NS GROUP INC, 424B4, 1997-09-19

NS GROUP INC
424B4, 1997-09-19
STEEL WORKS, BLAST FURNACES & ROLLING MILLS (COKE OVENS)

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<PAGE> 1
Filed pursuant to Rule 424(b)(4)
FILE NO. 333-32965

PROSPECTUS

7,500,000 SHARES

NS GROUP INC. LOGO

COMMON STOCK
------------------

Of the 7,500,000 shares of common stock, no par value (the "Common Stock"),
offered hereby (the "Offering"), 6,000,000 shares are being sold by the Company
and 1,500,000 shares are being sold by certain shareholders. See "Principal and
Selling Shareholders." The Company will not receive any of the proceeds from the
sale of the shares by the Selling Shareholders. The Common Stock is traded on
the New York Stock Exchange under the symbol "NSS." The last reported sale price
of the Common Stock on the New York Stock Exchange on September 18, 1997 was
$31.125 per share.
------------------

SEE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK.
------------------

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
================================================================================================
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS (1) COMPANY (2) SHAREHOLDERS
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share $30.00 $1.575 $28.425 $28.425
- ------------------------------------------------------------------------------------------------
Total (3) $225,000,000 $11,812,500 $170,550,000 $42,637,550
================================================================================================
</TABLE>

(1) For information regarding indemnification of the Underwriters, see
"Underwriting."

(2) Before deducting expenses estimated at $750,000, payable by the Company.

(3) Certain Selling Shareholders and the Company have granted to the
Underwriters a 30-day option to purchase up to 1,125,000 additional
shares of Common Stock solely to cover over-allotments, if any. See
"Underwriting." If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Shareholders will be $258,750,000, $13,584,375,
$185,907,885 and $59,257,740, respectively.

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

The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
September 24, 1997, at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------
SMITH BARNEY INC.
MCDONALD & COMPANY
SECURITIES, INC.
RAYMOND JAMES & ASSOCIATES, INC.

September 18, 1997
<PAGE> 2

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

The Company's tubular products are used primarily in oil and natural gas
drilling and production operations and in the transmission of oil, natural gas
and other fluids.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, ENTERING STABILIZING BIDS, EFFECTING SYNDICATE
COVERING TRANSACTIONS, AND IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE> 3

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial statements
included and incorporated by reference in this Prospectus. Unless otherwise
indicated or the context otherwise requires, all information in this Prospectus
assumes that the over-allotment option granted to the Underwriters by certain
Selling Shareholders and the Company is not exercised.

Unless the context otherwise requires, all references to the "Company"
refer to NS Group, Inc. and its subsidiaries. All references to a fiscal year
are to the fiscal year of the Company which ends on the last Saturday of
September (for example, references to "fiscal 1996" mean the fiscal year ended
September 28, 1996). All references to market share and industry data in this
Prospectus are based on independent industry and government publications and,
unless otherwise indicated, references to years denote calendar rather than
fiscal years.

THE COMPANY

The Company is a leading producer of specialty steel products serving the
energy industry. These products are produced at its two mini-mills, Newport
Steel Corporation ("Newport") and Koppel Steel Corporation ("Koppel"), and
include seamless and welded tubular goods which are primarily used in oil and
natural gas drilling and production operations (oil country tubular goods or
"OCTG") and line pipe which is used in the transmission of oil, natural gas and
other fluids. In addition, the Company manufactures special bar quality ("SBQ")
products which are primarily used in the manufacture of heavy industrial
products. Sales of specialty steel products represented 90.2% of the Company's
fiscal 1996 sales. The Company also manufactures various industrial adhesive
products, which represented 9.8% of fiscal 1996 sales. See "Business."

The demand for domestic OCTG products is primarily dependent on the number
of rigs actively drilling for oil and natural gas in the U.S. The monthly
average domestic active rig count was 893 for the first six months of 1997, up
22% from the average rig count for the first six months of 1996. The number of
tons of OCTG products shipped by domestic producers (excluding exports) has
increased over the last ten years from 588,000 tons in 1986 to 1,785,000 tons in
1996. Over the same time frame, drilling activity for natural gas has increased
due in part to an increase in the average daily consumption of natural gas from
44 billion cubic feet ("bcf") per day to 60 bcf per day. See "Industry
Overview." These recent improvements in the energy sector of the economy have
resulted in increased demand for the Company's energy-related tubular products,
particularly OCTG products. In the first nine months of fiscal 1997,
approximately 66% of the Company's shipments were to the energy industry versus
approximately 60% for all of fiscal 1996. The Company's net sales, operating
income and fully diluted net income (loss) per share for the nine months ended
June 28, 1997 were $349.1 million, $27.4 million and $.47 per share,
respectively, compared to $297.8 million, $7.6 million and $(.48) per share,
respectively, for the comparable prior year period.

The Company's strategy is to increase its net sales and profitability by
strengthening its position in selected energy-related markets as a high quality
producer of specialty steel products. In addition to emphasizing a high level of
ongoing customer service and support, key elements of the Company's strategy
include capitalizing on the improved OCTG markets, lowering manufacturing costs
per ton, expanding tubular product finishing capabilities and increasing
financial flexibility. See "Business -- Business Strategy."

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.

3
<PAGE> 4

RISK FACTORS

See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Common Stock.

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by:
The Company............................... 6,000,000 shares
The Selling Shareholders.................. 1,500,000 shares
-----------------
7,500,000 shares
=================
Common Stock to be outstanding after the
Offering.................................. 22,970,968 shares(1)
Use of proceeds............................. The net proceeds to the Company from the
Offering will be used to repay debt and for
general corporate purposes, primarily
consisting of capital expenditures. See "Use
of Proceeds."
NYSE Symbol................................. NSS
</TABLE>

- ---------------
(1) Based on shares outstanding as of August 15, 1997 and assumes conversion of
the Convertible Debentures (as defined) into 1,664,705 shares of Common
Stock, the exercise of certain GECC Warrants (as defined) into 500,000
shares of Common Stock and the issuance of shares of Common Stock in the
Offering, but does not include 272,481 shares which are reserved for
issuance upon exercise of the outstanding GECC Warrants not being exercised
in connection with this Offering, 1,013,380 shares which are reserved for
issuance upon exercise of the outstanding Registered Warrants (as defined)
and 1,151,192 shares which are reserved for issuance upon exercise of
outstanding stock options. See "Shares Eligible for Future Sale."

4
<PAGE> 5

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.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------------- FISCAL YEAR ENDED SEPTEMBER
JUNE 28, JUNE 29, ----------------------------------
1997 1996 1996 1995 1994
-------- -------------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER TON DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $349,130 $297,787 $409,382 $371,352 $303,380
Cost of products sold.............................. 301,696 269,636 369,585 337,270 278,161
Selling and administrative expenses................ 20,034 20,534 27,744 26,276 24,530
Operating income................................... 27,400 7,617 12,053 7,806 689
Net interest expense............................... 17,604 17,769 23,738 19,455 18,297
Gain on sale of subsidiary......................... -- -- -- -- 35,292(1)
Provision (credit) for income taxes................ 2,740 (3,269) (584) (3,540) 7,382
Extraordinary item................................. -- -- -- (5,200) --
Cumulative effect of a change in accounting
principle........................................ -- -- -- -- 1,715
Net income (loss).................................. 7,348 (6,583) (10,457) (10,256) 13,208
Income (loss) per share before extraordinary item
and change in accounting principle............... $ 0.53 $ (0.48) $ (0.76) $ (0.36) $ 0.84
Net income (loss) per share
Primary.......................................... $ 0.53 $ (0.48) $ (0.76) $ (0.74) $ 0.96
Fully diluted.................................... 0.47 (0.48) (0.76) (0.74) 0.96
OTHER FINANCIAL AND STATISTICAL DATA:
EBITDA(2).......................................... $ 41,595 $ 22,727 $ 32,594 $ 31,141 $ 21,566(3)
Capital expenditures............................... 3,187 5,787 6,510 12,233 10,394
Tons shipped:
Welded tubular products.......................... 305,800 254,400 348,900 322,900 277,600
Seamless tubular products........................ 121,200 116,100 157,400 116,600 92,300
SBQ products..................................... 115,700 96,500 133,700 169,000 147,900
Hot rolled coils and other products.............. 21,400 31,700 43,300 47,600 43,200
-------- -------- -------- -------- --------
Total tons shipped............................... 564,100 498,700 683,300 656,100 561,000
======== ======== ======== ======== ========
Average selling price per ton:
Welded tubular products.......................... $ 497 $ 445 $ 451 $ 450 $ 422
Seamless tubular products........................ 878 841 848 780 787
SBQ products..................................... 442 471 467 491 439
</TABLE>

<TABLE>
<CAPTION>
JUNE 28, 1997
---------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $ 98,631 $204,627
Total assets....................................... 322,520 425,080
Total debt......................................... 167,014 79,249
Common shareholders' equity........................ 65,458 258,137(5)
</TABLE>

- ---------------
(1) Represents the gain on the sale of Kentucky Electric Steel Corporation
("KES"). See Note 2 to the Consolidated Financial Statements.

(2) EBITDA represents earnings before 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 interest
expense, taxes, depreciation and amortization. EBITDA does not represent and
should not be considered as an alternative to net income or 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.

(3) Excludes the gain on the sale of KES.

(4) Presented on an as adjusted basis assuming the conversion of all of the
$28.3 million aggregate principal amount of Convertible Debentures into
1,664,705 shares of Common Stock and the exercise of a portion of the GECC
Warrants into 500,000 shares of Common Stock and giving effect to the
Offering and the application of the estimated net proceeds therefrom as
described in "Use of Proceeds."

(5) Includes the after-tax effect of an extraordinary charge of $9.4 million for
prepayment premiums on certain debt to be repaid with a portion of the net
proceeds of the Offering and the related write-off of unamortized debt
issuance costs. Such charge will be incurred in the fiscal quarter in which
the Offering closes and the concurrent redemption notice is given.

5
<PAGE> 6

RISK FACTORS

In addition to the other information set forth in this Prospectus,
prospective investors should carefully consider the following risk factors in
evaluating the Company and its business before purchasing shares of Common
Stock. The matters discussed or incorporated by reference in this Prospectus
that are forward-looking statements (as defined in the Private Securities
Litigation Reform Act of 1995) involve risks and uncertainties. Such risks and
uncertainties include, but are not limited to: the level of domestic as well as
worldwide oil and natural gas drilling activity; general economic conditions;
product demand and industry capacity; industry pricing; the presence or absence
of governmentally imposed trade restrictions; manufacturing efficiencies;
volatility in raw material costs, particularly steel scrap; costs of compliance
with environmental regulations; product liability or other claims; and the
Company's ability to meet operating cash requirements, including capital
expenditures. These risks and uncertainties may cause the actual results or
performance of the Company to differ materially from any future results or
performance expressed or implied by such forward-looking statements.

DEPENDENCE ON OIL COUNTRY TUBULAR GOODS MARKET

OCTG products represent the Company's principal product lines and largest
source of net sales, representing 58.1% and 45.7% of the Company's net sales for
the nine months ended June 28, 1997 and for fiscal 1996, respectively. The
domestic market for OCTG is primarily dependent upon domestic oil and natural
gas drilling activity, which is largely dependent on the number of rigs actively
drilling for oil and natural gas in the U.S. 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. Over the last decade, the average annual
rig count has varied significantly from a high of 1,009 in 1990 to a low of 721
in 1992. The average monthly rig count was 893 for the first six months of 1997.
Any increases in rig count 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 significantly 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 variations from year to year. No assurance can be
given as to the level of future demand for the Company's products.

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. Inventory levels have been rising in
recent periods. There can be no assurance that OCTG inventories will not become
excessive or that substantial draw downs of such inventories will not occur,
which could have a material adverse effect on price levels and the quantity of
OCTG products sold by the Company. See "Industry Overview."

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, as noted above. 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, off-road vehicles and
heavy machinery components and industrial investment in new plants and
facilities. Future economic downturns may adversely affect the Company. See
"Business -- Products."

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 the Company will have
sufficient internally generated cash or available acceptable external financing
to make the necessary capital expenditures for an extended period of time.

6
<PAGE> 7

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 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 cost than the Company's cost to manufacture hot rolled coils. Additional
announced hot rolled manufacturing capacity is anticipated and may cause a
reduction in the market prices for hot rolled coils. Moreover, by steel industry
standards, the barriers to entry into the welded tubular market with respect to
capital investment are low.

The domestic steel industry historically has 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. The U.S. government is
currently imposing duties on the imports of various OCTG products from certain
foreign countries in response to antidumping and countervailing duty cases filed
by several U.S. steel companies (the "Trade Cases"). Several foreign OCTG
producers, as well as certain U.S. producers, have appealed the determinations
to U.S. and international courts or panels. The duties are subject to annual and
five-year reviews by the U.S. Department of Commerce. Over the last decade, OCTG
market penetration by imports in the United States reached a high of 45% in
1988. For the first six months of 1997, import levels had dropped to 15% of
total shipments, which the Company believes is due to increased worldwide OCTG
demand and the impact of the duties on imports imposed by the U.S. in response
to the Trade Cases. The Company cannot predict the U.S. government's future
actions regarding import duties or other trade restrictions on imports of OCTG
products or the impact of such actions on its sales of OCTG products. See
"Industry Overview" and "Business -- Competition."

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 supply and demand factors, 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. Operation of new
mini-mills in the same geographic region as the Company will increase the demand
for steel scrap and may result in an increase in steel scrap costs to the
Company.

VARIABILITY OF FINANCIAL RESULTS

Excluding the gain on the sale of Kentucky Electric Steel, Inc. ("KES") in
fiscal 1994, the Company recorded a net loss in each of its last five fiscal
years. See "Selected Consolidated Financial Data" and "Management's Discussion
and Analysis of Results of Operations and Financial Condition." From fiscal 1992
through fiscal 1996, the Company's results of operation were adversely affected
by a number of factors, including, without limitation, a decline in domestic
drilling activity; 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; and increases in the cost of steel scrap, the
Company's principal raw material. There is no assurance that similar events and
circumstances or other events or circumstances, such as an economic

7
<PAGE> 8

downturn adversely affecting the steel industry generally or the Company in
particular, will not occur in the future, and any of these events or
circumstances could have a material adverse effect on the Company.

OWNERSHIP CONTROL OF MANAGEMENT

Three of the Company's six directors are executive officers of the Company.
Executive officers and directors of the Company, as a group, after giving effect
to the Offering, will beneficially own 22.3% of the Common Stock. As a result,
they will continue to have sufficient voting power to influence the election of
the Company's Board of Directors and the policies of the Company. See "Principal
and Selling Shareholders."

COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS

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 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 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.

Among the more significant environmental matters involving the Company are:
(1) a Notice of Violation issued by the EPA to Koppel in November 1996; (2) a
Consent Order signed by Koppel and the EPA in March 1995 relating to an April
1990 RCRA facility assessment; (3) potential remediation pertaining to Newport's
closed loop water recirculation system; and (4) storage, treatment and disposal
of contaminated electric arc furnace dust resulting from two separate accidental
meltings of radioactive substances at Newport occurring in fiscal 1992 and
fiscal 1993. For a more complete description of each of these matters and the
current status thereof, as well as a description of certain other environmental
matters involving the Company, see "Business -- Environmental Matters."

Based upon its evaluation of available information, management does not
believe that any of the environmental contingency matters affecting the Company
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 its environmental contingency
matters, individually or in the aggregate, will not have a material adverse
effect on the Company's consolidated financial position or results of operations
or cash flows, nor can the Company predict the level of required capital
expenditures or operating costs that may result from future environmental
regulations.

RESTRICTIVE COVENANTS

Although the net proceeds of the Offering will be used in part to repay
certain indebtedness, the Company will continue to be subject to certain
restrictive covenants under its debt instruments. The Company's $45.0 million
revolving credit facility (the "Credit Facility") prescribes minimum levels of
net worth and working capital and requires the maintenance of a prescribed
interest coverage ratio, current ratio and ratio of total liabilities to net
worth. The Credit Facility and the indenture under which the Company's 13 1/2%
Senior Secured Notes due 2003 (the "Senior Secured Notes") were issued contain
certain restrictive covenants that, among other things, could limit the ability
of the Company to incur additional indebtedness, pay dividends or distributions,
make investments, create liens, engage in transactions with affiliates, engage
in sale and leaseback transactions, dispose of assets, issue or sell stock of
its subsidiaries and engage in mergers, consolidations and transfers of
substantially all of the Company's assets. The effect of these restrictions may
place the Company at a competitive disadvantage in relation to its competitors.

PRODUCT LIABILITY

Certain losses may result or be alleged to result from defects in the
Company's specialty steel products and adhesives 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

8
<PAGE> 9

insurance coverage will not be incurred or that the Company will be able to
maintain insurance with adequate coverage levels.

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Giving effect to the Offering,
including the sale of 500,000 shares which will be issued upon the exercise of
certain of the warrants issued in connection with the financing of the Koppel
acquisition (exercisable at a price of $8 per share) (the "GECC Warrants") and
the conversion of the Company's 11% Subordinated Convertible Debentures
(convertible at a price of $17 per share) (the "Convertible Debentures") into
1,664,705 shares, the Company would have had 22,970,968 shares of issued and
outstanding Common Stock at August 15, 1997. Also giving effect to the Offering,
the Company would have had 1,151,192 shares of Common Stock reserved for
issuance upon the exercise of outstanding stock options, 272,481 shares of
Common Stock reserved for issuance upon exercise of the GECC Warrants not being
exercised in connection with the Offering and 1,013,380 shares of Common Stock
reserved for issuance upon the exercise of warrants issued in connection with
the Senior Secured Notes (exercisable at a price of $4 per share) (the
"Registered Warrants"). The holders of the 664,705 shares to be issued upon
conversion of the Convertible Debentures which are not being sold in this
Offering (absent exercise of the over-allotment option relating to 434,705 of
such shares) and the holders of the GECC Warrants have certain registration
rights and a registration statement is effective with respect to the shares
underlying the Registered Warrants. The Company has agreed not to issue any
securities or file a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") subject to certain exceptions, for a period of
120 days following the date of the Prospectus relating to the Offering without
the prior written consent of Smith Barney Inc. Certain Selling Shareholders and
the Company have granted the Underwriters an over-allotment option to purchase
up to 1,125,000 shares of Common Stock, 540,295 of which would be sold by the
Company. All directors and officers of the Company, as a group, after giving
effect to the Offering, would beneficially own approximately 22.3% of the Common
Stock, and their shares may be "restricted securities" as that term is defined
by Rule 144 promulgated under the Securities Act and may not be sold other than
pursuant to an effective registration statement under the Securities Act or
pursuant to an exemption from such registration requirement. See "Shares
Eligible for Future Sale."

