPPEL STEEL CORPORATION, Mortgagor

THE HUNTINGTON NATIONAL BANK,
as Trustee and Collateral Agent, Mortgagee

DATED AS OF __________ __, 1995

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
<S> <C>
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Granting Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . 6

2. Payment and Performance of Obligations . . . . . . . . . . . . . 7

3. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. Payment of Taxes and Other Impositions . . . . . . . . . . . . . 8

5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

6. Restrictions on Liens, Encumbrances and Sales . . . . . . . . . 13

7. Relationship of Mortgagee and Mortgagor . . . . . . . . . . . . 14

8. Maintenance; No Alteration; Inspection; Utilities . . . . . . . 14

9. Condemnation/Eminent Domain . . . . . . . . . . . . . . . . . . 15

10. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

11. Further Assurances/Estoppel Certificates . . . . . . . . . . . . 17

12. Mortgagee's Right to Perform . . . . . . . . . . . . . . . . . . 18

13. Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . 18

14. Asbestos . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

15. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 20

16. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

17. Right of Mortgagee to Credit Sale . . . . . . . . . . . . . . . 23

18. Appointment of Receiver . . . . . . . . . . . . . . . . . . . . 23

19. Extension, Release, etc. . . . . . . . . . . . . . . . . . . . . 24

20. Assignment of Rents . . . . . . . . . . . . . . . . . . . . . . 24

21. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 25

22. Additional Rights . . . . . . . . . . . . . . . . . . . . . . . 25

23. Changes in Method of Taxation . . . . . . . . . . . . . . . . . 26

24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>

<PAGE> 3

<TABLE>
<CAPTION>
<S> <C>
25. No Oral Modification . . . . . . . . . . . . . . . . . . . . . . 26

26. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . 26

27. Waiver of Right of Redemption and Other Rights . . . . . . . . . 26

28. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . 27

29. Multiple Security . . . . . . . . . . . . . . . . . . . . . . . 28

30. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . 29

31. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 30

32. No Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . . 31

33. Governing Law, etc. . . . . . . . . . . . . . . . . . . . . . . 31

34. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . 31

35. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 32

36. Security Agreement under Uniform Commercial Code . . . . . . . . 32

37. Release Upon Payment and Discharge of Mortgagor's Obligations . 33

40. Consistency with Other Documents . . . . . . . . . . . . . . . . 34
</TABLE>

SCHEDULES

Schedule A - Description of Real Property

<PAGE> 4

MORTGAGE, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

THIS MORTGAGE, ASSIGNMENT OF RENTS AND LEASES AND SECURITY
AGREEMENT, dated as of __________ __, 1995 is made by KOPPEL STEEL CORPORATION,
a Pennsylvania corporation ("Mortgagor"), whose address is
___________________, to THE HUNTINGTON NATIONAL BANK, as Trustee (in such
capacity, the "Trustee") under the Indenture referred to below, as
collateral agent ("Mortgagee"), whose mailing address is 540 Madison
Avenue, Covington, Kentucky 41011. References to this "Mortgage" shall
mean this instrument and any and all renewals, modifications, amendments,
supplements, extensions, consolidations, substitutions, spreaders and
replacements of this instrument.

Background

B. Mortgagor is a wholly owned subsidiary of NS Group, Inc., a
Kentucky corporation (the "Company") and is a Recourse Subsidiary (as defined in
the Indenture referred to below).

C. The Company and Mortgagee are parties to that Indenture
dated as of _______________ __, 1995 (as the same may be amended, modified or
otherwise supplemented from time to time, the "Indenture"; capitalized
terms not defined herein shall have the meanings ascribed thereto in the
Indenture) for the benefit of Holders of _____% Senior Secured Notes due 2003 in
the aggregate principal amount of $125,000,000.00 (the "Securities")
issued by the Company.

E. It is a condition precedent to the purchase of the
Securities from the Company that the Mortgagor shall have executed and delivered
that certain Subsidiary Security Agreement

<PAGE> 5

Granting Clauses

(A) all right, title and interest of Mortgagor in and to the
Real Estate;

<PAGE> 6

(B) all the estate, right, title, claim or demand whatsoever of
Mortgagor, in possession or expectancy, in and to the Real Estate or any
part thereof;

(C) all right, title and interest of Mortgagor in, to and under
all easements, rights of way, gores of land, streets, ways, alleys,
passages, sewer rights, waters, water courses, water and riparian rights,
development rights, air rights, mineral rights and all estates, rights,
titles, interests, privileges, licenses, tenements, hereditaments and
appurtenances belonging, relating or appertaining to the Real Estate, and
any reversions and remainders thereof and all land lying in the bed of any
street, road or avenue, in front of or adjoining the Real Estate to the
center line thereof;

(D) all right, title and interest of Mortgagor in and to all of
the fixtures, chattels, business machines, machinery, apparatus, equipment,
furnishings, fittings and articles of personal property of every kind and
nature whatsoever, and all appurtenances and additions thereto and
substitutions or replacements thereof (together with, in each case,
attachments, components, parts and accessories) currently owned or
subsequently acquired by Mortgagor and now or subsequently attached to, or
contained in or used or usable in any way in connection with any operation
or letting of the Real Estate, including but without limiting the
generality of the foregoing, all screens, awnings, shades, blinds,
curtains, draperies, artwork, carpets, rugs, storm doors and windows,
furniture and furnishings, heating, electrical, and mechanical equipment,
lighting, switchboards, plumbing, ventilating, air conditioning and
air-cooling apparatus, refrigerating, and incinerating equipment,
escalators, elevators, loading and unloading equipment and systems, stoves,
ranges, laundry equipment, cleaning systems (including window cleaning
apparatus), telephones, communication systems (including satellite dishes
and antennae), televisions, computers, sprinkler systems and other fire
prevention and extinguishing apparatus and materials, security systems,
motors, engines, machinery, pipes, pumps, tanks, conduits, appliances,
fittings and fixtures of every kind and description (all of the foregoing
in this paragraph (D) being referred to as the "Equipment");

<PAGE> 7

Estate, immediately upon such acquisition, release, construction,
assembling or placement, including, without limitation, any and all
building materials whether stored at the Real Estate or offsite, and, in
each such case, without any further mortgage, conveyance, assignment or
other act by Mortgagor;

(F) all right, title and interest of Mortgagor in, to and under
all leases, subleases, underlettings, concession agreements, management
agreements, licenses and other agreements relating to the use or occupancy
of the Real Estate or the Equipment or any part thereof, now existing or
subsequently entered into by Mortgagor and whether written or oral and all
guarantees of any of the foregoing (collectively, as any of the foregoing
may be amended, restated, extended, renewed or modified from time to time,
the "Leases"), and all rights of Mortgagor in respect of cash and
securities deposited thereunder and the right to receive and collect the
revenues, income, rents, issues and profits thereof, together with all
other rents, royalties, issues, profits, revenue, income and other benefits
arising from the use and enjoyment of the Mortgaged Property (as defined
below) (collectively, the "Rents");

(G) all right, title and interest of Mortgagor in and to all
trade names, trade marks, logos, copyrights, good will and books and
records relating to or used in connection with the operation of the Real
Estate or the Equipment or any part thereof; all right, title and interest
of Mortgagor in and to all general intangibles related to the operation of
the Improvements now existing or hereafter arising;

(H) all right, title and interest of Mortgagor in and to all
unearned premiums under insurance policies now or subsequently obtained by
Mortgagor relating to the Real Estate or Equipment and Mortgagor's interest
in and to any such insurance policies and all proceeds of any such
insurance policies (including title insurance policies) including the right
to collect and receive such proceeds, subject to the provisions relating to
insurance generally set forth below and otherwise following and during the
continuance of an Event of Default; and all right, title and interest of
Mortgagor in and to all awards and other compensation, including the
interest payable thereon and the right to collect and receive the same,
made to the present or any subsequent owner of the Real Estate or Equipment
for the taking by eminent domain, condemnation or otherwise, of all or any
part of the Real Estate or any easement or other right therein, subject to
the provisions relating to condemnation generally set forth below;

<PAGE> 8

(I) all right, title and interest of Mortgagor in and to (i)
all contracts from time to time executed by Mortgagor or any manager or
agent on its behalf relating to the ownership, construction, maintenance,
repair, operation, occupancy, sale or financing of the Real Estate or
Equipment or any part thereof and all agreements relating to the purchase
or lease of any portion of the Real Estate or any property which is
adjacent or peripheral to the Real Estate, together with the right to
exercise such options and all leases of Equipment, (ii) all consents,
licenses, building permits, certificates of occupancy and other
governmental approvals relating to construction, completion, occupancy, use
or operation of the Real Estate or any part thereof and (iii) all drawings,
plans, specifications and similar or related items relating to the Real
Estate;

(J) all right, title and interest of Mortgagor in and to any
and all monies now or subsequently on deposit for the payment of real
estate taxes or special assessments against the Real Estate or for the
payment of premiums on insurance policies covering the foregoing property
or otherwise on deposit with or held by Mortgagee as provided in this
Mortgage; all capital, operating, reserve or similar accounts held by or on
behalf of Mortgagor and related to the operation of the Mortgaged Property,
whether now existing or hereafter arising and all monies held in any of the
foregoing accounts and any certificates or instruments related to or
evidencing such accounts;

(K) all right, title and interest of Mortgagor in and to all
accounts and revenues arising from the operation of the Improvements
including, without limitation, (i) any right to payment now existing or
hereafter arising for rental of hotel rooms or other space or for services
rendered, whether or not yet earned by performance, arising from the
operation of the Improvements or any other facility on the Mortgaged
Property and (ii) all rights to payment from any consumer credit-charge
card organization or entity including, without limitation, payments arising
from the use of the American Express Card, the Visa Card, the Carte Blanche
Card, the Mastercard or any other credit card, including those now existing
or hereafter created, substitutions therefor, proceeds thereof (whether
cash or non-cash, movable or immovable, tangible or intangible) received
upon the sale, exchange, transfer, collection or other disposition or
substitution thereof and any and all of the foregoing and proceeds
therefrom (collectively, the "Additional Rents"); and

<PAGE> 9

(L) all proceeds, both cash and noncash, of the foregoing;

excluding, however, notwithstanding any provision set forth in
the foregoing clauses (A) through (L), [DESCRIBE COLLATERAL SECURING WORKING
CAPITAL CREDIT FACILITY] (collectively, the "Excluded Property") (all of
the foregoing property and rights and interests now owned or held or
subsequently acquired by Mortgagor and described in the foregoing clauses (A)
through (E), excluding the Excluded Property, are collectively referred to as
the "Premises", and those described in the foregoing clauses (A) through
(L), excluding the Excluded Property, are collectively referred to as the
"Mortgaged Property").

All of the Mortgaged Property hereinabove described, real,
personal and mixed, whether affixed or annexed to the Real Estate or not and all
rights hereby conveyed and mortgaged are intended so to be as a unit and are
hereby understood, agreed and declared, to the maximum extent permitted by law,
to form a part and parcel of the Real Estate and to be appropriated to the use
of the Real Estate, and shall be for the purposes of this Mortgage deemed to be
real estate and conveyed and mortgaged hereby; provided, however, as to any of
the property aforesaid which does not so form a part and parcel of the Real
Estate or does not constitute a "fixture" (as defined in the Uniform Commercial
Code of Pennsylvania (the "Code")), this Mortgage is hereby deemed to
also be a Security Agreement under the Code for purposes of granting a security
interest in such property, which Mortgagor hereby grants to Mortgagee, as
Secured Party (as defined in the Code), as more particularly provided below in
this Mortgage.

Terms and Conditions

Mortgagor further represents, warrants, covenants and agrees
with Mortgagee as follows:

<PAGE> 10

the lien of this Mortgage and liens permitted pursuant to subsection 6.10 of the
Indenture (collectively, the "Permitted Exceptions"), and
Mortgagor shall warrant, defend and preserve such title and the lien of the
Mortgage thereon against all claims of all persons and entities, excepting,
however, the Permitted Exceptions. Mortgagor further warrants that it has the
right to mortgage the Mortgaged Property.

2. Payment and Performance of Obligations. Mortgagor shall pay
the Obligations at the times and places and in the manner specified in the
Guaranty and shall perform all the Obligations.

3. Requirements. (a) Mortgagor shall comply with, or
cause to be complied with, and conform to all present and future laws, statutes,
codes, ordinances, orders, judgments, decrees, rules, regulations and
requirements, and irrespective of the nature of the work to be done, of each of
the United States of America, any State and any municipality, local government
or other political subdivision thereof and any agency, department, bureau,
board, commission or other instrumentality of any of them, now existing or
subsequently created (collectively, "Governmental Authority") which has
jurisdiction over the Mortgaged Property and all covenants, restrictions and
conditions now or later of record which may be applicable to any of the
Mortgaged Property, or to the use, manner of use, occupancy, possession,
operation, maintenance, alteration, repair or reconstruction of any of the
Mortgaged Property, except where the failure to so comply with any of the
foregoing would not have a Material Adverse Effect on the business, prospects,
earnings, properties, assets or condition (financial or otherwise) of the
Company and its Subsidiaries taken as a whole. All present and future laws,
statutes, codes, ordinances, orders, judgments, decrees, rules, regulations and
requirements of every Governmental Authority applicable to Mortgagor or to any
of the Mortgaged Property and all covenants, restrictions, and conditions which
now or later may be applicable to any of the Mortgaged Property are collectively
referred to as the "Legal Requirements".

<PAGE> 11

that each parcel of the Real Estate constitutes a legally subdivided lot, in
compliance with all subdivision laws and similar Legal Requirements. Any act or
omission by Mortgagor which would result in a violation of any of the provisions
of this subsection shall be void.

4. Payment of Taxes and Other Impositions. (a) Promptly
when due, Mortgagor shall pay and discharge all taxes of every kind and nature
(including, without limitation, all real and personal property, income,
franchise, withholding, transfer, gains, profits and gross receipts taxes), all
charges for any easement or agreement maintained for the benefit of any of the
Mortgaged Property, all general and special assessments, levies, permits,
inspection and license fees, all water and sewer rents and charges and all other
public charges even if unforeseen or extraordinary, imposed upon or assessed
against or which may become a lien on any of the Mortgaged Property, or arising
in respect of the occupancy, use or possession thereof, together with any
penalties or interest on any of the foregoing (all of the foregoing are
collectively referred to as the "Impositions"). Upon request by
Mortgagee, Mortgagor shall deliver to Mortgagee (i) original or copies of
receipted bills and cancelled checks evidencing payment of such Imposition if it
is a real estate tax or other public charge and (ii) evidence acceptable to
Mortgagee showing the payment of any other such Imposition. If by law any
Imposition, at Mortgagor's option, may be paid in installments (whether or not
interest shall accrue on the unpaid balance of such Imposition), Mortgagor may
elect to pay such Imposition in such installments and shall be responsible for
the payment of such installments with interest, if any.

<PAGE> 12

(d) Mortgagor shall have the right before any delinquency
occurs to contest or object in good faith to the amount or validity of any
Imposition by appropriate legal proceedings, but such right shall not be deemed
or construed in any way as relieving, modifying, or extending Mortgagor's
covenant to pay any such Imposition at the time and in the manner provided in
this Section unless (i) Mortgagor has given prior written notice to Mortgagee of
Mortgagor's intent so to contest or object to an Imposition, (ii) Mortgagor
shall demonstrate to Mortgagee's satisfaction that the legal proceedings shall
operate conclusively to prevent the sale of the Mortgaged Property, or any part
thereof, to satisfy such Imposition prior to final determination of such
proceedings and (iii) Mortgagor shall furnish a good and sufficient bond or
surety as requested by and reasonably satisfactory to Mortgagee in the amount of
the Impositions which are being contested plus any interest and penalty which
may be imposed thereon and which could become a lien against the Real Estate or
any part of the Mortgaged Property.

5. Insurance. (a) Mortgagor shall maintain or cause to be
maintained on all of the Premises

<PAGE> 13

(v) during the course of any construction or repair of
Improvements, comprehensive general liability insurance (including
coverage for elevators and escalators, if any). The policy shall
provide coverage for independent contractors and completed operations.
The completed operations coverage shall stay in effect for two years
after construction of any Improvements has been completed. The policy
shall provide coverage on an occurrence basis against claims for
personal injury, such insurance to afford immediate minimum protection
to a limit of not less than that required by Mortgagee with respect to
personal injury, bodily injury or death to any one or more persons or
damage to property;

<PAGE> 14

applicable, arising from any such breakdown, in such amounts as are
reasonably satisfactory to Mortgagee but not less than the lesser of
$1,000,000 or 10% of the value of the Improvements;

(x) such other insurance in such amounts as Mortgagee may
reasonably request from time to time; provided, however, such insurance
is usually and customarily carried with respect to similar facilities
in the same general area as the Premises.

<PAGE> 15

shall expire, be withdrawn, become void by breach of any condition thereof by
Mortgagor or by any lessee of any part of the Mortgaged Property or become void
or unsafe by reason of the failure or impairment of the capital of any insurer,
Mortgagor shall immediately obtain new or additional insurance satisfactory to
Mortgagee. Mortgagor shall not take out any separate or additional insurance
which is contributing in the event of loss unless it is properly endorsed and
otherwise reasonably satisfactory to Mortgagee in all respects.

(b) Mortgagor shall deliver to Mortgagee an original of each
insurance policy required to be maintained, or a certificate of such insurance
reasonably acceptable to Mortgagee. Mortgagor shall (i) pay as they become due
all premiums for such insurance, and (ii) not later than 15 days prior to the
expiration of each policy to be furnished pursuant to the provisions of this
Section, deliver a renewed policy or policies, or duplicate original or
originals thereof, or a certificate of such insurance reasonably acceptable to
Mortgagee, accompanied by evidence of payment reasonably satisfactory to
Mortgagee. Upon request of Mortgagee, Mortgagor shall cause its insurance
underwriter or broker to certify to Mortgagee in writing that all the
requirements of this Mortgage governing insurance have been satisfied.

<PAGE> 16

any personal injury, bodily injury or property damage incurred on or about the
Premises, Mortgagor shall give prompt notice thereof to Mortgagee. If the
Mortgaged Property is damaged by fire or other casualty, then provided that no
Event of Default shall have occurred and be continuing, Mortgagor shall have the
right to adjust such loss. If the Mortgaged Property is damaged by fire or other
casualty, and if an Event of Default shall have occurred and be continuing, then
Mortgagor authorizes and empowers Mortgagee, at Mortgagee's option and in
Mortgagee's sole discretion, as attorney-in-fact for Mortgagor, to make proof of
loss, to adjust and compromise any claim under any insurance policy with respect
to the Mortgaged Property, to appear in and prosecute any action arising from
any policy, and to deduct from any insurance proceeds Mortgagee's expenses
incurred in the collection process. The insurance proceeds or any part thereof
with respect to the Mortgaged Property received by Mortgagee and/or Mortgagor
shall constitute Trust Moneys which shall be paid and/or applied in accordance
with subsection 13.2 of the Indenture.

6. Restrictions on Liens, Encumbrances and Sales. Mortgagor
acknowledges that any secondary or junior financing placed on the Mortgaged
Property (a) may divert funds that would

<PAGE> 17

otherwise be available for payment of the Obligations, (b) could, if foreclosed,
force Mortgagee to incur expenses to protect its security, and (c) would impair
Mortgagee's right to accept a deed in lieu of foreclosure or otherwise to take
actions to further its economic interest prior to foreclosure, because a
foreclosure by Mortgagee would be required to clear title to the Mortgaged
Property of any such secondary or junior lien or encumbrance. In accordance with
the foregoing and for the purpose of (i) protecting Mortgagee's security, both
of repayment and of value in the Mortgaged Property, (ii) giving Mortgagee the
full benefit of its bargain and contract with Mortgagor, and (iii) keeping the
Mortgaged Property free of subordinate financing liens, Mortgagor agrees that if
the following provisions of this paragraph should be deemed a restraint on
alienation, that such provisions are reasonable restraints.

(2) Except as may be permitted pursuant to the Indenture,
including, without limitation, subsection 6.15 thereof, Mortgagor shall not make
any Asset Sale.

<PAGE> 18

9. Condemnation/Eminent Domain. Promptly upon obtaining
knowledge of the institution of any proceedings for the condemnation of the
Mortgaged Property in its entirety, or any portion thereof, Mortgagor will
notify Mortgagee of the pendency of such proceedings. Mortgagor authorizes
Mortgagee, at Mortgagee's option and in Mortgagee's sole discretion, as
attorney-in-fact for Mortgagor, to commence, appear in and prosecute, in
Mortgagee's or Mortgagor's name, any action or proceeding relating to any
condemnation of the Mortgaged Property in its entirety, or any portion thereof.
If the Mortgaged Property in its entirety or any part thereof shall be the
subject of condemnation proceedings, Mortgagee, as attorney-in-fact for
Mortgagor, shall have the right to settle or compromise any claim in connection
with such condemnation. If Mortgagee elects not to participate in such
condemnation proceeding, then Mortgagor shall, at its expense, diligently
prosecute any such proceeding and shall consult with Mortgagee, its attorneys
and experts and cooperate with them in any defense of any such proceedings. All
awards and proceeds of condemnation received by Mortgagee and/or Mortgagor shall
constitute Trust Moneys which shall be paid and/or applied in accordance with
Subsection 13.2 of the Indenture.

(b) As to any Lease relating to all or any portion of the
Mortgaged Property, Mortgagor shall:

<PAGE> 19

(i) promptly perform all of the material provisions of the Lease on
the part of the lessor thereunder to be performed;

(ii) enforce, in accordance with sound business practice, all of
the material provisions of the Lease on the part of the lessee
thereunder to be performed;

(iv) exercise, within 5 days after receipt of a request by
Mortgagee, any right to request from the lessee a certificate with
respect to the status thereof;

(v) promptly deliver to Mortgagee copies of any notices of default
which Mortgagor may at any time forward to or receive from the lessee;

(vi) promptly deliver to Mortgagee a fully executed counterpart of
the Lease; and

(vii) promptly deliver to Mortgagee, upon Mortgagee's request, an
assignment of the Mortgagor's interest under such Lease.

<PAGE> 20

11. Further Assurances/Estoppel Certificates. To
further assure Mortgagee's rights under this Mortgage, Mortgagor agrees upon
demand of Mortgagee to do any act or execute any additional documents
(including, but not limited to, security agreements on any personalty included
or to be included in the Mortgaged Property and a separate assignment of each
Lease in recordable form) as may be required by Mortgagee to confirm the lien of
this Mortgage and all other rights or benefits conferred on Mortgagee.
Mortgagor, within 5 business days after request, shall deliver, in form and
substance satisfactory to Mortgagee, a written statement, duly acknowledged,
setting forth the amount of the Obligations, and whether any offsets, claims,
counterclaims

<PAGE> 21

or defenses exist against the Obligations and certifying as to such other
matters as Mortgagee shall reasonably request.

12. Mortgagee's Right to Perform. If Mortgagor fails to
perform any of the covenants or agreements of Mortgagor hereunder, Mortgagee,
without waiving or releasing Mortgagor from any obligation or default under this
Mortgage, may, at any time (but shall be under no obligation to) pay or perform
the same, and the amount or cost thereof, with interest at the Default Rate,
shall immediately be due from Mortgagor to Mortgagee and the same shall be
secured by this Mortgage and shall be a lien on the Mortgaged Property prior to
any right, title to, interest in or claim upon the Mortgaged Property attaching
subsequent to the lien of this Mortgage. No payment or advance of money by
Mortgagee under this Section shall be deemed or construed to cure Mortgagor's
default or waive any right or remedy of Mortgagee.

13. Hazardous Material. (a) Mortgagor shall comply with
any and all applicable Legal Requirements governing the discharge and removal of
Hazardous Material, shall pay promptly when due the costs of removal of any
Hazardous Material, and shall keep the Premises free of any lien imposed
pursuant to such Legal Requirements. In the event Mortgagor fails to do so,
after notice to Mortgagor and the expiration of the earlier of (i) applicable
cure periods hereunder and under the Indenture, or (ii) the cure period
permitted under the applicable Legal Requirement, Mortgagee may cause the
Premises to be freed from the Hazardous Material to the extent required by
applicable Legal Requirements, and the cost of the removal with interest at the
Default Rate shall immediately be due from Mortgagor to Mortgagee and the same
shall be added to the Obligations and be secured by this Mortgage. Mortgagor
further agrees that any release or disposal of Hazardous Materials at the
Premises shall comply with all applicable Legal Requirements. In addition,
Mortgagor agrees not to allow the manufacture, storage, transmission, presence
or disposal of any Hazardous Material over or upon the Premises in violation of
applicable Legal Requirements. Mortgagor shall give Mortgagee and its agents and
employees access to the Premises to remove Hazardous Material if required by
applicable Legal Requirements and if Mortgagor has failed to so remove after
notice. Mortgagor agrees to defend, indemnify and hold Mortgagee free and
harmless from and against all loss, costs, damage and expense (including
attorneys' fees and costs and consequential damages) Mortgagee may sustain by
reason of (i) the imposition or recording of a lien by any Governmental
Authority with respect to the Mortgaged Property pursuant to any Legal
Requirement relating to hazardous or toxic wastes or substances or the removal
thereof ("Hazardous Material Laws"); (ii) claims of any private parties
regarding violations of Hazardous Material Laws with respect to the Mortgaged
Property; (iii) costs and expenses (including,

<PAGE> 22

without limitation, attorneys' fees and fees incidental to the securing of
repayment of such costs and expenses) incurred by Mortgagor or Mortgagee in
connection with the removal of any such lien with respect to the Mortgaged
Property or in connection with Mortgagor's or Mortgagee's compliance with any
Hazardous Material Laws with respect to the Mortgaged Property; and (iv) the
assertion against Mortgagee by any party of any claim in connection with
Hazardous Material with respect to the Mortgaged Property.

(b) For the purposes of this Mortgage, "Hazardous
Material" means and includes any hazardous, nuclear, toxic or dangerous
waste, substance or material defined as such in (or for purposes of) the
Comprehensive Environmental Response, Compensation, and Liability Act, any
so-called "Superfund" or "Superlien" law, or any other Legal Requirement
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, nuclear, toxic or dangerous waste, substance or
material, as now or at any time in effect.

<PAGE> 23

notice. Mortgagor shall defend, indemnify, and save Mortgagee harmless from all
loss, costs, damages and expense (including attorneys' fees and costs and
consequential damages) asserted or proven against Mortgagee by any party, as a
result of the presence of such substances or any removal or compliance with such
Legal Requirements. The foregoing indemnification shall be a recourse obligation
of Mortgagor and shall survive repayment of the Obligations, notwithstanding any
limitation on recourse which may be contained herein or in any of the Security
Documents or the delivery of any satisfaction, release or release deed,
discharge or deed of reconveyance, or the assignment of this Mortgage by
Mortgagee; provided, however, that the foregoing indemnification shall apply
only to matters arising prior to any taking of possession of the Premises by
Mortgagee or any other person succeeding to the interest of Mortgagee pursuant
to the terms hereof; further provided, that the foregoing indemnification shall
not apply to loss, costs and the like arising from the gross negligence or
wilful misconduct of the party seeking indemnification.

15. Event of Default. The occurrence of an "Event of Default"
(as defined in the Indenture) shall constitute an Event of Default hereunder.

<PAGE> 24

(Mortgagor expressly granting to Mortgagee the power of sale), or (D)
take such other action at law or in equity for the enforcement of this
Mortgage or any of the Security Documents as the law may allow.
Mortgagee may proceed in any such action to final judgment and
execution thereon for all sums due hereunder, together with interest
thereon at the Default Rate and all costs of suit, including, without
limitation, reasonable attorneys' fees and disbursements. Interest at
the Default Rate shall be due on any judgment obtained by Mortgagee
from the date of judgment until actual payment is made of the full
amount of the judgment.

<PAGE> 25

entry of a decree of sale therein, Mortgagee may elect at any time
prior to a partial foreclosure sale pursuant to such decree, to
discontinue such partial foreclosure and to accelerate the Obligations
secured hereby by reason of any uncured Event of Default upon which
such partial foreclosure was predicated or by reason of any other Event
of Default, and proceed with full foreclosure proceedings. It is
further agreed that one or more foreclosure sales may be made pursuant
to partial foreclosures without exhausting the right of full or partial
foreclosure sale for any unmatured part of the secured Obligations, it
being the purpose to provide for a partial foreclosure sale of the
Obligations secured hereby without exhausting the power to foreclose
for any other part of the Obligations whether matured at the time or
subsequently maturing, and without exhausting any right of acceleration
and full foreclosure.

(d) The proceeds of any foreclosure or sale of the Mortgaged
Property, or any portion thereof, shall be distributed and applied in accordance
with all applicable provisions of the Indenture.

<PAGE> 26

Mortgagee is fully and finally vested with possession of the entire Premises.
Mortgagor expressly agrees that any judgment entered pursuant to the foregoing
authority shall be final and releases to Mortgagee, and to any attorney
appearing for Mortgagor or Mortgagee, all errors in said proceedings and all
liability therefor. Upon confession of judgment in ejectment pursuant to the
foregoing authority, a Writ of Possession (or like writ appropriate under then
applicable law) may issue forthwith without any prior proceedings and may
include the costs of Mortgagee. Judgment may be entered pursuant to the
foregoing authority on the basis of an affidavit made on Mortgagee's behalf and
setting forth the relevant facts, of which facts such affidavit shall be
conclusive evidence, and if a true copy of this Mortgage is filed in any action
for such judgment it shall not be necessary to file the original of this
Mortgage.

17. Right of Mortgagee to Credit Sale. Upon the
occurrence of any sale made under this Mortgage, whether made under the power of
sale or by virtue of judicial proceedings or of a judgment or decree of
foreclosure and sale, Mortgagee may bid for and acquire the Mortgaged Property
or any part thereof. In lieu of paying cash therefor, Mortgagee may make
settlement for the purchase price by crediting upon the Obligations or other
sums secured by this Mortgage the net sales price after deducting therefrom the
expenses of sale and the cost of the action and any other sums which Mortgagee
is authorized to deduct under this Mortgage. In such event, this Mortgage, the
Guaranty and documents evidencing expenditures secured hereby may be presented
to the person or persons conducting the sale in order that the amount so used or
applied may be credited upon the Obligations as having been paid.

18. Appointment of Receiver. If an Event of Default
shall have occurred and be continuing, Mortgagee as a matter of right and
without notice to Mortgagor, unless otherwise required by applicable law, and
without regard to the adequacy or inadequacy of the Mortgaged Property or any
other collateral as security for the Obligations or the interest of Mortgagor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers or other manager of the Mortgaged Property, and
Mortgagor hereby irrevocably consents to such appointment and waives notice of
any application therefor (except as may be required by law). Any such receiver
or receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Mortgagee in case of entry as
provided in this Mortgage, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the
Mortgaged Property, and shall continue as such and exercise all

<PAGE> 27

such powers until the date of confirmation of sale of the Mortgaged Property
unless such receivership is sooner terminated.

19. Extension, Release, etc. (a) Without affecting the
lien or charge of this Mortgage upon any portion of the Mortgaged Property not
then or theretofore released as security for the full amount of the Obligations,
Mortgagee may, from time to time and without notice, agree to (i) release any
person liable for the Obligations, (ii) extend the maturity or alter any of the
terms of the Obligations or any guaranty thereof, (iii) grant other indulgences,
(iv) release or reconvey, or cause to be released or reconveyed at any time at
Mortgagee's option any parcel, portion or all of the Mortgaged Property, (v)
take or release any other or additional security for any obligation herein
mentioned, or (vi) make compositions or other arrangements with debtors in
relation thereto. If at any time this Mortgage shall secure less than all of the
principal amount of the Obligations, it is expressly agreed that any repayments
of the principal amount of the Obligations shall not reduce the amount of the
lien of this Mortgage until the lien amount shall equal the principal amount of
the Obligations outstanding.

<PAGE> 28

to let the Mortgaged Property or any part thereof, and to apply the Rents and
Additional Rents on account of the Obligations. The foregoing assignment and
grant is present and absolute and shall continue in effect until the Obligations
are paid in full, but Mortgagee hereby waives the right to enter the Mortgaged
Property for the purpose of collecting the Rents and Additional Rents and
Mortgagor shall be entitled to collect, receive, use and retain the Rents and
Additional Rents; such right of Mortgagor to collect, receive, use and retain
the Rents and Additional Rents may be revoked by Mortgagee upon and during the
continuance of any Event of Default under this Mortgage by giving not less than
five days' written notice of such revocation to Mortgagor; in the event such
notice is given, Mortgagor shall pay over to Mortgagee, or to any receiver
appointed to collect the Rents, any lease security deposits, shall pay monthly
in advance to Mortgagee, or to any such receiver, the fair and reasonable rental
value as determined by Mortgagee for the use and occupancy of the Mortgaged
Property or such part thereof as may be in the possession of Mortgagor or any
affiliate of Mortgagor, and upon default in any such payment Mortgagor and any
such affiliate will vacate and surrender the possession of the Mortgaged
Property to Mortgagee or to such receiver, and in default thereof may be evicted
by summary proceedings or otherwise. Mortgagor shall not accept prepayments of
installments of Rent to become due for a period of more than one month in
advance (except for security deposits and estimated payments of percentage rent,
if any).

<PAGE> 29

deposit with Mortgagee under this Mortgage against all or any part of the
Obligations. Any such application shall not be construed to cure or waive any
Default or Event of Default or invalidate any act taken by Mortgagee on account
of such Default or Event of Default.

24. Notices. All notices, requests, demands and other
communications hereunder shall be given in the manner provided in the Indenture.

25. No Oral Modification. This Mortgage may not be
changed or terminated orally. Any agreement made by Mortgagor and Mortgagee
after the date of this Mortgage relating to this Mortgage shall be superior to
the rights of the holder of any intervening or subordinate lien or encumbrance.

<PAGE> 30

interest (direct or indirectly) by, through or under each constituent of
Mortgagor and on behalf of each and every person acquiring any interest in the
Mortgaged Property subsequent to the date hereof, it being the intent hereof
that any and all such rights of redemption of each constituent of Mortgagor and
all such other persons are and shall be deemed to be hereby waived to the
fullest extent permitted by applicable law or replacement statute. Each
constituent of Mortgagor shall not invoke or utilize any such law or laws or
otherwise hinder, delay, or impede the execution of any right, power, or remedy
herein or otherwise granted or delegated to the Mortgagee, but shall permit the
execution of every such right, power, and remedy as though no such law or laws
had been made or enacted.

(b) To the fullest extent permitted by law, Mortgagor waives
the benefit of all laws now existing or that may subsequently be enacted
providing for (i) any appraisement before sale of any portion of the Mortgaged
Property, (ii) any extension of the time for the enforcement of the collection
of the Obligations or the creation or extension of a period of redemption from
any sale made in collecting such debt and (iii) exemption of the Mortgaged
Property from attachment, levy or sale under execution or exemption from civil
process. To the full extent Mortgagor may do so, Mortgagor agrees that Mortgagor
will not at any time insist upon, plead, claim or take the benefit or advantage
of any law now or hereafter in force providing for any appraisement, valuation,
stay, exemption, extension or redemption, or requiring foreclosure of this
Mortgage before exercising any other remedy granted hereunder and Mortgagor, for
Mortgagor and its successors and assigns, and for any and all persons ever
claiming any interest in the Mortgaged Property, to the extent permitted by law,
hereby waives and releases all rights of redemption, valuation, appraisement,
stay of execution, notice of election to mature or declare due the whole of the
secured indebtedness and marshalling in the event of foreclosure of the liens
hereby created.

<PAGE> 31

and manner as Mortgagee may determine in its absolute discretion. No remedy
herein conferred upon or reserved to Mortgagee is intended to be exclusive of
any other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute. Every power or remedy
given by any of the Security Documents to Mortgagee or to which it may otherwise
be entitled, may be exercised, concurrently or independently, from time to time
and as often as may be deemed expedient by Mortgagee. In no event shall
Mortgagee, in the exercise of the remedies provided in this Mortgage (including,
without limitation, in connection with the assignment of Rents to Mortgagee, or
the appointment of a receiver and the entry of such receiver on to all or any
part of the Mortgaged Property), be deemed a "mortgagee in possession," and
Mortgagee shall not in any way be made liable for any act, either of commission
or omission, in connection with the exercise of such remedies.

<PAGE> 32

continue foreclosure proceedings and exercise its other remedies granted in this
Mortgage against all or any part of the Mortgaged Property and Mortgagor waives
any objections to the commencement or continuation of a foreclosure of this
Mortgage or exercise of any other remedies hereunder based on such other
proceedings or judgments, and waives any right to seek to dismiss, stay, remove,
transfer or consolidate either any action under this Mortgage or such other
proceedings on such basis. Neither the commencement nor continuation of
proceedings to foreclose this Mortgage nor the exercise of any other rights
hereunder nor the recovery of any judgment by Mortgagee in any such proceedings
shall prejudice, limit or preclude Mortgagee's right to commence or continue one
or more foreclosure or other proceedings or obtain a judgment against any other
collateral (either in or outside the State in which the Premises are located)
which directly or indirectly secures the Obligations, and Mortgagor expressly
waives any objections to the commencement of, continuation of, or entry of a
judgment in such other proceedings or exercise of any remedies in such
proceedings based upon any action or judgment connected to this Mortgage, and
Mortgagor also waives any right to seek to dismiss, stay, remove, transfer or
consolidate either such other proceedings or any action under this Mortgage on
such basis. It is expressly understood and agreed that to the fullest extent
permitted by law, Mortgagee may, at its election, cause the sale of all
collateral which is the subject of a single foreclosure action at either a
single sale or at multiple sales conducted simultaneously and take such other
measures as are appropriate in order to effect the agreement of the parties to
dispose of and administer all collateral securing the Obligations (directly or
indirectly) in the most economical and least time-consuming manner.

<PAGE> 33

that from time to time Mortgagor may receive statements for such expenses,
including without limitation attorneys' fees and disbursements. Mortgagor shall
pay such statements promptly upon receipt.

(c) Mortgagor shall indemnify and hold harmless Mortgagee and
Mortgagee's affiliates, and the respective directors, officers, agents and
employees of Mortgagee and its affiliates from and against all claims, damages,
losses and liabilities (including, without limitation, reasonable attorneys'
fees and expenses) arising out of or based upon any matter related to this
Mortgage, the Mortgaged Property or the occupancy, ownership, maintenance or
management of the Mortgaged Property by Mortgagor, including, without
limitation, any claims based on the alleged acts or omissions of any employee or
agent of Mortgagor; provided, however, that the foregoing indemnification shall
not apply to claims, damages and the like arising from the gross negligence or
wilful misconduct of the party seeking indemnification. This indemnification
shall be in addition to any other liability which Mortgagor may otherwise have
to Mortgagee.

31. Successors and Assigns. All covenants of Mortgagor
contained in this Mortgage are imposed solely and

<PAGE> 34

exclusively for the benefit of Mortgagee and its successors and assigns, and no
other person or entity shall have standing to require compliance with such
covenants or be deemed, under any circumstances, to be a beneficiary of such
covenants, any or all of which may be freely waived in whole or in part by
Mortgagee at any time if in its sole discretion it deems such waiver advisable.
All such covenants of Mortgagor shall run with the land and bind Mortgagor, the
successors and assigns of Mortgagor (and each of them) and all subsequent
owners, encumbrancers and tenants of the Mortgaged Property, and shall inure to
the benefit of Mortgagee, its successors and assigns. The word "Mortgagor" shall
be construed as if it read "Mortgagors" whenever the sense of this Mortgage so
requires and if there shall be more than one Mortgagor, the obligations of the
Mortgagors shall be joint and several.

32. No Waivers, etc. Any failure by Mortgagee to insist
upon the strict performance by Mortgagor of any of the terms and provisions of
this Mortgage shall not be deemed to be a waiver of any of the terms and
provisions hereof, and Mortgagee, notwithstanding any such failure, shall have
the right thereafter to insist upon the strict performance by Mortgagor of any
and all of the terms and provisions of this Mortgage to be performed by
Mortgagor. Mortgagee may release, regardless of consideration and without the
necessity for any notice to or consent by the holder of any subordinate lien on
the Mortgaged Property, any part of the security held for the Obligations
secured by this Mortgage without, as to the remainder of the security, in
anywise impairing or affecting the lien of this Mortgage or the priority of such
lien over any subordinate lien.

33. Governing Law, etc. This Mortgage shall be governed
by and construed in accordance with the laws of the State where the Real Estate
is located, except that Mortgagor expressly acknowledges that by its terms the
Indenture and the Guaranty shall be governed and construed in accordance with
the laws of the State of New York, without regard to principles of conflict of
law, and for purposes of consistency, Mortgagor agrees that in any in
personam proceeding related to this Mortgage the rights of the parties
to this Mortgage shall also be governed by and construed in accordance with the
laws of the State of New York governing contracts made and to be performed in
that State, without regard to principles of conflict of law.

<PAGE> 35

counterclaims and other counterclaims that must be interposed in connection with
such suit under applicable law) and all rights to have any such suit
consolidated with any separate suit, action or proceeding (it being understood
and agreed, however, that Mortgagor shall have the right to raise any such claim
in a separate suit, action or proceeding).

35. Certain Definitions. Unless the context clearly
indicates a contrary intent or unless otherwise specifically provided herein,
words used in this Mortgage shall be used interchangeably in singular or plural
form and the word "Mortgagor" shall mean "each Mortgagor or any subsequent owner
or owners of the Mortgaged Property or any part thereof or interest therein,"
the word "Mortgagee" shall mean "Mortgagee or any successor collateral agent to
the Mortgagee," the word "person" shall include any individual, corporation,
partnership, trust, unincorporated association, government, governmental
authority, or other entity, and the words "Mortgaged Property" shall include any
portion of the Mortgaged Property or interest therein. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa. The captions in this Mortgage are for
convenience of reference only and in no way limit or amplify the provisions
hereof.

36. Security Agreement under Uniform Commercial Code.
(a) It is the intention of the parties hereto that this Mortgage shall
constitute a Security Agreement within the meaning of the Code. If an Event of
Default shall occur and be continuing under this Mortgage, then in addition to
having any other right or remedy available at law or in equity, Mortgagee shall
have the option of either (i) proceeding under the Code and exercising such
rights and remedies as may be provided to a secured party by the Code with
respect to all or any portion of the Mortgaged Property which is personal
property (including, without limitation, taking possession of and selling such
property) or (ii) treating such property as real property and proceeding with
respect to both the real and personal property constituting the Mortgaged
Property in accordance with Mortgagee's rights, powers and remedies with respect
to the real property (in which event the default provisions of the Code shall
not apply). If Mortgagee shall elect to proceed under the Code, then five days'
notice of sale of the personal property shall be deemed reasonable notice and
the reasonable expenses of retaking, holding, preparing for sale, selling and
the like incurred by Mortgagee shall include, but not be limited to, attorneys'
fees and legal expenses. At Mortgagee's request, Mortgagor shall assemble the
personal property and make it available to Mortgagee

<PAGE> 36

at a place designated by Mortgagee which is reasonably convenient to both
parties.

37. Release Upon Payment and Discharge of Mortgagor's
Obligations. Mortgagee shall release this Mortgage and the lien hereof by
proper instrument upon payment and discharge of all Obligations secured hereby
(including payment of reasonable expenses incurred by Mortgagee in connection
with the execution of such release) and upon full and complete performance of
all of the Obligations. Mortgagee shall otherwise release this Mortgage

<PAGE> 37

and the lien hereof in accordance with the terms of Section __ of the Indenture.

38. Industrial Plant Mortgage. This Mortgage is an industrial
plant mortgage within the broadest interpretation of the "industrial plant
mortgage doctrine" under the laws of the Commonwealth of Pennsylvania.

39. Future Advances. This Mortgage is executed and
delivered to secure, among other things, future advances. It is understood and
agreed that this Mortgage secures present and future advances made for the
benefit of Mortgagor and that the lien of such future advances shall relate back
to the date of this Mortgage.

40. Consistency with Other Documents. If any provision hereof
conflicts with any provisions of the Indenture, then the terms of the Indenture
shall control to the extent of such conflict.

This Mortgage has been duly executed by Mortgagor on the date
first above written.

ATTEST: KOPPEL STEEL CORPORATION

By: By:
-------------------------- ---------------------------
Name: Name:
Title: [Assistant] Secretary Title: [Vice] President

[SEAL]

The address of the within-named Mortagee is: .
-------------------------
- -------------------------------------------------------------------------------

For the Mortgagee:

----------------------------
Name:
-----------------------
34

<PAGE> 38

STATE OF
-------------- )
) SS.
COUNTY OF )
------------- )

On this, the ____ day of ________________, 1995, before me, a
Notary Public in and for the State and County aforesaid, the undersigned
officer, personally appeared _______________________ and ____________________,
who acknowledged themselves to be the [Vice] President and [Assistant]
Secretary, respectively, of Koppel Steel Corporation, a Pennsylvania corporation
and that they, as such officers, being authorized to do so, executed the
foregoing instrument for the purposes therein contained, by signing the name of
the corporation by themselves as such officers.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

------------------------------
Notary Public
[Notarial Seal]

My Commission Expires:

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

<PAGE> 39

Schedule A

Description of Real Property

[Attach Legal Description of all parcels]

<PAGE> 1
EXHIBIT 4.4

DRAFT
7/07/95
Recording requested by, and {Texas}
when recorded return to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

ATTN: F. Robert Wheeler, Jr., Esq.

DEED OF TRUST,
ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

from

KOPPEL STEEL CORPORATION, Grantor

________________, Trustee
for the use and benefit of
THE HUNTINGTON NATIONAL BANK,
as Trustee and Collateral Agent, Beneficiary

DATED AS OF __________ __, 1995

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<S> <C>
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Granting Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Payment and Performance of Obligations . . . . . . . . . . . . . . . . 7

3. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. Payment of Taxes and Other Impositions . . . . . . . . . . . . . . . . 8

5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

6. Restrictions on Liens, Encumbrances and Sales . . . . . . . . . . . . 13

7. Relationship of Beneficiary and Grantor . . . . . . . . . . . . . . . 14

8. Maintenance; No Alteration; Inspection; Utilities . . . . . . . . . . 14

9. Condemnation/Eminent Domain . . . . . . . . . . . . . . . . . . . . . 15

10. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

11. Further Assurances/Estoppel Certificates . . . . . . . . . . . . . . . 17

12. Beneficiary's Right to Perform . . . . . . . . . . . . . . . . . . . . 17

13. Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . 18

14. Asbestos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

15. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

16. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

17. Right of Beneficiary to Credit Sale . . . . . . . . . . . . . . . . . 24

18. Appointment of Receiver . . . . . . . . . . . . . . . . . . . . . . . 25

19. Extension, Release, etc. . . . . . . . . . . . . . . . . . . . . . . . 25

20. Assignment of Rents . . . . . . . . . . . . . . . . . . . . . . . . . 26

21. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

22. Additional Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 27

23. Changes in Method of Taxation . . . . . . . . . . . . . . . . . . . . 27

24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>

<PAGE> 3

<TABLE>
<S> <C>
25. No Oral Modification . . . . . . . . . . . . . . . . . . . . . . . . . 27

26. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . 27

27. Waiver of Right of Redemption and Other Rights . . . . . . . . . . . . 28

28. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . 29

29. Multiple Security . . . . . . . . . . . . . . . . . . . . . . . . . . 29

30. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . 31

31. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 32

32. No Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

33. GOVERNING LAW, ETC. . . . . . . . . . . . . . . . . . . . . . . . . . 33

34. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . 33

35. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 33

36. Security Agreement under Uniform Commercial Code . . . . . . . . . . . 33

37. Release Upon Payment and Discharge of Grantor's Obligations . . . . . 35

38. Enforceability; Usury . . . . . . . . . . . . . . . . . . . . . . . . 35

39. Homestead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

40. Substitute Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . 36

41. Indemnification of Trustee . . . . . . . . . . . . . . . . . . . . . . 37

42. Business or Commercial Purpose . . . . . . . . . . . . . . . . . . . . 37

43. Final Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

44. Consistency with Other Documents . . . . . . . . . . . . . . . . . . . 38

45. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES . . . . . 38

</TABLE>
SCHEDULES

Schedule A - Description of Real Property

<PAGE> 4

DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

THIS DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES AND SECURITY
AGREEMENT, dated as of __________ __, 1995 is made by KOPPEL STEEL CORPORATION,
a Pennsylvania corporation ("Grantor"), to ____________________, an
individual ("Trustee"), whose address is _________________________, for
the use and benefit of THE HUNTINGTON NATIONAL BANK, as trustee (in such
capacity, the "Indenture Trustee") under the Indenture referred to
below, as collateral agent ("Beneficiary"), whose mailing address is 540
Madison Avenue, Covington, Kentucky 41011. References to this "Deed of
Trust" shall mean this instrument and any and all renewals, modifications,
amendments, supplements, extensions, consolidations, substitutions, spreaders
and replacements of this instrument.

Background

A. Grantor is the owner of the parcel(s) of real property
described on Schedule A attached (such real property, together with all of the
buildings, improvements, structures and fixtures now or subsequently located
thereon (the "Improvements"), being collectively referred to as the
"Real Estate").

B. Grantor is a wholly owned subsidiary of NS Group, Inc., a
Kentucky corporation (the "Company") and is a Recourse Subsidiary (as defined in
the Indenture referred to below).

C. The Company and Beneficiary are parties to that Indenture
dated as of _______________ __, 1995 (as the same may be amended, modified or
otherwise supplemented from time to time, the "Indenture"; capitalized terms not
defined herein shall have the meanings ascribed thereto in the Indenture) for
the benefit of Holders of _____% Senior Secured Notes due 2003 in the aggregate
principal amount of $125,000,000.00 (the "Securities") issued by the Company.

D. It is a condition precedent to the purchase of the
Securities from the Company that the Grantor shall have (i) executed and
delivered that certain Guaranty of even date herewith in favor of Beneficiary
(the "Guaranty") and (ii) executed and delivered this Deed of Trust to
Beneficiary for the ratable benefit of the Holders in order to secure Grantor's
obligations under the Guaranty. References in this Deed of Trust to the "Default
Rate" shall mean the interest rate of _____% per annum.

<PAGE> 5

E. It is a condition precedent to the purchase of the
Securities from the Company that the Grantor shall have executed and delivered
that certain Subsidiary Security Agreement (the "Subsidiary Security Agreement")
of even date herewith in favor of Beneficiary, which Subsidiary Security
Agreement shall grant Beneficiary a security interest in and to certain personal
property now or subsequently used in connection with the operation of the Real
Estate.

NOW, THEREFORE, in consideration of the premises and to induce
the Beneficiary to enter into the Indenture and to induce the Holders to
purchase the Securities from the Company, the Grantor hereby agrees with the
Beneficiary, for the ratable benefit of the Holders, as follows:

Granting Clauses

For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor agrees that to secure all
of Grantor's obligations and liabilities under the Guaranty and all other
obligations and liabilities of the Grantor to the Indenture Trustee, the
Beneficiary and the Holders (including, without limitation, interest accruing
after the maturity of the Securities and interest accruing after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Grantor, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding
and interest, to the extent permitted by law, on the unpaid interest), whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Indenture, the Securities, the Guaranty, this Deed of Trust, the other
Security Documents or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, fees,
indemnities, costs, expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to the Indenture Trustee and the Beneficiary
that are required to be paid by the Beneficiary pursuant to the terms of the
Indenture, the Guaranty or this Deed of Trust or any other Security Document)
(collectively, the "Obligations").

