ROUGE INDUSTRIES INC, 10-K, 1998-03-06

ROUGE INDUSTRIES INC
10-K, 1998-03-06
STEEL WORKS, BLAST FURNACES & ROLLING MILLS (COKE OVENS)

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<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(Mark One)

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]

For the fiscal year ended December 31, 1997
OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

For the transition period from to
------------- ----------------
Commission File Number 1-12852

ROUGE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)

DELAWARE 38-3340770
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)

3001 MILLER ROAD, P.O. BOX 1699, DEARBORN, MICHIGAN 48121-1699
- --------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

(313) 317-8900
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Name of each exchange
Title of each class on which registered
------------------- -------------------

Class A Common Stock, $0.01 par value New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

Based upon the closing price of the Class A Common Stock on February 27,
1998, as reported on the New York Stock Exchange composite tape (as reported by
the Wall Street Journal), the aggregate market value of registrant's Class A
Common Stock held by nonaffiliates of registrant as of such date was
$201,820,902.

The number of shares of common stock issued and outstanding as of February
27, 1998 was 22,000,536. This amount includes 14,438,136 shares of Class A
Common Stock and 7,562,400 shares of Class B Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

Selected portions of the 1998 Proxy Statement of Rouge Industries, Inc. are
incorporated by reference into Part III of this Form 10-K to the extent provided
herein.

<PAGE> 2

ROUGE INDUSTRIES, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997

TABLE OF CONTENTS
<TABLE>
<CAPTION>

PART I PAGE

<S> <C> <C>
Item 1. Business.................................................................................. 3

Item 2. Properties................................................................................ 13

Item 3. Legal Proceedings......................................................................... 13

Item 4. Submission of Matters to a Vote of Security Holders....................................... 13

PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters...................... 16

Item 6. Selected Financial Data................................................................... 18

Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..................................................................... 20

Item 8. Financial Statements and Supplementary Data............................................... 28

Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.................................................................. 50

PART III

Item 10. Directors and Executive Officers of the Registrant........................................ 51

Item 11. Executive Compensation.................................................................... 51

Item 12. Security Ownership of Certain Beneficial Owners and Management............................ 51

Item 13. Certain Relationships and Related Transactions............................................ 51

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.......................... 52

</TABLE>

<PAGE> 3

PART I

Item 1. Business.

GENERAL

Rouge Steel Company ("Rouge Steel") and its subsidiaries were reorganized
into a holding company structure effective July 30, 1997. Pursuant to the
reorganization, Rouge Steel became a wholly-owned subsidiary of the new holding
company, Rouge Industries, Inc., a Delaware corporation (together with its
subsidiaries, "Rouge Industries" or the "Company"). Rouge Industries, which was
incorporated in 1996, is the issuer of all shares of Class A Common Stock and
Class B Common Stock outstanding. On the reorganization date, Rouge Industries
and its subsidiaries had the same consolidated net worth as Rouge Steel and its
subsidiaries prior to the reorganization.

Rouge Steel, the primary operating subsidiary of Rouge Industries, is an
integrated producer of high quality, flat rolled carbon steel products
consisting of hot rolled, cold rolled and electrogalvanized steel. The Company's
products generally command higher margins than commodity flat rolled carbon
steel products. The Company's products generally, and its value-added products
specifically, are sold primarily to customers in the automotive industry which
have exacting quality, delivery and service requirements. The Company's ability
to meet these requirements and its participation in the development of new
products designed for automotive applications have enabled it to expand its
sales to automotive customers. The Company also sells its products to steel
converters, service centers and other end users.

Other wholly-owned subsidiaries of Rouge Industries are QS Steel Inc.
("QS Steel") and Eveleth Taconite Company ("Eveleth"). QS Steel holds minority
ownership interests in five Michigan-based joint ventures. Eveleth holds a 45%
interest in Eveleth Mines LLC ("EVTAC"), a Minnesota-based iron ore mining and
pellet producing operation.

PRODUCTS

Rouge Steel currently produces primarily three finished sheet steel
products: (i) hot rolled, which is sold to automotive, converter and service
center customers and other end users; (ii) cold rolled, which is hot rolled
steel that is subsequently cold reduced in thickness, annealed and typically
tempered to enhance ductility and surface characteristics and is sold to
automotive, converter and service center customers and other end users; and
(iii) electrogalvanized, which is cold rolled steel that is coated on one or
both sides with either pure zinc or a zinc/iron combination to make the steel
more corrosion resistant and is sold almost exclusively to automotive customers.

<PAGE> 4

The following table sets forth the percentage of Rouge Industries' steel
product revenues from hot rolled, cold rolled and galvanized steel for the years
from 1995 through 1997.

Year Ended December 31
----------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Hot Rolled 49.4% 47.4% 49.8%
Cold Rolled 29.8 30.6 28.4
Hot Dip Galvanized 0.6 - -
Electrogalvanized 20.2 22.0 21.8
------ ------ ------
Total 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>

Approximately one-half of the Company's sales of hot rolled steel has
been to the automotive market for wheels and structural components such as
suspension arms, frames and seat frames. Rouge Steel also sells hot rolled steel
in the non-automotive end user markets for the manufacture of roof decking,
grating, guard rails and pipes and to converters and service centers to be
further processed or sold directly to other end users. Cold rolled steel is sold
by the Company for use in automotive parts, lighting fixtures, room dividers and
doors, and for unexposed applications such as the manufacture of floor pans and
tubing. Electrogalvanized products are sold to automotive customers for use as
major automotive body panels such as doors, quarter panels and fenders.

One of the Company's primary objectives is to increase its production and
sales of value-added higher margin products. In order to increase the Company's
capability to produce more sophisticated products as well as retain and add
customers, the Company has entered into five Michigan-based strategic joint
ventures:

(i) Shiloh of Michigan, L.L.C. ("Shiloh of Michigan"), a joint venture
with Shiloh Industries, Inc. ("Shiloh") which produces engineered
steel blanks that the Company sells to its automotive customers;

(ii) Spartan Steel Coating, L.L.C. ("Spartan Steel"), a joint venture
with Worthington Industries, Inc. (together with its subsidiaries,
"Worthington") which is in the process of constructing a cold
rolled hot dipped galvanizing line that will provide the Company
with additional coated steel products, primarily for automotive
applications;

(iii) TWB Company, L.L.C. ("TWB"), a joint venture with Worthington,
Thyssen Inc., Bethlehem Blank Welding, Inc. and LTV Steel Company,
Inc. which produces laser welded blanks sold primarily for
automotive applications;

(iv) Delaco Processing, L.L.C. ("Delaco Steel Processing"), a joint
venture with Delaco Supreme Tool and Gear Company which is expected
to slit and warehouse steel coils to be sold to automotive and
other end user customers; and

(v) Bing Blanking, L.L.C. ("Bing Blanking"), a joint venture with
Shiloh and Bing Management II, L.L.C. which is expected to produce
first operation blanks and rollformed parts primarily for the
automotive industry.

It is expected that Spartan Steel will begin production in the second
quarter of 1998, Delaco Steel Processing will begin operating in the third
quarter of 1998 and Bing Blanking will begin

<PAGE> 5

production in the first quarter of 1998. The Company expects to invest a total
of approximately $51 million in Spartan Steel, $28.3 million of which had been
invested as of December 31, 1997. Shiloh of Michigan has a $30 million credit
facility, 20% of which is guaranteed by the Company. Delaco Steel Processing and
Bing Blanking are expected to be financed with debt of approximately $4 million
and $8 million, respectively, all or a portion of which the Company intends to
guarantee. Rouge Industries' participation in these joint ventures responds to
the demand by end users for increasingly complex products and is intended to
mitigate the erosion in sales that might occur if the Company were unable to
provide these products to its current customers. In addition, participation in
these joint ventures may provide opportunities for the Company to supply new
customers.

MARKETS AND CUSTOMERS

In light of the Company's goal to strengthen long-term customer
relationships, improved customer service is a key component of the Company's
strategy and significant resources have been devoted toward that end. The
Company has approximately 200 steel customers, virtually all of which are
located within 350 miles of Rouge Steel's integrated facility. The Company
believes its proximity to its customers allows it to provide focused customer
service and resources. The Company's primary goal in this respect is to maintain
and improve its responsiveness to customer needs in a continually changing
competitive environment.

Ford Motor Company ("Ford") and Worthington, the Company's two largest
customers, accounted for approximately 32% and 12%, respectively, of total sales
in 1997 and 30% and 12%, respectively, of total sales in 1996. While the loss of
Ford or Worthington as a customer, or a significant reduction of either
company's business, would have a material adverse effect on the Company's
business, the Company believes that its relationships with Ford and Worthington
provide a stable sales base and the ability to expand its product capability and
concentrate on increasing margins through more efficient production. No other
single customer has accounted for more than 10% of the Company's total sales
over the past five years. The Company's ten largest customers in the aggregate
accounted for approximately 77% of total sales in 1997 and approximately 70% of
total sales in 1996. For 1997, the Company estimates that its share of the
domestic flat rolled steel market, as measured by shipments, was approximately
5.0%.

The Company's primary customers are in the automotive, converter, service
center and other end user markets. The following table sets forth the percentage
of the Company's steel product revenues from various markets for the years ended
December 31, 1995 through 1997.

<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
1997 1996 1995

<S> <C> <C> <C>
Automotive 62.0% 61.7% 60.7%
Converters 19.0 18.6 18.4
Service Centers 15.8 16.3 16.8
Other End Users 3.2 3.4 3.1
Exports - - 1.0
--------- --------- -------
Total 100.0% 100.0% 100.0%
========= ========= =======
</TABLE>

Automotive. The Company is a significant supplier of hot rolled, cold
rolled and electrogalvanized steel to the automotive industry. Car and truck
manufacturers and their parts suppliers require sheet steel with exact
dimensions, enhanced formability and defect-free surfaces.

<PAGE> 6

The Company's steel products have been used in a variety of automotive
applications including exposed and unexposed panels and high strength parts for
safety applications and to achieve weight reduction. The Company supplies
sophisticated steel products to meet the demand for lighter, safer, and longer
lasting vehicles such as bake hardenable steel and steel for hot forming, which
is used for high strength and safety applications such as automotive door beams.
In the past five years, the Company has made significant improvements in quality
and customer service. The automotive market comprised 62.0% of the Company's
steel product revenues in 1997 up from 60.7% in 1995.

Sales to Ford, the Company's largest customer, accounted for
approximately 32% of total sales in 1997, 30% of total sales in 1996 and 31% of
total sales in 1995. In addition to its relationship with Ford, the Company has
diversified its automotive customer base. Until the early 1990's, the Company
sold only a small amount of steel to Chrysler Corporation ("Chrysler") and had
no direct sales to General Motors Corporation ("GM"). Currently, Chrysler and GM
are both among the Company's four largest customers. The Company believes that
its ability to provide the sophisticated grades of steel required for automotive
applications combined with its ability to provide competitive pricing, quality
and delivery caused Chrysler and GM to begin purchasing significant quantities
of hot rolled, cold rolled and electrogalvanized steel from the Company.

Converters. The Company sells hot rolled and cold rolled steel to the
converter market, which includes customers that process steel into a more
finished state such as pipes, tubing and cold rolled strip steel. Although the
converter market is typically more price sensitive than the end user market due
to its reliance on purchases at prevailing prices, it provides the Company with
some sales stability during downturns in the automotive market.

Sales to Worthington, a major steel fabricator and processor and the
Company's second largest customer and shareholder, were approximately 12% of
total sales in each of 1997 and 1996, and 13% of total sales in 1995.
Worthington owns approximately 27.3% of the Company's Common Stock which
represents a voting interest of 19.9%.

Service Centers. The Company sells hot rolled and cold rolled steel to
service center customers that provide processing services such as slitting,
shearing and blanking for distribution primarily to automotive end users. Due to
the increased costs for processing services, steel service centers have become a
major factor in the distribution of flat rolled products to end users.

Direct Sales to Other End Users. The Company sells hot rolled steel to
manufacturers of roof decking, grating, guard rails and pipes. The Company sells
cold rolled steel to manufacturers of lighting fixtures, room dividers and
doors. Steel products are distributed by Rouge Steel principally through its own
sales organization.

Order Status. The order load was 583,000 net tons at December 31, 1997,
compared to 667,000 net tons at December 31, 1996. All orders related to the
order load at December 31, 1997 are expected to be shipped during the first half
of 1998. The order load represents orders received but not yet filled.

RAW MATERIALS AND ENERGY SOURCES

The principal raw materials and energy sources used by Rouge Steel in its
production process are coke, iron ore pellets, steel scrap, natural gas,
electricity, steam, oxygen and nitrogen. Coke, coal, iron ore pellets,
electricity, steam, oxygen and nitrogen are predominantly purchased

<PAGE> 7

pursuant to long-term or annual agreements. The other raw materials are
generally purchased in the open market from various sources. Certain of the
purchased raw materials are not covered by long-term contracts and, therefore,
availability and price are subject to world market conditions.

Coke. Coke represents the Company's single largest raw material
expenditure. In 1997, approximately 62% of the Company's coke requirements was
provided by Bethlehem Steel Corporation ("Bethlehem") pursuant to a five-year
agreement. The Company acquired approximately 35% of its coke requirements
through a tolling agreement with New Boston Coke Corporation ("New Boston"),
whose total productive capacity is dedicated to the Company. Under the tolling
agreement, the Company provides coal to New Boston for processing into coke.
High volatile coal is acquired at competitive prices pursuant to a contract with
Massey Coal Sales Company, Inc. which expires on January 1, 1999. The balance of
the Company's coke requirements for 1997 was purchased in the open market. The
Company does not produce coke and, as a consequence, relies upon outside
sources. During the past ten years, coke production capacity in the United
States has been reduced. Due to the environmental liabilities associated with
operating coke ovens, the Company expects coke production capacity to be reduced
further in the next ten years. The coke shortage that may result from the
reduction in capacity may cause the price that the Company pays for coke to
increase which may adversely affect the Company's results of operations.

On December 29, 1997, Rouge Steel was notified that Bethlehem intends to
discontinue operations at its Bethlehem, Pennsylvania coke facility by the end
of the first quarter of 1998. Bethlehem has committed to provide coke to the
Company pursuant to the terms of the existing contract through June 1998. The
Company is currently seeking alternative suppliers for the remainder of its coke
requirements. The Company believes that the required coke can be acquired but at
a price that may be higher and could adversely affect the Company's results of
operations.

Iron Ore Pellets. The Company has consumed an average of 2.8 million
gross tons of iron ore pellets annually over the three-year period ended
December 31, 1997. Approximately 75% of the Company's requirements for pellets
during this period was obtained under a trade arrangement. Under this
arrangement, Rouge Steel exchanged acid pellets purchased from its 45% owned
joint venture, EVTAC (or its predecessor Eveleth), for fluxed pellets or acid
pellets with a higher manganese content, which are used to enhance blast furnace
productivity. The Company is required to pay a cash premium indexed to inflation
factors, equal to the difference between the market price of the fluxed pellets
and the market price of EVTAC acid pellets, in addition to providing the EVTAC
acid pellets. During the three-year period ended December 31, 1997, the Company
traded an average of 2.2 million gross tons of Eveleth/EVTAC pellets annually,
which constituted 97% of the Company's share of the pellets produced by
Eveleth/EVTAC. The balance of the Company's pellet requirements was purchased
pursuant to a contract with The Cleveland-Cliffs Iron Company.

The iron ore reserves of EVTAC are sufficient to provide the Company with
an estimated 25-year supply at the current level of production.

Scrap. The price of steel scrap has increased dramatically since the end
of 1992. The price of #1 industrial bundles, the steel scrap which constitutes
the largest portion of the Company's scrap purchases, increased by 47% between
the end of 1992 and the end of 1997. The higher price reflects increased demand
for steel scrap, which is a result of higher production at integrated steel
mills and electric furnace based mini-mills. As long as the current industry
production level continues and new scrap intensive mini-mills come on line, the
Company does not expect any

<PAGE> 8

relief from high steel scrap prices. The Company spent approximately $114
million to purchase steel scrap in 1997.

Other Raw Materials and Energy Sources. During 1997, natural gas,
electricity and steam constituted 46%, 40% and 14%, respectively, of the
Company's total energy costs. Natural gas is acquired at prevailing market
prices from various producers. The Company purchases electricity from DTE Energy
for its ladle refining and electrogalvanizing facilities. The Company owns a 60%
interest in a 345 - megawatt powerhouse (the "Powerhouse") that is managed by
Ford (which owns the other 40%). Pursuant to an operating agreement with Ford
(the "Powerhouse Joint Operating Agreement") which expires December 31, 1999,
the Powerhouse provides the rest of the electricity consumed by the Company, as
well as all of its steam requirements. On December 15, 1996, the Company
provided written notice to Ford of its intention to terminate the Powerhouse
Joint Operating Agreement on December 15, 1999. Rouge Steel and Ford are
undertaking a joint study of the alternatives available to Rouge Steel and Ford
for utilities and services which are now provided by the Powerhouse.

The Company has a long-term contract for the supply of oxygen and
nitrogen with Praxair, Inc. which expires in 2005. The contract contains annual
minimum oxygen and nitrogen purchase levels of $8.3 million and $550,000,
respectively.

COMPETITION

The Company is in direct competition with domestic and foreign flat
rolled carbon steel producers and producers of plastics, aluminum and other
materials which can be used in place of flat rolled carbon steel in manufactured
products. The Company competes principally on the basis of quality, price and
the ability to meet customers' product specifications and delivery schedules.
The Company believes, however, that its competitive position in the steel
industry is strengthened by, among other things, (i) substantially reduced
postretirement expenses resulting from certain agreements with Ford, (ii)
environmental indemnifications from Ford until 2009, (iii) long-term
relationships with Ford and Worthington, (iv) substantial capital investments
during the past three years in steel-making equipment and downstream joint
ventures, (v) a single-site, geographically strategic location, and (vi)
financial flexibility.

Imports. Domestic steel producers face significant competition from
foreign producers. Decisions by these foreign steel producers with respect to
production and sales may be influenced to a greater degree by political and
economic policy considerations than by prevailing market conditions.

Steel imports as a percentage of apparent domestic consumption, including
semifinished steel, averaged approximately 23% each year during the period from
1993 through 1997. The percentage peaked in 1994 at 25%. Although the domestic
steel industry has improved its international competitive position, imports in
1997 on an absolute basis were at a five-year high due to extremely strong steel
demand which could not be met with domestic capability. A significant adverse
change in world-wide steel demand, the value of the dollar or other world
economic conditions could result in an increase in steel imports.

Domestic Steel Industry. The domestic steel industry is a cyclical
business that is highly competitive. In the United States, the Company competes
with many domestic integrated steel companies. The Company also competes with
mini-mills, which generally target regional markets, have reduced environmental
maintenance costs and liabilities and derive certain

<PAGE> 9

competitive advantages by utilizing less capital intensive steel-making
processes. The capability of electric furnace based, thin slab mini-mills to
produce flat rolled steel products is increasing. In the future, these
mini-mills may provide increased competition in the higher quality, value-added
product lines now dominated by the integrated steel producers. New mini-mills
that produce flat rolled steel and improvements in the production efficiencies
of integrated mills have increased overall production capacity in the United
States, which has caused downward price pressure. The ability of mini-mill
producers to capture a significant percentage of the sheet steel markets, which
represented approximately half of domestic industry shipments in 1997, cannot
presently be determined due to operating cost and product quality issues
associated with thin-slab technology. In addition, the availability and
fluctuations in the cost of scrap, the primary raw material in the production of
steel by mini-mills, may influence the ability of mini-mills to compete with
domestic integrated producers.

A number of integrated steel producers have gone through bankruptcy
reorganizations. These proceedings have resulted in reduced operating costs for
these producers and may permit them to price their steel products at levels
below those that could otherwise be maintained. The Company believes, however,
that due to its lower labor costs and reduced exposure to historical
environmental liabilities resulting from certain agreements with Ford, as well
as limited levels of indebtedness since the Company's initial public offering,
the Company is in a better position to compete with these companies than many of
its competitors.

Steel Substitutes. In the case of many steel products, there is
substantial competition from other products, including plastics, aluminum,
ceramics, glass, wood and concrete. However, the Company, to a limited degree,
and certain other manufacturers of steel products have begun to compete in
recent years in markets not traditionally served by steel producers, including
the markets for steel construction studs and steel frames for houses.

EMPLOYEES

At December 31, 1997, the work force of Rouge Steel was comprised of
2,503 hourly and 625 salaried personnel, including Rouge Steel employees working
at Double Eagle Steel Coating Company ("Double Eagle"). The Company's employment
cost per ton shipped in 1997 was $87, which the Company believes was one of the
lowest among integrated steel producers, and tons shipped per employee has grown
to more than 950 tons per year, which the Company believes is one of the highest
in the steel industry.

Hourly employees of Rouge Steel are represented by the International
Union, United Automobile, Aerospace and Agricultural Implement Workers of
America, UAW (the "UAW"). Most of the hourly employees of the Company's
competitors are represented by the United Steelworkers of America (the "USWA")
and are subject to USWA-patterned agreements. In 1995, Rouge Steel and the UAW
executed a labor agreement with a five-year term and no provision to renegotiate
prior to expiration. The labor agreement includes provisions for employment
security and profit sharing. The Company believes that it continues to maintain
a good relationship with the UAW. EVTAC workers, who are employed by Thunderbird
Mining Company, a wholly-owned subsidiary of EVTAC, are represented by the USWA.
The agreement between the USWA and Thunderbird Mining Company will be in effect
through July 31, 1999.

<PAGE> 10

ENVIRONMENTAL CONTROL AND CLEANUP EXPENDITURES

The Company's operations are subject to many federal, state and local
laws, regulations, permits and consent agreements relating to the protection of
human health and the environment. The Company believes that its facilities are
in material compliance with these provisions and does not believe that future
compliance with such provisions will have a material adverse effect on its
results of operations or financial condition. The Company has incurred capital
expenditures in connection with matters relating to environmental control of
approximately $1.5 million during the past four years. In addition, the Company
has planned approximately $2.0 million in capital expenditures for environmental
compliance for the years 1998 through 2001. Since environmental laws and
regulations are becoming increasingly more stringent, the Company's
environmental capital expenditures and costs for environmental compliance may
increase in the future. In addition, due to the possibility of unanticipated
regulatory or other developments, the amount and timing of future environmental
expenditures may vary substantially from those currently anticipated. The costs
for current and future environmental compliance may also place domestic steel
producers at a competitive disadvantage with respect to foreign steel producers,
which may not be required to undertake equivalent costs in their operations, and
manufacturers of steel substitutes, which are subject to less stringent
environmental requirements.