CERTAIN ANTI-TAKEOVER PROVISIONS

The Company's authorized stock includes 2,000,000 shares of Class A
Preferred Stock, par value $10 per share (the "Preferred Stock"), issuable in
one or more series. The rights, preferences, privileges and restrictions of any
series of Preferred Stock, the number of shares constituting any such series and
the designation thereof, are subject to determination by the Board of Directors.
The rights of the holders of the Common Stock will be subject to, and may be
adversely affected by, the rights of the holders of any Preferred Stock that may
be issued in the future.

400,000 shares of Preferred Stock has been designated as Series A Junior
Participating Preferred Stock, par value $10 per share ("Series A Junior
Participating Preferred Stock"), in connection with the Preferred Stock Purchase
Rights Plan adopted by the Company in fiscal 1989 (the "Rights Plan").

The existence of the authorized and unissued Preferred Stock and the Rights
Plan have certain anti-takeover effects. See "Description of Capital Stock."

POSSIBLE VOLATILITY OF STOCK PRICE

There has been and may be volatility in the market price of the Common
Stock. Quarterly operating results of the Company, deviations in results of
operations from estimates of securities analysts, changes in general conditions
in the economy or the energy or steel industries or other developments affecting
the Company or its competitors could cause the market price of the Common Stock
to fluctuate substantially. The equity markets have, on occasion, experienced
significant price and volume fluctuations that have affected the market prices
for many companies' securities and that have been unrelated to the operating
performance of such companies. Any such fluctuations that occur following
completion of the Offering may adversely affect the market price of the Common
Stock. Recent increases in the market price of the Common Stock will increase
the number of shares utilized in calculating earnings per share under the
treasury stock method.

9
<PAGE> 10

USE OF PROCEEDS

The net proceeds to the Company from the Offering are estimated to be
approximately $169.8 million ($185.2 million if the Underwriters' over-allotment
option is exercised in full) after deducting underwriting discounts and
commissions and estimated offering expenses. The Company expects to use
approximately $59.5 million of the net proceeds of the Offering to redeem $52.4
million of the outstanding principal amount of the Company's 13.5% Senior
Secured Notes due 2003 at 113.50% of the principal amount thereof pursuant to
the optional redemption provision of the Indenture under which the Senior
Secured Notes were issued. The Company will use a portion of the net proceeds to
retire other corporate debt, including $6.4 million to repay an 11% urban
development area grant loan from the City of Dayton, Kentucky due in quarterly
installments through December 2011 and $3.5 million to prepay 11% subordinated
notes due in equal quarterly installment through October 1999. The remaining net
proceeds will be used for general corporate purposes, primarily consisting of
capital expenditures. The Company will not receive any proceeds from the sale of
the Common Stock by the Selling Shareholders. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."

PRICE RANGE OF COMMON STOCK AND DIVIDENDS

The Common Stock is traded on the New York Stock Exchange (the "NYSE")
under the symbol NSS. The following table sets forth the high and low sales
prices of the Common Stock on the NYSE Composite Tape for the periods shown.

<TABLE>
<CAPTION>
MARKET PRICE
------------
HIGH LOW
---- ---
<S> <C> <C>
FISCAL 1995
First Quarter......................................................... $ 6 3/4 $ 4
Second Quarter........................................................ 5 1/4 3 3/4
Third Quarter......................................................... 4 5/8 2 3/8
Fourth Quarter........................................................ 4 1/2 2 7/8
FISCAL 1996
First Quarter......................................................... $ 3 $ 1 7/8
Second Quarter........................................................ 3 1/8 2 1/8
Third Quarter......................................................... 3 1/8 2 1/2
Fourth Quarter........................................................ 3 3/4 2 1/2
FISCAL 1997
First Quarter......................................................... $ 4 3/8 $ 3
Second Quarter........................................................ 5 5/8 4 1/8
Third Quarter......................................................... 11 7/8 4 3/4
Fourth Quarter (through September 18, 1997)........................... 34 1/2 11 1/2
</TABLE>

On September 18, 1997, the last reported sale price of the Common Stock on
the NYSE was $31.125 per share. As of June 28, 1997 the number of shareholders
of record of the Common Stock was 316.

The Company has not paid a dividend on its Common Stock since the second
quarter of fiscal 1992. The payment of dividends in the future is subject to the
discretion of the Board of Directors and will depend upon general business
conditions, legal and contractual restrictions on the payment of dividends and
other factors the Board of Directors of the Company may deem to be relevant. As
a holding company, the Company depends on dividends and other permitted payments
from its subsidiaries to pay cash dividends to its shareholders. The payment of
cash dividends is subject to restrictions contained in the Company's debt
instruments.

10
<PAGE> 11

CAPITALIZATION

The following table sets forth the cash, cash equivalents and short-term
investments, short-term debt and capitalization of the Company as of June 28,
1997, and as adjusted assuming the conversion of all of the $28.3 million
aggregate principal amount of the Convertible Debentures into 1,664,705 shares
of Common Stock and the exercise of a portion of the GECC Warrants into 500,000
shares of Common Stock and giving effect to the Offering and the application of
the estimated net proceeds therefrom as described in "Use of Proceeds." This
information 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.

<TABLE>
<CAPTION>
AS OF JUNE 28, 1997
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and short-term investments..................... $ 21,183 $ 125,540
========= =========
Short-term debt:
Current portion of long-term debt................................... $ 3,239 $ 1,600
Revolving credit facility........................................... 0 0
Other notes payable................................................. 1,086 1,086
--------- ---------
Total short-term debt............................................ $ 4,325 $ 2,686
========= =========
Long-term debt, less current portion:
Senior Secured Notes................................................ $131,096 $ 78,658
Unamortized discount on Senior Secured Notes..................... (7,245) (4,347)
--------- ---------
Senior Secured Notes -- net of discount.......................... 123,851 74,311
Convertible Debentures.............................................. 28,300 0
Other long-term debt................................................ 10,538 2,252
--------- ---------
Total long-term debt............................................. 162,689 76,563
--------- ---------
Common shareholders' equity:
Common Stock, no par value -- 40,000,000 shares authorized and
14,078,454 (23,243,159 as adjusted) shares issued and outstanding
(1).............................................................. 50,425 252,590
Common Stock options and warrants................................... 2,622 2,557
Unrealized gain (loss) on available for sale securities............. (1,562) (1,562)
Retained earnings................................................... 13,973 4,552(2)
--------- ---------
Total common shareholders' equity................................ 65,458 258,137
--------- ---------
Total capitalization.................................................. $228,147 $ 334,700
========= =========
</TABLE>

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

(1) "Actual" does not include 772,481 shares which are reserved for issuance
upon exercise of outstanding GECC Warrants, 1,422,671 shares which are
reserved for issuance upon exercise of outstanding Registered Warrants,
1,469,710 shares which are reserved for outstanding stock options and
1,664,705 shares which are reserved for conversion of the Convertible
Debentures. "As Adjusted" assumes conversion of all of the Convertible
Debentures into 1,664,705 shares of Common Stock, the exercise of a portion
of the GECC Warrants into 500,000 shares of Common Stock and the issuance of
the shares of Common Stock in the Offering. "As Adjusted" does not include
272,481 shares which are reserved for issuance upon exercise of the GECC
Warrants not exercised in connection with the Offering, 1,422,671 shares
which are reserved for issuance upon exercise of outstanding Registered
Warrants and 1,469,710 shares which are reserved for issuance upon exercise
of outstanding stock options. See "Description of Capital Stock."

(2) Includes the after-tax effect of an extraordinary charge of $9.4 million for
prepayment costs to redeem a portion of the Senior Secured Notes and the
related write-off of unamortized debt issuance costs. The reduction will be
reflected in the fiscal quarter in which the Offering closes and the
concurrent redemption notice is given.

11
<PAGE> 12

SELECTED CONSOLIDATED FINANCIAL DATA

The following table sets forth selected consolidated financial data for the
Company. The selected consolidated financial data (other than the data under the
captions "Tons shipped" and "Average selling price per ton") for the five years
in the period ended September 28, 1996 are derived from, and should be read in
conjunction with, the audited consolidated financial statements of the Company.
The selected consolidated financial data shown below is unaudited for the fiscal
1997 and 1996 nine month periods. In the opinion of management, all adjustments
considered necessary for a fair presentation have been included in the unaudited
consolidated financial statements of the Company. Interim results for the nine
months ended June 28, 1997 are not necessarily indicative of results that can be
expected for the fiscal year ending September 27, 1997. 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.

The following data includes KES for fiscal 1992 and 1993 and the impact of
its sale in fiscal 1994. See Note 2 to the Consolidated Financial Statements.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------- FISCAL YEAR ENDED SEPTEMBER
JUNE 28, JUNE 29, --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................. $349,130 $297,787 $409,382 $371,352 $ 303,380 $ 353,082 $ 281,242
Cost of products sold..................... 301,696 269,636 369,585 337,270 278,161 310,586 250,189
Selling and administrative expenses....... 20,034 20,534 27,744 26,276 24,530 30,824 29,652
-------- -------- -------- -------- --------- --------- ---------
Operating income.......................... 27,400 7,617 12,053 7,806 689 11,672 1,401
Net interest expense...................... 17,604 17,769 23,738 19,455 18,297 20,819 21,075
Other income (expense), net............... 292 300 644 3,053 1,191 (131) 258
Gain on sale of subsidiary(1)............. -- -- -- -- 35,292 -- --
Provision (credit) for income taxes....... 2,740 (3,269) (584) (3,540) 7,382 (3,382) (6,058)
Extraordinary items....................... -- -- -- (5,200) -- (1,095) (2,542)
Cumulative effect of a change in
accounting principle.................... -- -- -- -- 1,715 -- --
-------- -------- -------- -------- --------- --------- ---------
Net income (loss)......................... $ 7,348 $ (6,583) $(10,457) $(10,256) $ 13,208 $ (6,991) $ (15,900)
======== ======== ======== ======== ========= ========= =========
Income (loss) per share before
extraordinary items and change in
accounting principle.................... $ 0.53 $ (0.48) $ (0.76) $ (0.36) $ 0.84 $ (0.44) $ (0.99)
Net income (loss) per share
Primary................................. $ 0.53 $ (0.48) $ (0.76) $ (0.74) $ 0.96 $ (0.52) $ (1.18)
Fully diluted........................... 0.47 (0.48) (0.76) (0.74) 0.96 (0.52) (1.18)
Cash dividends declared per share......... -- -- -- -- -- -- $ 0.06
</TABLE>

12
<PAGE> 13

<TABLE>
<CAPTION>
NINE MONTHS ENDED
-------------------- FISCAL YEAR ENDED SEPTEMBER
JUNE 28, JUNE 29, ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AND PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER FINANCIAL AND STATISTICAL DATA:
EBITDA(2)............................. $ 41,595 $ 22,727 $ 32,594 $ 31,141 $ 21,566(3) $ 30,355 $ 20,515
Capital expenditures.................. 3,187 5,787 6,510 12,233 10,394 5,488 4,148
Tons shipped:
Welded tubular products............. 305,800 254,400 348,900 322,900 277,600 308,000 246,500
Seamless tubular products........... 121,200 116,100 157,400 116,600 92,300 76,900 45,400
SBQ products........................ 115,700 96,500 133,700 169,000 147,900 346,900 289,900
Hot rolled coils and other
products.......................... 21,400 31,700 43,300 47,600 43,200 16,400 9,400
-------- -------- -------- -------- -------- -------- --------
Total tons shipped.................. 564,100 498,700 683,300 656,100 561,000 748,200 591,200
======== ======== ======== ======== ======== ======== ========

Average selling price per ton:
Welded tubular products............. $ 497 $ 445 $ 451 $ 450 $ 422 $ 406 $ 420
Seamless tubular products........... 878 841 848 780 787 813 833
SBQ products........................ 442 471 467 491 439 396 399
BALANCE SHEET DATA (AT PERIOD END):
Working capital....................... $ 98,631 $ 77,632 $ 80,905 $ 72,854 $ 50,682 $ 43,174 $ 44,198
Total assets.......................... 322,520 308,077 300,034 298,497 315,327 317,242 319,079
Total debt............................ 167,014 169,951 168,136 168,909 182,525 192,155 193,753
Common shareholders' equity........... 65,458 61,321 57,116 68,110 76,464 62,622 68,574
</TABLE>

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

(1) Represents the gain on the sale of KES. See Note 2 to the Consolidated
Financial Statements.
(2) EBITDA represents earnings before 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 interest
expense, taxes, depreciation and amortization. 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.
(3) Excludes the gain on the sale of KES.

13
<PAGE> 14

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

The following condensed analysis of financial condition and results of
operations of the Company should be read in conjunction with the Company's
annual and quarterly reports filed with the Commission, which are incorporated
by reference herein, as well as the Consolidated Financial Statements and
related Notes thereto, and the other financial information and "Risk Factors"
included in this Prospectus.

GENERAL

The Company operates in two 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,
and Koppel, a manufacturer of seamless tubular steel products and SBQ products.
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 industrial
equipment; 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 Adhesives, Inc. ("Imperial"), a manufacturer of
industrial adhesives products.

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 of the newly formed public company.

RECENT RESULTS

Recent increases in demand for the Company's energy related products have
resulted in steady improvements in shipments, sales, and operating profit for
the Company's specialty steel products, particularly its welded tubular steel
products. In the first nine months of fiscal 1997, approximately 66% of the
Company's shipments were to the energy industry versus 60% for all of fiscal
1996. The following table sets forth certain information with respect to the
Company and its Newport and Koppel operations for the first three quarters of
fiscal 1997.

<TABLE>
<CAPTION>
FISCAL 1997
--------------------------------------------------
THIRD QUARTER SECOND QUARTER FIRST QUARTER
------------- -------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
TONS SHIPPED:
Newport
Welded tubular products................................ 121,800 90,200 93,800
Hot rolled coils and other products.................... 6,100 7,600 7,700
Koppel
Seamless tubular products.............................. 47,200 40,400 33,600
SBQ products........................................... 40,200 39,500 36,000
-------- -------- ---------
215,300 177,700 171,100
======== ======== =========
NET SALES:
Newport
Welded tubular products................................ $ 61,725 $ 45,300 $ 44,890
Hot rolled coils and other products.................... 2,327 2,944 3,196
Koppel
Seamless tubular products.............................. 40,208 35,210 30,917
SBQ products........................................... 17,772 17,445 15,977
-------- -------- ---------
$ 122,032 $100,899 $ 94,980
======== ======== =========
OPERATING INCOME BEFORE CORPORATE ALLOCATIONS:
Newport.................................................. $ 6,503 $ 5,281 $ 5,021
Koppel................................................... 6,562 4,517 1,640
-------- -------- ---------
$ 13,065 $ 9,798 $ 6,661
======== ======== =========
NET INCOME PER COMMON SHARE:
Primary.................................................. $ .34 $ .16 $ .02
Fully diluted............................................ .32 .16 .02
</TABLE>

14
<PAGE> 15

RESULTS OF OPERATIONS

The Company's net sales, gross profit and operating income by business
segment for the nine month periods ended June 28, 1997 and June 29, 1996 and for
each of the three fiscal years in the period ended September 28, 1996 are
summarized below. Fiscal 1995 contains fifty-three weeks and fiscal 1996 and
fiscal 1994 contain fifty-two weeks. As such, the increases and decreases in
operating results for the comparative periods, as discussed below, were
partially attributable to the additional week of operations in fiscal 1995.

<TABLE>
<CAPTION>
NINE MONTHS ENDED
--------------------- FISCAL YEAR ENDED
JUNE 28, JUNE 29, ----------------------------------
1997 1996 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NET SALES:
Specialty steel segment
Newport..................................... $160,382 $125,507 $173,615 $162,003 $132,908
Koppel...................................... 157,529 143,119 195,851 173,880 137,533
-------- -------- -------- -------- --------
317,911 268,626 369,466 335,883 270,441
Adhesives segment............................. 31,219 29,161 39,916 35,469 32,939
-------- -------- -------- -------- --------
$349,130 $297,787 $409,382 $371,352 $303,380
======== ======== ======== ======== ========
GROSS PROFIT:
Specialty steel segment
Newport..................................... $ 21,655 $ 2,034 $ 3,966 $ 4,171 $ 2,088
Koppel...................................... 17,931 19,180 26,251 22,266 15,473
-------- -------- -------- -------- --------
39,586 21,214 30,217 26,437 17,561
Adhesives segment............................. 7,848 6,937 9,580 7,645 7,658
-------- -------- -------- -------- --------
$ 47,434 $ 28,151 $ 39,797 $ 34,082 $ 25,219
======== ======== ======== ======== ========
OPERATING INCOME (LOSS):
Specialty steel segment
Newport..................................... $ 16,805 $ (4,354) $ (4,855) $ (5,708) $ (6,133)
Koppel...................................... 12,719 14,354 19,741 16,136 9,042
-------- -------- -------- -------- --------
29,524 10,000 14,886 10,428 2,909
Adhesives segment............................. 1,185 1,080 1,597 1,248 1,150
Corporate allocations......................... (3,309) (3,463) (4,430) (3,870) (3,370)
-------- -------- -------- -------- --------
$ 27,400 $ 7,617 $ 12,053 $ 7,806 $ 689
======== ======== ======== ======== ========
</TABLE>

Shipment and sales data for the Company's specialty steel segment for the
nine months ended June 28, 1997 and June 29, 1996 and for each of the three
fiscal years in the period ended September 28, 1996 were as follows:

15
<PAGE> 16

NINE MONTHS FISCAL 1997 COMPARED WITH NINE MONTHS FISCAL 1996

Net sales for the nine months ended June 28, 1997 increased $51.3 million,
or 17.2%, from the comparable prior year period, to $349.1 million. Specialty
steel segment net sales increased $49.3 million, or 18.3% and adhesives segment
net sales increased $2.1 million, or 7.1%, for the first nine months of fiscal
1997. The overall increase in specialty steel segment net sales was primarily
attributable to increased shipments and average selling prices of the Company's
tubular products as more fully discussed below.

Total welded tubular net sales for the first nine months of fiscal 1997
increased $38.7 million, or 34.2%, on a volume increase of 20.2%, from the
comparable prior year period. The average selling price for all welded tubular
products for the first nine months of fiscal 1997 increased 11.7% compared to
the same period of fiscal 1996. Selling prices have increased on the strength of
the OCTG marketplace, which saw the average rig count increase from 744 to 877,
or 18%, over the comparable prior year period. Shipments of welded tubular
products for the first nine months of fiscal 1997 were negatively affected by
the loss of approximately two weeks of production at one of Newport's welded
pipe mills due to weather related flooding.

Seamless tubular net sales increased $8.7 million, or 8.9%, on a volume
increase of 4.4%, for the first nine months of fiscal 1997. The increase in
total seamless tubular net sales was primarily due to increased shipments of
seamless OCTG products, attributable to increased domestic and international
drilling activity, including off-shore drilling. The increase in total seamless
tubular net sales was moderated by a decrease in sales and shipments of seamless
line pipe. Average selling prices for all seamless tubular products for the
first nine months of fiscal 1997 increased 4.4% over the comparable period in
fiscal 1996, partially due to a change in product mix resulting from an emphasis
on OCTG products.