GRANTOR HEREBY CONVEYS TO TRUSTEE AND HEREBY MORTGAGES, GRANTS, ASSIGNS,
TRANSFERS AND SETS OVER TO TRUSTEE AND ALSO TO SUBSTITUTE TRUSTEE (AS DEFINED
BELOW), IN TRUST WITH POWER OF SALE FOR THE USE AND BENEFIT OF BENEFICIARY, AND
GRANTS BENEFICIARY AND TRUSTEE A SECURITY INTEREST IN:

(A) all right, title and interest of Grantor in and to the Real
Estate;

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<PAGE> 6

(B) all the estate, right, title, claim or demand whatsoever of
Grantor, in possession or expectancy, in and to the Real Estate or any
part thereof;

(C) all right, title and interest of Grantor in, to and under
all easements, rights of way, gores of land, streets, ways, alleys,
passages, sewer rights, waters, water courses, water and riparian
rights, development rights, air rights, mineral rights and all estates,
rights, titles, interests, privileges, licenses, tenements,
hereditaments and appurtenances belonging, relating or appertaining to
the Real Estate, and any reversions and remainders thereof and all land
lying in the bed of any street, road or avenue, in front of or
adjoining the Real Estate to the center line thereof;

(D) all right, title and interest of Grantor in and to all of
the fixtures, chattels, business machines, machinery, apparatus,
equipment, furnishings, fittings and articles of personal property of
every kind and nature whatsoever, and all appurtenances and additions
thereto and substitutions or replacements thereof (together with, in
each case, attachments, components, parts and accessories) currently
owned or subsequently acquired by Grantor and now or subsequently
attached to, or contained in or used or usable in any way in connection
with any operation or letting of the Real Estate, including but without
limiting the generality of the foregoing, all screens, awnings, shades,
blinds, curtains, draperies, artwork, carpets, rugs, storm doors and
windows, furniture and furnishings, heating, electrical, and mechanical
equipment, lighting, switchboards, plumbing, ventilating, air
conditioning and air-cooling apparatus, refrigerating, and incinerating
equipment, escalators, elevators, loading and unloading equipment and
systems, stoves, ranges, laundry equipment, cleaning systems (including
window cleaning apparatus), telephones, communication systems
(including satellite dishes and antennae), televisions, computers,
sprinkler systems and other fire prevention and extinguishing apparatus
and materials, security systems, motors, engines, machinery, pipes,
pumps, tanks, conduits, appliances, fittings and fixtures of every kind
and description (all of the foregoing in this paragraph (D) being
referred to as the "Equipment");

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<PAGE> 7

Estate, immediately upon such acquisition, release, construction,
assembling or placement, including, without limitation, any and all
building materials whether stored at the Real Estate or offsite, and,
in each such case, without any further mortgage, conveyance, assignment
or other act by Grantor;

(F) all right, title and interest of Grantor in, to and under
all leases, subleases, underlettings, concession agreements, management
agreements, licenses and other agreements relating to the use or
occupancy of the Real Estate or the Equipment or any part thereof, now
existing or subsequently entered into by Grantor and whether written or
oral and all guarantees of any of the foregoing (collectively, as any
of the foregoing may be amended, restated, extended, renewed or
modified from time to time, the "Leases"), and all rights of
Grantor in respect of cash and securities deposited thereunder and the
right to receive and collect the revenues, income, rents, issues and
profits thereof, together with all other rents, royalties, issues,
profits, revenue, income and other benefits arising from the use and
enjoyment of the Trust Property (as defined below) (collectively, the
"Rents");

(G) all right, title and interest of Grantor in and to all
trade names, trade marks, logos, copyrights, good will and books and
records relating to or used in connection with the operation of the
Real Estate or the Equipment or any part thereof; all right, title and
interest of Grantor in and to all general intangibles related to the
operation of the Improvements now existing or hereafter arising;

(H) all right, title and interest of Grantor in and to all
unearned premiums under insurance policies now or subsequently obtained
by Grantor relating to the Real Estate or Equipment and Grantor's
interest in and to any such insurance policies and all proceeds of any
such insurance policies (including title insurance policies) including
the right to collect and receive such proceeds, subject to the
provisions relating to insurance generally set forth below and
otherwise following and during the continuance of an Event of Default;
and all right, title and interest of Grantor in and to all awards and
other compensation, including the interest payable thereon and the
right to collect and receive the same, made to the present or any
subsequent owner of the Real Estate or Equipment for the taking by
eminent domain, condemnation or otherwise, of all or any part of the
Real Estate or any easement or other right therein, subject to the
provisions relating to condemnation generally set forth below;

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<PAGE> 8

(I) all right, title and interest of Grantor in and to (i) all
contracts from time to time executed by Grantor or any manager or agent
on its behalf relating to the ownership, construction, maintenance,
repair, operation, occupancy, sale or financing of the Real Estate or
Equipment or any part thereof and all agreements relating to the
purchase or lease of any portion of the Real Estate or any property
which is adjacent or peripheral to the Real Estate, together with the
right to exercise such options and all leases of Equipment, (ii) all
consents, licenses, building permits, certificates of occupancy and
other governmental approvals relating to construction, completion,
occupancy, use or operation of the Real Estate or any part thereof and
(iii) all drawings, plans, specifications and similar or related items
relating to the Real Estate;

(J) all right, title and interest of Grantor in and to any and
all monies now or subsequently on deposit for the payment of real
estate taxes or special assessments against the Real Estate or for the
payment of premiums on insurance policies covering the foregoing
property or otherwise on deposit with or held by Beneficiary as
provided in this Deed of Trust; all capital, operating, reserve or
similar accounts held by or on behalf of Grantor and related to the
operation of the Trust Property, whether now existing or hereafter
arising and all monies held in any of the foregoing accounts and any
certificates or instruments related to or evidencing such accounts;

(K) all right, title and interest of Grantor in and to all
accounts and revenues arising from the operation of the Improvements
including, without limitation, (i) any right to payment now existing or
hereafter arising for rental of hotel rooms or other space or for
services rendered, whether or not yet earned by performance, arising
from the operation of the Improvements or any other facility on the
Trust Property and (ii) all rights to payment from any consumer
credit-charge card organization or entity including, without
limitation, payments arising from the use of the American Express Card,
the Visa Card, the Carte Blanche Card, the Mastercard or any other
credit card, including those now existing or hereafter created,
substitutions therefor, proceeds thereof (whether cash or non-cash,
movable or immovable, tangible or intangible) received upon the sale,
exchange, transfer, collection or other disposition or substitution
thereof and any and all of the foregoing and proceeds therefrom
(collectively, the "Additional Rents"); and

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<PAGE> 9

(L) all proceeds, both cash and noncash, of the foregoing;

excluding, however, notwithstanding any provision set forth in
the foregoing clauses (A) through (L), [DESCRIBE COLLATERAL SECURING WORKING
CAPITAL CREDIT FACILITY] (collectively, the "Excluded Property") (all of
the foregoing property and rights and interests now owned or held or
subsequently acquired by Grantor and described in the foregoing clauses (A)
through (E), excluding the Excluded Property, are collectively referred to as
the "Premises", and those described in the foregoing clauses (A) through
(L), excluding the Excluded Property, are collectively referred to as the
"Trust Property").

All of the Trust Property hereinabove described, real, personal
and mixed, whether affixed or annexed to the Real Estate or not and all rights
hereby conveyed and mortgaged are intended so to be as a unit and are hereby
understood, agreed and declared, to the maximum extent permitted by law, to form
a part and parcel of the Real Estate and to be appropriated to the use of the
Real Estate, and shall be for the purposes of this Deed of Trust deemed to be
real estate and conveyed and mortgaged hereby; provided, however, as to any of
the property aforesaid which does not so form a part and parcel of the Real
Estate or does not constitute a "fixture" (as defined in the Uniform Commercial
Code of Texas (the "Code")), this Deed of Trust is hereby deemed to also
be a Security Agreement under the Code for purposes of granting a security
interest in such property, which Grantor hereby grants to Beneficiary, as
Secured Party (as defined in the Code), as more particularly provided below in
this Deed of Trust.

TO HAVE AND TO HOLD the Trust Property and the rights and
privileges hereby granted unto Trustee, Substitute Trustee, their successors and
assigns, for the uses and purposes set forth, together with the right to retain
possession of the Trust Property upon and during the continuance of an Event of
Default hereunder, until the Obligations are fully paid and performed.

Terms and Conditions

Grantor further represents, warrants, covenants and agrees with
Beneficiary as follows:

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<PAGE> 10

the Indenture (collectively, the "Permitted Exceptions"), and Grantor shall
warrant, defend and preserve such title and the lien of the Deed of Trust
thereon against all claims of all persons and entities, excepting, however, the
Permitted Exceptions. Grantor further warrants that it has the right to mortgage
the Trust Property.

2. Payment and Performance of Obligations. Grantor shall pay
the Obligations at the times and places and in the manner specified in the
Guaranty and shall perform all the Obligations.

3. Requirements. (a) Grantor shall comply with, or cause to be
complied with, and conform to all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, rules, regulations and requirements, and
irrespective of the nature of the work to be done, of each of the United States
of America, any State and any municipality, local government or other political
subdivision thereof and any agency, department, bureau, board, commission or
other instrumentality of any of them, now existing or subsequently created
(collectively, "Governmental Authority") which has jurisdiction over the Trust
Property and all covenants, restrictions and conditions now or later of record
which may be applicable to any of the Trust Property, or to the use, manner of
use, occupancy, possession, operation, maintenance, alteration, repair or
reconstruction of any of the Trust Property, except where the failure to so
comply with any of the foregoing would not have a Material Adverse Effect on the
business, prospects, earnings, properties, assets or condition (financial or
otherwise) of the Company and its Subsidiaries taken as a whole. All present and
future laws, statutes, codes, ordinances, orders, judgments, decrees, rules,
regulations and requirements of every Governmental Authority applicable to
Grantor or to any of the Trust Property and all covenants, restrictions, and
conditions which now or later may be applicable to any of the Trust Property are
collectively referred to as the "Legal Requirements".

(b) From and after the date of this Deed of Trust, Grantor
shall not by act or omission permit any building or other improvement on any
premises not subject to the lien of this Deed of Trust to rely on the Premises
or any part thereof or any interest therein to fulfill any Legal Requirement and
Grantor hereby assigns to Beneficiary any and all rights to give consent for all
or any portion of the Premises or any interest therein to be so used. Grantor
shall not by act or omission impair the integrity of any of the Real Estate as a
single zoning lot separate and apart from all other premises. Grantor represents
that each parcel of the Real Estate constitutes a legally subdivided lot, in
compliance with all subdivision laws and

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<PAGE> 11

similar Legal Requirements. Any act or omission by Grantor which would result in
a violation of any of the provisions of this subsection shall be void.

4. Payment of Taxes and Other Impositions. (a) Promptly when
due, Grantor shall pay and discharge all taxes of every kind and nature
(including, without limitation, all real and personal property, income,
franchise, withholding, transfer, gains, profits and gross receipts taxes), all
charges for any easement or agreement maintained for the benefit of any of the
Trust Property, all general and special assessments, levies, permits, inspection
and license fees, all water and sewer rents and charges and all other public
charges even if unforeseen or extraordinary, imposed upon or assessed against or
which may become a lien on any of the Trust Property, or arising in respect of
the occupancy, use or possession thereof, together with any penalties or
interest on any of the foregoing (all of the foregoing are collectively referred
to as the "Impositions"). Upon request by Beneficiary, Grantor shall deliver to
Beneficiary (i) original or copies of receipted bills and cancelled checks
evidencing payment of such Imposition if it is a real estate tax or other public
charge and (ii) evidence acceptable to Beneficiary showing the payment of any
other such Imposition. If by law any Imposition, at Grantor's option, may be
paid in installments (whether or not interest shall accrue on the unpaid balance
of such Imposition), Grantor may elect to pay such Imposition in such
installments and shall be responsible for the payment of such installments with
interest, if any.

(b) Nothing herein shall affect any right or remedy of
Beneficiary under this Deed of Trust or otherwise, without notice or demand to
Grantor, to pay any Imposition after the date such Imposition shall have become
due, and to add to the Obligations the amount so paid, together with interest
from the time of payment at the Default Rate. Any sums paid by Beneficiary in
discharge of any Impositions shall be (i) a lien on the Premises secured hereby
prior to any right or title to, interest in, or claim upon the Premises
subordinate to the lien of this Deed of Trust, and (ii) payable on demand by
Grantor to Beneficiary together with interest at the Default Rate as set forth
above.

(c) Grantor shall not claim, demand or be entitled to receive
any credit or credits toward the satisfaction of this Deed of Trust or on any
interest payable thereon for any taxes assessed against the Trust Property or
any part thereof, and shall not claim any deduction from the taxable value of
the Trust Property by reason of this Deed of Trust if any such claim would
adversely affect the interest of Beneficiary.

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<PAGE> 12

(d) Grantor shall have the right before any delinquency occurs
to contest or object in good faith to the amount or validity of any Imposition
by appropriate legal proceedings, but such right shall not be deemed or
construed in any way as relieving, modifying, or extending Grantor's covenant to
pay any such Imposition at the time and in the manner provided in this Section
unless (i) Grantor has given prior written notice to Beneficiary of Grantor's
intent so to contest or object to an Imposition, (ii) Grantor shall demonstrate
to Beneficiary's satisfaction that the legal proceedings shall operate
conclusively to prevent the sale of the Trust Property, or any part thereof, to
satisfy such Imposition prior to final determination of such proceedings and
(iii) Grantor shall furnish a good and sufficient bond or surety as requested by
and reasonably satisfactory to Beneficiary in the amount of the Impositions
which are being contested plus any interest and penalty which may be imposed
thereon and which could become a lien against the Real Estate or any part of the
Trust Property.

(e) Upon written notice to Grantor, Beneficiary, after an Event
of Default (as defined below), shall be entitled to require Grantor to pay
monthly in advance to Beneficiary the equivalent of 1/12th of the estimated
annual Impositions. Beneficiary may commingle such funds with its own funds and
Grantor shall not be entitled to interest thereon.

5. Insurance. (a) Grantor shall maintain or cause to be
maintained on all of the Premises

(ii) comprehensive general liability insurance under a policy
covering all claims for personal injury, bodily injury or death, or
property damage occurring on, in or about the Premises in an amount not
less than $10,000,000 combined single limit with respect to injury and
property damage relating to any one occurrence plus such excess limits
as Beneficiary shall reasonably request from time to time;

(iii) when and to the extent reasonably required by Beneficiary,
insurance against loss or damage by any other

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<PAGE> 13

risk commonly insured against by persons occupying or using like
properties in the locality or localities in which the Real Estate is
situated;

(iv) insurance against rent loss, extra expense or business
interruption (and/or soft costs, in the case of new construction), if
applicable, in amounts reasonably satisfactory to Beneficiary, but not
less than one year's gross rent or gross income;

(v) during the course of any construction or repair of
Improvements, comprehensive general liability insurance (including
coverage for elevators and escalators, if any). The policy shall
provide coverage for independent contractors and completed operations.
The completed operations coverage shall stay in effect for two years
after construction of any Improvements has been completed. The policy
shall provide coverage on an occurrence basis against claims for
personal injury, such insurance to afford immediate minimum protection
to a limit of not less than that required by Beneficiary with respect
to personal injury, bodily injury or death to any one or more persons
or damage to property;

(vi) during the course of any construction or repair of the
Improvements, workers' compensation insurance (including employer's
liability insurance) for all employees of Grantor engaged on or with
respect to the Premises in such amounts as are reasonably satisfactory
to Beneficiary, but in no event less than the limits established by
law;

(vii) during the course of any construction, addition, alteration or
repair of the Improvements, builder's risk completed value form
insurance against "all risks of physical loss," including collapse,
water damage, flood and earthquake and transit coverage, during
construction or repairs of the Improvements, with deductibles
reasonably approved by Beneficiary, in nonreporting form, covering the
total value of work performed and equipment, supplies and materials
furnished (with an appropriate limit for soft costs in the case of
construction);

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<PAGE> 14

than the lesser of $1,000,000 or 10% of the value of the Improvements;

(ix) if any portion of the Premises are located in an area
identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, flood insurance in an
amount reasonably satisfactory to Beneficiary, but in no event less
than the maximum limit of coverage available under the National Flood
Insurance Act of 1968, as amended; and

(x) such other insurance in such amounts as Beneficiary may
reasonably request from time to time; provided, however, such insurance
is usually and customarily carried with respect to similar facilities
in the same general area as the Premises.

Each insurance policy (other than flood insurance written under the National
Flood Insurance Act of 1968, as amended, in which case to the extent available)
shall (i) provide that it shall not be cancelled without 30 days' prior written
notice to Beneficiary, (ii) with respect to all property insurance, provide for
deductibles in amounts reasonably satisfactory to Beneficiary (which deductibles
shall not exceed $250,000, with the exception of the deductible for boiler and
machinery, which deductible shall not exceed a ten (10) day waiting period
deductible), contain a "Replacement Cost Endorsement" (predicated upon
rebuilding) without any deduction made for depreciation and with no co-insurance
penalty (or attaching an agreed amount endorsement satisfactory to Beneficiary),
with loss payable to Grantor and Beneficiary with respect to the Trust Property
as their respective interests may appear, without contribution, under a
"standard" or "New York" mortgagee clause reasonably acceptable to Beneficiary
and be written by insurance companies having an A.M. Best Company, Inc. rating
of A or higher and a financial size category of not less than XII, or otherwise
as approved by Beneficiary. Liability insurance policies shall name Beneficiary
as an additional insured with respect to the Trust Property and contain a waiver
of subrogation against Beneficiary; all such policies shall indemnify and hold
Beneficiary harmless from all liability claims occurring on, in or about the
Premises and the adjoining streets, sidewalks and passageways. Each policy shall
expressly provide that any proceeds which are payable to Beneficiary pursuant to
the terms hereof shall be paid by check payable to the order of Beneficiary only
and shall require the endorsement of Beneficiary only. The amounts of each
insurance policy and the form of each such policy shall at all times be
reasonably satisfactory to Beneficiary. If any required insurance shall expire,
be withdrawn, become void by breach of any condition thereof by Grantor or by
any lessee of any part of

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<PAGE> 15

the Trust Property or become void or unsafe by reason of the failure or
impairment of the capital of any insurer, Grantor shall immediately obtain new
or additional insurance satisfactory to Beneficiary. Grantor shall not take out
any separate or additional insurance which is contributing in the event of loss
unless it is properly endorsed and otherwise reasonably satisfactory to
Beneficiary in all respects.

(b) Grantor shall deliver to Beneficiary an original of each
insurance policy required to be maintained, or a certificate of such insurance
reasonably acceptable to Beneficiary. Grantor shall (i) pay as they become due
all premiums for such insurance, and (ii) not later than 15 days prior to the
expiration of each policy to be furnished pursuant to the provisions of this
Section, deliver a renewed policy or policies, or duplicate original or
originals thereof, or a certificate of such insurance reasonably acceptable to
Beneficiary, accompanied by evidence of payment reasonably satisfactory to
Beneficiary. Upon request of Beneficiary, Grantor shall cause its insurance
underwriter or broker to certify to Beneficiary in writing that all the
requirements of this Deed of Trust governing insurance have been satisfied.

(c) If Grantor is in default of its obligations to insure or
deliver any such policy or a certificate thereof under this Section 5, then
Beneficiary, at its option and following written notice to Grantor, may effect
such insurance from year to year, and pay the premium or premiums therefor, and
Grantor shall pay to Beneficiary on demand such premium or premiums so paid by
Beneficiary with interest from the time of payment at the Default Rate and the
same shall be deemed to be secured by this Deed of Trust and shall be
collectible in the same manner as the Obligations secured by this Deed of Trust.

(d) Grantor promptly shall comply with and conform to (i) all
provisions of each such insurance policy, and (ii) all requirements of the
insurers applicable to Grantor or to any of the Trust Property or to the use,
manner of use, occupancy, possession, operation, maintenance, alteration or
repair of any of the Trust Property. Grantor shall not use or permit the use of
the Trust Property in any manner which would permit any insurer to cancel any
insurance policy or void coverage required to be maintained by this Deed of
Trust.

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<PAGE> 16

Beneficiary. If the Trust Property is damaged by fire or other casualty, then
provided that no Event of Default shall have occurred and be continuing, Grantor
shall have the right to adjust such loss. If the Trust Property is damaged by
fire or other casualty, and if an Event of Default shall have occurred and be
continuing, then Grantor authorizes and empowers Beneficiary, at Beneficiary's
option and in Beneficiary's sole discretion, as attorney-in-fact for Grantor, to
make proof of loss, to adjust and compromise any claim under any insurance
policy with respect to the Trust Property, to appear in and prosecute any action
arising from any policy, and to deduct from any insurance proceeds Beneficiary's
expenses incurred in the collection process. The insurance proceeds or any part
thereof with respect to the Trust Property received by Beneficiary and/or
Grantor shall constitute Trust Moneys which shall be paid and/or applied in
accordance with subsection 13.2 of the Indenture.

(f) In the event of foreclosure of this Deed of Trust or other
transfer of title to the Trust Property in extinguishment of the Obligations,
all right, title and interest of Grantor in and to any insurance policies then
in force with respect to the Trust Property shall pass to the purchaser or
grantee and Grantor hereby appoints Beneficiary its attorney-in-fact, in
Grantor's name, to assign and transfer all such policies and proceeds to such
purchaser or grantee.

(g) Upon written notice to Grantor, Beneficiary, after an Event
of Default, shall be entitled to require Grantor to pay monthly in advance to
Beneficiary the equivalent of 1/12th of the estimated annual premiums due on
such insurance. Beneficiary may commingle such funds with its own funds and
Grantor shall not be entitled to interest thereon.

(h) Grantor may maintain insurance required under this Deed of
Trust by means of one or more blanket insurance policies maintained by Grantor;
provided, however, that (A) any such policy shall specify, or Grantor shall
furnish to Beneficiary a written statement from the insurer so specifying, the
maximum amount of the total insurance afforded by such blanket policy which
shall be applicable on an occurrence basis and (B) the protection afforded under
any such blanket policy shall be no less than that which would have been
afforded under a separate policy or policies relating only to the Trust
Property.

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<PAGE> 17

deed in lieu of foreclosure or otherwise to take actions to further its economic
interest prior to foreclosure, because a foreclosure by Beneficiary would be
required to clear title to the Trust Property of any such secondary or junior
lien or encumbrance. In accordance with the foregoing and for the purpose of (i)
protecting Beneficiary's security, both of repayment and of value in the Trust
Property, (ii) giving Beneficiary the full benefit of its bargain and contract
with Grantor, and (iii) keeping the Trust Property free of subordinate financing
liens, Grantor agrees that if the following provisions of this paragraph should
be deemed a restraint on alienation, that such provisions are reasonable
restraints.

(1) Except for the lien of this Deed of Trust, the Permitted
Exceptions and liens permitted pursuant to subsection 6.10 of the Indenture,
Grantor shall not further mortgage, nor otherwise encumber the Trust Property
nor create or suffer to exist any lien, charge or encumbrance on the Trust
Property, or any part thereof, whether superior or subordinate to the lien of
this Deed of Trust and whether recourse or non-recourse.

(2) Except as may be permitted pursuant to the Indenture,
including, without limitation, subsection 6.15 thereof, Grantor shall not make
any Asset Sale.

7. Relationship of Beneficiary and Grantor. Beneficiary shall
in no event be construed for any purpose to be a partner, joint venturer, agent
or associate of Grantor or of any beneficiary, tenant, subtenant, operator,
concessionaire or licensee of Grantor in the conduct of their respective
businesses, and without limiting the foregoing, Beneficiary shall not be deemed
to be such partner, joint venturer, agent or associate on account of Beneficiary
becoming a Beneficiary in possession or exercising any rights pursuant to this
Deed of Trust, any of the other Security Documents, or otherwise.

8. Maintenance; No Alteration; Inspection; Utilities. (a)
Grantor shall maintain or cause to be maintained all the Improvements in good
working order and condition, ordinary wear and tear excepted, and shall cause to
be made all necessary (in the good faith opinion of management of Grantor)
repairs, renewals, replacements, additions, betterments and improvements
thereto. Grantor shall not commit any waste of the Improvements and shall not
demolish or materially alter the Improvements without the prior written consent
of Beneficiary.

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<PAGE> 18

furnished in and about the Improvements and the right to inspect and make copies
of all books, contracts and records of Grantor relating to the Trust Property.

(c) Grantor shall pay or cause to be paid when due all utility
charges which are incurred for gas, electricity, water or sewer services
furnished to the Premises and all other assessments or charges of a similar
nature, whether public or private, affecting the Premises or any portion
thereof, whether or not such assessments or charges are liens thereon.

9. Condemnation/Eminent Domain. Promptly upon obtaining
knowledge of the institution of any proceedings for the condemnation of the
Trust Property in its entirety, or any portion thereof, Grantor will notify
Beneficiary of the pendency of such proceedings. Grantor authorizes Beneficiary,
at Beneficiary's option and in Beneficiary's sole discretion, as
attorney-in-fact for Grantor, to commence, appear in and prosecute, in
Beneficiary's or Grantor's name, any action or proceeding relating to any
condemnation of the Trust Property in its entirety, or any portion thereof. If
the Trust Property in its entirety or any part thereof shall be the subject of
condemnation proceedings, Beneficiary, as attorney-in-fact for Grantor, shall
have the right to settle or compromise any claim in connection with such
condemnation. If Beneficiary elects not to participate in such condemnation
proceeding, then Grantor shall, at its expense, diligently prosecute any such
proceeding and shall consult with Beneficiary, its attorneys and experts and
cooperate with them in any defense of any such proceedings. All awards and
proceeds of condemnation received by Beneficiary and/or Grantor shall constitute
Trust Moneys which shall be paid and/or applied in accordance with Subsection
13.2 of the Indenture.

10. Leases. (a) Grantor shall not (i) execute an assignment or
pledge of any Lease relating to all or any portion of the Trust Property other
than in favor of Beneficiary or with Beneficiary's prior written consent or (ii)
without the prior written consent of Beneficiary, execute any Lease of any of
the Trust Property.

(b) As to any Lease relating to all or any portion of the Trust
Property, Grantor shall:

(i) promptly perform all of the material provisions of the
Lease on the part of the lessor thereunder to be performed;

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<PAGE> 19

(ii) enforce, in accordance with sound business practice, all of
the material provisions of the Lease on the part of the lessee
thereunder to be performed;

(iii) appear in and defend, in accordance with sound business
practice, any action or proceeding arising under or in any manner
connected with the Lease or the obligations of Grantor as lessor or of
the lessee thereunder;

(iv) exercise, within 5 days after receipt of a request by
Beneficiary, any right to request from the lessee a certificate with
respect to the status thereof;

(v) promptly deliver to Beneficiary copies of any notices of
default which Grantor may at any time forward to or receive from the
lessee;

(vi) promptly deliver to Beneficiary a fully executed counterpart
of the Lease; and

(vii) promptly deliver to Beneficiary, upon Beneficiary's request,
an assignment of the Grantor's interest under such Lease.

(c) Grantor shall deliver to Beneficiary, within 10 days after
receipt of a request by Beneficiary, a written statement, certified by Grantor
as being true, correct and complete, containing the names of all lessees and
other occupants of the Trust Property, the terms of all Leases and the spaces
occupied and rentals payable thereunder, and a list of all Leases which are then
in default, including the nature and magnitude of the default; such statement
shall be accompanied by credit information with respect to the lessees and such
other information as Beneficiary may request.

(d) All Leases entered into by Grantor after the date hereof,
if any, and all rights of any lessees thereunder shall be subject and
subordinate in all respects to the lien and provisions of this Deed of Trust
unless Beneficiary shall otherwise elect in writing.

(e) As to any Lease now in existence or subsequently consented
to by Beneficiary, Grantor shall not, without the prior written consent of
Beneficiary, accept a surrender or terminate, cancel, rescind, supplement,
alter, revise, modify or amend such Lease or permit any such action to be taken
nor shall Grantor accept the payment of rent more than thirty (30) days in
advance of its due date.

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<PAGE> 20

(f) In the event of the enforcement by Beneficiary of any
remedy under this Deed of Trust, the lessee under each Lease entered into after
the date of this Deed of Trust shall, if requested by Beneficiary or any other
person succeeding to the interest of Beneficiary as a result of such
enforcement, attorn to Beneficiary or to such person and shall recognize
Beneficiary or such successor in interest as lessor under the Lease without
change in the provisions thereof; provided however, that Beneficiary or such
successor in interest shall not be: (i) bound by any payment of an installment
of rent or additional rent which may have been made more than 30 days before the
due date of such installment; (ii) bound by any amendment or modification to the
Lease made without the consent of Beneficiary or such successor in interest;
(iii) liable for any previous act or omission of Grantor (or its predecessors in
interest); (iv) responsible for any monies owing by Grantor to the credit of
such lessee or subject to any credits, offsets, claims, counterclaims, demands
or defenses which the lessee may have against Grantor (or its predecessors in
interest); (v) bound by any covenant to undertake or complete any construction
of the Premises or any portion thereof; or (vi) obligated to make any payment to
such lessee other than any security deposit actually delivered to Beneficiary or
such successor in interest. Each lessee or other occupant under each Lease
entered into after the date of this Deed of Trust, upon request by Beneficiary
or such successor in interest, shall execute and deliver an instrument or
instruments confirming such attornment. In addition, Grantor agrees that each
Lease entered into after the date of this Deed of Trust shall include language
to the effect of subsections (d)-(f) of this Section.

11. Further Assurances/Estoppel Certificates. To
further assure Beneficiary's rights under this Deed of Trust, Grantor agrees
upon demand of Beneficiary to do any act or execute any additional documents
(including, but not limited to, security agreements on any personalty included
or to be included in the Trust Property and a separate assignment of each Lease
in recordable form) as may be required by Beneficiary to confirm the lien of
this Deed of Trust and all other rights or benefits conferred on Beneficiary.
Grantor, within 5 business days after request, shall deliver, in form and
substance satisfactory to Beneficiary, a written statement, duly acknowledged,
setting forth the amount of the Obligations, and whether any offsets, claims,
counterclaims or defenses exist against the Obligations and certifying as to
such other matters as Beneficiary shall reasonably request.

12. Beneficiary's Right to Perform. If Grantor fails to perform
any of the covenants or agreements of Grantor hereunder, Beneficiary, without
waiving or releasing Grantor from

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<PAGE> 21

any obligation or default under this Deed of Trust, may, at any time (but shall
be under no obligation to) pay or perform the same, and the amount or cost
thereof, with interest at the Default Rate, shall immediately be due from
Grantor to Beneficiary and the same shall be secured by this Deed of Trust and
shall be a lien on the Trust Property prior to any right, title to, interest in
or claim upon the Trust Property attaching subsequent to the lien of this Deed
of Trust. No payment or advance of money by Beneficiary under this Section shall
be deemed or construed to cure Grantor's default or waive any right or remedy of
Beneficiary.

13. Hazardous Material. (a) Grantor shall comply with any and
all applicable Legal Requirements governing the discharge and removal of
Hazardous Material, shall pay promptly when due the costs of removal of any
Hazardous Material, and shall keep the Premises free of any lien imposed
pursuant to such Legal Requirements. In the event Grantor fails to do so, after
notice to Grantor and the expiration of the earlier of (i) applicable cure
periods hereunder and under the Indenture, or (ii) the cure period permitted
under the applicable Legal Requirement, Beneficiary may cause the Premises to be
freed from the Hazardous Material to the extent required by applicable Legal
Requirements, and the cost of the removal with interest at the Default Rate
shall immediately be due from Grantor to Beneficiary and the same shall be added
to the Obligations and be secured by this Deed of Trust. Grantor further agrees
that any release or disposal of Hazardous Materials at the Premises shall comply
with all applicable Legal Requirements. In addition, Grantor agrees not to allow
the manufacture, storage, transmission, presence or disposal of any Hazardous
Material over or upon the Premises in violation of applicable Legal
Requirements. Grantor shall give Beneficiary and its agents and employees access
to the Premises to remove Hazardous Material if required by applicable Legal
Requirements and if Grantor has failed to so remove after notice. Grantor agrees
to defend, indemnify and hold Beneficiary free and harmless from and against all
loss, costs, damage and expense (including attorneys' fees and costs and
consequential damages) Beneficiary may sustain by reason of (i) the imposition
or recording of a lien by any Governmental Authority with respect to the Trust
Property pursuant to any Legal Requirement relating to hazardous or toxic wastes
or substances or the removal thereof ("Hazardous Material Laws"); (ii) claims of
any private parties regarding violations of Hazardous Material Laws with respect
to the Trust Property; (iii) costs and expenses (including, without limitation,
attorneys' fees and fees incidental to the securing of repayment of such costs
and expenses) incurred by Grantor or Beneficiary in connection with the removal
of any such lien with respect to the Trust Property or in connection with
Grantor's or Beneficiary's compliance with any Hazardous Material Laws with

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<PAGE> 22

respect to the Trust Property; and (iv) the assertion against Beneficiary by any
party of any claim in connection with Hazardous Material with respect to the
Trust Property.

(b) For the purposes of this Deed of Trust, "Hazardous
Material" means and includes any hazardous, nuclear, toxic or dangerous waste,
substance or material defined as such in (or for purposes of) the Comprehensive
Environmental Response, Compensation, and Liability Act, any so-called
"Superfund" or "Superlien" law, or any other Legal Requirement regulating,
relating to, or imposing liability or standards of conduct concerning, any
hazardous, nuclear, toxic or dangerous waste, substance or material, as now or
at any time in effect.

(c) The foregoing indemnification shall be a recourse
obligation of Grantor and shall survive repayment of the Obligations,
notwithstanding any limitations on recourse which may be contained herein or in
any Security Documents or the delivery of any satisfaction, release or release
deed, discharge or deed of reconveyance, or the assignment of this Deed of Trust
by Beneficiary; provided, however, that the foregoing indemnification shall
apply only to matters arising prior to any taking of possession of the Premises
by Beneficiary or any other person succeeding to the interest of Beneficiary
pursuant to the terms hereof; further provided, that the foregoing
indemnification shall not apply to loss, costs and the like arising from the
gross negligence or wilful misconduct of the party seeking indemnification.

14. Asbestos. Grantor shall not install or permit to be
installed in the Premises friable asbestos or any substance containing asbestos
and deemed hazardous by any Legal Requirement respecting such material, and,
with respect to any such material currently present in the Premises, shall
promptly comply with such Legal Requirements, at Grantor's expense. If Grantor
shall fail to so comply, Beneficiary may do whatever is necessary to comply with
the applicable Legal Requirement, and the costs thereof, with interest at the
Default Rate, shall be immediately due from Grantor to Beneficiary and the same
shall be added to the Obligations and be secured by this Deed of Trust. Grantor
shall give Beneficiary and its agents and employees, upon prior notice and at
reasonable times, access to the Premises to remove such asbestos or substances
if required by applicable Legal Requirements and if Grantor has failed to so
remove after notice. Grantor shall defend, indemnify, and save Beneficiary
harmless from all loss, costs, damages and expense (including attorneys' fees
and costs and consequential damages) asserted or proven against Beneficiary by
any party, as a result of the presence of such substances or any removal or
compliance with such Legal Requirements. The foregoing indemnification shall be
a recourse

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<PAGE> 23

obligation of Grantor and shall survive repayment of the Obligations,
notwithstanding any limitation on recourse which may be contained herein or in
any of the Security Documents or the delivery of any satisfaction, release or
release deed, discharge or deed of reconveyance, or the assignment of this Deed
of Trust by Beneficiary; provided, however, that the foregoing indemnification
shall apply only to matters arising prior to any taking of possession of the
Premises by Beneficiary or any other person succeeding to the interest of
Beneficiary pursuant to the terms hereof; further provided, that the foregoing
indemnification shall not apply to loss, costs and the like arising from the
gross negligence or wilful misconduct of the party seeking indemnification.

15. Event of Default. The occurrence of an "Event of Default"
(as defined in the Indenture) shall constitute an Event of Default hereunder.

16. Remedies. (a) Upon the occurrence of any Event of
Default, in addition to any other rights and remedies Beneficiary may have
pursuant to the Security Documents, or as provided by law, and without
limitation, (a) if such event is an Event of Default described in subsections
8.1(ix) or 8.1(x) of the Indenture, automatically the Obligations immediately
shall become due and payable, and (b) if such event is any other Event of
Default, by notice to Grantor, Beneficiary may declare the Obligations to be
immediately due and payable. Except as expressly provided above in this Section,
presentment, demand, protest and all other notices of any kind are hereby
expressly waived. In addition, upon and during the continuance of any Event of
Default, Beneficiary may immediately take such action, without notice or demand,
as it deems advisable to protect and enforce its rights against Grantor and in
and to the Trust Property, including, but not limited to, the following actions,
each of which may be pursued concurrently or otherwise, at such time and in such
manner as Beneficiary may determine, in its sole discretion, without impairing
or otherwise affecting the other rights and remedies of Beneficiary:

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<PAGE> 24

the Default Rate and all costs of suit, including, without limitation,
reasonable attorneys' fees and disbursements. Interest at the Default
Rate shall be due on any judgment obtained by Beneficiary from the date
of judgment until actual payment is made of the full amount of the
judgment.

(ii) Beneficiary may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the Trust
Property or any other collateral as security for the Obligations, enter
into and upon the Trust Property and each and every part thereof and
exclude Grantor and its agents and employees therefrom without
liability for trespass, damage or otherwise (Grantor hereby agreeing to
surrender possession of the Trust Property to Beneficiary upon demand
at any such time) and use, operate, manage, maintain and control the
Trust Property and every part thereof. Following such entry and taking
of possession, Beneficiary shall be entitled, without limitation, (x)
to lease all or any part or parts of the Trust Property for such
periods of time and upon such conditions as Beneficiary may, in its
discretion, deem proper, (y) to enforce, cancel or modify any Lease and
(z) generally to execute, do and perform any other act, deed, matter or
thing concerning the Trust Property as Beneficiary shall deem
appropriate as fully as Grantor might do.

(iii) It is further agreed that if default be made in the
payment of any part of the Obligations, as an alternative to the right
of foreclosure for the full secured Obligations after acceleration
thereof, Beneficiary shall have the right to institute partial
foreclosure proceedings with respect to the portion of said Obligations
so in default, as if under a full foreclosure, and without declaring
the entire secured Obligations due (such proceeding being hereinafter
referred to as a "partial foreclosure"), and provided that if a partial
foreclosure sale is consummated as provided herein, such sale may be
made subject to the continuing lien of this Deed of Trust for the
unmatured portion of the secured Obligations, but as to such unmatured
part, this Deed of Trust, and the lien hereof, shall remain in full
force and effect just as though no partial foreclosure sale had been
made under the provisions of this Section. Notwithstanding the filing
of any partial foreclosure or entry of a decree of sale therein,
Beneficiary may elect at any time prior to a partial foreclosure sale
pursuant to such decree, to discontinue such partial foreclosure and to
accelerate the Obligations secured hereby by reason of any uncured
Event of Default upon which such partial foreclosure was predicated or
by reason of any other Event of Default, and proceed with

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<PAGE> 25

full foreclosure proceedings. It is further agreed that one or more
foreclosure sales may be made pursuant to partial foreclosures without
exhausting the right of full or partial foreclosure sale for any
unmatured part of the secured Obligations, it being the purpose to
provide for a partial foreclosure sale of the Obligations secured
hereby without exhausting the power to foreclose for any other part of
the Obligations whether matured at the time or subsequently maturing,
and without exhausting any right of acceleration and full foreclosure.

(iv) Beneficiary may direct Trustee to sell or offer for sale
the Trust Property in such portions, order and parcels as Beneficiary
may determine, with or without having first taken possession of the
same, to the highest bidder for cash at public auction. Such sale shall
be made at the courthouse door of the County wherein the Real Estate
(or any of that portion thereof to be sold) is situated (whether the
parts or parcels thereof, if any, in different counties are contiguous
or not, and without the necessity of having any personal property
hereby mortgaged present at such sale) on the first Tuesday of any
month between the hours of 10:00 a.m. and 4:00 p.m. after posting a
written or printed notice or notices of the place, time and terms of
the sale of the Trust Property for twenty-one (21) days prior to the
date of the sale at the courthouse door of the county in which the sale
is to be made and at the courthouse door of any other county in which a
portion of the Trust Property may be situated and filing a copy of such
notice(s) in the office of the county clerk in each of such counties,
and by serving written notice of the proposed sale at least twenty-one
(21) days preceding the date of sale by certified mail on Grantor and
on each debtor obligated to pay the Obligations according to the
records of the Beneficiary. It is agreed that the posting and
transmittal of notices may be performed by the Trustee, Beneficiary, or
by any person acting for them. The sale shall be accomplished by
following the procedures permitted or required by Tex. Prop. Code Ann.
51.002 (Vernon 1984), as same may be amended from time to time,
relating to the sale of real estate and/or by Chapter 9 of the Texas
Uniform Commercial Code relating to the sale of personal property
collateral after default by a debtor (as said Section and Chapter may
now exist or may hereafter be amended or succeeded), or by any other
present or subsequent articles or enactments relating to the same.
Nothing contained in this subsection (iv) shall be construed to limit
in any way Trustee's rights to sell the Trust Property by private sale
if, and to the extent, that such private sale is permitted under the
laws of the State of Texas or by public or private sale after entry of
judgment

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<PAGE> 26

by any court of competent jurisdiction ordering the same. At any such
sale (i) whether made under power herein contained, the aforesaid
51.002, the Texas Uniform Commercial Code, any other legal requirement
or by virtue of any judicial procedure or any other legal right, remedy
or recourse, it shall not be necessary for Trustee to have physically
present, or to have constructive possession of, the Trust Property
(Grantor hereby covenanting and agreeing to deliver to Trustee any
portion of the Trust Property not actually or constructively possessed
by Trustee immediately upon demand by Trustee), and the title to and
right of possession of any such property shall pass to the purchaser
thereof as completely as if the same had been actually present and
delivered to purchaser at such sale, (ii) each instrument of conveyance
executed by Trustee shall contain a special warranty of title, subject
to Permitted Exceptions, binding upon Grantor, (iii) each and every
recital contained in any instrument of conveyance made by Trustee shall
be prima facie proof of the truth and accuracy of the matters recited
therein, including, without limitation, nonpayment of the Obligations,
advertisement and conduct of such sale in the manner provided herein
and otherwise by law and appointment of any Substitute Trustee
hereunder, (iv) there shall be a prima facie presumption that any and
all prerequisites to the validity thereof shall have been performed,
(v) the receipt of Trustee or of such other party or officer making the
sale shall be a sufficient discharge to the purchaser or purchasers for
his or their purchase money and no such purchaser or purchasers, or his
or their assigns or personal representatives, shall thereafter be
obligated to see to the application of such purchase money or be in any
way answerable for any loss, misapplication or nonapplication thereof,
(vi) to the fullest extent permitted by law, Grantor shall be
completely and irrevocably divested of all of its right, title,
interest, claim and demand whatsoever, either at law or in equity, in
and to the property sold and such sale shall be a perpetual bar, both
at law and in equity, against Grantor, and against any and all other
persons claiming or to claim the property sold or any part thereof, by,
through or under Grantor, and (vii) to the extent and under such
circumstances as are permitted by law, Beneficiary may be a purchaser
at any such sale;

(b) The holder of this Deed of Trust, in any action to
foreclose it, shall be entitled to the appointment of a receiver. In case of a
foreclosure sale, the Real Estate may be sold, at Beneficiary's election, in one
parcel or in more than one parcel and Beneficiary is specifically empowered,
(without being required to do so, and in its sole and absolute discretion) to

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<PAGE> 27

cause successive sales of portions of the Trust Property to be held.

(c) In the event of any breach of any of the covenants,
agreements, terms or conditions contained in this Deed of Trust, and
notwithstanding to the contrary any exculpatory or non-recourse language which
may be contained herein, Beneficiary shall be entitled to enjoin such breach and
obtain specific performance of any covenant, agreement, term or condition and
Beneficiary shall have the right to invoke any equitable right or remedy as
though other remedies were not provided for in this Deed of Trust.

(d) The proceeds of any foreclosure or sale of the Trust
Property, or any portion thereof, shall be distributed and applied in accordance
with all applicable provisions of the Indenture.

(e) Following any sale of the Trust Property, or any part
hereof, under the provisions of this instrument, all persons and parties in
possession of the property sold shall be divested of any and all interest in and
claim to the Trust Property, and shall be obligated to immediately vacate the
premises, and prior to such vacation shall be tenants at sufferance of the
purchaser of the property sold and shall be subject to eviction in an action of
forcible detainer; provided, the provisions of this subparagraph shall be
subject to any agreements made in writing by Beneficiary with reference to any
existing and/or future leases; provided, further, the purchaser at any
foreclosure sale shall have the option but not the obligation to affirm any then
existing leases or tenancies or otherwise succeed to the rights of Grantor
thereunder.

17. Right of Beneficiary to Credit Sale. Upon the occurrence of
any sale made under this Deed of Trust, whether made under the power of sale or
by virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, Beneficiary may bid for and acquire the Trust Property or any part
thereof. In lieu of paying cash therefor, Beneficiary may make settlement for
the purchase price by crediting upon the Obligations or other sums secured by
this Deed of Trust the net sales price after deducting therefrom the expenses of
sale and the cost of the action and any other sums which Beneficiary is
authorized to deduct under this Deed of Trust. In such event, this Deed of
Trust, the Guaranty and documents evidencing expenditures secured hereby may be
presented to the person or persons conducting the sale in order that the amount
so used or applied may be credited upon the Obligations as having been paid.

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18. Appointment of Receiver. If an Event of Default shall have
occurred and be continuing, Beneficiary as a matter of right and without notice
to Grantor, unless otherwise required by applicable law, and without regard to
the adequacy or inadequacy of the Trust Property or any other collateral as
security for the Obligations or the interest of Grantor therein, shall have the
right to apply to any court having jurisdiction to appoint a receiver or
receivers or other manager of the Trust Property, and Grantor hereby irrevocably
consents to such appointment and waives notice of any application therefor
(except as may be required by law). Any such receiver or receivers shall have
all the usual powers and duties of receivers in like or similar cases and all
the powers and duties of Beneficiary in case of entry as provided in this Deed
of Trust, including, without limitation and to the extent permitted by law, the
right to enter into leases of all or any part of the Trust Property, and shall
continue as such and exercise all such powers until the date of confirmation of
sale of the Trust Property unless such receivership is sooner terminated.

19. Extension, Release, etc. (a) Without affecting the lien or
charge of this Deed of Trust upon any portion of the Trust Property not then or
theretofore released as security for the full amount of the Obligations,
Beneficiary may, from time to time and without notice, agree to (i) release any
person liable for the Obligations, (ii) extend the maturity or alter any of the
terms of the Obligations or any guaranty thereof, (iii) grant other indulgences,
(iv) release or reconvey, or cause to be released or reconveyed at any time at
Beneficiary's option any parcel, portion or all of the Trust Property, (v) take
or release any other or additional security for any obligation herein mentioned,
or (vi) make compositions or other arrangements with debtors in relation
thereto. If at any time this Deed of Trust shall secure less than all of the
principal amount of the Obligations, it is expressly agreed that any repayments
of the principal amount of the Obligations shall not reduce the amount of the
lien of this Deed of Trust until the lien amount shall equal the principal
amount of the Obligations outstanding.

(b) No recovery of any judgment by Beneficiary and no levy of
an execution under any judgment upon the Trust Property or upon any other
property of Grantor shall affect the lien of this Deed of Trust or any liens,
rights, powers or remedies of Beneficiary hereunder, and such liens, rights,
powers and remedies shall continue unimpaired.

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<PAGE> 29

such tenants parties defendant to any such foreclosure proceeding and to
foreclose their rights will not be asserted by Grantor as a defense to any
proceeding instituted by Beneficiary to collect the Obligations or to foreclose
the lien of this Deed of Trust.

(d) Unless expressly provided otherwise, in the event that
ownership of this Deed of Trust and title to the Trust Property or any estate
therein shall become vested in the same person or entity, this Deed of Trust
shall not merge in such title but shall continue as a valid lien on the Trust
Property for the amount secured hereby.

20. Assignment of Rents. Grantor hereby assigns to Beneficiary
the Rents and Additional Rents as further security for the payment of the
Obligations and performance of the Obligations, and Grantor grants to
Beneficiary the right to enter the Trust Property for the purpose of collecting
the same and to let the Trust Property or any part thereof, and to apply the
Rents and Additional Rents on account of the Obligations. The foregoing
assignment and grant is present and absolute and shall continue in effect until
the Obligations are paid in full, but Beneficiary hereby waives the right to
enter the Trust Property for the purpose of collecting the Rents and Additional
Rents and Grantor shall be entitled to collect, receive, use and retain the
Rents and Additional Rents; such right of Grantor to collect, receive, use and
retain the Rents and Additional Rents may be revoked by Beneficiary upon and
during the continuance of any Event of Default under this Deed of Trust by
giving not less than five days' written notice of such revocation to Grantor; in
the event such notice is given, Grantor shall pay over to Beneficiary, or to any
receiver appointed to collect the Rents, any lease security deposits, shall pay
monthly in advance to Beneficiary, or to any such receiver, the fair and
reasonable rental value as determined by Beneficiary for the use and occupancy
of the Trust Property or such part thereof as may be in the possession of
Grantor or any affiliate of Grantor, and upon default in any such payment
Grantor and any such affiliate will vacate and surrender the possession of the
Trust Property to Beneficiary or to such receiver, and in default thereof may be
evicted by summary proceedings or otherwise. Grantor shall not accept
prepayments of installments of Rent to become due for a period of more than one
month in advance (except for security deposits and estimated payments of
percentage rent, if any).

21. Trust Funds. All lease security deposits of the Real Estate
held by Grantor shall be treated as trust funds not to be commingled with any
other funds of Grantor. Within 10 days after request by Beneficiary, Grantor
shall furnish Beneficiary satisfactory evidence of compliance with this
subsection, together with a statement of all lease security deposits by

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<PAGE> 30

lessees and copies of all Leases not previously delivered to Beneficiary, which
statement shall be certified by Grantor.

22. Additional Rights. The holder of any subordinate lien on
the Trust Property shall have no right to terminate any Lease whether or not
such Lease is subordinate to this Deed of Trust nor shall any holder of any
subordinate lien join any tenant under any Lease in any action to foreclose the
lien or modify, interfere with, disturb or terminate the rights of any tenant
under any Lease. By recordation of this Deed of Trust all subordinate
lienholders are subject to and notified of this provision, and any action taken
by any such lienholder contrary to this provision shall be null and void. Upon
and during the continuance of any Event of Default, Beneficiary may, in its sole
discretion and without regard to the adequacy of its security under this Deed of
Trust, apply all or any part of any amounts on deposit with Beneficiary under
this Deed of Trust against all or any part of the Obligations. Any such
application shall not be construed to cure or waive any Default or Event of
Default or invalidate any act taken by Beneficiary on account of such Default or
Event of Default.

23. Changes in Method of Taxation. In the event of the passage
after the date hereof of any law of any Governmental Authority deducting from
the value of the Premises for the purposes of taxation any lien thereon, or
changing in any way the laws for the taxation of mortgages or debts secured
thereby for federal, state or local purposes, or the manner of collection of any
such taxes, and imposing a tax, either directly or indirectly, on mortgages or
debts secured thereby, Grantor shall, if permitted by applicable law, assume as
an Obligation hereunder the payment of any tax so imposed until full payment of
the Obligations.

24. Notices. All notices, requests, demands and other
communications hereunder shall be given in the manner provided in the Indenture.

25. No Oral Modification. This Deed of Trust may not be changed
or terminated orally. Any agreement made by Grantor and Beneficiary after the
date of this Deed of Trust relating to this Deed of Trust shall be superior to
the rights of the holder of any intervening or subordinate lien or encumbrance.

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<PAGE> 31

had never been included. Notwithstanding anything to the contrary contained in
this Deed of Trust or in any provisions of the Obligations or Security
Documents, the obligations of Grantor and of any other obligor under the
Obligations or Security Documents shall be subject to the limitation that
Beneficiary shall not charge, take or receive, nor shall Grantor or any other
obligor be obligated to pay to Beneficiary, any amounts constituting interest in
excess of the maximum rate permitted by law to be charged by Beneficiary.

27. Waiver of Right of Redemption and Other Rights. (a) Grantor
hereby voluntarily and knowingly releases and waives any and all rights to
retain possession of the Trust Property upon and during the continuance of an
Event of Default hereunder and any and all rights of redemption from sale under
any order or decree of foreclosure (whether full or partial), on its own behalf,
on behalf of all persons claiming or having an interest (direct or indirectly)
by, through or under each constituent of Grantor and on behalf of each and every
person acquiring any interest in the Trust Property subsequent to the date
hereof, it being the intent hereof that any and all such rights of redemption of
each constituent of Grantor and all such other persons are and shall be deemed
to be hereby waived to the fullest extent permitted by applicable law or
replacement statute. Each constituent of Grantor shall not invoke or utilize any
such law or laws or otherwise hinder, delay, or impede the execution of any
right, power, or remedy herein or otherwise granted or delegated to the
Beneficiary, but shall permit the execution of every such right, power, and
remedy as though no such law or laws had been made or enacted.

(b) To the fullest extent permitted by law, Grantor waives the
benefit of all laws now existing or that may subsequently be enacted providing
for (i) any appraisement before sale of any portion of the Trust Property, (ii)
any extension of the time for the enforcement of the collection of the
Obligations or the creation or extension of a period of redemption from any sale
made in collecting such debt and (iii) exemption of the Trust Property from
attachment, levy or sale under execution or exemption from civil process. To the
full extent Grantor may do so, Grantor agrees that Grantor will not at any time
insist upon, plead, claim or take the benefit or advantage of any law now or
hereafter in force providing for any appraisement, valuation, stay, exemption,
extension or redemption, or requiring foreclosure of this Deed of Trust before
exercising any other remedy granted hereunder and Grantor, for Grantor and its
successors and assigns, and for any and all persons ever claiming any interest
in the Trust Property, to the extent permitted by law, hereby waives and
releases all rights of redemption, valuation, appraisement, stay of execution,
notice of election to

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<PAGE> 32

mature or declare due the whole of the secured indebtedness and marshalling in
the event of foreclosure of the liens hereby created.

28. Remedies Not Exclusive. Beneficiary shall be entitled to
enforce payment of the Obligations and performance of the Obligations and to
exercise all rights and powers under this Deed of Trust or under any of the
other Security Documents or other agreement or any laws now or hereafter in
force, notwithstanding some or all of the Obligations may now or hereafter be
otherwise secured, whether by mortgage, security agreement, pledge, lien,
assignment or otherwise. Neither the acceptance of this Deed of Trust nor its
enforcement, shall prejudice or in any manner affect Beneficiary's right to
realize upon or enforce any other security now or hereafter held by Beneficiary,
it being agreed that Beneficiary shall be entitled to enforce this Deed of Trust
and any other security now or hereafter held by Beneficiary in such order and
manner as Beneficiary may determine in its absolute discretion. No remedy herein
conferred upon or reserved to Beneficiary is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or now
or hereafter existing at law or in equity or by statute. Every power or remedy
given by any of the Security Documents to Beneficiary or to which it may
otherwise be entitled, may be exercised, concurrently or independently, from
time to time and as often as may be deemed expedient by Beneficiary. In no event
shall Beneficiary, in the exercise of the remedies provided in this Deed of
Trust (including, without limitation, in connection with the assignment of Rents
to Beneficiary, or the appointment of a receiver and the entry of such receiver
on to all or any part of the Trust Property), be deemed a "mortgagee in
possession," and Beneficiary shall not in any way be made liable for any act,
either of commission or omission, in connection with the exercise of such
remedies.