Under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended ("CERCLA"), the Environmental Protection Agency (the
"EPA") has the authority to impose joint and several liability for the
remediation of contaminated properties on waste generators, current and former
site owners and operators, transporters and other potentially responsible
parties regardless of fault or the legality of the original disposal activity.
Many states have statutes and other authorities similar to CERCLA. Domestic
steel producers have spent, and can be expected to spend in the future,
substantial amounts for compliance with these environmental laws and
regulations.

In connection with the acquisition of the Company from Ford in 1989 (the
"Acquisition"), Ford has agreed to indemnify the Company (the "Ford Indemnity")
for any liability arising out of an environmental condition existing prior to
the Acquisition or a subsequent change in law relating to such condition that
results in an environmental claim under any federal or state environmental law,
including CERCLA, the Resource Conservation and Recovery Act, the Clean Water
Act, the Safe Drinking Water Act, the Clean Air Act and the Occupational Safety
and Health Act of 1970, or an environmental claim based upon a release of a
material of environmental concern. An environmental claim, as defined in the
Purchase and Sale Agreement, includes, among other things, the costs associated
with the release of any pollutants, contaminants, toxic substances and hazardous
substances into the environment. The Ford Indemnity provides that Ford shall pay
the Company's liabilities, including any penalties and attorney's fees, in
connection with any environmental claim relating to a pre-Acquisition condition.
The Ford Indemnity terminates on December 15, 2009. In some instances, Ford has
acted proactively; in others, it has denied responsibility. The submitted claims
include asbestos removal, CERCLA liabilities, National Pollutant Discharge
Elimination System permit violations, underground storage tank removal,
transformer replacement and transformer removal and disposal. Rouge Steel does
not believe the rejection by Ford of any claims made under the Ford Indemnity
will have a material adverse effect on the Company.

The Company has been identified as a potentially responsible party under
CERCLA and/or similar state statutes at the Carter Industrial, Inc., Wayne
County, Michigan site. The Company is subject to joint and several liability
imposed by CERCLA on potentially responsible parties.

<PAGE> 11

Based upon available information, the Company does not anticipate that
assessment and response costs resulting from the Company being a potentially
responsible party will have a material adverse effect on the financial condition
or results of operations of the Company. However, as further information becomes
available, the Company will continue to reassess such evaluations. In addition,
pursuant to the Ford Indemnity, Ford has accepted liability for, and defense of,
the Carter Industrial, Inc. site.

In late 1995, the existence of material containing polychlorinated
biphenyls ("PCBs") was noted within a containment area of an electrical
substation in the cold mills. Upon further investigation, the Company discovered
PCB contamination in four electrical manholes. The investigation and cleanup of
PCB contamination is proceeding. At this point, management believes costs
associated with this investigation will not have a material adverse effect on
the Company. As of December 31, 1997, the Company had spent approximately $1.1
million for the investigation and cleanup. The Company believes that the costs
associated with the contaminated substation are subject to the Ford Indemnity
and has filed a claim with Ford. Negotiations with Ford continue regarding this
indemnity claim. The Company has not recorded an asset in anticipation of
recovery pursuant to the Ford Indemnity.

The Company is currently operating in compliance with a 1991 consent
judgment between the Company and the Michigan Department of Environmental
Quality ("DEQ") with respect to wastewater discharges at the Schaeffer Road
Wastewater Treatment Plant.

The Company is also operating under a consent order with the DEQ in
connection with the federally mandated requirement to achieve the national
ambient air quality standards for particulate matter. This consent order defines
the Company's fugitive dust and particulate matter control programs. The consent
order does not impose any penalties on the Company or any significant production
restrictions on any of the Company's production facilities. The Company has not
incurred any costs associated with this issue, except those required to
negotiate the consent. Similarly, the Powerhouse is operating under a 1988
consent order with the DEQ in connection with the federally mandated requirement
to achieve the national ambient air quality standard for sulfur dioxide. The
Powerhouse is currently negotiating several proposed revisions to this consent
order with the DEQ. These revisions primarily involve sampling and analysis
issues, and to the Company's knowledge, do not involve significant production or
capital expenditure issues.

In 1990, Congress passed amendments to the Clean Air Act which impose
more stringent standards on air emissions. Pursuant to Title V of the Clean Air
Act Amendments of 1990, the Company submitted an application for a facility
operating permit in January 1997. The Company was advised that the application
was administratively complete. It is expected to take approximately one to two
years for final approval.

In December 1997, the Company reached an agreement in principal resolving
certain notices of violation with the Wayne County Air Pollution Control
Division (the "Division"). The proposed settlement agreement includes
performance of a supplemental environmental project for the installation of a
waste oxide dryer, a project not required by law. This dryer is intended to
secure significant additional environmental and public health improvements. The
settlement agreement imposes a $125,000 penalty, stipulated penalties for future
violations, a compliance program, and a five-year term.

<PAGE> 12

In January 1998, the Company and the Division commenced discussing
resolution of certain notices of violation for events which occurred in 1997.
While the initial penalty demand from the Division is in excess of $100,000, no
settlement agreement has been reached. Recent EPA- proposed penalties under the
Clean Air Act for other companies in Michigan with a smiliar number of NOVs were
less than $100,000.

During meetings with the Division, the Company voluntarily disclosed its
failure to previously obtain a construction and operating permit for an
operational change previously thought to be exempt from the air permitting
requirements. A permit application has been submitted for that change to both
the Division and the DEQ. The preliminary nature of the discussion with the
Division regarding this issue makes it difficult to predict the nature of any
outcome or its impact on the Company.

On November 4, 1997, the Company received a notice from the Corporation
Counsel of the City of Melvindale (the "City") of the City's intention to sue
the Company for alleged release of particulates into the air and violations of
the County of Wayne permit. The Company is currently in discussions with the
City in an attempt to resolve this matter prior to the filing of any lawsuit.
Management believes that the potential or probable impact of this matter will
not have a material adverse impact on the Company.

RESEARCH AND DEVELOPMENT

The Company does not incur material expenses in research and development
activities but does participate in various research and development programs.
The Company addresses research and development requirements and product
enhancement by maintaining a staff of technical support, quality assurance and
engineering personnel. The Company also participates in joint projects with the
American Iron and Steel Institute.

"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995

The matters discussed in this Annual Report on Form 10-K include certain
forward-looking statements that involve risks and uncertainties. These
forward-looking statements may include, among others, statements concerning
projected levels of production, sales, shipments and income, pricing trends,
cost-reduction strategies, product mix, anticipated capital expenditures and
other future plans and strategies.

As permitted by the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Rouge Industries is identifying in this Annual
Report on Form 10-K a number of factors which could cause the Company's actual
results to differ materially from those anticipated. These factors include, but
are not necessarily limited to, (i) changes in the general economic climate,
(ii) the supply of and demand for steel products in the Company's markets, (iii)
pricing of steel products in the Company's markets, (iv) potential environmental
liabilities, (v) the availability and prices associated with raw materials,
supplies, utilities and other services and items required by the Company's
operations, and (vi) higher than expected operating costs.

<PAGE> 13

Item 2. Properties.

Rouge Steel's integrated single-site facility is located on a 457-acre
industrial site adjacent to Ford's stamping and assembly plants in Dearborn,
Michigan. The Rouge Steel facility is strategically located in the heart of the
automotive manufacturing region and in an area where many customers of flat
rolled steel are situated. The Company believes that Rouge Steel's single-site
location is a strategic advantage because it permits reduced transportation
costs, increased efficiencies and better management response times.

Rouge Steel's facilities include three blast furnaces (one of which has
been idle since 1988), two basic oxygen furnaces, two electric arc furnaces
(which have been idle since 1992), two ladle refining facilities, a vacuum
degassing facility, one three-strand continuous caster, one hot strip mill,
three pickle lines, one tandem mill, two annealing facilities (one of which is a
hydrogen annealing facility), two temper mills, two slitters and one recoil
welder. In addition, Rouge Steel owns: a 60% interest in the Powerhouse that is
managed by Ford (which owns the other 40%); and a 50% interest in Double Eagle,
the world's largest electrogalvanizing facility. Along with Rouge Steel's
properties, Rouge Industries owns (i) a 48% interest in Spartan Steel, a cold
rolled hot dipped galvanizing facility which is being constructed; (ii) a 20%
interest in Shiloh of Michigan, an engineered steel blanking facility; (iii) a
45% interest in EVTAC, an iron ore mining and pelletizing facility; (iv) an
11.1% interest in TWB, a producer of laser welded blanks; (v) a 49% interest in
Delaco Steel Processing, a steel processor and (vi) a 19.75% interest in Bing
Blanking, a steel blanker and producer of roll formed parts. Spartan Steel,
Delaco Steel Processing and Bing Blanking are expected to become operational
during 1998.

Item 3. Legal Proceedings.

From time to time, Rouge Industries is involved in routine litigation
incidental to its business. The Company believes that such current proceedings,
individually or in the aggregate, will not have a materially adverse effect on
the Company's results of operations or financial condition.

Item 4. Submission of Matters to a Vote of Security Holders.

There were no matters submitted to a vote of security holders during the
fourth quarter of 1997.

<PAGE> 14

EXECUTIVE OFFICERS OF THE REGISTRANT

The following table sets forth, as of December 31, 1997, certain
information with respect to the executive officers of the Company. Executive
officers are chosen by the Board of Directors of the Company at the first
meeting of the Board after each annual meeting of stockholders. Officers of the
Company serve at the discretion of the Board of Directors and are subject to
removal at any time. There is no family relationship among any of the officers
or directors.

NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Carl L. Valdiserri................. 61 Chairman and Chief Executive Officer
Louis D. Camino.................... 60 President and Chief Operating Officer
Gary P. Latendresse................ 54 Vice President and Chief Financial Officer
Dennis T. Crosby................... 54 Vice President, Engineering and Technology
William E. Hornberger.............. 51 Vice President, Employee Relations and Public Affairs
George T. Kilavos.................. 66 Vice President, Production Planning
Daniel A. Marion................... 59 Vice President, Purchasing and Transportation
Ronald J. Nock..................... 45 Vice President, Sales and Marketing
Michael A. Weiss................... 49 Secretary and General Counsel
</TABLE>

BUSINESS EXPERIENCE

Mr. Valdiserri has been Chairman and Chief Executive Officer of the
Company since 1989. From 1987 until 1989 he was an independent consultant
regarding the steel industry, principally to The Chase Manhattan Bank, N.A.
From 1982 until 1987, Mr. Valdiserri was Executive Vice President of Weirton
Steel Company. Mr. Valdiserri joined the Weirton Division of National Steel
Corporation in 1978. He was Chief Engineer in the Great Lakes Division of
National Steel Corporation from 1973 to 1978 and held various other engineering
positions from 1964 to 1972. He began his career with Wheeling-Pittsburgh Steel
Corporation in 1958. Mr. Valdiserri has 38 years of experience in the steel
manufacturing industry. Mr. Valdiserri is also a director of Champion
Enterprises, Inc.

Mr. Camino has served as President and Chief Operating Officer, as well
as a director of the Company, since 1990. Mr. Camino was Vice President of
Operations for Acme Steel Company from 1986 to 1990. Mr. Camino began his
career with Jones and Laughlin Steel Corporation as a supervisor in 1960, and
has 37 years of experience in the steel manufacturing industry.

Mr. Latendresse has been Vice President and Chief Financial Officer and
a director of the Company since 1992. Effective January 1, 1998, he became
Executive Vice President and Chief Financial Officer. He was Vice President,
Finance and Controller from 1987 until 1992. Mr. Latendresse has held various
financial positions with the Company and Ford for 29 years. Mr. Latendresse has
29 years of experience in the steel manufacturing industry. Mr. Latendresse is
also the Treasurer and Assistant Secretary of the Company.

Mr. Crosby has been Vice President, Engineering and Technology since
1989. Mr. Crosby previously served as General Manager of Engineering and
Environmental Affairs at Inland Steel Company where he was employed between 1967
and 1989. Mr. Crosby has 30 years of experience in the steel manufacturing
industry.

<PAGE> 15

Mr. Hornberger has been Vice President, Employee Relations and Public
Affairs since 1992. From 1987 to 1992, he was Vice President, Employee
Relations. Mr. Hornberger has held various employee relations positions at Rouge
Steel and Ford since 1973. He has 14 years of experience in the steel
manufacturing industry.

Mr. Kilavos has been Vice President, Production Planning since 1990. From
1984 to 1990, Mr. Kilavos was Director, Production Planning at Weirton Steel
Company. He previously held various materials management positions at Weirton
Steel Company and National Steel Corporation. Mr. Kilavos has 36 years of
experience in the steel manufacturing industry.

Mr. Marion has been Vice President, Purchasing and Transportation since
1995. From 1988 to 1995, Mr. Marion was Procurement Manager, Purchasing and
Supply Staff, Ford Motor Company. He previously held various purchasing
positions during his 34 years with Ford, including more than ten years of steel
purchasing experience.

Mr. Nock has been Vice President, Sales and Marketing since 1988. Mr.
Nock held various positions at the Company since 1982, including Manager of
Sales and Sales Representative. He has 22 years of experience in the steel
manufacturing industry.

Mr. Weiss served as Secretary and General Counsel from 1989 through 1997.
Mr. Weiss is a director and a shareholder of the Pittsburgh, Pennsylvania law
firm of Doepken Keevican & Weiss Professional Corporation ("DK&W"), which is
engaged in the practice of law. He has been a shareholder of DK&W since 1988.
Effective December 31, 1997, Mr. Weiss resigned as the Company's Secretary and
General Counsel and was subsequently replaced by Martin Szymanski of the
Company's Law Department.

Mr. Szymanski became the Company's General Counsel and Secretary in
January 1998. Mr. Szymanski joined the Company in January 1997 as Associate
General Counsel. From 1990 through 1996, he served as General Counsel and
Assistant Secretary of Modern Engineering, Inc., a Warren, Michigan-based tier
one automotive technical services, prototype and assembly tooling supplier.
Prior to that, he held key legal assignments at Stroh Brewery Company and
Fruehauf Corporation. Mr. Szymanski has over 19 years of corporate and private
practice legal experience.

<PAGE> 16

PART II

Item 5. Market for Registrant's Common Stock and Related Stockholder Matters.

As of December 31, 1997, there were (i) 14,428,219 shares of class A
common stock, par value $0.01 per share (the "Class A Common Stock"), issued and
outstanding and held by approximately 7,000 stockholders of record, and (ii)
7,562,400 shares, of class B common stock, par value $0.01 per share (the "Class
B Common Stock" and together with the Class A Common Stock, the "Common Stock"),
issued and outstanding and held by two stockholders of record. As of December
31, 1997, Carl L. Valdiserri and Worthington held 7,140,400 and 422,000 shares,
respectively, of Class B Common Stock. The principal market for the Class A
Common Stock is the New York Stock Exchange, Inc. (the "NYSE"). The Class B
Common Stock is not listed for trading on any securities exchange.

Quarterly cash dividends of $0.03 per share of Common Stock were paid on
January 26, April 26, July 26, and October 25, 1996 and January 24, April 25,
July 25, and October 24, 1997, and January 23, 1998. Future dividends on the
Common Stock are payable in cash or shares of Class A Common Stock, at the
discretion of the Board of Directors of the Company. The Company's Certificate
of Incorporation provides that (i) no dividends be paid on the Class B Common
Stock unless a dividend (equal to the dividend declared and paid to the holders
of Class B Common Stock) is declared and paid on the Class A Common Stock and
(ii) any dividend paid on the Class B Common Stock will be paid only in shares
of Class A Common Stock or cash. Holders of Class A Common Stock and Class B
Common Stock will be entitled to share ratably, as a single class, in any
dividends paid on the Common Stock. The declaration and payment of dividends on
the Common Stock will be subject to a quarterly review by the Board of Directors
of the Company. The timing and amount of dividends, if any, will depend, among
other things, on the Company's funding obligations with respect to profit
sharing plans, results of operations, financial condition, cash requirements,
restrictions, if any, in loan agreements, obligations with respect to preferred
stock, if any, and other factors deemed relevant by the Board of Directors. The
holders of outstanding shares of Class A Common Stock and Class B Common Stock
are entitled to receive dividends out of assets legally available therefor at
such times and in such amounts as the Board of Directors may from time to time
determine.

The Company's Class A Common Stock has been listed for trading on the
NYSE since March 29, 1994 under the symbol ROU. The following table sets forth,
for the periods indicated, the high and low sales prices of the Company's Class
A Common Stock. The closing sale price of the Company's Class A Common Stock on
February 27, 1998 was $14.75.

<TABLE>
<CAPTION>
1997 HIGH LOW
- ---- ---- ---
<S> <C> <C>
First Quarter............................................ $21.50 $14.88
Second Quarter........................................... 17.25 14.38
Third Quarter............................................ 19.00 14.75
Fourth Quarter........................................... 16.50 11.94
</TABLE>

<PAGE> 17

1996 HIGH LOW
- ---- ---- ---
<S> <C> <C>
First Quarter ........................................... $25.13 $22.00
Second Quarter........................................... 23.38 21.13
Third Quarter............................................ 23.13 19.13
Fourth Quarter........................................... 22.75 20.13
</TABLE>

<PAGE> 18

Item 6. Selected Financial Data.

The Statement of Operations data and Balance Sheet data in the following
table present selected historical consolidated financial information derived
from the historical consolidated financial statements of the Company as of and
for each of the years in the five-year period ended December 31, 1997. This
information should be read in conjunction with the historical consolidated
financial statements of the Company and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 20.

<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Sales $1,341.6 $1,307.4 $1,206.6 $1,236.1 $1,076.7
Operating Income 31.7 24.7 121.6(1) 103.0 62.3
Net Interest Income (Expense) 0.8 4.8 5.4 (2.5) (11.2)
Income Tax (Provision) Benefit (8.1) (6.9) (33.5) 8.3 6.7
Income Before Changes in Accounting Principles 22.4 23.4 94.7(1) 105.6 53.0
Net Income 22.4 23.4 94.7(1) 105.6 52.1

Per Share Data
Income Before Changes in Accounting Principles $1.02 $1.07 $4.37 $5.21 $3.31
Net Income - Basic and Diluted 1.02 1.07 4.37 5.21 3.26
Cash Dividends Declared 0.12 0.12 0.10 0.06 --
Weighted Average Shares Outstanding (000) 21,939 21,845 21,677 20,262 16,000

<CAPTION>
December 31
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(dollars in millions)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital $177.2 $216.6 $294.2 $268.3 $84.4
Property, Plant, and Equipment, Net 268.6 209.2 135.7 80.4 69.0
Total Assets 728.5 682.0 672.5 616.8 464.9
Long-Term Debt and Capitalized Lease
Obligation, Including Current Portion 17.9 -- -- -- 69.0
Stockholders' Equity 438.6 417.3 393.9 295.7 79.6

<CAPTION>
Year Ended December 31
----------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Net Tons Shipped (000) 3,029 2,876 2,542 2,643 2,472
Raw Steel Production (Mils) NT 2.8 2.6 2.9 3.0 2.9
Effective Capacity Utilization 91% 84% 96% 102% 107%
Continuously Cast Percentage 100 95 92 88 89
Purchased Slabs (000) NT 619 843 -- -- --
Number of Employees at Year-End(2) 3,128 3,119 3,167 3,194 3,225
Average Hourly Labor Rate (3) $30.43 $30.81 $32.40 $30.02 $28.26
Total Sales per Employee (000)(2) 429 419 381 387 334
Hours Worked per Net Ton Produced(2) 2.81 2.89 3.14 2.92 3.10
Operating Income per Net Ton Shipped $ 10 $ 9 $ 48(1) $ 39 $ 25
Capital Expenditures (Mils)(4) 112.4 101.5 69.4 29.2 11.8

</TABLE>

<PAGE> 19

- --------------------------
(1) Operating income, income before changes in accounting principles and net
income for the year ended December 31, 1995 include the effect of a $30.0
million (or $12 per net ton shipped) pre-tax gain from the settlement of
certain litigation relating to property tax assessment matters.
(2) Includes all hourly and salaried employees.
(3) Includes $0.35 per hour in 1997, $0.49 per hour in 1996, $1.94 per hour in
1995, $1.54 per hour in 1994 and $0.60 per hour in 1993 paid or accrued
pursuant to the Rouge Steel Company Profit Sharing Plan for Hourly
Employees.
(4) Includes capital expenditures paid or accrued and investments in
unconsolidated subsidiaries.

<PAGE> 20

Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.

OVERVIEW

The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Financial Statements
which begin on page 28.

Rouge Steel is an integrated producer of high quality, flat rolled steel
products consisting of hot rolled, cold rolled and electrogalvanized steel. In
recent years, the Company has emphasized the production of value-added flat
rolled carbon steel products that require additional processing and generally
command higher margins than commodity flat rolled carbon steel products. The
Company's products generally, and its value-added products specifically, are
sold primarily to customers in the automotive industry which have exacting
quality, delivery and service requirements. The Company also sells its products
to steel converters, service centers and other end users.

Since the acquisition of the Company from Ford Motor Company ("Ford") in
1989 (the "Acquisition"), Rouge Industries' current management has transformed
the Company from an adjunct to Ford's automotive manufacturing business into an
independent, market-driven business. In order to strengthen relationships with
existing customers and establish relationships with new customers, the Company
has focused on a number of strategies designed to improve the quality of its
products, increase the efficiency of its operations, reduce operating expenses
and improve its product mix, including increased sales of higher margin
value-added steel products. The Company has reported net income every year since
the Acquisition except 1992 when the impact of changes in accounting principles
resulted in a $5.1 million loss. In the eight years since the Acquisition, Rouge
Industries has undertaken a capital investment program designed to improve
quality, product mix and productivity. In 1995, the Company and United States
Steel Corporation expanded the capacity of Double Eagle Steel Coating Company
("Double Eagle"), which permits Rouge Industries to produce an additional 52,500
net tons of value-added electrogalvanized steel product annually. In 1996, the
Company partially relined its larger blast furnace and launched the second ladle
refining facility and the third strand of its continuous caster. These additions
permit the Company to refine and continuously cast 100% of its liquid steel,
eliminate the need to utilize the higher cost, lower quality ingot process and
produce a greater proportion of value-added steel. In 1997, the Company
installed a new raw material handling system, finished a major reline of its
smaller blast furnace and upgraded its hot and cold mill facilities.
Additionally, the Company invested in Spartan Steel Coating, L.L.C.
("Spartan Steel"), a 48%-owned joint venture with Worthington Industries, Inc.
(together with its subsidiaries, "Worthington").