SBQ product net sales increased $5.8 million, or 12.7%, on a volume
increase of 19.9% from the comparable nine month period. Average selling price
for SBQ products for the same period decreased 6.2%. While shipments of SBQ
products are above comparable prior year levels, market and competitive
conditions resulted in lower pricing. Other product shipments are primarily the
sale of hot rolled coils.

For the nine months ended June 28, 1997, gross profit increased $19.3
million for a gross profit margin of 13.6% compared to 9.5% in the comparable
prior year period. The specialty steel segment gross profit increased $18.4
million for the nine months ended June 28, 1997 and gross profit margin
increased to 12.5% from 7.9% for the comparable prior year period. The increase
in specialty steel segment gross profit and margin was primarily attributable to
Newport's operations, where gross profit margins increased to 13.5% from 1.6% as
a result of higher average selling prices, improved operating efficiencies, cost
reduction initiatives, and increased shipments of welded OCTG product. Koppel's
gross profit margin for the nine months ended June 28, 1997 decreased to 11.4%
from 13.4% primarily due to a decrease in SBQ selling prices and lower operating
efficiencies in its tubular operations resulting from a fiscal 1997 first
quarter scheduled maintenance outage.

The adhesives segment gross profit increased $0.9 million for the first
nine months of fiscal 1997 due primarily to an increase in sales volume and
slightly lower raw material costs. Gross profit margin was 25.1% compared to
23.8% for the comparable period of fiscal 1996.

Selling and administrative expenses for the first nine months of fiscal
1997 were $0.5 million below the comparable prior year period and decreased as a
percent of sales to 5.7% from 6.9% in the first nine months of fiscal 1996.

As a result of the above factors, operating income for the nine months
ended June 28, 1997 increased $19.8 million to $27.4 million in the first nine
months of fiscal 1997 from $7.6 million in the comparable prior year period. The
increase in operating income was almost solely attributable to the specialty
steel segment and was primarily due to improved operations at Newport combined
with increased shipments and average selling prices for welded OCTG products.

Interest expense was virtually unchanged at $18.3 million for the first
nine months of fiscal 1997 and interest income increased $0.2 million as a
result of higher average invested cash and short-term investment balances.

16
<PAGE> 17

The Company's combined federal and state effective tax rate for the fiscal
1997 nine month period was 27%. This rate is lower than the combined federal and
state statutory rates primarily due to the utilization of net operating loss
carryforwards for which certain deferred tax valuation allowances had been
previously recorded. The Company is currently paying federal taxes at the
alternative minimum tax rate of 20%.

As a result of the above factors, the Company reported net income of $7.3
million, or $.53 per primary share ($.47 fully diluted), for the first nine
months of fiscal 1997 compared to a net loss of $6.6 million, or a $.48 loss per
primary and fully diluted share, for the comparable period of fiscal 1996.

FISCAL YEAR ENDED SEPTEMBER 28, 1996 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
30, 1995

Net sales in fiscal 1996 increased $38.0 million, or 10.2%, from fiscal
1995 to $409.4 million. Specialty steel segment net sales increased $33.6
million, or 10.0%, and the adhesives segment net sales increased $4.4 million,
or 12.5%, from fiscal 1995. The overall increase in specialty steel segment net
sales was primarily attributable to increased shipments of the Company's tubular
products as more fully discussed below.

Welded tubular net sales increased $12.1 million, or 8.3%, on a volume
increase of 8.1%. The increase in welded tubular net sales was primarily
attributable to an increase in shipments of both welded line pipe products and
welded OCTG products. Average selling price for all welded tubular products was
essentially unchanged from fiscal 1995.

Seamless tubular net sales increased $42.5 million, or 46.8%, on a volume
increase of 35.0%. The increases in seamless tubular net sales and shipments
were primarily due to increases in seamless OCTG product shipments and average
selling prices which were attributable in part to a decline in the level of
foreign imports, increased off-shore drilling activity, as well as, with respect
to pricing, changes in OCTG product mix. Fiscal 1996 average selling price for
all seamless tubular products increased 8.7% from fiscal 1995.

The average number of oil and natural gas drilling rigs in operation in the
United States was 759 in fiscal 1996, up from 738 in fiscal 1995.

SBQ product net sales decreased $20.5 million, or 24.8%, on a volume
decline of 20.9%. Fiscal 1996 average selling price for SBQ products declined
4.9% from fiscal 1995. The decline in shipments and selling price of SBQ
products resulted from a softening in the markets served by Koppel's SBQ
products as well as excess inventory levels in the SBQ marketplace. Shipments of
SBQ products generally increased throughout fiscal 1996; however, average
selling price declined. Other product shipments and sales for fiscal 1996 were
primarily attributable to the sale of hot rolled coils.

Gross profit for fiscal 1996 increased $5.7 million from fiscal 1995 for a
gross profit margin of 9.7% in fiscal 1996 compared to 9.2% in fiscal 1995. The
specialty steel segment gross profit increased $3.8 million resulting in a gross
profit margin of 8.2% in fiscal 1996 versus 7.9% in fiscal 1995. The increase in
specialty steel segment gross profit and margin was attributable to Koppel's
seamless tubular operations, where gross profit margins rose from 12.8% in
fiscal 1995 to 13.4% in fiscal 1996.

The adhesives segment gross profit increased $1.9 million from fiscal 1995
primarily as a result of an increase in sales volume. Gross profit margin for
fiscal 1996 was 24.0% compared to 21.6% for fiscal 1995. The increase was
primarily a result of increased sales of higher margin products.

Fiscal 1996 selling and administrative expenses increased $1.5 million from
1995 but decreased as a percentage of sales from 7.1% in fiscal 1995 to 6.8% in
fiscal 1996. The overall increase in selling and administrative expenses was
primarily attributable to increased production and sales volume.

As a result of the above factors, operating income increased $4.3 million,
from $7.8 million in fiscal 1995 to $12.1 million in fiscal 1996. The increase
in operating income was attributable almost solely to the specialty steel
segment and was primarily due to increased shipments and average selling prices
for Koppel's seamless tubular products, partially offset by a decrease in SBQ
product shipments and average selling prices.

Interest income decreased $0.7 million from fiscal 1995 as a result of a
decline in average invested cash and short-term investment balances during the
respective comparable periods.

17
<PAGE> 18

Interest expense increased $3.6 million over fiscal 1995 as a result of
higher interest costs associated with the Company's Senior Secured Notes issued
in the fourth quarter of fiscal 1995.

Other income, net decreased $2.4 million from fiscal 1995. Fiscal year 1996
was impacted by a $0.7 million loss on the sale of a non-steel segment fixed
asset while fiscal 1995 includes income from property claims filed with the
Company's insurance company in connection with a motor failure at Newport.

Tax benefits recorded by the Company in fiscal 1996 and in prior years
substantially offset previously recorded net long-term deferred tax liabilities.
As such, the Company established a valuation allowance for deferred tax assets
generated by its operating losses in fiscal 1996.

As a result of the above factors, the Company incurred a net loss of $10.5
million, or a $.76 loss per share, in fiscal 1996 compared to a net loss before
extraordinary item of $5.1 million, or a $.36 loss per share in fiscal 1995.

FISCAL YEAR ENDED SEPTEMBER 30, 1995 COMPARED WITH FISCAL YEAR ENDED SEPTEMBER
24, 1994

Net sales in fiscal 1995 increased $68.0 million, or 22.4%, from fiscal
1994. Specialty steel segment net sales increased $65.4 million, or 24.2%, and
the adhesive segment net sales increased $2.5 million, or 7.7%, from fiscal
1994. The overall increase in specialty steel segment net sales was the result
of both higher average selling prices and increased shipment levels.

Seamless tubular net sales increased $18.3 million, or 25.1%, on a volume
increase of 26.3%. The increase in seamless tubular net sales was partially
attributable to an increase in shipments, which resulted in part from product
line expansion in fiscal 1995 as well as from the favorable final rulings in the
Trade Cases. Fiscal 1995 average selling price for all seamless tubular products
declined less than 1% from fiscal 1994, due almost entirely to changes in
product mix, including the introduction of new seamless OCTG products with lower
average selling prices. Fiscal 1995 average selling price for seamless OCTG
products decreased 1.9%, while seamless line pipe average selling price
increased 6.9% from fiscal 1994.

Welded tubular net sales increased $28.1 million, or 24.0%, on a volume
increase of 16.3%. The increase in welded tubular net sales was partially
attributable to improved average selling prices for both welded OCTG and line
pipe products as well as an increase in shipments. Fiscal 1995 average selling
price for all welded tubular products increased 6.6% over fiscal 1994. The
Company's fiscal 1995 average selling price for its welded tubular products was
positively affected by stronger pricing for hot rolled coils in the steel
industry in general.

SBQ product net sales increased $18.1 million, or 27.9%, on a volume
increase of 14.3%. Fiscal 1995 average selling price for SBQ products increased
11.8%. SBQ product volume and prices increased as a result of stronger market
demand in fiscal 1995 than in fiscal 1994. Selling prices were also favorably
impacted in fiscal 1995 as a result of the implementation of surcharges to
recover increases in certain raw material costs. Other product shipments and
sales for fiscal 1995 were primarily attributable to shipments of hot rolled
coils.

The adhesives segment net sales increased $2.5 million, or 7.7%, primarily
as a result of improved pricing.

Gross profit for fiscal 1995 increased $8.9 million from fiscal 1994 for a
gross profit margin of 9.2% compared to 8.3% in fiscal 1994. The specialty steel
segment accounted for nearly all of the increase in gross profit and had a gross
margin of 7.9% in fiscal 1995 versus 6.5% in fiscal 1994. The increase in
specialty steel segment gross profit and margin was a result of improved
operating efficiencies for the full fiscal year comparative periods resulting
from increased production volume, as well as increases in average selling
prices, as discussed above.

The adhesives segment gross profit was unchanged from fiscal 1994 and gross
profit margin declined from 23.2% in fiscal 1994 to 21.6% in fiscal 1995,
primarily as a result of higher raw material costs.

Selling and administrative expenses increased $1.7 million from fiscal 1994
but declined as a percentage of sales from 8.1% in fiscal 1994 to 7.1% in fiscal
1995. The overall increase in selling and administrative

18
<PAGE> 19

expenses was primarily attributable to increased production and sales volumes as
well as costs incurred in connection with litigation settled in fiscal 1995.

As a result of the above factors, operating income increased $7.1 million,
from $0.7 million in fiscal 1994 to $7.8 million in fiscal 1995. The specialty
steel segment earned an operating profit of $10.4 million for fiscal 1995
compared to $2.9 million for fiscal 1994. The improvement in operating results
from the prior year was primarily due to an overall increase in shipments as
well as increased selling prices and improved operating efficiencies resulting
from increased production volume. The adhesives segment earned an operating
profit of $1.2 million, unchanged from fiscal 1994.

Interest expense increased $0.8 million over fiscal 1994 as a result of
higher interest costs associated with the Senior Secured Notes issued in the
fourth quarter of fiscal 1995.

Other income, net increased $1.9 million over fiscal 1994, primarily due to
the recording of property claims filed with the Company's insurance carrier in
connection with a motor failure at Newport in the fiscal 1995 second quarter.

As a result of the above factors, the fiscal 1995 loss before extraordinary
item was $5.1 million, or a $.36 loss per share, compared to net income of $13.2
million in fiscal 1994, or $.96 per share. Fiscal 1994 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. Excluding these items, the Company incurred a
$10.0 million loss, or a $.72 loss per share, for fiscal 1994.

In connection with a fiscal 1995 fourth quarter refinancing, the Company
incurred prepayment costs and wrote off unamortized debt issuance costs, which
resulted in an extraordinary charge of $5.2 million, net of applicable income
tax benefit of $2.8 million, or $.38 per share. See Note 5 to the Consolidated
Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at June 28, 1997 was $98.6 million compared to $80.9
million at September 28, 1996. The current ratio was 2.15 to 1 at June 28, 1997
compared to 2.16 to 1 at September 28, 1996. At June 28, 1997, the Company had
cash and short-term investments totaling $21.2 million, $2.0 million of which
was restricted in an environmental trust account related to a permitted
hazardous waste disposal facility located on the Company's property at Newport.
At June 28, 1997, the Company had no outstanding advances against its $45.0
million Credit Facility; however, $16.2 million of various letters of credit
have been issued under the Credit Facility primarily in connection with the
purchase of steel slabs at Newport.

Net cash flows provided by operating activities totaled $5.7 million in the
first nine months of fiscal 1997, compared to $11.6 million in the comparable
prior year period. The Company recorded net income of $7.3 million in the first
nine months of fiscal 1997 compared to a net loss of $6.6 million in the first
nine months of fiscal 1996. Major sources of cash from operating activities in
the first nine months of fiscal 1997 included $14.5 million in non-cash
depreciation and amortization charges; a $7.9 million increase in accounts
payable primarily related to the purchase of steel coils at Newport and
increased business activity; and a $7.5 million increase in accrued liabilities
primarily resulting from accrued interest expense on the Company's senior
secured notes, which had a scheduled $8.9 million interest payment in July 1997.
The major uses of cash in operating activities for the period were increases in
accounts receivable and inventories of $10.9 million and $19.4 million,
respectively, resulting from increased business activity related primarily to
the OCTG marketplace.

The Company invested $3.2 million in capital expenditures during the first
nine months of fiscal 1997, primarily related to improvements to and acquisition
of machinery and equipment in the specialty steel segment. The Company currently
estimates that fiscal 1997 capital spending will approximate $6.0 million,
primarily in the specialty steel segment, and capital spending for fiscal 1998
is expected to substantially exceed fiscal 1997 estimated spending. As discussed
in "Use of Proceeds," a portion of the net proceeds of the Offering will be used
to fund capital expenditures. Additional sources for funding future capital
expenditures

19
<PAGE> 20

include cash flow from operations, available cash and short-term investments, as
well as available borrowing sources.

Net cash flows from financing activities in the first nine months of fiscal
1997 included repayments of long-term debt of $1.8 million, compared to similar
payments of $1.5 million in the first nine months of fiscal 1996. The fiscal
1997 periods also include proceeds of $1.2 million from the issuance of Common
Stock resulting from the exercise of Company stock options and warrants. The
Company's annual long-term debt maturities are $3.6 million in fiscal 1998, $2.3
million in fiscal 1999, $0.8 million in fiscal 2000 and $5.3 million in fiscal
2001. As discussed in "Use of Proceeds," a portion of the net proceeds of the
Offering will be used to prepay certain of the Company's long-term debt, which
will significantly reduce the Company's debt service requirements. On a pro
forma basis, after giving effect to the Offering and application of the proceeds
therefrom and the conversion of the Convertible Debentures, the Company's
interest expense for the nine months ended June 28, 1997 and for fiscal 1996
would have declined by $8.9 million and $12.2 million, respectively.

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 1995. Reference is made to Note 5 to the Consolidated Financial
Statements for further information concerning the Company's long-term debt and
Credit Facility.

EBITDA was $41.6 million in the first nine months of fiscal 1997, compared
to $22.7 million in the comparable period of fiscal 1996, and $32.6 million for
fiscal 1996. EBITDA is calculated as net income (loss) plus interest expense,
taxes, depreciation and amortization. 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, as an alternative to cash flows from operating, investing
or financing activities or as a measure of liquidity.

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

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, the Company has generally been able to pass
these inflationary increases through to its customers.

RECENTLY ISSUED ACCOUNTING STANDARDS

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128 ("Statement 128") which establishes standards for computing
and presenting earnings per share ("EPS"). Statement 128 replaces primary EPS
and fully diluted EPS with a dual presentation of basic EPS and diluted EPS,
respectively. Basic EPS is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for a
period. Diluted EPS reflects the potential dilution which would result from any
instrument which could result in additional common shares being issued.

The Company must adopt Statement 128 for fiscal 1998. For the fiscal 1997
nine month period, EPS as reported and as calculated under Statement 128 are as
follows:

<TABLE>
<CAPTION>
AS REPORTED STATEMENT 128
----------- -------------
<S> <C> <C>
Primary/Basic EPS............................... $ .53 $ .53
Fully Diluted/Diluted EPS....................... $ .47 $ .52
</TABLE>

20
<PAGE> 21

For the comparable nine month and full year periods in fiscal 1996, the reported
EPS amounts would not change.

In June 1997, the FASB issued Statement No. 130 ("Statement 130") which
establishes standards for reporting comprehensive income in financial
statements. Comprehensive income is the total of net income and all other
nonowner changes in equity, which for the Company currently consists solely of
unrealized holding gains/losses on available for sale securities. The Company
must adopt Statement 130 for fiscal 1999, at which time the Company will provide
additional financial statement disclosures of comprehensive income for the
periods then presented.

21
<PAGE> 22

INDUSTRY OVERVIEW

Unless otherwise noted, all industry statistics in "-- Oil Country Tubular
Goods" are from Department of Energy publications, in "-- Line Pipe" are from
Preston Pipe & Tube Report and in "-- SBQ Products" are from the American Iron
and Steel Institute.

OIL COUNTRY TUBULAR GOODS

Demand for OCTG products is cyclical in nature, being primarily dependent
on the number and depth of oil and natural gas wells being drilled in the United
States and globally. In addition to demand due to drilling activity, shipments
by domestic producers of OCTG products are influenced by the levels of inventory
held by producers, distributors and end users and the level of foreign imports
of OCTG products. See "Risk Factors -- Dependence on Oil Country Tubular Goods,"
"-- Cyclical Industry and Sensitivity to Economic Conditions" and
"-- Competition."

The level of drilling activity is largely a function of current prices for
oil and natural gas and the industry's future price expectations. These prices
are, in turn, determined by various supply and demand factors, such as
consumption levels, current inventory levels, import levels, production capacity
in existing wells, production economics and future expectations.

Since 1994, there has been more drilling for natural gas reflecting
increased consumption of natural gas. U.S. average daily consumption of natural
gas has increased from 44 bcf/day in 1986 to 60 bcf/day in 1996. These increases
are due to regulatory demands for a cleaner environment, natural gas
conversions, new residential construction in which more 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. U.S. average daily consumption of
natural gas is forecast to increase to 83 bcf/day in the year 2015. There can be
no assurance that such forecasted increases will occur. In prior years, the
increases in gas consumption were largely satisfied through gas imports, gas
inventory drawdowns and gas production from previously shut-in wells. The
Company believes that the current increase in gas consumption is being mostly
satisfied through new drilling activity.

The following chart sets forth the domestic average active rig count since
1988, the most commonly cited indicator of the level of drilling activity. The
average rig count was 893 for the first six months of 1997, up 22% from the
average rig count for the first six months of 1996.

AVERAGE U.S. OIL & NATURAL GAS RIG COUNT

<TABLE>
<CAPTION>
GAS AS A % OF
MEASUREMENT PERIOD TOTAL OIL AND
(FISCAL YEAR COVERED) GAS OIL GAS RIGS
<S> <C> <C> <C>
1988 354 554 38%
1989 404 453 46%
1990 463 532 46%
1991 351 482 41%
1992 331 373 46%
1993 364 373 48%
1994 427 335 55%
1995 385 323 53%
1996 465 306 60%
YTD 6/30/97 521 347 58%
</TABLE>

Source: Baker Hughes, Inc.