29
<PAGE> 33

Property), which action may be brought or consolidated in the courts of any
county in which any of such collateral is located. Grantor acknowledges that the
right to maintain a consolidated foreclosure action is a specific inducement to
Beneficiary to extend the Obligations, and Grantor expressly and irrevocably
waives any objections to the commencement or consolidation of the foreclosure
proceedings in a single action and any objections to the laying of venue or
based on the grounds of forum non conveniens which it may now or hereafter have.
Grantor further agrees that if Beneficiary shall be prosecuting one or more
foreclosure or other proceedings against a portion of the Trust Property or
against any collateral other than the Trust Property, which collateral directly
or indirectly secures the Obligations, or if Beneficiary shall have obtained a
judgment of foreclosure and sale or similar judgment against such collateral,
then, whether or not such proceedings are being maintained or judgments were
obtained in or outside the State in which the Premises are located, Beneficiary
may commence or continue foreclosure proceedings and exercise its other remedies
granted in this Deed of Trust against all or any part of the Trust Property and
Grantor waives any objections to the commencement or continuation of a
foreclosure of this Deed of Trust or exercise of any other remedies hereunder
based on such other proceedings or judgments, and waives any right to seek to
dismiss, stay, remove, transfer or consolidate either any action under this Deed
of Trust or such other proceedings on such basis. Neither the commencement nor
continuation of proceedings to foreclose this Deed of Trust nor the exercise of
any other rights hereunder nor the recovery of any judgment by Beneficiary in
any such proceedings shall prejudice, limit or preclude Beneficiary's right to
commence or continue one or more foreclosure or other proceedings or obtain a
judgment against any other collateral (either in or outside the State in which
the Premises are located) which directly or indirectly secures the Obligations,
and Grantor expressly waives any objections to the commencement of, continuation
of, or entry of a judgment in such other proceedings or exercise of any remedies
in such proceedings based upon any action or judgment connected to this Deed of
Trust, and Grantor also waives any right to seek to dismiss, stay, remove,
transfer or consolidate either such other proceedings or any action under this
Deed of Trust on such basis. It is expressly understood and agreed that to the
fullest extent permitted by law, Beneficiary may, at its election, cause the
sale of all collateral which is the subject of a single foreclosure action at
either a single sale or at multiple sales conducted simultaneously and take such
other measures as are appropriate in order to effect the agreement of the
parties to dispose of and administer all collateral securing the Obligations
(directly or indirectly) in the most economical and least time-consuming manner.

30
<PAGE> 34

30. Expenses; Indemnification. (a) Grantor shall pay or
reimburse Beneficiary for all expenses incurred by Beneficiary before and after
the date of this Deed of Trust with respect to any and all transactions
contemplated by this Deed of Trust including without limitation, the preparation
of any document reasonably required hereunder or any amendment, modification,
restatement or supplement to this Deed of Trust, the delivery of any consent,
non-disturbance agreement or similar document in connection with this Deed of
Trust or the enforcement of any of Beneficiary's rights. Such expenses shall
include, without limitation, all title and conveyancing charges, recording and
filing fees and taxes, mortgage taxes, intangible personal property taxes,
escrow fees, revenue and tax stamp expenses, insurance premiums (including title
insurance premiums), title search and title rundown charges, brokerage
commissions, finders' fees, placement fees, court costs, surveyors',
photographers', appraisers', architects', engineers', consulting professional's,
accountants' and attorneys' fees and disbursements. Grantor acknowledges that
from time to time Grantor may receive statements for such expenses, including
without limitation attorneys' fees and disbursements. Grantor shall pay such
statements promptly upon receipt.

(b) If (i) any action or proceeding shall be commenced by
Beneficiary (including but not limited to any action to foreclose this Deed of
Trust or to collect the Obligations), or any action or proceeding is commenced
to which Beneficiary is made a party, or in which it becomes necessary to defend
or uphold the lien of this Deed of Trust (including, without limitation, any
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of Grantor and/or any Subsidiary), or in which Beneficiary is
served with any legal process, discovery notice or subpoena and (ii) in each of
the foregoing instances such action or proceeding in any manner relates to or
arises out of this Deed of Trust or Beneficiary's acceptance of the Guaranty,
then Grantor will promptly reimburse or pay to Beneficiary all of the expenses
which have been incurred by Beneficiary with respect to the foregoing (including
reasonable counsel fees and disbursements), together with interest thereon at
the Default Rate, and any such sum and the interest thereon shall be a lien on
the Trust Property, prior to any right, or title to, interest in or claim upon
the Trust Property attaching or accruing subsequent to the lien of this Deed of
Trust, and shall be deemed to be secured by this Deed of Trust. In any action or
proceeding to foreclose this Deed of Trust, or to recover or collect the
Obligations, the provisions of law respecting the recovering of costs,
disbursements and allowances shall prevail unaffected by this covenant.

31
<PAGE> 35

(c) Grantor shall indemnify and hold harmless Beneficiary and
Beneficiary's affiliates, and the respective directors, officers, agents and
employees of Beneficiary and its affiliates from and against all claims,
damages, losses and liabilities (including, without limitation, reasonable
attorneys' fees and expenses) arising out of or based upon any matter related to
this Deed of Trust, the Trust Property or the occupancy, ownership, maintenance
or management of the Trust Property by Grantor, including, without limitation,
any claims based on the alleged acts or omissions of any employee or agent of
Grantor; provided, however, that the foregoing indemnification shall not apply
to claims, damages and the like arising from the gross negligence or wilful
misconduct of the party seeking indemnification. This indemnification shall be
in addition to any other liability which Grantor may otherwise have to
Beneficiary.

31. Successors and Assigns. All covenants of Grantor contained
in this Deed of Trust are imposed solely and exclusively for the benefit of
Beneficiary and its successors and assigns, and no other person or entity shall
have standing to require compliance with such covenants or be deemed, under any
circumstances, to be a beneficiary of such covenants, any or all of which may be
freely waived in whole or in part by Beneficiary at any time if in its sole
discretion it deems such waiver advisable. All such covenants of Grantor shall
run with the land and bind Grantor, the successors and assigns of Grantor (and
each of them) and all subsequent owners, encumbrances and tenants of the Trust
Property, and shall inure to the benefit of Beneficiary, its successors and
assigns. The word "Grantor" shall be construed as if it read "Grantors" whenever
the sense of this Deed of Trust so requires and if there shall be more than one
Grantor, the obligations of the Grantors shall be joint and several.

32. No Waivers, etc. Any failure by Beneficiary to insist upon
the strict performance by Grantor of any of the terms and provisions of this
Deed of Trust shall not be deemed to be a waiver of any of the terms and
provisions hereof, and Beneficiary, notwithstanding any such failure, shall have
the right thereafter to insist upon the strict performance by Grantor of any and
all of the terms and provisions of this Deed of Trust to be performed by
Grantor. Beneficiary may release, regardless of consideration and without the
necessity for any notice to or consent by the holder of any subordinate lien on
the Trust Property, any part of the security held for the Obligations secured by
this Deed of Trust without, as to the remainder of the security, in anywise
impairing or affecting the lien of this Deed of Trust or the priority of such
lien over any subordinate lien.

32
<PAGE> 36

33. GOVERNING LAW, ETC. THIS DEED OF TRUST SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE REAL ESTATE IS
LOCATED, EXCEPT THAT GRANTOR EXPRESSLY ACKNOWLEDGES THAT BY ITS TERMS THE
INDENTURE AND THE GUARANTY SHALL BE GOVERNED AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF
LAW, AND FOR PURPOSES OF CONSISTENCY, GRANTOR AGREES THAT IN ANY IN PERSONAM
PROCEEDING RELATED TO THIS DEED OF TRUST THE RIGHTS OF THE PARTIES TO THIS DEED
OF TRUST SHALL ALSO BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK GOVERNING CONTRACTS MADE AND TO BE PERFORMED IN THAT
STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW.

34. Waiver of Trial by Jury. Grantor and Beneficiary each
hereby irrevocably and unconditionally waive trial by jury in any action, claim,
suit or proceeding relating to this Deed of Trust and for any counterclaim
brought therein. Grantor hereby waives all rights to interpose any counterclaim
in any suit brought by Beneficiary hereunder (other than compulsory
counterclaims and other counterclaims that must be interposed in connection with
such suit under applicable law) and all rights to have any such suit
consolidated with any separate suit, action or proceeding (it being understood
and agreed, however, that Grantor shall have the right to raise any such claim
in a separate suit, action or proceeding).

35. Certain Definitions. Unless the context clearly indicates a
contrary intent or unless otherwise specifically provided herein, words used in
this Deed of Trust shall be used interchangeably in singular or plural form and
the word "Grantor" shall mean "each Grantor or any subsequent owner or owners of
the Trust Property or any part thereof or interest therein," the word
"Beneficiary" shall mean "Beneficiary or any successor collateral agent to the
Beneficiary," the word "person" shall include any individual, corporation,
partnership, trust, unincorporated association, government, governmental
authority, or other entity, and the words "Trust Property" shall include any
portion of the Trust Property or interest therein. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa. The captions in this Deed of Trust are for
convenience of reference only and in no way limit or amplify the provisions
hereof.

33
<PAGE> 37

have the option of either (i) proceeding under the Code and exercising such
rights and remedies as may be provided to a secured party by the Code with
respect to all or any portion of the Trust Property which is personal property
(including, without limitation, taking possession of and selling such property)
or (ii) treating such property as real property and proceeding with respect to
both the real and personal property constituting the Trust Property in
accordance with Beneficiary's rights, powers and remedies with respect to the
real property (in which event the default provisions of the Code shall not
apply). If Beneficiary shall elect to proceed under the Code, then five days'
notice of sale of the personal property shall be deemed reasonable notice and
the reasonable expenses of retaking, holding, preparing for sale, selling and
the like incurred by Beneficiary shall include, but not be limited to,
attorneys' fees and legal expenses. At Beneficiary's request, Grantor shall
assemble the personal property and make it available to Beneficiary at a place
designated by Beneficiary which is reasonably convenient to both parties.

(b) Grantor and Beneficiary agree, to the extent permitted by
law, that: (i) all of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) this Deed of
Trust upon recording or registration in the real estate records of the proper
office shall constitute a financing statement filed as a "fixture filing" within
the meaning of the Code; and (iii) the addresses of Grantor and Beneficiary are
as set forth on the first page of this Deed of Trust.

(c) Grantor, upon request by Beneficiary from time to time,
shall execute, acknowledge and deliver to Beneficiary one or more separate
security agreements, in form satisfactory to Beneficiary, covering all or any
part of the Trust Property and will further execute, acknowledge and deliver, or
cause to be executed, acknowledged and delivered, any financing statement,
affidavit, continuation statement or certificate or other document as
Beneficiary may request in order to perfect, preserve, maintain, continue or
extend the security interest under and the priority of this Deed of Trust and
such security instrument. Grantor further agrees to pay to Beneficiary on demand
all costs and expenses incurred by Beneficiary in connection with the
preparation, execution, recording, filing and re-filing of any such document and
all reasonable costs and expenses of any record searches for financing
statements Beneficiary shall reasonably require. Grantor shall from time to
time, on request of Beneficiary, deliver to Beneficiary an inventory in
reasonable detail of any of the Trust Property which constitutes personal
property. If Grantor shall fail to furnish any financing or continuation
statement within 10 days after

34
<PAGE> 38

request by Beneficiary, then pursuant to the provisions of the Code, Grantor
hereby authorizes Beneficiary, without the signature of Grantor, to execute and
file any such financing and continuation statements. The filing of any financing
or continuation statements in the records relating to personal property or
chattels shall not be construed as in any way impairing the right of Beneficiary
to proceed against any personal property encumbered by this Deed of Trust as
real property, as set forth above.

37. Release Upon Payment and Discharge of Grantor's
Obligations. Beneficiary shall release this Deed of Trust and the lien hereof by
proper instrument upon payment and discharge of all Obligations secured hereby
(including payment of reasonable expenses incurred by Beneficiary in connection
with the execution of such release) and upon full and complete performance of
all of the Obligations. Beneficiary shall otherwise release this Deed of Trust
and the lien hereof in accordance with the terms of Section __ of the Indenture.

38. Enforceability; Usury. In no event shall any provision of
this Deed of Trust or any other instrument evidencing or securing the
Obligations ever obligate Grantor to pay or allow Beneficiary to collect
interest on the Obligations secured hereby at a rate greater than the maximum
non-usurious rate permitted by applicable law (herein referred to as the
"Highest Lawful Rate"), or obligate Grantor to pay any taxes, assessments,
charges, insurance premiums or other amounts to the extent that such payments,
when added to the interest payable on the Obligations, would be held to
constitute the payment by Grantor of interest at a rate greater than the Highest
Lawful Rate; and this provision shall control over any provision to the
contrary. To the extent the Highest Lawful Rate is determined by reference to
the laws of the State of Texas, same shall be determined by reference to the
indicated (weekly) rate ceiling (as defined and described in Texas Revised Civil
Statutes Article 5069-1.04, as amended) at the applicable time in effect.

35
<PAGE> 39

credited with the amount of all interest, if any, theretofore collected on the
principal amount so paid by such application and remaining unearned at the date
of said application; and if the funds so applied shall be sufficient to pay in
full all the Obligations, then Beneficiary shall refund to Grantor all interest
theretofore paid thereon in advance and remaining unearned at the time of such
acceleration. Regardless of any other provision in this instrument, or in any of
the written evidences of the Obligations, Grantor shall never be required to pay
any unearned interest on the Obligations or any portion thereof, and shall never
be required to pay interest thereon at a rate in excess of the Highest Lawful
Rate construed by courts having competent jurisdiction thereof.

39. Homestead. Grantor represents and covenants that the Trust
Property forms no part any property owned, used or claimed by Grantor as a
business or residential homestead, or as exempt from forced sale under the laws
of the State of Texas, and disclaims and renounces all and every such claim
thereto.

40. Substitute Trustee. In case of the resignation of the
Trustee, or the inability (through death or otherwise), refusal or failure of
the Trustee to act, or at the option of Beneficiary or the holder(s) of a
majority of the Obligations for any other reason (which reason need not be
stated), a Substitute Trustee may be named, constituted and appointed by
Beneficiary or the holder(s) of a majority of the Obligations, without other
formality than an appointment and designation in writing, which appointment and
designation shall be full evidence of the right and authority to make the same
and of all facts therein recited, and this conveyance shall vest in the
Substitute Trustee the title, powers and duties herein conferred on the Trustee
originally named herein, and the conveyance of the Substitute Trustee to the
purchaser(s) at any sale of the Trust Property of any part thereof shall be
equally valid and effective. The right to appoint a Substitute Trustee shall
exist as often and whenever from any of said causes, the Trustee, original or
Substitute, resigns or cannot, will not or does not act, or Beneficiary or the
holder(s) of a majority of the Obligations desires to appoint a new Trustee. No
bond shall ever be required of the Trustee, original or Substitute. The recitals
in any conveyance made by the Trustee, original or Substitute, shall be accepted
and construed in court and elsewhere as prima facie evidence and proof of the
facts recited, and no other proof shall be required as to the request by
Beneficiary or the holder(s) of a majority of the Obligations to the Trustee to
enforce this Deed of Trust, or as to the notice of or holding of the sale, or as
to any particulars thereof, or as to the resignation of the Trustee, original or
Substitute, or as to the inability, refusal or failure of the Trustee, original
or Substitute, to act, or as to

36
<PAGE> 40

the election of Beneficiary or the holder(s) of a majority of the Obligations to
appoint a new Trustee, or as to appointment of a Substitute Trustee, and all
prerequisites of said sale shall be presumed to have been performed; and each
sale made under the powers herein granted shall be a perpetual bar against
Grantor and the heirs, personal representatives, successors and assigns of
Grantor. Trustee, original or substitute, is hereby authorized and empowered to
appoint any one or more persons as attorney-in-fact to act as Trustee under him
and in his name, place and stead in order to take any actions that Trustee is
authorized and empowered to do hereunder, such appointment to be evidenced by an
instrument signed and acknowledged by said Trustee, original or Substitute; and
all acts done by said attorney-in-fact shall be valid, lawful and binding as if
done by said Trustee, original or Substitute, in person.

41. Indemnification of Trustee. Except for gross negligence or
willful misconduct, Trustee shall not be liable for any act or omission or error
of judgment. Trustee may rely on any document believed by him in good faith to
be genuine. All money received by Trustee shall, until used or applied as herein
provided, be held in trust, and Trustee shall not be liable for interest
thereon. Grantor shall indemnify Trustee against all liability and expenses that
he may incur in the performance of his duties hereunder except for gross
negligence or willful misconduct.

42. Business or Commercial Purpose. Grantor warrants that the
extension of credit evidenced by the Obligations secured hereby is solely for
business or commercial purposes, other than agricultural purposes. Grantor
further warrants that the credit transaction evidenced by the Obligations is
specifically exempted under Section 226.3(a) of Regulation Z issued by the Board
of Governors of the Federal Reserve System and Title 12 (Truth in Lending Act)
and Section 1603 of Title 15 (General Provisions) of the Consumer Credit
Protection Act and that no disclosures are required to be given under such
regulations and federal laws in connection with the above transaction.

43. Final Agreement. In consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Grantor hereby confirms and agrees that this Deed of Trust
(including the schedules hereto), the Securities, any guarantees of the
Securities executed by any guarantors and all other Loan Documents and loan
papers together constitute a written "loan agreement" as defined in Section
26.02(a) of the Texas Business and Commerce Code.

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<PAGE> 41

44. Consistency with Other Documents. If any provision hereof
conflicts with any provisions of the Indenture, then the terms of the Indenture
shall control to the extent of such conflict.

45. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

This Deed of Trust has been duly executed by Grantor on the
date first above written.

ATTEST: KOPPEL STEEL CORPORATION

By: ________________________ By: ________________________
Name: Name:
Title: [Assistant] Secretary Title: [Vice] President

[SEAL]

38
<PAGE> 42

STATE OF TEXAS )
) SS
COUNTY OF ____________ )

On this ___ day of ___________________, 1995, personally came
____________________ and ___________________, to be duly sworn by me, and did
depose and say they executed the foregoing instrument in the firm name of
___________________, the corporation therein mentioned for the purposes therein
mentioned.

______________________________________
Notary Public

[Notarial Stamp]

39
<PAGE> 43

Schedule A

Description of Real Property

[Attach Legal Description of all parcels]

<PAGE> 1
EXHIBIT 4.5

DRAFT
7/7/95
Recording requested by, and {Oklahoma}
when recorded return to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

ATTN: F. Robert Wheeler, Jr., Esq.

LEASEHOLD MORTGAGE,
ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

from

ERLANGER TUBULAR CORPORATION, Mortgagor

THE HUNTINGTON NATIONAL BANK,
as Trustee and Collateral Agent, Mortgagee

DATED AS OF __________ __, 1995

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<S> <C>
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Granting Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

2. Payment and Performance of Obligations . . . . . . . . . . . . . . . . . . 8

3. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

4. Payment of Taxes and Other Impositions . . . . . . . . . . . . . . . . . . 9

5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6. Restrictions on Liens, Encumbrances and Sales . . . . . . . . . . . . . . 15

7. Relationship of Mortgagee and Mortgagor . . . . . . . . . . . . . . . . . 15

8. Maintenance; No Alteration; Inspection; Utilities . . . . . . . . . . . . 15

9. Condemnation/Eminent Domain . . . . . . . . . . . . . . . . . . . . . . . 16

10. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

11. Further Assurances/Estoppel Certificates . . . . . . . . . . . . . . . . . 18

12. Mortgagee's Right to Perform . . . . . . . . . . . . . . . . . . . . . . . 19

13. Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

14. Asbestos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

15. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

16. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

17. Right of Mortgagee to Credit Sale . . . . . . . . . . . . . . . . . . . . 25

18. Appointment of Receiver . . . . . . . . . . . . . . . . . . . . . . . . . 25

19. Extension, Release, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 26

20. Assignment of Rents . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

21. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

22. Additional Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

23. Changes in Method of Taxation . . . . . . . . . . . . . . . . . . . . . . 28

24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>

<PAGE> 3

<TABLE>
<S> <C>
25. No Oral Modification . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

26. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

27. Waiver of Right of Redemption and Other Rights . . . . . . . . . . . . . . 29

28. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . 30

29. Multiple Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

30. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . . . 32

31. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . 33

32. No Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

33. Governing Law, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

34. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . . . 34

35. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

36. Security Agreement under Uniform Commercial Code . . . . . . . . . . . . . 34

37. Release Upon Payment and Discharge of Mortgagor's Obligations . . . . . . 36

38. Consistency with Other Documents . . . . . . . . . . . . . . . . . . . . . 36

39. Mortgaged Lease Provisions . . . . . . . . . . . . . . . . . . . . . . . . 36
</TABLE>

SCHEDULES

Schedule A - Description of Real Property

<PAGE> 4

LEASEHOLD MORTGAGE, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

THIS LEASEHOLD MORTGAGE, ASSIGNMENT OF RENTS AND LEASES AND
SECURITY AGREEMENT, dated as of __________ __, 1995 is made by ERLANGER TUBULAR
CORPORATION, an Oklahoma corporation ("Mortgagor"), whose address is
___________________, to THE HUNTINGTON NATIONAL BANK, as Trustee (in such
capacity, the "Trustee") under the Indenture referred to below, as collateral
agent ("Mortgagee"), whose mailing address is 540 Madison Avenue, Covington,
Kentucky 41011. References to this "Mortgage" shall mean this instrument and any
and all renewals, modifications, amendments, supplements, extensions,
consolidations, substitutions, spreaders and replacements of this instrument.

Background

A. Mortgagor is the owner of a leasehold estate affecting the
parcel(s) of real property described on Schedule A attached (such real property,
together with all of the buildings, improvements, structures and fixtures now or
subsequently located thereon (the "Improvements"), being collectively referred
to as the "Real Estate") pursuant to [DESCRIBE LEASE, INCLUDING ALL AMENDMENTS
AND RECORDING INFORMATION] (the "Mortgaged Lease").

B. Mortgagor is a wholly owned subsidiary of NS Group, Inc., a
Kentucky corporation (the "Company") and is a Recourse Subsidiary (as defined in
the Indenture referred to below).

E. It is a condition precedent to the purchase of the
Securities from the Company that the Mortgagor shall have

<PAGE> 5

executed and delivered that certain Subsidiary Security Agreement (the
"Subsidiary Security Agreement") of even date herewith in favor of Mortgagee,
which Subsidiary Security Agreement shall grant Mortgagee a security interest in
and to certain personal property now or subsequently used in connection with the
operation of the Real Estate.

Granting Clauses

2
<PAGE> 6

(A) all right, title and interest of Mortgagor in and to the
leasehold estate created under and by virtue of the Mortgaged Lease,
any interest in any fee, greater or lesser title to the Real Estate
that Mortgagor may own or hereafter acquire (whether acquired pursuant
to a right or option, if any, contained in the Mortgaged Lease or
otherwise), all options, privileges and rights of Mortgagor under the
Mortgaged Lease (including all rights of use, occupancy and enjoyment)
and any amendments, supplements, extensions, renewals, restatements,
replacements and modifications thereof (including, without limitation,
(i) the right to give consents, (ii) the right, if any, to renew or
extend the Mortgaged Lease for succeeding term or terms and (iii) the
right, if any, to purchase the Real Estate) (such options, privileges
and rights of Mortgagor under the Mortgaged Lease are collectively
referred to as the "Lease Rights");

(B) all right, title and interest Mortgagor now has or may
hereafter acquire in and to the Improvements or any part thereof
(whether owned in fee by Mortgagor or held pursuant to the Mortgaged
Lease or otherwise) and all the estate, right, title, claim or demand
whatsoever to Mortgagor, in possession or expecting, in and to the Real
Estate or any part thereof;

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<PAGE> 7

the generality of the foregoing, all screens, awnings, shades, blinds,
curtains, draperies, artwork, carpets, rugs, storm doors and windows,
furniture and furnishings, heating, electrical, and mechanical
equipment, lighting, switchboards, plumbing, ventilating, air
conditioning and air-cooling apparatus, refrigerating, and incinerating
equipment, escalators, elevators, loading and unloading equipment and
systems, stoves, ranges, laundry equipment, cleaning systems (including
window cleaning apparatus), telephones, communication systems
(including satellite dishes and antennae), televisions, computers,
sprinkler systems and other fire prevention and extinguishing apparatus
and materials, security systems, motors, engines, machinery, pipes,
pumps, tanks, conduits, appliances, fittings and fixtures of every kind
and description (all of the foregoing in this paragraph (D) being
referred to as the "Equipment");

(E) all right, title and interest of Mortgagor in and to all
substitutes and replacements of, and all additions and improvements to,
the Real Estate and the Equipment, subsequently acquired by or released
to Mortgagor or constructed, assembled or placed by Mortgagor on the
Real Estate, immediately upon such acquisition, release, construction,
assembling or placement, including, without limitation, any and all
building materials whether stored at the Real Estate or offsite, and,
in each such case, without any further mortgage, conveyance, assignment
or other act by Mortgagor;

(F) all right, title and interest of Mortgagor in, to and under
all leases, subleases, underlettings, concession agreements, management
agreements, licenses and other agreements relating to the use or
occupancy of the Real Estate or the Equipment or any part thereof
(other than the Mortgaged Lease), now existing or subsequently entered
into by Mortgagor and whether written or oral and all guarantees of any
of the foregoing (collectively, as any of the foregoing may be amended,
restated, extended, renewed or modified from time to time, the
"Leases"), and all rights of Mortgagor in respect of cash and
securities deposited thereunder and the right to receive and collect
the revenues, income, rents, issues and profits thereof, together with
all other rents, royalties, issues, profits, revenue, income and other
benefits arising from the use and enjoyment of the Mortgaged Property
(as defined below) (collectively, the "Rents");

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<PAGE> 8

(I) all right, title and interest of Mortgagor in and to (i)
all contracts from time to time executed by Mortgagor or any manager or
agent on its behalf relating to the ownership, construction,
maintenance, repair, operation, occupancy, sale or financing of the
Real Estate or Equipment or any part thereof and all agreements
relating to the purchase or lease of any portion of the Real Estate or
any property which is adjacent or peripheral to the Real Estate,
together with the right to exercise such options and all leases of
Equipment, (ii) all consents, licenses, building permits, certificates
of occupancy and other governmental approvals relating to construction,
completion, occupancy, use or operation of the Real Estate or any part
thereof and (iii) all drawings, plans, specifications and similar or
related items relating to the Real Estate;

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<PAGE> 9

Mortgage; all capital, operating, reserve or similar accounts held by
or on behalf of Mortgagor and related to the operation of the Mortgaged
Property, whether now existing or hereafter arising and all monies held
in any of the foregoing accounts and any certificates or instruments
related to or evidencing such accounts;

(L) all proceeds, both cash and noncash, of the foregoing;

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<PAGE> 10

Mortgage deemed to be real estate and conveyed and mortgaged hereby; provided,
however, as to any of the property aforesaid which does not so form a part and
parcel of the Real Estate or does not constitute a "fixture" (as defined in the
Uniform Commercial Code of Oklahoma (the "Code")), this Mortgage is
hereby deemed to also be a Security Agreement under the Code for purposes of
granting a security interest in such property, which Mortgagor hereby grants to
Mortgagee, as Secured Party (as defined in the Code), as more particularly
provided below in this Mortgage.

Terms and Conditions

Mortgagor further represents, warrants, covenants and agrees
with Mortgagee as follows:

1. Warranty of Title. Mortgagor represents and warrants (i)
that Mortgagor has title to the leasehold estate in the Real Estate pursuant to
the Mortgaged Lease, Mortgagor has good title to the rest of the Mortgaged
Property, and Mortgagor has a right to mortgage the same, (ii) that the
Mortgaged Property is subject only to matters of record, the Mortgaged Lease,
the [DESCRIBE PRIME LEASE] (the "Prime Lease"), this Mortgage, the matters that
are set forth in Schedule B of the title insurance policy or policies being
issued to Mortgagee to insure the lien of this Mortgage and liens permitted
pursuant to subsection 6.10 of the Indenture (collectively, the "Permitted
Exceptions"), (iii) that Mortgagor shall warrant and defend the lien thereon
granted or intended to be granted by this Mortgage against all persons and
entities, excepting, however, the Permitted Exceptions, (iv) that the Mortgaged
Lease is in full force and effect and Mortgagor is the holder of the lessee's or
tenant's interest thereunder, (v) that the Mortgaged Lease has not been amended,
supplemented or otherwise modified, except as specifically described herein,
(vi) that Mortgagor has paid all rents and other charges to the extent due and
payable, is not in default under the Mortgaged Lease, has received no notice of
default from the lessor thereunder which default remains uncured and knows of no
material default by the lessor thereunder, and (vii) that the granting of this
Mortgage does not violate the

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<PAGE> 11

terms of the Mortgage Lease nor is any consent of the lessor under the Mortgaged
Lease required to be obtained in connection with the granting of this Mortgage
unless such consent has been obtained.

2. Payment and Performance of Obligations. Mortgagor shall pay
the Obligations at the times and places and in the manner specified in the
Guaranty and shall perform all the Obligations.

3. Requirements. (a) Mortgagor shall[, IF AND ONLY TO THE
EXTENT REQUIRED UNDER THE MORTGAGED LEASE,] comply with, or cause to be complied
with, and conform to all present and future laws, statutes, codes, ordinances,
orders, judgments, decrees, rules, regulations and requirements, and
irrespective of the nature of the work to be done, of each of the United States
of America, any State and any municipality, local government or other political
subdivision thereof and any agency, department, bureau, board, commission or
other instrumentality of any of them, now existing or subsequently created
(collectively, "Governmental Authority") which has jurisdiction over the
Mortgaged Property and all covenants, restrictions and conditions now or later
of record which may be applicable to any of the Mortgaged Property, or to the
use, manner of use, occupancy, possession, operation, maintenance, alteration,
repair or reconstruction of any of the Mortgaged Property, except where the
failure to so comply with any of the foregoing would not have a Material Adverse
Effect on the business, prospects, earnings, properties, assets or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole.
All present and future laws, statutes, codes, ordinances, orders, judgments,
decrees, rules, regulations and requirements of every Governmental Authority
applicable to Mortgagor or to any of the Mortgaged Property and all covenants,
restrictions, and conditions which now or later may be applicable to any of the
Mortgaged Property are collectively referred to as the "Legal Requirements".

(b) Mortgagor (as opposed to the lessor under the Mortgaged
Lease or any other party) shall not by act or omission impair the integrity of
any of the Real Estate as a single zoning lot separate and apart from all other
premises. Mortgagor represents, to the best of its actual knowledge, that each
parcel of the Real Estate constitutes a legally subdivided lot, in compliance
with all subdivision laws and similar Legal Requirements. Any act or omission by
Mortgagor which would result in a violation of any of the provisions of this
subsection shall be void.

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<PAGE> 12

4. Payment of Taxes and Other Impositions. (a) Promptly when
due, Mortgagor shall pay and discharge[, IF AND ONLY TO THE EXTENT REQUIRED
UNDER THE MORTGAGED LEASE,] all taxes of every kind and nature (including,
without limitation, all real and personal property, income, franchise,
withholding, transfer, gains, profits and gross receipts taxes), all charges for
any easement or agreement maintained for the benefit of any of the Mortgaged
Property, all general and special assessments, levies, permits, inspection and
license fees, all water and sewer rents and charges and all other public charges
even if unforeseen or extraordinary, imposed upon or assessed against or which
may become a lien on any of the Mortgaged Property, or arising in respect of the
occupancy, use or possession thereof, together with any penalties or interest on
any of the foregoing (all of the foregoing[, IF AND ONLY TO THE EXTENT REQUIRED
UNDER THE MORTGAGED LEASE,] are collectively referred to as the "Impositions").
Upon request by Mortgagee, Mortgagor shall deliver to Mortgagee (i) original or
copies of receipted bills and cancelled checks evidencing payment of such
Imposition if it is a real estate tax or other public charge and (ii) evidence
acceptable to Mortgagee showing the payment of any other such Imposition. If by
law any Imposition, at Mortgagor's option, may be paid in installments (whether
or not interest shall accrue on the unpaid balance of such Imposition),
Mortgagor may elect to pay such Imposition in such installments and shall be
responsible for the payment of such installments with interest, if any.

(d) Mortgagor shall have the right before any delinquency
occurs to contest or object in good faith to the

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<PAGE> 13

amount or validity of any Imposition by appropriate legal proceedings, but such
right shall not be deemed or construed in any way as relieving, modifying, or
extending Mortgagor's covenant to pay any such Imposition at the time and in the
manner provided in this Section unless (i) Mortgagor has given prior written
notice to Mortgagee of Mortgagor's intent so to contest or object to an
Imposition, (ii) Mortgagor shall demonstrate to Mortgagee's satisfaction that
the legal proceedings shall operate conclusively to prevent the sale of the
Mortgaged Property, or any part thereof, to satisfy such Imposition prior to
final determination of such proceedings and (iii) Mortgagor shall furnish a good
and sufficient bond or surety as requested by and reasonably satisfactory to
Mortgagee in the amount of the Impositions which are being contested plus any
interest and penalty which may be imposed thereon and which could become a lien
against the Real Estate or any part of the Mortgaged Property.

5. Insurance. (a) Mortgagor shall maintain or cause to be
maintained on all of the Premises

(iii) when and to the extent reasonably required by Mortgagee,
insurance against loss or damage by any other

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<PAGE> 14

risk commonly insured against by persons occupying or using like
properties in the locality or localities in which the Real Estate is
situated;

(vii) during the course of any construction, addition, alteration
or repair of the Improvements, builder's risk completed value form
insurance against "all risks of physical loss," including collapse,
water damage, flood and earthquake and transit coverage, during
construction or repairs of the Improvements, with deductibles
reasonably approved by Mortgagee, in nonreporting form, covering the
total value of work performed and equipment, supplies and materials
furnished (with an appropriate limit for soft costs in the case of
construction);

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<PAGE> 15

as are reasonably satisfactory to Mortgagee but not less than the
lesser of $1,000,000 or 10% of the value of the Improvements;

12
<PAGE> 16

(e) If the Mortgaged Property in its entirety, or any material
part thereof, shall be destroyed or damaged by fire or any other casualty,
whether insured or uninsured, or in the event

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<PAGE> 17

any claim in excess of $5,000,000 is made against Mortgagor for any personal
injury, bodily injury or property damage incurred on or about the Premises,
Mortgagor shall give prompt notice thereof to Mortgagee. If the Mortgaged
Property is damaged by fire or other casualty, then provided that no Event of
Default shall have occurred and be continuing, Mortgagor shall have the right to
adjust such loss. If the Mortgaged Property is damaged by fire or other
casualty, and if an Event of Default shall have occurred and be continuing, then
Mortgagor authorizes and empowers Mortgagee, at Mortgagee's option and in
Mortgagee's sole discretion, as attorney-in-fact for Mortgagor, to make proof of
loss, to adjust and compromise any claim under any insurance policy with respect
to the Mortgaged Property, to appear in and prosecute any action arising from
any policy, and to deduct from any insurance proceeds Mortgagee's expenses
incurred in the collection process. The insurance proceeds or any part thereof
with respect to the Mortgaged Property received by Mortgagee and/or Mortgagor
shall constitute Trust Moneys which shall be paid and/or applied in accordance
with subsection 13.2 of the Indenture.

(h) Mortgagor may maintain insurance required under this
Mortgage by means of one or more blanket insurance policies maintained by
Mortgagor; provided, however, that (A) any such policy shall specify, or
Mortgagor shall furnish to Mortgagee a written statement from the insurer so
specifying, the maximum amount of the total insurance afforded by such blanket
policy which shall be applicable on an occurrence basis and (B) the protection
afforded under any such blanket policy shall be no less than that which would
have been afforded under a separate policy or policies relating only to the
Mortgaged Property.

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<PAGE> 18

6. Restrictions on Liens, Encumbrances and Sales. Mortgagor
acknowledges that any secondary or junior financing placed on the Mortgaged
Property (a) may divert funds that would otherwise be available for payment of
the Obligations, (b) could, if foreclosed, force Mortgagee to incur expenses to
protect its security, and (c) would impair Mortgagee's right to accept a deed in
lieu of foreclosure or otherwise to take actions to further its economic
interest prior to foreclosure, because a foreclosure by Mortgagee would be
required to clear title to the Mortgaged Property of any such secondary or
junior lien or encumbrance. In accordance with the foregoing and for the purpose
of (i) protecting Mortgagee's security, both of repayment and of value in the
Mortgaged Property, (ii) giving Mortgagee the full benefit of its bargain and
contract with Mortgagor, and (iii) keeping the Mortgaged Property free of
subordinate financing liens, Mortgagor agrees that if the following provisions
of this paragraph should be deemed a restraint on alienation, that such
provisions are reasonable restraints.

(2) Except as may be permitted pursuant to the Indenture,
including, without limitation, subsection 6.15 thereof, Mortgagor shall not make
any Asset Sale.

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<PAGE> 19

renewals, replacements, additions, betterments and improvements thereto.
Mortgagor shall not commit any waste of the Improvements and shall not demolish
or materially alter the Improvements without the prior written consent of
Mortgagee.

(c) Mortgagor shall[, IF AND ONLY TO THE EXTENT REQUIRED UNDER
THE MORTGAGED LEASE,] pay or cause to be paid when due all utility charges which
are incurred for gas, electricity, water or sewer services furnished to the
Premises and all other assessments or charges of a similar nature, whether
public or private, affecting the Premises or any portion thereof, whether or not
such assessments or charges are liens thereon.

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<PAGE> 20

written consent of Mortgagee, execute any Lease of any of the Mortgaged
Property.

(b) As to any Lease relating to all or any portion of the
Mortgaged Property, Mortgagor shall:

(i) promptly perform all of the material provisions of the
Lease on the part of the lessor thereunder to be performed;

(ii) enforce, in accordance with sound business practice, all of
the material provisions of the Lease on the part of the lessee
thereunder to be performed;

(iv) exercise, within 5 days after receipt of a request by
Mortgagee, any right to request from the lessee a certificate with
respect to the status thereof;

(v) promptly deliver to Mortgagee copies of any notices of
default which Mortgagor may at any time forward to or receive from the
lessee;

(vi) promptly deliver to Mortgagee a fully executed counterpart
of the Lease; and

(vii) promptly deliver to Mortgagee, upon Mortgagee's request, an
assignment of the Mortgagor's interest under such Lease.

(d) All Leases entered into by Mortgagor after the date hereof,
if any, and all rights of any lessees thereunder shall be subject and
subordinate in all respects to the lien and

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<PAGE> 21

provisions of this Mortgage unless Mortgagee shall otherwise elect in writing.

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<PAGE> 22

on Mortgagee. Mortgagor, within 5 business days after request, shall deliver, in
form and substance satisfactory to Mortgagee, a written statement, duly
acknowledged, setting forth the amount of the Obligations, and whether any
offsets, claims, counterclaims or defenses exist against the Obligations and
certifying as to such other matters as Mortgagee shall reasonably request.

13. Hazardous Material. (a) Mortgagor shall[, IF AND ONLY TO
THE EXTENT REQUIRED UNDER THE MORTGAGED LEASE,] comply with any and all
applicable Legal Requirements governing the discharge and removal of Hazardous
Material, shall[, IF AND ONLY TO THE EXTENT REQUIRED UNDER THE MORTGAGED LEASE,]
pay promptly when due the costs of removal of any Hazardous Material, and
shall[, IF AND ONLY TO THE EXTENT REQUIRED UNDER THE MORTGAGED LEASE,] keep the
Premises free of any lien imposed pursuant to such Legal Requirements. In the
event Mortgagor fails to do so, after notice to Mortgagor and the expiration of
the earlier of (i) applicable cure periods hereunder and under the Indenture, or
(ii) the cure period permitted under the applicable Legal Requirement, Mortgagee
may cause the Premises to be freed from the Hazardous Material to the extent
required by applicable Legal Requirements, and the cost of the removal with
interest at the Default Rate shall immediately be due from Mortgagor to
Mortgagee and the same shall be added to the Obligations and be secured by this
Mortgage. Mortgagor further agrees that any release or disposal of Hazardous
Materials at the Premises by Mortgagor shall comply with all applicable Legal
Requirements. In addition, Mortgagor agrees not to allow the manufacture,
storage, transmission, presence or disposal of any Hazardous Material over or
upon the Premises in violation of applicable Legal Requirements. Mortgagor shall
give Mortgagee and its agents and employees access to the Premises to remove
Hazardous Material if required of Mortgagor hereunder and if required by
applicable Legal Requirements and if Mortgagor has failed to so remove after
notice. Mortgagor agrees to defend, indemnify and hold Mortgagee

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<PAGE> 23

free and harmless from and against all loss, costs, damage and expense
(including attorneys' fees and costs and consequential damages) Mortgagee may
sustain by reason of (i) the imposition or recording of a lien by any
Governmental Authority with respect to the Mortgaged Property pursuant to any
Legal Requirement relating to hazardous or toxic wastes or substances or the
removal thereof ("Hazardous Material Laws"); (ii) claims of any private
parties regarding violations of Hazardous Material Laws with respect to the
Mortgaged Property; (iii) costs and expenses (including, without limitation,
attorneys' fees and fees incidental to the securing of repayment of such costs
and expenses) incurred by Mortgagor or Mortgagee in connection with the removal
of any such lien with respect to the Mortgaged Property or in connection with
Mortgagor's or Mortgagee's compliance with any Hazardous Material Laws with
respect to the Mortgaged Property; and (iv) the assertion against Mortgagee by
any party of any claim in connection with Hazardous Material with respect to the
Mortgaged Property.

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<PAGE> 24

EXTENT REQUIRED UNDER THE MORTGAGED LEASE,] promptly comply with such Legal
Requirements, at Mortgagor's expense. If Mortgagor shall fail to so comply,
Mortgagee may do whatever is necessary to comply with the applicable Legal
Requirement, and the costs thereof, with interest at the Default Rate, shall be
immediately due from Mortgagor to Mortgagee and the same shall be added to the
Obligations and be secured by this Mortgage. Mortgagor shall give Mortgagee and
its agents and employees, upon prior notice and at reasonable times, access to
the Premises to remove such asbestos or substances if required by Mortgagor
hereunder and if required by applicable Legal Requirements and if Mortgagor has
failed to so remove after notice. Mortgagor shall defend, indemnify, and save
Mortgagee harmless from all loss, costs, damages and expense (including
attorneys' fees and costs and consequential damages) asserted or proven against
Mortgagee by any party, as a result of the presence of such substances or any
removal or compliance with such Legal Requirements. The foregoing
indemnification shall be a recourse obligation of Mortgagor and shall survive
repayment of the Obligations, notwithstanding any limitation on recourse which
may be contained herein or in any of the Security Documents or the delivery of
any satisfaction, release or release deed, discharge or deed of reconveyance, or
the assignment of this Mortgage by Mortgagee; provided, however, that the
foregoing indemnification shall apply only to matters arising prior to any
taking of possession of the Premises by Mortgagee or any other person succeeding
to the interest of Mortgagee pursuant to the terms hereof; further provided,
that the foregoing indemnification shall not apply to loss, costs and the like
arising from the gross negligence or wilful misconduct of the party seeking
indemnification.

15. Event of Default. The occurrence of an "Event of Default"
(as defined in the Indenture) shall constitute an Event of Default hereunder.

16. Remedies. (a) Upon the occurrence of any Event of Default,
in addition to any other rights and remedies Mortgagee may have pursuant to the
Security Documents, or as provided by law, and without limitation, (a) if such
event is an Event of Default described in subsections 8.1(ix) or 8.1(x) of the
Indenture, automatically the Obligations immediately shall become due and
payable, and (b) if such event is any other Event of Default, by notice to
Mortgagor, Mortgagee may declare the Obligations to be immediately due and
payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
In addition, upon and during the continuance of any Event of Default, Mortgagee
may immediately take such action, without notice or demand, as it deems
advisable to protect and

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<PAGE> 25

enforce its rights against Mortgagor and in and to the Mortgaged Property,
including, but not limited to, the following actions, each of which may be
pursued concurrently or otherwise, at such time and in such manner as Mortgagee
may determine, in its sole discretion, without impairing or otherwise affecting
the other rights and remedies of Mortgagee:

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<PAGE> 26

the right to institute partial foreclosure proceedings with respect to
the portion of said Obligations so in default, as if under a full
foreclosure, and without declaring the entire secured Obligations due
(such proceeding being hereinafter referred to as a "partial
foreclosure"), and provided that if a partial foreclosure sale is
consummated as provided herein, such sale may be made subject to the
continuing lien of this Mortgage for the unmatured portion of the
secured Obligations, but as to such unmatured part, this Mortgage, and
the lien hereof, shall remain in full force and effect just as though
no partial foreclosure sale had been made under the provisions of this
Section. Notwithstanding the filing of any partial foreclosure or entry
of a decree of sale therein, Mortgagee may elect at any time prior to a
partial foreclosure sale pursuant to such decree, to discontinue such
partial foreclosure and to accelerate the Obligations secured hereby by
reason of any uncured Event of Default upon which such partial
foreclosure was predicated or by reason of any other Event of Default,
and proceed with full foreclosure proceedings. It is further agreed
that one or more foreclosure sales may be made pursuant to partial
foreclosures without exhausting the right of full or partial
foreclosure sale for any unmatured part of the secured Obligations, it
being the purpose to provide for a partial foreclosure sale of the
Obligations secured hereby without exhausting the power to foreclose
for any other part of the Obligations whether matured at the time or
subsequently maturing, and without exhausting any right of acceleration
and full foreclosure.

(iv) Without affecting any right, power or remedy herein given
to Mortgagee and in addition to every other right, power and remedy
herein specifically given or now or hereafter existing in equity, law
or statute, Mortgagor hereby grants to Mortgagee the non-judicial Power
of Sale. Such Power of Sale shall be exercised by giving Mortgagor
Notice of Intent to Foreclose by Power of Sale and setting forth, among
other things, the nature of the breach(es) or default(s) and the action
required to effect a cure thereof and the time period within which such
cure may be effected all in compliance with Title 46 Oklahoma Statutes
Section Section 40 et. seq. (Oklahoma Power of Sale Mortgage
Foreclosure Act) effective November 1, 1986, as the same may be amended
from time to time or other applicable statutory or judicial authority
(the "Act"). If no cure is effected within the statutory time limits,
Mortgagee may accelerate the Obligations secured hereby without further
notice (the aforementioned statutory cure period shall run concurrently
with any contractual provision for notice before

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<PAGE> 27

acceleration of debt) and may then proceed in the manner and subject to
the conditions of the Act to send to Mortgagor and other necessary
parties a Notice of Sale and to sell and convey the Mortgaged Property
in accordance with such Act. The sale shall be made at one or more
sales, as an entirety or in parcels upon such notice, at such times and
places, subject to all conditions and with the proceeds thereof to be
applied all as provided in the Act. No action of Mortgagee based upon
the provisions contained herein or in the Act, including, without
limitation, the giving of the Notice of Intent to Foreclose by Power of
Sale or the Notice of Sale, shall constitute an election of remedies
which would preclude Mortgagee from pursuing judicial foreclosure
before or at any time after commencement of the Power of Sale
foreclosure procedure. Whether or not proceedings have commenced by the
exercise of the Power of Sale above given, Mortgagee or the holder or
holders of any of the Obligations, in lieu of proceeding with the Power
of Sale (or in the event of homestead property where Mortgagor has
elected judicial foreclosure, as provided in the Act) may at its or
their option, as applicable, following acceleration of the Obligations
as set forth above, proceed by suit or suits in equity or at law to
foreclose this Mortgage. If Mortgagee institutes judicial proceedings
to foreclose this Mortgage, Mortgagor hereby waives or does not waive,
at the sole option of Mortgagee, appraisement of the Mortgaged
Property, said option to be exercised by Mortgagee at or prior to the
time judgment is rendered in such judicial foreclosure. Mortgagor fully
understands the consequences of conferring on Mortgagee the
above-described Power of Sale, and if Mortgagee elects to enforce this
Mortgage by exercising said Power of Sale, Mortgagor hereby expressly
waives to the fullest extent permitted by law any right to a judicial
hearing prior to the sale of the Mortgaged Property. As often as any
proceedings may be taken to foreclose this Mortgage, whether pursuant
to the Power of Sale herein conferred or by judicial proceedings, or to
foreclose the security interest herein granted to Mortgagee, Mortgagor
agrees to pay to Mortgagee, in addition to all other sums due, all
costs and expenses, including reasonable attorney fees, incurred by
Mortgagee.

(b) The holder of this Mortgage, in any action to foreclose it,
shall be entitled to the appointment of a receiver. In case of a foreclosure
sale, Mortgagor's estate in the Real Estate may be sold, at Mortgagee's
election, in one parcel or in more than one parcel and Mortgagee is specifically
empowered, (without being required to do so, and in its sole and absolute

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<PAGE> 28

discretion) to cause successive sales of portions of the Mortgaged Property to
be held.

(d) The proceeds of any foreclosure or sale of the Mortgaged
Property, or any portion thereof, shall be distributed and applied in accordance
with all applicable provisions of the Indenture.

(e) In case of foreclosure of this Mortgage or the exercise of
Power of Sale, and as often as any proceedings shall be instituted relating
thereto, Mortgagor will pay to Mortgagee a reasonable attorney's fee, together
with the cost of continuing the abstract of title to the Real Estate to the date
of filing such foreclosure, court costs and all other expenses incurred in
connection with such proceedings, all of which will be due and payable when suit
is filed and will be and become a part of the Obligations to be paid or
collected in such foreclosure.

17. Right of Mortgagee to Credit Sale. Upon the occurrence of
any sale made under this Mortgage, whether made under the power of sale or by
virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, Mortgagee may bid for and acquire the Mortgaged Property or any part
thereof. In lieu of paying cash therefor, Mortgagee may make settlement for the
purchase price by crediting upon the Obligations or other sums secured by this
Mortgage the net sales price after deducting therefrom the expenses of sale and
the cost of the action and any other sums which Mortgagee is authorized to
deduct under this Mortgage. In such event, this Mortgage, the Guaranty and
documents evidencing expenditures secured hereby may be presented to the person
or persons conducting the sale in order that the amount so used or applied may
be credited upon the Obligations as having been paid.

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<PAGE> 29

security for the Obligations or the interest of Mortgagor therein, shall have
the right to apply to any court having jurisdiction to appoint a receiver or
receivers or other manager of the Mortgaged Property, and Mortgagor hereby
irrevocably consents to such appointment and waives notice of any application
therefor (except as may be required by law). Any such receiver or receivers
shall have all the usual powers and duties of receivers in like or similar cases
and all the powers and duties of Mortgagee in case of entry as provided in this
Mortgage, including, without limitation and to the extent permitted by law, the
right to enter into leases of all or any part of the Mortgaged Property, and
shall continue as such and exercise all such powers until the date of
confirmation of sale of the Mortgaged Property unless such receivership is
sooner terminated.

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<PAGE> 30

20. Assignment of Rents. Mortgagor hereby assigns to Mortgagee
the Rents and Additional Rents as further security for the payment of the
Obligations and performance of the Obligations, and Mortgagor grants to
Mortgagee the right to enter the Mortgaged Property for the purpose of
collecting the same and to let the Mortgaged Property or any part thereof, and
to apply the Rents and Additional Rents on account of the Obligations. The
foregoing assignment and grant is present and absolute and shall continue in
effect until the Obligations are paid in full, but Mortgagee hereby waives the
right to enter the Mortgaged Property for the purpose of collecting the Rents
and Additional Rents and Mortgagor shall be entitled to collect, receive, use
and retain the Rents and Additional Rents; such right of Mortgagor to collect,
receive, use and retain the Rents and Additional Rents may be revoked by
Mortgagee upon and during the continuance of any Event of Default under this
Mortgage by giving not less than five days' written notice of such revocation to
Mortgagor; in the event such notice is given, Mortgagor shall pay over to
Mortgagee, or to any receiver appointed to collect the Rents, any lease security
deposits, shall pay monthly in advance to Mortgagee, or to any such receiver,
the fair and reasonable rental value as determined by Mortgagee for the use and
occupancy of the Mortgaged Property or such part thereof as may be in the
possession of Mortgagor or any affiliate of Mortgagor, and upon default in any
such payment Mortgagor and any such affiliate will vacate and surrender the
possession of the Mortgaged Property to Mortgagee or to such receiver, and in
default thereof may be evicted by summary proceedings or otherwise. Mortgagor
shall not accept prepayments of installments of Rent to become due for a period
of more than one month in advance (except for security deposits and estimated
payments of percentage rent, if any).

21. Trust Funds. All lease security deposits of the Real Estate
held by Mortgagor shall be treated as trust funds not to be commingled with any
other funds of Mortgagor. Within 10 days after request by Mortgagee, Mortgagor
shall furnish Mortgagee satisfactory evidence of compliance with this
subsection, together with a statement of all lease security deposits by lessees
and copies of all Leases not previously delivered to Mortgagee, which statement
shall be certified by Mortgagor.