<PAGE> 21

Rouge Steel's operations are subject to the cyclicality of the steel
industry and the domestic economy as a whole. During the last major downturn in
the steel industry, domestic steel industry production fell to approximately
87.9 million tons in 1991 from an annual average during the prior three-year
period of approximately 98.9 million tons, a decrease of approximately 11%. This
decrease was due primarily to a deterioration of general economic conditions and
decreased demand for durable goods. For instance, the production of domestic
cars and trucks in 1991 fell to 8.8 million units from an annual average during
the prior three-year period of 10.6 million units. Consistent with these trends
in the steel industry, the Company's raw steel production in 1991 fell to 2.5
million tons from an average of 2.9 million tons during the prior three-year
period. Commencing in December 1991, the steel industry experienced a recovery
in raw steel production and finished shipments. Production and shipments
continued an upward trend through 1997. The industry's domestic raw steel
production increased approximately 21% to approximately 106.7 million tons in
1997 from 87.9 million tons in 1991. Finished shipments increased over the same
period to approximately 104.7 million tons from 78.9 million tons, an increase
of approximately 33%. Given the inherent cyclicality of the domestic steel
industry, the Company believes it is important to maintain financial flexibility
in order to take advantage of opportunities to reduce costs and upgrade the
quality and mix of its products. Rouge Industries believes that its strong
balance sheet combined with its plan to reduce operating costs will position the
Company to continue to pursue its business strategy throughout the economic
cycle and to respond to the continually changing needs of its customers.

The following table summarizes the annual raw steel capacity, raw steel
production, utilization rates and finished shipment information for the domestic
steel industry (as reported by the American Iron and Steel Institute) and for
Rouge Steel for the years from 1995 through 1997:

<TABLE>
<CAPTION>
Year Ended December 31
-------------------------------------
1997 1996 1995
---- ---- ----
(in millions of tons except utilization)
DOMESTIC INDUSTRY
<S> <C> <C> <C>
Raw Steel Capacity 121.1 116.1 112.5
Raw Steel Production 106.7 105.3 104.9
Utilization 88.1% 90.7% 93.3%
Finished Shipments 104.7 100.9 97.5

ROUGE STEEL
Raw Steel Capacity 3.1 3.0 3.0
Raw Steel Production 2.8 2.6 2.9
Utilization 91.2% 84.3% 96.2%
Finished Shipments 3.0 2.9 2.5
</TABLE>

The cyclicality of the steel industry and the domestic economy affects
the Company's steel product prices. To protect itself from the volatile nature
of prices in the domestic steel industry, the Company sells approximately two
thirds of its steel products pursuant to fixed price contracts, under which
prices are typically set annually. In 1991, when domestic steel industry
production and shipments were low, the Company's steel product prices reached a
nine-year low. In 1993, prices began to rise and in 1994 they reached the
highest level since 1988. By mid-1995, however, prices began to soften despite
the continuing strong demand for the Company's products. During the second half
of 1995, the Company lost approximately one half of the pricing gains which it
realized in 1993 and 1994. Prices in 1996 made a modest recovery from late-1995
levels, but nevertheless remained lower than average 1995 prices. In 1997,
prices declined slightly from 1996 levels despite strong demand for the
Company's products.

<PAGE> 22

Total Sales. The Company's total sales are a function of net tons
shipped, prices and mix of products. The following table sets forth the
percentage of the Company's steel product revenues represented by each of its
product types for each of the years from 1995 through 1997:

<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Hot Rolled 49.4% 47.4% 49.8%
Cold Rolled 29.8 30.6 28.4
Hot Dip Galvanized 0.6 - -
Electrogalvanized 20.2 22.0 21.8
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>

During periods of high demand, the Company ships all of the steel
products it has the capacity to produce. For the past two years, when demand for
the Company's products was high, the Company was able to supplement slabs
produced internally with purchased slabs. The Company has been, and intends to
continue, increasing its capacity so it will be positioned to take advantage of
any increased demand with only a limited number of purchased slabs. In order to
more fully utilize its hot strip mill and finishing facilities, the Company has
been increasing its steel slab production capability. In 1996, Rouge Steel
placed into service the third strand of its continuous caster, which allows the
Company to continuously cast 100% of its liquid steel and eliminates the need to
utilize the higher cost, lower quality ingot process. To maximize the continuous
caster's capability, the Company further increased blast furnace efficiency and
capacity by the addition of a new raw material handling system and the full
reline of its smaller "B" blast furnace during 1997. The relines of "B" and "C"
furnaces in 1997 and 1996, respectively, together with the addition of the raw
material handling system, are expected to increase annual blast furnace capacity
to approximately 3.0 million net tons or approximately 20% over the annualized
second quarter 1996 level before any of these improvements were made. As a
result of placing the third strand of the continuous caster into service and
increasing blast furnace capacity, the Company believes that its steel slab
production capacity will increase to approximately 3.4 million net tons
annually.

In addition to increasing finished capacity, the Company intends to
continue to improve product mix by increasing the capacity of its value-added
facilities. For example, the expansion of Double Eagle in 1995 allowed Rouge
Steel to increase shipments of value-added electrogalvanized steel products.
Total shipments will not necessarily increase, but they are expected to include
a higher proportion of value-added products. Likewise, the Company's
expenditures on joint ventures will not necessarily allow total shipments to
increase, but by permitting the Company to produce additional coated and blanked
steel products, the joint ventures are expected to improve Rouge Industries'
product mix.

Approximately two thirds of the Company's total sales are made pursuant
to fixed price contracts primarily with automotive customers, under which prices
are typically set annually. Sales to affiliates are comprised primarily of sales
to Worthington, Rouge Industries' second largest customer and shareholder.
Worthington owns approximately 27.3% of the Company's common stock which
represents a voting interest of 19.9%.

Costs of Goods Sold. The principal elements constituting Rouge
Industries' costs of goods sold are raw materials, labor and energy. Outside
processing costs represent a growing element of the Company's costs of goods
sold. The major raw materials and energy used by the Company in its production
process are coke, iron ore pellets, steel scrap, natural gas, electricity,
steam, oxygen and

<PAGE> 23

nitrogen. Coke, coal, iron ore pellets, electricity, steam, oxygen and nitrogen
predominantly are purchased pursuant to long-term or annual agreements. The
other raw materials are generally purchased in the open market from various
sources and their availability and price are subject to market conditions.

Iron ore pellets are purchased from EVTAC pursuant to a six-year pellet
purchase agreement. The Company's wholly-owned subsidiary, Eveleth, holds a 45%
interest in EVTAC.

Rouge Steel's hourly production and maintenance employees are
represented by the International Union, United Automobile, Aerospace and
Argicultrual Implement Workers of America, UAW and are working under a labor
contract which expires on August 1, 2000. The collective bargaining agreement,
which has a term of five years, contains no provision to renegotiate prior to
its expiration.

Outside processing costs, which are principally costs for value-added
processing that the Company cannot perform at Rouge Steel's integrated facility,
have always been an element of the Company's costs of goods sold. The joint
ventures involving Rouge Industries will increase the use of outside processing
and related costs. However, Rouge Industries believes that the incremental
revenue generated from additional sales of value-added products produced by the
joint ventures will exceed such cost increases.

A large component of the Company's costs of goods sold in 1996 and 1997
was the purchase of steel slabs to augment its own production as a result of
demand and blast furnace reline-related outages. In 1996, the Company purchased
approximately 843,000 net tons of steel slabs, and during 1997, the Company
purchased approximately 619,000 net tons of steel slabs. In 1998, assuming blast
furnace production improves as anticipated, the Company plans to purchase only a
limited number of steel slabs.

RESULTS OF OPERATIONS

YEAR ENDED DECEMBER 31, 1997 VERSUS YEAR ENDED DECEMBER 31, 1996

Total Sales. Total sales increased 2.6% in 1997 to $1,341.6 million from
$1,307.4 million in 1996, an increase of $34.2 million. The increase in total
sales was caused principally by higher shipments. Shipments increased 5.3% in
1997 to 3,029,000 net tons from 2,876,000 net tons in 1996, an increase of
153,000 net tons. Shipments were higher in 1997 because the Company was able to
add new customers and increase sales to its existing customers. The Company
purchased approximately 619,000 net tons of slabs in 1997 to augment its own
production and accommodate the demand for its products. The higher revenue
caused by increased shipments was partially offset by lower steel product
selling prices. Total sales per net ton shipped decreased 2.6% in 1997 to $443
from $455 in 1996, a decrease of $12 per ton.

Costs and Expenses. Total costs and expenses increased 2.1% in 1997 to
$1,309.9 million from $1,282.7 million in 1996, an increase of $27.2 million.
Costs of goods sold increased 2.2% in 1997 to $1,278.3 million from $1,251.1
million in 1996, an increase of $27.2 million. The increase in costs of goods
sold can be attributed primarily to the 5.3% increase in shipments discussed
above, higher purchased slab prices and increased project expense for blast
furnace stove repairs, the takeover of Rouge Steel's internal railroad from Ford
and demolition and site preparation expenses related to the new raw material
handling system. Several factors partially offset the costs of goods sold
increase: (i) non-capital expenditures associated with the reline of the smaller
"B" blast furnace were lower in 1997 than non-capital expenditures associated
with the reline of the "C" blast furnace in 1996, (ii) the "C"

<PAGE> 24

furnace performed more efficiently in post-reline 1997 than it did when it was
nearing the end of its campaign in 1996, and (iii) the full-year effect of
efficiencies gained from the launch in mid-1996 of the third caster strand which
allowed the Company to eliminate the more costly ingot-slab process. Costs of
goods sold was 95.3% of total sales in 1997, down slightly from 95.7% of total
sales in 1996. Depreciation and amortization increased 19.2% in 1997 to $15.6
million from $13.1 million in 1996, an increase of $2.5 million. The higher
depreciation and amortization expense reflects the completion of major capital
projects, primarily the full year effect of the third strand of the Company's
continuous caster. Selling and administrative expenses decreased 10.6% in 1997
to $21.8 million from $24.3 million in 1996, a decrease of $2.5 million. The
decrease in selling and administrative expenses is primarily due to lower legal
expenses and Michigan single business tax.

Operating Income. Primarily as a result of the efficiencies discussed
above, including costs related to the "B" furnace reline, the improved
productivity of "C" furnace and the full-year effect of the third strand of the
caster, offset partially by lower steel product selling prices, operating income
increased 28.3% in 1997 to $31.7 million from $24.7 million in 1996, an increase
of $7.0 million. Operating income represented 2.4% of total sales in 1997, up
from 1.9% of total sales in 1996.

Interest Income. Interest income decreased 72.4% in 1997 to $1.4 million
from $5.1 million in 1996, a decrease of $3.7 million. The decrease in interest
income was the result of a lower cash and marketable securities balance in 1997.
The average cash and marketable securities balance in 1997 was $20 million
compared to $86 million in 1996.

Equity in Income (Loss) of Unconsolidated Subsidiaries. Equity in loss
of unconsolidated subsidiaries was $718,000 in 1997 compared to equity in income
of unconsolidated subsidiaries of $50,000 in 1996. The loss in 1997 reflects the
after-tax effect of Rouge Industries' share of losses incurred by Shiloh of
Michigan and EVTAC as well as preproduction expenses recorded by Spartan Steel.
The income in 1996 reflects the after-tax effect of the Company's share of
Shiloh of Michigan's losses offset by one month's income generated by EVTAC.

YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995

Total Sales. Total sales increased 8.4% in 1996 to $1,307.4 million from
$1,206.6 million in 1995, an increase of $100.8 million. The increase in total
sales was caused principally by higher shipments. Shipments increased 13.1% in
1996 to 2,876,000 net tons from 2,542,000 net tons in 1995, an increase of
334,000 net tons. Shipments were higher in 1996 because the Company was able to
add new customers and increase sales to its existing customers. Rouge Steel
purchased 843,000 net tons of slabs in 1996 to augment its own production and
accommodate the demand for its products. The effect of higher shipments on total
sales was partially offset by lower steel prices in 1996. Total sales per net
ton shipped decreased 4.2% in 1996 to $455 from $475 in 1995, a decrease of $20
per ton.

Costs and Expenses. Total costs and expenses increased 18.2% in 1996 to
$1,282.7 million from $1,085.0 million in 1995, an increase of $197.7 million.
Costs of goods sold increased 15.6% in 1996 to $1,251.1 million from $1,082.1
million in 1995, an increase of $169.0 million. The increase in costs of goods
sold can be attributed primarily to four elements: (i) increased shipments of
steel products, (ii) higher raw material, utility and labor costs, (iii) the
blast furnace reline and other blast furnace problems, and (iv) the purchased
slabs discussed above. In the first quarter of 1996, the larger of the Company's
two operating blast furnaces, "C" furnace, experienced lining-related operating
problems. A partial reline of "C" furnace was completed in the fourth quarter of
1996. The newly-relined blast furnace experienced start-up problems which
delayed production for several days and had a negative impact on the Company's
results of operations. Costs of goods sold was 95.7% of total sales in 1996

<PAGE> 25

compared to 89.7% of total sales in 1995. Depreciation and amortization
increased 17.8% in 1996 to $13.1 million from $11.1 million in 1995, an increase
of $2.0 million. The higher depreciation and amortization expense reflects the
completion of major capital projects, primarily the third strand of the
Company's continuous caster. Selling and administrative expenses decreased 11.7%
in 1996 to $24.3 million from $27.6 million in 1995, a decrease of $3.3 million.
The decrease in selling and administrative expenses is primarily due to three
factors: (i) lower Michigan single business tax, which is a function of the
Company's lower taxable income in 1996, (ii) lower profit sharing paid to the
Company's administrative employees, which is also a function of the Company's
lower taxable income, and (iii) less expense recorded for the development of the
Company's customer order management system. In 1995, the Company reached an
agreement with the City of Dearborn, the Dearborn Public School Board and the
County of Wayne, Michigan which settled local property tax litigation for tax
years 1990 through 1995. As a result of the settlement, the Company recorded a
pre-tax benefit of $30.0 million in 1995, net of profit sharing and inventory
valuation costs.

Operating Income. Primarily as a result of the lower steel prices, the
higher costs of goods sold discussed above, including costs related to the blast
furnace outages and related production problems, and the absence of the property
tax litigation settlement, which was recorded as a benefit in 1995, operating
income decreased 79.7% in 1996 to $24.7 million from $121.6 million in 1995, a
decrease of $96.9 million. Operating income represented 1.9% of total sales in
1996 compared to 10.1% of total sales in 1995. Excluding the impact of the
property tax litigation settlement in 1995, operating income represented 7.6% of
total sales. The margin deterioration in 1996 was attributable primarily to
three factors: (i) higher raw material, utility and labor costs, (ii) the blast
furnace outages and related blast furnace problems, and (iii) lower steel
prices. Operating income per net ton shipped was $9 in 1996 compared to $48 in
1995.

Income Tax Provision. The income tax provision decreased 79.3% in 1996
to $6.9 million from $33.5 million in 1995, a decrease of $26.6 million. The
lower income tax provision was a function of lower taxable income in 1996.

Minority Interest in Net Loss of Consolidated Subsidiary. Minority
interest in net loss of consolidated subsidiary decreased in 1996 to $37,000
from $639,000 in 1995, a change of $602,000. This change reflects lower costs
resulting from increased rail shipments directly from Eveleth. Until November
30, 1996, Eveleth was 85% owned by the Company and 15% owned by Oglebay Norton
Company ("Oglebay"). The minority interest reflects Oglebay's share of Eveleth's
earnings or losses. Effective December 1, 1996, under the terms of a
restructuring agreement, Eveleth became a wholly-owned subsidiary of the Company
and, in exchange for a 45% ownership interest in EVTAC, Eveleth assigned
substantially all of its operating assets and liabilities to EVTAC. In the
future, the impact of the Company's ownership interest in EVTAC will be
accounted for under the equity method and Rouge Industries' Consolidated
Statements of Operations will not show any minority interest relating to EVTAC.

Equity in Income of Unconsolidated Subsidiaries. Equity in income of
unconsolidated subsidiaries was $50,000 in 1996 compared to $0 in 1995. The
amount in 1996 reflects the after-tax effect of the Company's share of Shiloh of
Michigan's losses offset by one month's income generated by EVTAC. There was no
income or loss from unconsolidated subsidiaries during 1995. The Company
acquired its interest in Shiloh of Michigan during 1996 and, as previously
discussed, treated Eveleth as a consolidated subsidiary until late 1996.

Net Income. Net income decreased 75.3% in 1996 to $23.4 million from
$94.7 million in 1995, a decrease of $71.3 million. The lower net income in 1996
reflects lower steel prices, higher costs of

<PAGE> 26

goods sold and the absence of the one-time property tax litigation settlement
that was recorded in 1995, partially offset by a lower income tax provision.

LIQUIDITY AND CAPITAL RESOURCES

Rouge Industries' liquidity needs arise predominantly from capital
investments and working capital requirements. The Company meets these liquidity
needs primarily with cash provided by operating activities and funds provided by
borrowings.

Cash, cash equivalents and marketable securities on December 31, 1997
totalled $12.6 million compared to $27.0 million on December 31, 1996, a
decrease of $14.4 million. This decrease was primarily due to cash used for
capital spending and investments in unconsolidated subsidiaries.

Cash Flows from Operating Activities. Net cash provided by operating
activities increased in 1997 to $90.4 million from $19.0 million in 1996, an
increase of $71.4 million. This increase is primarily the result of lower
inventories. The decrease in inventories was primarily a result of a reduction
of steel product inventories. Late in 1997, production was low due to the blast
furnace outages and poor operating performance by "C" furnace. At the same time,
the Company was shipping a high level of steel products. The combination of low
production and high shipments caused the Company's inventories to decrease.
Additionally, the Company had stockpiled slabs at December 31, 1996 in
anticipation of the "B" blast furnace reline in 1997. Many of those slabs were
used in 1997 contributing further to the reduction in inventories.

Credit Facility. Rouge Steel has a five-year, $100 million, unsecured
revolving loan commitment under a credit agreement (the "Credit Agreement")
among the Company, the banks named therein and NBD Bank, as administrative
agent. The commitments of the lenders under the Credit Agreement expire on
December 16, 2002. The revolving loans provided for under the Credit Agreement
bear interest, at the option of the Company, at a rate equal to either (i) the
base rate, which is the higher of the prime rate or the federal funds rate plus
0.5%, or (ii) the LIBOR rate plus an applicable margin, which varies with the
Company's debt to capitalization ratio and can range from 0.20% to 0.40%. The
Company had borrowings of $17.9 million under the facility as of December 31,
1997. The Company believes that net income and funds available under the Credit
Agreement will be adequate for its working capital and capital expenditure
requirements.

Capital Expenditures. Cash used for capital expenditures, including
investments in unconsolidated subsidiaries, increased 33.9% in 1997 to $119.9
million from $89.6 million in 1996, an increase of $30.3 million. The most
significant of the expenditures made in 1997 were for the completion of an
automated raw material handling system and investment in Spartan Steel.
Additionally, the Company incurred capital expenditures in 1997 for the full
reline of its "B" blast furnace. The remaining expenditures were made primarily
to upgrade and modernize the Company's steel processing facilities. During the
five-year period commencing January 1, 1996, the Company anticipates spending
approximately $350 million on capital items and investment in unconsolidated
subsidiaries, including $101 million paid or accrued in 1996 and $112 million
paid or accrued in 1997. The planned capital expenditures are generally
directed at improving and maintaining plant efficiency and quality to position
the Company to improve its competitive position in the marketplace and, to a
lesser extent, to enter into strategic joint ventures. In 1998, the Company
plans to spend approximately $50 million on capital items and investment in
joint ventures including information systems upgrades and the completion of
Spartan Steel. During 1998, the Company expects to invest approximately $23
million in Spartan Steel, which is expected to be placed into service in
mid-1998.

<PAGE> 27

Waste Oxide Reclamation Facility Lease. Rouge Steel has committed to a
seven-year lease for a $35 million waste oxide reclamation facility. The
facility is presently being constructed, and it is expected to be completed in
the third quarter of 1998. Lease payments will commence at that time.

FUTURE ENVIRONMENTAL MATTERS

Ford has agreed to indemnify the Company (the "Ford Indemnity") for any
liability arising out of an environmental condition existing prior to the
Acquisition or a subsequent change in law relating to such condition which
results in an environmental claim under any federal or state environmental law,
including the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended, the Resource Conservation and Recovery Act, the Clean
Water Act, the Safe Drinking Water Act, the Clean Air Act and the Occupational
Safety and Health Act of 1970. The Ford Indemnity, which terminates on December
15, 2009, provides that Ford shall pay the Company's liabilities, including any
penalties and attorney's fees, in connection with any environmental claim
relating to pre-Acquisition conditions.

Since environmental laws and regulations are becoming increasingly more
stringent, the Company's environmental capital expenditures and costs for
environmental compliance may increase in the future. In addition, due to the
possibility of unanticipated regulatory or other developments, the amount and
timing of future environmental expenditures may vary substantially from those
currently anticipated.

YEAR 2000 COMPLIANCE

The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
computer systems to malfunction in the year 2000 which could lead to business
delays and manufacturing disruptions. Rouge Industries has not completed its
assessment of the extent of the year 2000 issue; however, management has
determined that it will be required to modify or replace significant portions of
its software so that its computer systems will property utilize dates beyond
December 31, 1999. The Company has begun modifying and replacing its computer
systems to address this issue and estimates that at least $10 million will be
spent to modify software and computer systems that are not year-2000 compliant.

<PAGE> 28

Item 8. Financial Statements and Supplementary Data.