The consumption of OCTG products is a function not only of the number of
rigs but also the depth of wells and exploratory success rates. The average well
depth in the U.S. has increased from 4,482 feet in 1986

22
<PAGE> 23

to 5,944 feet in 1996. In addition, due in large part to increased utilization
of 3-D seismic and related technologies, the percentage of exploratory wells as
producing wells completed has increased. Prior to 1994, exploratory success
rates were generally in the 25% to 30% range. In each of 1995 and 1996, the
success rate exceeded 40%. A completed well requires not only an initial drill
string, but also completion casing and production tubing, all of which comprise
OCTG products. Domestic OCTG consumption in any period equals domestic OCTG
shipments (excluding exports) plus decreases in inventory levels (or minus
increases in inventory levels) plus OCTG imports in such period.

In addition to rig count, well depth and exploratory success rates,
shipments by domestic producers of OCTG products are influenced by the levels of
OCTG inventory held by producers, distributors and end users. OCTG product
inventory levels have historically been cyclical with inventories generally
building during periods of high drilling activity and declining in periods of
lower drilling activity. The following chart sets forth the average monthly
total of OCTG product inventories since 1986.

AVERAGE MONTHLY OCTG INVENTORY

<TABLE>
<CAPTION>
MEASUREMENT PERIOD
(FISCAL YEAR COVERED) GAS
<S> <C>
1986 -721
1987 -128
1988 +401
1989 -533
1990 -257
1991 -275
1992 -276
1993 +330
1994 +190
1995 +126
1996 +386
</TABLE>

Source: Pipe Logix, Inc.

Domestic shipments of OCTG products are 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 and government subsidies of foreign
producers; and (v) the presence or absence of governmental imposed trade
restrictions in the United States. As shown in the chart below, over the last
decade, OCTG market penetration by imports in the United States reached a high
of 45% in 1988; for the first six months of 1997, import levels had dropped to
15% of total shipments, which the Company believes is due to increased worldwide
OCTG demand and the impact of the duties on imports imposed by the U.S. in
response to the Trade Cases. The Company cannot predict the U.S. government's
future actions regarding import duties or other trade restrictions on imports of
OCTG products or the impact of such measures on the Company's net sales. See
"Risk Factors -- Competition."

23
<PAGE> 24

OCTG IMPORTS

<TABLE>
<CAPTION>
MEASUREMENT PERIOD (000's) IMPORTS AS % OF
(FISCAL YEAR COVERED) TONS TOTAL OCTG SHIPMENTS
<S> <C> <C>
1986 617 51%
1987 576 35%
1988 988 45%
1989 429 38%
1990 381 23%
1991 413 30%
1992 101 9%
1993 353 20%
1994 342 20%
1995 180 11%
1996 231 11%
YTD 6/30/97 200 15%
</TABLE>

Due to the recent trends in inventory and import levels, the Company
believes the increased demand for OCTG products in the U.S. is largely being met
by current domestic OCTG production. The following chart sets forth U.S.
domestic shipments (excluding exports) of OCTG since 1986.

DOMESTIC OCTG SHIPMENTS (1)

<TABLE>
<CAPTION>
MEASUREMENT PERIOD (000's)
(FISCAL YEAR COVERED) TONS
<S> <C>
1986 588
1987 1086
1988 1212
1989 706
1990 1297
1991 963
1992 1005
1993 1422
1994 1343
1995 1420
1996 1785
</TABLE>

Note:
(1) Net of imports and U.S. producer exports.

Source: Pipe Logix, Inc.

Although the demand for the Company's OCTG products has improved steadily
in recent quarters, the factors contributing to such improvement, primarily
being drilling activity, oil and gas prices, inventory levels and import levels,
are inherently variable and subject to significant volatility and no assurance
can be given as to the level of future demand for the Company's products.

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 line pipe construction activity, line pipe

24
<PAGE> 25

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 (excluding exports) reached 1.1
million tons in 1996 and shipments of line pipe product 16 inches in diameter
and smaller, the product sizes that the Company produces, totaled 0.8 million
tons in that year.

SBQ PRODUCTS

The bar market represents the second largest segment of the steel market.
Total 1996 shipments by domestic producers of bar products (which include the
Company's SBQ products) were approximately 16.8 million tons. Bar products are
generally categorized into merchant bar quality products and SBQ products. SBQ
products 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 Company competes in relatively
small segments of the SBQ market. 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 heavy
industrial products.

25
<PAGE> 26

BUSINESS

GENERAL

The Company is a leading producer of specialty steel products serving the
energy industry. These products are produced at its two mini-mills, Newport and
Koppel, and include seamless and welded tubular goods which are primarily OCTG
products used in oil and natural gas drilling and production operations, and
line pipe which is used in the transmission of oil, natural gas and other
fluids. The term mini-mill connotes a smaller, relatively low-cost mill that
typically uses steel scrap as its basic raw material and offers a relatively
limited range of products. In addition, the Company manufactures SBQ products
which are primarily used in the manufacture of heavy industrial equipment. Sales
of specialty steel products represented 90.2% of the Company's fiscal 1996
sales. The Company also manufactures various industrial adhesive products
through its wholly-owned subsidiary, Imperial, which represented 9.8% of fiscal
1996 sales.

The Company was incorporated in Kentucky in 1980 as Newport Steel
Corporation for the purpose of purchasing the operating assets of the Newport
Steel Works from Interlake, Inc. ("Interlake"). The Company changed its name to
NS Group, Inc. in 1987 and transferred its welded tubular manufacturing
operations to a subsidiary renamed Newport Steel Corporation. In October 1990,
the Company, through a newly-formed wholly-owned subsidiary, acquired certain
assets now comprising Koppel, a steel mini-mill located in western Pennsylvania.
Koppel manufactures seamless tubular products and SBQ products.

BUSINESS STRATEGY

Capitalizing on Improved OCTG Market Conditions

Recent improvements in the energy sector of the economy have resulted in
increased demand for the Company's energy-related tubular products, particularly
OCTG products. The Company shipped 309,000 tons of OCTG products through the
first nine months of fiscal 1997 compared to OCTG shipments of 202,500 tons for
the comparable fiscal 1996 nine month period and 284,000 tons for the entire
1996 fiscal year. Average selling prices for the Company's welded and seamless
OCTG products increased $46 per ton and $12 per ton, respectively, for the
comparable nine month periods. The Company has capitalized and intends to
continue to capitalize on recent trends in the OCTG market by emphasizing its
sales and marketing efforts toward higher margin OCTG products. See "Industry
Overview."

Lowering Manufacturing Costs Per Ton

The Company historically has reinvested in its operating facilities and
emphasized productivity improvements in an effort to reduce its manufacturing
costs per ton (defined as all manufacturing costs excluding the cost of steel
scrap and depreciation). For example, the Company has introduced a number of
operational and capital investment initiatives at Newport which have contributed
to the reduction in manufacturing costs per ton for its tubular products.
Manufacturing costs per ton have declined from $232 per ton in fiscal 1995 to
$204 per ton for the first nine months of fiscal 1997 for tubular products
produced on Newport's 8" mill and from $204 per ton in fiscal 1995 to $178 per
ton for the first nine months of fiscal 1997 for tubular products produced on
its 16" mill. The Company's increased levels of production and shipments, as
well as change in product mix, have had a significant influence on Newport's
manufacturing costs per ton and other productivity measures.

The Company intends to continue to make capital investments and additional
manufacturing improvements at Newport and Koppel that will further lower
manufacturing costs per ton and enhance its market position.

26
<PAGE> 27

Expanding Tubular Product Finishing Capabilities

The Company intends to increase its tubular product finishing capabilities
which will enhance its competitive position by enabling it to produce a larger
percentage of value-added products in-house. For example, the Company intends to
make capital investments in additional threading and upsetting capabilities. The
Company believes that such additional finishing capabilities will significantly
lower production costs and improve product quality and the level of service for
its customers.

Increasing Financial Flexibility

The Offering will significantly reduce the Company's debt service
requirements and enable the Company to more readily respond to market changes
and capital investment opportunities. The Company intends to maintain a strong
balance sheet in order to provide financial flexibility.

SPECIALTY STEEL SEGMENT

MANUFACTURING FACILITIES AND PROCESSES

Newport Facilities

The Company manufactures welded OCTG and line pipe products and hot rolled
coils at its facilities located near Newport, Kentucky. The production process
for Newport's welded tubular products includes three separate operations:
melting, rolling and pipe-making.

Steel scrap is melted into molten steel utilizing three 100-ton electric
arc furnaces. Molten steel, reaching 3,000 degrees Fahrenheit, is tapped from
the furnaces into ladles. The ladles are then moved to an auxiliary stir station
where an argon lance stir process improves steel quality through consistent
metal deoxidation and desulfurization. Steel refining continues at the ladle
metallurgical station ("LMS"). The LMS, which serves a dual role, allows for the
precise control of temperature and chemistry and enables continuous production
sequencing of the molten steel to the continuous slab caster, thereby optimizing
melt shop productivity. Once strict metallurgical standards have been met, the
molten steel is "cast" into slabs that can range in size from 7 to 10 inches in
thickness, 28 to 55 inches in width and 15 to 34 feet in length. Slabs are cut
to length and lifted onto specially designed rail cars for transportation to the
adjacent reheat furnace. From time to time, Newport also purchases slabs from
third parties to supplement the production of slabs by Newport's melt shop. In
fiscal 1996, Newport purchased approximately 109,000 tons of slabs for use in
the production of coil and pipe. Although Newport's capacity utilization for its
melt shop was 55.6% for the twelve months ended June 28, 1997, one of Newport's
three furnaces could not be operated simultaneously with the other furnaces for
most of such period due to constraints on Newport's baghouse facilities. The
Company completed a project to upgrade its baghouse facilities late in the third
quarter of fiscal 1997 to permit the simultaneous operation of Newport's three
furnaces. The Company believes the upgrade of its baghouse facilities will
significantly reduce its need to purchase slabs from third parties in future
periods.

At Newport's hot strip rolling mill, slabs are processed through the
walking beam slab reheat furnace where they are evenly heated to temperatures
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 a maximum of 50 inches in width. Coils are then
either slit and formed into welded tubular products at one of the two
pipe-making facilities or are sold as hot rolled coils. Newport's welded tubular
products range in size from 4 1/2 to 13 3/8 inches in outside diameter and are
available in both carbon and alloy grades.

For the twelve months ended June 28, 1997, the Newport facilities' rated
capacities and capacity utilization were as follows:

<TABLE>
<CAPTION>
NEWPORT FACILITIES RATED CAPACITY (IN TONS) CAPACITY UTILIZATION
------------------------------------ ------------------------ --------------------
<S> <C> <C>
Melt shop........................... 700,000 55.6%
Hot strip rolling mill.............. 750,000 62.6%
Welded pipe mills................... 580,000 70.3%
</TABLE>

27
<PAGE> 28

Koppel Facilities

The Company manufactures seamless OCTG, line pipe products and SBQ products
at its facilities located in Koppel and Ambridge, Pennsylvania and Baytown,
Texas. The operations consist of a melting and casting facility and bar mill
located in Koppel, a seamless tubemaking facility located approximately 20 miles
away in Ambridge, and a tubular finishing facility located in Baytown, Texas.

The 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. Once the molten steel reaches
temperatures of approximately 3,000 degrees Fahrenheit, it 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, and it maintains 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 caster.
The continuous caster is capable of casting 9 inch square blooms or 5 1/2 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 as "as cast" (semi-finished) product.

Koppel's 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 mandrell mill or transval mill. Seamless
tubular products are produced in both carbon and alloy grades in sizes ranging
from 1.9 to 8.5 inches in outside diameter.

At Koppel's bar mill, blooms are reheated in a highly automated rotary
hearth furnace to temperatures over 2,200 degrees Fahrenheit. Blooms, upon
exiting the furnace, pass through a series of rolls, where they are reshaped
into round bars. SBQ products are available in both carbon and alloy grades in
sizes measuring 2 7/8 to 6 inches in diameter.

For the twelve month period ended June 28, 1997, the Koppel facilities'
rated capacities and capacity utilization were as follows:

<TABLE>
<CAPTION>
KOPPEL FACILITIES RATED CAPACITY (IN TONS) CAPACITY UTILIZATION
------------------------------------ ------------------------ --------------------
<S> <C> <C>
Melt shop........................... 450,000 79.7%
Seamless tube mill.................. 250,000 69.4%
Bar mill............................ 200,000 79.2%
</TABLE>

Finishing Facilities

The Company processes and finishes a portion of its welded and seamless
tubular products at facilities located at the Port of Catoosa, near Tulsa,
Oklahoma (Erlanger Tubular Corporation, or "Erlanger") and at Baytown, Texas,
located near Houston, Texas. The finishing processes include upsetting, which is
a forging process that thickens tube ends to prepare for the threading process;
heat treating, which is a furnace operation designed to strengthen the steel;
straightening; non-destructive testing; coating for rust prevention; and
threading.

PRODUCTS

Welded OCTG Products

The Company's welded OCTG products, which are produced by Newport, 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 in both
carbon and alloy grades.

28
<PAGE> 29

Seamless OCTG Products

The Company's seamless OCTG products, which are produced by Koppel, 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 carbon and alloy grades. 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. The majority of the Company's seamless OCTG product sales are
production tubing in sizes ranging from 1.9 inches to 5 inches in outside
diameter.

Line Pipe Products

The Company's line pipe products, which are produced by both Koppel and
Newport, 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. Line pipe products are coated and shipped as a plain
end product and welded together on site. The majority of the Company's line pipe
sales are welded products. The demand for line pipe is only partially dependent
on oil and gas drilling activities. Line pipe demand is also dependent on
factors such as the level of pipeline construction activity, line pipe
replacement requirements, new residential construction and gas utility
purchasing programs.

SBQ Products

The Company manufactures in a specialized market niche of SBQ products at
Koppel in sizes ranging from 2.875 to 6.0 inches in diameter. The Company
produces its SBQ products from continuous cast blooms that enables substantial
size reduction in the bloom during processing and provides greater
strength-to-weight ratios. These 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. The demand for the Company's SBQ and hot rolled coil
products is cyclical in nature and is sensitive to general economic conditions.

Hot Rolled Coils

The Company produces commercial quality grade hot rolled coils at Newport,
from 28 to 50 inches in width, between 0.125 and 0.500 inches in gauge, and in
15 ton coil weights. 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 American Petroleum Institute specifications. Products that do not meet
specification are classified as secondary or limited service
products and are sold at substantially reduced prices.

MARKETS AND DISTRIBUTION

The Company sells its specialty steel products to its customers through an
in-house sales force. The primary end markets for the Company's seamless tubular
products have been the southwest United States and certain foreign markets,
including offshore applications. 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
utilizes welded tubular products. 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 sells its SBQ products
to customers located generally within 400 miles of the Koppel facilities.

29
<PAGE> 30

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. The Company ships substantially all of its
seamless and welded OCTG products destined for the southwest region by barge.

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. Line pipe products are also used by gas utility and transmission
companies. The majority of the Company's OCTG products are sold to domestic
distributors. Line pipe products are sold to both domestic distributors and
directly to end users. The Company sells its SBQ products to service centers,
cold finishers, forgers and original equipment manufacturers. Hot rolled coils
are sold primarily to service centers and other 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. For the first nine months of fiscal 1997 and for fiscal 1996, the
Company's top five specialty steel customers accounted for approximately 34% and
28% of total net sales, respectively. For the same periods, no one customer
accounted for more than 10% of total net sales, other than Bourland & Leverich
Supply Company which accounted for 10.2% of total net sales in the first nine
months of fiscal 1997.

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 domestic integrated producers, mini-mills and welded tubular
product processing companies, as well as foreign steel producers, many of which
have substantially greater assets and larger sales organizations than the
Company. The Company believes that the principal competitive factors affecting
its business are price, quality and customer service. In the small diameter
seamless OCTG market in which Koppel competes, its principal competitors include
the USS/Kobe Steel Company in Lorain, Ohio, and a number of foreign producers.
With respect to its SBQ products, Koppel competes with a number of steel
manufacturers, including USX Corporation, CSC Industries, Inc., Republic
Engineered Steels, Inc., Inland Steel Industries, Inc., MacSteel Division of
Quanex Corporation, North Star Steel Company, Inc. and The Timken Company.
Newport's principal domestic competitors in the welded tubular market are Lone
Star Steel Company, LTV Corporation, IPSCO Steel, Inc. and Maverick Tube
Corporation.

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. 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. Also, additional announced hot
rolled manufacturing capacity is anticipated and may impact the market price for
hot rolled coils.

In July 1995, the United States imposed duties on the imports of various
OCTG products from certain foreign countries in response to antidumping and
countervailing duty cases filed by several U.S. steel companies. Several foreign
OCTG producers, as well as certain U.S. producers, have appealed the
determinations to U.S. and international courts or panels. The duties are
subject to annual and five-year reviews by the U.S. Department of Commerce. The
Company believes the imposition of the duties have had a positive effect on its
shipments and pricing of certain of its seamless tubular products; however, it
cannot predict the outcome or timing of the appeals or reviews at this time.
Over the last decade, OCTG market penetration by imports in the United States
reached a high of 45% in 1988. For the first six months of 1997, import levels
had dropped to 15% of total shipments, which the Company believes is due to
increased worldwide OCTG demand and the impact of the duties on imports imposed
by the U.S. in response to the Trade Cases. See "Risk Factors -- Competition."

30
<PAGE> 31

RAW MATERIALS AND SUPPLIES

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 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. 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 separate contracts entered into by Koppel
and Newport. Koppel's electricity contract expired in 1996. The parties have
been operating under monthly extensions of the prior contract, while a new
supply contract is being negotiated. Newport's contract expires in 2001. 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. These curtailments
are generally limited to a few hours and historically have had a negligible
impact on the Company's operations.

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

ADHESIVES SEGMENT

The Company, through Imperial, is a custom manufacturer of water-borne,
solvent borne and hot melt adhesives and footwear finishes. These products are
manufactured at plants located in Cincinnati, Ohio; Nashville, Tennessee and
Lynchburg, Virginia.

MANUFACTURING PROCESS

Imperial's adhesives products are manufactured by combining and mixing
predetermined quantities of raw materials. The raw materials are measured
according to specific formulas and mixed in numerous specially designed
industrial mixers. Raw materials are available from multiple sources and consist
primarily of petrochemical-based materials. Pricing of raw materials generally
follows trends in the petrochemical markets. The physical properties of finished
formulas are measured and monitored by a statistical process control system.
Imperial works closely with its customers to develop adhesive applications
designed to meet their specific product requirements.