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<PAGE> 31

22. Additional Rights. The holder of any subordinate lien on
the Mortgaged Property shall have no right to terminate any Lease whether or not
such Lease is subordinate to this Mortgage nor shall any holder of any
subordinate lien join any tenant under any Lease in any action to foreclose the
lien or modify, interfere with, disturb or terminate the rights of any tenant
under any Lease. By recordation of this Mortgage all subordinate lienholders are
subject to and notified of this provision, and any action taken by any such
lienholder contrary to this provision shall be null and void. Upon and during
the continuance of any Event of Default, Mortgagee may, in its sole discretion
and without regard to the adequacy of its security under this Mortgage, apply
all or any part of any amounts on deposit with Mortgagee under this Mortgage
against all or any part of the Obligations. Any such application shall not be
construed to cure or waive any Default or Event of Default or invalidate any act
taken by Mortgagee on account of such Default or Event of Default.

23. Changes in Method of Taxation. In the event of the passage
after the date hereof of any law of any Governmental Authority deducting from
the value of the Premises for the purposes of taxation any lien thereon, or
changing in any way the laws for the taxation of mortgages or debts secured
thereby for federal, state or local purposes, or the manner of collection of any
such taxes, and imposing a tax, either directly or indirectly, on mortgages or
debts secured thereby, Mortgagor shall, if permitted by applicable law, assume
as an Obligation hereunder the payment of any tax so imposed until full payment
of the Obligations.

24. Notices. All notices, requests, demands and other
communications hereunder shall be given in the manner provided in the Indenture.

25. No Oral Modification. This Mortgage may not be changed or
terminated orally. Any agreement made by Mortgagor and Mortgagee after the date
of this Mortgage relating to this Mortgage shall be superior to the rights of
the holder of any intervening or subordinate lien or encumbrance.

28
<PAGE> 32

Documents, the obligations of Mortgagor and of any other obligor under the
Obligations or Security Documents shall be subject to the limitation that
Mortgagee shall not charge, take or receive, nor shall Mortgagor or any other
obligor be obligated to pay to Mortgagee, any amounts constituting interest in
excess of the maximum rate permitted by law to be charged by Mortgagee.

29
<PAGE> 33

secured indebtedness and marshalling in the event of foreclosure of the liens
hereby created.

28. Remedies Not Exclusive. Mortgagee shall be entitled to
enforce payment of the Obligations and performance of the Obligations and to
exercise all rights and powers under this Mortgage or under any of the other
Security Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the Obligations may now or hereafter be otherwise
secured, whether by mortgage, security agreement, pledge, lien, assignment or
otherwise. Neither the acceptance of this Mortgage nor its enforcement, shall
prejudice or in any manner affect Mortgagee's right to realize upon or enforce
any other security now or hereafter held by Mortgagee, it being agreed that
Mortgagee shall be entitled to enforce this Mortgage and any other security now
or hereafter held by Mortgagee in such order and manner as Mortgagee may
determine in its absolute discretion. No remedy herein conferred upon or
reserved to Mortgagee is intended to be exclusive of any other remedy herein or
by law provided or permitted, but each shall be cumulative and shall be in
addition to every other remedy given hereunder or now or hereafter existing at
law or in equity or by statute. Every power or remedy given by any of the
Security Documents to Mortgagee or to which it may otherwise be entitled, may be
exercised, concurrently or independently, from time to time and as often as may
be deemed expedient by Mortgagee. In no event shall Mortgagee, in the exercise
of the remedies provided in this Mortgage (including, without limitation, in
connection with the assignment of Rents to Mortgagee, or the appointment of a
receiver and the entry of such receiver on to all or any part of the Mortgaged
Property), be deemed a "mortgagee in possession," and Mortgagee shall not in any
way be made liable for any act, either of commission or omission, in connection
with the exercise of such remedies.

30
<PAGE> 34

county in which any of such collateral is located. Mortgagor acknowledges that
the right to maintain a consolidated foreclosure action is a specific inducement
to Mortgagee to extend the Obligations, and Mortgagor expressly and irrevocably
waives any objections to the commencement or consolidation of the foreclosure
proceedings in a single action and any objections to the laying of venue or
based on the grounds of forum non conveniens which it may now or hereafter have.
Mortgagor further agrees that if Mortgagee shall be prosecuting one or more
foreclosure or other proceedings against a portion of the Mortgaged Property or
against any collateral other than the Mortgaged Property, which collateral
directly or indirectly secures the Obligations, or if Mortgagee shall have
obtained a judgment of foreclosure and sale or similar judgment against such
collateral, then, whether or not such proceedings are being maintained or
judgments were obtained in or outside the State in which the Premises are
located, Mortgagee may commence or continue foreclosure proceedings and exercise
its other remedies granted in this Mortgage against all or any part of the
Mortgaged Property and Mortgagor waives any objections to the commencement or
continuation of a foreclosure of this Mortgage or exercise of any other remedies
hereunder based on such other proceedings or judgments, and waives any right to
seek to dismiss, stay, remove, transfer or consolidate either any action under
this Mortgage or such other proceedings on such basis. Neither the commencement
nor continuation of proceedings to foreclose this Mortgage nor the exercise of
any other rights hereunder nor the recovery of any judgment by Mortgagee in any
such proceedings shall prejudice, limit or preclude Mortgagee's right to
commence or continue one or more foreclosure or other proceedings or obtain a
judgment against any other collateral (either in or outside the State in which
the Premises are located) which directly or indirectly secures the Obligations,
and Mortgagor expressly waives any objections to the commencement of,
continuation of, or entry of a judgment in such other proceedings or exercise of
any remedies in such proceedings based upon any action or judgment connected to
this Mortgage, and Mortgagor also waives any right to seek to dismiss, stay,
remove, transfer or consolidate either such other proceedings or any action
under this Mortgage on such basis. It is expressly understood and agreed that to
the fullest extent permitted by law, Mortgagee may, at its election, cause the
sale of all collateral which is the subject of a single foreclosure action at
either a single sale or at multiple sales conducted simultaneously and take such
other measures as are appropriate in order to effect the agreement of the
parties to dispose of and administer all collateral securing the Obligations
(directly or indirectly) in the most economical and least time-consuming manner.

31
<PAGE> 35

30. Expenses; Indemnification. (a) Mortgagor shall pay or
reimburse Mortgagee for all expenses incurred by Mortgagee before and after the
date of this Mortgage with respect to any and all transactions contemplated by
this Mortgage including without limitation, the preparation of any document
reasonably required hereunder or any amendment, modification, restatement or
supplement to this Mortgage, the delivery of any consent, non-disturbance
agreement or similar document in connection with this Mortgage or the
enforcement of any of Mortgagee's rights. Such expenses shall include, without
limitation, all title and conveyancing charges, recording and filing fees and
taxes, mortgage taxes, intangible personal property taxes, escrow fees, revenue
and tax stamp expenses, insurance premiums (including title insurance premiums),
title search and title rundown charges, brokerage commissions, finders' fees,
placement fees, court costs, surveyors', photographers', appraisers',
architects', engineers', consulting professional's, accountants' and attorneys'
fees and disbursements. Mortgagor acknowledges that from time to time Mortgagor
may receive statements for such expenses, including without limitation
attorneys' fees and disbursements. Mortgagor shall pay such statements promptly
upon receipt.

32
<PAGE> 36

33
<PAGE> 37

33. Governing Law, etc. This Mortgage shall be governed by and
construed in accordance with the laws of the State where the Real Estate is
located, except that Mortgagor expressly acknowledges that by its terms the
Indenture and the Guaranty shall be governed and construed in accordance with
the laws of the State of New York, without regard to principles of conflict of
law, and for purposes of consistency, Mortgagor agrees that in any in personam
proceeding related to this Mortgage the rights of the parties to this Mortgage
shall also be governed by and construed in accordance with the laws of the State
of New York governing contracts made and to be performed in that State, without
regard to principles of conflict of law.

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<PAGE> 38

this Mortgage, then in addition to having any other right or remedy available at
law or in equity, Mortgagee shall have the option of either (i) proceeding under
the Code and exercising such rights and remedies as may be provided to a secured
party by the Code with respect to all or any portion of the Mortgaged Property
which is personal property (including, without limitation, taking possession of
and selling such property) or (ii) treating such property as real property and
proceeding with respect to both the real and personal property constituting the
Mortgaged Property in accordance with Mortgagee's rights, powers and remedies
with respect to the real property (in which event the default provisions of the
Code shall not apply). If Mortgagee shall elect to proceed under the Code, then
five days' notice of sale of the personal property shall be deemed reasonable
notice and the reasonable expenses of retaking, holding, preparing for sale,
selling and the like incurred by Mortgagee shall include, but not be limited to,
attorneys' fees and legal expenses. At Mortgagee's request, Mortgagor shall
assemble the personal property and make it available to Mortgagee at a place
designated by Mortgagee which is reasonably convenient to both parties.

35
<PAGE> 39

of any of the Mortgaged Property which constitutes personal property. If
Mortgagor shall fail to furnish any financing or continuation statement within
10 days after request by Mortgagee, then pursuant to the provisions of the Code,
Mortgagor hereby authorizes Mortgagee, without the signature of Mortgagor, to
execute and file any such financing and continuation statements. The filing of
any financing or continuation statements in the records relating to personal
property or chattels shall not be construed as in any way impairing the right of
Mortgagee to proceed against any personal property encumbered by this Mortgage
as real property, as set forth above.

38. Consistency with Other Documents. If any provision hereof
conflicts with any provisions of the Indenture, then the terms of the Indenture
shall control to the extent of such conflict.

39. Mortgaged Lease Provisions. (a) Mortgagor shall pay or
cause to be paid all rent and other charges required under the Mortgaged Lease
as and when the same are due and shall promptly and faithfully perform or cause
to be performed, all other material obligations, covenants, agreements,
indemnities, representations, warranties or liabilities required of Mortgagor
under the Mortgaged Lease. Mortgagor shall not, without the consent of
Mortgagee, (i) either orally or in writing, modify, amend or permit any
modification or amendment of any of the terms of the Mortgaged Lease in any
material respect, (ii) in any manner, cancel, terminate or surrender, or permit
the cancellation, termination or surrender of the Mortgaged Lease, in whole or
in part, except, subject to Section 39(i) hereof, any expiration of the
Mortgaged Lease pursuant to its terms, or (iii) permit the subordination thereof
to any mortgage; and any attempt to do the foregoing shall be null and void and
of no effect.

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<PAGE> 40

Mortgaged Lease, or any termination, surrender, cancellation, forfeiture or
impairment thereof, except, subject to Section 39(i) hereof, any expiration of
the Mortgaged Lease pursuant to its terms. Mortgagor hereby authorizes and
irrevocably appoints and constitutes Mortgagee as its true and lawful
attorney-in-fact, which appointment is coupled with an interest, in its name,
place and stead, upon the occurrence and continuance of an Event of Default
hereunder, to take any and all actions deemed necessary or desirable by
Mortgagee to perform and comply with all the obligations of Mortgagor under the
Mortgaged Lease, and to do and take, but without any obligation so to do, any
action which Mortgagee deems necessary or desirable to cure any default by
Mortgagor under the Mortgaged Lease, to enter into and upon the Premises or any
part thereof to such extent and as often as Mortgagee, in its sole reasonable
discretion, deems necessary or desirable in order to cure any default of
Mortgagor pursuant thereto, to the end that the rights of Mortgagor in and to
the leasehold estate created by the Mortgaged Lease shall be kept unimpaired and
free from default, and all sums so expended by Mortgagee, with interest thereon
at the Default Rate from the date of each such expenditure, shall be paid by
Mortgagor to Mortgagee promptly upon demand by Mortgagee. Mortgagor shall,
within five (5) business days after written request by Mortgagee, execute and
deliver to Mortgagee, or to any person designated by Mortgagee, such further
instruments, agreements, powers, assignments, conveyances or the like as may be
reasonably necessary to complete or perfect the interest, rights or powers of
Mortgagee pursuant to this paragraph (b).

(c) Mortgagor shall enforce the material obligations of the
lessor under the Mortgaged Lease, and shall promptly notify Mortgagee in writing
of any material default by either the lessor (if known by Mortgagor) or by
Mortgagor in the performance or observance of any of the terms, covenants and
conditions contained in the Mortgaged Lease. Mortgagor shall deliver to
Mortgagee, within ten (10) business days after receipt, a copy of any material
notice, demand, complaint or request for compliance made by the lessor under the
Mortgaged Lease. If the lessor shall deliver to Mortgagee a copy of any notice
of default given to Mortgagor, such notice shall constitute full authority and
protection to Mortgagee for any actions taken or omitted to be taken in good
faith pursuant to the provisions of this Mortgage in reliance thereon.

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<PAGE> 41

promptly after receipt, deliver to Mortgagee a true and complete copy of each
petition, summons, complaint, notice of motion, order to show cause and all
other provisions, pleadings, and papers, however designated, served in any such
action or proceeding.

(e) Mortgagor covenants and agrees that the fee title to the
Real Estate and the leasehold estate created under the Mortgaged Lease shall not
merge but shall always remain separate and distinct, notwithstanding the union
of said estates either in Mortgagor or a third party by purchase or otherwise;
and in case Mortgagor acquires the fee title or any other estate, title or
interest in and to the Real Estate, the lien of this Mortgage shall, without
further conveyance, simultaneously with such acquisition, be spread to cover and
attach to such acquired estate and as so spread and attached shall be prior to
the lien of any mortgage placed on the acquired estate after the date of this
Mortgage.

(f) No release or forbearance of any of Mortgagor's obligations
under the Mortgaged Lease, pursuant to the Mortgaged Lease or otherwise, shall
release Mortgagor from any of its obligations under this Mortgage.

(g) So long as no Event of Default shall have occurred and be
continuing hereunder, Mortgagor may, without the consent of Mortgagee, make any
election or give any consent or approval under the Mortgaged Lease. Upon the
occurrence and continuance of any Event of Default hereunder, all such rights,
together with the right of termination, cancellation, modification, change,
supplement, alteration or amendment of the Mortgaged Lease, all of which are
hereby assigned for collateral purposes to Mortgagee, shall automatically vest
exclusively in and be exercisable solely by Mortgagee.

(h) Mortgagor will give Mortgagee prompt written notice of the
commencement of any arbitration or appraisal proceeding under and pursuant to
the provisions of the Mortgaged Lease involving amounts in excess of $1,000,000
on a present value basis. So long as no Event of Default shall have occurred and
be continuing hereunder, Mortgagor may conduct the proceeding provided that (i)
Mortgagee shall have the right to intervene and participate in any such
proceeding, (ii) Mortgagor shall confer with Mortgagee, (iii) Mortgagor shall
exercise all reasonable rights of arbitration conferred upon it by the Mortgaged
Lease and (iv) Mortgagor's selection of an arbitrator shall be subject to prior
written approval by Mortgagee; provided, however, upon the occurrence and
continuance of an Event of Default hereunder, Mortgagee shall have sole
authority to conduct the proceeding and

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<PAGE> 42

Mortgagor hereby irrevocably appoints and constitutes Mortgagee as its true and
lawful attorney-in-fact, which appointment is coupled with any interest, in its
name, place and stead, to exercise, at the expense of Mortgagor, all right,
title and interest of Mortgagor in connection with such arbitration, including
the right to appoint arbitrators and to conduct arbitration proceedings on
behalf of Mortgagor. Nothing contained herein shall obligate Mortgagee to
participate in such arbitration.

(i) Mortgagor shall not fail to exercise any option or right to
renew or extend the term of the Mortgaged Lease without the prior written
consent of Mortgagee, which consent shall not be unreasonably withheld.
Mortgagor shall give Mortgagee simultaneous written notice of any such exercise,
together with a copy of the notice or other document given to the lessor, and
shall promptly deliver to Mortgagee a copy of any acknowledgment by such lessor
with respect to the exercise of such option or right. Upon the occurrence and
continuance of any Event of Default hereunder, Mortgagee may act in its stead
and Mortgagor hereby irrevocably authorizes and appoints Mortgagee as its true
and lawful attorney-in-fact, which appointment is coupled with an interest, in
its name, place and stead, to execute and deliver, for and in the name of
Mortgagor, all of the instruments and agreements necessary under the Mortgaged
Lease or otherwise to cause any extension of the term of the Mortgaged Lease.
Nothing contained herein shall affect or limit any rights of Mortgagor or
Mortgagee granted under the Mortgaged Lease.

(j) Mortgagor shall, within ten (10) days after written demand
from Mortgagee, deliver to Mortgagee proof of payment of all items that are
required to be paid by Mortgagor under the Mortgaged Lease, including, without
limitation, rent.

(k) (i) The lien of this Mortgage shall attach to all of
Mortgagor's rights and remedies at any time arising under or pursuant to
Subsection 365(h) of the Bankruptcy Code, 11 U.S.C. Section 365(h), as the same
may hereafter be amended (the "Bankruptcy Code"), including, without limitation,
all of Mortgagor's rights to remain in possession of the Real Estate. Mortgagor
shall not, without Mortgagee's prior written consent, elect to treat the
Mortgaged Lease as terminated under Subsection 365(h)(1) of the Bankruptcy Code.
Any such election made without Mortgagee's consent shall be void.

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<PAGE> 43

Lease by the lessor or any fee owner of the Real Estate or any part
thereof. Upon and during the continuance of an Event of Default
hereunder, Mortgagee shall have the right to proceed in its own name or
in the name of Mortgagor in respect of any claim, suit, action or
proceeding relating to the rejection of the Mortgaged Lease, including,
without limitation, the right to file and prosecute under the
Bankruptcy Code, without joining or the joinder of Mortgagor, any
proofs of claim, complaints, motions, applications, notices and other
documents, in any case with respect to the lessor or any fee owner of
the Real Estate or any part thereof. Any amounts received by Mortgagee
as damages arising out of the rejection of the Mortgaged Lease as
aforesaid shall be applied first to all costs and expenses of Mortgagee
(including, without limitation, attorneys' fees) incurred in connection
with the exercise of any of its rights or remedies under this
paragraph. Mortgagor shall, at the request of Mortgagee, promptly make,
execute, acknowledge and deliver, in form and substance satisfactory to
Mortgagee, a UCC Financing Statement (Form UCC-1) and all such
additional instruments, agreements and other documents, as may at any
time hereafter be required by Mortgagee to carry out the assignment
pursuant to this paragraph.

(iii) If pursuant to Subsection 365(h)(2) of the
Bankruptcy Code, Mortgagor shall seek to offset against the rent
reserved in the Mortgaged Lease the amount of any damages caused by the
nonperformance by the lessor of any of its obligations under such
Mortgaged Lease after the rejection by the lessor of such Mortgaged
Lease under the Bankruptcy Code, then, upon and during the continuance
of an Event of Default hereunder, Mortgagor shall, prior to effecting
such offset, notify Mortgagee of its intent to do so, setting forth the
amount proposed to be so offset and the basis therefor. Upon and during
the continuance of an Event of Default hereunder, Mortgagee shall have
the right to object to all or any part of such offset that, in the
reasonable judgment of Mortgagee, would constitute a breach of such
Mortgaged Lease, and in the event of such objection, Mortgagor shall
not effect any offset of the amounts so objected to by Mortgagee.
Neither Mortgagee's failure to object as aforesaid nor any objection
relating to such offset shall constitute an approval of any such offset
by Mortgagee.

(iv) If any action, proceeding, motion or notice shall
be commenced or filed in respect of the lessor or any other fee owner
of the Real Estate, or any portion thereof

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<PAGE> 44

or interest therein, or the Mortgaged Lease in connection with any case
under the Bankruptcy Code, then, upon and during the continuance of an
Event of Default hereunder, Mortgagee shall have the option,
exercisable upon notice from Mortgagee to Mortgagor, to conduct and
control any such litigation with counsel of Mortgagee's choice. Upon
and during the continuance of an Event of Default hereunder, Mortgagee
may proceed in its own name or in the name of Mortgagor in connection
with any such litigation, and Mortgagor agrees to execute any and all
powers, authorizations, consents or other documents reasonably required
by Mortgagee in connection therewith. Mortgagor shall, upon demand, pay
to Mortgagee all costs and expenses (including attorneys' fees) paid or
incurred by Mortgagee in connection with the prosecution or conduct of
any such proceedings. Upon and during the continuance of an Event of
Default hereunder, Mortgagor shall not commence any action, suit,
proceeding or case, or file any application or make any motion, in
respect of the Mortgaged Lease in any such case under the Bankruptcy
Code without the prior written consent of Mortgagee.

(v) Mortgagor shall, after obtaining knowledge
thereof, promptly notify Mortgagee of any filing by or against the
lessor or fee owner of the Real Estate of a petition under the
Bankruptcy Code. Mortgagor shall promptly deliver to Mortgagee,
following receipt, copies of any and all notices, summonses, pleadings,
applications and other documents received by Mortgagor in connection
with any such petition and any proceedings relating thereto.

(vi) If there shall be filed by or against Mortgagor a
petition under the Bankruptcy Code and Mortgagor, as lessee under the
Mortgaged Lease, shall determine to reject the Mortgaged Lease pursuant
to Section 365(a) of the Bankruptcy Code, then Mortgagor shall give
Mortgagee not less than twenty (20) days' prior notice of the date on
which Mortgagor shall apply to the Bankruptcy Court for authority to
reject the Mortgaged Lease. Mortgagee shall have the right, but not the
obligation, to serve upon Mortgagor within such twenty (20) day period
a notice stating that Mortgagee demands that Mortgagor assume and
assign the Mortgaged Lease to Mortgagee pursuant to Section 365 of the
Bankruptcy Code. If Mortgagee shall serve upon Mortgagor the notice
described in the preceding sentence, Mortgagor shall not seek to reject
such Mortgaged Lease and shall comply with the demand provided for in
the preceding sentence; provided, however, that in connection with any
such assumption and assignment, Mortgagee shall

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<PAGE> 45

provide Mortgagor with the funds necessary to comply with the cure
obligations and other monetary obligations described under subsection
365(b) of the Bankruptcy Code, and the amount of any such sums so
provided shall be secured hereby and shall be included as claims
against Mortgagor in the bankruptcy proceeding. In addition, effective
upon the entry of an order for relief with respect to Mortgagor under
the Bankruptcy Code, Mortgagor hereby assigns and transfers to
Mortgagee a non-exclusive right to apply to the Bankruptcy Court under
subsection 365(d)(4) of the Bankruptcy Code for an order extending the
period during which the Mortgaged Lease may be rejected or assumed.

(l) If the Mortgaged Lease shall be terminated prior to the
natural expiration of its term, and if, pursuant to any provision of the
Mortgaged Lease or otherwise, Mortgagee or its designee shall acquire from the
lessor under such Mortgaged Lease a new lease of the Real Estate or any part
hereof, Mortgagor shall have no right, title or interest in or to such new lease
or the leasehold estate created thereby, or renewal privileges therein
contained.

NOTICE: A POWER OF SALE HAS BEEN GRANTED IN THIS MORTGAGE. A
POWER OF SALE MAY ALLOW THE MORTGAGEE TO TAKE THE MORTGAGED PROPERTY AND SELL IT
WITHOUT GOING TO COURT IN A FORECLOSURE ACTION UPON DEFAULT BY THE MORTGAGOR
UNDER THIS MORTGAGE.

This Mortgage has been duly executed by Mortgagor on the date
first above written.

ATTEST: ___________________________________

By: ________________________ By: ___________________________
Name: Name:
Title: [Assistant] Secretary Title: [Vice] President

[SEAL]

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<PAGE> 46

STATE OF _____________ )
) SS
COUNTY OF ____________ )

The foregoing instrument was acknowledged before me this ____
day of ___________________, 1995, by __________________ and
____________________, [Vice] President and [Assistant] Secretary, respectively,
of _______________________, a corporation, on behalf of the corporation.

____________________________________
Notary Public

My Commission Expires:

_____________________

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<PAGE> 47

Schedule A

Description of Real Property

[Attach Legal Description of all parcels]

<PAGE> 1
EXHIBIT 4.6

DRAFT
7/07/95
{Kentucky}

JUNIOR LEASEHOLD AND FEE MORTGAGE,
ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

from

NEWPORT STEEL CORPORATION, Mortgagor

NS GROUP, INC., Mortgagee

DATED AS OF __________ __, 1995

This Instrument was prepared by
and after recording should be
returned to:
F. Robert Wheeler, Jr., Esq.
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

---------------------------
F. Robert Wheeler, Jr., Esq.

{NOTE: A PORTION OF THE
MORTGAGED PROPERTY
CONSISTS OF A LEASEHOLD
INTEREST. CUSTOMARY
LEASEHOLD PROVISIONS
SHALL BE INCORPORATED.}

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Granting Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . 6

2. Payment and Performance of Obligations . . . . . . . . . . . . . 6

3. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4. Payment of Taxes and Other Impositions . . . . . . . . . . . . . 7

5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

6. Restrictions on Liens, Encumbrances and Sales . . . . . . . . . 13

7. Relationship of Mortgagee and Mortgagor . . . . . . . . . . . . 13

8. Maintenance; No Alteration; Inspection; Utilities . . . . . . . 14

9. Condemnation/Eminent Domain . . . . . . . . . . . . . . . . . . 14

10. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

11. Further Assurances/Estoppel Certificates . . . . . . . . . . . . 16

12. Mortgagee's Right to Perform . . . . . . . . . . . . . . . . . . 17

13. Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . 17

14. Asbestos . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

15. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 19

16. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

17. Right of Mortgagee to Credit Sale . . . . . . . . . . . . . . . 21

18. Appointment of Receiver . . . . . . . . . . . . . . . . . . . . 22

19. Extension, Release, etc. . . . . . . . . . . . . . . . . . . . . 22

20. Assignment of Rents . . . . . . . . . . . . . . . . . . . . . . 23

21. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 23

22. Additional Rights . . . . . . . . . . . . . . . . . . . . . . . 24

23. Changes in Method of Taxation . . . . . . . . . . . . . . . . . 24

24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
</TABLE>

<PAGE> 3

<TABLE>
<CAPTION>
<S> <C>
25. No Oral Modification . . . . . . . . . . . . . . . . . . . . . . 24

26. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . 24

27. Waiver of Right of Redemption and Other Rights . . . . . . . . . 25

28. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . 25

29. Multiple Security . . . . . . . . . . . . . . . . . . . . . . . 26

30. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . 27

31. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 29

32. No Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . . 29

33. Governing Law, etc. . . . . . . . . . . . . . . . . . . . . . . 29

34. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . 29

35. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 30

36. Security Agreement under Uniform Commercial Code . . . . . . . . 30

37. Release Upon Payment and Discharge of Mortgagor's Obligations . 31

39. Consistency with Other Documents . . . . . . . . . . . . . . . . 32
</TABLE>

SCHEDULES

Schedule A - Description of Real Property

<PAGE> 4

JUNIOR LEASEHOLD AND FEE MORTGAGE, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

THIS JUNIOR LEASEHOLD AND FEE MORTGAGE, ASSIGNMENT OF RENTS AND
LEASES AND SECURITY AGREEMENT, dated as of __________ __, 1995 is made by
NEWPORT STEEL CORPORATION, a Kentucky corporation ("Mortgagor"), whose
address is ___________________, to NS GROUP, INC., a Kentucky corporation
("Mortgagee"), whose mailing address is Ninth and Lowell Streets,
Newport, Kentucky 41072, _____________ County, Kentucky. References to this
"Mortgage" shall mean this instrument and any and all renewals,
modifications, amendments, supplements, extensions, consolidations,
substitutions, spreaders and replacements of this instrument.

Background

B. Mortgagor is a wholly owned subsidiary of Mortgagee.

C. Mortgagee and The Huntington National Bank, as Trustee, are
parties to that Indenture dated as of _______________ __, 1995 (as the same may
be amended, modified or otherwise supplemented from time to time, the
"Indenture"; capitalized terms not defined herein shall have the
meanings ascribed thereto in the Indenture) for the benefit of Holders of _____%
Senior Secured Notes due 2003 in the aggregate principal amount of
$125,000,000.00 (the "Securities") issued by Mortgagee, which Securities
mature on _________________.

D. Mortgagor has executed and delivered to Mortgagee that
certain intercompany note of even date herewith in the original principal amount
of $______________ (the "Intercompany Note"). References in this Mortgage to the
"Default Rate" shall mean the interest rate of _____% per annum.

E. Mortgagor, to secure its obligations under the Intercompany
Note, has executed and delivered that certain security agreement of even date
herewith in favor of Mortgagee (the "ICN Security Agreement"), which ICN
Security Agreement grants Mortgagee a security interest in and to certain
personal property now or subsequently used in connection with the operation of
the Real Estate.

<PAGE> 5

NOW, THEREFORE, in consideration of the premises, the Mortgagor
hereby agrees with the Mortgagee as follows:

Granting Clauses

For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mortgagor agrees that to secure
all of Mortgagor's obligations and liabilities under the Intercompany Note and
all other obligations and liabilities of Mortgagor to Mortgagee (including,
without limitation, interest accruing after the maturity of the Intercompany
Note and interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, relating
to the Mortgagor, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding and interest, to the extent permitted by
law, on the unpaid interest), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Intercompany Note, this
Mortgage, the ICN Security Agreement or any other document made, delivered or
given in connection therewith (collectively, the "Security Documents"), in each
case whether on account of principal, interest, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and disbursements
of counsel to Mortgagee that are required to be paid by the Mortgagee pursuant
to the terms of this Mortgage or any other Security Document) (collectively, the
"Obligations").

(A) all right, title and interest of Mortgagor in and to the
Real Estate;

(B) all the estate, right, title, claim or demand whatsoever of
Mortgagor, in possession or expectancy, in and to the Real Estate or
any part thereof;

<PAGE> 6

<PAGE> 7

receive and collect the revenues, income, rents, issues and profits
thereof, together with all other rents, royalties, issues, profits,
revenue, income and other benefits arising from the use and enjoyment
of the Mortgaged Property (as defined below) (collectively, the "
Rents");

(I) all right, title and interest of Mortgagor in and to (i)
all contracts from time to time executed by Mortgagor or any manager or
agent on its behalf relating to the ownership, construction,
maintenance, repair, operation, occupancy, sale or financing of the
Real Estate or Equipment or any part thereof and all agreements
relating to the purchase or lease of any portion of the Real Estate or
any property which is adjacent or peripheral to the Real Estate,
together with the right to exercise such options and all leases of
Equipment, (ii) all consents, licenses, building permits, certificates
of occupancy and other governmental approvals relating to construction,
completion, occupancy, use or operation of the Real Estate or any part
thereof and (iii) all drawings, plans, specifications and similar or
related items relating to the Real Estate;

(J) all right, title and interest of Mortgagor in and to any
and all monies now or subsequently on deposit for the payment of real
estate taxes or special assessments against

<PAGE> 8

the Real Estate or for the payment of premiums on insurance policies
covering the foregoing property or otherwise on deposit with or held by
Mortgagee as provided in this Mortgage; all capital, operating, reserve
or similar accounts held by or on behalf of Mortgagor and related to
the operation of the Mortgaged Property, whether now existing or
hereafter arising and all monies held in any of the foregoing accounts
and any certificates or instruments related to or evidencing such
accounts;

(L) all proceeds, both cash and noncash, of the foregoing;

<PAGE> 9

Mortgage deemed to be real estate and conveyed and mortgaged hereby; provided,
however, as to any of the property aforesaid which does not so form a part and
parcel of the Real Estate or does not constitute a "fixture" (as defined in the
Uniform Commercial Code of Kentucky (the "Code")), this Mortgage is
hereby deemed to also be a Security Agreement under the Code for purposes of
granting a security interest in such property, which Mortgagor hereby grants to
Mortgagee, as Secured Party (as defined in the Code), as more particularly
provided below in this Mortgage.

SUBJECT AND SUBORDINATE, HOWEVER, TO THE RIGHTS OF The
Huntington National Bank, as mortgagee, under a Mortgage, Assignment of Rents
and Leases of even date herewith (herein called the "Prior Mortgage").

Terms and Conditions

Mortgagor further represents, warrants, covenants and agrees
with Mortgagee as follows:

2. Payment and Performance of Obligations. Mortgagor shall pay
the Obligations at the times and places and in the manner specified in the
Intercompany Note and shall perform all the Obligations.

<PAGE> 10

other political subdivision thereof and any agency, department, bureau, board,
commission or other instrumentality of any of them, now existing or subsequently
created (collectively, "Governmental Authority") which has jurisdiction
over the Mortgaged Property and all covenants, restrictions and conditions now
or later of record which may be applicable to any of the Mortgaged Property, or
to the use, manner of use, occupancy, possession, operation, maintenance,
alteration, repair or reconstruction of any of the Mortgaged Property, except
where the failure to so comply with any of the foregoing would not have a
Material Adverse Effect on the business, prospects, earnings, properties, assets
or condition (financial or otherwise) of the Company and its Subsidiaries taken
as a whole. All present and future laws, statutes, codes, ordinances, orders,
judgments, decrees, rules, regulations and requirements of every Governmental
Authority applicable to Mortgagor or to any of the Mortgaged Property and all
covenants, restrictions, and conditions which now or later may be applicable to
any of the Mortgaged Property are collectively referred to as the "Legal
Requirements".

<PAGE> 11

(i) original or copies of receipted bills and cancelled checks evidencing
payment of such Imposition if it is a real estate tax or other public charge and
(ii) evidence acceptable to Mortgagee showing the payment of any other such
Imposition. If by law any Imposition, at Mortgagor's option, may be paid in
installments (whether or not interest shall accrue on the unpaid balance of such
Imposition), Mortgagor may elect to pay such Imposition in such installments and
shall be responsible for the payment of such installments with interest, if any.

(e) Upon written notice to Mortgagor, Mortgagee, after an Event
of Default (as defined below), shall be entitled to

<PAGE> 12

require Mortgagor to pay monthly in advance to Mortgagee the equivalent of
1/12th of the estimated annual Impositions. Mortgagee may commingle such funds
with its own funds and Mortgagor shall not be entitled to interest thereon.

5. Insurance. (a) Mortgagor shall maintain or cause to be
maintained on all of the Premises

<PAGE> 13

<PAGE> 14

contain a "Replacement Cost Endorsement" (predicated upon rebuilding) without
any deduction made for depreciation and with no co-insurance penalty (or
attaching an agreed amount endorsement satisfactory to Mortgagee), with loss
payable to Mortgagor and Mortgagee with respect to the Mortgaged Property as
their respective interests may appear, without contribution, under a "standard"
or "New York" mortgagee clause reasonably acceptable to Mortgagee and be written
by insurance companies having an A.M. Best Company, Inc. rating of A or higher
and a financial size category of not less than XII, or otherwise as approved by
Mortgagee. Liability insurance policies shall name Mortgagee as an additional
insured with respect to the Mortgaged Property and contain a waiver of
subrogation against Mortgagee; all such policies shall indemnify and hold
Mortgagee harmless from all liability claims occurring on, in or about the
Premises and the adjoining streets, sidewalks and passageways. Each policy shall
expressly provide that any proceeds which are payable to Mortgagee pursuant to
the terms hereof shall be paid by check payable to the order of Mortgagee only
and shall require the endorsement of Mortgagee only. The amounts of each
insurance policy and the form of each such policy shall at all times be
reasonably satisfactory to Mortgagee. If any required insurance shall expire, be
withdrawn, become void by breach of any condition thereof by Mortgagor or by any
lessee of any part of the Mortgaged Property or become void or unsafe by reason
of the failure or impairment of the capital of any insurer, Mortgagor shall
immediately obtain new or additional insurance satisfactory to Mortgagee.
Mortgagor shall not take out any separate or additional insurance which is
contributing in the event of loss unless it is properly endorsed and otherwise
reasonably satisfactory to Mortgagee in all respects.

<PAGE> 15

shall pay to Mortgagee on demand such premium or premiums so paid by Mortgagee
with interest from the time of payment at the Default Rate and the same shall be
deemed to be secured by this Mortgage and shall be collectible in the same
manner as the Obligations secured by this Mortgage.

(g) Upon written notice to Mortgagor, Mortgagee, after an Event
of Default, shall be entitled to require Mortgagor to pay monthly in advance to
Mortgagee the equivalent of 1/12th of

<PAGE> 16

the estimated annual premiums due on such insurance. Mortgagee may commingle
such funds with its own funds and Mortgagor shall not be entitled to interest
thereon.

(2) Except as may be permitted pursuant to the Indenture,
including, without limitation, subsection 6.15 thereof, Mortgagor shall not make
any Asset Sale.

<PAGE> 17

not be deemed to be such partner, joint venturer, agent or associate on account
of Mortgagee becoming a Mortgagee in possession or exercising any rights
pursuant to this Mortgage, any of the other Security Documents, or otherwise.

<PAGE> 18

(b) As to any Lease relating to all or any portion of the
Mortgaged Property, Mortgagor shall:

(i) promptly perform all of the material provisions of the
Lease on the part of the lessor thereunder to be performed;

(ii) enforce, in accordance with sound business practice, all of
the material provisions of the Lease on the part of the lessee
thereunder to be performed;

(iv) exercise, within 5 days after receipt of a request by
Mortgagee, any right to request from the lessee a certificate with
respect to the status thereof;

(v) promptly deliver to Mortgagee copies of any notices of
default which Mortgagor may at any time forward to or receive from
the lessee;

(vi) promptly deliver to Mortgagee a fully executed counterpart
of the Lease; and

(vii) promptly deliver to Mortgagee, upon Mortgagee's request, an
assignment of the Mortgagor's interest under such Lease.

(d) All Leases entered into by Mortgagor after the date hereof,
if any, and all rights of any lessees thereunder shall be subject and
subordinate in all respects to the lien and

<PAGE> 19

provisions of this Mortgage unless Mortgagee shall otherwise elect in writing.

11. Further Assurances/Estoppel Certificates. To
further assure Mortgagee's rights under this Mortgage, Mortgagor agrees upon
demand of Mortgagee to do any act or execute any additional documents
(including, but not limited to, security agreements on any personalty included
or to be included in the Mortgaged Property and a separate assignment of each
Lease in recordable form) as may be required by Mortgagee to confirm the lien of
this Mortgage and all other rights or benefits conferred on Mortgagee.
Mortgagor, within 5 business days after request, shall deliver, in form and
substance satisfactory to Mortgagee, a written statement, duly acknowledged,
setting forth the amount of

<PAGE> 20

the Obligations, and whether any offsets, claims, counterclaims or defenses
exist against the Obligations and certifying as to such other matters as
Mortgagee shall reasonably request.

12. Mortgagee's Right to Perform. If Mortgagor fails to
perform any of the covenants or agreements of Mortgagor hereunder, Mortgagee,
without waiving or releasing Mortgagor from any obligation or default under this
Mortgage, may, at any time (but shall be under no obligation to) pay or perform
the same, and the amount or cost thereof, with interest at the Default Rate,
shall immediately be due from Mortgagor to Mortgagee and the same shall be
secured by this Mortgage and shall be a lien on the Mortgaged Property prior to
any right, title to, interest in or claim upon the Mortgaged Property attaching
subsequent to the lien of this Mortgage. No payment or advance of money by
Mortgagee under this Section shall be deemed or construed to cure Mortgagor's
default or waive any right or remedy of Mortgagee.

<PAGE> 21

securing of repayment of such costs and expenses) incurred by Mortgagor or
Mortgagee in connection with the removal of any such lien with respect to the
Mortgaged Property or in connection with Mortgagor's or Mortgagee's compliance
with any Hazardous Material Laws with respect to the Mortgaged Property; and
(iv) the assertion against Mortgagee by any party of any claim in connection
with Hazardous Material with respect to the Mortgaged Property.

(b) For the purposes of this Mortgage, "Hazardous
Material" means and includes any hazardous, nuclear, toxic or dangerous
waste, substance or material defined as such in (or for purposes of) the
Comprehensive Environmental Response, Compensation, and Liability Act, any
so-called "Superfund" or "Superlien" law, or any other Legal Requirement
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, nuclear, toxic or dangerous waste, substance or
material, as now or at any time in effect.

<PAGE> 22

proven against Mortgagee by any party, as a result of the presence of such
substances or any removal or compliance with such Legal Requirements. The
foregoing indemnification shall be a recourse obligation of Mortgagor and shall
survive repayment of the Obligations, notwithstanding any limitation on recourse
which may be contained herein or in any of the Security Documents or the
delivery of any satisfaction, release or release deed, discharge or deed of
reconveyance, or the assignment of this Mortgage by Mortgagee; provided,
however, that the foregoing indemnification shall apply only to matters arising
prior to any taking of possession of the Premises by Mortgagee or any other
person succeeding to the interest of Mortgagee pursuant to the terms hereof;
further provided, that the foregoing indemnification shall not apply to loss,
costs and the like arising from the gross negligence or wilful misconduct of the
party seeking indemnification.

15. Event of Default. The occurrence of an "Event of Default"
(as defined in the Indenture) shall constitute an Event of Default hereunder.

<PAGE> 23

thereon for all sums due hereunder, together with interest thereon at
the Default Rate and all costs of suit, including, without limitation,
reasonable attorneys' fees and disbursements. Interest at the Default
Rate shall be due on any judgment obtained by Mortgagee from the date
of judgment until actual payment is made of the full amount of the
judgment.

(iii) It is further agreed that if default be made in the
payment of any part of the Obligations, as an alternative to the right
of foreclosure for the full secured Obligations after acceleration
thereof, Mortgagee shall have the right to institute partial
foreclosure proceedings with respect to the portion of said Obligations
so in default, as if under a full foreclosure, and without declaring
the entire secured Obligations due (such proceeding being hereinafter
referred to as a "partial foreclosure"), and provided that if a partial
foreclosure sale is consummated as provided herein, such sale may be
made subject to the continuing lien of this Mortgage for the unmatured
portion of the secured Obligations, but as to such unmatured part, this
Mortgage, and the lien hereof, shall remain in full force and effect
just as though no partial foreclosure sale had been made under the
provisions of this Section. Notwithstanding the filing of any partial
foreclosure or entry of a decree of sale therein, Mortgagee may elect
at any time prior to a partial foreclosure sale pursuant to such
decree, to discontinue such partial foreclosure and to accelerate the
Obligations secured hereby by reason of any uncured Event of Default
upon which such partial foreclosure was predicated or by reason of any
other Event of Default,

<PAGE> 24

and proceed with full foreclosure proceedings. It is further agreed
that one or more foreclosure sales may be made pursuant to partial
foreclosures without exhausting the right of full or partial
foreclosure sale for any unmatured part of the secured Obligations, it
being the purpose to provide for a partial foreclosure sale of the
Obligations secured hereby without exhausting the power to foreclose
for any other part of the Obligations whether matured at the time or
subsequently maturing, and without exhausting any right of acceleration
and full foreclosure.

(d) The proceeds of any foreclosure or sale of the Mortgaged
Property, or any portion thereof, shall be distributed and applied in accordance
with all applicable provisions of the Indenture.

17. Right of Mortgagee to Credit Sale. Upon the
occurrence of any sale made under this Mortgage, whether made under the power of
sale or by virtue of judicial proceedings or of a judgment or decree of
foreclosure and sale, Mortgagee may bid for and acquire the Mortgaged Property
or any part thereof. In lieu of paying cash therefor, Mortgagee may make
settlement for the purchase price by crediting upon the Obligations or other
sums secured by this Mortgage the net sales price after deducting therefrom the
expenses of sale and the cost of the action and any other sums which Mortgagee
is authorized to deduct under this Mortgage. In such event, this Mortgage, the
Intercompany Note and documents evidencing expenditures secured hereby may be
presented to the person or persons conducting the sale in order that the amount
so used or applied may be credited upon the Obligations as having been paid.

<PAGE> 25

18. Appointment of Receiver. If an Event of Default
shall have occurred and be continuing, Mortgagee as a matter of right and
without notice to Mortgagor, unless otherwise required by applicable law, and
without regard to the adequacy or inadequacy of the Mortgaged Property or any
other collateral as security for the Obligations or the interest of Mortgagor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers or other manager of the Mortgaged Property, and
Mortgagor hereby irrevocably consents to such appointment and waives notice of
any application therefor (except as may be required by law). Any such receiver
or receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Mortgagee in case of entry as
provided in this Mortgage, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the
Mortgaged Property, and shall continue as such and exercise all such powers
until the date of confirmation of sale of the Mortgaged Property unless such
receivership is sooner terminated.

19. Extension, Release, etc. (a) Without affecting the
lien or charge of this Mortgage upon any portion of the Mortgaged Property not
then or theretofore released as security for the full amount of the Obligations,
Mortgagee may, from time to time and without notice, agree to (i) release any
person liable for the Obligations, (ii) extend the maturity or alter any of the
terms of the Obligations or any guaranty thereof, (iii) grant other indulgences,
(iv) release or reconvey, or cause to be released or reconveyed at any time at
Mortgagee's option any parcel, portion or all of the Mortgaged Property, (v)
take or release any other or additional security for any obligation herein
mentioned, or (vi) make compositions or other arrangements with debtors in
relation thereto. If at any time this Mortgage shall secure less than all of the
principal amount of the Obligations, it is expressly agreed that any repayments
of the principal amount of the Obligations shall not reduce the amount of the
lien of this Mortgage until the lien amount shall equal the principal amount of
the Obligations outstanding.

<PAGE> 26

defense to any proceeding instituted by Mortgagee to collect the Obligations or
to foreclose the lien of this Mortgage.

<PAGE> 27

24. Notices. All notices, requests, demands and other
communications hereunder shall be given in the manner provided in the Indenture.

<PAGE> 28

nor shall Mortgagor or any other obligor be obligated to pay to Mortgagee, any
amounts constituting interest in excess of the maximum rate permitted by law to
be charged by Mortgagee.

<PAGE> 29

agreement or any laws now or hereafter in force, notwithstanding some or all of
the Obligations may now or hereafter be otherwise secured, whether by mortgage,
security agreement, pledge, lien, assignment or otherwise. Neither the
acceptance of this Mortgage nor its enforcement, shall prejudice or in any
manner affect Mortgagee's right to realize upon or enforce any other security
now or hereafter held by Mortgagee, it being agreed that Mortgagee shall be
entitled to enforce this Mortgage and any other security now or hereafter held
by Mortgagee in such order and manner as Mortgagee may determine in its absolute
discretion. No remedy herein conferred upon or reserved to Mortgagee is intended
to be exclusive of any other remedy herein or by law provided or permitted, but
each shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or by statute. Every
power or remedy given by any of the Security Documents to Mortgagee or to which
it may otherwise be entitled, may be exercised, concurrently or independently,
from time to time and as often as may be deemed expedient by Mortgagee. In no
event shall Mortgagee, in the exercise of the remedies provided in this Mortgage
(including, without limitation, in connection with the assignment of Rents to
Mortgagee, or the appointment of a receiver and the entry of such receiver on to
all or any part of the Mortgaged Property), be deemed a "mortgagee in
possession," and Mortgagee shall not in any way be made liable for any act,
either of commission or omission, in connection with the exercise of such
remedies.

<PAGE> 30

Mortgaged Property or against any collateral other than the Mortgaged Property,
which collateral directly or indirectly secures the Obligations, or if Mortgagee
shall have obtained a judgment of foreclosure and sale or similar judgment
against such collateral, then, whether or not such proceedings are being
maintained or judgments were obtained in or outside the State in which the
Premises are located, Mortgagee may commence or continue foreclosure proceedings
and exercise its other remedies granted in this Mortgage against all or any part
of the Mortgaged Property and Mortgagor waives any objections to the
commencement or continuation of a foreclosure of this Mortgage or exercise of
any other remedies hereunder based on such other proceedings or judgments, and
waives any right to seek to dismiss, stay, remove, transfer or consolidate
either any action under this Mortgage or such other proceedings on such basis.
Neither the commencement nor continuation of proceedings to foreclose this
Mortgage nor the exercise of any other rights hereunder nor the recovery of any
judgment by Mortgagee in any such proceedings shall prejudice, limit or preclude
Mortgagee's right to commence or continue one or more foreclosure or other
proceedings or obtain a judgment against any other collateral (either in or
outside the State in which the Premises are located) which directly or
indirectly secures the Obligations, and Mortgagor expressly waives any
objections to the commencement of, continuation of, or entry of a judgment in
such other proceedings or exercise of any remedies in such proceedings based
upon any action or judgment connected to this Mortgage, and Mortgagor also
waives any right to seek to dismiss, stay, remove, transfer or consolidate
either such other proceedings or any action under this Mortgage on such basis.
It is expressly understood and agreed that to the fullest extent permitted by
law, Mortgagee may, at its election, cause the sale of all collateral which is
the subject of a single foreclosure action at either a single sale or at
multiple sales conducted simultaneously and take such other measures as are
appropriate in order to effect the agreement of the parties to dispose of and
administer all collateral securing the Obligations (directly or indirectly) in
the most economical and least time-consuming manner.

<PAGE> 31

title insurance premiums), title search and title rundown charges, brokerage
commissions, finders' fees, placement fees, court costs, surveyors',
photographers', appraisers', architects', engineers', consulting professional's,
accountants' and attorneys' fees and disbursements. Mortgagor acknowledges that
from time to time Mortgagor may receive statements for such expenses, including
without limitation attorneys' fees and disbursements. Mortgagor shall pay such
statements promptly upon receipt.

(b) If (i) any action or proceeding shall be commenced by
Mortgagee (including but not limited to any action to foreclose this Mortgage or
to collect the Obligations), or any action or proceeding is commenced to which
Mortgagee is made a party, or in which it becomes necessary to defend or uphold
the lien of this Mortgage (including, without limitation, any proceeding or
other action relating to the bankruptcy, insolvency or reorganization of
Mortgagor and/or any Subsidiary), or in which Mortgagee is served with any legal
process, discovery notice or subpoena and (ii) in each of the foregoing
instances such action or proceeding in any manner relates to or arises out of
this Mortgage or Mortgagee's acceptance of the Intercompany Note, then Mortgagor
will promptly reimburse or pay to Mortgagee all of the expenses which have been
incurred by Mortgagee with respect to the foregoing (including reasonable
counsel fees and disbursements), together with interest thereon at the Default
Rate, and any such sum and the interest thereon shall be a lien on the Mortgaged
Property, prior to any right, or title to, interest in or claim upon the
Mortgaged Property attaching or accruing subsequent to the lien of this
Mortgage, and shall be deemed to be secured by this Mortgage. In any action or
proceeding to foreclose this Mortgage, or to recover or collect the Obligations,
the provisions of law respecting the recovering of costs, disbursements and
allowances shall prevail unaffected by this covenant.

<PAGE> 32

32. No Waivers, etc. Any failure by Mortgagee to insist
upon the strict performance by Mortgagor of any of the terms and provisions of
this Mortgage shall not be deemed to be a waiver of any of the terms and
provisions hereof, and Mortgagee, notwithstanding any such failure, shall have
the right thereafter to insist upon the strict performance by Mortgagor of any
and all of the terms and provisions of this Mortgage to be performed by
Mortgagor. Mortgagee may release, regardless of consideration and without the
necessity for any notice to or consent by the holder of any subordinate lien on
the Mortgaged Property, any part of the security held for the Obligations
secured by this Mortgage without, as to the remainder of the security, in
anywise impairing or affecting the lien of this Mortgage or the priority of such
lien over any subordinate lien.

33. Governing Law, etc. This Mortgage shall be governed
by and construed in accordance with the laws of the State where the Real Estate
is located, except that Mortgagor expressly acknowledges that by its terms the
Indenture shall be governed and construed in accordance with the laws of the
State of New York, without regard to principles of conflict of law, and for
purposes of consistency, Mortgagor agrees that in any in
personam proceeding related to this Mortgage the rights of the parties
to this Mortgage shall also be governed by and construed in accordance with the
laws of the State of New York governing contracts made and to be performed in
that State, without regard to principles of conflict of law.

<PAGE> 33

35. Certain Definitions. Unless the context clearly
indicates a contrary intent or unless otherwise specifically provided herein,
words used in this Mortgage shall be used interchangeably in singular or plural
form and the word "Mortgagor" shall mean "each Mortgagor or any subsequent owner
or owners of the Mortgaged Property or any part thereof or interest therein,"
the word "Mortgagee" shall mean "Mortgagee or any successor collateral agent to
the Mortgagee," the word "person" shall include any individual, corporation,
partnership, trust, unincorporated association, government, governmental
authority, or other entity, and the words "Mortgaged Property" shall include any
portion of the Mortgaged Property or interest therein. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa. The captions in this Mortgage are for
convenience of reference only and in no way limit or amplify the provisions
hereof.

<PAGE> 34

37. Release Upon Payment and Discharge of Mortgagor's
Obligations. Mortgagee shall release this Mortgage and the lien hereof by
proper instrument upon payment and discharge of all Obligations secured hereby
(including payment of reasonable expenses incurred by Mortgagee in connection
with the execution of such release) and upon full and complete performance of
all of the Obligations. Mortgagee shall otherwise release this Mortgage and the
lien hereof in accordance with Section __ of the Indenture.

38. Maximum Additional Indebtedness. This Mortgage secures not
only said indebtedness but also any renewal or extension of any part or all of
said indebtedness; any interest

<PAGE> 35

on any such renewal or extension; and any "Future Advances," as hereinafter
defined. Any portion of said indebtedness which is incurred after the execution
of this Mortgage pursuant to any instrument referring to this Mortgage, or which
is evidenced by any instrument stating that said indebtedness is secured by this
Mortgage, shall be defined as a "Future Advance". The maximum additional
indebtedness which may be secured hereby shall not exceed $50,000,000.00. This
Section shall serve as a notice to any subsequent holder of a lien, encumbrance,
security title or other claim in and to the Mortgaged Property, or of the
Mortgaged Property, that Mortgagee claims the priority of the lien of this
Mortgage for all such Future Advances, as well as for all other obligations
secured hereby. This Section shall also be notice that Mortgagee reserves the
right, upon agreement thereto with the Mortgagor, to modify, extend,
consolidate, and renew the said indebtedness, or any portions thereof, and the
rate of interest charged thereon, without affecting the priority of the lien
created by this Mortgage.