The following information is submitted pursuant to the requirements of
Item 8:

Report of Independent Accountants.................................................................................. 29

Consolidated Balance Sheets as of December 31, 1997 and 1996....................................................... 30

Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995............................................................................... 32

Consolidated Statements of Changes in Stockholders' Equity for the Years Ended
December 31, 1997, 1996 and 1995............................................................................... 33

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995............................................................................... 34

Notes to Consolidated Financial Statements......................................................................... 35

Schedule II - Valuation and Qualifying Accounts and Reserves....................................................... 48

</TABLE>

<PAGE> 29

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
and Stockholders of
Rouge Industries, Inc.

In our opinion, the consolidated financial statements listed in the accompanying
index present fairly, in all material respects, the financial position of Rouge
Industries, Inc. and its subsidiaries at December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1997, in conformity with generally accepted
accounting principles. 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 of these
statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.

PRICE WATERHOUSE LLP
Bloomfield Hills, Michigan
January 28, 1998

<PAGE> 30

ROUGE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)

Assets

December 31
-----------------------
1997 1996
---- ----
Current Assets
<S> <C> <C>
Cash and Cash Equivalents $ 12,570 $ 24,914
Marketable Securities -- 2,039
Accounts Receivable
Trade and Other (Net of Allowances of $6,333 and $7,294) 101,590 102,593
Affiliates 9,876 9,995
Inventories 248,317 267,877
Other Current Assets 8,562 7,483
-------- --------
Total Current Assets 380,915 414,901
-------- --------

Property, Plant, and Equipment
Buildings and Improvements 24,718 16,942
Machinery and Equipment 275,489 186,851
Construction in Progress 10,517 32,545
-------- --------
Subtotal 310,724 236,338
Less: Accumulated Depreciation (42,162) (27,176)
-------- --------
Net Property, Plant, and Equipment 268,562 209,162
-------- --------

Investment in Unconsolidated Subsidiaries 50,936 15,590
-------- --------

Deferred Charges and Other 28,096 42,300
-------- --------

Total Assets $728,509 $681,953
======== ========

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE> 31

ROUGE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share amounts)

Liabilities and Stockholders' Equity

December 31
------------------
1997 1996
---- ----
Current Liabilities
Accounts Payable
<S> <C> <C>
Trade $ 152,917 $ 154,338
Affiliates 13,924 8,188
Accrued Vacation Pay 11,007 11,243
Taxes Other than Income 4,312 4,580
Other Accrued Liabilities 21,579 19,921
--------- ---------
Total Current Liabilities 203,739 198,270
--------- ---------

Long-Term Debt 17,900 --
--------- ---------
Other Liabilities 56,969 49,342
--------- ---------

Excess of Net Assets Acquired Over Cost 11,280 17,076
--------- ---------

Commitments and Contingencies (Note 12)

Stockholders' Equity
Common Stock
Class A, 80,000,000 shares authorized with 14,428,219 and 14,341,136 issued
and outstanding as of December 31, 1997
and 1996, respectively 144 143
Class B, 8,690,400 shares authorized with 7,562,400
issued and outstanding 76 76
Capital in Excess of Par Value 128,517 127,096
Retained Earnings 312,130 292,349
Additional Minimum Pension Liability Adjustment (2,246) (2,399)
--------- ---------
Total Stockholders' Equity 438,621 417,265
--------- ---------
Total Liabilities and Stockholders' Equity $ 728,509 $ 681,953
========= =========

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE> 32

ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except share and per share amounts)

Years Ended December 31
--------------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Sales
Unaffiliated Customers $ 1,158,218 $ 1,125,722 $ 1,019,914
Affiliates 183,342 181,676 186,652
------------ ------------ ------------
Total Sales 1,341,560 1,307,398 1,206,566
------------ ------------ ------------

Costs and Expenses
Costs of Goods Sold 1,278,351 1,251,114 1,082,077
Depreciation and Amortization 15,563 13,056 11,083
Selling and Administrative Expenses 21,760 24,339 27,569
Amortization of Excess of Net Assets Acquired Over Cost (5,796) (5,796) (5,796)
Property Tax Litigation Settlement (Note 11) -- -- (29,974)
------------ ------------ ------------
Total Costs and Expenses 1,309,878 1,282,713 1,084,959
------------ ------------ ------------

Operating Income 31,682 24,685 121,607

Interest Income 1,418 5,136 5,739
Interest Expense (630) (329) (326)
Other - Net (1,244) 728 459
------------ ------------ ------------
Income Before Income Taxes, Minority Interest
and Equity in Income (Loss) of Unconsolidated Subsidiaries 31,226 30,220 127,479
Income Tax Provision (8,094) (6,915) (33,455)
------------ ------------ ------------
Income Before Minority Interest and Equity in Income (Loss)
of Unconsolidated Subsidiaries 23,132 23,305 94,024
Minority Interest in Consolidated Subsidiary -- 37 639
Equity in Income (Loss) of Unconsolidated Subsidiaries (718) 50 --
------------ ------------ ------------

Net Income $ 22,414 $ 23,392 $ 94,663
============ ============ ============

Net Income Per Share - Basic and Diluted $ 1.02 $ 1.07 $ 4.37
============ ============ ============

Weighted-Average Shares Outstanding 21,938,743 21,844,864 21,677,435
============ ============ ============

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE> 33

ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(amounts in thousands)

Years Ended December 31
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Class A and Class B Common Stock
Beginning Balance $ 219 $ 218 $ 216
Common Stock Issued for Employee
Benefit Plans 1 1 2
--------- --------- ---------
Ending Balance 220 219 218
--------- --------- ---------

Capital in Excess of Par Value
Beginning Balance 127,096 124,246 120,212
Common Stock Issued for Employee
Benefit Plans 1,405 2,811 3,955
Common Stock Issued for ODEP 16 39 79
--------- --------- ---------
Ending Balance 128,517 127,096 124,246
--------- --------- ---------

Retained Earnings
Beginning Balance 292,349 271,580 179,089
Net Income 22,414 23,392 94,663
Cash Dividends Declared (2,633) (2,623) (2,172)
--------- --------- ---------
Ending Balance 312,130 292,349 271,580
--------- --------- ---------

Additional Minimum Pension Liability Adjustment
Beginning Balance (2,399) (2,190) (3,806)
Required Minimum Liability Adjustment 153 (209) 1,616
--------- --------- ---------
Ending Balance (2,246) (2,399) (2,190)
--------- --------- ---------

Total Stockholders' Equity $ 438,621 $ 417,265 $ 393,854
========= ========= =========

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE> 34

ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)

Years Ended December 31
---------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 22,414 $ 23,392 $ 94,663
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Deferred Taxes 9,540 4,433 5,841
Depreciation and Amortization 15,563 13,056 11,083
Amortization of Capitalized Debt Costs 113 36 36
Equity in (Income) Loss of Unconsolidated Subsidiaries 718 (50) --
Amortization of Excess of Net Assets Acquired Over Cost (5,796) (5,796) (5,796)
Minority Interest in Consolidated Subsidiary -- (37) (639)
Common Stock Issued for Benefit Plans 1,422 2,851 4,036
Changes in Assets and Liabilities:
Accounts Receivable (3,878) 3,692 9,437
Inventories 21,164 (42,802) 5,799
Prepaid Expenses (47) 1,208 (7,252)
Accounts Payable and Accrued Liabilities 24,171 14,202 (14,124)
Restricted Cash -- -- 4,121
Other - Net 4 (182) (96)
Gain on Property Tax Settlement -- -- (29,974)
Proceeds from Property Tax Settlement 5,000 5,000 15,000
--------- --------- ---------
Net Cash Provided by Operating Activities 90,388 19,003 92,135
--------- --------- ---------

Cash Flows From Investing Activities
Capital Expenditures (82,359) (80,339) (65,797)
Purchase of Marketable Securities (6,310) (30,276) (103,265)
Sale of Marketable Securities 8,349 71,561 78,886
Investment in Unconsolidated Subsidiaries (37,538) (9,222) (3,629)
Other - Net (142) (229) 45
--------- --------- ---------
Net Cash Used for Investing Activities (118,000) (48,505) (93,760)
--------- --------- ---------

Cash Flows From Financing Activities
Drawdowns on Revolving Line 121,800 -- --
Principal Payments on Revolving Line (103,900) -- --
Cash Dividend Payments (2,632) (2,620) (1,952)
--------- --------- ---------
Net Cash Provided by (Used for) Financing Activities 15,268 (2,620) (,952)
--------- --------- ---------

Net Decrease in Cash and Cash Equivalents (12,344) (32,122) (3,577)

Cash and Cash Equivalents - Beginning of Year 24,914 57,036 60,613
--------- --------- ---------

Cash and Cash Equivalents - End of Year $ 12,570 $ 24,914 $ 57,036
========= ========= =========

</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

<PAGE> 35

ROUGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES

Description of the Company

Rouge Steel Company ("Rouge Steel") and its subsidiaries were reorganized into a
holding company structure effective July 30, 1997. Pursuant to the
reorganization, Rouge Steel became a wholly-owned subsidiary of the new holding
company, Rouge Industries, Inc. ("Rouge Industries"), which is the issuer of all
shares of Class A Common Stock and Class B Common Stock outstanding. The
transaction was accounted for as a reorganization of entities under common
control. On the reorganization date, Rouge Industries and its subsidiaries had
the same consolidated net worth as Rouge Steel and its subsidiaries prior to the
reorganization.

Rouge Steel is the principal operating subsidiary of Rouge Industries. Rouge
Steel is engaged in the production and sale of flat rolled steel products
primarily to domestic automotive manufacturers and their suppliers. Other
wholly-owned subsidiaries of Rouge Industries are QS Steel Inc. ("QS Steel") and
Eveleth Taconite Company ("Eveleth"). QS Steel holds minority ownership
interests in five Michigan-based joint ventures. Eveleth holds a 45 percent
interest in Eveleth Mines LLC, a Minnesota-based iron ore mining and pellet
producing operation. For the purpose of these Notes to Consolidated Financial
Statements, "Rouge Industries" or "the Company" refers to Rouge Industries, Inc.
and its subsidiaries, unless the context requires otherwise.

Principles of Consolidation

The consolidated financial statements include the accounts of Rouge Industries
and its subsidiaries. Intercompany transactions have been eliminated.
Investments in business entities in which the Company does not have control, but
has the ability to exercise significant influence over the operating and
financial policies, are accounted for under the equity method.

Financial Instruments

The carrying amount of the Company's financial instruments, which include cash
equivalents, marketable securities, accounts receivable, accounts payable and
long-term debt, approximates their fair value at December 31, 1997 and 1996. The
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of
credit risk are cash equivalents, marketable securities and accounts receivable.
The Company attempts to limit its credit risk associated with cash equivalents
and marketable securities by utilizing outside investment managers to place the
Company's investments with highly rated corporate and financial institutions.
With respect to accounts receivable, the Company limits its credit risk by
performing ongoing credit evaluations and, when deemed necessary, requiring
letters of credit, guarantees or collateral. The Company's customer base is
comprised principally of domestic automotive manufacturers and their suppliers.
Management does not believe significant risk exists in connection with the
Company's concentrations of credit at December 31, 1997.

<PAGE> 36

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Significant Customers

The Company's significant customers are Ford Motor Company ("Ford") and
Worthington Industries, Inc. ("Worthington"). Sales to Ford, which are primarily
made pursuant to a ten-year steel purchase agreement, totaled $434,898,000 in
1997, $397,723,000 in 1996 and $376,605,000 in 1995. The steel purchase
agreement expires on December 15, 1999.

Sales are made to Worthington, a stockholder of the Company, pursuant to a
seven-year steel purchase agreement which expires on December 15, 2003. Sales to
affiliates include $157,307,000, $159,030,000 and $162,372,000 to Worthington
for 1997, 1996 and 1995, respectively.

Inventories

Inventories are stated at the lower of cost or market with cost determined by
the last-in, first-out ("LIFO") method for raw materials, work-in-process and
finished goods and the first-in, first-out ("FIFO") method for nonproduction and
sundry. Costs in inventory include materials, direct labor, Double Eagle
electrogalvanizing (see Note 4) and applied manufacturing overhead.

Nonmonetary Transactions

The Company routinely exchanges iron ore inventory with other parties. Since the
exchanges involve similar productive assets and do not complete an earnings
process, the Company accounts for the exchanges on the cost basis of the
inventory relinquished without recognition of gain or loss.

Property, Plant, and Equipment

Property, plant, and equipment are recorded at cost. Replacements and major
improvements are capitalized; maintenance and repairs are expensed as incurred.
Gains or losses on asset dispositions are included in the determination of net
income.

Depreciation and Amortization

Depreciation of the Company's property, plant, and equipment is computed using
the straight-line method. The average estimated useful lives are as follows:

Years
-----
Buildings 35
Land Improvements 20
Steel-Producing Machinery and Equipment 18
Power Equipment 28
Office Furniture 12

The costs of relines to the blast furnaces and the refurbishment of turbo
generators are capitalized and amortized over their expected lives which are
eight to ten years and five years, respectively.

The excess of net assets acquired over cost, relating to the acquisition of the
Company from Ford (the "Acquisition") in 1989, is being amortized on a
straight-line basis over a ten-year period.

<PAGE> 37

NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)

Environmental Accounting

Environmental expenditures are capitalized if the costs mitigate or prevent
future environmental contamination or if the costs improve existing assets'
environmental safety or efficiency. All other environmental expenditures are
expensed. Liabilities for environmental expenditures are accrued when it is
probable that such obligations have been incurred and the amounts can be
reasonably estimated.

Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates.

NOTE 2 - MARKETABLE SECURITIES

Marketable securities are classified as follows (dollars in thousands):

<TABLE>
<CAPTION>
December 31
-------------------------------
1997 1996
---- ----

<S> <C> <C>
Marketable Securities Per Consolidated Balance Sheets $ - $ 2,039
Marketable Securities Classified as Cash Equivalents 36 10,805
---------- --------
Total Marketable Securities $ 36 $ 12,844
========== ========
</TABLE>

The Company has the positive intent and ability to hold all purchased securities
to maturity. As of December 31, 1997 and 1996, the Company did not own any
securities with a maturity greater than one year. The Company's investments in
marketable securities comprise money market funds, U.S. Treasury securities and
corporate debt securities.

NOTE 3 - INVENTORIES

The major classes of inventories are as follows (dollars in thousands):

<TABLE>
<CAPTION>
December 31
--------------------------
1997 1996
---- ----
Production
<S> <C> <C>
Raw Materials $ 84,169 $ 85,306
Semifinished and Finished Steel Products 160,017 174,746
--------- ---------
Total Production at FIFO 244,186 260,052
LIFO Reserves (17,285) (14,390)
--------- ---------
Total Production at LIFO 226,901 245,662
Nonproduction and Sundry 21,416 22,215
--------- ---------
Total Inventories $ 248,317 $ 267,877
========= =========
</TABLE>

<PAGE> 38

NOTE 3 - INVENTORIES (continued)

During 1997, inventory quantities were reduced. This reduction resulted in a
liquidation of LIFO inventory quantities which were carried at costs that
prevailed in prior years which were lower than the cost of 1997 purchases. The
effect of the liquidation of LIFO inventories decreased costs of goods sold by
approximately $1,000,000 and increased net income by approximately $650,000 or
$0.03 per share.

NOTE 4 - INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES

At December 31, 1997, the Company's investments in unconsolidated subsidiaries
consist of a 50 percent interest in Double Eagle Steel Coating Company ("Double
Eagle"), a 45 percent interest in Eveleth Mines LLC ("EVTAC"), a 20 percent
interest in Shiloh of Michigan, L.L.C. ("Shiloh of Michigan"), a 48 percent
interest in Spartan Steel Coating, L.L.C. ("Spartan Steel"), an 11.1 percent
interest in TWB Company, L.L.C. ("TWB"), a 19.75 percent interest in Bing
Blanking, L.L.C. ("Bing Blanking") and a 49 percent interest in Delaco
Processing, L.L.C. ("Delaco Steel Processing"). All of the Company's investments
in unconsolidated subsidiaries are accounted for under the equity method.

Double Eagle is an electrolytic galvanizing facility which is operated as a cost
center. Accordingly, Double Eagle records neither sales nor income. Rouge
Industries' proportionate share of Double Eagle's production costs of
$39,459,000, $37,618,000 and $34,976,000 for 1997, 1996 and 1995, respectively,
is included in the Company's costs and expenses and inventory. The Company is
committed to pay 50 percent of the fixed costs incurred and a pro rata share of
variable costs based on coatings applied to the Company's products. At December
31, 1997, the Company's share of the underlying net assets of Double Eagle
exceeded its investment by $44,550,000. This excess results from purchase
accounting adjustments made on the consolidated accounts of the Company at the
time of the Acquisition and relates primarily to property, plant, and equipment.
This excess is being amortized as a reduction of Rouge Industries' share of
Double Eagle's costs over the remaining lives of the property.

Until November 30, 1996, Eveleth was 85 percent owned by the Company and 15
percent owned by Oglebay Norton Company and produced iron ore pellets at Eveleth
Mines under collective operating agreements with Eveleth Expansion Company.
Effective December 1, 1996, under the terms of a restructuring agreement,
Eveleth became a wholly-owned subsidiary of the Company and, in exchange for a
45 percent ownership interest in EVTAC, Eveleth assigned substantially all of
its operating assets and liabilities to EVTAC. No gain or loss was recorded at
the time of the transaction and the impact of the transfer of approximately
$17,681,000 of assets and $30,253,000 of liabilities by Eveleth to EVTAC was
excluded from the Statement of Cash Flows. At December 31, 1997, the Company's
share of the underlying net assets of EVTAC exceeded its investment by
$10,976,000. This excess is being amortized into income over the estimated
remaining useful lives of the contributed assets.

Shiloh of Michigan produces engineered steel blanks, TWB produces laser welded
blanks, Spartan Steel is a cold rolled hot dipped galvanizing facility, Bing
Blanking is a producer of first operation blanks and rollformed parts, and
Delaco Steel Processing is a steel processor and warehouser. Spartan Steel, Bing
Blanking and Delaco Steel Processing are all expected to begin operation in
mid-1998.

<PAGE> 39

NOTE 4 - INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (continued)

Certain reclassifications have been made to the following information for 1996
to conform with the current year's presentation. The table below sets forth
summarized financial information for Rouge Industries' unconsolidated
subsidiaries (dollars in thousands):

<TABLE>
<CAPTION>
December 31
----------------------
1997 1996
---- ----
<S> <C> <C>
Current Assets $ 82,014 $ 51,987
Noncurrent Assets 308,047 210,690
Current Liabilities 45,920 41,412
Noncurrent Liabilities 120,012 65,823

<CAPTION>
For the Years Ended December 31
---------------------------------------------
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Net Sales $193,463 $16,268 $ -
Gross Profit 2,960 446 -
Net Income (Loss) (6,358) 498 -
</TABLE>

NOTE 5 - DEBT

The Company had borrowings of $17,900,000 outstanding as of December 31, 1997,
and had no long-term debt outstanding as of December 31, 1996.

On December 16, 1997, Rouge Steel and Rouge Industries entered into an agreement
for a $100,000,000, unsecured revolving loan facility (the "Credit Agreement")
which replaced a $100,000,000, unsecured revolving loan facility under a
different credit agreement. Rouge Steel is the borrower under the Credit
Agreement and Rouge Industries is a guarantor. Interest is calculated using one
of two methods. Loans under the base rate option are charged interest equal to
the higher of the prime rate or the federal funds rate plus 0.5%. Loans under
the LIBOR option are charged interest at the London Interbank Offered Rate plus
a margin ranging from 0.20% to 0.40%, depending on the Company's debt to
capitalization ratio at the time of borrowing. The interest rate option is
chosen by Rouge Steel at the time of each borrowing and is thereafter changeable
under certain specified conditions. The facility bears a fixed annual fee of
$20,000 and a fee on the entire amount of the facility which can vary from 0.1%
to 0.2%, depending on the Company's debt to capitalization ratio at the time.
The Credit Agreement, which expires on December 16, 2002, contains certain
financial covenants, with which the Company was in compliance on December 31,
1997.

Cash paid for interest was $462,000 in 1997, $350,000 in 1996 and $285,000 in
1995.

NOTE 6 - PENSIONS

Rouge Steel has retirement plans covering substantially all hourly and salaried
employees. The hourly plans are noncontributory and provide benefits, including
early retirement supplements, based on the length of employee service. The
salaried plans provide similar noncontributory benefits and, for employees who
elect to contribute, pay related benefits combined with early retirement
supplements.

<PAGE> 40

NOTE 6 - PENSIONS (continued)

Rouge Steel's funding policy is to contribute annually, at a minimum, amounts
required by applicable law, regulations and union agreements. Plan assets
consist principally of investments in common and preferred stock, government
securities and other fixed income securities.

The following schedule sets forth the funded status of the plans at December 31
using a September 30 measurement date (dollars in thousands):

Overfunded Plan(s) Underfunded Plan(s)
---------------------- -------------------
1997 1996 1997 1996
Actuarial Present Value of Benefit Obligations: ---- ---- ---- ----
<S> <C> <C> <C> <C>
Vested $ (58,684) $ (15,850) $ (6,233) $ (38,710)
Nonvested (32,191) (6,348) (7,448) (28,599)
--------- --------- --------- ---------
Accumulated Benefit Obligation $ (90,875) $ (22,198) $ (13,681) $ (67,309)
========= ========= ========= =========

Projected Benefit Obligation $ (93,601) $ (24,648) $ (13,681) $ (67,309)
Fair Value of Assets 109,097 24,583 12,262 63,146
--------- --------- --------- ---------
Fair Value of Assets in Excess of
(Less Than) Projected Benefit Obligation 15,496 (65) (1,419) (4,163)
Unrecognized Net Loss (Gain) (15,071) 1,176 2,246 210
Unrecognized Prior Service Cost 8,246 1,028 -- 8,229
Employer Contribution -- 1,387 -- 4,733
Minimum Liability Adjustment -- -- (2,246) (2,399)
--------- --------- --------- ---------
Prepaid Pension Cost (Unfunded Accrued) $ 8,671 $ 3,526 $ (1,419) $ 6,610
========= ========= ========= =========

</TABLE>

The following schedule sets forth the net pension cost (dollars in thousands):

For the Years Ended December 31
------------------------------------
1997 1996 1995

<S> <C> <C> <C>
Service Cost $ 7,957 $ 8,143 $ 6,795
Interest Cost 7,440 6,541 4,952
Actual Return on Assets (23,111) (9,325) (8,460)
Net Amortization and Deferral 15,896 3,577 4,762
--------- --------- ---------
Net Pension Cost $ 8,182 $ 8,936 $ 8,049
========= ========= =========
</TABLE>

The projected benefit obligation was determined using a discount rate of 7.25%
for 1997 and 7.5% for 1996, an expected rate of return on plan assets of 9.0%
for 1997 and 1996, and a rate of compensation escalation for salaried plans of
3.7% for 1997 and 1996.