PRODUCTS AND MARKETS

Imperial maintains approximately 1,000 active formulas for the manufacture
of water-borne, solvent-borne and hot-melt adhesives products and approximately
600 active formulas for the manufacture of footwear finishes. Its multiple
product lines are used primarily in product assembly applications within such
industries as footwear, foam bonding, marine and recreational vehicles, consumer
packaging, construction, furniture, and transportation. In fiscal 1996,
approximately 21% of Imperial's sales were to the footwear industry. The
Company's industrial adhesives products are marketed throughout the United
States and Caribbean basin through an in-house sales force as well as a number
of independent sales representatives. Products are distributed from Imperial's
manufacturing sites and a number of public warehouses across the United States
and in Puerto Rico. The adhesives industry is currently seeking alternatives to
its methylene chloride-based products, which will be largely restricted by OSHA
regulations commencing in October 1997. Methylene

31
<PAGE> 32

chloride-based products represented approximately 23.8% of the Company's
adhesives segment sales in fiscal 1996.

Competition in the industrial adhesives industry includes several major
producers, as well as numerous small and mid-sized companies comparable to
Imperial. The Company competes on the basis of price, product performance and
customer service and believes that its diversity and ability to develop
applications to meet customers' specific needs allows it to compete effectively
with all adhesives producers in its markets.

LEGAL MATTERS

The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business. The Company carries
insurance with respect to workers compensation, health care and product
liability coverages (each of which is self-insured to certain levels), as well
as commercial and other matters. Based upon its evaluation of available
information, management does not believe that any pending claims, lawsuits or
administrative proceedings 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 to the Clean Air Act, 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 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 steel mills in the industry, Koppel and Newport 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 has on its property at Newport a permitted hazardous waste
disposal facility. Newport's permit for operating the hazardous waste disposal
facility required that it investigate, test, and analyze for potential releases
of hazardous constituents from its closed loop water recirculation system. Based
upon the findings of its investigation, which have been filed with the EPA, the
Company believes that the cost of any remediation of such potential releases, if
required, will not be material.

In November 1996, Koppel received a Notice of Violation from the EPA
alleging violations of the Clean Air Act and the Pennsylvania State
Implementation Plan. The violations allegedly occurred during 1995 and 1996 and
pertain to air emissions from Koppel's electric arc furnace operations. The
conditions which contributed to the alleged violations have been corrected, and
as of January 1, 1997, Koppel has demonstrated compliance with the air emission
regulations. At this time, the Company is unable to determine if the EPA will
assess civil penalties as a result of the alleged violations, or the extent of
any such potential penalties.

In March 1995, Koppel and the EPA signed a Consent Order 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 Consent Order
established a schedule for investigating, monitoring, testing and analyzing the
potential releases. Initial remediation has been completed and a report
submitted to the EPA. Additional monitoring and remediation may be required.
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. Although certain of the indemnifying parties have stated that their
indemnification obligations do not extend to all of the matters covered by the
Consent Order, to date the Company has been fully indemnified against all
matters pertaining to the Consent Order and the Company

32
<PAGE> 33

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.

In two separate incidents occurring in fiscal 1993 and 1992, radioactive
substances were accidentally melted at Newport, resulting in the contamination
of a quantity of electric arc furnace dust. The Company is investigating and
evaluating various issues concerning storage, treatment and disposal of the
radiation contaminated electric arc furnace 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. The Company expects to
recover and has recorded a $2.3 million receivable relating to insurance claims
for the recovery of disposal costs which will be filed with the applicable
insurance carrier at the time such disposal costs are incurred. Such insurance
claims will exhaust available insurance coverage pertaining to these incidents.
Based on current knowledge, management believes the recorded gross reserves of
$4.4 million for disposal costs pertaining to these incidents are adequate.

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 in all material respects with all applicable
environmental regulations. The Company cannot predict the level of required
capital expenditures or operating costs that may result from future
environmental regulations.

Capital expenditures for the next twelve months relating to environmental
control facilities are not expected to be material; however, such expenditures
could be influenced by new or revised environmental regulations and laws or new
information or developments with respect to the Company's operating facilities.

As of June 28, 1997, the Company had environmental remediation reserves of
$4.5 million, which pertain almost exclusively to accrued disposal costs for
radiation contaminated dust. As of June 28, 1997, the estimated range of
possible 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. 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 June 18, 1997, the Company had 1,848 full-time employees, of whom 428
were salaried and 1,420 were hourly. Substantially all of the Company's hourly
employees are represented by the United Steelworkers of America under contracts
expiring in 1998 for Imperial, 1999 for Newport and Koppel, and 2000 for
Erlanger. Since its inception, the Company has successfully negotiated 15 labor
contracts, and has experienced only one two-day work stoppage which was in 1994.

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-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 Company's profit sharing plans generally require mandatory
contributions at a specified percentage of pre-tax profits (with certain
guaranteed minimums). The contribution expense for the Company's profit sharing
plans was approximately $1.0 million in fiscal 1996.

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<PAGE> 34

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS 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 60 Director, Chairman and Chief Executive Officer
Paul C. Borland, Jr. 63 Director, President and Chief Operating Officer
Patrick J.B. Donnelly 60 Director
John B. Lally 61 Director
R. Glen Mayfield 55 Director
Director and Vice President; President of
Ronald R. Noel 56 Newport
Vice President, Treasurer and Chief Financial
John R. Parker 53 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 Company's Restated Articles of Incorporation (the "Articles")
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 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

CLIFFORD R. BORLAND is a founder of the Company and was the Company's President
and Chief Executive Officer until December 4, 1995, when he was elected Chairman
of the Company. He 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
Kentucky Electric Steel, Inc.

PAUL C. BORLAND, JR. joined the Company as Vice President and General Manager of
KES in 1989. Mr. Borland assumed the position of President of Koppel in 1990 and
assumed the position of President and Chief Operating Officer of the Company on
December 4, 1995. 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, Jr. is the brother of Clifford R.
Borland.

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 Chief Executive Officer 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 29 years. Mr. Lally is also
Chairman of the Board of LB Steel Plate Company, a privately-owned steel plate
processor 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.

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<PAGE> 35

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.

BUSINESS BACKGROUND OF OTHER MANAGEMENT MEMBERS

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.

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<PAGE> 36

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information as of August 15, 1997
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, (b) each director or executive officer of the Company, (c) all directors
and executive officers of the Company as a group and (d) each Selling
Shareholder.

For purposes of the Offering, "Selling Shareholders" is defined to include
PMAC, Ltd. ("PMAC") and certain of its affiliates and General Electric Capital
Corporation ("GECC"). For purposes of the over-allotment option, "Selling
Shareholders" is defined to include PMAC and certain of its affiliates and
Messrs. Lally, Mayfield and Donnelly. Except as set forth in footnote 3, the
following table does not give effect to the exercise of the over-allotment
option. Of the 1,125,000 shares subject to the over-allotment option, 540,295 of
such shares would be issued by the Company and the balance by the Selling
Shareholders.

<TABLE>
<CAPTION>
SHARES OWNED SHARES OWNED
PRIOR TO THE OFFERING AFTER THE OFFERING
----------------------- --------------------
NAME NUMBER PERCENT BEING OFFERED NUMBER PERCENT
- --------------------------------------- --------- ------- ------------- --------- -------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE OFFICERS
Clifford R. Borland(1)(2)(3) 2,977,254 20.0% -- 2,977,254 12.9%
Ronald R. Noel(1)(2)(3) 1,175,810 7.9 -- 1,175,810 5.1
John B. Lally(3)(4) 655,729 4.4 -- 655,729 2.8
R. Glen Mayfield(3) 114,730 * -- 114,730 *
Patrick J.B. Donnelly(3)(5) 99,375 * -- 99,375 *
John R. Parker(2)(6) 84,928 * -- 84,928 *
Paul C. Borland, Jr.(2) 62,618 * -- 62,618 *
All Directors and Executive Officers as
a group (7 persons)(2)(3) 5,170,444 34.4 -- 5,170,444 22.3
OTHER 5% SHAREHOLDERS:
Dimensional Fund Advisors Inc. (1)(7) 889,100 6.0 -- 889,100 3.9
General Electric Capital
Corporation(1)(8) 772,481 5.0 500,000 272,481 1.2
PMAC, Ltd. and affiliates(1)(3)(9) 1,664,705 10.1 1,000,000 664,705 2.9
</TABLE>

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

* Less than one percent.

(1) The address of Messrs. C. R. Borland and Noel is NS Group, Inc., Ninth and
Lowell Streets, Newport, Kentucky 41072. The address of Dimensional Fund
Advisors Inc. is 1299 Ocean Avenue, 11th Floor, Santa Monica, California
90401. The address of GECC is 260 Long Ridge Road, Stamford, Connecticut
06927. The address of PMAC and R. Alpert is 15311 Vantage Parkway West,
Suite 315, Houston, Texas 77032. The address of R. E. Belfer and R. A.
Belfer (each of whom are affiliates of PMAC) is 767 Fifth Avenue, New York,
New York 10017.

(2) Includes, where applicable, shares of Common Stock (a) which may be acquired
within 60 days of August 15, 1997 by Mr. C. R. Borland (89,754), Mr. Noel
(46,258), Mr. Parker (47,258), Mr. P. C. Borland, Jr. (60,518) and all
directors and executive officers as a group (243,788) pursuant to the
Company's non-qualified stock option and stock appreciation rights plans 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 Company's Salaried Employees'
Flexible Compensation Plan, which shares are voted as directed by the
participants to whose account they are allocated.

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<PAGE> 37

(3) The 1,125,000 shares subject to the Underwriters' over-allotment option
include 100,000 shares owned by Mr. Lally, 30,000 shares owned by Mr.
Mayfield and 20,000 shares owned by Mr. Donnelly, together with 434,705 of
the remaining shares to be owned by PMAC and affiliates upon conversion of
the Convertible Debentures. Assuming full exercise of the over-allotment
option, the number of shares owned and the percentage of the aggregate
shares outstanding for each of such Selling Shareholders and the directors
and executive officers as a group would be: Mr. Lally -- 555,729 shares,
2.4%; Mr. Mayfield -- 84,730 shares, 0.36%; Mr. Donnelly -- 79,375 shares,
0.34%; PMAC and affiliates -- 230,000 shares, 0.98%; and all directors and
executive officers as a group -- 4,560,444 shares, 21.1%.

(4) Includes 50,855 shares owned by Mr. Lally's wife. Mr. Lally 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) Includes 18,800 shares owned by Mr. Parker's wife. Mr. Parker disclaims any
beneficial interest in these shares.

(7) The information in this footnote and the corresponding information in the
above share ownership table was derived from such shareholder's most recent
Schedule 13D filing with the Securities and Exchange Commission (the
"Commission"), as updated from information provided by the shareholder.

(8) Represents number of shares purchasable upon exercise of the GECC Warrants,
which have an exercise price of $8.00 per share.

(9) 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 beneficial
ownership of Common Stock and related percentages, as updated from
information provided by PMAC: R. Alpert, 915,588 (5.8%) and R. E. Belfer and
R. A. Belfer, as co-trustees of certain trusts, 749,117 (5.0%).

All of the shares listed in the PMAC Schedule 13D represent shares issuable
upon conversion of $28.3 million of the Convertible Debentures, issued to
PMAC in connection with the Company's purchase of the assets comprising
Koppel Steel Corporation in 1990. In connection with the Offering, it is
anticipated that each of the holders of the Convertible Debentures will
convert all of their respective Convertible Debentures into shares of Common
Stock.

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.

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<PAGE> 38

DESCRIPTION OF CAPITAL STOCK

The Company's authorized capital stock consists of 40,000,000 shares of
Common Stock and 2,000,000 shares of Preferred Stock. 400,000 shares of the
Preferred Stock have been designated as Series A Junior Participating Preferred
Stock in connection with the Company's Rights Plan discussed below. The
following statements are brief summaries of certain provisions relating to the
capital stock of the Company. Such summaries do not purport to be complete and
are subject to, and qualified in their entirety by reference to, the Articles
and the By-Laws of the Company and the Preferred Stock Purchase Rights Agreement
referred to herein, including the definition therein of certain terms, a copy of
each of which is filed with the Commission. See "Available Information."

COMMON STOCK

Subject to the prior rights of any outstanding shares of the Company's
Preferred Stock or Series A Junior Participating Preferred Stock, the holders of
the Common Stock are entitled to receive dividends as and when declared by the
Board of Directors out of funds legally available for dividends, and, in the
event of liquidation, dissolution or winding up of the Company, to share ratably
in all assets remaining after payment of liabilities. The holders of the Common
Stock are entitled to vote cumulatively in the election of directors and are
entitled to one vote for each share of Common Stock held of record on all other
matters subject to a vote of the shareholders. The holders of Common Stock have
no pre-emptive rights or conversion rights and are not subject to further calls
or assessments by the Company. There are no redemption or sinking fund
provisions applicable to the Common Stock. The Common Stock currently
outstanding is fully paid and non-assessable.

PREFERRED STOCK

The Company is authorized to issue the Preferred Stock in one or more
series. No shares of Preferred Stock are presently outstanding, and no shares of
Preferred Stock have been designated as a series except for the Series A Junior
Participating Preferred Stock. The Board of Directors is authorized, without any
further action by the shareholders, to determine the dividend rights, dividend
rate, conversion rights, voting rights, rights and terms of redemption,
liquidation preferences, sinking fund terms and other rights, preferences,
privileges and restrictions of any additional series of Preferred Stock, the
number of shares constituting any such series, and the designation thereof. The
Board of Directors may, without shareholder approval, issue Preferred Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of Common Stock.

CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK

The authorized but unissued shares are available for future issuance
without shareholder approval. These additional shares may be utilized for a
variety of proper corporate purposes, including future public offerings to raise
additional capital, to facilitate corporate acquisitions and for employee
benefit plans.

One of the effects of the existence of unissued and unreserved Preferred
and Common Stock may be to enable the Board of Directors to issue shares to
persons friendly to current management which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest or otherwise, and thereby protect the continuity of
the Company's management. Issuance of Preferred Stock might, under certain
circumstances, deter the acquisition of the Company or its securities by a
person concerned about the terms or effect of such stock.

CLASSIFIED BOARD OF DIRECTORS

The Articles provide 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 of office of each class ending in successive years.

38
<PAGE> 39

LIMITATIONS ON DIRECTORS' LIABILITY

The Articles provide that no director shall be personally liable to the
Company or its shareholders for monetary damages for breach of his duties as a
director; provided, however, that a director's liability shall not be eliminated
or limited for (i) for transactions in which the director's personal financial
interest is in conflict with the financial interest of the Company or its
shareholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or are known to the director to be a violation of law;
(iii) acts which violate Section 271B.8-330 of the Kentucky Business Corporation
Act (regarding unlawful distributions); or (iv) any transaction from which the
director derived an improper personal benefit.

PREFERRED STOCK PURCHASE RIGHTS PLAN

In November 1988, the Board of Directors declared a dividend distribution
of one right (a "Right") for each outstanding share of Common Stock of the
Company. The dividend distribution was payable on November 30, 1988 to the
shareholders of record at the close of business on that date. In addition, the
Board of Directors authorized and directed the issuance of one Right (subject to
adjustment) with respect to each share of Common Stock that becomes outstanding
prior to the earlier of the Distribution Date, as defined below, and the
redemption, exchange or expiration of the Rights.

The Rights Plan provides that until the Distribution Date (or earlier
redemption, exchange or expiration of the Rights) the Rights will be evidenced
only by certificates for, and will be transferred automatically with, the Common
Stock. Each Right entitles the holder to purchase from the Company under certain
circumstances one one-hundredth of a share of the Series A Junior Participating
Preferred Stock at an exercise price of $40 per one one-hundredth of a share,
subject to anti-dilution adjustments. Each one one-hundredth of a share of the
Series A Junior Participating Preferred Stock is designed to approximate the
value of one share of Common Stock. The Rights will become exercisable, and will
trade separately from the Common Stock, on the earlier of (i) 10 days after
public announcement, or the Company has notice, that a person or a group (other
than subsidiaries, employee benefit plans or certain existing shareholders) (an
"acquiring person or group") has become the beneficial owner of 30% or more of
the outstanding Common Stock, or (ii) 10 days after the commencement of a tender
or exchange offer for 30% or more of the outstanding Common Stock, in either
such case without the prior written consent of the Board of Directors
("Distribution Date"). After the Distribution Date, separate certificates for
Rights will be mailed to holders of Common Stock of record on the Distribution
Date.

If an acquiring person or group acquires 30% or more of the Common Stock,
holders of Rights (other than the acquiring person or group) may purchase from
the Company, at the Right's then exercise price, Common Stock having a value at
that time of twice such exercise price. Further, at any time after an acquiring
person or group acquires 30% or more (but less than 50%) of the outstanding
Common Stock, the Board may, at its option, exchange the Rights (other than
Rights held by the acquiring person or group), in whole or in part, at an
exchange ratio of one share of Common Stock (or one one-hundredth of a share of
the Preferred Stock) per Right, subject to anti-dilution adjustments.

In addition, in the event that the Company is acquired in a merger, sale of
assets or similar transaction after the Rights become exercisable, holders of
Rights may purchase, at the then exercise price, common stock of the acquiring
entity having a value equal to twice such exercise price.

Prior to the acquisition by an acquiring person or group of beneficial
ownership of 30% or more of the Common Stock, the Rights are redeemable for one
cent per Right at the option of the Board of Directors.

The Board of Directors is authorized to reduce the 30% thresholds referred
to above to not less than 15% or the amount owned by an acquiring person or
group.

If not earlier redeemed or exchanged, the Rights will expire on November
17, 1998.

The Rights have certain anti-takeover effects. The Rights could cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on redemption of the Rights or on substantially
all of the Rights also being acquired. The Rights should not, however, interfere
with any merger

39
<PAGE> 40

or other business combination approved by the Board of Directors since the
Rights may be redeemed by the Company as described above.