39. Consistency with Other Documents. If any provision
hereof conflicts with any provisions of the Indenture, then the terms of the
Indenture shall control to the extent of such conflict. If any provision hereof
conflicts with any provision of the Prior Mortgage, or requires any performance,
action or inaction required of the Mortgagor under the Prior Mortgage, then to
the extent of the conflict or inconsistency, the Mortgagor shall be excused
hereunder by compliance with the Prior Mortgage.

This Mortgage has been duly executed by Mortgagor on the date
first above written.

ATTEST: NEWPORT STEEL CORPORATION

By: By:
-------------------------- ---------------------------
Name: Name:
Title: [Assistant] Secretary Title: [Vice] President

[SEAL]

<PAGE> 36

STATE OF )
-------------- ) SS.
COUNTY OF )
-------------

------------------------------
Notary Public

[Notarial Seal]

My Commission Expires:

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

<PAGE> 37

Schedule A

Description of Real Property

[Attach Legal Description of all parcels]

<PAGE> 1
EXHIBIT 4.7

DRAFT
7/07/95

Recording requested by, and {Pennsylvania}
when recorded return to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

ATTN: F. Robert Wheeler, Jr., Esq.

JUNIOR MORTGAGE,
ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

from

KOPPEL STEEL CORPORATION, Mortgagor

NS GROUP, INC., Mortgagee

DATED AS OF __________ __, 1995
<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<S> <C>
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Granting Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . . . . 6

2. Payment and Performance of Obligations . . . . . . . . . . . . . . . . 7

3. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. Payment of Taxes and Other Impositions . . . . . . . . . . . . . . . . 7

5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

6. Restrictions on Liens, Encumbrances and Sales . . . . . . . . . . . . 13

7. Relationship of Mortgagee and Mortgagor . . . . . . . . . . . . . . . 14

8. Maintenance; No Alteration; Inspection; Utilities . . . . . . . . . . 14

9. Condemnation/Eminent Domain . . . . . . . . . . . . . . . . . . . . . 15

10. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

11. Further Assurances/Estoppel Certificates . . . . . . . . . . . . . . . 17

12. Mortgagee's Right to Perform . . . . . . . . . . . . . . . . . . . . . 17

13. Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . . . . 18

14. Asbestos . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

15. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

16. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

17. Right of Mortgagee to Credit Sale . . . . . . . . . . . . . . . . . . 23

18. Appointment of Receiver . . . . . . . . . . . . . . . . . . . . . . . 23

19. Extension, Release, etc. . . . . . . . . . . . . . . . . . . . . . . . 23

20. Assignment of Rents . . . . . . . . . . . . . . . . . . . . . . . . . 24

21. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

22. Additional Rights . . . . . . . . . . . . . . . . . . . . . . . . . . 25

23. Changes in Method of Taxation . . . . . . . . . . . . . . . . . . . . 25

24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
25. No Oral Modification . . . . . . . . . . . . . . . . . . . . . . . . . 26

26. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . . . . 26

27. Waiver of Right of Redemption and Other Rights . . . . . . . . . . . . 26

28. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . 27

29. Multiple Security . . . . . . . . . . . . . . . . . . . . . . . . . . 28

30. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . . . . 29

31. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 30

32. No Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

33. Governing Law, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 31

34. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . . . . 31

35. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 31

36. Security Agreement under Uniform Commercial Code . . . . . . . . . . . 32

37. Release Upon Payment and Discharge of Mortgagor's Obligations . . . . 33
</TABLE>

SCHEDULES

Schedule A - Description of Real Property
<PAGE> 4

JUNIOR MORTGAGE, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

THIS JUNIOR MORTGAGE, ASSIGNMENT OF RENTS AND LEASES AND
SECURITY AGREEMENT, dated as of __________ __, 1995 is made by KOPPEL STEEL
CORPORATION, a Pennsylvania corporation ("Mortgagor"), whose address is
___________________, to NS GROUP, INC., a Kentucky corporation ("Mortgagee"),
whose mailing address is Ninth and Lowell Streets, Newport, Kentucky 41072.
References to this "Mortgage" shall mean this instrument and any and all
renewals, modifications, amendments, supplements, extensions, consolidations,
substitutions, spreaders and replacements of this instrument.

Background

A. Mortgagor is the owner of the parcel(s) of real
property described on Schedule A attached (such real property, together with
all of the buildings, improvements, structures and fixtures now or subsequently
located thereon (the "Improvements"), being collectively referred to as the
"Real Estate").

B. Mortgagor is a wholly owned subsidiary of Mortgagee.

C. Mortgagee and The Huntington National Bank, as
Trustee, are parties to that Indenture dated as of _______________ __, 1995 (as
the same may be amended, modified or otherwise supplemented from time to time,
the "Indenture"; capitalized terms not defined herein shall have the meanings
ascribed thereto in the Indenture) for the benefit of Holders of _____% Senior
Secured Notes due 2003 in the aggregate principal amount of $125,000,000.00
(the "Securities") issued by Mortgagee.

D. Mortgagor has executed and delivered to Mortgagee
that certain intercompany note of even date herewith in the original principal
amount of $______________ (the "Intercompany Note"). References in this
Mortgage to the "Default Rate" shall mean the interest rate of _____% per
annum.

E. Mortgagor, to secure its obligations under the
Intercompany Note, has executed and delivered that certain security agreement
of even date herewith in favor of Mortgagee (the "ICN Security Agreement"),
which ICN Security Agreement grants Mortgagee a security interest in and to
certain personal property now or subsequently used in connection with the
operation of the Real Estate.
<PAGE> 5

NOW, THEREFORE, in consideration of the premises, the
Mortgagor hereby agrees with the Mortgagee as follows:

Granting Clauses

For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mortgagor agrees that to secure
all of Mortgagor's obligations and liabilities under the Intercompany Note and
all other obligations and liabilities of Mortgagor to Mortgagee (including,
without limitation, interest accruing after the maturity of the Intercompany
Note and interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, relating
to the Mortgagor, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding and interest, to the extent permitted by
law, on the unpaid interest), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Intercompany Note, this
Mortgage, the ICN Security Agreement or any other document made, delivered or
given in connection therewith (collectively, the "Security Documents"), in each
case whether on account of principal, interest, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to Mortgagee that are required to be paid by the
Mortgagee pursuant to the terms of this Mortgage or any other Security
Document) (collectively, the "Obligations").

(A) all right, title and interest of Mortgagor in and to the
Real Estate;

(B) all the estate, right, title, claim or demand whatsoever
of Mortgagor, in possession or expectancy, in and to the Real Estate
or any part thereof;

(C) all right, title and interest of Mortgagor in, to and
under all easements, rights of way, gores of land, streets, ways,
alleys, passages, sewer rights, waters, water courses, water and
riparian rights, development rights, air rights, mineral rights and
all estates, rights, titles, interests, privileges, licenses,
tenements, hereditaments and appurtenances belonging, relating or
appertaining to the Real Estate, and any reversions and remainders
thereof and all land lying in the bed of any street, road or avenue,
in

2
<PAGE> 6

front of or adjoining the Real Estate to the center line thereof;

(D) all right, title and interest of Mortgagor in and to all
of the fixtures, chattels, business machines, machinery, apparatus,
equipment, furnishings, fittings and articles of personal property of
every kind and nature whatsoever, and all appurtenances and additions
thereto and substitutions or replacements thereof (together with, in
each case, attachments, components, parts and accessories) currently
owned or subsequently acquired by Mortgagor and now or subsequently
attached to, or contained in or used or usable in any way in
connection with any operation or letting of the Real Estate, including
but without limiting the generality of the foregoing, all screens,
awnings, shades, blinds, curtains, draperies, artwork, carpets, rugs,
storm doors and windows, furniture and furnishings, heating,
electrical, and mechanical equipment, lighting, switchboards,
plumbing, ventilating, air conditioning and air-cooling apparatus,
refrigerating, and incinerating equipment, escalators, elevators,
loading and unloading equipment and systems, stoves, ranges, laundry
equipment, cleaning systems (including window cleaning apparatus),
telephones, communication systems (including satellite dishes and
antennae), televisions, computers, sprinkler systems and other fire
prevention and extinguishing apparatus and materials, security
systems, motors, engines, machinery, pipes, pumps, tanks, conduits,
appliances, fittings and fixtures of every kind and description (all
of the foregoing in this paragraph (D) being referred to as the
"Equipment");

(E) all right, title and interest of Mortgagor in and to all
substitutes and replacements of, and all additions and improvements
to, the Real Estate and the Equipment, subsequently acquired by or
released to Mortgagor or constructed, assembled or placed by Mortgagor
on the Real Estate, immediately upon such acquisition, release,
construction, assembling or placement, including, without limitation,
any and all building materials whether stored at the Real Estate or
offsite, and, in each such case, without any further mortgage,
conveyance, assignment or other act by Mortgagor;

3
<PAGE> 7

or oral and all guarantees of any of the foregoing (collectively, as
any of the foregoing may be amended, restated, extended, renewed or
modified from time to time, the "Leases"), and all rights of
Mortgagor in respect of cash and securities deposited thereunder and
the right to receive and collect the revenues, income, rents, issues
and profits thereof, together with all other rents, royalties, issues,
profits, revenue, income and other benefits arising from the use and
enjoyment of the Mortgaged Property (as defined below) (collectively,
the "Rents");

(H) all right, title and interest of Mortgagor in and to all
unearned premiums under insurance policies now or subsequently
obtained by Mortgagor relating to the Real Estate or Equipment and
Mortgagor's interest in and to any such insurance policies and all
proceeds of any such insurance policies (including title insurance
policies) including the right to collect and receive such proceeds,
subject to the provisions relating to insurance generally set forth
below and otherwise following and during the continuance of an Event
of Default; and all right, title and interest of Mortgagor in and to
all awards and other compensation, including the interest payable
thereon and the right to collect and receive the same, made to the
present or any subsequent owner of the Real Estate or Equipment for
the taking by eminent domain, condemnation or otherwise, of all or any
part of the Real Estate or any easement or other right therein,
subject to the provisions relating to condemnation generally set forth
below;

(I) all right, title and interest of Mortgagor in and to (i)
all contracts from time to time executed by Mortgagor or any manager
or agent on its behalf relating to the ownership, construction,
maintenance, repair, operation, occupancy, sale or financing of the
Real Estate or Equipment or any part thereof and all agreements
relating to the purchase or lease of any portion of the Real Estate or
any property which is adjacent or peripheral to the Real Estate,
together with the right to exercise such options and all leases of
Equipment, (ii) all consents, licenses, building permits, certificates
of occupancy and other governmental approvals relating to
construction, completion, occupancy,

4
<PAGE> 8

use or operation of the Real Estate or any part thereof and (iii) all
drawings, plans, specifications and similar or related items relating
to the Real Estate;

(K) all right, title and interest of Mortgagor in and to all
accounts and revenues arising from the operation of the Improvements
including, without limitation, (i) any right to payment now existing
or hereafter arising for rental of hotel rooms or other space or for
services rendered, whether or not yet earned by performance, arising
from the operation of the Improvements or any other facility on the
Mortgaged Property and (ii) all rights to payment from any consumer
credit-charge card organization or entity including, without
limitation, payments arising from the use of the American Express
Card, the Visa Card, the Carte Blanche Card, the Mastercard or any
other credit card, including those now existing or hereafter created,
substitutions therefor, proceeds thereof (whether cash or non-cash,
movable or immovable, tangible or intangible) received upon the sale,
exchange, transfer, collection or other disposition or substitution
thereof and any and all of the foregoing and proceeds therefrom
(collectively, the "Additional Rents"); and

(L) all proceeds, both cash and noncash, of the foregoing;

excluding, however, notwithstanding any provision set forth in
the foregoing clauses (A) through (L), [DESCRIBE COLLATERAL SECURING WORKING
CAPITAL CREDIT FACILITY] (collectively, the "Excluded Property") (all of the
foregoing property and rights and interests now owned or held or subsequently
acquired by Mortgagor and described in the foregoing clauses (A) through (E),
excluding the Excluded Property, are collectively referred to as the
"Premises", and those described in the foregoing clauses (A) through (L),
excluding the Excluded

5
<PAGE> 9

Property, are collectively referred to as the "Mortgaged Property").

All of the Mortgaged Property hereinabove described, real,
personal and mixed, whether affixed or annexed to the Real Estate or not and
all rights hereby conveyed and mortgaged are intended so to be as a unit and
are hereby understood, agreed and declared, to the maximum extent permitted by
law, to form a part and parcel of the Real Estate and to be appropriated to the
use of the Real Estate, and shall be for the purposes of this Mortgage deemed
to be real estate and conveyed and mortgaged hereby; provided, however, as to
any of the property aforesaid which does not so form a part and parcel of the
Real Estate or does not constitute a "fixture" (as defined in the Uniform
Commercial Code of Pennsylvania (the "Code")), this Mortgage is hereby deemed
to also be a Security Agreement under the Code for purposes of granting a
security interest in such property, which Mortgagor hereby grants to Mortgagee,
as Secured Party (as defined in the Code), as more particularly provided below
in this Mortgage.

TO HAVE AND TO HOLD the Mortgaged Property and the rights and
privileges hereby mortgaged, together with the right to retain possession of
the Mortgaged Property upon and during the continuance of an Event of Default
hereunder, unto Mortgagee, its successors and assigns for the uses and purposes
set forth, until the Obligations are fully paid and performed.

Terms and Conditions

Mortgagor further represents, warrants, covenants and agrees
with Mortgagee as follows:

1. Warranty of Title. Mortgagor warrants that Mortgagor has
good title to the Real Estate in fee simple and good title to the rest of the
Mortgaged Property, subject only to the matters that are set forth in Schedule
B of the title insurance policy or policies being issued to Mortgagee to insure
the lien of this Mortgage and liens permitted pursuant to subsection 6.10 of
the Indenture (collectively, the "Permitted Exceptions"), and Mortgagor shall
warrant, defend and preserve such title and the lien of the Mortgage thereon
against all claims of all persons and entities, excepting, however, the
Permitted Exceptions. Mortgagor further warrants that it has the right to
mortgage the Mortgaged Property.

6
<PAGE> 10

2. Payment and Performance of Obligations. Mortgagor shall
pay the Obligations at the times and places and in the manner specified in the
Intercompany Note and shall perform all the Obligations.

3. Requirements. (a) Mortgagor shall comply with, or cause
to be complied with, and conform to all present and future laws, statutes,
codes, ordinances, orders, judgments, decrees, rules, regulations and
requirements, and irrespective of the nature of the work to be done, of each of
the United States of America, any State and any municipality, local government
or other political subdivision thereof and any agency, department, bureau,
board, commission or other instrumentality of any of them, now existing or
subsequently created (collectively, "Governmental Authority") which has
jurisdiction over the Mortgaged Property and all covenants, restrictions and
conditions now or later of record which may be applicable to any of the
Mortgaged Property, or to the use, manner of use, occupancy, possession,
operation, maintenance, alteration, repair or reconstruction of any of the
Mortgaged Property, except where the failure to so comply with any of the
foregoing would not have a Material Adverse Effect on the business, prospects,
earnings, properties, assets or condition (financial or otherwise) of the
Company and its Subsidiaries taken as a whole. All present and future laws,
statutes, codes, ordinances, orders, judgments, decrees, rules, regulations and
requirements of every Governmental Authority applicable to Mortgagor or to any
of the Mortgaged Property and all covenants, restrictions, and conditions which
now or later may be applicable to any of the Mortgaged Property are
collectively referred to as the "Legal Requirements".

(b) From and after the date of this Mortgage, Mortgagor shall
not by act or omission permit any building or other improvement on any premises
not subject to the lien of this Mortgage to rely on the Premises or any part
thereof or any interest therein to fulfill any Legal Requirement and Mortgagor
hereby assigns to Mortgagee any and all rights to give consent for all or any
portion of the Premises or any interest therein to be so used. Mortgagor shall
not by act or omission impair the integrity of any of the Real Estate as a
single zoning lot separate and apart from all other premises. Mortgagor
represents that each parcel of the Real Estate constitutes a legally subdivided
lot, in compliance with all subdivision laws and similar Legal Requirements.
Any act or omission by Mortgagor which would result in a violation of any of
the provisions of this subsection shall be void.

4. Payment of Taxes and Other Impositions. (a) Promptly
when due, Mortgagor shall pay and discharge all taxes of

7
<PAGE> 11

every kind and nature (including, without limitation, all real and personal
property, income, franchise, withholding, transfer, gains, profits and gross
receipts taxes), all charges for any easement or agreement maintained for the
benefit of any of the Mortgaged Property, all general and special assessments,
levies, permits, inspection and license fees, all water and sewer rents and
charges and all other public charges even if unforeseen or extraordinary,
imposed upon or assessed against or which may become a lien on any of the
Mortgaged Property, or arising in respect of the occupancy, use or possession
thereof, together with any penalties or interest on any of the foregoing (all
of the foregoing are collectively referred to as the "Impositions"). Upon
request by Mortgagee, Mortgagor shall deliver to Mortgagee (i) original or
copies of receipted bills and cancelled checks evidencing payment of such
Imposition if it is a real estate tax or other public charge and (ii) evidence
acceptable to Mortgagee showing the payment of any other such Imposition. If
by law any Imposition, at Mortgagor's option, may be paid in installments
(whether or not interest shall accrue on the unpaid balance of such
Imposition), Mortgagor may elect to pay such Imposition in such installments
and shall be responsible for the payment of such installments with interest, if
any.

(b) Nothing herein shall affect any right or remedy of
Mortgagee under this Mortgage or otherwise, without notice or demand to
Mortgagor, to pay any Imposition after the date such Imposition shall have
become due, and to add to the Obligations the amount so paid, together with
interest from the time of payment at the Default Rate. Any sums paid by
Mortgagee in discharge of any Impositions shall be (i) a lien on the Premises
secured hereby prior to any right or title to, interest in, or claim upon the
Premises subordinate to the lien of this Mortgage, and (ii) payable on demand
by Mortgagor to Mortgagee together with interest at the Default Rate as set
forth above.

(c) Mortgagor shall not claim, demand or be entitled to
receive any credit or credits toward the satisfaction of this Mortgage or on
any interest payable thereon for any taxes assessed against the Mortgaged
Property or any part thereof, and shall not claim any deduction from the
taxable value of the Mortgaged Property by reason of this Mortgage if any such
claim would adversely affect the interest of Mortgagee.

8
<PAGE> 12

written notice to Mortgagee of Mortgagor's intent so to contest or object to an
Imposition, (ii) Mortgagor shall demonstrate to Mortgagee's satisfaction that
the legal proceedings shall operate conclusively to prevent the sale of the
Mortgaged Property, or any part thereof, to satisfy such Imposition prior to
final determination of such proceedings and (iii) Mortgagor shall furnish a
good and sufficient bond or surety as requested by and reasonably satisfactory
to Mortgagee in the amount of the Impositions which are being contested plus
any interest and penalty which may be imposed thereon and which could become a
lien against the Real Estate or any part of the Mortgaged Property.

(e) Upon written notice to Mortgagor, Mortgagee, after an
Event of Default (as defined below), shall be entitled to require Mortgagor to
pay monthly in advance to Mortgagee the equivalent of 1/12th of the estimated
annual Impositions. Mortgagee may commingle such funds with its own funds and
Mortgagor shall not be entitled to interest thereon.

5. Insurance. (a) Mortgagor shall maintain or cause to
be maintained on all of the Premises

(ii) comprehensive general liability insurance under a policy
covering all claims for personal injury, bodily injury or death, or
property damage occurring on, in or about the Premises in an amount
not less than $10,000,000 combined single limit with respect to injury
and property damage relating to any one occurrence plus such excess
limits as Mortgagee shall reasonably request from time to time;

(iv) insurance against rent loss, extra expense or business
interruption (and/or soft costs, in the case of new

9
<PAGE> 13

construction), if applicable, in amounts reasonably satisfactory to
Mortgagee, but not less than one year's gross rent or gross income;

(vii) during the course of any construction, addition, alteration
or repair of the Improvements, builder's risk completed value form
insurance against "all risks of physical loss," including collapse,
water damage, flood and earthquake and transit coverage, during
construction or repairs of the Improvements, with deductibles
reasonably approved by Mortgagee, in nonreporting form, covering the
total value of work performed and equipment, supplies and materials
furnished (with an appropriate limit for soft costs in the case of
construction);

(ix) if any portion of the Premises are located in an area
identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable

10
<PAGE> 14

agency, flood insurance in an amount reasonably satisfactory to
Mortgagee, but in no event less than the maximum limit of coverage
available under the National Flood Insurance Act of 1968, as amended;
and

(x) such other insurance in such amounts as Mortgagee may
reasonably request from time to time; provided, however, such
insurance is usually and customarily carried with respect to similar
facilities in the same general area as the Premises.

Each insurance policy (other than flood insurance written under the National
Flood Insurance Act of 1968, as amended, in which case to the extent available)
shall (i) provide that it shall not be cancelled without 30 days' prior written
notice to Mortgagee, (ii) with respect to all property insurance, provide for
deductibles in amounts reasonably satisfactory to Mortgagee (which deductibles
shall not exceed $250,000, with the exception of the deductible for boiler and
machinery, which deductible shall not exceed a ten (10) day waiting period
deductible), contain a "Replacement Cost Endorsement" (predicated upon
rebuilding) without any deduction made for depreciation and with no
co-insurance penalty (or attaching an agreed amount endorsement satisfactory to
Mortgagee), with loss payable to Mortgagor and Mortgagee with respect to the
Mortgaged Property as their respective interests may appear, without
contribution, under a "standard" or "New York" mortgagee clause reasonably
acceptable to Mortgagee and be written by insurance companies having an A.M.
Best Company, Inc. rating of A or higher and a financial size category of not
less than XII, or otherwise as approved by Mortgagee. Liability insurance
policies shall name Mortgagee as an additional insured with respect to the
Mortgaged Property and contain a waiver of subrogation against Mortgagee; all
such policies shall indemnify and hold Mortgagee harmless from all liability
claims occurring on, in or about the Premises and the adjoining streets,
sidewalks and passageways. Each policy shall expressly provide that any
proceeds which are payable to Mortgagee pursuant to the terms hereof shall be
paid by check payable to the order of Mortgagee only and shall require the
endorsement of Mortgagee only. The amounts of each insurance policy and the
form of each such policy shall at all times be reasonably satisfactory to
Mortgagee. If any required insurance shall expire, be withdrawn, become void
by breach of any condition thereof by Mortgagor or by any lessee of any part of
the Mortgaged Property or become void or unsafe by reason of the failure or
impairment of the capital of any insurer, Mortgagor shall immediately obtain
new or additional insurance satisfactory to Mortgagee. Mortgagor shall not
take out any separate or additional insurance which is contributing in the
event of loss

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<PAGE> 15

unless it is properly endorsed and otherwise reasonably satisfactory to
Mortgagee in all respects.

(c) If Mortgagor is in default of its obligations to insure
or deliver any such policy or a certificate thereof under this Section 5, then
Mortgagee, at its option and following written notice to Mortgagor, may effect
such insurance from year to year, and pay the premium or premiums therefor, and
Mortgagor shall pay to Mortgagee on demand such premium or premiums so paid by
Mortgagee with interest from the time of payment at the Default Rate and the
same shall be deemed to be secured by this Mortgage and shall be collectible in
the same manner as the Obligations secured by this Mortgage.

(d) Mortgagor promptly shall comply with and conform to (i)
all provisions of each such insurance policy, and (ii) all requirements of the
insurers applicable to Mortgagor or to any of the Mortgaged Property or to the
use, manner of use, occupancy, possession, operation, maintenance, alteration
or repair of any of the Mortgaged Property. Mortgagor shall not use or permit
the use of the Mortgaged Property in any manner which would permit any insurer
to cancel any insurance policy or void coverage required to be maintained by
this Mortgage.

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<PAGE> 16

and be continuing, then Mortgagor authorizes and empowers Mortgagee, at
Mortgagee's option and in Mortgagee's sole discretion, as attorney-in-fact for
Mortgagor, to make proof of loss, to adjust and compromise any claim under any
insurance policy with respect to the Mortgaged Property, to appear in and
prosecute any action arising from any policy, and to deduct from any insurance
proceeds Mortgagee's expenses incurred in the collection process. The
insurance proceeds or any part thereof with respect to the Mortgaged Property
received by Mortgagee and/or Mortgagor shall constitute Trust Moneys which
shall be paid and/or applied in accordance with subsection 13.2 of the
Indenture.

(f) In the event of foreclosure of this Mortgage or other
transfer of title to the Mortgaged Property in extinguishment of the
Obligations, all right, title and interest of Mortgagor in and to any insurance
policies then in force with respect to the Mortgaged Property shall pass to the
purchaser or grantee and Mortgagor hereby appoints Mortgagee its attorney-in-
fact, in Mortgagor's name, to assign and transfer all such policies and
proceeds to such purchaser or grantee.

(g) Upon written notice to Mortgagor, Mortgagee, after an
Event of Default, shall be entitled to require Mortgagor to pay monthly in
advance to Mortgagee the equivalent of 1/12th of the estimated annual premiums
due on such insurance. Mortgagee may commingle such funds with its own funds
and Mortgagor shall not be entitled to interest thereon.

(h) Mortgagor may maintain insurance required under this
Mortgage by means of one or more blanket insurance policies maintained by
Mortgagor; provided, however, that (A) any such policy shall specify, or
Mortgagor shall furnish to Mortgagee a written statement from the insurer so
specifying, the maximum amount of the total insurance afforded by such blanket
policy which shall be applicable on an occurrence basis and (B) the protection
afforded under any such blanket policy shall be no less than that which would
have been afforded under a separate policy or policies relating only to the
Mortgaged Property.

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<PAGE> 17

accordance with the foregoing and for the purpose of (i) protecting Mortgagee's
security, both of repayment and of value in the Mortgaged Property, (ii) giving
Mortgagee the full benefit of its bargain and contract with Mortgagor, and
(iii) keeping the Mortgaged Property free of subordinate financing liens,
Mortgagor agrees that if the following provisions of this paragraph should be
deemed a restraint on alienation, that such provisions are reasonable
restraints.

(2) Except as may be permitted pursuant to the Indenture,
including, without limitation, subsection 6.15 thereof, Mortgagor shall not
make any Asset Sale.

7. Relationship of Mortgagee and Mortgagor. Mortgagee shall
in no event be construed for any purpose to be a partner, joint venturer, agent
or associate of Mortgagor or of any beneficiary, tenant, subtenant, operator,
concessionaire or licensee of Mortgagor in the conduct of their respective
businesses, and without limiting the foregoing, Mortgagee shall not be deemed
to be such partner, joint venturer, agent or associate on account of Mortgagee
becoming a Mortgagee in possession or exercising any rights pursuant to this
Mortgage, any of the other Security Documents, or otherwise.

8. Maintenance; No Alteration; Inspection; Utilities. (a)
Mortgagor shall maintain or cause to be maintained all the Improvements in good
working order and condition, ordinary wear and tear excepted, and shall cause
to be made all necessary (in the good faith opinion of management of Mortgagor)
repairs, renewals, replacements, additions, betterments and improvements
thereto. Mortgagor shall not commit any waste of the Improvements and shall
not demolish or materially alter the Improvements without the prior written
consent of Mortgagee.

(b) Mortgagee and any persons authorized by Mortgagee, at all
reasonable times after reasonable notice, shall have the right to enter and
inspect the Premises and the right to inspect all work done, labor performed
and materials furnished in and about the Improvements and the right to inspect
and make copies of all books, contracts and records of Mortgagor relating to
the Mortgaged Property.

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<PAGE> 18

(c) Mortgagor shall pay or cause to be paid when due all
utility charges which are incurred for gas, electricity, water or sewer
services furnished to the Premises and all other assessments or charges of a
similar nature, whether public or private, affecting the Premises or any
portion thereof, whether or not such assessments or charges are liens thereon.

9. Condemnation/Eminent Domain. Promptly upon obtaining
knowledge of the institution of any proceedings for the condemnation of the
Mortgaged Property in its entirety, or any portion thereof, Mortgagor will
notify Mortgagee of the pendency of such proceedings. Mortgagor authorizes
Mortgagee, at Mortgagee's option and in Mortgagee's sole discretion, as
attorney-in-fact for Mortgagor, to commence, appear in and prosecute, in
Mortgagee's or Mortgagor's name, any action or proceeding relating to any
condemnation of the Mortgaged Property in its entirety, or any portion thereof.
If the Mortgaged Property in its entirety or any part thereof shall be the
subject of condemnation proceedings, Mortgagee, as attorney-in-fact for
Mortgagor, shall have the right to settle or compromise any claim in connection
with such condemnation. If Mortgagee elects not to participate in such
condemnation proceeding, then Mortgagor shall, at its expense, diligently
prosecute any such proceeding and shall consult with Mortgagee, its attorneys
and experts and cooperate with them in any defense of any such proceedings.
All awards and proceeds of condemnation received by Mortgagee and/or Mortgagor
shall constitute Trust Moneys which shall be paid and/or applied in accordance
with Subsection 13.2 of the Indenture.

10. Leases. (a) Mortgagor shall not (i) execute an
assignment or pledge of any Lease relating to all or any portion of the
Mortgaged Property other than in favor of Mortgagee or with Mortgagee's prior
written consent or (ii) without the prior written consent of Mortgagee, execute
any Lease of any of the Mortgaged Property.

(b) As to any Lease relating to all or any portion of the
Mortgaged Property, Mortgagor shall:

(i) promptly perform all of the material provisions of the
Lease on the part of the lessor thereunder to be performed;

(ii) enforce, in accordance with sound business practice, all
of the material provisions of the Lease on the part of the lessee
thereunder to be performed;

(iii) appear in and defend, in accordance with sound business
practice, any action or proceeding arising under or

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<PAGE> 19

in any manner connected with the Lease or the obligations of Mortgagor
as lessor or of the lessee thereunder;

(iv) exercise, within 5 days after receipt of a request by
Mortgagee, any right to request from the lessee a certificate with
respect to the status thereof;

(v) promptly deliver to Mortgagee copies of any notices of
default which Mortgagor may at any time forward to or receive from the
lessee;

(vi) promptly deliver to Mortgagee a fully executed counterpart
of the Lease; and

(vii) promptly deliver to Mortgagee, upon Mortgagee's request,
an assignment of the Mortgagor's interest under such Lease.

(c) Mortgagor shall deliver to Mortgagee, within 10 days
after receipt of a request by Mortgagee, a written statement, certified by
Mortgagor as being true, correct and complete, containing the names of all
lessees and other occupants of the Mortgaged Property, the terms of all Leases
and the spaces occupied and rentals payable thereunder, and a list of all
Leases which are then in default, including the nature and magnitude of the
default; such statement shall be accompanied by credit information with respect
to the lessees and such other information as Mortgagee may request.

(d) All Leases entered into by Mortgagor after the date
hereof, if any, and all rights of any lessees thereunder shall be subject and
subordinate in all respects to the lien and provisions of this Mortgage unless
Mortgagee shall otherwise elect in writing.

(e) As to any Lease now in existence or subsequently
consented to by Mortgagee, Mortgagor shall not, without the prior written
consent of Mortgagee, accept a surrender or terminate, cancel, rescind,
supplement, alter, revise, modify or amend such Lease or permit any such action
to be taken nor shall Mortgagor accept the payment of rent more than thirty
(30) days in advance of its due date.

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<PAGE> 20

provisions thereof; provided however, that Mortgagee or such successor in
interest shall not be: (i) bound by any payment of an installment of rent or
additional rent which may have been made more than 30 days before the due date
of such installment; (ii) bound by any amendment or modification to the Lease
made without the consent of Mortgagee or such successor in interest; (iii)
liable for any previous act or omission of Mortgagor (or its predecessors in
interest); (iv) responsible for any monies owing by Mortgagor to the credit of
such lessee or subject to any credits, offsets, claims, counterclaims, demands
or defenses which the lessee may have against Mortgagor (or its predecessors in
interest); (v) bound by any covenant to undertake or complete any construction
of the Premises or any portion thereof; or (vi) obligated to make any payment
to such lessee other than any security deposit actually delivered to Mortgagee
or such successor in interest. Each lessee or other occupant under each Lease
entered into after the date of this Mortgage, upon request by Mortgagee or such
successor in interest, shall execute and deliver an instrument or instruments
confirming such attornment. In addition, Mortgagor agrees that each Lease
entered into after the date of this Mortgage shall include language to the
effect of subsections (d)-(f) of this Section.

11. Further Assurances/Estoppel Certificates. To further
assure Mortgagee's rights under this Mortgage, Mortgagor agrees upon demand of
Mortgagee to do any act or execute any additional documents (including, but not
limited to, security agreements on any personalty included or to be included in
the Mortgaged Property and a separate assignment of each Lease in recordable
form) as may be required by Mortgagee to confirm the lien of this Mortgage and
all other rights or benefits conferred on Mortgagee. Mortgagor, within 5
business days after request, shall deliver, in form and substance satisfactory
to Mortgagee, a written statement, duly acknowledged, setting forth the amount
of the Obligations, and whether any offsets, claims, counterclaims or defenses
exist against the Obligations and certifying as to such other matters as
Mortgagee shall reasonably request.

12. Mortgagee's Right to Perform. If Mortgagor fails to
perform any of the covenants or agreements of Mortgagor hereunder, Mortgagee,
without waiving or releasing Mortgagor from any obligation or default under
this Mortgage, may, at any time (but shall be under no obligation to) pay or
perform the same, and the amount or cost thereof, with interest at the Default
Rate, shall immediately be due from Mortgagor to Mortgagee and the same shall
be secured by this Mortgage and shall be a lien on the Mortgaged Property prior
to any right, title to, interest in or claim upon the Mortgaged Property
attaching subsequent to the lien of this Mortgage. No payment or advance of
money by

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<PAGE> 21

Mortgagee under this Section shall be deemed or construed to cure Mortgagor's
default or waive any right or remedy of Mortgagee.

13. Hazardous Material. (a) Mortgagor shall comply with any
and all applicable Legal Requirements governing the discharge and removal of
Hazardous Material, shall pay promptly when due the costs of removal of any
Hazardous Material, and shall keep the Premises free of any lien imposed
pursuant to such Legal Requirements. In the event Mortgagor fails to do so,
after notice to Mortgagor and the expiration of the earlier of (i) applicable
cure periods hereunder and under the Indenture, or (ii) the cure period
permitted under the applicable Legal Requirement, Mortgagee may cause the
Premises to be freed from the Hazardous Material to the extent required by
applicable Legal Requirements, and the cost of the removal with interest at the
Default Rate shall immediately be due from Mortgagor to Mortgagee and the same
shall be added to the Obligations and be secured by this Mortgage. Mortgagor
further agrees that any release or disposal of Hazardous Materials at the
Premises shall comply with all applicable Legal Requirements. In addition,
Mortgagor agrees not to allow the manufacture, storage, transmission, presence
or disposal of any Hazardous Material over or upon the Premises in violation of
applicable Legal Requirements. Mortgagor shall give Mortgagee and its agents
and employees access to the Premises to remove Hazardous Material if required
by applicable Legal Requirements and if Mortgagor has failed to so remove after
notice. Mortgagor agrees to defend, indemnify and hold Mortgagee free and
harmless from and against all loss, costs, damage and expense (including
attorneys' fees and costs and consequential damages) Mortgagee may sustain by
reason of (i) the imposition or recording of a lien by any Governmental
Authority with respect to the Mortgaged Property pursuant to any Legal
Requirement relating to hazardous or toxic wastes or substances or the removal
thereof ("Hazardous Material Laws"); (ii) claims of any private parties
regarding violations of Hazardous Material Laws with respect to the Mortgaged
Property; (iii) costs and expenses (including, without limitation, attorneys'
fees and fees incidental to the securing of repayment of such costs and
expenses) incurred by Mortgagor or Mortgagee in connection with the removal of
any such lien with respect to the Mortgaged Property or in connection with
Mortgagor's or Mortgagee's compliance with any Hazardous Material Laws with
respect to the Mortgaged Property; and (iv) the assertion against Mortgagee by
any party of any claim in connection with Hazardous Material with respect to
the Mortgaged Property.

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<PAGE> 22

Compensation, and Liability Act, any so-called "Superfund" or "Superlien" law,
or any other Legal Requirement regulating, relating to, or imposing liability
or standards of conduct concerning, any hazardous, nuclear, toxic or dangerous
waste, substance or material, as now or at any time in effect.

14. Asbestos. Mortgagor shall not install or permit to be
installed in the Premises friable asbestos or any substance containing asbestos
and deemed hazardous by any Legal Requirement respecting such material, and,
with respect to any such material currently present in the Premises, shall
promptly comply with such Legal Requirements, at Mortgagor's expense. If
Mortgagor shall fail to so comply, Mortgagee may do whatever is necessary to
comply with the applicable Legal Requirement, and the costs thereof, with
interest at the Default Rate, shall be immediately due from Mortgagor to
Mortgagee and the same shall be added to the Obligations and be secured by this
Mortgage. Mortgagor shall give Mortgagee and its agents and employees, upon
prior notice and at reasonable times, access to the Premises to remove such
asbestos or substances if required by applicable Legal Requirements and if
Mortgagor has failed to so remove after notice. Mortgagor shall defend,
indemnify, and save Mortgagee harmless from all loss, costs, damages and
expense (including attorneys' fees and costs and consequential damages)
asserted or proven against Mortgagee by any party, as a result of the presence
of such substances or any removal or compliance with such Legal Requirements.
The foregoing indemnification shall be a recourse obligation of Mortgagor and
shall survive repayment of the Obligations, notwithstanding any limitation on
recourse which may be contained herein or in any of the Security Documents or
the delivery of any satisfaction, release or release deed, discharge or deed of
reconveyance, or the assignment of this Mortgage by Mortgagee; provided,
however, that the foregoing indemnification shall apply only to matters arising
prior to any taking of possession of the Premises by Mortgagee or any other

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<PAGE> 23

person succeeding to the interest of Mortgagee pursuant to the terms hereof;
further provided, that the foregoing indemnification shall not apply to loss,
costs and the like arising from the gross negligence or wilful misconduct of
the party seeking indemnification.

15. Event of Default. The occurrence of an "Event of
Default" (as defined in the Indenture) shall constitute an Event of Default
hereunder.

16. Remedies. (a) Upon the occurrence of any Event of
Default, in addition to any other rights and remedies Mortgagee may have
pursuant to the Security Documents, or as provided by law, and without
limitation, (a) if such event is an Event of Default described in subsections
8.1(ix) or 8.1(x) of the Indenture, automatically the Obligations immediately
shall become due and payable, and (b) if such event is any other Event of
Default, by notice to Mortgagor, Mortgagee may declare the Obligations to be
immediately due and payable. Except as expressly provided above in this
Section, presentment, demand, protest and all other notices of any kind are
hereby expressly waived. In addition, upon and during the continuance of any
Event of Default, Mortgagee may immediately take such action, without notice or
demand, as it deems advisable to protect and enforce its rights against
Mortgagor and in and to the Mortgaged Property, including, but not limited to,
the following actions, each of which may be pursued concurrently or otherwise,
at such time and in such manner as Mortgagee may determine, in its sole
discretion, without impairing or otherwise affecting the other rights and
remedies of Mortgagee:

(i) Mortgagee may, to the extent permitted by applicable law,
(A) institute and maintain an action of mortgage foreclosure against
all or any part of the Mortgaged Property, (B) institute and maintain
an action on the Intercompany Note, (C) sell all or part of the
Mortgaged Property (Mortgagor expressly granting to Mortgagee the
power of sale), or (D) take such other action at law or in equity for
the enforcement of this Mortgage or any of the Security Documents as
the law may allow. Mortgagee may proceed in any such action to final
judgment and execution thereon for all sums due hereunder, together
with interest thereon at the Default Rate and all costs of suit,
including, without limitation, reasonable attorneys' fees and
disbursements. Interest at the Default Rate shall be due on any
judgment obtained by Mortgagee from the date of judgment until actual
payment is made of the full amount of the judgment.

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<PAGE> 24

(ii) Mortgagee may personally, or by its agents, attorneys and
employees and without regard to the adequacy or inadequacy of the
Mortgaged Property or any other collateral as security for the
Obligations, enter into and upon the Mortgaged Property and each and
every part thereof and exclude Mortgagor and its agents and employees
therefrom without liability for trespass, damage or otherwise
(Mortgagor hereby agreeing to surrender possession of the Mortgaged
Property to Mortgagee upon demand at any such time) and use, operate,
manage, maintain and control the Mortgaged Property and every part
thereof. Following such entry and taking of possession, Mortgagee
shall be entitled, without limitation, (x) to lease all or any part or
parts of the Mortgaged Property for such periods of time and upon such
conditions as Mortgagee may, in its discretion, deem proper, (y) to
enforce, cancel or modify any Lease and (z) generally to execute, do
and perform any other act, deed, matter or thing concerning the
Mortgaged Property as Mortgagee shall deem appropriate as fully as
Mortgagor might do.

(iii) It is further agreed that if default be made in the
payment of any part of the Obligations, as an alternative to the right
of foreclosure for the full secured Obligations after acceleration
thereof, Mortgagee shall have the right to institute partial
foreclosure proceedings with respect to the portion of said
Obligations so in default, as if under a full foreclosure, and without
declaring the entire secured Obligations due (such proceeding being
hereinafter referred to as a "partial foreclosure"), and provided that
if a partial foreclosure sale is consummated as provided herein, such
sale may be made subject to the continuing lien of this Mortgage for
the unmatured portion of the secured Obligations, but as to such
unmatured part, this Mortgage, and the lien hereof, shall remain in
full force and effect just as though no partial foreclosure sale had
been made under the provisions of this Section. Notwithstanding the
filing of any partial foreclosure or entry of a decree of sale
therein, Mortgagee may elect at any time prior to a partial
foreclosure sale pursuant to such decree, to discontinue such partial
foreclosure and to accelerate the Obligations secured hereby by reason
of any uncured Event of Default upon which such partial foreclosure
was predicated or by reason of any other Event of Default, and proceed
with full foreclosure proceedings. It is further agreed that one or
more foreclosure sales may be made pursuant to partial foreclosures
without exhausting the right of full or partial foreclosure sale for
any unmatured part of the secured Obligations, it being the purpose to
provide for a partial foreclosure sale of the Obligations

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<PAGE> 25

secured hereby without exhausting the power to foreclose for any other
part of the Obligations whether matured at the time or subsequently
maturing, and without exhausting any right of acceleration and full
foreclosure.

(b) The holder of this Mortgage, in any action to foreclose
it, shall be entitled to the appointment of a receiver. In case of a
foreclosure sale, the Real Estate may be sold, at Mortgagee's election, in one
parcel or in more than one parcel and Mortgagee is specifically empowered,
(without being required to do so, and in its sole and absolute discretion) to
cause successive sales of portions of the Mortgaged Property to be held.

(d) The proceeds of any foreclosure or sale of the
Mortgaged Property, or any portion thereof, shall be distributed and applied in
accordance with all applicable provisions of the Indenture.

(e) Mortgagor authorizes and empowers any attorney of any
court of record of the Commonwealth of Pennsylvania to appear for and to
confess judgment in ejectment against Mortgagor (and, at the election of said
attorney, against any person claiming under, by or through Mortgagor) for the
recovery by Mortgagee of possession of the entire Premises or, at the election
of said attorney, any portion or portions of the Premises. The foregoing
authority to confess judgment shall not be exhausted by any exercise thereof
but shall continue from time to time until Mortgagee is fully and finally
vested with possession of the entire Premises. Mortgagor expressly agrees that
any judgment entered pursuant to the foregoing authority shall be final and
releases to Mortgagee, and to any attorney appearing for Mortgagor or
Mortgagee, all errors in said proceedings and all liability therefor. Upon
confession of judgment in ejectment pursuant to the foregoing authority, a Writ
of Possession (or like writ appropriate under then applicable law) may issue
forthwith without any prior proceedings and may include the costs of Mortgagee.
Judgment may be entered pursuant to the foregoing authority on the basis of an
affidavit made on Mortgagee's behalf and setting forth the relevant facts, of
which facts such

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<PAGE> 26

affidavit shall be conclusive evidence, and if a true copy of this Mortgage is
filed in any action for such judgment it shall not be necessary to file the
original of this Mortgage.

17. Right of Mortgagee to Credit Sale. Upon the occurrence
of any sale made under this Mortgage, whether made under the power of sale or
by virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, Mortgagee may bid for and acquire the Mortgaged Property or any part
thereof. In lieu of paying cash therefor, Mortgagee may make settlement for
the purchase price by crediting upon the Obligations or other sums secured by
this Mortgage the net sales price after deducting therefrom the expenses of
sale and the cost of the action and any other sums which Mortgagee is
authorized to deduct under this Mortgage. In such event, this Mortgage, the
Intercompany Note and documents evidencing expenditures secured hereby may be
presented to the person or persons conducting the sale in order that the amount
so used or applied may be credited upon the Obligations as having been paid.

18. Appointment of Receiver. If an Event of Default shall
have occurred and be continuing, Mortgagee as a matter of right and without
notice to Mortgagor, unless otherwise required by applicable law, and without
regard to the adequacy or inadequacy of the Mortgaged Property or any other
collateral as security for the Obligations or the interest of Mortgagor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers or other manager of the Mortgaged Property, and
Mortgagor hereby irrevocably consents to such appointment and waives notice of
any application therefor (except as may be required by law). Any such receiver
or receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Mortgagee in case of entry as
provided in this Mortgage, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the
Mortgaged Property, and shall continue as such and exercise all such powers
until the date of confirmation of sale of the Mortgaged Property unless such
receivership is sooner terminated.

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release any other or additional security for any obligation herein mentioned,
or (vi) make compositions or other arrangements with debtors in relation
thereto. If at any time this Mortgage shall secure less than all of the
principal amount of the Obligations, it is expressly agreed that any repayments
of the principal amount of the Obligations shall not reduce the amount of the
lien of this Mortgage until the lien amount shall equal the principal amount of
the Obligations outstanding.

(b) No recovery of any judgment by Mortgagee and no levy
of an execution under any judgment upon the Mortgaged Property or upon any
other property of Mortgagor shall affect the lien of this Mortgage or any
liens, rights, powers or remedies of Mortgagee hereunder, and such liens,
rights, powers and remedies shall continue unimpaired.

(d) Unless expressly provided otherwise, in the event
that ownership of this Mortgage and title to the Mortgaged Property or any
estate therein shall become vested in the same person or entity, this Mortgage
shall not merge in such title but shall continue as a valid lien on the
Mortgaged Property for the amount secured hereby.

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<PAGE> 28

over to Mortgagee, or to any receiver appointed to collect the Rents, any lease
security deposits, shall pay monthly in advance to Mortgagee, or to any such
receiver, the fair and reasonable rental value as determined by Mortgagee for
the use and occupancy of the Mortgaged Property or such part thereof as may be
in the possession of Mortgagor or any affiliate of Mortgagor, and upon default
in any such payment Mortgagor and any such affiliate will vacate and surrender
the possession of the Mortgaged Property to Mortgagee or to such receiver, and
in default thereof may be evicted by summary proceedings or otherwise.
Mortgagor shall not accept prepayments of installments of Rent to become due
for a period of more than one month in advance (except for security deposits
and estimated payments of percentage rent, if any).

21. Trust Funds. All lease security deposits of the Real
Estate held by Mortgagor shall be treated as trust funds not to be commingled
with any other funds of Mortgagor. Within 10 days after request by Mortgagee,
Mortgagor shall furnish Mortgagee satisfactory evidence of compliance with this
subsection, together with a statement of all lease security deposits by lessees
and copies of all Leases not previously delivered to Mortgagee, which statement
shall be certified by Mortgagor.

22. Additional Rights. The holder of any subordinate lien on
the Mortgaged Property shall have no right to terminate any Lease whether or
not such Lease is subordinate to this Mortgage nor shall any holder of any
subordinate lien join any tenant under any Lease in any action to foreclose the
lien or modify, interfere with, disturb or terminate the rights of any tenant
under any Lease. By recordation of this Mortgage all subordinate lienholders
are subject to and notified of this provision, and any action taken by any such
lienholder contrary to this provision shall be null and void. Upon and during
the continuance of any Event of Default, Mortgagee may, in its sole discretion
and without regard to the adequacy of its security under this Mortgage, apply
all or any part of any amounts on deposit with Mortgagee under this Mortgage
against all or any part of the Obligations. Any such application shall not be
construed to cure or waive any Default or Event of Default or invalidate any
act taken by Mortgagee on account of such Default or Event of Default.

25
<PAGE> 29

indirectly, on mortgages or debts secured thereby, Mortgagor shall, if
permitted by applicable law, assume as an Obligation hereunder the payment of
any tax so imposed until full payment of the Obligations.

24. Notices. All notices, requests, demands and other
communications hereunder shall be given in the manner provided in the
Indenture.

25. No Oral Modification. This Mortgage may not be changed
or terminated orally. Any agreement made by Mortgagor and Mortgagee after the
date of this Mortgage relating to this Mortgage shall be superior to the rights
of the holder of any intervening or subordinate lien or encumbrance.

26. Partial Invalidity. In the event any one or more of the
provisions contained in this Mortgage shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability shall not affect any other provision hereof, but each shall
be construed as if such invalid, illegal or unenforceable provision had never
been included. Notwithstanding anything to the contrary contained in this
Mortgage or in any provisions of the Obligations or Security Documents, the
obligations of Mortgagor and of any other obligor under the Obligations or
Security Documents shall be subject to the limitation that Mortgagee shall not
charge, take or receive, nor shall Mortgagor or any other obligor be obligated
to pay to Mortgagee, any amounts constituting interest in excess of the maximum
rate permitted by law to be charged by Mortgagee.

26
<PAGE> 30

(b) To the fullest extent permitted by law, Mortgagor
waives the benefit of all laws now existing or that may subsequently be enacted
providing for (i) any appraisement before sale of any portion of the Mortgaged
Property, (ii) any extension of the time for the enforcement of the collection
of the Obligations or the creation or extension of a period of redemption from
any sale made in collecting such debt and (iii) exemption of the Mortgaged
Property from attachment, levy or sale under execution or exemption from civil
process. To the full extent Mortgagor may do so, Mortgagor agrees that
Mortgagor will not at any time insist upon, plead, claim or take the benefit or
advantage of any law now or hereafter in force providing for any appraisement,
valuation, stay, exemption, extension or redemption, or requiring foreclosure
of this Mortgage before exercising any other remedy granted hereunder and
Mortgagor, for Mortgagor and its successors and assigns, and for any and all
persons ever claiming any interest in the Mortgaged Property, to the extent
permitted by law, hereby waives and releases all rights of redemption,
valuation, appraisement, stay of execution, notice of election to mature or
declare due the whole of the secured indebtedness and marshalling in the event
of foreclosure of the liens hereby created.

28. Remedies Not Exclusive. Mortgagee shall be entitled to
enforce payment of the Obligations and performance of the Obligations and to
exercise all rights and powers under this Mortgage or under any of the other
Security Documents or other agreement or any laws now or hereafter in force,
notwithstanding some or all of the Obligations may now or hereafter be
otherwise secured, whether by mortgage, security agreement, pledge, lien,
assignment or otherwise. Neither the acceptance of this Mortgage nor its
enforcement, shall prejudice or in any manner affect Mortgagee's right to
realize upon or enforce any other security now or hereafter held by Mortgagee,
it being agreed that Mortgagee shall be entitled to enforce this Mortgage and
any other security now or hereafter held by Mortgagee in such order and manner
as Mortgagee may determine in its absolute discretion. No remedy herein
conferred upon or reserved to Mortgagee is intended to be exclusive of any
other remedy herein or by law provided or permitted, but each shall be
cumulative and shall be in addition to every other remedy given hereunder or
now or hereafter existing at law or in equity or by statute. Every power or
remedy given by any of the Security Documents to Mortgagee or to which it may
otherwise be entitled, may be exercised, concurrently or independently, from
time to time and as often as may be deemed expedient by Mortgagee. In no event
shall Mortgagee, in the exercise of the remedies provided in this Mortgage
(including, without limitation, in connection with the assignment of Rents to
Mortgagee, or the appointment of a receiver and the entry of such receiver on
to all or any part of

27
<PAGE> 31

the Mortgaged Property), be deemed a "mortgagee in possession," and Mortgagee
shall not in any way be made liable for any act, either of commission or
omission, in connection with the exercise of such remedies.