<PAGE> 41

NOTE 7 - POSTRETIREMENT BENEFIT AND OTHER PLANS

Postretirement Benefit Plans Other than Pensions

Rouge Steel provides certain health care and life insurance benefits for retired
employees. As part of the Acquisition, Ford assumed essentially all liability
for these benefits for Rouge Steel retirees and certain employees nearing
retirement as of December 15, 1989. Substantially all of Rouge Steel's employees
may become eligible for benefits, either at Rouge Steel's expense or, to the
extent indicated above, at Ford's expense, if they reach retirement age while
still working for Rouge Steel.

The accrued postretirement benefit cost is included in Other Liabilities. The
following schedule presents the funded status of the plans (dollars in
thousands):

December 31
---------------------------------
1997 1996
---- ----
Accumulated Postretirement Benefit Obligation:
<S> <C> <C>
Active Participants $(46,287) $(40,776)
Fully Eligible Participants (4,648) (3,803)
Retirees (3,595) (2,610)
---------- ----------
Total (54,530) (47,189)
Benefit Payments and Contributions 49 27
Unrecognized Prior Service Cost 284 331
Unrecognized Net Loss 7,743 7,672
---------- ----------
Accrued Postretirement Benefit Cost $(46,454) $(39,159)
========== ==========
</TABLE>

The following schedule presents the net periodic postretirement benefit cost
(dollars in thousands):

<TABLE>
<CAPTION>
For the Years Ended December 31
-----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Service Cost $3,287 $2,992 $2,741
Interest Cost 3,781 3,163 3,906
Actual Return on Assets - - (6)
Net Amortization 429 432 (112)
-------- -------- --------
Net Periodic Postretirement Benefit Cost $7,497 $6,587 $6,529
======== ======== ========
</TABLE>

Assumed health care trend rates of 6.0% and 7.0% were used to measure the
postretirement benefit obligation in 1997 and 1996, respectively. The assumed
health care trend rate will continue to be 6.0%. The discount rate used to
measure the postretirement benefit obligation was 7.25% in 1997 and 7.5% in
1996.

If the health care trend rates assumed were increased by 1.0%, the effect on the
accumulated postretirement benefit obligation at December 31, 1997 and the total
1997 service and interest cost components of net periodic postretirement benefit
cost would be increases of $12,081,000 and $1,947,000, respectively.

<PAGE> 42

NOTE 7 - POSTRETIREMENT BENEFIT AND OTHER PLANS (continued)

Profit Sharing Plans

The Company maintains profit sharing plans for hourly and salaried employees
which cover substantially all employees. Hourly and salaried profit sharing
expense amounted to $3,031,000, $4,173,000 and $12,306,000 in 1997, 1996 and
1995, respectively.

NOTE 8 - INCOME TAXES

Rouge Industries' income tax provision, arising wholly from Federal taxation
since the Company neither has been nor is presently, subject to state or foreign
income taxes, consists of the following components (dollars in thousands):

For the Years Ended December 31
-------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current $ 1,446 $ (2,482) $(27,614)
Deferred (9,540) (4,433) (5,841)
-------- -------- --------
Total Provision $ (8,094) $ (6,915) $(33,455)
======== ======== ========
</TABLE>

The Company's income tax provision is net of taxes related to the equity in the
income or loss of unconsolidated subsidiaries. The income tax benefit associated
with the loss of unconsolidated subsidiaries was $385,000 in 1997, which is
comprised of a current provision of $359,000 and a deferred benefit of $744,000.
The income tax provision associated with the income of unconsolidated
subsidiaries was $27,000 in 1996. There was no income or loss recorded for
unconsolidated subsidiaries in 1995.

The differences between the total provision and the provision computed using the
Federal statutory income tax rate were as follows (dollars in thousands):

<TABLE>
<CAPTION>
For the Years Ended December 31
-------------------------------
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Pre-Tax Income $ 31,226 $ 30,220 $ 127,479
========= ========= =========

Computed Provision $ (10,929) $ (10,577) $ (44,618)

Source of Difference:
Amortization of Negative Goodwill 2,029 2,029 2,029
Change in Valuation Allowance 774 1,800 12,000
Other 32 (167) (2,866)
--------- --------- ---------
Total Provision $ (8,094) $ (6,915) $ (33,455)
========= ========= =========
</TABLE>

<PAGE> 43

NOTE 8 - INCOME TAXES (continued)

Deferred tax assets (liabilities) are comprised of the following (dollars in
thousands):

<TABLE>
<CAPTION>
December 31
-----------
1997 1996
---- ----
ASSETS
<S> <C> <C>
Basis of Consolidated Subsidiary $ 8,810 $ 8,065
Postretirement and Other Benefits 18,734 14,929
Other 6,854 6,810
Operating Loss and Alternative
Minimum Tax Credit Carryforwards 31,693 25,925
-------- --------
Gross Deferred Tax Assets 66,091 55,729
Valuation Allowance (13,856) (14,630)
-------- --------
Gross Deferred Tax Assets
After Valuation Allowance 52,235 41,099
-------- --------

LIABILITIES
Property, Plant, and Equipment (25,939) (7,066)
Inventories (12,388) (11,331)
Other (34) (32)
-------- --------
Gross Deferred Tax Liabilities (38,361) (18,429)
-------- --------
Total Net Deferred Tax Assets $ 13,874 $ 22,670
======== ========

</TABLE>

Unused regular tax loss carryforwards were approximately $19,245,000 and
$4,116,000 at December 31, 1997 and December 31, 1996, respectively. The regular
tax loss carryforwards expire between 2011 and 2012. Alternative minimum tax
credit carryforwards amounted to $24,957,000 at December 31, 1997 and
$25,925,000 at December 31, 1996. The alternative minimum tax loss carryforwards
may be carried forward indefinitely.

A valuation allowance is recorded for deferred tax assets if it is more likely
than not that some or all of the deferred tax assets will not be realized. The
Company previously recorded a partial valuation allowance on certain deferred
tax assets. The reduction of the valuation allowance was primarily the result of
the utilization of temporary differences in the basis of Eveleth as a
consequence of the reorganization of EVTAC. Certain 1996 deferred tax balances
and the related valuation allowance pertaining to Eveleth were reclassified to
conform with the current year's presentation. Current deferred tax assets of
$1,819,000 and $788,000 in 1997 and 1996, respectively, are recorded in Other
Current Assets. The remaining deferred tax assets are included in Deferred
Charges and Other.

In 1997, the Company made estimated tax payments of $2,000,000 and received a
net cash refund of $4,704,000. Net cash paid for income taxes was $5,325,000 in
1996 and $24,200,000 in 1995.

<PAGE> 44

NOTE 9 - COMMON STOCK

Class A shares have a par value of $0.01. Each Class A share has one vote.

Class B shares have a par value of $0.01. Each Class B share has 2.5 votes.

In 1996, Worthington converted 878,000 shares of the Company's Class B Common
Stock to Class A Common Stock, reducing its voting interest in the Company's
common stock from 22.8% to 19.9%.

The Company has an outside director equity plan ("ODEP") and a stock incentive
plan ("SIP") which provide for stock option grants to the Company's directors
and employees, respectively, at fair market value on the date of grant. Under
the plans, the Company may grant options to its directors and employees for up
to 500,000 shares of common stock. These stock options generally vest over a
period of up to three years and are exercisable for a period not exceeding ten
years from the date of grant. The stock options may be exercised subject to
continued employment and certain other conditions.

The Company applies Accounting Principles Board Opinion No. 25 in accounting for
its stock-based compensation plans. Accordingly, no compensation cost has been
recognized for the ODEP and the SIP. If compensation cost for the ODEP and the
SIP had been determined based upon the fair value at the grant dates for awards
under these plans consistent with the method set forth in Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation," the Company's net income and net income per share would have been
reduced to the pro forma amounts indicated below:

<TABLE>
<CAPTION>
Year Ended December 31
------------------------------------------
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Net Income (dollars in thousands) As Reported $ 22,414 $ 23,392 $ 94,663
Pro Forma 21,523 22,357 93,638

Net Income Per Share As Reported $ 1.02 $ 1.07 $ 4.37
Pro Forma 0.98 1.02 4.32
</TABLE>

The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions for grants in 1997, 1996 and 1995:

<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----

<S> <C> <C> <C>
Dividend Yield 0.57% %.51 %.42
Risk-Free Interest Rate 6.35 5.56 7.76
Expected Volatility 33.26 32.74 32.74
Expected Life 7 years 7 years 7 years
</TABLE>

<PAGE> 45

NOTE 9 - COMMON STOCK (continued)

A summary of the status of the Company's two stock-based compensations plans as
of December 31, 1997, 1996 and 1995 and changes during the years then ended is
presented below:

<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------ ------------------
Weighted- Weighted- Weighted-
Average Average Average
Shares Price Shares Price Shares Price
------ ----- ------ ----- ------ -----

<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 207,325 $26.04 106,500 $28.33 4,000 $22.00
Granted 105,800 20.92 109,200 23.70 107,000 28.56
Exercised -- -- -- -- (500) 22.00
Forfeited (15,875) 24.69 (8,375) 24.77 (4,000) 28.88
-------- -------- --------
Outstanding at December 31 297,250 $24.29 207,325 $26.04 106,500 $28,33
======== ====== ======== ====== ======== ======

Options Exercisable at Year-End 222,175 $25.11 130,694 $26.46 54,000 $28.24
Weighted-Average Fair Value of
Options Granted During the Year $ 9.57 $10.43 $14.17

</TABLE>

The following table presents summarized information about stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>

Options Outstanding Options Exercisable
---------------------------------------------------------- ---------------------------------
Number Weighted-Average Weighted- Number Weighted-
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Prices December 31, 1997 Contractual Life Exercise Price December 31, 1997 Exercise Price
- --------------- ----------------- ---------------- -------------- ----------------- --------------

<S> <C> <C> <C> <C> <C>
$15.13 1,500 9.3 years $15.13 750 $ 15.13
$21.00 to 23.00 105,050 8.9 years 21.10 55,150 21.16
$23.01 to 24.00 102,200 8.0 years 23.73 77,775 23.72
$28.88 88,500 7.0 years 28.88 88,500 28.88
</TABLE>

NOTE 10 - EARNINGS PER SHARE

During 1997, the Company adopted SFAS No. 128, "Earnings per Share." The
adoption of this statement had no impact on previously reported earnings per
share.

The calculation of diluted net income per share for the years ended December 31,
1997, 1996 and 1995 did not require an adjustment to net income for the effect
of dilutive securities. The weighted-average shares outstanding were adjusted
for the effect of 37, 51 and 543 shares of dilutive securities which were
outstanding as of December 31, 1997, 1996 and 1995, respectively.

The dilutive securities represent stock options which were granted to members of
management or the board of directors and which had exercise prices lower than
the average market price of the Company's Class A Common Stock. Options to
purchase 295,750 shares at $21.00 to $28.88 per share in 1997, 204,325 shares at
$22.88 to $28.88 per share in 1996 and 97,000 shares at $28.88 per share in 1995
were outstanding but were not included in the computation of diluted earnings
per share because the exercise prices of these options were greater than the
average market price of the Company's Class A Common Stock. These options will
expire between 2005 and 2007.

<PAGE> 46

NOTE 11 - PROPERTY TAX LITIGATION SETTLEMENT

In 1995, Rouge Steel reached an agreement with the City of Dearborn, the
Dearborn Public School Board and the County of Wayne, Michigan which settled
local property tax litigation for tax years 1990 through 1995. The local taxing
authorities agreed to refund $25,000,000 to Rouge Steel for overpayment of
property taxes for tax years 1990 through 1993. In addition, the taxing
authorities reduced Rouge Steel's property tax assessment with respect to the
1994 and 1995 tax years. As a result of the settlement, the Company recorded a
pre-tax benefit in 1995 of $29,974,000, net of profit sharing and inventory
valuation costs.

NOTE 12 - COMMITMENTS AND CONTINGENCIES

Commitments to Ford

The Company purchases various services including environmental, heavy equipment
repair, construction and transportation from Ford. In addition, the Company
leases certain land, office space and production support facilities from Ford
under cancelable operating leases with terms ranging from 1 to 99 years. The
costs of these services were approximately $18,469,000 in 1997, $25,643,000 in
1996 and $29,791,000 in 1995. Since 1996, the Company has assumed some of the
services which had previously been provided by Ford resulting in the decline in
payments to Ford since 1995.

The Company also jointly owns a powerhouse facility with Ford, under a renewable
ten-year agreement expiring December 31, 1999. The powerhouse generates
electricity, steam and other utilities. The fixed assets of the powerhouse are
owned 60 percent by the Company and 40 percent by Ford, with each party
receiving a portion of the power generated. The costs of operating the facility
are allocated between the Company and Ford based on the consumption of
utilities. The Company's share of the costs of this facility was approximately
$78,499,000 in 1997, $74,005,000 in 1996 and $71,176,000 in 1995. In 1996, the
Company provided written notice to Ford of its intention to terminate the
powerhouse agreement on December 15, 1999. The Company and Ford are undertaking
a joint study of the alternatives available for utilities and services which are
now provided by the powerhouse.

In connection with its operation of the powerhouse, Ford purchases a portion of
the gas produced by the Company's blast furnaces for use at the powerhouse based
on a negotiated formula. Ford purchased $26,497,000, $23,638,000 and $22,251,000
worth of blast furnace gas in 1997, 1996 and 1995, respectively. Of these
amounts, between 60 and 70 percent has been charged back to the Company for its
proportionate share of the cost of such gas.

During 1997, 1996 and 1995, the Company purchased scrap from Ford at a cost of
$40,496,000, $31,401,000 and $27,122,000, respectively. These purchases were
made under a supply agreement that expires in automotive model year 2000.

Spartan Steel Commitment

During 1996, the Company entered a joint venture with Worthington to construct
and operate Spartan Steel. The entire project is expected to cost approximately
$106,400,000. Rouge Industries will be responsible for 48 percent of the total,
or approximately $51,100,000. Through December 31, 1997, the Company had
invested $28,344,000 in Spartan Steel. Construction of the facility is expected
to be complete by mid-1998.

<PAGE> 47

NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)

Other Commitments

Pursuant to a purchase and sale agreement executed in connection with the
restructuring of EVTAC described in Note 4, Rouge Steel is required to purchase
45 percent of the first 5.0 million natural gross tons of pellets produced each
year by EVTAC at world market prices. The Company also has the right of first
refusal with respect to 45 percent of any pellets produced by EVTAC in excess of
5.0 million natural gross tons.

Rouge Steel has committed to a seven-year lease for a $35,000,000 waste oxide
reclamation facility. The facility is presently being constructed, and it is
expected to be completed in the third quarter of 1998.
Lease payments will commence at that time.

The Company has a ten-year contract for the supply of oxygen and nitrogen which
expires in 2005. The contract contains annual minimum oxygen and nitrogen
purchases of $8,300,000 and $550,000, respectively. Oxygen and nitrogen
purchases aggregated approximately $15,124,000 in 1997, $11,707,000 in 1996 and
$9,769,000 in 1995.

Shiloh of Michigan, L.L.C. Loan Guaranty

Rouge Steel executed a guaranty of payment in favor of certain banks to induce
them to extend a $28,000,000 line of credit to Shiloh of Michigan, an engineered
steel blanking joint venture between the Company and Shiloh Industries, Inc.
Rouge Industries guaranteed 20 percent of the line of credit. As of December 31,
1997, Shiloh of Michigan had borrowings of $28,000,000 outstanding under its
line of credit.

Environmental Matters

The Company is indemnified through December 15, 2009 for environmental
obligations relating to conditions arising prior to the Acquisition on December
15, 1989. It is the Company's practice to coordinate the resolution of such
obligations with Ford. Management believes that disputed or unresolved
obligations are immaterial in relation to the Company's Consolidated Statement
of Operations. The Company's environmental obligations relating to conditions
arising after the Acquisition, in the opinion of management, will not have a
materially adverse effect on the Company's consolidated financial position or
results of operations.

Litigation

The Company is involved in routine litigation incidental to its business. In
management's opinion, none of such current proceedings, individually or in the
aggregate, will have a materially adverse effect on the Company's consolidated
financial position or results of operations.

<PAGE> 48

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

Accounts Receivable Allowances (amounts in thousands):

<TABLE>
<CAPTION>
Charged
Balance (Credited) to Balance
Year Ended at Beginning Cost and at End
December 31 of Period Expenses Write-Offs of Period
------------ --------- -------- ---------- ---------

<S> <C> <C> <C> <C>
1997 $7,294 $ (815) $ (146) $6,333
1996 6,118 1,248 (72) 7,294
1995 6,790 1,804 (2,476) 6,118

</TABLE>

<PAGE> 49

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>

First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in thousands, except per share amounts)
1997

<S> <C> <C> <C> <C>
Total Sales $334,172 $355,205 $320,707 $331,476

Gross Margin 17,022 18,724 12,935 (1,035)

Net Income (Loss) 9,284 10,622 6,979 (4,471)

Net Income (Loss) Per Share 0.42 0.48 0.32 (0.20)

1996

Total Sales $320,185 $348,967 $320,153 $318,093

Gross Margin 11,418 20,757 22,016 (10,963)

Net Income (Loss) 6,668 11,805 13,387 (8,468)

Net Income (Loss) Per Share 0.31 0.54 0.61 (0.39)

</TABLE>

<PAGE> 50

Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.

None.

<PAGE> 51

PART III

Item 10. Directors and Executive Officers of the Registrant.

Information regarding the Company's Directors is incorporated by
reference to the information contained under the caption "Proposal No. 1 -
Election of Directors" in the Company's 1998 Proxy Statement (the "Proxy
Statement"), which will be filed with the Securities and Exchange Commission not
later than April 30, 1998. Information regarding the Company's Executive
Officers is set forth in Part I of this Form 10-K pursuant to Instruction G of
Form 10-K.

Item 11. Executive Compensation.

Incorporated by reference to the information contained under the caption
"Executive Compensation" in the Company's Proxy Statement, which will be filed
with the Securities and Exchange Commission not later than April 30, 1998.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Incorporated by reference to the information contained under the caption
"Security Ownership" in the Company's Proxy Statement, which will be filed with
the Securities and Exchange Commission not later than April 30, 1998.

Item 13. Certain Relationships and Related Transactions.

Incorporated by reference to the information contained under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement, which will be filed with the Securities and Exchange Commission not
later than April 30, 1998.

With the exception of the information specifically incorporated by
reference, the Company's Proxy Statement is not to be deemed filed as part of
this report for purposes of this Part III.

<PAGE> 52

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.

(a) Documents filed as part of this Report:

(1) A list of the financial statements filed as part of this
report is submitted as a separate section, the index to
which is located on page 28.
(2) A list of financial statement schedules required to be
filed by Item 8 is located on page 28.
(3) Exhibits:

The following exhibits are included in this report or incorporated herein
by reference:

Exhibit
Number Description of Exhibit
-------- ----------------------

2.1 Agreement and Plan of Merger dated July 20, 1997, by and among
the Registrant, Rouge Steel Company and Merger Sub
(incorporated herein by reference to Exhibit 2.1 to the
Registrant's Registration Statement on Form 8-B (the "Form
8-B")).

3.1 Amended and Restated Certificate of Incorporation of the
Registrant (incorporated herein by reference to Exhibit 3.1 to
the Form 8-B).

3.2 Amended and Restated By-Laws of the Registrant (incorporated
herein by reference to Exhibit 3.2 to the Form 8-B).

4.1 Amended and Restated Stockholders Agreement dated as of
November 14, 1996 (the "Stockholders Agreement"), among the
Registrant, Carl L. Valdiserri and Worthington Industries, Inc.
("Worthington") (incorporated herein by reference to Exhibit
10.3 to the Registrant's 1996 Annual Report on Form 10-K
(Commission File Number 1-12852) (the "1996 Form 10-K")).

4.2 First Amendment to Amended and Restated Stockholders Agreement
dated July 20, 1997, by and among Rouge Steel Company, the
Registrant, Carl L. Valdiserri and Worthington (incorporated
herein by reference to Exhibit 4.1 to the Form 8-B).

10.1+ Credit Agreement dated as of December 16, 1997 (the "Credit
Agreement"), among the Registrant, Rouge Steel Company, the
banks named therein and NBD Bank.

10.2 Purchase and Sale Agreement dated as of December 15, 1989,
between Ford Motor Company ("Ford") and Marico Acquisition
Corp. ("Marico") (incorporated herein by reference to Exhibit
10.10 to the Company's Registration Statement on Form S-1
(Registration No. 33-74698) (the "S-1 Registration
Statement")).

<PAGE> 53

Exhibit
Number Description of Exhibit
-------- ----------------------

10.3 Oxygen, Nitrogen and Argon Supply Agreement dated as of
November 16, 1993, between Praxair, Inc. and the Registrant
(incorporated herein by reference to Exhibit 10.4 to the
Registrant's 1994 Annual Report on Form 10-K (Commission File
Number 1-12852) (the "1994 Form 10-K")).

10.4 Steel Purchase Agreement dated as of December 15, 1989, between
the Registrant and Ford (incorporated herein by reference to
Exhibit 10.16 to the S-1 Registration Statement).

10.5 Steel Products Purchase Agreement dated as of December 15,
1989, between the Registrant and Worthington (the "Worthington
Agreement") (incorporated herein by reference to Exhibit 10.17
to the S-1 Registration Statement).

10.6 Letter dated February 20, 1996 confirming Exercise of Option to
Extend Term of Worthington Agreement (incorporated herein by
reference to Exhibit 10.8 to the Registrant's 1995 Annual
Report on Form 10-K (Commission File Number 1-12852) (the "1995
Form 10-K")).