SHARES ELIGIBLE FOR FUTURE SALE

Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices. Giving effect to the Offering,
including the sale of the 500,000 shares which will be issued upon the exercise
of certain of the GECC Warrants and the conversion of the Convertible Debentures
into 1,664,705 shares, the Company would have had 22,970,968 shares of issued
and outstanding Common Stock at August 15, 1997. Also giving effect to the
Offering, the Company would have had 1,151,192 shares of Common Stock reserved
for issuance upon the exercise of outstanding stock options, 272,481 shares of
Common Stock reserved for issuance upon exercise of the GECC Warrants not being
exercised in connection with the Offering and 1,013,380 shares of Common Stock
reserved for issuance upon the exercise of warrants issued in connection with
the Registered Warrants. The holders of the GECC Warrants and the 664,705 shares
to be issued upon conversion of the Convertible Debentures which are not being
sold in this Offering (absent exercise of the over-allotment option relating to
434,705 of such shares) have certain registration rights and a registration
statement is effective with respect to the shares underlying the Registered
Warrants. The Company has agreed not to issue any securities or file a
registration statement under the Securities Act, subject to certain exceptions,
for a period of 120 days following the date of the Prospectus relating to the
Offering without the prior written consent of Smith Barney Inc. Certain Selling
Shareholders and the Company have granted the Underwriters an over-allotment
option to purchase up to 1,125,000 shares of Common Stock, 540,295 of which
would be sold by the Company. All directors and officers of the Company, as a
group, after giving effect to the Offering, would beneficially own approximately
22.3% of the Common Stock. Their shares may be "restricted securities" as that
term is defined by Rule 144 promulgated under the Securities Act and may not be
sold other than pursuant to an effective registration statement under the
Securities Act or pursuant to an exemption from such registration requirement.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including any person who may be deemed to be an
"affiliate" of the Company, is entitled to sell within any three month period
"restricted" shares beneficially owned by him or her in an amount that does not
exceed the greater of (i) 1% of the then outstanding shares of Common Stock or
(ii) the average weekly trading volume in shares of Common Stock during the four
calendar weeks preceding such sale, provided that at least one year has elapsed
since such shares were acquired from the Company or an affiliate of the Company.
Sales are also subject to certain requirements as to the manner of sale, notice
and the availability of current public information regarding the Company.
However, a person who has not been an affiliate of the Company at any time
within three months prior to the sale is entitled to sell his or her shares
without regard to the volume limitations or other requirements of Rule 144,
provided that at least two years have elapsed since such shares were acquired
from the Company or an affiliate of the Company.

40
<PAGE> 41

UNDERWRITING

Upon the terms and subject to the conditions stated in the Underwriting
Agreement dated the date hereof, each Underwriter named below has severally
agreed to purchase, and the Company and the Selling Shareholders have agreed to
sell to such Underwriter, the number of shares of Common Stock set forth
opposite the name of such Underwriter.
<TABLE>
<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------
<S> <C>
Smith Barney Inc.......................... 1,878,334
McDonald & Company Securities, Inc........ 1,878,333
Raymond James & Associates, Inc........... 1,878,333
ABN AMRO Chicago Corporation.............. 125,000
Arnold and S. Bleichroeder, Inc........... 90,000
George K. Baum & Company.................. 90,000
Chase Securities Inc...................... 125,000
Credit Suisse First Boston Corporation.... 125,000
A.G. Edwards & Sons, Inc.................. 125,000
Fahnestock & Co. Inc...................... 90,000
J.J.B. Hilliard, W.L. Lyons, Inc.......... 90,000

<CAPTION>
NUMBER
NAME OF SHARES
- ---------------------------------------------------
<S> <C>
Morgan Stanley & Co. Incorporated......... 125,000
PaineWebber Incorporated.................. 125,000
Ragen MacKenzie Incorporated.............. 90,000
The Robinson-Humphrey Company, Inc........ 90,000
Roney & Co................................ 90,000
Salomon Brothers Inc...................... 125,000
Sanders Morris Mundy Inc.................. 90,000
Stephens Inc.............................. 90,000
Tucker Anthony Incorporated............... 90,000
Van Kasper & Company...................... 90,000
----------
Total............................ 7,500,000
==========
</TABLE>

The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares are subject to
approval of certain legal matters by counsel and to certain other conditions.
The Underwriters are obligated to take and pay for all shares of Common Stock
offered hereby (other than those covered by the over-allotment option described
below) if any such shares are taken.

The Underwriters, for whom Smith Barney Inc., McDonald & Company
Securities, Inc. and Raymond James & Associates, Inc. are acting as the
Representatives, propose to offer part of the shares directly to the public at
the public offering price set forth on the cover page of this Prospectus and
part of the shares to certain dealers at a price which represents a concession
not in excess of $0.945 per share under the public offering price. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $0.10 per share to certain other dealers. After the initial offering of the
shares to the public, the public offering price and such concessions may be
changed by the Representatives.

The Company, its executive officers and directors and the Selling
Shareholders have agreed, subject to certain exceptions, that for a period of
120 days from the date of this Prospectus, it/they will not, without the prior
written consent of Smith Barney Inc., offer, sell, contract to sell, or
otherwise dispose of, any shares of Common Stock or any securities convertible
into, or exercisable or exchangeable for, Common Stock.

Certain Selling Shareholders and the Company have granted to the
Underwriters an option, exercisable for 30 days from the date of this
Prospectus, to purchase up to 1,125,000 additional shares of Common Stock at the
price to public set forth on the cover page of this Prospectus minus the
underwriting discounts and commissions. The Underwriters may exercise such
option solely for the purpose of covering over-allotments, if any, in connection
with the offering of the shares offered hereby. To the extent such option is
exercised, each Underwriter will be obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares as the
number of shares set forth opposite each Underwriter's name in the preceding
table bears to the total number of shares listed in such table.

The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.

In connection with the Offering and in compliance with applicable law, the
Underwriters may over-allot (i.e., sell more Common Stock than the total amount
shown on the list of Underwriters and participations which appear above) and may
effect transactions which stabilize, maintain or otherwise affect the market
price of the Common Stock at levels above those which might otherwise prevail in
the open market. Such transactions may include placing bids for the Common Stock
or effecting purchases of the Common Stock for the purpose of pegging, fixing or
maintaining the price of the Common Stock or for the purpose of reducing a
syndicate short position created in connection with the offering. A syndicate
short position may be covered by exercise of the option described above in lieu
of or in addition to open market purchases. In addition, the

41
<PAGE> 42

contractual arrangements among the Underwriters include a provision whereby, if
the Representatives purchase Common Stock in the open market for the account of
the underwriting syndicate and the securities purchased can be traced to a
particular Underwriter or member of the selling group, the underwriting
syndicate may require the Underwriter or selling group member in question to
purchase the Common Stock in question at the cost price to the syndicate or may
recover from (or decline to pay to) the Underwriter or selling group member in
question the selling concession applicable to the securities in question. The
Underwriters are not required to engage in any of these activities and any such
activities, if commenced, may be discontinued at any time.

Each Underwriter has represented and agreed that (i) it has not offered or
sold and prior to the date six months after the latest closing date will not
offer or sell any shares of Common Stock to persons in the United Kingdom except
to those persons whose ordinary activities involve them in acquiring, holding,
managing or disposing of investments (as principal or agent) for the purposes of
their businesses or otherwise in circumstances which have not resulted or will
not result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995; (ii) it has complied and will
comply with all applicable provisions of the Financial Services Act 1986 (the
"1986 Act") with respect to anything done by it in relation to the Common Stock
in, from or otherwise involving the United Kingdom; and (iii) it has only issued
or passed on, and will only issue and pass on to any person in the United
Kingdom, any investment advertisement (within the meaning of the 1986 Act)
relating to the Common Stock if that person falls within Article 11(3) of the
Financial Services Act of 1986 (Investment Advertisements) (Exemptions) Order
1996 or is a person to whom such document may otherwise lawfully be issued or
passed on.

Smith Barney Inc. has from time to time performed, and continues to
perform, various investment banking services for the Company and has received
and may receive customary fees in respect of such activities. In addition, in
that more than 10% of the proceeds from the sale of the shares of Common Stock
may be received by members of the National Association of Securities Dealers,
Inc. (the "NASD") participating in the Offering, the Offering is being made
pursuant to the provisions of Section 2710(c)(8) of the Conduct Rules of the
NASD.

INDEPENDENT AUDITORS

The audited financial statements and schedule of the Company included and
incorporated by reference in this Prospectus and elsewhere in the Registration
Statement have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto and are included
and incorporated by reference in reliance upon the authority of said firm as
experts in accounting and auditing in giving said reports. Reference is made to
said report, which includes an explanatory paragraph with respect to the change
in the method of accounting for income taxes effective September 26, 1993, as
discussed in Note 11 to the Consolidated Financial Statements.

LEGAL MATTERS

The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Bryan Cave LLP, St. Louis, Missouri. Certain legal
matters 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,
Gilligan & Eyrich, Cincinnati, Ohio. Bryan Cave LLP and Simpson Thacher &
Bartlett will rely, as to matters of Kentucky law, upon the opinion of Kepley,
Gilligan & Eyrich.

AVAILABLE INFORMATION

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
New York Regional Office, 7 World Trade Center, New York, New York 10048 and
Chicago

42
<PAGE> 43

Regional Office, 1400 Citicorp Center, 500 West Madison Street, Chicago,
Illinois 60661. Copies of such material can be obtained from the Public
Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's home page on the Internet
(http://www.sec.gov). In addition, the aforementioned material can also be
inspected at the offices of the New York Stock Exchange Inc., 20 Broad Street,
New York, New York 10005.

The Company has filed with the Commission a Registration Statement on Form
S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act. This Prospectus does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is made to the Registration Statement, copies of
which are available from the Public Reference Section of the Commission at
prescribed rates as described above. Statements contained herein concerning the
provisions of documents filed with, or incorporated by reference in, the
Registration Statement as exhibits are necessarily summaries of such provisions
and documents and each such statement is qualified in its entirety by reference
to the copy of the applicable document filed with the Commission.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents, filed with the Commission by the Company (File No.
1-9838), are incorporated in this Prospectus by reference: (i) the Company's
Annual Report on Form 10-K for the fiscal year ended September 28, 1996; (ii)
the Company's Quarterly Reports on Form 10-Q for the three months ended December
28, 1996, March 29, 1997 and June 28, 1997; and (iii) the description of the
capital stock of the Company which is contained in the Company's Registration
Statement on Form 8-A dated November 17, 1988, and which incorporates by
reference the description contained in the Company's prospectus dated March 4,
1988 (File No. 33-17952); and (iv) the description of the Preferred Stock
Purchase Rights which is contained in the Company's Registration Statement on
Form 8-K dated November 17, 1988.

All documents filed by the Company pursuant to Sections 13(a), 13(c), 14
and 15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the Offering shall be deemed to be incorporated by reference in
this Prospectus and to be a part hereof from the date of the filing of such
documents. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.

This Prospectus includes certain statistical data relating to certain of
the industries in which the Company functions. Such data is based on information
from certain independent industry and government publications and the Company
assumes no responsibility for the accuracy thereof.

The Company undertakes to provide without charge to each person, including
any beneficial owner, to whom a copy of this Prospectus has been delivered, on
written or oral request, a copy of any and all of the documents incorporated in
this Prospectus by reference, other than exhibits to such documents not
specifically incorporated by reference therein. Requests for such copies should
be directed to NS Group, Inc., at its principal executive offices located at
Ninth and Lowell Streets, Newport, Kentucky 41072, Attention: Manager of
Investor Relations (telephone: (606) 292-6809).

43
<PAGE> 44

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
NS GROUP, INC. AND SUBSIDIARIES

<TABLE>
<CAPTION>
<C> <S> <C>
I. CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL YEARS ENDED 1996, 1995, AND 1994
Report of Independent Public Accountants........................................... F-2
Consolidated Statements of Operations for the years ended September 28, 1996,
September 30, 1995 and September 24, 1994.......................................... F-3
Consolidated Balance Sheets as of September 28,
1996 and September 30, 1995........................................................ F-4
Consolidated Statements of Cash Flows for the years ended September 28, 1996,
September 30, 1995 and September 24, 1994.......................................... F-5
Consolidated Statements of Common Shareholders' Equity for the years ended
September 28, 1996, September 30, 1995 and September 24, 1994...................... F-6
Notes to Consolidated Financial Statements......................................... F-7
II. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE FISCAL QUARTERS ENDED JUNE 28,
1997 AND JUNE 29, 1996 (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> 45

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 28, 1996 and
September 30, 1995, and the related consolidated statements of operations,
common shareholders' equity and cash flows for each of the three years in the
period ended September 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of NS Group, Inc. and
subsidiaries as of September 28, 1996 and September 30, 1995, and the results of
their operations and their cash flows for each of the three years in the period
ended September 28, 1996 in conformity with generally accepted accounting
principles.

As explained in Note 11 to the Consolidated Financial Statements, the
Company changed its method of accounting for income taxes effective September
26, 1993.

ARTHUR ANDERSEN LLP

Cincinnati, Ohio,
November 1, 1996

F-2
<PAGE> 46

NS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND SEPTEMBER 24,
1994

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales.................................................. $409,382 $371,352 $303,380
Cost of products sold...................................... 369,585 337,270 278,161
Selling and administrative expenses........................ 27,744 26,276 24,530
-------- -------- --------
Operating income......................................... 12,053 7,806 689
Interest income............................................ 637 1,341 1,733
Interest expense........................................... (24,375) (20,796) (20,030)
Other income, net.......................................... 644 3,053 1,191
Gain on sale of subsidiary................................. -- -- 35,292
-------- -------- --------
Income (loss) before income taxes, extraordinary item and
cumulative effect of a change in accounting
principle............................................. (11,041) (8,596) 18,875
Provision (credit) for income taxes........................ (584) (3,540) 7,382
-------- -------- --------
Income (loss) before extraordinary item and cumulative
effect of a change in accounting principle............ (10,457) (5,056) 11,493
Extraordinary item, net of income taxes.................... -- (5,200) --
Cumulative effect of a change in accounting principle...... -- -- 1,715
-------- -------- --------
Net income (loss)................................ $(10,457) $(10,256) $ 13,208
======== ======== ========
Per common share
Income (loss) before extraordinary item and cumulative
effect of a change in accounting principle............ $ (.76) $ (.36) $ .84
Extraordinary item....................................... -- (.38) --
Cumulative effect of a change in accounting principle.... -- -- .12
-------- -------- --------
Net income (loss)........................................ $ (.76) $ (.74) $ .96
======== ======== ========

Weighted average shares outstanding (000's)................ 13,809 13,809 13,789
</TABLE>

See notes to consolidated financial statements

F-3
<PAGE> 47

NS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

SEPTEMBER 28, 1996 AND SEPTEMBER 30, 1995

<TABLE>
<CAPTION>
1996 1995
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents............................................ $ 3,442 $ 4,838
Short-term investments............................................... 13,855 6,413
Accounts receivable, less allowance for doubtful accounts of $757 and
$1,021, respectively.............................................. 51,824 45,858
Refundable income taxes.............................................. 1,355 3,130
Inventories.......................................................... 53,317 44,716
Operating supplies................................................... 14,449 14,031
Deferred tax assets.................................................. 5,459 4,842
Other current assets................................................. 6,774 6,471
--------- ---------
Total current assets.............................................. 150,475 130,299
--------- ---------
Property, plant and equipment -- at cost
Land and buildings................................................... 29,755 30,110
Machinery and equipment.............................................. 239,218 235,553
Construction in progress............................................. 3,313 3,622
Less -- accumulated depreciation..................................... (138,512) (120,887)
--------- ---------
Net property, plant and equipment................................. 133,774 148,398
--------- ---------
Other assets........................................................... 15,785 19,800
--------- ---------
Total assets...................................................... $ 300,034 $ 298,497
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Notes payable........................................................ $ 879 $ 509
Accounts payable..................................................... 41,847 32,897
Accrued liabilities.................................................. 24,376 22,167
Current portion of long-term debt.................................... 2,468 1,872
--------- ---------
Total current liabilities......................................... 69,570 57,445
--------- ---------
Long-term debt......................................................... 164,789 166,528
--------- ---------
Deferred taxes......................................................... 8,559 6,414
--------- ---------
Common shareholders' equity
Common stock, no par value, 40,000,000 shares authorized, 13,809,413
shares issued and outstanding for each period..................... 49,004 49,004
Common stock options and warrants.................................... 2,774 2,737
Unrealized loss on available for sale securities..................... (1,287) (713)
Retained earnings.................................................... 6,625 17,082
--------- ---------
Common shareholders' equity....................................... 57,116 68,110
--------- ---------
Total liabilities and shareholders' equity........................ $ 300,034 $ 298,497
========= =========
</TABLE>

See notes to consolidated financial statements

F-4
<PAGE> 48

NS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND SEPTEMBER 24,
1994

<TABLE>
<CAPTION>
1996 1995 1994
--------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............................................ $ (10,457) $(10,256) $ 13,208
Adjustments to reconcile net income (loss) to net cash
flows from operating activities:
Depreciation and amortization........................... 19,260 18,941 18,154
Amortization of debt discount and finance costs......... 1,642 2,370 635
Increase (decrease) in long-term deferred taxes......... 2,496 (2,970) (1,157)
Non-cash gain on settlement of claims................... (1,172) -- --
Gain on sale of subsidiary.............................. -- -- (35,292)
(Gain) loss on disposal of equipment.................... 642 (470) (230)
Increase in accounts receivable, net.................... (5,966) (3,207) (7,921)
Increase in inventories................................. (8,601) (12,426) (3,168)
(Increase) decrease in refundable income taxes.......... 1,775 (2,935) 2,618
(Increase) decrease in operating supplies and other
current assets....................................... 768 (3,250) 1,325
Increase in accounts payable............................ 8,950 5,585 5,782
Increase in accrued liabilities......................... 2,209 2,886 351
--------- --------- ---------
Net cash flows from operating activities............. 11,546 (5,732) (5,695)
--------- --------- ---------
Cash flows from investing activities:
(Increase) decrease in short-term investments............. (7,442) 33,658 (36,614)
Purchases of property, plant and equipment................ (6,510) (12,233) (10,394)
Proceeds from sale of equipment........................... 1,729 494 631
(Increase) decrease in other assets....................... (474) 1,892 (2,122)
Proceeds from sale of subsidiary.......................... -- -- 50,426
Cash dividend from sold subsidiary........................ -- -- 6,818
--------- --------- ---------
Net cash flows from investing activities............. (12,697) 23,811 8,745
--------- --------- ---------
Cash flows from financing activities:
Increase (decrease) in notes payable...................... 370 (28,363) 1,905
Proceeds from issuance of long-term debt.................. 1,277 122,587 431
Proceeds from issuance of warrants........................ -- 2,411 --
Repayments on long-term debt.............................. (1,892) (107,950) (7,246)
Increase in debt issuance costs........................... -- (6,331) (236)
Proceeds from issuance of common stock.................... -- -- 704
--------- --------- ---------
Net cash flows from financing activities............. (245) (17,646) (4,442)
--------- --------- ---------
Net increase (decrease) in cash and cash
equivalents........................................ (1,396) 433 (1,392)
Cash and cash equivalents at beginning of year................. 4,838 4,405 5,797
--------- --------- ---------
Cash and cash equivalents at end of year....................... $ 3,442 $ 4,838 $ 4,405
========= ========= =========
Cash paid during the year for:
Interest............................................. $ 22,179 $ 20,385 $ 18,964
Income taxes, net of refunds......................... $ (4,234) $ 209 $ 2,297
</TABLE>

See notes to consolidated financial statements

F-5
<PAGE> 49

NS GROUP, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMMON SHAREHOLDERS' EQUITY

FOR THE YEARS ENDED SEPTEMBER 28, 1996, SEPTEMBER 30, 1995 AND SEPTEMBER 24,
1994

<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
COMMON STOCK OPTIONS ON AVAILABLE
-------------------- AND FOR SALE RETAINED
SHARES AMOUNT WARRANTS SECURITIES EARNINGS TOTAL
---------- ------- -------- ------------ -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, September 25, 1993....... 13,696,104 $48,284 $ 208 $ -- $ 14,130 $ 62,622
Stock option plans.............. 56,145 290 54 344
Issuance of common stock........ 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
Stock option plans.............. 64 64
Issuance of common stock
warrants..................... 2,411 2,411
Unrealized losses on
investments.................. (589) (589)
Other........................... 16 16
Net loss........................ (10,256) (10,256)
----------- -------- -------- ------- ------ -------
Balance, September 30, 1995....... 13,809,413 49,004 2,737 (713) 17,082 68,110
Stock option plans.............. 37 37
Unrealized losses on
investments.................. (574) (574)
Net loss........................ (10,457) (10,457)
----------- -------- -------- ------- ------ -------
Balance, September 28, 1996....... 13,809,413 $49,004 $2,774 $ (1,287) $ 6,625 $ 57,116
=========== ======== ======== ======= ====== =======
</TABLE>

See notes to consolidated financial statements

F-6
<PAGE> 50

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): Koppel Steel Corporation
(Koppel), Newport Steel Corporation (Newport), Erlanger Tubular Corporation
(Erlanger), Imperial Adhesives, Inc. (Imperial) and Northern Kentucky
Management, Inc. See Note 2 regarding the sale of Kentucky Electric Steel
Corporation in fiscal 1994. All significant intercompany accounts and
transactions have been eliminated. Certain amounts have been reclassified in the
accompanying consolidated financial statements to conform to fiscal 1997
presentation.