29. Multiple Security. If (a) the Premises shall consist of
one or more parcels, whether or not contiguous and whether or not located in
the same county, or (b) in addition to this Mortgage, Mortgagee shall now or
hereafter hold one or more additional mortgages, liens, deeds of trust or other
security (directly or indirectly) for the Obligations upon other property in
the State in which the Premises are located (whether or not such property is
owned by Mortgagor or by others) or (c) both the circumstances described in
clauses (a) and (b) shall be true, then to the fullest extent permitted by law,
Mortgagee may, at its election, commence or consolidate in a single foreclosure
action all foreclosure proceedings against all such collateral securing the
Obligations (including the Mortgaged Property), which action may be brought or
consolidated in the courts of any county in which any of such collateral is
located. Mortgagor acknowledges that the right to maintain a consolidated
foreclosure action is a specific inducement to Mortgagee to extend the
Obligations, and Mortgagor expressly and irrevocably waives any objections to
the commencement or consolidation of the foreclosure proceedings in a single
action and any objections to the laying of venue or based on the grounds of
forum non conveniens which it may now or hereafter have. Mortgagor further
agrees that if Mortgagee shall be prosecuting one or more foreclosure or other
proceedings against a portion of the Mortgaged Property or against any
collateral other than the Mortgaged Property, which collateral directly or
indirectly secures the Obligations, or if Mortgagee shall have obtained a
judgment of foreclosure and sale or similar judgment against such collateral,
then, whether or not such proceedings are being maintained or judgments were
obtained in or outside the State in which the Premises are located, Mortgagee
may commence or continue foreclosure proceedings and exercise its other
remedies granted in this Mortgage against all or any part of the Mortgaged
Property and Mortgagor waives any objections to the commencement or
continuation of a foreclosure of this Mortgage or exercise of any other
remedies hereunder based on such other proceedings or judgments, and waives any
right to seek to dismiss, stay, remove, transfer or consolidate either any
action under this Mortgage or such other proceedings on such basis. Neither
the commencement nor continuation of proceedings to foreclose this Mortgage nor
the exercise of any other rights hereunder nor the recovery of any judgment by
Mortgagee in any such proceedings shall prejudice, limit or preclude
Mortgagee's right to commence or continue one or more foreclosure or other
proceedings or obtain a judgment against any other collateral (either in or
outside the

28
<PAGE> 32

State in which the Premises are located) which directly or indirectly secures
the Obligations, and Mortgagor expressly waives any objections to the
commencement of, continuation of, or entry of a judgment in such other
proceedings or exercise of any remedies in such proceedings based upon any
action or judgment connected to this Mortgage, and Mortgagor also waives any
right to seek to dismiss, stay, remove, transfer or consolidate either such
other proceedings or any action under this Mortgage on such basis. It is
expressly understood and agreed that to the fullest extent permitted by law,
Mortgagee may, at its election, cause the sale of all collateral which is the
subject of a single foreclosure action at either a single sale or at multiple
sales conducted simultaneously and take such other measures as are appropriate
in order to effect the agreement of the parties to dispose of and administer
all collateral securing the Obligations (directly or indirectly) in the most
economical and least time-consuming manner.

30. Expenses; Indemnification. (a) Mortgagor shall pay or
reimburse Mortgagee for all expenses incurred by Mortgagee before and after the
date of this Mortgage with respect to any and all transactions contemplated by
this Mortgage including without limitation, the preparation of any document
reasonably required hereunder or any amendment, modification, restatement or
supplement to this Mortgage, the delivery of any consent, non-disturbance
agreement or similar document in connection with this Mortgage or the
enforcement of any of Mortgagee's rights. Such expenses shall include, without
limitation, all title and conveyancing charges, recording and filing fees and
taxes, mortgage taxes, intangible personal property taxes, escrow fees, revenue
and tax stamp expenses, insurance premiums (including title insurance
premiums), title search and title rundown charges, brokerage commissions,
finders' fees, placement fees, court costs, surveyors', photographers',
appraisers', architects', engineers', consulting professional's, accountants'
and attorneys' fees and disbursements. Mortgagor acknowledges that from time
to time Mortgagor may receive statements for such expenses, including without
limitation attorneys' fees and disbursements. Mortgagor shall pay such
statements promptly upon receipt.

29
<PAGE> 33

notice or subpoena and (ii) in each of the foregoing instances such action or
proceeding in any manner relates to or arises out of this Mortgage or
Mortgagee's acceptance of the Intercompany Note, then Mortgagor will promptly
reimburse or pay to Mortgagee all of the expenses which have been incurred by
Mortgagee with respect to the foregoing (including reasonable counsel fees and
disbursements), together with interest thereon at the Default Rate, and any
such sum and the interest thereon shall be a lien on the Mortgaged Property,
prior to any right, or title to, interest in or claim upon the Mortgaged
Property attaching or accruing subsequent to the lien of this Mortgage, and
shall be deemed to be secured by this Mortgage. In any action or proceeding to
foreclose this Mortgage, or to recover or collect the Obligations, the
provisions of law respecting the recovering of costs, disbursements and
allowances shall prevail unaffected by this covenant.

(c) Mortgagor shall indemnify and hold harmless Mortgagee
and Mortgagee's affiliates, and the respective directors, officers, agents and
employees of Mortgagee and its affiliates from and against all claims, damages,
losses and liabilities (including, without limitation, reasonable attorneys'
fees and expenses) arising out of or based upon any matter related to this
Mortgage, the Mortgaged Property or the occupancy, ownership, maintenance or
management of the Mortgaged Property by Mortgagor, including, without
limitation, any claims based on the alleged acts or omissions of any employee
or agent of Mortgagor; provided, however, that the foregoing indemnification
shall not apply to claims, damages and the like arising from the gross
negligence or wilful misconduct of the party seeking indemnification. This
indemnification shall be in addition to any other liability which Mortgagor may
otherwise have to Mortgagee.

31. Successors and Assigns. All covenants of Mortgagor
contained in this Mortgage are imposed solely and exclusively for the benefit
of Mortgagee and its successors and assigns, and no other person or entity
shall have standing to require compliance with such covenants or be deemed,
under any circumstances, to be a beneficiary of such covenants, any or all of
which may be freely waived in whole or in part by Mortgagee at any time if in
its sole discretion it deems such waiver advisable. All such covenants of
Mortgagor shall run with the land and bind Mortgagor, the successors and
assigns of Mortgagor (and each of them) and all subsequent owners,
encumbrancers and tenants of the Mortgaged Property, and shall inure to the
benefit of Mortgagee, its successors and assigns. The word "Mortgagor" shall
be construed as if it read "Mortgagors" whenever the sense of this Mortgage so
requires and if there shall be more than one

30
<PAGE> 34

Mortgagor, the obligations of the Mortgagors shall be joint and several.

32. No Waivers, etc. Any failure by Mortgagee to insist
upon the strict performance by Mortgagor of any of the terms and provisions of
this Mortgage shall not be deemed to be a waiver of any of the terms and
provisions hereof, and Mortgagee, notwithstanding any such failure, shall have
the right thereafter to insist upon the strict performance by Mortgagor of any
and all of the terms and provisions of this Mortgage to be performed by
Mortgagor. Mortgagee may release, regardless of consideration and without the
necessity for any notice to or consent by the holder of any subordinate lien on
the Mortgaged Property, any part of the security held for the Obligations
secured by this Mortgage without, as to the remainder of the security, in
anywise impairing or affecting the lien of this Mortgage or the priority of
such lien over any subordinate lien.

33. Governing Law, etc. This Mortgage shall be governed by
and construed in accordance with the laws of the State where the Real Estate is
located, except that Mortgagor expressly acknowledges that by its terms the
Indenture shall be governed and construed in accordance with the laws of the
State of New York, without regard to principles of conflict of law, and for
purposes of consistency, Mortgagor agrees that in any in personam proceeding
related to this Mortgage the rights of the parties to this Mortgage shall also
be governed by and construed in accordance with the laws of the State of New
York governing contracts made and to be performed in that State, without regard
to principles of conflict of law.

34. Waiver of Trial by Jury. Mortgagor and Mortgagee each
hereby irrevocably and unconditionally waive trial by jury in any action,
claim, suit or proceeding relating to this Mortgage and for any counterclaim
brought therein. Mortgagor hereby waives all rights to interpose any
counterclaim in any suit brought by Mortgagee hereunder (other than compulsory
counterclaims and other counterclaims that must be interposed in connection
with such suit under applicable law) and all rights to have any such suit
consolidated with any separate suit, action or proceeding (it being understood
and agreed, however, that Mortgagor shall have the right to raise any such
claim in a separate suit, action or proceeding).

31
<PAGE> 35

therein," the word "Mortgagee" shall mean "Mortgagee or any successor
collateral agent to the Mortgagee," the word "person" shall include any
individual, corporation, partnership, trust, unincorporated association,
government, governmental authority, or other entity, and the words "Mortgaged
Property" shall include any portion of the Mortgaged Property or interest
therein. Whenever the context may require, any pronouns used herein shall
include the corresponding masculine, feminine or neuter forms, and the singular
form of nouns and pronouns shall include the plural and vice versa. The
captions in this Mortgage are for convenience of reference only and in no way
limit or amplify the provisions hereof.

36. Security Agreement under Uniform Commercial Code. (a)
It is the intention of the parties hereto that this Mortgage shall constitute a
Security Agreement within the meaning of the Code. If an Event of Default
shall occur and be continuing under this Mortgage, then in addition to having
any other right or remedy available at law or in equity, Mortgagee shall have
the option of either (i) proceeding under the Code and exercising such rights
and remedies as may be provided to a secured party by the Code with respect to
all or any portion of the Mortgaged Property which is personal property
(including, without limitation, taking possession of and selling such property)
or (ii) treating such property as real property and proceeding with respect to
both the real and personal property constituting the Mortgaged Property in
accordance with Mortgagee's rights, powers and remedies with respect to the
real property (in which event the default provisions of the Code shall not
apply). If Mortgagee shall elect to proceed under the Code, then five days'
notice of sale of the personal property shall be deemed reasonable notice and
the reasonable expenses of retaking, holding, preparing for sale, selling and
the like incurred by Mortgagee shall include, but not be limited to, attorneys'
fees and legal expenses. At Mortgagee's request, Mortgagor shall assemble the
personal property and make it available to Mortgagee at a place designated by
Mortgagee which is reasonably convenient to both parties.

(b) Mortgagor and Mortgagee agree, to the extent permitted by
law, that: (i) all of the goods described within the definition of the word
"Equipment" are or are to become fixtures on the Real Estate; (ii) this
Mortgage upon recording or registration in the real estate records of the
proper office shall constitute a financing statement filed as a "fixture
filing" within the meaning of the Code; and (iii) the addresses of Mortgagor
and Mortgagee are as set forth on the first page of this Mortgage.

32
<PAGE> 36

(c) Mortgagor, upon request by Mortgagee from time to time,
shall execute, acknowledge and deliver to Mortgagee one or more separate
security agreements, in form satisfactory to Mortgagee, covering all or any
part of the Mortgaged Property and will further execute, acknowledge and
deliver, or cause to be executed, acknowledged and delivered, any financing
statement, affidavit, continuation statement or certificate or other document
as Mortgagee may request in order to perfect, preserve, maintain, continue or
extend the security interest under and the priority of this Mortgage and such
security instrument. Mortgagor further agrees to pay to Mortgagee on demand
all costs and expenses incurred by Mortgagee in connection with the
preparation, execution, recording, filing and re-filing of any such document
and all reasonable costs and expenses of any record searches for financing
statements Mortgagee shall reasonably require. Mortgagor shall from time to
time, on request of Mortgagee, deliver to Mortgagee an inventory in reasonable
detail of any of the Mortgaged Property which constitutes personal property.
If Mortgagor shall fail to furnish any financing or continuation statement
within 10 days after request by Mortgagee, then pursuant to the provisions of
the Code, Mortgagor hereby authorizes Mortgagee, without the signature of
Mortgagor, to execute and file any such financing and continuation statements.
The filing of any financing or continuation statements in the records relating
to personal property or chattels shall not be construed as in any way impairing
the right of Mortgagee to proceed against any personal property encumbered by
this Mortgage as real property, as set forth above.

37. Release Upon Payment and Discharge of Mortgagor's
Obligations. Mortgagee shall release this Mortgage and the lien hereof by
proper instrument upon payment and discharge of all Obligations secured hereby
(including payment of reasonable expenses incurred by Mortgagee in connection
with the execution of such release) and upon full and complete performance of
all of the Obligations. Mortgagee shall otherwise release this Mortgage and
the lien hereof in accordance with Section __ of the Indenture.

38. Industrial Plant Mortgage. This Mortgage is an
industrial plant mortgage within the broadest interpretation of the "industrial
plant mortgage doctrine" under the laws of the Commonwealth of Pennsylvania.

33
<PAGE> 37

40. Consistency with Other Documents. If any provision
hereof conflicts with any provisions of the Indenture, then the terms of the
Indenture shall control to the extent of such conflict. If any provision
hereof conflicts with any provision of the Prior Mortgage, or requires any
performance, action or inaction required of the Mortgagor under the Prior
Mortgage, then to the extent of the conflict or inconsistency, the Mortgagor
shall be excused hereunder by compliance with the Prior Mortgage.

This Mortgage has been duly executed by Mortgagor on the date
first above written.

ATTEST: KOPPEL STEEL CORPORATION

By: ________________________ By: _____________________________
Name: Name:
Title: [Assistant] Secretary Title: [Vice] President

[SEAL]

The address of the within-named Mortagee is: __________________________
__________________________________________________________________________.

For the Mortgagee:

_____________________________________
Name: _______________________________

34
<PAGE> 38

STATE OF ______________ )
) SS.
COUNTY OF _____________ )

On this, the ____ day of ________________, 1995, before me, a
Notary Public in and for the State and County aforesaid, the undersigned
officers, personally appeared _______________________ and ____________________,
who acknowledged themselves to be the [Vice] President and [Assistant]
Secretary, respectively, of Koppel Steel Corporation, a Pennsylvania
corporation and that they, as such officers, being authorized to do so,
executed the foregoing instrument for the purposes therein contained, by
signing the name of the corporation by themselves as such officers.

IN WITNESS WHEREOF, I hereunto set my hand and official seal.

_____________________________________
Notary Public

[Notarial Seal]

My Commission Expires:

______________________

35
<PAGE> 39
Schedule A

Description of Real Property

[Attach Legal Description of all parcels]

<PAGE> 1
EXHIBIT 4.8

DRAFT
7/07/95
Recording requested by, and {Texas}
when recorded return to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

ATTN: F. Robert Wheeler, Jr., Esq.

JUNIOR DEED OF TRUST,
ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

from

KOPPEL STEEL CORPORATION, Grantor

________________, Trustee
for the use and benefit of
THE HUNTINGTON NATIONAL BANK,
as Trustee and Collateral Agent, Beneficiary

DATED AS OF __________ __, 1995

<PAGE> 2

TABLE OF CONTENTS
<TABLE>

<S> <C>
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Granting Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . 6

2. Payment and Performance of Obligations . . . . . . . . . . . . . 7

3. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. Payment of Taxes and Other Impositions . . . . . . . . . . . . . 8

5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

6. Restrictions on Liens, Encumbrances and Sales . . . . . . . . . 13

7. Relationship of Beneficiary and Grantor . . . . . . . . . . . . 14

8. Maintenance; No Alteration; Inspection; Utilities . . . . . . . 14

9. Condemnation/Eminent Domain . . . . . . . . . . . . . . . . . . 15

10. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

11. Further Assurances/Estoppel Certificates . . . . . . . . . . . . 17

12. Beneficiary's Right to Perform . . . . . . . . . . . . . . . . . 17

13. Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . 18

14. Asbestos . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

15. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 20

16. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

17. Right of Beneficiary to Credit Sale . . . . . . . . . . . . . . 24

18. Appointment of Receiver . . . . . . . . . . . . . . . . . . . . 24

19. Extension, Release, etc. . . . . . . . . . . . . . . . . . . . . 25

20. Assignment of Rents . . . . . . . . . . . . . . . . . . . . . . 26

21. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 26

22. Additional Rights . . . . . . . . . . . . . . . . . . . . . . . 26

23. Changes in Method of Taxation . . . . . . . . . . . . . . . . . 27

24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>

<PAGE> 3

<TABLE>

<S> <C>
25. No Oral Modification . . . . . . . . . . . . . . . . . . . . . . 27

26. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . 27

27. Waiver of Right of Redemption and Other Rights . . . . . . . . . 28

28. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . 28

29. Multiple Security . . . . . . . . . . . . . . . . . . . . . . . 29

30. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . 30

31. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 32

32. No Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . . 32

33. GOVERNING LAW, ETC. . . . . . . . . . . . . . . . . . . . . . . 32

34. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . 33

35. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 33

36. Security Agreement under Uniform Commercial Code . . . . . . . . 33

37. Release Upon Payment and Discharge of Grantor's Obligations . . 35

38. Enforceability; Usury . . . . . . . . . . . . . . . . . . . . . 35

39. Homestead . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

40. Substitute Trustee . . . . . . . . . . . . . . . . . . . . . . . 36

41. Indemnification of Trustee . . . . . . . . . . . . . . . . . . . 37

42. Business or Commercial Purpose . . . . . . . . . . . . . . . . . 37

43. Final Agreement . . . . . . . . . . . . . . . . . . . . . . . . 37

44. Consistency with Other Documents . . . . . . . . . . . . . . . . 37

45. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
</TABLE>

SCHEDULES

Schedule A - Description of Real Property

<PAGE> 4

JUNIOR DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

THIS JUNIOR DEED OF TRUST, ASSIGNMENT OF RENTS AND LEASES AND
SECURITY AGREEMENT, dated as of __________ __, 1995 is made by KOPPEL STEEL
CORPORATION, a Pennsylvania corporation ("Grantor"), to ____________________, an
individual ("Trustee"), whose address is _________________________, for the use
and benefit of THE HUNTINGTON NATIONAL BANK, as trustee (in such capacity, the
"Indenture Trustee") under the Indenture referred to below, as collateral agent
("Beneficiary"), whose mailing address is 540 Madison Avenue, Covington,
Kentucky 41011. References to this "Deed of Trust" shall mean this instrument
and any and all renewals, modifications, amendments, supplements, extensions,
consolidations, substitutions, spreaders and replacements of this instrument.

Background

B. Grantor is a wholly owned subsidiary of Beneficiary.

C. Beneficiary and The Huntington National Bank, as trustee,
are parties to that Indenture dated as of _______________ __, 1995 (as the same
may be amended, modified or otherwise supplemented from time to time, the
"Indenture"; capitalized terms not defined herein shall have the meanings
ascribed thereto in the Indenture) for the benefit of Holders of _____% Senior
Secured Notes due 2003 in the aggregate principal amount of $125,000,000.00 (the
"Securities") issued by Beneficiary.

D. Grantor has executed and delivered to Beneficiary that
certain intercompany note of even date herewith in the original principal amount
of $______________ (the "Intercompany Note"). References in this Deed of Trust
to the "Default Rate" shall mean the interest rate of _____% per annum.

E. Grantor, to secure its obligations under the Intercompany
Note, has executed and delivered that certain security agreement of even date
herewith in favor of Beneficiary (the "ICN Security Agreement"), which ICN
Security Agreement grants Beneficiary a security interest in and to certain
personal

<PAGE> 5

property now or subsequently used in connection with the operation of the Real
Estate.

NOW, THEREFORE, in consideration of the premises, the Grantor
hereby agrees with the Beneficiary as follows:

Granting Clauses

For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Grantor agrees that to secure all
of Grantor's obligations and liabilities under the Intercompany Note and all
other obligations and liabilities of Grantor to Beneficiary (including, without
limitation, interest accruing after the maturity of the Intercompany Note and
interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Grantor, whether or not a claim for post-filing or post-petition interest is
allowed in such proceeding and interest, to the extent permitted by law, on the
unpaid interest), whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under, out
of, or in connection with, the Intercompany Note, this Deed of Trust, the ICN
Security Agreement or any other document made, delivered or given in connection
therewith (collectively, the "Security Documents"), in each case whether on
account of principal, interest, fees, indemnities, costs, expenses or otherwise
(including, without limitation, all fees and disbursements of counsel to
Beneficiary that are required to be paid by the Beneficiary pursuant to the
terms of this Deed of Trust or any other Security Document) (collectively, the
"Obligations").

(A) all right, title and interest of Grantor in and to the Real
Estate;

(B) all the estate, right, title, claim or demand whatsoever of
Grantor, in possession or expectancy, in and to the Real Estate or any
part thereof;

<PAGE> 6

interests, privileges, licenses, tenements, hereditaments and
appurtenances belonging, relating or appertaining to the Real Estate,
and any reversions and remainders thereof and all land lying in the bed
of any street, road or avenue, in front of or adjoining the Real Estate
to the center line thereof;

(E) all right, title and interest of Grantor in and to all
substitutes and replacements of, and all additions and improvements to,
the Real Estate and the Equipment, subsequently acquired by or released
to Grantor or constructed, assembled or placed by Grantor on the Real
Estate, immediately upon such acquisition, release, construction,
assembling or placement, including, without limitation, any and all
building materials whether stored at the Real Estate or offsite, and,
in each such case, without any further mortgage, conveyance, assignment
or other act by Grantor;

(F) all right, title and interest of Grantor in, to and under
all leases, subleases, underlettings, concession

<PAGE> 7

agreements, management agreements, licenses and other agreements
relating to the use or occupancy of the Real Estate or the Equipment or
any part thereof, now existing or subsequently entered into by Grantor
and whether written or oral and all guarantees of any of the foregoing
(collectively, as any of the foregoing may be amended, restated,
extended, renewed or modified from time to time, the "Leases"), and all
rights of Grantor in respect of cash and securities deposited
thereunder and the right to receive and collect the revenues, income,
rents, issues and profits thereof, together with all other rents,
royalties, issues, profits, revenue, income and other benefits arising
from the use and enjoyment of the Trust Property (as defined below)
(collectively, the "Rents");

<PAGE> 8

together with the right to exercise such options and all leases of
Equipment, (ii) all consents, licenses, building permits, certificates
of occupancy and other governmental approvals relating to construction,
completion, occupancy, use or operation of the Real Estate or any part
thereof and (iii) all drawings, plans, specifications and similar or
related items relating to the Real Estate;

(L) all proceeds, both cash and noncash, of the foregoing;

<PAGE> 9

clauses (A) through (E), excluding the Excluded Property, are collectively
referred to as the "Premises", and those described in the foregoing clauses (A)
through (L), excluding the Excluded Property, are collectively referred to as
the "Trust Property").

All of the Trust Property hereinabove described, real, personal
and mixed, whether affixed or annexed to the Real Estate or not and all rights
hereby conveyed and mortgaged are intended so to be as a unit and are hereby
understood, agreed and declared, to the maximum extent permitted by law, to form
a part and parcel of the Real Estate and to be appropriated to the use of the
Real Estate, and shall be for the purposes of this Deed of Trust deemed to be
real estate and conveyed and mortgaged hereby; provided, however, as to any of
the property aforesaid which does not so form a part and parcel of the Real
Estate or does not constitute a "fixture" (as defined in the Uniform Commercial
Code of Texas (the "Code")), this Deed of Trust is hereby deemed to also be a
Security Agreement under the Code for purposes of granting a security interest
in such property, which Grantor hereby grants to Beneficiary, as Secured Party
(as defined in the Code), as more particularly provided below in this Deed of
Trust.

SUBJECT AND SUBORDINATE, HOWEVER, TO THE RIGHTS OF The
Huntington National Bank, as beneficiary, under a Deed of Trust, Assignment of
Rents and Leases of even date herewith (herein called the "Prior Deed of
Trust").

Terms and Conditions

Grantor further represents, warrants, covenants and agrees with
Beneficiary as follows:

1. Warranty of Title. Grantor warrants that Grantor has good
title to the Real Estate in fee simple and good title to the rest of the Trust
Property, subject only to the matters that are set forth in Schedule B of the
title insurance policy or policies being issued to Beneficiary to insure the
lien of this Deed of Trust and liens permitted pursuant to subsection 6.10 of
the Indenture (collectively, the "Permitted Exceptions"), and Grantor shall
warrant, defend and preserve such title and the lien of the Deed of Trust
thereon against all claims of all persons and entities, excepting, however, the
Permitted

<PAGE> 10

Exceptions. Grantor further warrants that it has the right to mortgage the Trust
Property.

2. Payment and Performance of Obligations. Grantor shall pay
the Obligations at the times and places and in the manner specified in the
Intercompany Note and shall perform all the Obligations.

<PAGE> 11

<PAGE> 12

to pay any such Imposition at the time and in the manner provided in this
Section unless (i) Grantor has given prior written notice to Beneficiary of
Grantor's intent so to contest or object to an Imposition, (ii) Grantor shall
demonstrate to Beneficiary's satisfaction that the legal proceedings shall
operate conclusively to prevent the sale of the Trust Property, or any part
thereof, to satisfy such Imposition prior to final determination of such
proceedings and (iii) Grantor shall furnish a good and sufficient bond or surety
as requested by and reasonably satisfactory to Beneficiary in the amount of the
Impositions which are being contested plus any interest and penalty which may be
imposed thereon and which could become a lien against the Real Estate or any
part of the Trust Property.

5. Insurance. (a) Grantor shall maintain or cause to be
maintained on all of the Premises

(ii) comprehensive general liability insurance under a policy
covering all claims for personal injury, bodily injury or death, or
property damage occurring on, in or about the Premises in an amount not
less than $10,000,000 combined single limit with respect to injury and
property damage relating to any one occurrence plus such excess limits
as Beneficiary shall reasonably request from time to time;

(iii) when and to the extent reasonably required by Beneficiary,
insurance against loss or damage by any other risk commonly insured
against by persons occupying or using like properties in the locality
or localities in which the Real Estate is situated;

<PAGE> 13

(iv) insurance against rent loss, extra expense or business
interruption (and/or soft costs, in the case of new construction), if
applicable, in amounts reasonably satisfactory to Beneficiary, but not
less than one year's gross rent or gross income;

(v) during the course of any construction or repair of
Improvements, comprehensive general liability insurance (including
coverage for elevators and escalators, if any). The policy shall
provide coverage for independent contractors and completed operations.
The completed operations coverage shall stay in effect for two years
after construction of any Improvements has been completed. The policy
shall provide coverage on an occurrence basis against claims for
personal injury, such insurance to afford immediate minimum protection
to a limit of not less than that required by Beneficiary with respect
to personal injury, bodily injury or death to any one or more persons
or damage to property;

(vii) during the course of any construction, addition, alteration
or repair of the Improvements, builder's risk completed value form
insurance against "all risks of physical loss," including collapse,
water damage, flood and earthquake and transit coverage, during
construction or repairs of the Improvements, with deductibles
reasonably approved by Beneficiary, in nonreporting form, covering the
total value of work performed and equipment, supplies and materials
furnished (with an appropriate limit for soft costs in the case of
construction);

(viii) boiler and machinery property insurance covering pressure
vessels, air tanks, boilers, machinery, pressure piping, heating, air
conditioning and elevator equipment and escalator equipment, provided
the Improvements contain equipment of such nature, and insurance
against rent, extra expense, business interruption and soft costs, if
applicable, arising from any such breakdown, in such amounts as are
reasonably satisfactory to Beneficiary but not less than the lesser of
$1,000,000 or 10% of the value of the Improvements;

<PAGE> 14

(ix) if any portion of the Premises are located in an area
identified as a special flood hazard area by the Federal Emergency
Management Agency or other applicable agency, flood insurance in an
amount reasonably satisfactory to Beneficiary, but in no event less
than the maximum limit of coverage available under the National Flood
Insurance Act of 1968, as amended; and

Each insurance policy (other than flood insurance written under the National
Flood Insurance Act of 1968, as amended, in which case to the extent available)
shall (i) provide that it shall not be cancelled without 30 days' prior written
notice to Beneficiary, (ii) with respect to all property insurance, provide for
deductibles in amounts reasonably satisfactory to Beneficiary (which deductibles
shall not exceed $250,000, with the exception of the deductible for boiler and
machinery, which deductible shall not exceed a ten (10) day waiting period
deductible), contain a "Replacement Cost Endorsement" (predicated upon
rebuilding) without any deduction made for depreciation and with no co-insurance
penalty (or attaching an agreed amount endorsement satisfactory to Beneficiary),
with loss payable to Grantor and Beneficiary with respect to the Trust Property
as their respective interests may appear, without contribution, under a
"standard" or "New York" mortgagee clause reasonably acceptable to Beneficiary
and be written by insurance companies having an A.M. Best Company, Inc. rating
of A or higher and a financial size category of not less than XII, or otherwise
as approved by Beneficiary. Liability insurance policies shall name Beneficiary
as an additional insured with respect to the Trust Property and contain a waiver
of subrogation against Beneficiary; all such policies shall indemnify and hold
Beneficiary harmless from all liability claims occurring on, in or about the
Premises and the adjoining streets, sidewalks and passageways. Each policy shall
expressly provide that any proceeds which are payable to Beneficiary pursuant to
the terms hereof shall be paid by check payable to the order of Beneficiary only
and shall require the endorsement of Beneficiary only. The amounts of each
insurance policy and the form of each such policy shall at all times be
reasonably satisfactory to Beneficiary. If any required insurance shall expire,
be withdrawn, become void by breach of any condition thereof by Grantor or by
any lessee of any part of the Trust Property or become void or unsafe by reason
of the failure or impairment of the capital of any insurer, Grantor shall
immediately obtain new or additional insurance satisfactory

<PAGE> 15

to Beneficiary. Grantor shall not take out any separate or additional insurance
which is contributing in the event of loss unless it is properly endorsed and
otherwise reasonably satisfactory to Beneficiary in all respects.

(e) If the Trust Property in its entirety, or any material part
thereof, shall be destroyed or damaged by fire or any other casualty, whether
insured or uninsured, or in the event any claim in excess of $5,000,000 is made
against Grantor for any personal injury, bodily injury or property damage
incurred on or about the Premises, Grantor shall give prompt notice thereof to
Beneficiary. If the Trust Property is damaged by fire or other casualty, then
provided that no Event of Default shall have occurred and be continuing, Grantor
shall have the right to

<PAGE> 16

adjust such loss. If the Trust Property is damaged by fire or other casualty,
and if an Event of Default shall have occurred and be continuing, then Grantor
authorizes and empowers Beneficiary, at Beneficiary's option and in
Beneficiary's sole discretion, as attorney-in-fact for Grantor, to make proof of
loss, to adjust and compromise any claim under any insurance policy with respect
to the Trust Property, to appear in and prosecute any action arising from any
policy, and to deduct from any insurance proceeds Beneficiary's expenses
incurred in the collection process. The insurance proceeds or any part thereof
with respect to the Trust Property received by Beneficiary and/or Grantor shall
constitute Trust Moneys which shall be paid and/or applied in accordance with
subsection 13.2 of the Indenture.

6. Restrictions on Liens, Encumbrances and Sales. Grantor
acknowledges that any secondary or junior financing placed on the Trust Property
(a) may divert funds that would otherwise be available for payment of the
Obligations, (b) could, if foreclosed, force Beneficiary to incur expenses to
protect its security, and (c) would impair Beneficiary's right to accept a deed
in lieu of foreclosure or otherwise to take actions to further its economic
interest prior to foreclosure, because a foreclosure by Beneficiary would be
required to clear title to

<PAGE> 17

the Trust Property of any such secondary or junior lien or encumbrance. In
accordance with the foregoing and for the purpose of (i) protecting
Beneficiary's security, both of repayment and of value in the Trust Property,
(ii) giving Beneficiary the full benefit of its bargain and contract with
Grantor, and (iii) keeping the Trust Property free of subordinate financing
liens, Grantor agrees that if the following provisions of this paragraph should
be deemed a restraint on alienation, that such provisions are reasonable
restraints.

(2) Except as may be permitted pursuant to the Indenture,
including, without limitation, subsection 6.15 thereof, Grantor shall not make
any Asset Sale.

(b) Beneficiary and any persons authorized by Beneficiary, at
all reasonable times after reasonable notice, shall have the right to enter and
inspect the Premises and the right to inspect all work done, labor performed and
materials furnished in and about the Improvements and the right to inspect and
make copies of all books, contracts and records of Grantor relating to the Trust
Property.

<PAGE> 18

(b) As to any Lease relating to all or any portion of the Trust
Property, Grantor shall:

(i) promptly perform all of the material provisions of the
Lease on the part of the lessor thereunder to be performed;

(ii) enforce, in accordance with sound business practice, all
of the material provisions of the Lease on the part of the lessee thereunder to
be performed;

(iii) appear in and defend, in accordance with sound business
practice, any action or proceeding arising under or

<PAGE> 19

in any manner connected with the Lease or the obligations of Grantor as
lessor or of the lessee thereunder;

(iv) exercise, within 5 days after receipt of a request by
Beneficiary, any right to request from the lessee a certificate with
respect to the status thereof;

(v) promptly deliver to Beneficiary copies of any notices of
default which Grantor may at any time forward to or receive from the
lessee;

(vi) promptly deliver to Beneficiary a fully executed
counterpart of the Lease; and

(vii) promptly deliver to Beneficiary, upon Beneficiary's
request, an assignment of the Grantor's interest under such Lease.

<PAGE> 20

change in the provisions thereof; provided however, that Beneficiary or such
successor in interest shall not be: (i) bound by any payment of an installment
of rent or additional rent which may have been made more than 30 days before the
due date of such installment; (ii) bound by any amendment or modification to the
Lease made without the consent of Beneficiary or such successor in interest;
(iii) liable for any previous act or omission of Grantor (or its predecessors in
interest); (iv) responsible for any monies owing by Grantor to the credit of
such lessee or subject to any credits, offsets, claims, counterclaims, demands
or defenses which the lessee may have against Grantor (or its predecessors in
interest); (v) bound by any covenant to undertake or complete any construction
of the Premises or any portion thereof; or (vi) obligated to make any payment to
such lessee other than any security deposit actually delivered to Beneficiary or
such successor in interest. Each lessee or other occupant under each Lease
entered into after the date of this Deed of Trust, upon request by Beneficiary
or such successor in interest, shall execute and deliver an instrument or
instruments confirming such attornment. In addition, Grantor agrees that each
Lease entered into after the date of this Deed of Trust shall include language
to the effect of subsections (d)-(f) of this Section.

11. Further Assurances/Estoppel Certificates. To further assure
Beneficiary's rights under this Deed of Trust, Grantor agrees upon demand of
Beneficiary to do any act or execute any additional documents (including, but
not limited to, security agreements on any personalty included or to be included
in the Trust Property and a separate assignment of each Lease in recordable
form) as may be required by Beneficiary to confirm the lien of this Deed of
Trust and all other rights or benefits conferred on Beneficiary. Grantor, within
5 business days after request, shall deliver, in form and substance satisfactory
to Beneficiary, a written statement, duly acknowledged, setting forth the amount
of the Obligations, and whether any offsets, claims, counterclaims or defenses
exist against the Obligations and certifying as to such other matters as
Beneficiary shall reasonably request.

12. Beneficiary's Right to Perform. If Grantor fails to perform
any of the covenants or agreements of Grantor hereunder, Beneficiary, without
waiving or releasing Grantor from any obligation or default under this Deed of
Trust, may, at any time (but shall be under no obligation to) pay or perform the
same, and the amount or cost thereof, with interest at the Default Rate, shall
immediately be due from Grantor to Beneficiary and the same shall be secured by
this Deed of Trust and shall be a lien on the Trust Property prior to any right,
title to, interest in or claim upon the Trust Property attaching

<PAGE> 21

subsequent to the lien of this Deed of Trust. No payment or advance of money by
Beneficiary under this Section shall be deemed or construed to cure Grantor's
default or waive any right or remedy of Beneficiary.

(b) For the purposes of this Deed of Trust, "Hazardous
Material" means and includes any hazardous, nuclear, toxic or dangerous waste,
substance or material defined as such in (or for

<PAGE> 22

purposes of) the Comprehensive Environmental Response, Compensation, and
Liability Act, any so-called "Superfund" or "Superlien" law, or any other Legal
Requirement regulating, relating to, or imposing liability or standards of
conduct concerning, any hazardous, nuclear, toxic or dangerous waste, substance
or material, as now or at any time in effect.

<PAGE> 23

taking of possession of the Premises by Beneficiary or any other person
succeeding to the interest of Beneficiary pursuant to the terms hereof; further
provided, that the foregoing indemnification shall not apply to loss, costs and
the like arising from the gross negligence or wilful misconduct of the party
seeking indemnification.

15. Event of Default. The occurrence of an "Event of Default"
(as defined in the Indenture) shall constitute an Event of Default hereunder.

16. Remedies. (a) Upon the occurrence of any Event of Default,
in addition to any other rights and remedies Beneficiary may have pursuant to
the Security Documents, or as provided by law, and without limitation, (a) if
such event is an Event of Default described in subsections 8.1(ix) or 8.1(x) of
the Indenture, automatically the Obligations immediately shall become due and
payable, and (b) if such event is any other Event of Default, by notice to
Grantor, Beneficiary may declare the Obligations to be immediately due and
payable. Except as expressly provided above in this Section, presentment,
demand, protest and all other notices of any kind are hereby expressly waived.
In addition, upon and during the continuance of any Event of Default,
Beneficiary may immediately take such action, without notice or demand, as it
deems advisable to protect and enforce its rights against Grantor and in and to
the Trust Property, including, but not limited to, the following actions, each
of which may be pursued concurrently or otherwise, at such time and in such
manner as Beneficiary may determine, in its sole discretion, without impairing
or otherwise affecting the other rights and remedies of Beneficiary:

(i) Beneficiary may, to the extent permitted by applicable law,
(A) institute and maintain an action of mortgage foreclosure against
all or any part of the Trust Property, (B) institute and maintain an
action on the Intercompany Note, (C) sell all or part of the Trust
Property (Grantor expressly granting to Beneficiary the power of sale),
or (D) take such other action at law or in equity for the enforcement
of this Deed of Trust or any of the Security Documents as the law may
allow. Beneficiary may proceed in any such action to final judgment and
execution thereon for all sums due hereunder, together with interest
thereon at the Default Rate and all costs of suit, including, without
limitation, reasonable attorneys' fees and disbursements. Interest at
the Default Rate shall be due on any judgment obtained by Beneficiary
from the date of judgment until actual payment is made of the full
amount of the judgment.

<PAGE> 24

(ii) Beneficiary may personally, or by its agents, attorneys
and employees and without regard to the adequacy or inadequacy of the
Trust Property or any other collateral as security for the
Obligations, enter into and upon the Trust Property and each and every
part thereof and exclude Grantor and its agents and employees
therefrom without liability for trespass, damage or otherwise (Grantor
hereby agreeing to surrender possession of the Trust Property to
Beneficiary upon demand at any such time) and use, operate, manage,
maintain and control the Trust Property and every part thereof.
Following such entry and taking of possession, Beneficiary shall be
entitled, without limitation, (x) to lease all or any part or parts of
the Trust Property for such periods of time and upon such conditions
as Beneficiary may, in its discretion, deem proper, (y) to enforce,
cancel or modify any Lease and (z) generally to execute, do and
perform any other act, deed, matter or thing concerning the Trust
Property as Beneficiary shall deem appropriate as fully as Grantor
might do.

<PAGE> 25

exhausting the power to foreclose for any other part of the Obligations
whether matured at the time or subsequently maturing, and without
exhausting any right of acceleration and full foreclosure.

<PAGE> 26

physically present, or to have constructive possession of, the Trust
Property (Grantor hereby covenanting and agreeing to deliver to Trustee
any portion of the Trust Property not actually or constructively
possessed by Trustee immediately upon demand by Trustee), and the title
to and right of possession of any such property shall pass to the
purchaser thereof as completely as if the same had been actually
present and delivered to purchaser at such sale, (ii) each instrument
of conveyance executed by Trustee shall contain a special warranty of
title, subject to Permitted Exceptions, binding upon Grantor, (iii)
each and every recital contained in any instrument of conveyance made
by Trustee shall be prima facie proof of the truth and accuracy of the
matters recited therein, including, without limitation, nonpayment of
the Obligations, advertisement and conduct of such sale in the manner
provided herein and otherwise by law and appointment of any Substitute
Trustee hereunder, (iv) there shall be a prima facie presumption that
any and all prerequisites to the validity thereof shall have been
performed, (v) the receipt of Trustee or of such other party or officer
making the sale shall be a sufficient discharge to the purchaser or
purchasers for his or their purchase money and no such purchaser or
purchasers, or his or their assigns or personal representatives, shall
thereafter be obligated to see to the application of such purchase
money or be in any way answerable for any loss, misapplication or
nonapplication thereof, (vi) to the fullest extent permitted by law,
Grantor shall be completely and irrevocably divested of all of its
right, title, interest, claim and demand whatsoever, either at law or
in equity, in and to the property sold and such sale shall be a
perpetual bar, both at law and in equity, against Grantor, and against
any and all other persons claiming or to claim the property sold or any
part thereof, by, through or under Grantor, and (vii) to the extent and
under such circumstances as are permitted by law, Beneficiary may be a
purchaser at any such sale;

<PAGE> 27

shall be entitled to enjoin such breach and obtain specific performance of any
covenant, agreement, term or condition and Beneficiary shall have the right to
invoke any equitable right or remedy as though other remedies were not provided
for in this Deed of Trust.

(d) The proceeds of any foreclosure or sale of the Trust
Property, or any portion thereof, shall be distributed and applied in accordance
with all applicable provisions of the Indenture.

17. Right of Beneficiary to Credit Sale. Upon the occurrence of
any sale made under this Deed of Trust, whether made under the power of sale or
by virtue of judicial proceedings or of a judgment or decree of foreclosure and
sale, Beneficiary may bid for and acquire the Trust Property or any part
thereof. In lieu of paying cash therefor, Beneficiary may make settlement for
the purchase price by crediting upon the Obligations or other sums secured by
this Deed of Trust the net sales price after deducting therefrom the expenses of
sale and the cost of the action and any other sums which Beneficiary is
authorized to deduct under this Deed of Trust. In such event, this Deed of
Trust, the Intercompany Note and documents evidencing expenditures secured
hereby may be presented to the person or persons conducting the sale in order
that the amount so used or applied may be credited upon the Obligations as
having been paid.

<PAGE> 28

Grantor hereby irrevocably consents to such appointment and waives notice of any
application therefor (except as may be required by law). Any such receiver or
receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Beneficiary in case of entry as
provided in this Deed of Trust, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the Trust
Property, and shall continue as such and exercise all such powers until the date
of confirmation of sale of the Trust Property unless such receivership is sooner
terminated.

(c) If Beneficiary shall have the right to foreclose this Deed
of Trust, Grantor authorizes Beneficiary at its option to foreclose the lien of
this Deed of Trust subject to the rights of any tenants of the Trust Property.
The failure to make any such tenants parties defendant to any such foreclosure
proceeding and to foreclose their rights will not be asserted by Grantor as a
defense to any proceeding instituted by Beneficiary to collect the Obligations
or to foreclose the lien of this Deed of Trust.

(d) Unless expressly provided otherwise, in the event that
ownership of this Deed of Trust and title to the Trust Property or any estate
therein shall become vested in the same

<PAGE> 29

person or entity, this Deed of Trust shall not merge in such title but shall
continue as a valid lien on the Trust Property for the amount secured hereby.

<PAGE> 30

modify, interfere with, disturb or terminate the rights of any tenant under any
Lease. By recordation of this Deed of Trust all subordinate lienholders are
subject to and notified of this provision, and any action taken by any such
lienholder contrary to this provision shall be null and void. Upon and during
the continuance of any Event of Default, Beneficiary may, in its sole discretion
and without regard to the adequacy of its security under this Deed of Trust,
apply all or any part of any amounts on deposit with Beneficiary under this Deed
of Trust against all or any part of the Obligations. Any such application shall
not be construed to cure or waive any Default or Event of Default or invalidate
any act taken by Beneficiary on account of such Default or Event of Default.

23. Changes in Method of Taxation. In the event of the passage
after the date hereof of any law of any Governmental Authority deducting from
the value of the Premises for the purposes of taxation any lien thereon, or
changing in any way the laws for the taxation of mortgages or debts secured
thereby for federal, state or local purposes, or the manner of collection of any
such taxes, and imposing a tax, either directly or indirectly, on mortgages or
debts secured thereby, Grantor shall, if permitted by applicable law, assume as
an Obligation hereunder the payment of any tax so imposed until full payment of
the Obligations.

24. Notices. All notices, requests, demands and other
communications hereunder shall be given in the manner provided in the Indenture.

26. Partial Invalidity. In the event any one or more of the
provisions contained in this Deed of Trust shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision hereof, but each shall be
construed as if such invalid, illegal or unenforceable provision had never been
included. Notwithstanding anything to the contrary contained in this Deed of
Trust or in any provisions of the Obligations or Security Documents, the
obligations of Grantor and of any other obligor under the Obligations or
Security Documents shall be subject to the limitation that Beneficiary shall not
charge, take or receive, nor shall Grantor or any other obligor be obligated to
pay to Beneficiary, any amounts

<PAGE> 31

constituting interest in excess of the maximum rate permitted by law to be
charged by Beneficiary.

28. Remedies Not Exclusive. Beneficiary shall be entitled to
enforce payment of the Obligations and performance of the Obligations and to
exercise all rights and powers under this

<PAGE> 32

Deed of Trust or under any of the other Security Documents or other agreement or
any laws now or hereafter in force, notwithstanding some or all of the
Obligations may now or hereafter be otherwise secured, whether by mortgage,
security agreement, pledge, lien, assignment or otherwise. Neither the
acceptance of this Deed of Trust nor its enforcement, shall prejudice or in any
manner affect Beneficiary's right to realize upon or enforce any other security
now or hereafter held by Beneficiary, it being agreed that Beneficiary shall be
entitled to enforce this Deed of Trust and any other security now or hereafter
held by Beneficiary in such order and manner as Beneficiary may determine in its
absolute discretion. No remedy herein conferred upon or reserved to Beneficiary
is intended to be exclusive of any other remedy herein or by law provided or
permitted, but each shall be cumulative and shall be in addition to every other
remedy given hereunder or now or hereafter existing at law or in equity or by
statute. Every power or remedy given by any of the Security Documents to
Beneficiary or to which it may otherwise be entitled, may be exercised,
concurrently or independently, from time to time and as often as may be deemed
expedient by Beneficiary. In no event shall Beneficiary, in the exercise of the
remedies provided in this Deed of Trust (including, without limitation, in
connection with the assignment of Rents to Beneficiary, or the appointment of a
receiver and the entry of such receiver on to all or any part of the Trust
Property), be deemed a "mortgagee in possession," and Beneficiary shall not in
any way be made liable for any act, either of commission or omission, in
connection with the exercise of such remedies.

29. Multiple Security. If (a) the Premises shall consist of one
or more parcels, whether or not contiguous and whether or not located in the
same county, or (b) in addition to this Deed of Trust, Beneficiary shall now or
hereafter hold one or more additional mortgages, liens, deeds of trust or other
security (directly or indirectly) for the Obligations upon other property in the
State in which the Premises are located (whether or not such property is owned
by Grantor or by others) or (c) both the circumstances described in clauses (a)
and (b) shall be true, then to the fullest extent permitted by law, Beneficiary
may, at its election, commence or consolidate in a single foreclosure action all
foreclosure proceedings against all such collateral securing the Obligations
(including the Trust Property), which action may be brought or consolidated in
the courts of any county in which any of such collateral is located. Grantor
acknowledges that the right to maintain a consolidated foreclosure action is a
specific inducement to Beneficiary to extend the Obligations, and Grantor
expressly and irrevocably waives any objections to the commencement or
consolidation of the foreclosure proceedings in a single action and any
objections to

<PAGE> 33

the laying of venue or based on the grounds of forum non conveniens which it may
now or hereafter have. Grantor further agrees that if Beneficiary shall be
prosecuting one or more foreclosure or other proceedings against a portion of
the Trust Property or against any collateral other than the Trust Property,
which collateral directly or indirectly secures the Obligations, or if
Beneficiary shall have obtained a judgment of foreclosure and sale or similar
judgment against such collateral, then, whether or not such proceedings are
being maintained or judgments were obtained in or outside the State in which the
Premises are located, Beneficiary may commence or continue foreclosure
proceedings and exercise its other remedies granted in this Deed of Trust
against all or any part of the Trust Property and Grantor waives any objections
to the commencement or continuation of a foreclosure of this Deed of Trust or
exercise of any other remedies hereunder based on such other proceedings or
judgments, and waives any right to seek to dismiss, stay, remove, transfer or
consolidate either any action under this Deed of Trust or such other proceedings
on such basis. Neither the commencement nor continuation of proceedings to
foreclose this Deed of Trust nor the exercise of any other rights hereunder nor
the recovery of any judgment by Beneficiary in any such proceedings shall
prejudice, limit or preclude Beneficiary's right to commence or continue one or
more foreclosure or other proceedings or obtain a judgment against any other
collateral (either in or outside the State in which the Premises are located)
which directly or indirectly secures the Obligations, and Grantor expressly
waives any objections to the commencement of, continuation of, or entry of a
judgment in such other proceedings or exercise of any remedies in such
proceedings based upon any action or judgment connected to this Deed of Trust,
and Grantor also waives any right to seek to dismiss, stay, remove, transfer or
consolidate either such other proceedings or any action under this Deed of Trust
on such basis. It is expressly understood and agreed that to the fullest extent
permitted by law, Beneficiary may, at its election, cause the sale of all
collateral which is the subject of a single foreclosure action at either a
single sale or at multiple sales conducted simultaneously and take such other
measures as are appropriate in order to effect the agreement of the parties to
dispose of and administer all collateral securing the Obligations (directly or
indirectly) in the most economical and least time-consuming manner.

<PAGE> 34

any consent, non-disturbance agreement or similar document in connection with
this Deed of Trust or the enforcement of any of Beneficiary's rights. Such
expenses shall include, without limitation, all title and conveyancing charges,
recording and filing fees and taxes, mortgage taxes, intangible personal
property taxes, escrow fees, revenue and tax stamp expenses, insurance premiums
(including title insurance premiums), title search and title rundown charges,
brokerage commissions, finders' fees, placement fees, court costs, surveyors',
photographers', appraisers', architects', engineers', consulting professional's,
accountants' and attorneys' fees and disbursements. Grantor acknowledges that
from time to time Grantor may receive statements for such expenses, including
without limitation attorneys' fees and disbursements. Grantor shall pay such
statements promptly upon receipt.

(b) If (i) any action or proceeding shall be commenced by
Beneficiary (including but not limited to any action to foreclose this Deed of
Trust or to collect the Obligations), or any action or proceeding is commenced
to which Beneficiary is made a party, or in which it becomes necessary to defend
or uphold the lien of this Deed of Trust (including, without limitation, any
proceeding or other action relating to the bankruptcy, insolvency or
reorganization of Grantor and/or any Subsidiary), or in which Beneficiary is
served with any legal process, discovery notice or subpoena and (ii) in each of
the foregoing instances such action or proceeding in any manner relates to or
arises out of this Deed of Trust or Beneficiary's acceptance of the Intercompany
Note, then Grantor will promptly reimburse or pay to Beneficiary all of the
expenses which have been incurred by Beneficiary with respect to the foregoing
(including reasonable counsel fees and disbursements), together with interest
thereon at the Default Rate, and any such sum and the interest thereon shall be
a lien on the Trust Property, prior to any right, or title to, interest in or
claim upon the Trust Property attaching or accruing subsequent to the lien of
this Deed of Trust, and shall be deemed to be secured by this Deed of Trust. In
any action or proceeding to foreclose this Deed of Trust, or to recover or
collect the Obligations, the provisions of law respecting the recovering of
costs, disbursements and allowances shall prevail unaffected by this covenant.

<PAGE> 35

Property by Grantor, including, without limitation, any claims based on the
alleged acts or omissions of any employee or agent of Grantor; provided,
however, that the foregoing indemnification shall not apply to claims, damages
and the like arising from the gross negligence or wilful misconduct of the party
seeking indemnification. This indemnification shall be in addition to any other
liability which Grantor may otherwise have to Beneficiary.

31. Successors and Assigns. All covenants of Grantor contained
in this Deed of Trust are imposed solely and exclusively for the benefit of
Beneficiary and its successors and assigns, and no other person or entity shall
have standing to require compliance with such covenants or be deemed, under any
circumstances, to be a beneficiary of such covenants, any or all of which may be
freely waived in whole or in part by Beneficiary at any time if in its sole
discretion it deems such waiver advisable. All such covenants of Grantor shall
run with the land and bind Grantor, the successors and assigns of Grantor (and
each of them) and all subsequent owners, encumbrancers and tenants of the Trust
Property, and shall inure to the benefit of Beneficiary, its successors and
assigns. The word "Grantor" shall be construed as if it read "Grantors" whenever
the sense of this Deed of Trust so requires and if there shall be more than one
Grantor, the obligations of the Grantors shall be joint and several.

<PAGE> 36

THE PARTIES TO THIS DEED OF TRUST SHALL ALSO BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK GOVERNING CONTRACTS MADE AND
TO BE PERFORMED IN THAT STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAW.

36. Security Agreement under Uniform Commercial Code. (a) It is
the intention of the parties hereto that this Deed of Trust shall constitute a
Security Agreement within the meaning of the Code. If an Event of Default shall
occur and be continuing under this Deed of Trust, then in addition to having any
other right or remedy available at law or in equity, Beneficiary shall have the
option of either (i) proceeding under the Code and exercising such rights and
remedies as may be provided to a secured party by the Code with respect to all
or any portion of the Trust Property which is personal property (including,
without limitation, taking possession of and selling such property) or (ii)
treating such property as real property and proceeding with respect to both the
real and personal property constituting the Trust Property in accordance with
Beneficiary's rights, powers

<PAGE> 37

and remedies with respect to the real property (in which event the default
provisions of the Code shall not apply). If Beneficiary shall elect to proceed
under the Code, then five days' notice of sale of the personal property shall be
deemed reasonable notice and the reasonable expenses of retaking, holding,
preparing for sale, selling and the like incurred by Beneficiary shall include,
but not be limited to, attorneys' fees and legal expenses. At Beneficiary's
request, Grantor shall assemble the personal property and make it available to
Beneficiary at a place designated by Beneficiary which is reasonably convenient
to both parties.