10.7 Technical and Transportation Services Agreement dated as of
December 15, 1989, between the Registrant and Ford
(incorporated herein by reference to Exhibit 10.18 to the S-1
Registration Statement).

10.8 Railroad Services Agreement dated as of December 15, 1989,
between the Registrant and Ford (incorporated herein by
reference to Exhibit 10.19 to the S-1 Registration Statement).

10.9 Scrap Sale Agreement dated as of December 15, 1989, between the
Registrant and Ford (incorporated herein by reference to
Exhibit 10.20 to the S-1 Registration Statement).

10.10 Powerhouse Joint Operating Agreement dated as of December 15,
1989, between the Registrant and Ford (incorporated herein by
reference to Exhibit 10.21 to the S-1 Registration Statement).

10.11 Transitional Services Agreement dated as of December 15, 1989,
between the Registrant and Ford (incorporated herein by
reference to Exhibit 10.22 to the S-1 Registration Statement).

10.12 Natural Gas Operating Agreement dated as of December 15, 1989
between the Registrant and Ford (incorporated herein by
reference to Exhibit 10.25 to the S-1 Registrant Statement).

10.13 Joint Venture Agreement dated as of November 30, 1984 (the
"Joint Venture Agreement"), between United States Steel
Corporation ("USS") and the Registrant (incorporated herein by
reference to Exhibit 10.23 to the S-1 Registration Statement).

<PAGE> 54

Exhibit
Number Description of Exhibit
-------- ----------------------

10.14 Amendment to Joint Venture Agreement (incorporated herein by
reference to Exhibit 10.24 to the S-1 Registrant Statement).

10.15 Operating Agreement for Shiloh of Michigan, L.L.C. dated as of
January 2, 1996 by and among Shiloh of Michigan, L.L.C., the
Registrant and Shiloh Industries, Inc. (incorporated herein by
reference to Exhibit 10.16 to the 1995 Form 10-K).

10.16 Operating Agreement of TWB Company, L.L.C. dated as of April
15, 1997 by and between Thyssen Inc. ("Thyssen") and
Worthington Steel of Michigan, Inc., ("Worthington Steel")
(incorporated herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the Quarterly
Period Ended March 31, 1997 (the "First Quarter 1997 10-Q")).

10.17 First Amendment to Operating Agreement of TWB Company L.L.C.
dated as of April 15, 1997 by and among Thyssen, Worthington
Steel, LTV Steel Company, Inc. Bethlehem Blank Welding, Inc.
and QS Steel Inc. (incorporated herein by reference to Exhibit
10.2 to the First Quarter 1997 10-Q).

10.18+ Operating Agreement of Delaco Processing, L.L.C. dated as of
September 3, 1997 by and between QS Steel Inc. and Delaco
Supreme Tool & Gear Co.

10.19+ Operating Agreement for Bing Blanking, L.L.C. dated as of
November 26, 1997 by and among Bing Blanking, L.L.C., QS Steel
Inc., Shiloh Corporation and Bing Management II, L.L.C.

10.20 Operating Agreement of Spartan Steel Coating, L.L.C. dated as
of November 14, 1996 among QS Steel Inc. and Worthington Steel
(incorporated herein by reference to Exhibit 10.18 to the 1996
Form 10-K).

10.21 Eveleth Mines Exit Agreement dated as of November 25, 1996
among Oglebay Norton Company, ONCO Eveleth Company, Eveleth
Taconite Company, Eveleth Expansion Company, AK Steel
Corporation, Virginia Horn Taconite Company, Rouge Steel
Company, Stelco, Inc., Ontario Eveleth Company and Eveleth
Mines LLC (incorporated herein by reference to Exhibit 10.19 to
the 1996 Form 10-K).

10.22 Pellet Sale and Purchase Agreement dated as of January 1, 1997
by and between Eveleth Mines LLC and Rouge Steel Company
(incorporated herein by reference to Exhibit 10.20 to the 1996
Form 10-K).

10.23 Member Control Agreement of Eveleth Mines LLC dated as of
December 2, 1996 between Virginia Horn Taconite Company, Rouge
Steel Company and Ontario Eveleth Company (incorporated herein
by reference to Exhibit to 10.21 to the 1996 Form 10-K).

<PAGE> 55

Exhibit
Number Description of Exhibit
------- ----------------------

10.24 Letter Agreement dated as of October 25, 1996 between
Worthington Industries and Rouge Steel Company (incorporated
herein by reference to Exhibit 10.22 to the 1996 Form 10-K).

10.25 Furnace Coke Supply Agreement dated as of October 31, 1996
between Rouge Steel Company and Bethlehem Steel Corporation
(incorporated herein by reference to the Exhibit 10.23 to the
1996 Form 10-K).

10.26 Pellet Sale and Purchase and Trade Agreement dated as of
January 1, 1991 by and between The Cleveland-Cliffs Iron
Company and the Registrant (incorporated herein by reference to
Exhibit 10.31 to the S-1 Registration Statement).

10.27 Agreement for Production, Sale and Purchase of Coal dated as of
January 15, 1975 ("Coal Purchase Agreement") by and among Ford,
Blackberry Creek Coal Company ("Blackberry") and A.T. Massey
Coal Company, Inc. ("Massey") (incorporated herein by reference
to Exhibit 10.32 to the S-1 Registration Statement).

10.28 Coke Tolling Agreement dated December 22, 1993 between U.S.S.
Subsidiary of USX Corporation and the Registrant (incorporated
herein by reference to Exhibit 10.34 to the S-1 Registration
Statement).

10.29 Agreement for the Provision of Tolled Coke dated December 22,
1992 between New Boston Coke Corporation. and the Registrant
(incorporated herein by reference to Exhibit 10.35 to the S-1
Registration Statement).

10.30 Purchase Agreement among Rouge Steel Company, Stelco Inc. and
Ontario Eveleth Company dated March 1, 1993 (incorporated
herein by reference to Exhibit 10.36 to the S-1 Registration
Statement).

10.31** Rouge Steel Company Savings Plan for Salaried Employees
(incorporated herein by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 (Registration No.
33-88520) (the "Form S-8 Registration Statement")).

10.32** Amendment to Rouge Steel Company Savings Plan for Salaried
Employees (incorporated herein by reference to Exhibit 10.3 to
the Form 8-B).

10.33 Rouge Steel Company Tax-Efficient Savings Plan for Hourly
Employees (incorporated herein by reference to Exhibit 4.2 to
the Form S-8 Registration Statement).

10.34 Amendment to Rouge Steel Company Tax-Efficient Savings Plan for
Hourly Employees (incorporated herein by reference to Exhibit
10.4 to the Form 8-B).

10.35 Rouge Steel Company Profit Sharing Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.38 to the S-1
Registration Statement).

<PAGE> 56

Exhibit
Number Description of Exhibit
------- ----------------------

10.36** Rouge Steel Company Incentive Compensation Plan (incorporated
herein by reference to Exhibit 10.39 to the S-1 Registration
Statement).

10.37** Rouge Steel Company Amended and Restated Stock Incentive Plan
(incorporated herein by reference to Exhibit 10.1 to the Form
8-B).

10.38** Rouge Steel Company Retirement Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.41 to the S-1
Registration Statement).

10.39+** Rouge Steel Company Supplemental Executive Retirement Plan.

10.40+** Rouge Steel Company Benefit Restoration Plan.

10.41** Rouge Steel Company Amended and Restated Outside Director
Equity Plan (incorporated herein by reference to Exhibit 10.2
to the Form 8-B).

10.42 Lease between Ford and Registrant dated January 1, 1982 (the
"Lease") (incorporated herein by reference to Exhibit 10.42 to
the S-1 Registration Statement).

10.43 First Amendment to the Lease dated as of July 1, 1991
(incorporated herein by reference to Exhibit 10.43 to the S-1
Registration Statement).

10.44 Second Amendment to the Lease dated as of January 1, 1992
(incorporated herein by reference to Exhibit 10.44 to the S-1
Registration Statement).

10.45 Third Amendment to the Lease dated as of June 27, 1994
(incorporated herein by reference to Exhibit 10.39 to the 1995
Form 10-K).

21+ List of Subsidiaries.

23+ Consent of Price Waterhouse LLP.

- ------------------------
+ Filed herewith.
** Compensatory plans in which the Registrant's directors and executive
officers participate.

(b) The Company did not file a Current Report on Form 8-K during
the fourth quarter of 1997.

(d) The financial statement schedule listed under Item 14(a)(2) is
filed herewith.

<PAGE> 57

SIGNATURES

Pursuant to the requirements of Section 13 of 15(a) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, on the
6th day of March 1998.

ROUGE INDUSTRIES, INC.

By: /s/ Carl L. Valdiserri
------------------------------
Name: Carl L. Valdiserri
Title: Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of
Registrant in the capacities and on the dates indicated.

Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Carl L. Valdiserri Chief Executive Officer and Chairman of March 6, 1998
- ------------------------------ the Board

/s/ Louis D. Camino President, Chief Operating Officer and March 6, 1998
- --------------------------- Director

/s/ Gary P. Latendresse Executive Vice President, March 6, 1998
- --------------------------- Chief Financial Officer and Director

/s/ Dominick C. Fanello Director March 6, 1998
- -------------------------

/s/ John E. Lobbia Director March 6, 1998
- -----------------------------

/s/ Peter J. Pestillo Director March 6, 1998
- --------------------------------

/s/ Clayton P. Shannon Director March 6, 1998
- --------------------------
</TABLE>

<PAGE> 1
EXHIBIT 10.1

$100,000,000

CREDIT AGREEMENT

dated as of December 16, 1997

among

ROUGE INDUSTRIES, INC.,

ROUGE STEEL COMPANY,

the financial institutions party hereto,

and

NBD BANK,

as Agent

<PAGE> 2

TABLE OF CONTENTS

Page

<TABLE>
<S> <C>
SECTION 1. DEFINITIONS 1
Section 1.1 Definitions 1
Section 1.2 Terms Generally 14

SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES 15
Section 2.1 Revolving Loans 15
Section 2.2 Swingline Loans 15
Section 2.3 Competitive Bid Loans 16
Section 2.4 Notice of Borrowing 20
Section 2.5 Disbursement of Funds 20
Section 2.6 Notes 21
Section 2.7 Interest 22
Section 2.8 Interest Periods 23
Section 2.9 Minimum Amount of LIBOR Loans 24
Section 2.10 Conversion or Continuation 24
Section 2.11 Voluntary Reduction of Commitments 25
Section 2.12 Voluntary Prepayments 25
Section 2.13 Mandatory Prepayments 25
Section 2.14 Application of Prepayments 25
Section 2.15 Method and Place of Payment 26
Section 2.16 Fees 26
Section 2.17 Interest Rate Unascertainable,
Increased Costs, Illegality 26
Section 2.18 Funding Losses 28
Section 2.19 Increased Capital 28
Section 2.20 Taxes 29
Section 2.21 Mitigation; Calculations 30
Section 2.22 Use of Proceeds 30
Section 2.23 Extension of Maturity Date 30

SECTION 2A. LETTERS OF CREDIT 31
Section 2A.1 Issuance of Letters of Credit 31
Section 2A.2 Participation in Letters of Credit 31
Section 2A.3 Reimbursement of Letter of Credit
Drawings 32
Section 2A.4 Letter of Credit Fee 33
Section 2A.5 Increased Costs, Illegality 33

SECTION 3. CONDITIONS PRECEDENT 34
Section 3.1 Conditions Precedent to Effectiveness 34
Section 3.2 Conditions Precedent to All Loans
and Issuance of Letters of Credit 36

</TABLE>

<PAGE> 3

SECTION 4. REPRESENTATIONS AND WARRANTIES 37
Section 4.1 Corporate Status 37
Section 4.2 Corporate Power and Authority 38
Section 4.3 No Violation 38
Section 4.4 Litigation 38
Section 4.5 Financial Statements; Financial Condition; etc. 38
Section 4.6 Material Adverse Change 39
Section 4.7 Use of Proceeds; Margin Regulations 39
Section 4.8 Governmental Approvals 39
Section 4.9 Tax Returns and Payments 39 Section 4.10 ERISA 39
Section 4.11 Investment Company Act; Public Utility Holding Company
Act 40
Section 4.12 No Material Adverse Effect as of Closing Date 40
Section 4.13 Corporate Structure; Capitalization 40
Section 4.14 Environmental Matters 40
Section 4.15 Patents, Trademarks, etc. 41
Section 4.16 Ownership of Property 41
Section 4.17 No Default 41
Section 4.18 Licenses, etc. 41
Section 4.19 Compliance with Law 42
Section 4.20 No Burdensome Restrictions 42
Section 4.21 Property Rights, Services, etc. 42

SECTION 5. AFFIRMATIVE COVENANTS 42
Section 5.1 Information Covenants 42
Section 5.2 Books, Records and Inspections 46
Section 5.3 Maintenance of Insurance 46
Section 5.4 Taxes 46
Section 5.5 Corporate Franchises 46
Section 5.6 Compliance with Law 47
Section 5.7 Performance of Obligations 47
Section 5.8 Maintenance of Properties 47
Section 5.9 Environmental Matters 47

SECTION 6. NEGATIVE COVENANTS 48
Section 6.1 Financial Covenants 48
Section 6.2 Liens 48
Section 6.3 Restriction on Fundamental Changes 50
Section 6.4 Sale of Assets 51
Section 6.5 Dividends 51
Section 6.6 Advances, Investments and Loans 52
Section 6.7 Transactions with Affiliates 52
Section 6.8 Changes in Business 53
Section 6.9 Certain Restrictions 53
<PAGE> 4

Section 6.10 Fiscal Year; Fiscal Quarter 53
Section 6.11 Plans 53

SECTION 7. EVENTS OF DEFAULT 53
Section 7.1 Events of Default 53
Section 7.2 Rights and Remedies 55

SECTION 8. THE AGENT 56
Section 8.1 Appointment 56
Section 8.2 Delegation of Duties 56
Section 8.3 Exculpatory Provisions 57
Section 8.4 Reliance by the Agent 57
Section 8.5 Notice of Default 57
Section 8.6 Non-Reliance on the Agent and Other Banks 58
Section 8.7 Indemnification 58
Section 8.8 The Agent in Its Respective Individual Capacity 58
Section 8.9 Successor Agent 59

SECTION 9. MISCELLANEOUS 59
Section 9.1 Payment of Expenses, Indemnity, etc. 59
Section 9.2 Right of Setoff 60
Section 9.3 Notices 61
Section 9.4 Successors and Assigns; Participations; Assignments 61
Section 9.5 Amendments and Waivers 63
Section 9.6 No Waiver; Remedies Cumulative 63
Section 9.7 Sharing of Payments 63
Section 9.8 Governing Law; Submission to Jurisdiction;
Appointment of Agent 64
Section 9.9 Counterparts 64
Section 9.10 Headings Descriptive 64
Section 9.11 Marshalling; Recapture 64
Section 9.12 Severability 65
Section 9.13 Survival 65
Section 9.14 Domicile of Loans 65
Section 9.15 Limitation of Liability 65
Section 9.16 Waiver of Trial by Jury 65
Section 9.17 Confidentiality 65

<PAGE> 5

Annex 1 Revolving Loan Commitments

Exhibit A-1 Form of Revolving Note
Exhibit A-2 Form of Competitive Bid Note
Exhibit A-3 Form of Swingline Note
Exhibit B Form of Competitive Bid Quote Request
Exhibit C Form of Invitation for Competitive Bid Quotes
Exhibit D Form of Competitive Bid Quote
Exhibit E Form of Notice of Acceptance/Non Acceptance
Exhibit F Form of Request for Extension of Maturity Date
Exhibit G Form of Letter of Credit Request
Exhibit H-1 Form of Opinion of Martin Szymanski
Exhibit H-2 Form of Opinion of Dickinson, Wright, Moon, Van Dusen and Freeman
Exhibit I Form of Transfer Supplement
Exhibit J Form of Holdings Guaranty

Schedule 4.4 Litigation
Schedule 4.13 Capitalization
Schedule 4.14 Environmental Matters
Schedule 5.1(h) SEC Filings
Schedule 5.3 Insurance
Schedule 6.2 Liens
Schedule 6.3(e) Subsidiaries
Schedule 6.4 Permitted Asset Sales
Schedule 6.7 Transactions with Affiliates

<PAGE> 6

CREDIT AGREEMENT, dated as of December 16, 1997, among ROUGE
INDUSTRIES, INC., a Delaware corporation ("Holdings"), ROUGE STEEL COMPANY, a
Delaware corporation (the "Borrower"), the financial institutions which are or
may become a party hereto (individually a "Bank" and collectively the "Banks"),
and NBD BANK, in its capacity as agent for the Banks.

Holdings and the Borrower have requested that the Banks and the
Swingline Lender extend credit to the Borrower in order to enable the Borrower
to borrow, on the terms and subject to the conditions set forth in this
Agreement, Revolving Loans in an aggregate principal amount not to exceed, when
aggregated with outstanding Competitive Bid Loans, outstanding Swingline Loans
and Letter of Credit Outstandings, $100,000,000 at any time outstanding,
Competitive Bid Loans in an aggregate principal amount not to exceed $50,000,000
at any time outstanding, Swingline Loans not to exceed an aggregate principal
amount equal to $10,000,000 at any time outstanding and for the Issuing Bank to
issue Letters of Credit in an aggregate face amount not to exceed $10,000,000 at
any time outstanding.

Accordingly, the parties hereto agree as follows:

SECTION 1. DEFINITIONS

Section 1.1 Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise
requires. Defined terms in this Agreement shall include in the singular number
the plural and in the plural number the singular.

"Absolute Rate Auction" shall mean a solicitation of Competitive Bid
Quotes setting Competitive Bid Absolute Rates pursuant to Section 2.3.

"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all directors
and executive officers of such Person), controlled by, or under direct or
indirect common control with such Person. A Person shall be deemed to control a
corporation if such Person possesses, directly or indirectly, the power to (x)
vote 5% or more of the securities having ordinary voting power for the election
of directors of such corporation or (y) direct or cause the direction of the
management and policies of such corporation, whether through the ownership of
voting securities, by contract or otherwise, provided, that no Bank shall be
deemed an Affiliate of the Borrower.

"Agent" shall mean NBD Bank acting in its capacity as agent for the
Banks and any successor agent appointed in accordance with Section 8.9.

"Agent's Office" shall mean the office of the Agent located at 611
Woodward Avenue, Detroit, Michigan 48226, telephone number: (313) 225-3489;
facsimile

<PAGE> 7

number: (313) 225-2290 Attention: Michigan Banking Division or such other office
as the Agent may hereafter designate in writing as such to the other parties
hereto.

"Agreement" shall mean this Credit Agreement as the same may from time
to time hereafter be amended, modified, restated or otherwise supplemented.

"Annual Increase" shall mean, for any fiscal year of Holdings, an
amount equal to 50% of Net Income (but only if positive) for such fiscal year;
provided, however, that the Annual Increase for the fiscal year of Holdings
ending December 31, 1997 shall be an amount equal to 50% of the Net Income (but
only if positive) for the fiscal quarter ending December 31, 1997.

"Applicable Margin" shall mean (i) with respect to Base Rate Loans, 0%
and (ii) with respect to LIBOR Loans, the Letter of Credit fees payable under
Section 2A.4(b) and the facility fees payable under Section 2.16, for the period
from the Closing Date to, but not including, the initial Margin Adjustment Date,
0.20%, and thereafter the applicable margin set forth opposite the Debt to
Capitalization Ratio set forth below:

Debt to Capitalization
Ratio-Applicable Margin for
LIBOR Loans and
Letter of Credit Fees Applicable Margin
for Facility Fees--
Greater than 0.35-
0.40%-
0.20%--
Equal to or less than 0.35 but greater than 0.25-

0.30%-

0.15%--
Equal to or less than 0.25-
0.20%-
0.10%--
For purposes of determining the Applicable Margin, the Debt to
Capitalization Ratio will be determined at the end of each fiscal quarter of the
Borrower (a "Margin Determination Date"). Such Applicable Margin determined on a
Margin Determination Date will be effective (a "Margin Adjustment Date")
commencing on the fifth day after Agent's receipt of the financial statements
delivered pursuant to Section 5.1(a) or (b) and the compliance certificate
executed and delivered by an Authorized Officer pursuant to Section 5.1(e)
certifying the Debt to Capitalization Ratio for the previous fiscal quarter, and
shall be effective with respect to all LIBOR Loans made, continued or converted
on or after such Margin Adjustment Date and shall be effective with respect to
all Letter of Credit fees payable under Section 2A.4(b) and facility fees
payable under Section 2.16 on or after such Margin Adjustment Date.
Notwithstanding the foregoing,

<PAGE> 8

if a lower Applicable Margin would be effective on any Margin Adjustment Date
and a Default or Event of Default exists on such date or Holdings and/or the
Borrower has failed to deliver the financial statements and compliance
certificate described in Section 5.1(a) or (b) and 5.1(e), respectively, with
respect to a fiscal quarter or fiscal year in accordance with the provisions
thereof, then such Applicable Margin shall not be so reduced until such Default
or Event of Default shall be cured or waived or Holdings and/or the Borrower
shall have delivered such financial statements and compliance certificate in
accordance with the provisions of Section 5.1(a) or (b) and 5.1(e), as the case
may be.

"Authorized Officer" shall mean, with respect to any Person, the Chief
Executive Officer, the President, any Vice President, the Chief Financial
Officer and, with respect to financial matters, the Chief Financial Officer, in
each case whose name appears on an incumbency certificate of such Person
delivered to the Agent.

"Bank" and "Banks" shall have the meaning provided in the preamble of
this Agreement.

"Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy", as amended from time to time, and any successor statute
or statutes.

"Base Rate" shall mean, at any particular date, the higher of (a) the
Prime Rate and (b) the sum of 1/2 of 1% per annum and the Federal Funds Rate.

"Base Rate Loans" shall mean Revolving Loans made and/or being
maintained at a rate of interest based upon the Base Rate.

"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.

"Borrowing" shall mean the incurrence of one Type of Loan of one
Facility from all the Banks having Revolving Loan Commitments for such Type
of Loan on a given date (or resulting from conversions or continuations on
a given date), having in the case of LIBOR Loans the same Interest Period.