USE OF ESTIMATES

The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make certain estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.

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 money market mutual funds and
U.S. treasury securities, for which market value approximates cost. At September
28, 1996, approximately $1.9 million in short-term investments were restricted
in an environmental trust account related to a permitted hazardous waste
disposal facility located on the Company's property at Newport. Certain of the
Company's investments are classified as "available for sale" and are recorded at
current market value with an offsetting adjustment to common shareholders'
equity.

INVENTORIES

At September 28, 1996 and September 30, 1995, inventories stated at the
lower of LIFO (last-in, first-out) cost or market represent approximately 36%
and 31% 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:

<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.................................................. $ 5,948 $ 6,591
Semi-finished and finished goods............................... 50,471 40,570
------- -------
56,419 47,161
LIFO reserve................................................... (3,102) (2,445)
------- -------
Total inventories.............................................. $53,317 $44,716
======= =======
</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

F-7
<PAGE> 51

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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 capitalized. Included in property, plant and equipment at
September 28, 1996, are assets with a net book value of approximately $4.7
million which are not currently being used in the business. In management's
opinion, the carrying values of such assets are realizable.

INCOME TAXES

At September 28, 1996 and September 30, 1995, deferred income tax balances
represent the estimated future tax effects of temporary differences between the
financial reporting basis and the tax basis of certain assets and liabilities.

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

In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 121 (Statement 121) on accounting for the impairment of long-lived
assets to be held and used. Statement 121 also establishes accounting standards
for long-lived assets that are to be disposed. Statement 121 is required to be
applied prospectively for assets to be held and used. The initial application of
Statement 121 to assets held for disposal is required to be reported as the
cumulative effect of a change in accounting principle. The Company will adopt
Statement 121 in the first quarter of fiscal 1997 and currently expects the
impact of such adoption to be immaterial.

In October 1995, the FASB issued Statement No. 123 (Statement 123)
establishing financial accounting and reporting standards for stock-based
employee compensation plans. Statement 123 encourages the use of the fair value
based method to measure compensation cost for stock-based employee compensation
plans, however, it also continues to allow the intrinsic value based method of
accounting as prescribed by APB Opinion No. 25, which is currently used by the
Company. Adoption is required in fiscal 1997 and the Company intends to remain
on the intrinsic value based method of accounting. As such, beginning with the
1997 fiscal year-end, Statement 123 requires pro forma disclosures of net income
and earnings per share, as if the fair value based method of accounting had been
applied.

FISCAL YEAR-END

The Company's fiscal year ends on the last Saturday of September. Fiscal
1996 and 1994 contain fifty-two weeks and fiscal 1995 contains fifty-three
weeks.

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 $45.6 million

F-8
<PAGE> 52

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

in cash and 400,000 shares of the newly formed public company. In addition, the
Company received $6.8 million in cash from the new entity in satisfaction of a
dividend declared by KES prior to the sale. The sale of KES resulted in a
pre-tax gain of $35.3 million. After giving effect to the elimination of the
pre-tax gain of $35.3 million, the related tax effect of $13.8 million and $0.1
million of net income of 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 was $10.2
million, or a $.74 loss per share.

NOTE 3: OTHER ASSETS

Other assets at September 28, 1996 and September 30, 1995 includes
approximately $8.0 million and $8.6 million, respectively, in costs associated
with land near Newport, Kentucky, which is held as investment property and is
listed for sale and approximately $5.5 million and $6.5 million, respectively,
in deferred financing costs. Other assets at September 30, 1995 also include
investments totaling $3.6 million which are classified as other current assets
at September 28, 1996.

NOTE 4: ACCRUED LIABILITIES

Accrued liabilities consist of the following:

<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued payroll and payroll taxes.............................. $ 8,477 $ 7,113
Accrued interest............................................... 4,696 4,084
Accrued environmental remediation.............................. 4,444 4,514
Accrued income taxes........................................... 218 32
Other.......................................................... 6,541 6,424
------- -------
$24,376 $22,167
======= =======
</TABLE>

NOTE 5: LONG-TERM DEBT AND CREDIT FACILITY

Long-term debt of the Company consists of the following:

<TABLE>
<CAPTION>
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
13.5% Senior Secured Notes due July 15, 2003, interest due
semi-annually, secured by property, plant and equipment
(net of unamortized discount of $7,754 and $8,398,
respectively).............................................. $123,342 $122,698
11% Subordinated Convertible Debentures, due in annual
installments from October, 2000 through 2005............... 28,300 29,000
Term loans due various states and municipalities, interest
ranging from 2% to 11%, due in varying monthly or quarterly
installments through 2016, secured by junior mortgages on
property, plant and equipment.............................. 10,708 10,166
Other........................................................ 4,907 6,536
-------- --------
167,257 168,400
Less -- current portion...................................... (2,468) (1,872)
-------- --------
$164,789 $166,528
======== ========
</TABLE>

F-9
<PAGE> 53

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

In the fourth quarter of fiscal 1996, in connection with the settlement of
certain warranty claims related to the Koppel acquisition, approximately $1.2
million of 11% Subordinated Convertible Debentures and notes were canceled by
the Company, resulting in a non-cash gain.

In fiscal 1995, the Company publicly issued $131.1 million aggregate
principal amount of 13.5% Senior Secured Notes due 2003 (Notes) together with
warrants (Warrants) to purchase an aggregate of approximately 1,534,000 shares
of the Company's common stock at $4.00 per share. Proceeds from the sale of the
Notes and Warrants of approximately $120.8 million, after underwriting discount
and before expenses, together with available cash on hand, were used to retire a
substantial portion of the Company's outstanding indebtedness, including
borrowings under its lines of credit.

Through July 1998, the Company may redeem up to 40% of the principal amount
of the Notes with the net proceeds of a public offering of common stock at a
price of 113.5% of par, provided that at least $75.0 million principal amount of
the Notes remain outstanding after redemption. The Notes may be redeemed at the
option of the Company, at any time, in whole or in part, beginning in 2000, at
declining premiums plus accrued interest.

The Notes are unconditionally guaranteed in full, jointly and severally, by
each of the Company's subsidiaries and are secured by the property, plant and
equipment of the Company's steel-making operations. The Indenture relating to
the Notes contains a number of restrictive covenants including, among other
things, limitations on the ability of the Company to incur additional
indebtedness; create liens; make certain restricted payments, including
dividends; engage in certain transactions with affiliates; engage in sale and
leaseback transactions; dispose of assets; issue or sell stock of 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.

The Company has a $45.0 million revolving credit facility (Credit
Facility), borrowings on which are secured by inventory and accounts receivable.
Interest on borrowings accrues at a rate per annum of (a) the sum of the
alternate base rate (which is the higher of prime rate or 0.5% 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 2.75% with respect to Eurodollar rate
loans. Borrowings are due on demand and are limited to defined percentages of
eligible inventory and accounts receivable. The Credit Facility contains
financial covenants including maintenance of minimum net worth, minimum interest
coverage ratios, maximum ratios of indebtedness to net worth, and minimum
current ratio and working capital requirements. The Credit Facility also
includes restrictions upon dividends, investments, capital expenditures,
indebtedness and the sale of certain assets. At September 28, 1996,
approximately $15.6 million of the Credit Facility was utilized to collateralize
various letters of credit and $29.4 million was available for borrowing. The
Credit Facility expires in fiscal 1998.

Pursuant to the Company's debt agreements, it is currently prohibited from
paying dividends to its shareholders.

In connection with the retirement of long-term indebtedness in the fourth
quarter of fiscal 1995, the Company incurred prepayment costs and wrote off
unamortized debt issuance costs which resulted in an extraordinary charge of
$5.2 million, net of applicable income tax benefit of $2.8 million, or $.38 per
share.

The Company also has outstanding 11% Subordinated Convertible Debentures,
which are unsecured obligations of the Company and are convertible into common
shares of the Company at a price of $17.00 per share, or approximately 1,665,000
shares. Interest is payable quarterly. The debentures are redeemable by the
Company at 110% of par.

Annual long-term debt maturities are $2.5 million in fiscal 1997, $3.6
million in fiscal 1998, $2.3 million in fiscal 1999, $0.8 in fiscal 2000 and
$5.3 million in fiscal 2001.

F-10
<PAGE> 54

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

As of September 28, 1996 and September 30, 1995, the weighted average
interest rate on outstanding notes payable was 6.1% and 6.0%, respectively.

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 $2.7 million, are reported in other current assets and are
carried at market value.

Notes payable -- The carrying amount approximates fair value because of the
short maturity.

Long-term debt -- The fair value of the Company's Senior Secured Notes is
based upon their trading price as of fiscal year-end. All other 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 amount
and fair value of the Company's financial instruments are as follows.

<TABLE>
<CAPTION>
1996 1995
--------------------- ---------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Cash, cash equivalents and short-term
investments......................... $ 17,297 $ 17,297 $ 11,251 $ 11,251
Other investments..................... 2,725 2,725 3,650 3,650
Notes payable......................... 879 879 509 509
Long-term debt........................ 167,257 176,860 168,400 172,021
</TABLE>

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.

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 28, 1996, options outstanding are priced in a range from $3.25 to
$14.125 per share.

F-11
<PAGE> 55

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

A summary of transactions in the plans follows:

<TABLE>
<CAPTION>
1996 1995 1994
------- --------- ---------
<S> <C> <C> <C>
Options outstanding, beginning of year.............. 989,030 1,048,705 1,185,525
Options granted..................................... -- 10,000 289,050
Options expired..................................... (80,260) (69,675) (369,725)
Options exercised................................... -- -- (56,145)
------- --------- ---------
Options outstanding, end of year.................... 908,770 989,030 1,048,705
======= ========= =========
Options exercisable, end of year.................... 681,450 607,955 509,525
======= ========= =========
Available for grant................................. 564,385 514,535 488,580
======= ========= =========
</TABLE>

The Company also has non-qualified stock option and stock appreciation rights
plans under which the Company may grant to key employees options to purchase (or
stock appreciation awards corresponding to) shares of the Company's common
stock. Terms of the grants made under these plans are determined by the Stock
Option Committee of the Board of Directors. Options granted in fiscal 1996, 1995
and 1994 under these plans were at exercise prices approximating the market
price on the date of the grant. At September 28, 1996, options outstanding under
the Company's non-qualified plans are priced in a range from $2.63 to $13.43 per
share. Grant prices have ranged from 64% to 110% of the market price at the date
of grant.

A summary of transactions in the plans follows:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Options outstanding, beginning of year................. 678,025 475,625 366,760
Options granted........................................ 60,000 202,400 135,085
Options expired........................................ (17,465) -- (26,220)
------- ------- -------
Options outstanding, end of year....................... 720,560 678,025 475,625
======= ======= =======
Options exercisable, end of year....................... 269,978 153,400 106,700
======= ======= =======
Available for grant.................................... 529,440 571,975 24,375
======= ======= =======
</TABLE>

The Company has common stock warrants outstanding, issued in connection
with the sale of the Company's Senior Secured Notes. The warrants are
exercisable for approximately 1,534,000 shares of the Company's common stock at
a price of $4.00 per share and expire July 15, 2003. The Company also has common
stock warrants outstanding which were issued in connection with the financing of
the Koppel acquisition. These 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.

The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business with respect to workers
compensation, health care and product liability coverages (each of which is
self-insured to certain levels), as well as commercial and other matters. The
Company accrues for the cost of such matters when the incurrence of such costs
is probable and can be reasonably estimated. 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.

F-12
<PAGE> 56

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Newport has incurred significant losses in recent years. Certain
assumptions and estimates have been made in projecting future cash flows from
Newport's operations and, based upon its evaluation, the Company believes the
carrying value of Newport's facilities is realizable. However, actual results
could differ, which may have a material effect on the Company's consolidated
financial statements.

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 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 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 steel 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 has on its property at Newport a permitted hazardous waste
disposal facility. Newport's permit for operating the hazardous waste disposal
facility requires that it investigate, test, and analyze for potential releases
of hazardous constituents from its closed loop water recirculating system. Any
contamination documented as a result of the investigation would require certain
cleanup measures; however, the Company believes that the cost of any such
cleanup measures will not be material.

In March 1995, Koppel and the EPA signed a Consent Order 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 Consent Order
establishes a schedule for investigating, monitoring, testing and analyzing the
potential releases. Contamination documented as a result of the investigation
requires cleanup measures and certain remediation has begun. 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. 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.

In November 1996, Koppel received a Notice of Violation (NOV) from the EPA
alleging violations of the Clean Air Act and the Pennsylvania State
Implementation Plan. The violations allegedly occurred during 1995 and 1996 and
pertain to air emissions from Koppel's electric arc furnace operations. At this
time, the Company is unable to determine if the EPA will assess civil penalties
as a result of the alleged violations, or the extent of any such potential
penalties.

F-13
<PAGE> 57

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

costs are incurred. As of September 28, 1996, 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.

Subject to the uncertainties concerning the Consent Order, the NOV and the
storage and disposal of the radiation contaminated dust, the Company believes
that it is currently in compliance in all material respects with all applicable
environmental regulations. The Company cannot predict the level of required
capital expenditures or operating costs that may result from future
environmental regulations.

Capital expenditures for the next twelve months relating to environmental
control facilities are not expected to be material, however, such expenditures
could be influenced by new or revised environmental regulations and laws or new
information or developments with respect to the Company's operating facilities.

As of September 28, 1996, the Company had environmental remediation
reserves of $4.4 million which pertain almost exclusively to accrued disposal
costs for radiation contaminated dust. As of September 28, 1996, the estimated
range of possible 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.
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 10: 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) 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 $1.0 million, $0.9 million and $0.5 million in fiscal years 1996,
1995 and 1994, respectively.

NOTE 11: 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). Under Statement 109, the Company's 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 provision (credit) for income taxes, including $2.8 million allocated
to extraordinary items in fiscal 1995, consists of the following:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current................................................. $(2,112) $(3,044) $5,423
Deferred................................................ 1,528 (3,296) 1,959
------- ------- ------
Provision (credit) for
income taxes.......................................... $ (584) $(6,340) $7,382
======= ======= ======
</TABLE>

F-14
<PAGE> 58

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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:

<TABLE>
<CAPTION>
1996 1995 1994
------- ------- ------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax provision (credit) at statutory tax rate of
35%................................................... $(3,864) $(5,808) $6,606
Change in taxes resulting from:
State income taxes, net of federal effect............. (926) (150) 1,003
Dividend income exclusion............................. (60) (61) (200)
Change in valuation allowance......................... 4,156 -- --
Other, net............................................ 110 (321) (27)
------- ------- ------
Provision (credit) for income taxes..................... $ (584) $(6,340) $7,382
======= ======= ======
</TABLE>

The following represents the components of deferred tax liabilities and
assets at September 28, 1996 and September 30, 1995:

<TABLE>
<CAPTION>
1996 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax liabilities:
Property, plant and equipment................................. $29,993 $27,646
Other items................................................... 141 2,196
------- -------
30,134 29,842
------- -------
Deferred tax assets:
Reserves and accruals......................................... 5,343 3,880
Net operating tax loss carryforward........................... 20,136 18,003
Alternative minimum tax and other tax credit carryforwards.... 3,393 4,480
Other items................................................... 2,318 1,907
------- -------
31,190 28,270
Valuation allowance........................................... (4,156) --
------- -------
Net deferred tax assets....................................... 27,034 28,270
------- -------
Net deferred tax liability...................................... $ 3,100 $ 1,572
======= =======
</TABLE>

For federal income tax purposes, the Company has alternative minimum tax
credit carryforwards of approximately $2.9 million, which are not limited by
expiration dates, and other tax credit carryforwards of approximately $0.5
million, which expire beginning in 2000. The Company also has net operating tax
loss carryforwards of approximately $57.5 million, which expire beginning in
2007. The Company has recorded deferred tax assets related to these
carryforwards, net of a deferred tax asset valuation allowance. In estimating
the amount of the valuation allowance required, the Company has considered
future taxable income related to the reversal of temporary differences in the
tax and financial reporting basis of assets and liabilities, and has fully
reserved for all deferred tax assets not realizable through such reversals.

NOTE 12: RELATED PARTY TRANSACTIONS

One of the Company's directors/shareholders has a controlling interest in a
company which purchases secondary and limited service tubular products from
Newport. Sales to this customer were approximately $16.8 million, $16.0 million
and $11.0 million for fiscal years 1996, 1995, and 1994, respectively. Trade
receivables from this customer were $1.4 million and $0.7 million at the end of
fiscal 1996 and 1995, respectively.

F-15
<PAGE> 59

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 13: BUSINESS SEGMENT INFORMATION

The Company operates in two business segments: specialty steel and
industrial adhesives. Within the specialty steel segment are the operations of
Koppel, a manufacturer of seamless tubular steel products, special bar quality
(SBQ) products and semi-finished steel products; and Newport, a manufacturer of
welded tubular steel products and hot rolled coils. The Company's specialty
steel products consist of: (i) seamless and welded tubular goods primarily used
in oil and natural gas drilling and production operations, (oil country tubular
goods, or OCTG); (ii) line pipe used in the transmission of oil, gas and other
fluids; (iii) SBQ products primarily used in the manufacture of heavy industrial
equipment 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 and
footwear finishes products.

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 1996, 1995 and 1994.