<PAGE> 38

personal property encumbered by this Deed of Trust as real property, as set
forth above.

Without limiting the generality of the foregoing, in the event
the maturity of all or any part of the principal amount of the Obligations shall
be accelerated for any reason, then such principal amount so accelerated shall
be credited with any interest theretofore paid thereon in advance and remaining
unearned at the time of such acceleration. If, pursuant to the terms of this
instrument or the Obligations, any funds are applied to the payment of any part
of the principal amount of the Obligations prior to the maturity thereof, then
(a) any interest which would otherwise thereafter accrue on the principal amount
so paid by such application shall be canceled, and (b) the Obligations remaining
unpaid after such application shall be credited with the amount of all interest,
if any, theretofore collected on the principal amount so paid by such
application and remaining unearned at the date of said application; and if the
funds so applied shall be sufficient to pay in full all the Obligations, then
Beneficiary shall refund to Grantor all interest theretofore paid thereon in
advance and remaining unearned at the time of such acceleration. Regardless of
any

<PAGE> 39

other provision in this instrument, or in any of the written evidences of the
Obligations, Grantor shall never be required to pay any unearned interest on the
Obligations or any portion thereof, and shall never be required to pay interest
thereon at a rate in excess of the Highest Lawful Rate construed by courts
having competent jurisdiction thereof.

<PAGE> 40

authorized and empowered to appoint any one or more persons as attorney-in-fact
to act as Trustee under him and in his name, place and stead in order to take
any actions that Trustee is authorized and empowered to do hereunder, such
appointment to be evidenced by an instrument signed and acknowledged by said
Trustee, original or Substitute; and all acts done by said attorney-in-fact
shall be valid, lawful and binding as if done by said Trustee, original or
Substitute, in person.

43. Final Agreement. In consideration of the premises and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Grantor hereby confirms and agrees that this Deed of Trust
(including the schedules hereto), the Intercompany Note, any guarantees of the
Intercompany Note executed by any guarantors and all other Loan Documents and
loan papers together constitute a written "loan agreement" as defined in Section
26.02(a) of the Texas Business and Commerce Code.

44. Consistency with Other Documents. If any provision hereof
conflicts with any provisions of the Indenture, then the terms of the Indenture
shall control to the extent of such conflict. If any provision hereof conflicts
with any provision of the Prior Deed of Trust, or requires any performance,
action or inaction required of the Grantor under the Prior Deed of Trust, then
to the extent of the conflict or

<PAGE> 41

inconsistency, the Grantor shall be excused hereunder by compliance with the
Prior Deed of Trust.

45. THIS WRITTEN LOAN AGREEMENT REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.

This Deed of Trust has been duly executed by Grantor on the
date first above written.

ATTEST: KOPPEL STEEL CORPORATION

By: _______________________________ By: _______________________________
Name: Name:
Title: [Assistant] Secretary Title: [Vice] President

[SEAL]

<PAGE> 42

STATE OF TEXAS )
) SS
COUNTY OF ________________ )

_______________________________________
Notary Public

[Notarial Stamp]

<PAGE> 43

Schedule A

Description of Real Property

[Attach Legal Description of all parcels]

<PAGE> 1
EXHIBIT 4.9

DRAFT
7/7/95
Recording requested by, and {Oklahoma}
when recorded return to:

Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017

ATTN: F. Robert Wheeler, Jr., Esq.

LEASEHOLD JUNIOR MORTGAGE,
ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

from

ERLANGER TUBULAR CORPORATION, Mortgagor

NS GROUP, INC., Mortgagee

DATED AS OF __________ __, 1995

<PAGE> 2

TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Granting Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . 2

1. Warranty of Title . . . . . . . . . . . . . . . . . . . . . . . 7

2. Payment and Performance of Obligations . . . . . . . . . . . . . 7

3. Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . 7

4. Payment of Taxes and Other Impositions . . . . . . . . . . . . . 8

5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

6. Restrictions on Liens, Encumbrances and Sales . . . . . . . . . 14

7. Relationship of Mortgagee and Mortgagor . . . . . . . . . . . . 15

8. Maintenance; No Alteration; Inspection; Utilities . . . . . . . 15

9. Condemnation/Eminent Domain . . . . . . . . . . . . . . . . . . 15

10. Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

11. Further Assurances/Estoppel Certificates . . . . . . . . . . . . 18

12. Mortgagee's Right to Perform . . . . . . . . . . . . . . . . . . 18

13. Hazardous Material . . . . . . . . . . . . . . . . . . . . . . . 18

14. Asbestos . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

15. Event of Default . . . . . . . . . . . . . . . . . . . . . . . . 21

16. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

17. Right of Mortgagee to Credit Sale . . . . . . . . . . . . . . . 24

18. Appointment of Receiver . . . . . . . . . . . . . . . . . . . . 25

19. Extension, Release, etc. . . . . . . . . . . . . . . . . . . . . 25

20. Assignment of Rents . . . . . . . . . . . . . . . . . . . . . . 26

21. Trust Funds . . . . . . . . . . . . . . . . . . . . . . . . . . 27

22. Additional Rights . . . . . . . . . . . . . . . . . . . . . . . 27

23. Changes in Method of Taxation . . . . . . . . . . . . . . . . . 27

24. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
</TABLE>

<PAGE> 3

<TABLE>
<CAPTION>
<S> <C>
25. No Oral Modification . . . . . . . . . . . . . . . . . . . . . . 27

26. Partial Invalidity . . . . . . . . . . . . . . . . . . . . . . . 28

27. Waiver of Right of Redemption and Other Rights . . . . . . . . . 28

28. Remedies Not Exclusive . . . . . . . . . . . . . . . . . . . . . 29

29. Multiple Security . . . . . . . . . . . . . . . . . . . . . . . 29

30. Expenses; Indemnification . . . . . . . . . . . . . . . . . . . 31

31. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . 32

32. No Waivers, etc. . . . . . . . . . . . . . . . . . . . . . . . . 32

33. Governing Law, etc. . . . . . . . . . . . . . . . . . . . . . . 33

34. Waiver of Trial by Jury . . . . . . . . . . . . . . . . . . . . 33

35. Certain Definitions . . . . . . . . . . . . . . . . . . . . . . 33

36. Security Agreement under Uniform Commercial Code . . . . . . . . 34

37. Release Upon Payment and Discharge of Mortgagor's Obligations . 35

38. Consistency with Other Documents . . . . . . . . . . . . . . . . 35

39. Mortgaged Lease Provisions . . . . . . . . . . . . . . . . . . . 35
</TABLE>

SCHEDULES

Schedule A - Description of Real Property

<PAGE> 4

LEASEHOLD JUNIOR MORTGAGE, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT

THIS LEASEHOLD JUNIOR MORTGAGE, ASSIGNMENT OF RENTS AND LEASES
AND SECURITY AGREEMENT, dated as of __________ __, 1995 is made by ERLANGER
TUBULAR CORPORATION, an Oklahoma corporation ("Mortgagor"), whose
address is ___________________, to NS GROUP, INC., a Kentucky corporation
("Mortgagee"), whose mailing address is Ninth and Lowell Streets,
Newport, Kentucky 41072. References to this "Mortgage" shall mean this
instrument and any and all renewals, modifications, amendments, supplements,
extensions, consolidations, substitutions, spreaders and replacements of this
instrument.

Background

A. Mortgagor is the owner of a leasehold estate affecting the
parcel(s) of real property described on Schedule A attached (such real property,
together with all of the buildings, improvements, structures and fixtures now or
subsequently located thereon (the "Improvements"), being collectively
referred to as the "Real Estate") pursuant to [DESCRIBE LEASE, INCLUDING
ALL AMENDMENTS AND RECORDING INFORMATION] (the "Mortgaged Lease").

B. Mortgagor is a wholly owned subsidiary of Mortgagee.

<PAGE> 5

NOW, THEREFORE, in consideration of the premises, the Mortgagor
hereby agrees with the Mortgagee as follows:

Granting Clauses

For good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Mortgagor agrees that to secure
all of Mortgagor's obligations and liabilities under the Intercompany Note and
all other obligations and liabilities of Mortgagor to Mortgagee (including,
without limitation, interest accruing after the maturity of the Intercompany
Note and interest accruing after the filing of any petition in bankruptcy, or
the commencement of any insolvency, reorganization or like proceeding, relating
to the Mortgagor, whether or not a claim for post-filing or post-petition
interest is allowed in such proceeding and interest, to the extent permitted by
law, on the unpaid interest), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Intercompany Note, this
Mortgage, the ICN Security Agreement or any other document made, delivered or
given in connection therewith (collectively, the "Security Documents"), in each
case whether on account of principal, interest, fees, indemnities, costs,
expenses or otherwise (including, without limitation, all fees and disbursements
of counsel to Mortgagee that are required to be paid by the Mortgagee pursuant
to the terms of this Mortgage or any other Security Document) (collectively, the
"Obligations").

<PAGE> 6

Mortgaged Lease are collectively referred to as the "Lease Rights");

<PAGE> 7

the foregoing in this paragraph (D) being referred to as the
"Equipment");

(F) all right, title and interest of Mortgagor in, to and under
all leases, subleases, underlettings, concession agreements, management
agreements, licenses and other agreements relating to the use or
occupancy of the Real Estate or the Equipment or any part thereof
(other than the Mortgaged Lease), now existing or subsequently entered
into by Mortgagor and whether written or oral and all guarantees of any
of the foregoing (collectively, as any of the foregoing may be amended,
restated, extended, renewed or modified from time to time, the
"Leases"), and all rights of Mortgagor in respect of cash and
securities deposited thereunder and the right to receive and collect
the revenues, income, rents, issues and profits thereof, together with
all other rents, royalties, issues, profits, revenue, income and other
benefits arising from the use and enjoyment of the Mortgaged Property
(as defined below) (collectively, the "Rents");

<PAGE> 8

continuance of an Event of Default; and all right, title and interest
of Mortgagor in and to all awards and other compensation, including the
interest payable thereon and the right to collect and receive the same,
made to the present or any subsequent owner of the Real Estate or
Equipment for the taking by eminent domain, condemnation or otherwise,
of all or any part of the Real Estate or any easement or other right
therein, subject to the provisions relating to condemnation generally
set forth below;

(I) all right, title and interest of Mortgagor in and to (i)
all contracts from time to time executed by Mortgagor or any manager or
agent on its behalf relating to the ownership, construction,
maintenance, repair, operation, occupancy, sale or financing of the
Real Estate or Equipment or any part thereof and all agreements
relating to the purchase or lease of any portion of the Real Estate or
any property which is adjacent or peripheral to the Real Estate,
together with the right to exercise such options and all leases of
Equipment, (ii) all consents, licenses, building permits, certificates
of occupancy and other governmental approvals relating to construction,
completion, occupancy, use or operation of the Real Estate or any part
thereof and (iii) all drawings, plans, specifications and similar or
related items relating to the Real Estate;

<PAGE> 9

Blanche Card, the Mastercard or any other credit card, including those
now existing or hereafter created, substitutions therefor, proceeds
thereof (whether cash or non-cash, movable or immovable, tangible or
intangible) received upon the sale, exchange, transfer, collection or
other disposition or substitution thereof and any and all of the
foregoing and proceeds therefrom (collectively, the "Additional
Rents"); and

(L) all proceeds, both cash and noncash, of the foregoing;

All of the Mortgaged Property hereinabove described, real,
personal and mixed, whether affixed or annexed to the Real Estate or not and all
rights hereby conveyed and mortgaged are intended so to be as a unit and are
hereby understood, agreed and declared, to the maximum extent permitted by law,
to form a part and parcel of the Real Estate and to be appropriated to the use
of the Real Estate, and shall be for the purposes of this Mortgage deemed to be
real estate and conveyed and mortgaged hereby; provided, however, as to any of
the property aforesaid which does not so form a part and parcel of the Real
Estate or does not constitute a "fixture" (as defined in the Uniform Commercial
Code of Oklahoma (the "Code")), this Mortgage is hereby deemed to also
be a Security Agreement under the Code for purposes of granting a security
interest in such property, which Mortgagor hereby grants to Mortgagee, as
Secured Party (as defined in the Code), as more particularly provided below in
this Mortgage.

<PAGE> 10

Terms and Conditions

Mortgagor further represents, warrants, covenants and agrees
with Mortgagee as follows:

1. Warranty of Title. Mortgagor represents and warrants
(i) that Mortgagor has title to the leasehold estate in the Real Estate pursuant
to the Mortgaged Lease, Mortgagor has good title to the rest of the Mortgaged
Property, and Mortgagor has a right to mortgage the same, (ii) that the
Mortgaged Property is subject only to matters of record, the Mortgaged Lease,
the [DESCRIBE PRIME LEASE] (the "Prime Lease"), this Mortgage, the
matters that are set forth in Schedule B of the title insurance policy or
policies being issued to Mortgagee to insure the lien of this Mortgage and liens
permitted pursuant to subsection 6.10 of the Indenture (collectively, the
"Permitted Exceptions"), (iii) that Mortgagor shall warrant and defend
the lien thereon granted or intended to be granted by this Mortgage against all
persons and entities, excepting, however, the Permitted Exceptions, (iv) that
the Mortgaged Lease is in full force and effect and Mortgagor is the holder of
the lessee's or tenant's interest thereunder, (v) that the Mortgaged Lease has
not been amended, supplemented or otherwise modified, except as specifically
described herein, (vi) that Mortgagor has paid all rents and other charges to
the extent due and payable, is not in default under the Mortgaged Lease, has
received no notice of default from the lessor thereunder which default remains
uncured and knows of no material default by the lessor thereunder, and (vii)
that the granting of this Mortgage does not violate the terms of the Mortgage
Lease nor is any consent of the lessor under the Mortgaged Lease required to be
obtained in connection with the granting of this Mortgage unless such consent
has been obtained.

2. Payment and Performance of Obligations. Mortgagor shall pay
the Obligations at the times and places and in the manner specified in the
Intercompany Note and shall perform all the Obligations.

<PAGE> 11

of America, any State and any municipality, local government or other political
subdivision thereof and any agency, department, bureau, board, commission or
other instrumentality of any of them, now existing or subsequently created
(collectively, "Governmental Authority") which has jurisdiction
over the Mortgaged Property and all covenants, restrictions and conditions now
or later of record which may be applicable to any of the Mortgaged Property, or
to the use, manner of use, occupancy, possession, operation, maintenance,
alteration, repair or reconstruction of any of the Mortgaged Property, except
where the failure to so comply with any of the foregoing would not have a
Material Adverse Effect on the business, prospects, earnings, properties, assets
or condition (financial or otherwise) of the Company and its Subsidiaries taken
as a whole. All present and future laws, statutes, codes, ordinances, orders,
judgments, decrees, rules, regulations and requirements of every Governmental
Authority applicable to Mortgagor or to any of the Mortgaged Property and all
covenants, restrictions, and conditions which now or later may be applicable to
any of the Mortgaged Property are collectively referred to as the "Legal
Requirements".

<PAGE> 12

deliver to Mortgagee (i) original or copies of receipted bills and cancelled
checks evidencing payment of such Imposition if it is a real estate tax or other
public charge and (ii) evidence acceptable to Mortgagee showing the payment of
any other such Imposition. If by law any Imposition, at Mortgagor's option, may
be paid in installments (whether or not interest shall accrue on the unpaid
balance of such Imposition), Mortgagor may elect to pay such Imposition in such
installments and shall be responsible for the payment of such installments with
interest, if any.

<PAGE> 13

5. Insurance. (a) Mortgagor shall maintain or cause to be
maintained on all of the Premises

<PAGE> 14

immediate minimum protection to a limit of not less than that required
by Mortgagee with respect to personal injury, bodily injury or death to
any one or more persons or damage to property;

Each insurance policy (other than flood insurance written under the National
Flood Insurance Act of 1968, as amended, in which

<PAGE> 15

case to the extent available) shall (i) provide that it shall not be cancelled
without 30 days' prior written notice to Mortgagee, (ii) with respect to all
property insurance, provide for deductibles in amounts reasonably satisfactory
to Mortgagee (which deductibles shall not exceed $250,000, with the exception of
the deductible for boiler and machinery, which deductible shall not exceed a ten
(10) day waiting period deductible), contain a "Replacement Cost Endorsement"
(predicated upon rebuilding) without any deduction made for depreciation and
with no co-insurance penalty (or attaching an agreed amount endorsement
satisfactory to Mortgagee), with loss payable to Mortgagor and Mortgagee with
respect to the Mortgaged Property as their respective interests may appear,
without contribution, under a "standard" or "New York" mortgagee clause
reasonably acceptable to Mortgagee and be written by insurance companies having
an A.M. Best Company, Inc. rating of A or higher and a financial size category
of not less than XII, or otherwise as approved by Mortgagee. Liability insurance
policies shall name Mortgagee as an additional insured with respect to the
Mortgaged Property and contain a waiver of subrogation against Mortgagee; all
such policies shall indemnify and hold Mortgagee harmless from all liability
claims occurring on, in or about the Premises and the adjoining streets,
sidewalks and passageways. Each policy shall expressly provide that any proceeds
which are payable to Mortgagee pursuant to the terms hereof shall be paid by
check payable to the order of Mortgagee only and shall require the endorsement
of Mortgagee only. The amounts of each insurance policy and the form of each
such policy shall at all times be reasonably satisfactory to Mortgagee. If any
required insurance shall expire, be withdrawn, become void by breach of any
condition thereof by Mortgagor or by any lessee of any part of the Mortgaged
Property or become void or unsafe by reason of the failure or impairment of the
capital of any insurer, Mortgagor shall immediately obtain new or additional
insurance satisfactory to Mortgagee. Mortgagor shall not take out any separate
or additional insurance which is contributing in the event of loss unless it is
properly endorsed and otherwise reasonably satisfactory to Mortgagee in all
respects.

<PAGE> 16

underwriter or broker to certify to Mortgagee in writing that all the
requirements of this Mortgage governing insurance have been satisfied.

<PAGE> 17

<PAGE> 18

exist any lien, charge or encumbrance on the Mortgaged Property, or any part
thereof, whether superior or subordinate to the lien of this Mortgage and
whether recourse or non-recourse.

(2) Except as may be permitted pursuant to the Indenture,
including, without limitation, subsection 6.15 thereof, Mortgagor shall not make
any Asset Sale.

8. Maintenance; No Alteration; Inspection; Utilities.
(a) Mortgagor shall [, IF AND ONLY TO THE EXTENT REQUIRED UNDER THE MORTGAGED
LEASE,] maintain or cause to be maintained all the Improvements in good working
order and condition, ordinary wear and tear excepted, and shall cause to be made
[, IF AND ONLY TO THE EXTENT REQUIRED UNDER THE MORTGAGED LEASE,] all necessary
(in the good faith opinion of management of Mortgagor) repairs, renewals,
replacements, additions, betterments and improvements thereto. Mortgagor shall
not commit any waste of the Improvements and shall not demolish or materially
alter the Improvements without the prior written consent of Mortgagee.

(c) Mortgagor shall [, IF AND ONLY TO THE EXTENT REQUIRED UNDER
THE MORTGAGED LEASE,] pay or cause to be paid when due all utility charges which
are incurred for gas, electricity, water or sewer services furnished to the
Premises and all other assessments or charges of a similar nature, whether
public or private, affecting the Premises or any portion thereof, whether or not
such assessments or charges are liens thereon.

9. Condemnation/Eminent Domain. Promptly upon obtaining
knowledge of the institution of any proceedings for the condemnation of the
Mortgaged Property in its entirety, or any

<PAGE> 19

portion thereof, Mortgagor will notify Mortgagee of the pendency of such
proceedings. Mortgagor authorizes Mortgagee, at Mortgagee's option and in
Mortgagee's sole discretion, as attorney-in-fact for Mortgagor, to commence,
appear in and prosecute, in Mortgagee's or Mortgagor's name, any action or
proceeding relating to any condemnation of the Mortgaged Property in its
entirety, or any portion thereof. If the Mortgaged Property in its entirety or
any part thereof shall be the subject of condemnation proceedings, Mortgagee, as
attorney-in-fact for Mortgagor, shall have the right to settle or compromise any
claim in connection with such condemnation. If Mortgagee elects not to
participate in such condemnation proceeding, then Mortgagor shall, at its
expense, diligently prosecute any such proceeding and shall consult with
Mortgagee, its attorneys and experts and cooperate with them in any defense of
any such proceedings. All awards and proceeds of condemnation received by
Mortgagee and/or Mortgagor shall constitute Trust Moneys which shall be paid
and/or applied in accordance with Subsection 13.2 of the Indenture.

(b) As to any Lease relating to all or any portion of the
Mortgaged Property, Mortgagor shall:

(i) promptly perform all of the material provisions of the Lease on
the part of the lessor thereunder to be performed;

(ii) enforce, in accordance with sound business practice, all of
the material provisions of the Lease on the part of the lessee
thereunder to be performed;

(iv) exercise, within 5 days after receipt of a request by
Mortgagee, any right to request from the lessee a certificate with
respect to the status thereof;

(v) promptly deliver to Mortgagee copies of any notices of default
which Mortgagor may at any time forward to or receive from the lessee;

<PAGE> 20

(vi) promptly deliver to Mortgagee a fully executed counterpart
of the Lease; and

(vii) promptly deliver to Mortgagee, upon Mortgagee's request, an
assignment of the Mortgagor's interest under such Lease.

<PAGE> 21

in interest); (v) bound by any covenant to undertake or complete any
construction of the Premises or any portion thereof; or (vi) obligated to make
any payment to such lessee other than any security deposit actually delivered to
Mortgagee or such successor in interest. Each lessee or other occupant under
each Lease entered into after the date of this Mortgage, upon request by
Mortgagee or such successor in interest, shall execute and deliver an instrument
or instruments confirming such attornment. In addition, Mortgagor agrees that
each Lease entered into after the date of this Mortgage shall include language
to the effect of subsections (d)-(f) of this Section.

11. Further Assurances/Estoppel Certificates. To
further assure Mortgagee's rights under this Mortgage, Mortgagor agrees upon
demand of Mortgagee to do any act or execute any additional documents
(including, but not limited to, security agreements on any personalty included
or to be included in the Mortgaged Property and a separate assignment of each
Lease in recordable form) as may be required by Mortgagee to confirm the lien of
this Mortgage and all other rights or benefits conferred on Mortgagee.
Mortgagor, within 5 business days after request, shall deliver, in form and
substance satisfactory to Mortgagee, a written statement, duly acknowledged,
setting forth the amount of the Obligations, and whether any offsets, claims,
counterclaims or defenses exist against the Obligations and certifying as to
such other matters as Mortgagee shall reasonably request.

12. Mortgagee's Right to Perform. If Mortgagor fails to
perform any of the covenants or agreements of Mortgagor hereunder, Mortgagee,
without waiving or releasing Mortgagor from any obligation or default under this
Mortgage, may, at any time (but shall be under no obligation to) pay or perform
the same, and the amount or cost thereof, with interest at the Default Rate,
shall immediately be due from Mortgagor to Mortgagee and the same shall be
secured by this Mortgage and shall be a lien on the Mortgaged Property prior to
any right, title to, interest in or claim upon the Mortgaged Property attaching
subsequent to the lien of this Mortgage. No payment or advance of money by
Mortgagee under this Section shall be deemed or construed to cure Mortgagor's
default or waive any right or remedy of Mortgagee.

<PAGE> 22

after notice to Mortgagor and the expiration of the earlier of (i) applicable
cure periods hereunder and under the Indenture, or (ii) the cure period
permitted under the applicable Legal Requirement, Mortgagee may cause the
Premises to be freed from the Hazardous Material to the extent required by
applicable Legal Requirements, and the cost of the removal with interest at the
Default Rate shall immediately be due from Mortgagor to Mortgagee and the same
shall be added to the Obligations and be secured by this Mortgage. Mortgagor
further agrees that any release or disposal of Hazardous Materials at the
Premises by Mortgagor shall comply with all applicable Legal Requirements. In
addition, Mortgagor agrees not to allow the manufacture, storage, transmission,
presence or disposal of any Hazardous Material over or upon the Premises in
violation of applicable Legal Requirements. Mortgagor shall give Mortgagee and
its agents and employees access to the Premises to remove Hazardous Material if
required of Mortgagor hereunder and if required by applicable Legal Requirements
and if Mortgagor has failed to so remove after notice. Mortgagor agrees to
defend, indemnify and hold Mortgagee free and harmless from and against all
loss, costs, damage and expense (including attorneys' fees and costs and
consequential damages) Mortgagee may sustain by reason of (i) the imposition or
recording of a lien by any Governmental Authority with respect to the Mortgaged
Property pursuant to any Legal Requirement relating to hazardous or toxic wastes
or substances or the removal thereof ("Hazardous Material Laws"); (ii)
claims of any private parties regarding violations of Hazardous Material Laws
with respect to the Mortgaged Property; (iii) costs and expenses (including,
without limitation, attorneys' fees and fees incidental to the securing of
repayment of such costs and expenses) incurred by Mortgagor or Mortgagee in
connection with the removal of any such lien with respect to the Mortgaged
Property or in connection with Mortgagor's or Mortgagee's compliance with any
Hazardous Material Laws with respect to the Mortgaged Property; and (iv) the
assertion against Mortgagee by any party of any claim in connection with
Hazardous Material with respect to the Mortgaged Property.

(b) For the purposes of this Mortgage, "Hazardous
Material" means and includes any hazardous, nuclear, toxic or dangerous
waste, substance or material defined as such in (or for purposes of) the
Comprehensive Environmental Response, Compensation, and Liability Act, any
so-called "Superfund" or "Superlien" law, or any other Legal Requirement
regulating, relating to, or imposing liability or standards of conduct
concerning, any hazardous, nuclear, toxic or dangerous waste, substance or
material, as now or at any time in effect.

<PAGE> 23

Obligations, notwithstanding any limitations on recourse which may be contained
herein or in any Security Documents or the delivery of any satisfaction, release
or release deed, discharge or deed of reconveyance, or the assignment of this
Mortgage by Mortgagee; provided, however, that the foregoing indemnification
shall apply only to matters arising prior to any taking of possession of the
Premises by Mortgagee or any other person succeeding to the interest of
Mortgagee pursuant to the terms hereof; further provided, that the foregoing
indemnification shall not apply to loss, costs and the like arising from the
gross negligence or wilful misconduct of the party seeking indemnification.

14. Asbestos. Mortgagor shall not install or permit to
be installed in the Premises friable asbestos or any substance containing
asbestos and deemed hazardous by any Legal Requirement respecting such material,
and, with respect to any such material currently present in the Premises, shall
[, IF AND ONLY TO THE EXTENT REQUIRED UNDER THE MORTGAGED LEASE,] promptly
comply with such Legal Requirements, at Mortgagor's expense. If Mortgagor shall
fail to so comply, Mortgagee may do whatever is necessary to comply with the
applicable Legal Requirement, and the costs thereof, with interest at the
Default Rate, shall be immediately due from Mortgagor to Mortgagee and the same
shall be added to the Obligations and be secured by this Mortgage. Mortgagor
shall give Mortgagee and its agents and employees, upon prior notice and at
reasonable times, access to the Premises to remove such asbestos or substances
if required by Mortgagor hereunder and if required by applicable Legal
Requirements and if Mortgagor has failed to so remove after notice. Mortgagor
shall defend, indemnify, and save Mortgagee harmless from all loss, costs,
damages and expense (including attorneys' fees and costs and consequential
damages) asserted or proven against Mortgagee by any party, as a result of the
presence of such substances or any removal or compliance with such Legal
Requirements. The foregoing indemnification shall be a recourse obligation of
Mortgagor and shall survive repayment of the Obligations, notwithstanding any
limitation on recourse which may be contained herein or in any of the Security
Documents or the delivery of any satisfaction, release or release deed,
discharge or deed of reconveyance, or the assignment of this Mortgage by
Mortgagee; provided, however, that the foregoing indemnification shall apply
only to matters arising prior to any taking of possession of the Premises by
Mortgagee or any other person succeeding to the interest of Mortgagee pursuant
to the terms hereof; further provided, that the foregoing indemnification shall
not apply to loss, costs and the like arising from the gross negligence or
wilful misconduct of the party seeking indemnification.

<PAGE> 24

15. Event of Default. The occurrence of an "Event of Default"
(as defined in the Indenture) shall constitute an Event of Default hereunder.

(i) Mortgagee may, to the extent permitted by applicable law,
(A) institute and maintain an action of mortgage foreclosure against
all or any part of the Mortgaged Property, (B) institute and maintain
an action on the Intercompany Note, (C) sell all or part of the
Mortgaged Property (Mortgagor expressly granting to Mortgagee the power
of sale), or (D) take such other action at law or in equity for the
enforcement of this Mortgage or any of the Security Documents as the
law may allow. Mortgagee may proceed in any such action to final
judgment and execution thereon for all sums due hereunder, together
with interest thereon at the Default Rate and all costs of suit,
including, without limitation, reasonable attorneys' fees and
disbursements. Interest at the Default Rate shall be due on any
judgment obtained by Mortgagee from the date of judgment until actual
payment is made of the full amount of the judgment.

<PAGE> 25

(Mortgagor hereby agreeing to surrender possession of the Mortgaged
Property to Mortgagee upon demand at any such time) and use, operate,
manage, maintain and control the Mortgaged Property and every part
thereof. Following such entry and taking of possession, Mortgagee shall
be entitled, without limitation, (x) to lease all or any part or parts
of the Mortgaged Property for such periods of time and upon such
conditions as Mortgagee may, in its discretion, deem proper, (y) to
enforce, cancel or modify any Lease and (z) generally to execute, do
and perform any other act, deed, matter or thing concerning the
Mortgaged Property as Mortgagee shall deem appropriate as fully as
Mortgagor might do.

(iii) It is further agreed that if default be made in the
payment of any part of the Obligations, as an alternative to the right
of foreclosure for the full secured Obligations after acceleration
thereof, Mortgagee shall have the right to institute partial
foreclosure proceedings with respect to the portion of said Obligations
so in default, as if under a full foreclosure, and without declaring
the entire secured Obligations due (such proceeding being hereinafter
referred to as a "partial foreclosure"), and provided that if a partial
foreclosure sale is consummated as provided herein, such sale may be
made subject to the continuing lien of this Mortgage for the unmatured
portion of the secured Obligations, but as to such unmatured part, this
Mortgage, and the lien hereof, shall remain in full force and effect
just as though no partial foreclosure sale had been made under the
provisions of this Section. Notwithstanding the filing of any partial
foreclosure or entry of a decree of sale therein, Mortgagee may elect
at any time prior to a partial foreclosure sale pursuant to such
decree, to discontinue such partial foreclosure and to accelerate the
Obligations secured hereby by reason of any uncured Event of Default
upon which such partial foreclosure was predicated or by reason of any
other Event of Default, and proceed with full foreclosure proceedings.
It is further agreed that one or more foreclosure sales may be made
pursuant to partial foreclosures without exhausting the right of full
or partial foreclosure sale for any unmatured part of the secured
Obligations, it being the purpose to provide for a partial foreclosure
sale of the Obligations secured hereby without exhausting the power to
foreclose for any other part of the Obligations whether matured at the
time or subsequently maturing, and without exhausting any right of
acceleration and full foreclosure.

(iv) Without affecting any right, power or remedy herein
given to Mortgagee and in addition to every other

<PAGE> 26

right, power and remedy herein specifically given or now or hereafter
existing in equity, law or statute, Mortgagor hereby grants to
Mortgagee the non-judicial Power of Sale. Such Power of Sale shall be
exercised by giving Mortgagor Notice of Intent to Foreclose by Power of
Sale and setting forth, among other things, the nature of the
breach(es) or default(s) and the action required to effect a cure
thereof and the time period within which such cure may be effected all
in compliance with Title 46 Oklahoma Statutes Section Section 40 et.
seq. (Oklahoma Power of Sale Mortgage Foreclosure Act) effective
November 1, 1986, as the same may be amended from time to time or other
applicable statutory or judicial authority (the "Act"). If no cure is
effected within the statutory time limits, Mortgagee may accelerate the
Obligations secured hereby without further notice (the aforementioned
statutory cure period shall run concurrently with any contractual
provision for notice before acceleration of debt) and may then proceed
in the manner and subject to the conditions of the Act to send to
Mortgagor and other necessary parties a Notice of Sale and to sell and
convey the Mortgaged Property in accordance with such Act. The sale
shall be made at one or more sales, as an entirety or in parcels upon
such notice, at such times and places, subject to all conditions and
with the proceeds thereof to be applied all as provided in the Act. No
action of Mortgagee based upon the provisions contained herein or in
the Act, including, without limitation, the giving of the Notice of
Intent to Foreclose by Power of Sale or the Notice of Sale, shall
constitute an election of remedies which would preclude Mortgagee from
pursuing judicial foreclosure before or at any time after commencement
of the Power of Sale foreclosure procedure. Whether or not proceedings
have commenced by the exercise of the Power of Sale above given,
Mortgagee or the holder or holders of any of the Obligations, in lieu
of proceeding with the Power of Sale (or in the event of homestead
property where Mortgagor has elected judicial foreclosure, as provided
in the Act) may at its or their option, as applicable, following
acceleration of the Obligations as set forth above, proceed by suit or
suits in equity or at law to foreclose this Mortgage. If Mortgagee
institutes judicial proceedings to foreclose this Mortgage, Mortgagor
hereby waives or does not waive, at the sole option of Mortgagee,
appraisement of the Mortgaged Property, said option to be exercised by
Mortgagee at or prior to the time judgment is rendered in such judicial
foreclosure. Mortgagor fully understands the consequences of conferring
on Mortgagee the above-described Power of Sale, and if Mortgagee elects
to enforce this Mortgage by exercising said Power of Sale, Mortgagor
hereby expressly waives to the fullest extent permitted by law any
right to a

<PAGE> 27

judicial hearing prior to the sale of the Mortgaged Property. As often
as any proceedings may be taken to foreclose this Mortgage, whether
pursuant to the Power of Sale herein conferred or by judicial
proceedings, or to foreclose the security interest herein granted to
Mortgagee, Mortgagor agrees to pay to Mortgagee, in addition to all
other sums due, all costs and expenses, including reasonable attorney
fees, incurred by Mortgagee.

(d) The proceeds of any foreclosure or sale of the Mortgaged
Property, or any portion thereof, shall be distributed and applied in accordance
with all applicable provisions of the Indenture.

<PAGE> 28

sums secured by this Mortgage the net sales price after deducting therefrom the
expenses of sale and the cost of the action and any other sums which Mortgagee
is authorized to deduct under this Mortgage. In such event, this Mortgage, the
Intercompany Note and documents evidencing expenditures secured hereby may be
presented to the person or persons conducting the sale in order that the amount
so used or applied may be credited upon the Obligations as having been paid.

18. Appointment of Receiver. If an Event of Default
shall have occurred and be continuing, Mortgagee as a matter of right and
without notice to Mortgagor, unless otherwise required by applicable law, and
without regard to the adequacy or inadequacy of the Mortgaged Property or any
other collateral as security for the Obligations or the interest of Mortgagor
therein, shall have the right to apply to any court having jurisdiction to
appoint a receiver or receivers or other manager of the Mortgaged Property, and
Mortgagor hereby irrevocably consents to such appointment and waives notice of
any application therefor (except as may be required by law). Any such receiver
or receivers shall have all the usual powers and duties of receivers in like or
similar cases and all the powers and duties of Mortgagee in case of entry as
provided in this Mortgage, including, without limitation and to the extent
permitted by law, the right to enter into leases of all or any part of the
Mortgaged Property, and shall continue as such and exercise all such powers
until the date of confirmation of sale of the Mortgaged Property unless such
receivership is sooner terminated.

19. Extension, Release, etc. (a) Without affecting the
lien or charge of this Mortgage upon any portion of the Mortgaged Property not
then or theretofore released as security for the full amount of the Obligations,
Mortgagee may, from time to time and without notice, agree to (i) release any
person liable for the Obligations, (ii) extend the maturity or alter any of the
terms of the Obligations or any guaranty thereof, (iii) grant other indulgences,
(iv) release or reconvey, or cause to be released or reconveyed at any time at
Mortgagee's option any parcel, portion or all of the Mortgaged Property, (v)
take or release any other or additional security for any obligation herein
mentioned, or (vi) make compositions or other arrangements with debtors in
relation thereto. If at any time this Mortgage shall secure less than all of the
principal amount of the Obligations, it is expressly agreed that any repayments
of the principal amount of the Obligations shall not reduce the amount of the
lien of this Mortgage until the lien amount shall equal the principal amount of
the Obligations outstanding.

(b) No recovery of any judgment by Mortgagee and no levy of an
execution under any judgment upon the Mortgaged

<PAGE> 29

Property or upon any other property of Mortgagor shall affect the lien of this
Mortgage or any liens, rights, powers or remedies of Mortgagee hereunder, and
such liens, rights, powers and remedies shall continue unimpaired.

<PAGE> 30

period of more than one month in advance (except for security deposits and
estimated payments of percentage rent, if any).

24. Notices. All notices, requests, demands and other
communications hereunder shall be given in the manner provided in the Indenture.

25. No Oral Modification. This Mortgage may not be changed or
terminated orally. Any agreement made by Mortgagor

<PAGE> 31

and Mortgagee after the date of this Mortgage relating to this Mortgage shall be
superior to the rights of the holder of any intervening or subordinate lien or
encumbrance.

<PAGE> 32

not at any time insist upon, plead, claim or take the benefit or advantage of
any law now or hereafter in force providing for any appraisement, valuation,
stay, exemption, extension or redemption, or requiring foreclosure of this
Mortgage before exercising any other remedy granted hereunder and Mortgagor, for
Mortgagor and its successors and assigns, and for any and all persons ever
claiming any interest in the Mortgaged Property, to the extent permitted by law,
hereby waives and releases all rights of redemption, valuation, appraisement,
stay of execution, notice of election to mature or declare due the whole of the
secured indebtedness and marshalling in the event of foreclosure of the liens
hereby created.

<PAGE> 33

(directly or indirectly) for the Obligations upon other property in the State in
which the Premises are located (whether or not such property is owned by
Mortgagor or by others) or (c) both the circumstances described in clauses (a)
and (b) shall be true, then to the fullest extent permitted by law, Mortgagee
may, at its election, commence or consolidate in a single foreclosure action all
foreclosure proceedings against all such collateral securing the Obligations
(including the Mortgaged Property), which action may be brought or consolidated
in the courts of any county in which any of such collateral is located.
Mortgagor acknowledges that the right to maintain a consolidated foreclosure
action is a specific inducement to Mortgagee to extend the Obligations, and
Mortgagor expressly and irrevocably waives any objections to the commencement or
consolidation of the foreclosure proceedings in a single action and any
objections to the laying of venue or based on the grounds of forum non
conveniens which it may now or hereafter have. Mortgagor further agrees that if
Mortgagee shall be prosecuting one or more foreclosure or other proceedings
against a portion of the Mortgaged Property or against any collateral other than
the Mortgaged Property, which collateral directly or indirectly secures the
Obligations, or if Mortgagee shall have obtained a judgment of foreclosure and
sale or similar judgment against such collateral, then, whether or not such
proceedings are being maintained or judgments were obtained in or outside the
State in which the Premises are located, Mortgagee may commence or continue
foreclosure proceedings and exercise its other remedies granted in this Mortgage
against all or any part of the Mortgaged Property and Mortgagor waives any
objections to the commencement or continuation of a foreclosure of this Mortgage
or exercise of any other remedies hereunder based on such other proceedings or
judgments, and waives any right to seek to dismiss, stay, remove, transfer or
consolidate either any action under this Mortgage or such other proceedings on
such basis. Neither the commencement nor continuation of proceedings to
foreclose this Mortgage nor the exercise of any other rights hereunder nor the
recovery of any judgment by Mortgagee in any such proceedings shall prejudice,
limit or preclude Mortgagee's right to commence or continue one or more
foreclosure or other proceedings or obtain a judgment against any other
collateral (either in or outside the State in which the Premises are located)
which directly or indirectly secures the Obligations, and Mortgagor expressly
waives any objections to the commencement of, continuation of, or entry of a
judgment in such other proceedings or exercise of any remedies in such
proceedings based upon any action or judgment connected to this Mortgage, and
Mortgagor also waives any right to seek to dismiss, stay, remove, transfer or
consolidate either such other proceedings or any action under this Mortgage on
such basis. It is expressly understood and agreed that to the fullest extent
permitted by law, Mortgagee may, at its election, cause

<PAGE> 34

the sale of all collateral which is the subject of a single foreclosure action
at either a single sale or at multiple sales conducted simultaneously and take
such other measures as are appropriate in order to effect the agreement of the
parties to dispose of and administer all collateral securing the Obligations
(directly or indirectly) in the most economical and least time-consuming manner.

(b) If (i) any action or proceeding shall be commenced by
Mortgagee (including but not limited to any action to foreclose this Mortgage or
to collect the Obligations), or any action or proceeding is commenced to which
Mortgagee is made a party, or in which it becomes necessary to defend or uphold
the lien of this Mortgage (including, without limitation, any proceeding or
other action relating to the bankruptcy, insolvency or reorganization of
Mortgagor and/or any Subsidiary), or in which Mortgagee is served with any legal
process, discovery notice or subpoena and (ii) in each of the foregoing
instances such action or proceeding in any manner relates to or arises out of
this Mortgage or Mortgagee's acceptance of the Intercompany Note, then Mortgagor
will promptly reimburse or pay to Mortgagee all of the expenses which have been
incurred by Mortgagee with respect to the foregoing (including reasonable
counsel fees and disbursements), together with interest thereon at the Default
Rate, and any such sum and the interest thereon shall be a lien on the Mortgaged
Property, prior to any right, or title to, interest in or claim upon the
Mortgaged Property attaching or

<PAGE> 35

accruing subsequent to the lien of this Mortgage, and shall be deemed to be
secured by this Mortgage. In any action or proceeding to foreclose this
Mortgage, or to recover or collect the Obligations, the provisions of law
respecting the recovering of costs, disbursements and allowances shall prevail
unaffected by this covenant.

<PAGE> 36

and without the necessity for any notice to or consent by the holder of any
subordinate lien on the Mortgaged Property, any part of the security held for
the Obligations secured by this Mortgage without, as to the remainder of the
security, in anywise impairing or affecting the lien of this Mortgage or the
priority of such lien over any subordinate lien.

33. Governing Law, etc. This Mortgage shall be governed
by and construed in accordance with the laws of the State where the Real Estate
is located, except that Mortgagor expressly acknowledges that by its terms the
Indenture shall be governed and construed in accordance with the laws of the
State of New York, without regard to principles of conflict of law, and for
purposes of consistency, Mortgagor agrees that in any in
personam proceeding related to this Mortgage the rights of the parties
to this Mortgage shall also be governed by and construed in accordance with the
laws of the State of New York governing contracts made and to be performed in
that State, without regard to principles of conflict of law.

34. Waiver of Trial by Jury. Mortgagor and Mortgagee
each hereby irrevocably and unconditionally waive trial by jury in any action,
claim, suit or proceeding relating to this Mortgage and for any counterclaim
brought therein. Mortgagor hereby waives all rights to interpose any
counterclaim in any suit brought by Mortgagee hereunder (other than compulsory
counterclaims and other counterclaims that must be interposed in connection with
such suit under applicable law) and all rights to have any such suit
consolidated with any separate suit, action or proceeding (it being understood
and agreed, however, that Mortgagor shall have the right to raise any such claim
in a separate suit, action or proceeding).

35. Certain Definitions. Unless the context clearly
indicates a contrary intent or unless otherwise specifically provided herein,
words used in this Mortgage shall be used interchangeably in singular or plural
form and the word "Mortgagor" shall mean "each Mortgagor or any subsequent owner
or owners of the Mortgaged Property or any part thereof or interest therein,"
the word "Mortgagee" shall mean "Mortgagee or any successor collateral agent to
the Mortgagee," the word "person" shall include any individual, corporation,
partnership, trust, unincorporated association, government, governmental
authority, or other entity, and the words "Mortgaged Property" shall include any
portion of the Mortgaged Property or interest therein. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa. The captions in this Mortgage are for

<PAGE> 37

convenience of reference only and in no way limit or amplify the provisions
hereof.

<PAGE> 38

and expenses incurred by Mortgagee in connection with the preparation,
execution, recording, filing and re-filing of any such document and all
reasonable costs and expenses of any record searches for financing statements
Mortgagee shall reasonably require. Mortgagor shall from time to time, on
request of Mortgagee, deliver to Mortgagee an inventory in reasonable detail of
any of the Mortgaged Property which constitutes personal property. If Mortgagor
shall fail to furnish any financing or continuation statement within 10 days
after request by Mortgagee, then pursuant to the provisions of the Code,
Mortgagor hereby authorizes Mortgagee, without the signature of Mortgagor, to
execute and file any such financing and continuation statements. The filing of
any financing or continuation statements in the records relating to personal
property or chattels shall not be construed as in any way impairing the right of
Mortgagee to proceed against any personal property encumbered by this Mortgage
as real property, as set forth above.

37. Release Upon Payment and Discharge of Mortgagor's
Obligations. Mortgagee shall release this Mortgage and the lien hereof by
proper instrument upon payment and discharge of all Obligations secured hereby
(including payment of reasonable expenses incurred by Mortgagee in connection
with the execution of such release) and upon full and complete performance of
all of the Obligations. Mortgagee shall otherwise release this Mortgage and the
lien hereof in accordance with Section __ of the Indenture.

38. Consistency with Other Documents. If any provision
hereof conflicts with any provisions of the Indenture, then the terms of the
Indenture shall control to the extent of such conflict. If any provision hereof
conflicts with any provision of the Prior Mortgage, or requires any performance,
action or inaction required of the Mortgagor under the Prior Mortgage, then to
the extent of the conflict or inconsistency, the Mortgagor shall be excused
hereunder by compliance with the Prior Mortgage.

39. Mortgaged Lease Provisions. (a) Mortgagor shall pay
or cause to be paid all rent and other charges required under the Mortgaged
Lease as and when the same are due and shall promptly and faithfully perform or
cause to be performed, all other material obligations, covenants, agreements,
indemnities, representations, warranties or liabilities required of Mortgagor
under the Mortgaged Lease. Mortgagor shall not, without the consent of
Mortgagee, (i) either orally or in writing, modify, amend or permit any
modification or amendment of any of the terms of the Mortgaged Lease in any
material respect, (ii) in any manner, cancel, terminate or surrender, or permit
the cancellation, termination or surrender of the Mortgaged Lease, in

<PAGE> 39

whole or in part, except, subject to Section 39(i) hereof, any expiration of the
Mortgaged Lease pursuant to its terms, or (iii) permit the subordination thereof
to any mortgage; and any attempt to do the foregoing shall be null and void and
of no effect.

(b) Mortgagor shall do, or cause to be done, all things
reasonably necessary to preserve and keep unimpaired all material rights of
Mortgagor as lessee under the Mortgaged Lease, and to prevent any material
default by Mortgagor under the Mortgaged Lease, or any termination, surrender,
cancellation, forfeiture or impairment thereof, except, subject to Section 39(i)
hereof, any expiration of the Mortgaged Lease pursuant to its terms. Mortgagor
hereby authorizes and irrevocably appoints and constitutes Mortgagee as its true
and lawful attorney-in-fact, which appointment is coupled with an interest, in
its name, place and stead, upon the occurrence and continuance of an Event of
Default hereunder, to take any and all actions deemed necessary or desirable by
Mortgagee to perform and comply with all the obligations of Mortgagor under the
Mortgaged Lease, and to do and take, but without any obligation so to do, any
action which Mortgagee deems necessary or desirable to cure any default by
Mortgagor under the Mortgaged Lease, to enter into and upon the Premises or any
part thereof to such extent and as often as Mortgagee, in its sole reasonable
discretion, deems necessary or desirable in order to cure any default of
Mortgagor pursuant thereto, to the end that the rights of Mortgagor in and to
the leasehold estate created by the Mortgaged Lease shall be kept unimpaired and
free from default, and all sums so expended by Mortgagee, with interest thereon
at the Default Rate from the date of each such expenditure, shall be paid by
Mortgagor to Mortgagee promptly upon demand by Mortgagee. Mortgagor shall,
within five (5) business days after written request by Mortgagee, execute and
deliver to Mortgagee, or to any person designated by Mortgagee, such further
instruments, agreements, powers, assignments, conveyances or the like as may be
reasonably necessary to complete or perfect the interest, rights or powers of
Mortgagee pursuant to this paragraph (b).

<PAGE> 40

protection to Mortgagee for any actions taken or omitted to be taken in good
faith pursuant to the provisions of this Mortgage in reliance thereon.

(d) If any action or proceeding shall be instituted to evict
Mortgagor or to recover possession of the Mortgaged Property from Mortgagor or
any part thereof or interest therein or any action or proceeding otherwise
affecting the Mortgaged Lease or this Mortgage shall be instituted, then
Mortgagor shall, promptly after receipt, deliver to Mortgagee a true and
complete copy of each petition, summons, complaint, notice of motion, order to
show cause and all other provisions, pleadings, and papers, however designated,
served in any such action or proceeding.

<PAGE> 41

provided that (i) Mortgagee shall have the right to intervene and participate in
any such proceeding, (ii) Mortgagor shall confer with Mortgagee, (iii) Mortgagor
shall exercise all reasonable rights of arbitration conferred upon it by the
Mortgaged Lease and (iv) Mortgagor's selection of an arbitrator shall be subject
to prior written approval by Mortgagee; provided, however, upon
the occurrence and continuance of an Event of Default hereunder, Mortgagee shall
have sole authority to conduct the proceeding and Mortgagor hereby irrevocably
appoints and constitutes Mortgagee as its true and lawful attorney-in-fact,
which appointment is coupled with any interest, in its name, place and stead, to
exercise, at the expense of Mortgagor, all right, title and interest of
Mortgagor in connection with such arbitration, including the right to appoint
arbitrators and to conduct arbitration proceedings on behalf of Mortgagor.
Nothing contained herein shall obligate Mortgagee to participate in such
arbitration.

(k) (i) The lien of this Mortgage shall attach to all of
Mortgagor's rights and remedies at any time arising under or pursuant to
Subsection 365(h) of the Bankruptcy Code, 11 U.S.C. Section 365(h), as the same
may hereafter be amended (the "Bankruptcy Code"), including, without
limitation, all of Mortgagor's rights to remain in possession of the Real
Estate. Mortgagor shall not, without Mortgagee's prior written consent, elect to
treat the Mortgaged Lease as terminated under Subsection 365(h)(1) of the

<PAGE> 42

Bankruptcy Code. Any such election made without Mortgagee's consent shall be
void.

(ii) Mortgagor hereby unconditionally assigns,
transfers and sets over to Mortgagee all of Mortgagor's claims and
rights to the payment of damages arising under the Bankruptcy Code from
any rejection of the Mortgaged Lease by the lessor or any fee owner of
the Real Estate or any part thereof. Upon and during the continuance of
an Event of Default hereunder, Mortgagee shall have the right to
proceed in its own name or in the name of Mortgagor in respect of any
claim, suit, action or proceeding relating to the rejection of the
Mortgaged Lease, including, without limitation, the right to file and
prosecute under the Bankruptcy Code, without joining or the joinder of
Mortgagor, any proofs of claim, complaints, motions, applications,
notices and other documents, in any case with respect to the lessor or
any fee owner of the Real Estate or any part thereof. Any amounts
received by Mortgagee as damages arising out of the rejection of the
Mortgaged Lease as aforesaid shall be applied first to all costs and
expenses of Mortgagee (including, without limitation, attorneys' fees)
incurred in connection with the exercise of any of its rights or
remedies under this paragraph. Mortgagor shall, at the request of
Mortgagee, promptly make, execute, acknowledge and deliver, in form and
substance satisfactory to Mortgagee, a UCC Financing Statement (Form
UCC-1) and all such additional instruments, agreements and other
documents, as may at any time hereafter be required by Mortgagee to
carry out the assignment pursuant to this paragraph.

<PAGE> 43

offset shall constitute an approval of any such offset by Mortgagee.

(iv) If any action, proceeding, motion or notice shall
be commenced or filed in respect of the lessor or any other fee owner
of the Real Estate, or any portion thereof or interest therein, or the
Mortgaged Lease in connection with any case under the Bankruptcy Code,
then, upon and during the continuance of an Event of Default hereunder,
Mortgagee shall have the option, exercisable upon notice from Mortgagee
to Mortgagor, to conduct and control any such litigation with counsel
of Mortgagee's choice. Upon and during the continuance of an Event of
Default hereunder, Mortgagee may proceed in its own name or in the name
of Mortgagor in connection with any such litigation, and Mortgagor
agrees to execute any and all powers, authorizations, consents or other
documents reasonably required by Mortgagee in connection therewith.
Mortgagor shall, upon demand, pay to Mortgagee all costs and expenses
(including attorneys' fees) paid or incurred by Mortgagee in connection
with the prosecution or conduct of any such proceedings. Upon and
during the continuance of an Event of Default hereunder, Mortgagor
shall not commence any action, suit, proceeding or case, or file any
application or make any motion, in respect of the Mortgaged Lease in
any such case under the Bankruptcy Code without the prior written
consent of Mortgagee.