"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day excluding Saturday, Sunday and any day which
shall be in Detroit, Michigan a legal holiday or a day on which banking
institutions are authorized or required by law or other government actions to
close and (ii) with respect to all notices and determinations in connection
with, conversions and continuations of, and payments of principal and interest
on, LIBOR Loans, any day which is a Business Day described in clause (i) and
which is also a day for trading by and between banks for U.S. dollar deposits
in the relevant interbank LIBOR market.

"Capitalized Lease" shall mean (a) any lease of property, real or
personal, the

<PAGE> 9

obligations under which are capitalized on the consolidated balance sheet of
Holdings and (b) any other such lease to the extent that the then present value
of the minimum rental commitment thereunder should, in accordance with GAAP, be
capitalized on a balance sheet of the lessee.

"Cash Equivalents" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (ii) time deposits and
certificates of deposit of any Bank or any domestic commercial bank of
recognized standing having capital and surplus in excess of $500,000,000 with
maturities of not more than 90 days from the date of acquisition thereof, (iii)
money market funds, (iv) fully secured repurchase obligations for underlying
securities of the types described in clause (i) entered into with any bank
meeting the qualifications specified in clause (ii) above or entered into with
broker-dealers which have a short-term credit rating of at least A-1 or the
equivalent by S&P, at least P-1 or the equivalent by Moody's or at least TBW-1
or the equivalent by Thomson BankWatch, (v) commercial paper issued by any
financial institution or corporation which in each case is rated at least A-2 or
the equivalent thereof by S&P or at least P-2 or the equivalent thereof by
Moody's and in each case, maturing within 270 days after the date of
acquisition; (vi) commercial paper issued by corporations rated at least A-3 or
the equivalent by S&P or at least P-3 or the equivalent by Moody's and in any
case with remaining term of not more than 91 days; (vii) medium term notes
issued by any domestic corporation which have been rated at least BBB or the
equivalent by S&P with a remaining term of not more than 540 days; (viii)
corporate bonds issued by any domestic corporation which have been rated at
least BBB or the equivalent by S&P with a remaining term of not more than 540
days; (ix) floating rate notes issued by an agency of the United States
Government and by domestic corporations rated at least A-2 or the equivalent
thereof by S&P or P-2 or the equivalent thereof by Moody's and in each case
having a remaining maturity within 540 days of the acquisition thereof; (x)
preferred stock issued by corporations rated at least BBB or the equivalent by
S&P and in each case having a remaining maturity of not more than 90 days; (xi)
auction rate preferred notes issued by corporations rated at least BBB or the
equivalent by S&P and in each case having a remaining maturity of not more than
91 days; (xii) taxable auction rate notes issued by domestic corporations or
banks meeting the qualifications specified in clause (ii) above rated at least
BBB or the equivalent by S&P and in each case having a remaining maturity of not
more than 91 days; and (xiii) municipal bonds issued by municipalities of the
United States maturing no later than one year after the acquisition thereof.

"Change in Control" shall mean an occurrence in which (a) any person
or group (within the meaning of Rule 13d-5 of the Securities and Exchange Act of
1934, as in effect on the date hereof) other than Carl L. Valdiserri shall own,
directly or indirectly, beneficially or of record, shares representing more than
35% of the aggregate ordinary voting power represented by the issued and
outstanding capital stock of Holdings; or (b) Holdings shall cease to own,
directly or indirectly, beneficially and of record, 100%

<PAGE> 10

of the issued and outstanding common stock of the Borrower.

"Closing Date" shall mean December 16, 1997.

"Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and any successor statute.

"Competitive Bid Absolute Rate" shall have the meaning provided in
Section 2.3(d).

"Competitive Bid Absolute Rate Loan" shall mean a loan made or to be
made by a Bank pursuant to an Absolute Rate Auction.

"Competitive Bid LIBOR Loan" shall mean a loan made or to be made by a
Bank pursuant to a LIBOR Auction.

"Competitive Bid Loans" shall have the meaning provided in Section
2.3, and shall include a Competitive Bid LIBOR Loan and a Competitive Bid
Absolute Rate Loan.

"Competitive Bid Margin" shall have the meaning set forth in Section
2.3(d).

"Competitive Bid Note" shall have the meaning provided in Section 2.6.

"Competitive Bid Quote" shall mean an offer, substantially in the form
of Exhibit D hereto, by any Bank to make a Competitive Bid Loan in accordance
with Section 2.3.

"Competitive Bid Quote Request" shall have the meaning provided in
Section 2.3(b).

"Contingent Obligation" as to any Person shall mean any obligation of
such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person (the
"primary obligor") in any manner, whether directly or indirectly, including,
without limitation, any obligation of such Person, whether or not contingent,
(a) to purchase any such primary obligation or any property constituting direct
or indirect security therefor, (b) to advance or supply funds (i) for the
purchase or payment of any such primary obligation or (ii) to maintain working
capital or equity capital of the primary obligor or otherwise to maintain the
net worth or solvency of the primary obligor, (c) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation or (d) otherwise to assure or hold harmless the owner of
such primary obligation against loss in respect thereof; provided, however, that
the term Contingent Obligation shall not include endorsements of instruments for
deposit or collection in the ordinary course of business and, provided further,
that the Holdings Guaranty shall not be a Contingent Obligation for purposes of
calculating financial covenants to the extent that the

<PAGE> 11

Indebtedness guaranteed thereby is otherwise accounted for under this Agreement.
The amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
reasonably anticipated maximum liability in respect thereof as determined by the
Borrower in good faith.

"Credit Exposure" shall have the meaning provided in Section 9.4(b).

"Debt to Capitalization Ratio" shall mean the ratio of Total Debt to
Total Capitalization.

"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.

"Default Rate" shall have the meaning provided in Section 2.7(e).

"Dividends" shall have the meaning provided in Section 6.5.

"Domestic Lending Office" shall mean, as to any Bank, the office of
such Bank designated as such on Annex I, or such other office designated by such
Bank from time to time by written notice to the Agent and the Borrower.

"Double Eagle" shall mean Double Eagle Steel Coating Company, a
Michigan partnership.

"EBIT" shall mean, for any period, the sum of (i) Net Income for such
period, plus (ii) Interest Expense for such period, plus (iii) to the extent
deducted in the calculation of Net Income for such period, taxes based on or
measured by income, plus (iv) extraordinary losses for such period, minus (v)
extraordinary gains for such period, minus (vi) non-cash credits for such
period, all determined in accordance with GAAP.

"Environmental Affiliate" shall mean, with respect to Holdings or any
of its Subsidiaries, any other Person whose liability for any Environmental
Claim Holdings or any such Subsidiary has retained, assumed or otherwise become
liable for (contingent or otherwise), either contractually or by operation of
law.

"Environmental Approvals" shall mean any permit, license, approval,
ruling, variance, exemption or other authorization required under applicable
Environmental Laws.

"Environmental Claim" shall mean, with respect to Holdings or any of
its Subsidiaries or any of their respective Environmental Affiliates, any
notice, claim or demand by any other Person alleging potential liability for
investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages,

<PAGE> 12

personal injuries, fines or penalties arising out of, based on or resulting from
(a) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by such Person or
(b) circumstances forming the basis of any violation, or alleged violation, of
any Environmental Law.

"Environmental Laws" shall mean all federal, state, local and foreign
laws and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient or indoor air, surface
water, ground water, land surface or subsurface strata), including without
limitation, laws and regulations relating to emissions, discharges, releases or
threatened releases of Materials of Environmental Concern, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Materials of Environmental Concern.

"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time. Section references to ERISA are to
ERISA, as in effect at the date of this Agreement and any subsequent
provisions of ERISA, amendatory thereof, supplemental thereto or substituted
therefor.

"ERISA Controlled Group" shall mean a group consisting of any ERISA
Person and all members of a controlled group of corporations and all
trades or businesses (whether or not incorporated) under common control
with such Person that, together with such Person, are treated as a
single employer under regulations of the PBGC. Notwithstanding the
foregoing, any liability of any member of the ERISA Controlled Group other
than Holdings, the Borrower or any of their respective Subsidiaries shall be
disregarded for all purposes of this Agreement to the extent that such
liability is not the joint and several liability of Holdings, the Borrower
or any of their respective Subsidiaries.

"ERISA Person" shall have the meaning set forth in Section 3(9) of
ERISA for the term "person."

"ERISA Plan" means (A) any Plan that (i) is not a Multiemployer Plan
and (ii) has Unfunded Benefit Liabilities in excess of $500,000 and (B) any Plan
that is a Multiemployer Plan.

"Eurocurrency Reserve Requirements" shall mean, with respect to each
day during an Interest Period for LIBOR Loans, that percentage (expressed
as a decimal) which is in effect on such day, as prescribed by the Federal
Reserve Board, for determining the maximum reserves (including, without
limitation, basic, supplemental, marginal and emergency reserves) for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D) maintained by a member bank of the Federal Reserve System.

"Eveleth Mines" shall mean Eveleth Mines LLC, a Minnesota limited
liability

<PAGE> 13

company doing business as EVTAC Mining.

"Event of Default" shall have the meaning provided in Section 7.

"Existing Credit Facility" shall mean the Amended and Restated Credit
Agreement, dated July 30, 1997, among Holdings, the Borrower, the financial
institutions party thereto and The Chase Manhattan Bank, as Agent, as the same
has been amended and is in effect, together with all "Loan Documents" as defined
therein and all loans, letters of credit and other obligations owing thereunder.

"Facility" shall mean the Revolving Loans, Competitive Bid Loans,
Swingline Loans and Letters of Credit.

"Federal Funds Rate" shall mean for any period, a fluctuating interest
rate per annum equal for each day during such period to the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.

"Federal Reserve Board" shall mean the Board of Governors of the
Federal Reserve System as constituted from time to time.

"Fees" shall mean all amounts payable pursuant to Sections 2.16 and
2A.4.

"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time.

"Holdings" shall have the meaning provided in the preamble to this
Agreement.

"Holdings Guaranty" shall mean the Guaranty by Holdings in favor of
the Agent for the benefit of the Banks substantially in the form of Exhibit I
hereto.

"Indebtedness" shall mean with respect to any Person, without
duplication: (i) all obligations of such Person which in accordance with GAAP
would be shown on the balance sheet of such Person as a liability (including,
without limitation, obligations for borrowed money and for the deferred purchase
price of property or services, and obligations evidenced by bonds, debentures,
notes or other similar instruments); (ii) all rental obligations under leases
required to be capitalized under GAAP; (iii) all Contingent Obligations of such
Person (including, without limitation, obligations in respect of take-or-pay
contracts at the time Holdings, the Borrower or any other Subsidiary incurs, or
has reason to believe, that any payment obligation thereunder arises, or will
arise, as a result of Holdings', the Borrower's or such Subsidiary's failure,

<PAGE> 14

or intended failure, to take the product or service intended to be provided
thereunder); (iv) Indebtedness of others secured by any Lien upon property owned
by such Person, whether or not assumed, but only to the extent of such
property's fair market value; (v) liabilities of such Person in respect of
unfunded vested benefits under any Plan; (vi) obligations in respect of bankers
acceptances; and (vii) all payment obligations of such Person under Interest
Rate Protection Agreements.

"Interest Coverage Ratio" shall mean, for any period, the ratio of EBIT
for such period to Interest Expense for such period.

"Interest Expense" shall mean, for any fiscal period of Holdings, the
total interest expense (including, without limitation, interest expense
attributable to Capitalized Leases in accordance with GAAP) of Holdings and its
consolidated Subsidiaries for such period determined in accordance with GAAP
consistently applied.

"Interest Period" shall have the meaning provided in Section 2.8.

"Interest Rate Protection Agreements" shall mean interest rate protection
agreements (including, without limitation, interest rate swaps, caps, floors,
collars, options and similar agreements) and currency swaps and similar
agreements.

"Invitation for Competitive Bid Quotes" shall mean a notice by the
Agent to the Banks soliciting Competitive Bid Quotes, substantially in the form
of Exhibit C hereto.

"Issuing Bank" shall mean NBD Bank.

"L/C Participant" shall mean each Bank in its capacity as a participant
in the Letters of Credit pursuant to Section 2A.

"Letter of Credit" shall mean a letter of credit (and any amendments
thereof) issued by, and subject to terms and conditions acceptable to, the
Issuing Bank on behalf of the Borrower, which letter of credit may be either a
documentary letter of credit or a standby letter of credit.

"Letter of Credit Outstandings" shall mean, at any time, the sum of (i)
the aggregate stated amount of all outstanding Letters of Credit plus (ii) the
aggregate amount of all drawings made under any Letter of Credit for which the
Issuing Bank has not received full reimbursement from the Borrower.

"Letter of Credit Request" has the meaning specified in Section 2A.1(c).

"LIBOR Auction" shall mean a solicitation of Competitive Bid Quotes
setting forth Competitive Bid Margins based on LIBOR pursuant to Section 2.3.

"LIBOR Base Rate" shall mean, with respect to an Interest Period for
LIBOR

<PAGE> 15

Loans or Competitive Bid LIBOR Loans, the rate per annum (rounded upwards
to the nearest whole multiple of one-sixteenth of one percent) equal to the
offered quotation to first class banks in the interbank LIBOR market by NBD two
Business Days prior to the beginning of such Interest Period at or about 10:00
A.M., Detroit time, for delivery on the first day of such Interest Period for
the number of days comprised therein and in an amount substantially equal to the
amount of the LIBOR Loan or Competitive Bid LIBOR Loans of the Reference Banks
to be outstanding during such Interest Period.

"LIBOR Lending Office" shall mean, as to any Bank, the office of such
Bank designated as such on Annex I, or such other office designated by such Bank
from time to time by written notice to the Agent and the Borrower.

"LIBOR Loans" shall mean Revolving Loans made and/or being maintained
at a rate of interest based upon the LIBOR Rate.

"LIBOR Rate" shall mean with respect to each day during an Interest
Period for LIBOR Loans or Competitive Bid LIBOR Loans, a rate per annum
determined for such day in accordance with the following formula (rounded
upwards to the nearest whole multiple of 1/100th of one percent):

LIBOR Base Rate
1.00 - Eurocurrency Reserve Requirements

"Lien" shall mean any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), or preference, priority or other security interest of any kind or nature
whatsoever, including, without limitation, any conditional sale or other title
retention agreement, and any financing lease having substantially the same
effect as any of the foregoing.

"Loan Documents" shall mean this Agreement, the Notes, the Letters of
Credit, the Holdings Guaranty and any guaranty agreement executed and delivered
by a Subsidiary pursuant to Section 6.6(i) hereof, as each may be amended,
modified, restated and in effect from time to time.

"Loans" shall mean and include the Revolving Loans, the Competitive Bid
Loans and the Swingline Loans.

"Mandatory Borrowing" shall have the meaning provided in Section 2.2(b).

"Margin Adjustment Date" shall have the meaning provided in the
definition of Applicable Margin.

"Margin Determination Date" shall have the meaning provided in the
definition of Applicable Margin.
<PAGE> 16

"Margin Stock" shall have the meaning provided such term in Regulation
U and Regulation G of the Federal Reserve Board.

"Material Adverse Effect" shall mean a material adverse effect upon (i)
the business, operations, properties, assets, condition (financial or otherwise)
or liabilities of the Borrower and its Subsidiaries, taken as a whole or
Holdings and its consolidated Subsidiaries, taken as a whole or (ii) the ability
of Holdings or the Borrower to perform, or of the Agent, or any of the Banks to
enforce, any of the Obligations.

"Materials of Environmental Concern" shall mean and include chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous substances,
petroleum and petroleum products, coal, coke, coal tar and coal tar byproducts.

"Maturity Date" shall mean the date occurring on the fifth anniversary
of the Closing Date or such later date as established by Section 2.23.

"Moody's" means Moody's Investors Service, Inc.

"Multiemployer Plan" shall mean a Plan which is a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA.

"NBD" shall mean NBD Bank, a Michigan banking corporation.

"Net Income" shall mean for any period, the net income of Holdings, on
a consolidated basis, for such period, in each case taken as a single accounting
period and determined in accordance with GAAP consistently applied.

"Net Worth" shall mean, at any time, the total assets of Holdings, on a
consolidated basis, as determined in accordance with GAAP, less the total
liabilities of Holdings, on a consolidated basis, as determined in accordance
with GAAP.

"New JV" shall have the meaning set forth in Section 6.3(b) and shall
include each partnership and joint venture which was formed prior to the Closing
Date.

"Non-Recourse Debt" of any Person shall mean Indebtedness of such
Person for which the sole legal recourse for the collection of such Indebtedness
is solely the property or assets identified in the instruments evidencing or
securing such Indebtedness, provided such property or assets were acquired or
constructed with the proceeds of such Indebtedness and there is no recourse to
any other asset or property of such Person or any other Person.

"Notes" shall mean and include each Revolving Note, each Swingline Note
and each Competitive Bid Note.

"Notice of Acceptance/Non-Acceptance" shall have the meaning provided in

<PAGE> 17

Section 2.3(f).

"Notice of Borrowing" shall have the meaning provided in Section 2.4.

"Notice of Conversion or Continuation" shall have the meaning provided in
Section 2.10.

"Obligations" shall mean all obligations, liabilities and indebtedness
of every nature of Holdings or the Borrower from time to time owing to the
Agent, the Issuing Bank, any Bank or any L/C Participant arising under or in
connection with this Agreement or any other Loan Document.

"Participant" shall have the meaning provided in Section 9.4(b).

"Payment Date" shall mean the last day of each March, June, September
and December of each year.

"PBGC" shall mean the Pension Benefit Guaranty Corporation established
under ERISA, or any successor thereto.

"Person" shall mean and include any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or agency, department or instrumentality
thereof.

"Plan" shall mean any employee benefit plan covered by Title IV of
ERISA, the funding requirements of which:

(i) were the singular or joint (with a member of its ERISA
Controlled Group) responsibility of the Borrower or a member of its ERISA
Controlled Group at any time within the five years immediately preceding the
date hereof,

(ii) are currently the singular or joint (with a member of its ERISA
Controlled Group) responsibility of the Borrower or a member of its ERISA
Controlled Group, or

(iii) hereafter become the responsibility of the Borrower or a member
of its ERISA Controlled Group,

including any such plans as may have been, or may hereafter be, terminated for
whatever reason.

"Plan Assets" shall mean the fair market value of all Plan assets
allocable to all benefit liabilities under all Plans, as determined as of the
then most recent valuation date for such Plan (on the basis of assumptions used
in the most recent actuarial valuation required in connection with Internal
Revenue Service Form 5500).
<PAGE> 18

"Plant" shall mean the Borrower's steel facility and Double Eagle's
electrogalvanizing facility located at Dearborn, Michigan.

"Power Plant" shall have the meaning given to such term in the
Powerhouse Joint Operating Agreement, dated as of December 15, 1989, between
Ford Motor Company, a Delaware corporation, and the Borrower, as amended and in
effect from time to time.

"Prime Rate" shall mean the rate of interest from time to time
announced by NBD as its "prime rate" (it being acknowledged that such announced
rate may not necessarily be the lowest rate charged by NBD to any of its
customers), which Prime Rate shall change simultaneously with any change in such
announced rate.

"Pro Rata Share" as to any Bank shall mean a fraction (expressed as a
percentage), the numerator of which shall be the aggregate amount of such Bank's
Revolving Loan Commitment and the denominator of which shall be the Total
Commitment.

"Purchasing Banks" shall have the meaning provided in Section 9.4(c).

"Regulation D" shall mean Regulation D of the Federal Reserve Board as
from time to time in effect and any successor to all or any portion thereof.

"Reportable Event" shall have the meaning set forth in Section 4043(b)
of ERISA (other than a Reportable Event as to which the provision of 30 days'
notice to the PBGC is waived under applicable regulations), or is the occurrence
of any of the events described in Section 4063(a) of ERISA.

"Required Banks" shall mean Banks holding more than 50% of the Total
Commitments, provided, however, that if the Commitments shall have been
terminated in full, "Required Banks" shall mean Banks holding more than 50% of
the then aggregate unpaid principal amount of the Loans.

"Revolving Loan Commitment" shall mean on any date, for any Bank, the
amount set forth opposite such Bank's name on Annex I hereto under the heading
"Revolving Loan Commitment," in the column pertaining to such date as such
amount may be reduced from time to time pursuant to Sections 2.11 and 9.4.

"Revolving Loans" shall have the meaning provided in Section 2.1(a).

"Revolving Notes" shall have the meaning provided in Section 2.6(a).

"S&P" means Standard & Poor's Corporation.

"Significant Subsidiaries" shall mean any one or more Subsidiaries which,
if

<PAGE> 19

considered in the aggregate as a single Subsidiary would be a "significant
subsidiary" as defined in Rule 1-02 of Regulation S-X under the Securities
Exchange Act of 1934. For purposes of this Agreement, an Event of Default under
Section 7.1(e) shall not be deemed to have occurred with respect to Significant
Subsidiaries unless such type of event described in Section 7.1(e) has occurred
with respect to each of the Subsidiaries required to be included to constitute
"Significant Subsidiaries" as defined in the preceding sentence.

"Subsidiary" of any Person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such Person directly or
indirectly through Subsidiaries and (ii) any partnership, association or other
entity in which such Person, directly or indirectly through Subsidiaries, is
either a general partner or has greater than a 50% equity interest at the time.
Unless the context otherwise requires, references herein to "Subsidiary" shall
mean the direct and indirect Subsidiaries of Holdings, including the Borrower.

"Swingline Commitment" shall mean an aggregate principal amount of
$10,000,000, as such amount may be reduced from time to time pursuant to
Sections 2.11 and 9.4.

"Swingline Lender" shall mean NBD in its capacity as lender of Swingline
Loans.

"Swingline Loans" shall have the meaning ascribed thereto in Section 2.2.

"Termination Event" shall mean (i) the initiation of any action by
Holdings, the Borrower, any member of their ERISA Controlled Group or any ERISA
Plan fiduciary to terminate an ERISA Plan or the treatment of an amendment to an
ERISA Plan as a termination under ERISA, or (ii) the institution of proceedings
by the PBGC under Section 4042 of ERISA to terminate an ERISA Plan or to appoint
a trustee to administer any ERISA Plan.

"Total Capitalization" shall mean, at any time, the sum of Total Debt
plus Net Worth.