<TABLE>
<CAPTION>
DEPRECIATION
NET OPERATING IDENTIFIABLE AND CAPITAL
SALES INCOME ASSETS AMORTIZATION EXPENDITURES
-------- --------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
1996
Specialty steel segment............... $369,466 $14,886 $245,642 $ 20,234 $ 6,279
Adhesives segment..................... 39,916 1,597 15,338 668 231
Corporate assets and allocations...... -- (4,430) 39,054 -- --
-------- ------- -------- ------- -------
Total consolidated.................... $409,382 $12,053 $300,034 $ 20,902 $ 6,510
======== ======= ======== ======= =======
1995
Specialty steel segment............... $335,883 $10,428 $250,711 $ 20,862 $ 11,748
Adhesives segment..................... 35,469 1,248 13,011 449 485
Corporate assets and allocations...... -- (3,870) 34,775 -- --
-------- ------- -------- ------- -------
Total consolidated.................... $371,352 $ 7,806 $298,497 $ 21,311 $ 12,233
======== ======= ======== ======= =======
1994
Specialty steel segment............... $270,441 $ 2,909 $246,295 $ 18,373 $ 10,014
Adhesives segment..................... 32,939 1,150 12,486 416 380
Corporate assets and allocations...... -- (3,370) 56,546 -- --
-------- ------- -------- ------- -------
Total consolidated.................... $303,380 $ 689 $315,327 $ 18,789 $ 10,394
======== ======= ======== ======= =======
</TABLE>

F-16
<PAGE> 60

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE 14: QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly results of operations for 1996 and 1995 are as follows:

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Net sales......................................... $ 89,295 $104,726 $103,766 $111,595
Gross profit...................................... 6,893 9,858 11,400 11,646
Net income (loss)................................. (3,204) (1,508) (1,871) (3,874)
Net income (loss) per common share................ (.23) (.11) (.14) (.28)
1995
Net sales......................................... $ 93,489 $ 97,055 $ 94,804 $ 86,004
Gross profit...................................... 11,490 10,145 10,592 1,855
Income (loss) before extraordinary item........... 75 447 529 (6,107)
Net income (loss)................................. 75 447 529 (11,307)
Income (loss) per common share before
extraordinary item.............................. .01 .03 .04 (.44)
Net income (loss) per common share................ .01 .03 .04 (.82)
</TABLE>

During the fiscal 1995 fourth quarter, the Company experienced numerous
unexpected operational problems, principally at Newport. Newport's melt shop
incurred an unusual number of unplanned outages during the quarter related to
equipment breakdowns, lightning strikes and power curtailments due to weather
conditions. As a result, steel production volume was significantly affected,
limiting availability of steel to Newport's hot strip mill and pipe mills. The
excessive downtime throughout all of Newport's operations resulted in low
operating efficiencies, increased maintenance costs and lost sales opportunities
during the quarter. Also impacting the quarter at Newport was a write-down of
scrap inventory resulting from year-end physical inventory counts. Shipments of
Newport's tubular products totaled 74,400 tons in the fourth quarter of fiscal
1995 compared to 78,700 tons in the third quarter of fiscal 1995 and 83,800 tons
in the fourth quarter of fiscal 1994. For the same periods, average selling
prices for all of Newport's welded tubular products were $440, $457 and $429 per
ton, respectively.

The fiscal 1995 fourth quarter was also impacted by a decline in shipments
of SBQ products from the Company's Koppel facilities, due to softening in market
demand. SBQ shipments totaled 33,800 tons in the fourth quarter of fiscal 1995
compared to 45,100 tons in the third quarter of fiscal 1995 and 36,000 tons in
the fourth quarter of fiscal 1994. For the same periods, average selling prices
for SBQ products were $503, $503, and $441 per ton, respectively.

In connection with a fiscal 1995 fourth quarter debt refinancing, the
Company incurred prepayment costs and wrote off unamortized debt issuance costs,
which resulted in an extraordinary charge of $5.2 million, net of applicable
income tax benefit of $2.8 million, or $.38 per share.

NOTE 15: SUMMARIZED FINANCIAL INFORMATION

The Company's Senior Secured Notes are unconditionally guaranteed in full,
jointly and severally, by each of the Company's subsidiaries (Subsidiary
Guarantors), each of which is wholly-owned. Separate 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 28,

F-17
<PAGE> 61

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

1996 and September 30, 1995 and for each of the three years in the period ended
September 28, 1996. All significant intercompany accounts and transactions
between the Subsidiary Guarantors have been eliminated.

<TABLE>
<CAPTION>
SEPTEMBER 28, SEPTEMBER 30,
1996 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Current assets............................................ $ 131,839 $ 118,348
Noncurrent assets......................................... 143,074 160,886
Current liabilities....................................... 61,980 50,933
Payable to parent......................................... $ 162,593 $ 169,079
Other noncurrent liabilities.............................. 9,953 9,779
-------- --------
Total noncurrent liabilities............................ $ 172,546 $ 178,858
======== ========
</TABLE>

<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales........................................... $409,382 $371,352 $303,380
Gross profit........................................ 39,797 34,082 25,219
Net income (loss)................................... (5,816) (2,040) 14,689
</TABLE>

F-18
<PAGE> 62

NS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF JUNE 28, 1997 AND SEPTEMBER 28, 1996

(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 28, SEPTEMBER 28,
1997 1996
--------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents........................................ $ 5,028 $ 3,442
Short-term investments........................................... 16,155 13,855
Accounts receivable, less allowance for doubtful accounts of $930
and $757, respectively........................................ 62,744 51,824
Inventories...................................................... 72,435 53,317
Other current assets............................................. 28,310 28,037
---------- ----------
Total current assets.......................................... 184,672 150,475
---------- ----------
PROPERTY, PLANT AND EQUIPMENT...................................... 275,659 272,286
Less -- accumulated depreciation................................. (150,988) (138,512)
---------- ----------
124,671 133,774
---------- ----------
OTHER ASSETS....................................................... 13,177 15,785
---------- ----------
Total assets.................................................. $ 322,520 $ 300,034
========== ==========
CURRENT LIABILITIES
Notes payable.................................................... $ 1,086 $ 879
Accounts payable................................................. 49,792 41,847
Other current liabilities........................................ 31,924 24,376
Current portion of long-term debt................................ 3,239 2,468
---------- ----------
Total current liabilities..................................... 86,041 69,570
---------- ----------
LONG-TERM DEBT..................................................... 162,689 164,789
---------- ----------
DEFERRED TAXES..................................................... 8,332 8,559
---------- ----------
COMMON SHAREHOLDERS' EQUITY
Common stock, no par value....................................... 50,425 49,004
Common stock options and warrants................................ 2,622 2,774
Unrealized loss on available for sale securities................. (1,562) (1,287)
Retained earnings................................................ 13,973 6,625
---------- ----------
Total common shareholders' equity............................. 65,458 57,116
---------- ----------
Total liabilities and shareholders' equity.................... $ 322,520 $ 300,034
========== ==========
</TABLE>

The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.

F-19
<PAGE> 63

NS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE AND NINE MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996

(UNAUDITED)

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
NET SALES....................................... $132,853 $103,766 $349,130 $297,787
COST AND EXPENSES
Cost of products sold......................... 113,499 92,366 301,696 269,636
Selling and administrative expenses........... 6,753 7,281 20,034 20,534
-------- -------- -------- --------
Operating income.............................. 12,601 4,119 27,400 7,617
OTHER INCOME (EXPENSE)
Interest expense.............................. (6,130) (6,107) (18,298) (18,244)
Interest income............................... 236 204 694 475
Other, net.................................... 87 49 292 300
-------- -------- -------- --------
Income (loss) before income taxes............. 6,794 (1,735) 10,088 (9,852)
PROVISION (CREDIT) FOR INCOME TAXES............. 1,864 136 2,740 (3,269)
-------- -------- -------- --------
Net income (loss)............................. $ 4,930 $ (1,871) $ 7,348 $ (6,583)
======== ======== ======== ========
NET INCOME (LOSS) PER COMMON SHARE:
Primary.................................... $ .34 $ (.14) $ .53 $ (.48)
Fully diluted.............................. .32 (.14) .47 (.48)
WEIGHTED AVERAGE SHARES OUTSTANDING:
Primary.................................... 14,791 13,809 13,837 13,809
Fully diluted.............................. 17,402 13,809 15,737 13,809
</TABLE>

The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.

F-20
<PAGE> 64

NS GROUP, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTH PERIODS ENDED JUNE 28, 1997 AND JUNE 29, 1996

(UNAUDITED)

<TABLE>
<CAPTION>
JUNE 28, JUNE 29,
1997 1996
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss).................................................... $ 7,348 $ (6,583)
Adjustments to reconcile net income (loss) to net cash flows from
operating activities:
Depreciation and amortization..................................... 13,209 14,335
Amortization of debt discount and finance costs................... 1,258 1,223
Decrease in long-term deferred taxes.............................. (77) (2,259)
Loss on disposal of equipment..................................... 5 635
Increase in accounts receivable, net.............................. (10,920) (4,993)
Increase in inventories........................................... (19,406) (11,996)
(Increase) decrease in other current assets....................... (1,260) 3,520
Increase in accounts payable...................................... 7,945 11,966
Increase in accrued liabilities................................... 7,548 5,772
-------- --------
Net cash flows from operating activities..................... 5,650 11,620
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Increase in property, plant and equipment, net....................... (3,187) (5,787)
Proceeds from sale of equipment...................................... 139 1,729
(Increase) decrease in other assets.................................. 1,669 (414)
-------- --------
Net cash flows from investing activities..................... (1,379) (4,472)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in notes payable............................................ 207 751
Repayments on long-term debt......................................... (1,838) (1,460)
Proceeds from the issuance of long-term debt......................... -- 1,277
Proceeds from issuance of common stock............................... 1,246 --
-------- --------
Net cash flows from financing activities..................... (385) 568
-------- --------
Net increase in cash and short-term investments.............. 3,886 7,716
CASH AND SHORT-TERM INVESTMENTS AT BEGINNING OF YEAR................... 17,297 11,251
-------- --------
CASH AND SHORT-TERM INVESTMENTS AT END OF PERIOD....................... $ 21,183 $ 18,967
======== ========
Cash paid during the period for:
Interest............................................................. $ 12,502 $ 11,979
Income taxes, net of refunds......................................... $ 477 $ (4,238)
</TABLE>

The accompanying notes to condensed consolidated financial statements are an
integral part of these statements.

F-21
<PAGE> 65

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION

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) and Northern
Kentucky Management, Inc. All significant intercompany balances and transactions
have been eliminated. Certain amounts for the prior period have been
reclassified in the accompanying condensed consolidated financial statements to
conform to fiscal 1997 presentation.

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. The preparation of financial
statements in conformity with generally accepted accounting principles requires
that management make certain estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. Actual
results could differ from those estimates. Reference should be made to NS Group,
Inc.'s Form 10-K for the fiscal year ended September 28, 1996 for additional
footnote disclosure, including a summary of significant accounting policies.

EARNINGS PER SHARE

Primary earnings per share is computed by applying the modified treasury
stock method to the Company's outstanding stock options and warrants. Fully
diluted earnings per share is calculated assuming maximum dilution from all
potentially dilutive instruments which can include stock options, warrants and
the Company's 11% Convertible Debentures.

RECENTLY ISSUED ACCOUNTING STANDARDS

In the first quarter of fiscal 1997, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 121 (Statement 121).
Statement 121 establishes accounting standards for impairment of long-lived
assets to be held and used and for long-lived assets that are to be disposed.
The impact on the Company's financial statements from the adoption of Statement
121 was not material.

In the first quarter of fiscal 1997, the Company also adopted SFAS No. 123
(Statement 123). Statement 123 establishes accounting and reporting standards
for stock-based employee compensation plans. As permitted under Statement 123,
the Company has elected to remain on the intrinsic value based method of
accounting for stock-based employee compensation plans. As such, beginning with
the 1997 fiscal year-end, Statement 123 requires pro forma disclosures of net
income and earnings per share, as if the fair value based method of accounting
had been applied.

In February 1997, the Financial Accounting Standards Board (FASB) issued
SFAS No. 128 (Statement 128) which establishes standards for computing and
presenting earnings per share (EPS). Statement 128 replaces primary EPS and
fully diluted EPS with a dual presentation of basic EPS and diluted EPS,
respectively. Basic EPS is computed by dividing net earnings available to common
shareholders by the weighted-average number of common shares outstanding for the
period. Diluted EPS reflects the potential dilution which would result from any
instrument which could result in additional common shares being issued.

The Company must adopt Statement 128 for fiscal 1998. For the fiscal 1997
third quarter and nine month period ended June 28,1997 EPS as reported and as
calculated under Statement 128 are as follows:

<TABLE>
<CAPTION>
AS REPORTED PROFORMA STATEMENT 128
--------------------------- ---------------------------
THREE MONTHS NINE MONTHS THREE MONTHS NINE MONTHS
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Primary/Basic EPS................ $.34 $ .53 $.36 $ .53
Fully Diluted/Diluted EPS........ $.32 $ .47 $.33 $ .52
</TABLE>

F-22
<PAGE> 66

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

For the comparable three and nine month periods in fiscal 1996, the reported EPS
would not change.

In June 1997, the FASB issued SFAS No. 130 (Statement 130) which
establishes standards for reporting comprehensive income in financial
statements. Comprehensive income is the total of net income and all other
nonowner changes in equity, which, for the Company currently consists solely of
unrealized holding gains/losses on available for sale securities. The Company
must adopt Statement 130 for fiscal 1999 at which time the Company will provide
additional financial statement disclosures of comprehensive income for the
periods presented.

FISCAL YEAR-END

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

NOTE 2: INVENTORIES

At June 28, 1997 and September 28, 1996, inventories stated at the lower of
LIFO (last-in, first-out) cost or market represent approximately 50% and 36% of
total inventories before the LIFO reserve, respectively. Inventories consist of
the following components ($000's):

<TABLE>
<CAPTION>
JUNE 28, SEPTEMBER 28,
1997 1996
-------- -------------
<S> <C> <C>
Raw materials................................................ $ 10,505 $ 5,948
Semi-finished and finished goods............................. 65,052 50,471
------- -------
75,557 56,419
LIFO reserve................................................. (3,122) (3,102)
------- -------
$ 72,435 $53,317
======= =======
</TABLE>

NOTE 3: STOCK OPTIONS AND WARRANTS

During the third quarter and first nine months of fiscal 1997, the Company
issued 257,891 and 269,041 shares of its common stock, respectively, in
connection with the exercise of stock options and warrants.

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.

Legal Matters

The Company is subject to various claims, lawsuits and administrative
proceedings arising in the ordinary course of business with respect to workers'
compensation, health care and product liability coverages (each of which is
self-insured to certain levels), as well as commercial and other matters. The
Company accrues for the cost of such matters when the incurrence of such costs
is probable and can be reasonably estimated. 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.

Environmental Matters

F-23
<PAGE> 67

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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. As such, the Company is from time to time involved in
administrative and judicial proceedings and administrative inquiries related to
environmental matters.

The Company has on its property at Newport a permitted hazardous waste
disposal facility. Newport's permit for operating the hazardous waste disposal
facility required that it investigate, test, and analyze for potential releases
of hazardous constituents from its closed loop water recirculating system. Based
on the findings of its investigation, which have been filed with the EPA, the
Company believes that the cost of any remediation, if required, will not be
material.

In November 1996, Koppel received a Notice of Violation from the EPA
alleging violations of the Clean Air Act and the Pennsylvania State
Implementation Plan. The violations allegedly occurred during 1995 and 1996 and
pertain to air emissions from Koppel's electric arc furnace operations. The
conditions which contributed to the alleged violations, have been corrected and
as of January 1, 1997, Koppel has demonstrated compliance with the air emission
regulations. At this time, the Company is unable to determine if the EPA will
assess civil penalties as a result of the alleged violations, or the extent of
any such potential penalties.

In March 1995, Koppel and the EPA signed a Consent Order 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 Consent Order
established a schedule for investigating, monitoring, testing and analyzing the
potential releases. Initial remediation has been completed and reported to the
EPA; however, additional monitoring and remediation may be required. 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.
To date, the Company has been fully indemnified against all matters pertaining
to the Consent Order and the Company believes that the indemnity provisions
provide for it to be fully indemnified against all future matters covered by the
Consent Order, including all associated costs, claims and liabilities.

The Company expects to recover and has recorded a $2.3 million receivable
relating to insurance claims for the recovery of disposal costs which will be
filed with the applicable insurance carrier at the time such disposal costs are
incurred. As of June 28, 1997, 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.

F-24
<PAGE> 68

NS GROUP, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

applicable environmental regulations. The Company cannot predict the level of
required capital expenditures or operating costs that may result from future
environmental regulations.

As of June 28, 1997, the Company had environmental remediation reserves of
$4.5 million which pertain almost exclusively to accrued disposal costs for
radiation contaminated dust. As of June 28, 1997, the estimated range of
possible 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 range of possible
losses should the Company not be indemnified on future matters. 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 5: SUMMARIZED FINANCIAL INFORMATION

<TABLE>
<CAPTION>
JUNE 28, SEPTEMBER 28,
1997 1996
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current assets.............................................. $164,957 $ 131,839
Noncurrent assets........................................... 132,043 143,074
Current liabilities......................................... 72,087 61,980
Payable to parent........................................... $169,649 $ 162,593
Other noncurrent liabilities................................ 8,409 9,953
-------- --------
Total noncurrent liabilities.............................. $178,058 $ 172,546
======== ========
</TABLE>

<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
------------------- -------------------
JUNE 28, JUNE 29, JUNE 28, JUNE 29,
1997 1996 1997 1996
-------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................... $132,853 $103,766 $349,130 $297,787
Gross profit................................ $ 19,354 $ 11,400 $ 47,434 $ 28,151
Net income (loss)........................... $ 5,612 $ (725) $ 10,169 $ (3,958)
</TABLE>

F-25
<PAGE> 69

The Company's value-added processing and finishing capabilities include
upsetting, threading, heat treating, straightening, non-destructive testing and
coating.

Heat treating is a furnance operation designed to strengthen steel.

Upsetting is a forging process that thickens tube ends giving it a stronger
profile prior to being threaded and coupled.

Threaded tubular products are connected with a coupling to create a "string" and
are used in oil and gas drilling and production operations.
<PAGE> 70

======================================================

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING SHAREHOLDERS OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. THE DELIVERY OF THIS PROSPECTUS
AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 6
Use of Proceeds....................... 10
Price Range of Common Stock and
Dividends........................... 10
Capitalization........................ 11
Selected Consolidated Financial
Data................................ 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Industry Overview..................... 22
Business.............................. 26
Management............................ 34
Principal and Selling Shareholders.... 36
Description of Capital Stock.......... 38
Shares Eligible for Future Sale....... 40
Underwriting.......................... 41
Independent Auditors.................. 42
Legal Matters......................... 42
Available Information................. 42
Incorporation of Certain Documents by
Reference........................... 43
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>

======================================================
======================================================

7,500,000 SHARES

NS GROUP INC.

COMMON STOCK
------------

PROSPECTUS
SEPTEMBER 18, 1997

---------------
SMITH BARNEY INC.

MCDONALD & COMPANY
SECURITIES, INC.

RAYMOND JAMES
& ASSOCIATES, INC.

======================================================