<PAGE> 44

serve upon Mortgagor the notice described in the preceding sentence,
Mortgagor shall not seek to reject such Mortgaged Lease and shall
comply with the demand provided for in the preceding sentence;
provided, however, that in connection with any such assumption and
assignment, Mortgagee shall provide Mortgagor with the funds necessary
to comply with the cure obligations and other monetary obligations
described under subsection 365(b) of the Bankruptcy Code, and the
amount of any such sums so provided shall be secured hereby and shall
be included as claims against Mortgagor in the bankruptcy proceeding.
In addition, effective upon the entry of an order for relief with
respect to Mortgagor under the Bankruptcy Code, Mortgagor hereby
assigns and transfers to Mortgagee a non-exclusive right to apply to
the Bankruptcy Court under subsection 365(d)(4) of the Bankruptcy Code
for an order extending the period during which the Mortgaged Lease may
be rejected or assumed.

This Mortgage has been duly executed by Mortgagor on the date
first above written.

ATTEST: ------------------------------

By: By:
-------------------------- ---------------------------
Name: Name:
Title: [Assistant] Secretary Title: [Vice] President

[SEAL]

<PAGE> 45

STATE OF )
------------
) SS
COUNTY OF )
------------
The foregoing instrument was acknowledged before me this ____
day of ___________________, 1995, by __________________ and
____________________, [Vice] President and [Assistant] Secretary, respectively,
of _______________________, a corporation, on behalf of the corporation.

------------------------------
Notary Public

My Commission Expires:

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

<PAGE> 46

Schedule A

Description of Real Property

[Attach Legal Description of all parcels]

<PAGE> 1
EXHIBIT 4.10

FORM OF

SUBSIDIARY SECURITY AGREEMENT

BETWEEN

NEWPORT STEEL CORPORATION

AND

THE HUNTINGTON NATIONAL BANK,
AS COLLATERAL AGENT

________ __, 1995

<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . 3

2. Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . 3

3. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . 3
3.1 Title; No Other Liens . . . . . . . . . . . . . . . . . . . . . 3
3.2 Perfected First Priority Liens . . . . . . . . . . . . . . . . 4
3.3 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Chief Executive Office . . . . . . . . . . . . . . . . . . . . 4
3.5 Farm Products . . . . . . . . . . . . . . . . . . . . . . . . . 4

4. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Delivery of Instruments and Chattel Paper . . . . . . . . . . . 4
4.2 Marking of Records . . . . . . . . . . . . . . . . . . . . . . 4
4.3 Maintenance of Insurance . . . . . . . . . . . . . . . . . . . 4
4.4 Payment of Taxes, Assessments and Governmental Charges . . . . 5
4.5 Maintenance of Perfected Security Interest;
Further Documentation . . . . . . . . . . . . . . . . . . 5
4.6 Changes in Locations, Name, etc. . . . . . . . . . . . . . . . 6
4.7 Further Identification of Collateral . . . . . . . . . . . . . 6
4.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

5. Asset Sales and Receipt of Net Insurance Proceeds . . . . . . . . . . . 6

6. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Code Remedies . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Deficiency . . . . . . . . . . . . . . . . . . . . . . . . . . 8

7. Applicable Provisions of the Indenture . . . . . . . . . . . . . . . . . 8

8. Collateral Agent's Appointment as Attorney-in-Fact; Collateral
Agent's Performance of Company's Obligations . . . . . . 8
8.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2 Performance by Collateral Agent of Company's Obligations . . . 9
8.3 Company's Reimbursement Obligation . . . . . . . . . . . . . . 9
8.4 Ratification; Power Coupled With An Interest . . . . . . . . . 9

9. Duty of Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>

-i-

<PAGE> 3

<TABLE>
<CAPTION>
Page
<S> <C>
10. Execution of Financing Statements . . . . . . . . . . . . . . . . . . . 10

11. Authority of Collateral Agent . . . . . . . . . . . . . . . . . . . . . 10

12. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12.1 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12.3 Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . 11

13. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

14. Termination of this Agreement . . . . . . . . . . . . . . . . . . . . . 12

15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

16. Amendments in Writing; No Waiver; Cumulative Remedies . . . . . . . . . 12
16.1 Amendments in Writing . . . . . . . . . . . . . . . . . . . . . 12
16.2 No Waiver by Course of Conduct . . . . . . . . . . . . . . . . 12
16.3 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . 13

17. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

18. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . 13

19. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

20. Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . . . . . 13
</TABLE>

-ii-

<PAGE> 4

FORM OF
SUBSIDIARY SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of _________ __, 1995, made by
Newport Steel Corporation, a Pennsylvania corporation, the Federal Employer
Identification Number of which is 61-1116686 (the "Company") in favor of THE
HUNTINGTON NATIONAL BANK, as collateral agent (in such capacity, the "Collateral
Agent"), the Federal Employer Identification Number of which is __-________,
under the Indenture dated _________ __, 1995 (as amended, supplemented or
otherwise modified from time to time, the "Indenture") between the Collateral
Agent (acting in its capacity as trustee) and NS Group, Inc. (the "Parent"), for
the benefit of the Holders of __% Senior Secured Notes due 2003 (the
"Securities") issued by the Parent.

W I T N E S S E T H :

WHEREAS, the Company is the owner of the Collateral (as
hereinafter defined); and

WHEREAS, it is a condition precedent to the purchase of the
Securities from the Parent that the Company shall have executed and delivered
this Agreement to the Collateral Agent for the ratable benefit of the Holders.

NOW, THEREFORE, in consideration of the premises and to induce
the Trustee to enter into the Indenture and to induce the Holders to purchase
the Securities, the Company hereby agrees with the Collateral Agent, for the
ratable benefit of the Holders, as follows:

1. Defined Terms.

1.1 Definitions. (a) Unless otherwise defined herein,
terms defined in the Indenture and used herein shall have the meanings given to
them in the Indenture and the following terms which are defined in the Uniform
Commercial Code in effect in the State of New York on the date hereof are used
herein as so defined: Chattel Paper, Equipment, Farm Products and Instruments.

(b) The following terms shall have the following meanings:

"Agreement" means this Security Agreement, as the same may be
amended, modified or otherwise supplemented from time to time.

"Code" means the Uniform Commercial Code as from time to time
in effect in the State of New York.

<PAGE> 5

"Collateral" has the meaning specified in Section 2 of this
Agreement.

"Contractual Obligation" means, as to any Person, any provision
of any security issued by such Person or of any agreement, instrument
or undertaking to which such Person is a party or by which it or any of
the property owned by it is bound.

"Fixtures" shall have the meaning assigned to such term in the
Code and include, without limitation, all goods that after placement on
the real property described in Schedule 2 hereto become component parts
of the real property described in Schedule 2 hereto, buildings and
other constructions and which are used in the conduct of the Company's
trade, business, occupation or other commercial or industrial activity.

"Net Insurance Proceeds" has the meaning specified in Section
4.3 of this Agreement.

"Obligations" means the due and punctual payment and
performance by the Company of all its obligations and liabilities,
absolute or contingent, liquidated or unliquidated, now existing or
hereafter incurred under, arising out of and in connection with the
Subsidiary Guarantee.

"Proceeds" and "Products" shall have the meaning ascribed to
such terms in the Code and shall include in any event (i) whatever is
received upon any collection, exchange, sale or other disposition or
refinancing of any of the Collateral and any property into which any of
the Collateral is converted (whether cash or non-cash proceeds), (ii)
any and all proceeds of any insurance, indemnity, warranty or guarantee
payable to the Company from time to time with respect to any of the
Collateral, (iii) any and all payments (in any form whatsoever) made or
due and payable to the Company from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all
or any part of the Collateral by any governmental authority (or any
person acting under color of governmental authority) and (iv) any and
all other amounts from time to time paid or payable under or in
connection with any of the Collateral.

"Requirement of Law" means, as to any Person, the Certificate
of Incorporation and By-Laws or other organizational or governing
documents of such Person, and any law, treaty, rule or regulation or
determination of an arbitrator or a court or other governmental
authority, in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is
subject.

"Subsidiary Guarantee" means the Subsidiary Guarantee dated an
even date herewith among the Company, Erlanger Tubular Corporation,
Imperial Adhesives, Inc., Koppel Steel Corporation, Northern Kentucky
Air, Inc. and

<PAGE> 6

Northern Kentucky Management, Inc. and the Collateral Agent for the
benefit of the Holders, as the same may be amended, supplemented or
otherwise modified from time to time.

1.2 Other Definitional Provisions. (a) The words
"hereof," "herein" and "hereunder" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and section and paragraph references are to this
Agreement unless otherwise specified.

(b) All references to the Collateral Agent shall be deemed to
include a reference to the Trustee, and the reverse thereof shall similarly
apply.

(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.

2. Grant of Security Interest. As collateral security
for the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations, the Company
hereby grants to the Collateral Agent for the ratable benefit of the Holders a
security interest in all of the following property now owned or at any time
hereafter acquired by the Company or in which the Company now has or at any time
in the future may acquire any right, title or interest (collectively, the
"Collateral"):

(a) all Equipment including, without limitation, (i) furniture,
furnishings, tools, lubricants, spare parts, shelving, displays, cases,
accessories, motors and engines and (ii) with respect to the foregoing
all attachments, components, parts, equipment and accessories installed
thereon or affixed thereto;

(b) all Fixtures;

(d) to the extent not otherwise included, all Proceeds and
Products of any and all of the foregoing.

3. Representations and Warranties. The Company hereby
represents and warrants that:

3.1 Title; No Other Liens. Except for (a) the security
interest granted to the Collateral Agent for the ratable benefit of the Holders
pursuant to this Agreement, (b) the security interest granted to the Parent to
secure the Company's obligations under its Intercompany Note and (c) the other
Liens permitted to exist on the Collateral pursuant to the Indenture, the
Company owns each item of the Collateral free and clear of any and all Liens or
claims of others. No security

<PAGE> 7

agreement, financing statement or other public notice with respect to all or any
part of the Collateral is on file or of record in any public office, except (a)
such as have been filed in favor of the Collateral Agent, for the ratable
benefit of the Holders, pursuant to this Agreement, (b) such as have been filed
in favor of the Parent to secure the Company's obligations under its
Intercompany Note or (c) as are permitted pursuant to the Indenture.

3.2 Perfected First Priority Liens. The security
interests granted pursuant to this Agreement (a) constitute perfected first
security interests in the Collateral in favor of the Collateral Agent, for the
ratable benefit of the Holders, (b) are prior to all other Liens on the
Collateral in existence on the date hereof except for Liens permitted to exist
pursuant to the Indenture, and (c) are enforceable as such against (1) all
creditors of and purchasers from the Company and (2) any Person having any
interest in the real property where any of the Equipment is located.

3.3 Equipment. The Equipment is kept at the locations listed on
Schedule 1 hereto.

3.4 Chief Executive Office. The Company's chief
executive office and chief place of business is located at Ninth and Lowell
Streets, Newport, Kentucky 41072.

3.5 Farm Products. None of the Collateral constitutes, or is
the Proceeds of, Farm Products.

4. Covenants. The Company covenants and agrees with the
Collateral Agent that, from and after the date of this Agreement until this
Agreement is terminated and the security interests created hereby are released:

4.1 Delivery of Instruments and Chattel Paper. If any
amount payable under or in connection with any of the Collateral shall be or
become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel
Paper shall be promptly delivered to the Collateral Agent, duly indorsed in a
manner satisfactory to the Collateral Agent, to be held as Collateral pursuant
to this Agreement.

4.2 Marking of Records. The Company will include in its
books and records pertaining to the Collateral an appropriate reference to this
Agreement and the security interests created hereby.

4.3 Maintenance of Insurance. (a) The Company will
maintain, with financially sound and reputable companies, insurance policies (1)
insuring the Equipment and Fixtures against loss by fire, explosion, theft and
such other casualties as are usually and customarily carried with respect to
similar property and or facilities according to their respective locations and
(2) insuring the Company, the Collateral Agent and the Holders against liability
for personal injury and property

<PAGE> 8

damage relating to such Equipment and Fixtures, such policies to be in such form
and amounts and having such coverage as are usually and customarily carried with
respect to similar property and or facilities according to their respective
locations with losses payable to the Company and the Collateral Agent ("Net
Insurance Proceeds").

(b) All such insurance shall (1) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Collateral Agent of
written notice thereof, (2) name the Collateral Agent as the insured party and
(3) subject to paragraph (a) above, be reasonably satisfactory in all other
respects to the Collateral Agent.

(c) The Company shall deliver to the Collateral Agent a report
of a reputable insurance broker with respect to such insurance during the month
of July in each calendar year and such supplemental reports with respect thereto
as the Collateral Agent may from time to time reasonably request.

4.4 Payment of Taxes, Assessments and Governmental
Charges. The Company will pay and discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all taxes,
assessments and governmental charges or levies imposed upon the Collateral or in
respect of income or profits therefrom, as well as all claims of any kind
(including, without limitation, claims for labor, materials and supplies)
against or with respect to the Collateral, except that no such charge need be
paid if the amount, applicability or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of the Company and
such proceedings do not involve any material danger of the sale, forfeiture or
loss of any of the Collateral or any interest therein.

4.5 Maintenance of Perfected Security Interest; Further
Documentation. (a) The Company shall maintain the security interest created
by this Agreement as a first, perfected security interest subject only to Liens
permitted to exist pursuant to the Indenture and shall defend such security
interest against claims and demands of all Persons whomsoever.

(b) At any time and from time to time, upon the written request
of the Collateral Agent and at the sole expense of the Company, the Company will
promptly and duly execute and deliver such further instruments and documents and
take such further action as the Collateral Agent may reasonably request for the
purpose of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted, including, without limitation, the filing
of any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests created
hereby.

<PAGE> 9

4.6 Changes in Locations, Name, etc. The Company will not,
unless it shall have given the Collateral Agent at least 30 days prior written
notice:

(a) permit any of the Equipment to be kept at a location other
than those listed on Schedule 1 hereto; or

(b) change the location of its chief executive office and chief
place of business from that specified in subsection 3.4; or

(c) change its name, identity, Federal taxpayer identification
number or corporate structure to such an extent that any financing
statement filed by the Collateral Agent in connection with this
Agreement would become seriously misleading.

4.7 Further Identification of Collateral. The Company
will furnish to the Collateral Agent from time to time statements and schedules
further identifying and describing the Collateral and such other reports in
connection with the Collateral as the Collateral Agent may reasonably request,
all in reasonable detail.

4.8 Notices. The Company will advise the Collateral Agent
promptly, in reasonable detail, at its address set forth in the Indenture of:

(a) any Lien (other than security interests created hereby, the
security interest granted to the Parent to secure the Company's
obligations under its Intercompany Note or Liens permitted under the
Indenture) on, or claim asserted against, any of the Collateral; and

(b) of the occurrence of any other event which could reasonably
be expected to have a material adverse effect on the aggregate value of
the Collateral or on the security interests created hereby.

5. Asset Sales and Receipt of Net Insurance Proceeds.
All cash, checks, instruments and other Proceeds of the Collateral from Asset
Sales or otherwise, including Net Insurance Proceeds, shall be held by the
Company in trust for the Collateral Agent and the Holders, segregated from the
other funds of the Company, and shall, immediately upon receipt by the Company,
be turned over to the Collateral Agent in the exact form received by the Company
(duly indorsed by the Company to the Collateral Agent, if required) and held by
the Collateral Agent in a Collateral Account maintained under the sole dominion
and control of the Collateral Agent, except as may be released to the Company
and or applied to the Obligations in accordance with Article XIII of the
Indenture. All proceeds while held by the Collateral Agent in a Collateral
Account (or by the Company in trust for the Collateral Agent and the Holders)
shall continue to be held as collateral security for all the Obligations and
shall not constitute payment thereof until applied as provided in subsection 8.1
or 8.2.

<PAGE> 10

6. Remedies.

6.1 Remedies. Subject to the provisions of Article VIII
of the Indenture, if an Event of Default shall have occurred and be continuing,
at any time at the Collateral Agent's election, the Collateral Agent may apply
all or any part of the Proceeds held in any Collateral Account in payment of the
Obligations in the manner set forth in Section 8.6 of the Indenture.

6.2 Code Remedies. Subject to the provisions of Article
VIII of the Indenture, if an Event of Default shall occur and be continuing, the
Collateral Agent on behalf of the Holders may exercise, in addition to all other
rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Collateral Agent without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon the Company or
any other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Collateral Agent or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Collateral Agent shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in the Company, which right
or equity is hereby waived or released. The Company further agrees, at the
Collateral Agent's request, to assemble the Collateral and make it available to
the Collateral Agent at places which the Collateral Agent shall reasonably
select, whether at the Company's premises or elsewhere. The Collateral Agent
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral, in the manner
set forth in Section 8.6 of the Indenture. To the extent permitted by applicable
law, the Company waives all claims, damages and demands it may acquire against
the Collateral Agent or any Holder arising out of the exercise by them of any
rights hereunder, except to the extent any such claims, damages or demands were
directly caused by the Collateral Agent's gross negligence or willful
misconduct. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition.

<PAGE> 11

6.3 Deficiency. The Company shall remain liable for any
deficiency if the proceeds of any sale or other disposition of the Collateral
are insufficient to pay the Obligations and the fees and disbursements of any
attorneys employed by the Collateral Agent or any Holder to collect such
deficiency.

7. Applicable Provisions of the Indenture. Section 12.2
through 12.10 of the Indenture is hereby incorporated by reference into this
Agreement and made a part of the same as if set forth herein. To the extent, if
any, that the provisions of this Agreement are inconsistent with the provisions
of Section 12.2 through 12.10 of the Indenture, the provisions of the Indenture
shall prevail.

8. Collateral Agent's Appointment as Attorney-in-Fact;
Collateral Agent's Performance of Company's Obligations.

8.1 Powers. The Company hereby irrevocably constitutes
and appoints the Collateral Agent and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Company and in the
name of the Company or in its own name, from time to time in the Collateral
Agent's discretion, for the purpose of carrying out the terms of this Agreement,
to take any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, the
Company hereby gives the Collateral Agent the power and right, on behalf of the
Company, without notice to or assent by the Company, to do the following:

(a) in the case of any Collateral, at any time when any Event
of Default shall have occurred and is continuing, in the name of the
Company or its own name, or otherwise, to take possession of and
indorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due with respect to any
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Collateral Agent for the purpose of collecting any
and all such moneys due with respect to any Collateral whenever
payable;

(b) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral (except as provided by Section 4.4 of
this Agreement), to effect any repairs or any insurance called for by
the terms of this Agreement and to pay all or any part of the premiums
therefor and the costs thereof;

(c) to execute, in connection with any Asset Sale permitted by
Section 6.15 of the Indenture or otherwise provided for in Section 8
hereof, any endorsements, assignments or other instruments of
conveyance or transfer with respect to the Collateral; and

<PAGE> 12

(d) upon the occurrence and during the continuance of any Event
of Default, (1) to direct any party liable for any payment under any of
the Collateral to make payment of any and all moneys due or to become
due thereunder directly to the Collateral Agent or as the Collateral
Agent shall direct; (2) to ask or demand for, collect, receive payment
of and receipt for, any and all moneys, claims and other amounts due or
to become due at any time in respect of or arising out of any
Collateral; (3) to sign and indorse any invoices, freight or express
bills, bills of lading, storage or warehouse receipts, drafts against
debtors, assignments, verifications, notices and other documents in
connection with any of the Collateral; (4) to commence and prosecute
any suits, actions or proceedings at law or in equity in any court of
competent jurisdiction to collect the Collateral or any portion thereof
and to enforce any other right in respect of any Collateral; (5) to
defend any suit, action or proceeding brought against the Company with
respect to any Collateral; (6) to settle, compromise or adjust any such
suit, action or proceeding and, in connection therewith, to give such
discharges or releases as the Collateral Agent may deem appropriate;
and (7) generally, to sell, transfer, pledge and make any agreement
with respect to or otherwise deal with any of the Collateral as fully
and completely as though the Collateral Agent were the absolute owner
thereof for all purposes, and to do, at the Collateral Agent's option
and the Company's expense, at any time, or from time to time, all acts
and things which the Collateral Agent deems necessary to protect,
preserve or realize upon the Collateral and the Collateral Agent's
security interests therein and to effect the intent of this Agreement,
all as fully and effectively as the Company might do.

8.2 Performance by Collateral Agent of Company's
Obligations. If the Company fails to perform or comply with any of its
agreements contained herein, the Collateral Agent, at its option, but without
any obligation so to do, may perform or comply, or otherwise cause performance
or compliance, with such agreement.

8.3 Company's Reimbursement Obligation. The expenses of
the Collateral Agent incurred in connection with actions undertaken as provided
in this Section, together with interest thereon at a rate per annum equal to __%
from the date of payment by the Collateral Agent to the date reimbursed by the
Company, shall be payable by the Company to the Collateral Agent on demand.

8.4 Ratification; Power Coupled With An Interest. The
Company hereby ratifies all that said attorneys shall lawfully do or cause to be
done by virtue hereof. All powers, authorizations and agencies contained in this
Agreement are coupled with an interest and are irrevocable until this Agreement
is terminated and the security interests created hereby are released.

<PAGE> 13

the same manner as the Collateral Agent deals with similar property for its own
account, except that the Collateral Agent shall have no obligation to invest
funds held in any Collateral Account and may hold the same as demand deposits.
Neither the Collateral Agent nor any of its directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon any of the
Collateral or for any delay in doing so or shall be under any obligation to sell
or otherwise dispose of any Collateral upon the request of the Company or any
other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof. The powers conferred on the Collateral Agent
hereunder are solely to protect the Collateral Agent's interests in the
Collateral and shall not impose any duty upon the Collateral Agent to exercise
any such powers. The Collateral Agent shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers, and neither it
nor any of its officers, directors, employees or agents shall be responsible to
the Company for any act or failure to act hereunder, except for their own gross
negligence or willful misconduct.

10. Execution of Financing Statements. Pursuant to
Section 9-402 of the Code, the Company authorizes the Collateral Agent to file
financing statements with respect to the Collateral without the signature of the
Company in such form and in such filing offices as the Collateral Agent
reasonably determines appropriate to perfect the security interests of the
Collateral Agent under this Agreement. A carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement for
filing in any jurisdiction.

11. Authority of Collateral Agent. The Company
acknowledges that the rights and responsibilities of the Collateral Agent under
this Agreement with respect to any action taken by the Collateral Agent or the
exercise or non-exercise by the Collateral Agent of any option, voting right,
request, judgment or other right or remedy provided for herein or resulting or
arising out of this Agreement shall, as between the Collateral Agent and the
Holders be governed by the Indenture and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Collateral Agent and the Company, the Collateral Agent shall be conclusively
presumed to be acting as agent for the Holders with full and valid authority so
to act or refrain from acting, and the Company shall be under no obligation, or
entitlement, to make any inquiry respecting such authority.

12. Indemnity.

12.1 Indemnity. (a) The Company agrees to indemnify,
pay and hold harmless the Collateral Agent and the officers, directors,
employees, agents and affiliates of the Collateral Agent (collectively called
the "Indemnitees") from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs (including,
without limitation, settlement costs), expenses or disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced

<PAGE> 14

or threatened, whether or not such Indemnitee shall be designated a party
thereto), which may be imposed on, incurred by, or asserted against that
Indemnitee, in any manner relating to or arising out of this Agreement, the
Indenture, the Subsidiary Guarantee or the Securities arising in any action
relating to, directly or indirectly, the Collateral or the subject of this
Agreement (including without limitation, any misrepresentation by the Company in
this Agreement (the "indemnified liabilities"); provided that the
Company shall have no obligation to an Indemnitee hereunder with respect to
indemnified liabilities if it has been determined by a final decision (after all
appeals and the expiration of time to appeal) by a court of competent
jurisdiction that such indemnified liability arose from the negligence or
willful misconduct of that Indemnitee. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Company
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all indemnified
liabilities incurred by the Indemnitees or any of them.

(b) The Company agrees to pay, and to save the Collateral Agent
harmless from, any and all liabilities, costs and expenses (including, without
limitation, legal fees and expenses) (1) with respect to, or resulting from any
delay in paying, any and all stamp, excise, sales or other taxes and any and all
recording and filing fees which may be payable or determined to be payable with
respect to any of the Collateral, (2) with respect to, or resulting from, any
delay in complying with any Requirement of Law applicable to any of the
Collateral and (3) in connection with any of the transactions contemplated by
this Agreement.

12.2 Survival. The obligations of the Company contained
in this Section 14 shall survive the termination of this Agreement and the
discharge of the Company's other obligations under this Agreement.

12.3 Reimbursements. Any amounts paid by any Indemnitee as to
which such Indemnitee has the right to reimbursement shall constitute
Obligations secured by the Collateral.

13. Notices. All notices, requests and demands to or
upon the Collateral Agent or the Company to be effective shall be in writing (or
by telex, fax or similar electronic transfer) and shall be deemed to have been
duly given or made (a) when delivered by hand or (b) if given by mail, when
deposited in the mails by certified mail, return receipt requested, or (c) if by
telex, fax or similar electronic transfer, when sent and receipt has been
confirmed, addressed to the Collateral Agent or the Company at its address or
transmission number for notices provided in Section 1.5 of the Indenture or to
the Company at the address set forth below its signature. The Collateral Agent
and the Company may change their addresses and transmission numbers for notices
by notice in the manner provided in this Section.

<PAGE> 15

14. Termination of this Agreement. (a) Notwithstanding
any other provision of this Agreement except Section 12.3 hereof, and in the
absence of a claim for indemnification pursuant to Section 12.1 hereof, this
Agreement shall automatically terminate upon the satisfaction, discharge or
avoidance of the Obligations pursuant to the terms of the Subsidiary Guarantee
and the Indenture.

(b) Upon the termination of this Agreement and subject to the
terms of the Subsidiary Guarantee, the Collateral Agent shall execute and
deliver to the Company such documents of assignment as are reasonably necessary
to terminate the Collateral Agent's security interest in any Collateral granted
pursuant to this Agreement.

(c) If the Company ceases to be a Subsidiary of the Company
pursuant to Article VI of the Indenture and subject to the satisfaction of the
terms and conditions of the Indenture in general and Article VI in particular,
the Company shall automatically be released from all of its share of the
Obligations, and this Agreement shall terminate.

15. Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.

16. Amendments in Writing; No Waiver; Cumulative Remedies.

16.1 Amendments in Writing. None of the terms or
provisions of this Agreement may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Company and the
Collateral Agent in a manner pursuant to Article VI of the Indenture or any
other provision therein.

16.2 No Waiver by Course of Conduct. Neither the
Collateral Agent or any Holder shall by any act (except by a written instrument
pursuant to subsection 16.1 hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Collateral Agent or any Holder, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the Collateral
Agent or the Holders of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Collateral Agent or
the Holders would otherwise have on any future occasion.

<PAGE> 16

16.3 Remedies Cumulative. The rights and remedies
herein provided are cumulative, may be exercised singly or concurrently and are
not exclusive of any other rights or remedies provided by law.

17. Section Headings. The section and subsection headings used
in this Agreement are for convenience of reference only and are not to affect
the construction hereof or be taken into consideration in the interpretation
hereof.

18. Successors and Assigns. This Agreement shall be binding
upon the successors and assigns of the Company and shall inure to the benefit of
the Collateral Agent and its successors and assigns.

19. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

20. Submission To Jurisdiction; Waivers. The Company hereby
irrevocably and unconditionally:

(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement to which it is a party, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New
York, the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;

(b) consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter
have to the venue of any such action or proceeding in any such court or
that such action or proceeding was brought in an inconvenient court and
agrees not to plead or claim the same;

(c) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Company at its address set forth in Section 1.5 of the
Indenture or at such other address of which the Collateral Agent shall
have been notified pursuant thereto;

(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit
the right to sue in any other jurisdiction; and

(e) waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding
referred to in this subsection any special, exemplary, punitive or
consequential damages.

<PAGE> 17

IN WITNESS WHEREOF, the undersigned has caused this Security
Agreement to be duly executed and delivered as of the date first above written.

NEWPORT STEEL CORPORATION

By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------

Address:
--------------------------------

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

Fax: ( )
--------------------------

THE HUNTINGTON NATIONAL BANK,
as Collateral Agent

By:
-------------------------------------
Name:
--------------------------------
Title:
-------------------------------

Address:
--------------------------------

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

Fax: ( )
--------------------------

<PAGE> 18
Schedule 1

EQUIPMENT

List of Locations

1. Koppel, Pennsylvania (Beaver County)

2. Ambridge, Pennsylvania (Beaver County)

3. Baytown, Texas (Chambers County)

4. [LIST ADDITIONAL LOCATIONS, IF ANY]

<PAGE> 19
Schedule 2

REAL PROPERTY

<PAGE> 1
EXHIBIT 4.11

FORM OF

SUBSIDIARY SECURITY AGREEMENT

BETWEEN

KOPPEL STEEL CORPORATION

AND

THE HUNTINGTON NATIONAL BANK,
AS COLLATERAL AGENT

________ __, 1995
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . 3

2. Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . 3

3. Representations and Warranties . . . . . . . . . . . . . . . . . . . . 3
3.1 Title; No Other Liens . . . . . . . . . . . . . . . . . . . . 3
3.2 Perfected First Priority Liens . . . . . . . . . . . . . . . 4
3.3 Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . 4
3.4 Chief Executive Office . . . . . . . . . . . . . . . . . . . 4
3.5 Farm Products . . . . . . . . . . . . . . . . . . . . . . . . 4

4. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4.1 Delivery of Instruments and Chattel Paper . . . . . . . . . . 4
4.2 Marking of Records . . . . . . . . . . . . . . . . . . . . . 4
4.3 Maintenance of Insurance . . . . . . . . . . . . . . . . . . 4
4.4 Payment of Taxes, Assessments and Governmental Charges . . . 5
4.5 Maintenance of Perfected Security Interest;
Further Documentation . . . . . . . . . . . . . . . . . 5
4.6 Changes in Locations, Name, etc. . . . . . . . . . . . . . . 6
4.7 Further Identification of Collateral . . . . . . . . . . . . 6
4.8 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

5. Asset Sales and Receipt of Net Insurance Proceeds . . . . . . . . . . 6

6. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
6.2 Code Remedies . . . . . . . . . . . . . . . . . . . . . . . . 7
6.3 Deficiency . . . . . . . . . . . . . . . . . . . . . . . . . 8

7. Applicable Provisions of the Indenture . . . . . . . . . . . . . . . . 8

8. Collateral Agent's Appointment as Attorney-in-Fact; Collateral
Agent's Performance of Company's Obligations . . . . . . . . . . . . 8
8.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
8.2 Performance by Collateral Agent of Company's Obligations . . 9
8.3 Company's Reimbursement Obligation . . . . . . . . . . . . . 9
8.4 Ratification; Power Coupled With An Interest . . . . . . . . 9

9. Duty of Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . 9

</TABLE>

-i-
<PAGE> 3

<TABLE>
<CAPTION>
PAGE
<S> <C>
10. Execution of Financing Statements . . . . . . . . . . . . . . . . . . 10

11. Authority of Collateral Agent . . . . . . . . . . . . . . . . . . . . 10

12. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12.1 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . 10
12.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . 11
12.3 Reimbursements . . . . . . . . . . . . . . . . . . . . . . . 11

13. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

14. Termination of this Agreement . . . . . . . . . . . . . . . . . . . . 12

15. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

16. Amendments in Writing; No Waiver; Cumulative Remedies . . . . . . . . 12
16.1 Amendments in Writing . . . . . . . . . . . . . . . . . . . . 12
16.2 No Waiver by Course of Conduct . . . . . . . . . . . . . . . 12
16.3 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . 13

17. Section Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

18. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 13

19. GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

20. Submission To Jurisdiction; Waivers . . . . . . . . . . . . . . . . . 13

</TABLE>

-ii-
<PAGE> 4

FORM OF
SUBSIDIARY SECURITY AGREEMENT

SECURITY AGREEMENT, dated as of _________ __, 1995, made by
Koppel Steel Corporation, a Pennsylvania corporation, the Federal Employer
Identification Number of which is 25-1635833 (the "Company") in favor of THE
HUNTINGTON NATIONAL BANK, as collateral agent (in such capacity, the
"Collateral Agent"), the Federal Employer Identification Number of which is
__-________, under the Indenture dated _________ __, 1995 (as amended,
supplemented or otherwise modified from time to time, the "Indenture") between
the Collateral Agent (acting in its capacity as trustee) and NS Group, Inc.
(the "Parent"), for the benefit of the Holders of __% Senior Secured Notes due
2003 (the "Securities") issued by the Parent.

W I T N E S S E T H :

WHEREAS, the Company is the owner of the Collateral (as
hereinafter defined); and

1. Defined Terms.

(b) The following terms shall have the following meanings:

"Agreement" means this Security Agreement, as the same may be
amended, modified or otherwise supplemented from time to time.

"Code" means the Uniform Commercial Code as from time to time
in effect in the State of New York.
<PAGE> 5
2

"Collateral" has the meaning specified in Section 2 of this
Agreement.

"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
instrument or undertaking to which such Person is a party or by which
it or any of the property owned by it is bound.

"Net Insurance Proceeds" has the meaning specified in Section
4.3 of this Agreement.

"Subsidiary Guarantee" means the Subsidiary Guarantee dated an
even date herewith among the Company, Erlanger Tubular Corporation,
Imperial Adhesives, Inc., Newport Steel Corporation, Northern Kentucky
Air, Inc. and

<PAGE> 6
3

Northern Kentucky Management, Inc. and the Collateral Agent for the
benefit of the Holders, as the same may be amended, supplemented or
otherwise modified from time to time.

1.2 Other Definitional Provisions. (a) The words
"hereof," "herein" and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement, and section and paragraph references
are to this Agreement unless otherwise specified.

(b) All references to the Collateral Agent shall be
deemed to include a reference to the Trustee, and the reverse thereof shall
similarly apply.

(c) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.

2. Grant of Security Interest. As collateral security
for the prompt and complete payment and performance when due (whether at the
stated maturity, by acceleration or otherwise) of the Obligations, the Company
hereby grants to the Collateral Agent for the ratable benefit of the Holders a
security interest in all of the following property now owned or at any time
hereafter acquired by the Company or in which the Company now has or at any
time in the future may acquire any right, title or interest (collectively, the
"Collateral"):

(a) all Equipment including, without limitation, (i)
furniture, furnishings, tools, lubricants, spare parts, shelving,
displays, cases, accessories, motors and engines and (ii) with respect
to the foregoing all attachments, components, parts, equipment and
accessories installed thereon or affixed thereto;

(b) all Fixtures;

(d) to the extent not otherwise included, all Proceeds
and Products of any and all of the foregoing.

3. Representations and Warranties. The Company hereby
represents and warrants that:

agreement, financing statement or other public notice with respect to all or
any part of the Collateral is on file or of record in any public office, except
(a) such as have been filed in favor of the Collateral Agent, for the ratable
benefit of the Holders, pursuant to this Agreement, (b) such as have been filed
in favor of the Parent to secure the Company's obligations under its
Intercompany Note or (c) as are permitted pursuant to the Indenture.

3.3 Equipment. The Equipment is kept at the locations
listed on Schedule 1 hereto.

3.4 Chief Executive Office. The Company's chief
executive office and chief place of business is located at Ninth and Lowell
Streets, Newport, Kentucky 41072.

3.5 Farm Products. None of the Collateral constitutes,
or is the Proceeds of, Farm Products.

4.2 Marking of Records. The Company will include in its
books and records pertaining to the Collateral an appropriate reference to this
Agreement and the security interests created hereby.

4.3 Maintenance of Insurance. (a) The Company will
maintain, with financially sound and reputable companies, insurance policies
(1) insuring the Equipment and Fixtures against loss by fire, explosion, theft
and such other casualties as are usually and customarily carried with respect
to similar property and or facilities according to their respective locations
and (2) insuring the Company, the Collateral Agent and the Holders against
liability for personal injury and property
<PAGE> 8
5

damage relating to such Equipment and Fixtures, such policies to be in such
form and amounts and having such coverage as are usually and customarily
carried with respect to similar property and or facilities according to their
respective locations with losses payable to the Company and the Collateral
Agent ("Net Insurance Proceeds").

(b) All such insurance shall (1) provide that no
cancellation, material reduction in amount or material change in coverage
thereof shall be effective until at least 30 days after receipt by the
Collateral Agent of written notice thereof, (2) name the Collateral Agent as
the insured party and (3) subject to paragraph (a) above, be reasonably
satisfactory in all other respects to the Collateral Agent.

(c) The Company shall deliver to the Collateral Agent a
report of a reputable insurance broker with respect to such insurance during
the month of July in each calendar year and such supplemental reports with
respect thereto as the Collateral Agent may from time to time reasonably
request.

4.4 Payment of Taxes, Assessments and Governmental
Charges. The Company will pay and discharge or otherwise satisfy at or before
maturity or before they become delinquent, as the case may be, all taxes,
assessments and governmental charges or levies imposed upon the Collateral or
in respect of income or profits therefrom, as well as all claims of any kind
(including, without limitation, claims for labor, materials and supplies)
against or with respect to the Collateral, except that no such charge need be
paid if the amount, applicability or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of the Company and
such proceedings do not involve any material danger of the sale, forfeiture or
loss of any of the Collateral or any interest therein.

(b) At any time and from time to time, upon the written
request of the Collateral Agent and at the sole expense of the Company, the
Company will promptly and duly execute and deliver such further instruments and
documents and take such further action as the Collateral Agent may reasonably
request for the purpose of obtaining or preserving the full benefits of this
Agreement and of the rights and powers herein granted, including, without
limitation, the filing of any financing or continuation statements under the
Uniform Commercial Code in effect in any jurisdiction with respect to the
security interests created hereby.
<PAGE> 9
6

4.6 Changes in Locations, Name, etc. The Company will
not, unless it shall have given the Collateral Agent at least 30 days prior
written notice:

(a) permit any of the Equipment to be kept at a location
other than those listed on Schedule 1 hereto; or

(b) change the location of its chief executive office and
chief place of business from that specified in subsection 3.4; or

(c) change its name, identity, Federal taxpayer
identification number or corporate structure to such an extent that
any financing statement filed by the Collateral Agent in connection
with this Agreement would become seriously misleading.

4.8 Notices. The Company will advise the Collateral
Agent promptly, in reasonable detail, at its address set forth in the Indenture
of:

(a) any Lien (other than security interests created
hereby, the security interest granted to the Parent to secure the
Company's obligations under its Intercompany Note or Liens permitted
under the Indenture) on, or claim asserted against, any of the
Collateral; and

(b) of the occurrence of any other event which could
reasonably be expected to have a material adverse effect on the
aggregate value of the Collateral or on the security interests created
hereby.

5. Asset Sales and Receipt of Net Insurance Proceeds.
All cash, checks, instruments and other Proceeds of the Collateral from Asset
Sales or otherwise, including Net Insurance Proceeds, shall be held by the
Company in trust for the Collateral Agent and the Holders, segregated from the
other funds of the Company, and shall, immediately upon receipt by the Company,
be turned over to the Collateral Agent in the exact form received by the
Company (duly indorsed by the Company to the Collateral Agent, if required) and
held by the Collateral Agent in a Collateral Account maintained under the sole
dominion and control of the Collateral Agent, except as may be released to the
Company and or applied to the Obligations in accordance with Article XIII of
the Indenture. All proceeds while held by the Collateral Agent in a Collateral
Account (or by the Company in trust for the Collateral Agent and the Holders)
shall continue to be held as collateral security for all the Obligations and
shall not constitute payment thereof until applied as provided in subsection
8.1 or 8.2.
<PAGE> 10
7

6. Remedies.

6.1 Remedies. Subject to the provisions of Article VIII
of the Indenture, if an Event of Default shall have occurred and be continuing,
at any time at the Collateral Agent's election, the Collateral Agent may apply
all or any part of the Proceeds held in any Collateral Account in payment of
the Obligations in the manner set forth in Section 8.6 of the Indenture.

6.2 Code Remedies. Subject to the provisions of Article
VIII of the Indenture, if an Event of Default shall occur and be continuing,
the Collateral Agent on behalf of the Holders may exercise, in addition to all
other rights and remedies granted to them in this Agreement and in any other
instrument or agreement securing, evidencing or relating to the Obligations,
all rights and remedies of a secured party under the Code. Without limiting
the generality of the foregoing, the Collateral Agent without demand of
performance or other demand, presentment, protest, advertisement or notice of
any kind (except any notice required by law referred to below) to or upon the
Company or any other Person (all and each of which demands, defenses,
advertisements and notices are hereby waived), may in such circumstances
forthwith collect, receive, appropriate and realize upon the Collateral, or any
part thereof, and/or may forthwith sell, lease, assign, give option or options
to purchase, or otherwise dispose of and deliver the Collateral or any part
thereof (or contract to do any of the foregoing), in one or more parcels at
public or private sale or sales, at any exchange, broker's board or office of
the Collateral Agent or elsewhere upon such terms and conditions as it may deem
advisable and at such prices as it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Collateral Agent
shall have the right upon any such public sale or sales, and, to the extent
permitted by law, upon any such private sale or sales, to purchase the whole or
any part of the Collateral so sold, free of any right or equity of redemption
in the Company, which right or equity is hereby waived or released. The
Company further agrees, at the Collateral Agent's request, to assemble the
Collateral and make it available to the Collateral Agent at places which the
Collateral Agent shall reasonably select, whether at the Company's premises or
elsewhere. The Collateral Agent shall apply the net proceeds of any such
collection, recovery, receipt, appropriation, realization or sale, after
deducting all reasonable costs and expenses of every kind incurred therein or
incidental to the care or safekeeping of any of the Collateral or in any way
relating to the Collateral, in the manner set forth in Section 8.6 of the
Indenture. To the extent permitted by applicable law, the Company waives all
claims, damages and demands it may acquire against the Collateral Agent or any
Holder arising out of the exercise by them of any rights hereunder, except to
the extent any such claims, damages or demands were directly caused by the
Collateral Agent's gross negligence or willful misconduct. If any notice of a
proposed sale or other disposition of Collateral shall be required by law, such
notice shall be deemed reasonable and proper if given at least 10 days before
such sale or other disposition.
<PAGE> 11
8

7. Applicable Provisions of the Indenture. Section 12.2
through 12.10 of the Indenture is hereby incorporated by reference into this
Agreement and made a part of the same as if set forth herein. To the extent,
if any, that the provisions of this Agreement are inconsistent with the
provisions of Section 12.2 through 12.10 of the Indenture, the provisions of
the Indenture shall prevail.

8. Collateral Agent's Appointment as Attorney-in-Fact;
Collateral Agent's Performance of Company's Obligations.

8.1 Powers. The Company hereby irrevocably constitutes
and appoints the Collateral Agent and any officer or agent thereof, with full
power of substitution, as its true and lawful attorney-in-fact with full
irrevocable power and authority in the place and stead of the Company and in
the name of the Company or in its own name, from time to time in the Collateral
Agent's discretion, for the purpose of carrying out the terms of this
Agreement, to take any and all appropriate action and to execute any and all
documents and instruments which may be necessary or desirable to accomplish the
purposes of this Agreement, and, without limiting the generality of the
foregoing, the Company hereby gives the Collateral Agent the power and right,
on behalf of the Company, without notice to or assent by the Company, to do the
following:

(a) in the case of any Collateral, at any time when any
Event of Default shall have occurred and is continuing, in the name of
the Company or its own name, or otherwise, to take possession of and
indorse and collect any checks, drafts, notes, acceptances or other
instruments for the payment of moneys due with respect to any
Collateral and to file any claim or to take any other action or
proceeding in any court of law or equity or otherwise deemed
appropriate by the Collateral Agent for the purpose of collecting any
and all such moneys due with respect to any Collateral whenever
payable;

(b) to pay or discharge taxes and Liens levied or placed
on or threatened against the Collateral (except as provided by Section
4.4 of this Agreement), to effect any repairs or any insurance called
for by the terms of this Agreement and to pay all or any part of the
premiums therefor and the costs thereof;

(c) to execute, in connection with any Asset Sale
permitted by Section 6.15 of the Indenture or otherwise provided for
in Section 8 hereof, any endorsements, assignments or other
instruments of conveyance or transfer with respect to the Collateral;
and
<PAGE> 12
9

(d) upon the occurrence and during the continuance of any
Event of Default, (1) to direct any party liable for any payment under
any of the Collateral to make payment of any and all moneys due or to
become due thereunder directly to the Collateral Agent or as the
Collateral Agent shall direct; (2) to ask or demand for, collect,
receive payment of and receipt for, any and all moneys, claims and
other amounts due or to become due at any time in respect of or
arising out of any Collateral; (3) to sign and indorse any invoices,
freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications, notices
and other documents in connection with any of the Collateral; (4) to
commence and prosecute any suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect the
Collateral or any portion thereof and to enforce any other right in
respect of any Collateral; (5) to defend any suit, action or
proceeding brought against the Company with respect to any Collateral;
(6) to settle, compromise or adjust any such suit, action or
proceeding and, in connection therewith, to give such discharges or
releases as the Collateral Agent may deem appropriate; and (7)
generally, to sell, transfer, pledge and make any agreement with
respect to or otherwise deal with any of the Collateral as fully and
completely as though the Collateral Agent were the absolute owner
thereof for all purposes, and to do, at the Collateral Agent's option
and the Company's expense, at any time, or from time to time, all acts
and things which the Collateral Agent deems necessary to protect,
preserve or realize upon the Collateral and the Collateral Agent's
security interests therein and to effect the intent of this Agreement,
all as fully and effectively as the Company might do.

8.3 Company's Reimbursement Obligation. The expenses of
the Collateral Agent incurred in connection with actions undertaken as provided
in this Section, together with interest thereon at a rate per annum equal to
__% from the date of payment by the Collateral Agent to the date reimbursed by
the Company, shall be payable by the Company to the Collateral Agent on demand.

8.4 Ratification; Power Coupled With An Interest. The
Company hereby ratifies all that said attorneys shall lawfully do or cause to
be done by virtue hereof. All powers, authorizations and agencies contained in
this Agreement are coupled with an interest and are irrevocable until this
Agreement is terminated and the security interests created hereby are released.

the same manner as the Collateral Agent deals with similar property for its own
account, except that the Collateral Agent shall have no obligation to invest
funds held in any Collateral Account and may hold the same as demand deposits.
Neither the Collateral Agent nor any of its directors, officers, employees or
agents shall be liable for failure to demand, collect or realize upon any of
the Collateral or for any delay in doing so or shall be under any obligation to
sell or otherwise dispose of any Collateral upon the request of the Company or
any other Person or to take any other action whatsoever with regard to the
Collateral or any part thereof. The powers conferred on the Collateral Agent
hereunder are solely to protect the Collateral Agent's interests in the
Collateral and shall not impose any duty upon the Collateral Agent to exercise
any such powers. The Collateral Agent shall be accountable only for amounts
that it actually receives as a result of the exercise of such powers, and
neither it nor any of its officers, directors, employees or agents shall be
responsible to the Company for any act or failure to act hereunder, except for
their own gross negligence or willful misconduct.

10. Execution of Financing Statements. Pursuant to
Section 9-402 of the Code, the Company authorizes the Collateral Agent to file
financing statements with respect to the Collateral without the signature of
the Company in such form and in such filing offices as the Collateral Agent
reasonably determines appropriate to perfect the security interests of the
Collateral Agent under this Agreement. A carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement for
filing in any jurisdiction.

12. Indemnity.

12.1 Indemnity. (a) The Company agrees to indemnify, pay
and hold harmless the Collateral Agent and the officers, directors, employees,
agents and affiliates of the Collateral Agent (collectively called the
"Indemnitees") from and against any and all other liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs
(including, without limitation, settlement costs), expenses or disbursements of
any kind or nature whatsoever (including, without limitation, the reasonable
fees and disbursements of counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced
<PAGE> 14
11

or threatened, whether or not such Indemnitee shall be designated a party
thereto), which may be imposed on, incurred by, or asserted against that
Indemnitee, in any manner relating to or arising out of this Agreement, the
Indenture, the Subsidiary Guarantee or the Securities arising in any action
relating to, directly or indirectly, the Collateral or the subject of this
Agreement (including without limitation, any misrepresentation by the Company
in this Agreement (the "indemnified liabilities"); provided that the Company
shall have no obligation to an Indemnitee hereunder with respect to indemnified
liabilities if it has been determined by a final decision (after all appeals
and the expiration of time to appeal) by a court of competent jurisdiction that
such indemnified liability arose from the negligence or willful misconduct of
that Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Company shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all indemnified liabilities incurred by the
Indemnitees or any of them.

(b) The Company agrees to pay, and to save the Collateral
Agent harmless from, any and all liabilities, costs and expenses (including,
without limitation, legal fees and expenses) (1) with respect to, or resulting
from any delay in paying, any and all stamp, excise, sales or other taxes and
any and all recording and filing fees which may be payable or determined to be
payable with respect to any of the Collateral, (2) with respect to, or
resulting from, any delay in complying with any Requirement of Law applicable
to any of the Collateral and (3) in connection with any of the transactions
contemplated by this Agreement.

12.2 Survival. The obligations of the Company contained
in this Section 14 shall survive the termination of this Agreement and the
discharge of the Company's other obligations under this Agreement.

12.3 Reimbursements. Any amounts paid by any Indemnitee
as to which such Indemnitee has the right to reimbursement shall constitute
Obligations secured by the Collateral.

13. Notices. All notices, requests and demands to or
upon the Collateral Agent or the Company to be effective shall be in writing
(or by telex, fax or similar electronic transfer) and shall be deemed to have
been duly given or made (a) when delivered by hand or (b) if given by mail,
when deposited in the mails by certified mail, return receipt requested, or (c)
if by telex, fax or similar electronic transfer, when sent and receipt has been
confirmed, addressed to the Collateral Agent or the Company at its address or
transmission number for notices provided in Section 1.5 of the Indenture or to
the Company at the address set forth below its signature. The Collateral Agent
and the Company may change their addresses and transmission numbers for notices
by notice in the manner provided in this Section.
<PAGE> 15
12

15. Severability. Any provision of this Agreement which
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.

16. Amendments in Writing; No Waiver; Cumulative Remedies.

16.2 No Waiver by Course of Conduct. Neither the
Collateral Agent or any Holder shall by any act (except by a written instrument
pursuant to subsection 16.1 hereof), delay, indulgence, omission or otherwise
be deemed to have waived any right or remedy hereunder or to have acquiesced in
any Default or Event of Default or in any breach of any of the terms and
conditions hereof. No failure to exercise, nor any delay in exercising, on the
part of the Collateral Agent or any Holder, any right, power or privilege
hereunder shall operate as a waiver thereof. No single or partial exercise of
any right, power or privilege hereunder shall preclude any other or further
exercise thereof or the exercise of any other right, power or privilege. A
waiver by the Collateral Agent or the Holders of any right or remedy hereunder
on any one occasion shall not be construed as a bar to any right or remedy
which the Collateral Agent or the Holders would otherwise have on any future
occasion.
<PAGE> 16
13

16.3 Remedies Cumulative. The rights and remedies herein
provided are cumulative, may be exercised singly or concurrently and are not
exclusive of any other rights or remedies provided by law.

17. Section Headings. The section and subsection
headings used in this Agreement are for convenience of reference only and are
not to affect the construction hereof or be taken into consideration in the
interpretation hereof.

18. Successors and Assigns. This Agreement shall be
binding upon the successors and assigns of the Company and shall inure to the
benefit of the Collateral Agent and its successors and assigns.

20. Submission To Jurisdiction; Waivers. The Company
hereby irrevocably and unconditionally:

(a) submits for itself and its property in any legal
action or proceeding relating to this Agreement to which it is a
party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for
the Southern District of New York, and appellate courts from any
thereof;

(b) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any
such court or that such action or proceeding was brought in an
inconvenient court and agrees not to plead or claim the same;

(d) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or
shall limit the right to sue in any other jurisdiction; and

(e) waives, to the maximum extent not prohibited by law,
any right it may have to claim or recover in any legal action or
proceeding referred to in this subsection any special, exemplary,
punitive or consequential damages.
<PAGE> 17
14

IN WITNESS WHEREOF, the undersigned has caused this Security
Agreement to be duly executed and delivered as of the date first above written.

KOPPEL STEEL CORPORATION

By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------

Address:
-------------------------------
-------------------------------
-------------------------------

Fax: ( )
-------------

THE HUNTINGTON NATIONAL BANK,
as Collateral Agent

By:
--------------------------------------
Name:
---------------------------------
Title:
--------------------------------

Address:
-------------------------------
-------------------------------
-------------------------------
Fax: ( )
-------------
<PAGE> 18
Schedule 1

EQUIPMENT

List of Locations

1. Koppel, Pennsylvania (Beaver County)

2. Ambridge, Pennsylvania (Beaver County)

3. Baytown, Texas (Chambers County)

4. [LIST ADDITIONAL LOCATIONS, IF ANY]
<PAGE> 19
Schedule 2

REAL PROPERTY

<PAGE> 1
EXHIBIT 4.12

FORM OF

SUBSIDIARY SECURITY AGREEMENT

BETWEEN

ERLANGER TUBULAR CORPORATION

AND

THE HUNTINGTON NATIONAL BANK,
AS COLLATERAL AGENT

________ __, 1995

<PAGE> 2
TABLE OF CONTENTS

<TABLE>
<CAPTION>
Page
<S> <C>
1. Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . 3

2. Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . 3

5. Asset Sales and Receipt of Net Insurance Proceeds . . . . . . . . . . 6

7. Applicable Provisions of the Indenture . . . . . . . . . . . . . . . . 8

9. Duty of Collateral Agent . . . . . . . . . . . . . . . . . . . . . . . 9

</TABLE>

-i-
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C>
10. Execution of Financing Statements . . . . . . . . . . . . . . . . . . 10