"Total Commitment" shall mean, at any time, the sum of the Revolving
Loan Commitments of all the Banks at such time, which, on the Closing Date,
shall be $100,000,000.

"Total Debt" shall mean, without duplication: (i) all obligations of
Holdings and any of its consolidated Subsidiaries for borrowed money and for the
deferred purchase price of property or services (other than trade payables
incurred in the ordinary course of business), and obligations (including the
current portion thereof) evidenced by bonds,

<PAGE> 20

debentures, notes or other similar instruments; (ii) all Contingent Obligations
of Holdings and any of its consolidated Subsidiaries (including, without
limitation, obligations-in respect of take-or-pay contracts at the time
Holdings, the Borrower or any other Subsidiary incurs, or has reason to believe,
that any payment obligation thereunder arises, or will arise, as a result of
Holdings', the Borrower's or such Subsidiary's failure, or intended failure, to
take the product or service intended to be provided thereunder); (iii)
indebtedness of others secured by any lien upon property owned by Holdings or
any of its consolidated Subsidiaries, whether or not assumed, but only to the
extent of such property's fair market value; (iv) all payment obligations of
Holdings or any of its consolidated Subsidiaries under any Interest Rate
Protection Agreements; and (v) all obligations in respect of the redemption of
any preferred stock of Holdings, the Borrower or any of its other consolidated
Subsidiaries and all non-cash cumulative dividends payable in respect of such
preferred stock, provided that Non-Recourse Debt shall be excluded for purposes
of this definition.

"Transfer Supplement" shall have the meaning provided in Section 9.4(c).

"Transferee" shall have the meaning provided in Section 9.4(d).

"Type" shall mean any type of Loan determined with respect to the
interest option applicable thereto, i.e., a Base Rate Loan or a LIBOR Loan.

"Unfunded Benefit Liabilities" means with respect to any Plan at any
time, the amount (if any) by which (i) the present value of all benefit
liabilities under such Plan as defined in Section 4001(a)(16) of ERISA,
exceeds (ii) the fair market value of all Plan assets allocable to such
benefits, all determined as of the then most recent valuation date for
such Plan (on the basis of assumptions used in the most recent actuarial
valuation required in connection with Internal Revenue Service Form 5500).

Section 1.2 Terms Generally. The definitions in Section 1.1 shall apply
equally to both the singular and plural forms of the terms defined. Whenever the
context may require, any pronoun shall include the corresponding masculine,
feminine and neuter forms. The words "include", "includes" and "including" shall
be deemed to be followed by the phrase "without limitation". All references
herein to Articles, Sections, Exhibits and Schedules shall be deemed to be
references to Articles and Sections of, and Exhibits and Schedules to, this
Agreement unless the context shall otherwise require. Unless otherwise specified
herein, all accounting terms used herein shall be interpreted, all accounting
determinations hereunder shall be made and all financial statements required to
be delivered hereunder shall be prepared in accordance with GAAP as in effect
from time to time; provided, however, that for purposes of making any
determination required by the definition of Applicable Margin or Section 6, all
accounting terms used herein shall be interpreted and all accounting
determinations hereunder shall be made in accordance with GAAP as in effect on
the date of this Agreement applied on a basis consistent with the application
used in the financial statements referred to in Section 4.5.

<PAGE> 21

SECTION 2. AMOUNT AND TERMS OF CREDIT FACILITIES

Section 2.1 Revolving Loans. (a) Subject to and upon the terms and
conditions herein set forth, each Bank severally and not jointly agrees, at any
time and from time to time on and after the Closing Date to the Business Day
immediately preceding the Maturity Date, to make revolving loans (collectively,
"Revolving Loans") to the Borrower, which Revolving Loans shall not exceed in
aggregate principal amount at any time outstanding the Revolving Loan Commitment
of such Bank at such time.

(b) Revolving Loans may be voluntarily prepaid pursuant to Section
2.12, and, subject to the other provisions of this Agreement, any amounts so
prepaid may be reborrowed. Each Revolving Loan Bank's Revolving Loan Commitment
shall expire, and each Revolving Loan shall mature on, the Maturity Date,
without further action on the part of the Banks or the Agent.

(c) Each Borrowing of Revolving Loans shall be in the aggregate
minimum amount of $1,000,000 or any integral multiple of $100,000 in excess
thereof in the case of LIBOR Loans and in the aggregate minimum amount of
$500,000 or any integral multiple of $100,000 in excess thereof in the case of
Base Rate Loans.

(d) Notwithstanding anything contained herein to the contrary, at no
time shall the aggregate principal amount of the sum of (i) Revolving Loans
outstanding, plus (ii) the Letter of Credit Outstandings, plus (iii) the
outstanding Swingline Loans plus (iv) the outstanding Competitive Bid Loans
exceed the Total Commitment then in effect.

Section 2.2 Swingline Loans. (a) Subject to and upon the terms and
conditions herein set forth, the Swingline Lender agrees to make at any time and
from time to time on or after the Closing Date to the Business Day immediately
preceding the Maturity Date, a loan or loans to the Borrower (each a "Swingline
Loan," and, collectively, the "Swingline Loans"), which Swingline Loans (i)
shall bear interest at a rate agreed upon between the Borrower and the Swingline
Lender or, absent such agreement, shall be made and maintained, as Base Rate
Loans, (ii) may be repaid and reborrowed in accordance with the provisions
hereof and (iii) shall not exceed in aggregate principal amount at any time
outstanding the lesser of (x) $10,000,000 and (y) the difference between (A) the
Total Commitment then in effect and (B) the sum of the aggregate principal
amount of Revolving Loans outstanding plus the Competitive Bid Loans outstanding
plus the Letter of Credit Outstandings. The Swingline Lender will not make a
Swingline Loan after it has received written notice from the Required Banks that
one or more of the applicable conditions to Borrowings specified in Section 3.2
are not then satisfied, or the Agent has given written notice of such matters
(or of the occurrence of an Event of Default) to the Swingline Lender.

(b) In the event that any Swingline Loan remains outstanding for more

<PAGE> 22

than five (5) Business Days, The Swingline Lender may, thereafter, in its sole
discretion, give notice to the Banks that its outstanding Swingline Loans shall
be funded with a Borrowing of Revolving Loans; (provided that each such notice
shall be deemed to have been automatically given upon the occurrence of an Event
of Default under Section 7.1(e) or upon the exercise of any of the remedies
provided in Section 7.2), in which case a Borrowing of Revolving Loans
constituting Base Rate Loans (each such Borrowing, a "Mandatory Borrowing")
shall be made on the immediately succeeding Business Day by all Banks pro rata
based on each Bank's Pro Rata Share, and the proceeds thereof shall be applied
directly to repay the Swingline Lender for such outstanding Swingline Loans.
Each Bank hereby irrevocably agrees to make Base Rate Loans upon one Business
Day's notice pursuant to each Mandatory Borrowing in the amount and in the
manner specified in the preceding sentence and on the date specified in writing
by the Swingline Lender notwithstanding (i) that the amount of the Mandatory
Borrowing may not comply with the minimum borrowing amount otherwise required
hereunder (provided that such Mandatory Borrowing shall be subject to each
Bank's Revolving Loan Commitment then in effect except to the extent set forth
in subclause (iv) of this Section 2.2(b)), (ii) whether any conditions specified
in Section 3.2 are then satisfied, (iii) whether a Default or an Event of
Default has occurred and is continuing and (iv) any reduction in the Total
Commitment after any such Swingline Loans were made. In the event that any
Mandatory Borrowing cannot for any reason be made on the date otherwise required
above (including, without limitation, as a result of the commencement of a
proceeding under the Bankruptcy Code in respect of the Borrower), each Bank
(other than the Swingline Lender) hereby agrees that it shall forthwith purchase
from the Swingline Lender (without recourse or warranty) such assignment of the
outstanding Swingline Loans as shall be necessary to cause the Banks to share in
such Swingline Loans ratably based upon their respective Pro Rata Shares,
provided that all interest payable on the Swingline Loans shall be for the
account of the Swingline Lender until the date the respective assignment is
purchased and, to the extent attributable to the purchased assignment, shall be
payable to the Bank purchasing same from and after such date of purchase.

Section 2.3 Competitive Bid Loans.

(a) The Competitive Bid Option. In addition to Revolving Loans
pursuant to Section 2.1 and Swingline Loans pursuant to Section 2.2, the
Borrower may, as set forth in this Section 2.3, request the Banks during the
period from and including the Closing Date to but not including the Business Day
immediately preceding the Maturity Date to make offers to make Competitive Bid
Loans to the Borrower. The Banks may, but shall have no obligation to, make such
offers and the Borrower may, but shall have no obligation to, accept any such
offers in the manner set forth in this Section 2.3. The Competitive Bid Loans
may be Competitive Bid Absolute Rate Loans or Competitive Bid LIBOR Loans (each
a "Type" of Competitive Bid Loan).

(b) Competitive Bid Quote Request. When the Borrower wishes to request
offers to make Competitive Bid Loans, it shall transmit to the Agent a request

<PAGE> 23

substantially in the form of Exhibit B hereto (a "Competitive Bid Quote
Request"), together with the payment of a non-refundable administrative fee of
$500 for the account of the Agent, so as to be received (x) no later than 10:00
a.m. Detroit time on the fourth Business Day prior to the date of borrowing
proposed therein, in the case of a LIBOR Auction or (y) no later than 10:00 a.m.
Detroit time on the Business Day prior to the date of borrowing proposed
therein, in the case of an Absolute Rate Auction specifying:

(A) the proposed date of borrowing, which shall be a Business Day;

(B) the aggregate amount of such borrowing, which shall be in a
minimum amount of $5,000,000 or a larger whole multiple of $1,000,000 up to a
maximum amount of $50,000,000 in the aggregate for Competitive Bid Loans
outstanding at any one time;

(C) the duration of the Interest Period applicable thereto, subject to
the provisions of the definition of Interest Period; and

(D) whether the Competitive Bid Quotes requested are to set forth a
Competitive Bid Margin or a Competitive Bid Absolute Rate.

The Borrower may request offers to make Competitive Bid Loans for more than one
but no more than three Interest Periods in a single Competitive Bid Quote
Request.

(c) Invitation for Competitive Bid Quotes. Promptly upon receipt of a
Competitive Bid Quote Request, the Agent shall send to the Banks an Invitation
for Competitive Bid Quotes, which shall constitute an invitation by the Borrower
to each Bank to submit Competitive Bid Quotes offering to make the Competitive
Bid Loans to which such Competitive Bid Quote Request relates in accordance with
this Section 2.3.

(d) Submission and Contents of Competitive Bid Quotes.

(i) Each Bank may submit a Competitive Bid Quote containing an offer
or offers to make Competitive Bid Loans in response to any Invitation for
Competitive Bid Quotes. Each Competitive Bid Quote must comply with the
requirements of this Section 2.3(d) and must be submitted to the Agent no later
than (A) 9:30 a.m. Detroit time on the third Business Day prior to the proposed
date of borrowing in the case of a LIBOR Auction or (B) 9:30 a.m. Detroit time
on the proposed date of borrowing, in the case of an Absolute Rate Auction;
provided, that Competitive Bid Quotes submitted by the Agent in its capacity as
a Bank may be submitted, and may only be submitted, if the Agent notifies the
Borrower of the terms of the offer or offers contained therein not later than
(A) 9:00 a.m. Detroit time on the third Business Day prior to the proposed date
of borrowing, in the case of a LIBOR Auction or (B) 9:00 a.m. Detroit time on
the proposed date of borrowing, in the case of an Absolute Rate Auction. Subject
to Sections 2.17 and 3.2, any Competitive Bid Quote so made shall be irrevocable
except with the

<PAGE> 24

written consent of the Agent given on the instructions of the Borrower. Any Bank
electing not to submit a Competitive Bid Quote shall notify the Agent at least
one hour before the deadline for submitting Competitive Bid Quotes of its
election not to do so; provided, that any Bank which fails to submit a
Competitive Bid Quote by the applicable deadline referred to in this Section
2.3(d) shall be deemed to have so notified the Agent.

(ii) A Competitive Bid Quote may set forth up to five separate offers
by the quoting Bank with respect to each Interest Period specified in the
related Invitation for Competitive Bid Quotes. Each Competitive Bid Quote shall
specify:

(1) the proposed date of borrowing and the Interest Period therefor;

(2) the principal amount of the Competitive Bid Loan for which each
such offer is being made, which principal amount (i) may be equal to, greater
than or less than the Revolving Loan Commitment of the quoting Bank, (ii) must
be $5,000,000 or a larger whole multiple of $1,000,000, (iii) may not exceed the
principal amount of Competitive Bid Loans for which offers were requested, and
(iv) may be subject to an aggregate limitation as to the principal amount of
Competitive Bid Loans for which offers being made by such quoting Bank may be
accepted;

(3) in the case of a LIBOR Auction, the margin above or below
applicable LIBOR Rate (the "Competitive Bid Margin") offered for each such
Competitive Bid Loan, expressed as a percentage (specified to the nearest
1/1,000th of 1%) to be added to or subtracted from applicable LIBOR Rate;

(4) in the case of an Absolute Rate Auction, the rate of interest per
annum (specified to the nearest 1/1,000th of 1%) (the "Competitive Bid Absolute
Rate") offered for each such Competitive Bid Loan; and

(5) the identity of the quoting Bank.

(iii) Any Competitive Bid Quote shall be disregarded if it:

(i) is not substantially in conformity with the format described in
the relevant Invitation for Competitive Bid Quotes or does not specify all of
the information required by Section 2.3(d)(ii);

(ii) contains qualifying, conditional or similar language, except as
permitted in Section 2.3(d)(ii)(2)(iv);

(iii) proposes terms other than or in addition to those set forth in
the applicable Invitation for Competitive Bid Quotes; or

(iv) arrives after the time set forth in Section 2.3(d)(i).

<PAGE> 25

(e) Notice to Borrower. Not later than (i) 10:00 a.m. Detroit time on
the third Business Day prior to the proposed date of borrowing in the case of a
LIBOR Auction or (ii) 10:00 a.m. Detroit time on the proposed date of borrowing
in the case of an Absolute Rate Auction, the Agent shall promptly notify the
Borrower of the terms of (x) any Competitive Bid Quote submitted by any Bank
that is in accordance with Section 2.3(d) and (y) any Competitive Bid Quote that
amends, modifies or is otherwise inconsistent with a previous Competitive Bid
Quote submitted by such Bank with respect to the same Competitive Bid Quote
Request. Any such subsequent Competitive Bid Quote shall be disregarded by the
Agent unless such subsequent Competitive Bid Quote is submitted solely to
correct a manifest error in such former Competitive Bid Quote. The Agent's
notice to the Borrower shall specify (A) the aggregate principal amount of
Competitive Bid Loans for which offers have been received for each Interest
Period specified in the related Competitive Bid Quote Request, (B) the
respective principal amounts and Competitive Bid Margins or Competitive Bid
Absolute Rates, as the case may be, so offered and (C) if applicable,
limitations on the aggregate principal amount of Competitive Bid Loans for which
offers in any single Competitive Bid Quote may be accepted.

(f) Acceptance and Notice by Borrower. Not later than (i) 10:45 a.m.
Detroit time on the third Business Day prior to the proposed date of borrowing,
in the case of a LIBOR Auction or (ii) 10:45 a.m. Detroit time on the proposed
date of borrowing, in the case of an Absolute Rate Auction, the Borrower shall
notify the Agent of its acceptance or non-acceptance of the offers so notified
to it pursuant to Section 2.3(e) substantially in the form of Exhibit E hereto
(a "Notice of Acceptance/Non-Acceptance") (and the Agent shall so notify each
Bank making an offer); provided, that if the Borrower shall fail to so notify
the Agent by the times set forth above, the Borrower shall be deemed to have
notified the Agent of its non-acceptance of each such offer. In the case of
acceptance, each such notice shall specify the aggregate principal amount of
offers for each Interest Period that are accepted. The Borrower may accept any
Competitive Bid Quote in whole or in part; provided that:

(A) the aggregate principal amount of each borrowing of Competitive
Bid Loans may not exceed the applicable amount set forth in the related
Competitive Bid Quote Request;

(B) the principal amount of each borrowing of Competitive Bid Loans
must be $5,000,000 or a larger whole multiple of $1,000,000;

(C) acceptance of offers may only be made on the basis of ascending
Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be;
and

(D) the Borrower may not accept any offer that is described in Section
2.3(d)(iii) or that otherwise fails to comply with the requirements of this
Agreement.

<PAGE> 26

(g) Allocation. If offers are made by two or more Banks with the same
Competitive Bid Margins or Competitive Bid Absolute Rates, as the case may be,
for a greater aggregate principal amount than the amount in respect of which
such offers are accepted for the related Interest Period, the principal amount
of Competitive Bid Loans in respect of which such offers are accepted shall be
allocated by the Borrower among such Banks as nearly as possible (in such
multiples, not greater than $1,000,000, as the Borrower may deem appropriate) in
proportion to the aggregate principal amounts of such offers. The Borrower shall
promptly notify the Agent, and the Agent shall promptly notify each such Bank,
of any allocation pursuant to this Section 2.3(g).

(h) Maximum Amounts. Notwithstanding anything to the contrary set
forth herein, in no event shall the aggregate outstanding principal amount of
Competitive Bid Loans exceed the lesser of (i) $50,000,000 and (ii) the
difference between (A) the Total Commitment then in effect and (B) the sum of
the aggregate principal amount of Revolving Loans outstanding plus the Swingline
Loans outstanding plus the Letter of Credit Outstandings.

(i) Copies to Banks. Upon written request by a Bank to the Agent, the
Agent shall, in connection with Borrower's acceptance of the offers to make
Competitive Bid Loans pursuant to a Notice of Acceptance/Non-Acceptance, provide
such Bank with the range of the quotes received in connection therewith.

Section 2.4 Notice of Borrowing. (a) Whenever the Borrower desires to
borrow Revolving Loans hereunder, it shall give the Agent at the Agent's Office
prior to 10:00 A.M., Detroit time, written notice on the date of each requested
Base Rate Loan, and at least three Business Days, prior written notice of each
LIBOR Loan to be made hereunder. Each such notice (a "Notice of Borrowing")
shall be irrevocable and shall specify (i) the aggregate principal amount of the
requested Loans, (ii) the date of Borrowing (which shall be a Business Day), and
(iii) whether such Loans shall consist of Base Rate Loans or LIBOR Loans and, if
LIBOR Loans, the initial Interest Period to be applicable thereto (provided,
that no Loans may be requested or made when any Default or Event of Default has
occurred and is continuing). If a Notice of Borrowing fails to specify the type
of Loans to be made, such Loans shall be made as Base Rate Loans.

(b) Promptly after receipt of a Notice of Borrowing, the Agent shall
provide each Bank with a copy thereof and inform each Bank as to its Pro Rata
Share of the Revolving Loans requested thereunder.

(c) Whenever the Borrower desires to make a Borrowing of Swingline
Loans hereunder, it shall give the Swingline Lender not later than 2:00 P.M.
(Detroit time) on the day such Swingline Loan is to be made, written notice (or
telephonic notice promptly confirmed in writing) of each Swingline Loan to be
made hereunder. Each such notice shall be irrevocable and shall specify in each
case (x) the date of such Borrowing (which shall be a Business Day) and (y) the
aggregate principal amount of

<PAGE> 27

the Swingline Loan to be made pursuant to such Borrowing.

Section 2.5 Disbursement of Funds. (a) (i) No later than 1:00 P.M., Detroit
time, on the date specified in each Notice of Borrowing, each Bank will make
available its Pro Rata Share of the Revolving Loans requested to be made on such
date, in U.S. dollars and immediately available funds, at the Agent's Office,
provided that all Swingline Loans shall be made available by the Swingline
Lender no later than 5:00 P.M. (Detroit time) on the date so requested. After
the Agent's receipt of the proceeds of such Loans, the Agent will make available
to the Borrower by depositing in the Borrower's account at the Agent's Office
the aggregate of the amounts so made available in the type of funds actually
received.

(ii) No later than 1:00 P.M., Detroit time, on the date specified
in each Competitive Bid Quote Request, the Bank making such Competitive Bid Loan
pursuant to Section 2.3 will make available such Competitive Bid Loan to be made
on such date, in U.S. dollars and immediately available funds, at the Agent's
Office. After the Agent's receipt of the proceeds of such Loan, the Agent will
make available to the Borrower by depositing in the Borrower's account at the
Agent's Office the aggregate of the amounts so made available in the type of
funds actually received.

(b) Unless the Agent shall have been notified by any Bank prior to the
date of a Borrowing that such Bank does not intend to make available to the
Agent its portion of the Loans to be made on such date, the Agent may assume
that such Bank has made such amount available to the Agent on such date and the
Agent in its sole discretion may, in reliance upon such assumption, make
available to the Borrower a corresponding amount. If such corresponding amount
is not in fact made available to the Agent by such Bank and the Agent has made
such amount available to the Borrower, the Agent shall be entitled to recover
such corresponding amount on demand from such Bank. If such Bank does not pay
such corresponding amount forthwith upon the Agent's demand therefor, the Agent
shall promptly notify the Borrower and the Borrower shall immediately repay such
corresponding amount to the Agent. The Agent shall also be entitled to recover
from such Bank or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Agent to the Borrower to the date such
corresponding amount is recovered by the Agent, at a rate per annum on such
corresponding amount equal to (x) if paid by such Bank, the overnight Federal
Funds Rate or (y) if paid by the Borrower, the then applicable rate of interest,
calculated in accordance with Section 2.7, for the Revolving Loans. Nothing
herein shall be deemed to relieve any Bank from its obligation to fulfill its
commitments hereunder or to prejudice any rights which the Borrower may have
against any Bank as a result of any default by such Bank hereunder.

Section 2.6 Notes. (a) The Borrower's obligation to pay the principal of,
and interest on, each Bank's Loans shall be evidenced by (i) in the case of a
Bank's Revolving Loans, a promissory note (a "Revolving Note") duly executed and
delivered

<PAGE> 28

by the Borrower substantially in the form of Exhibit A-1 hereto with blanks
appropriately completed in conformity herewith; (ii) in the case of a Bank's
Competitive Bid Loan, a promissory note (a "Competitive Bid Note") duly executed
and delivered by the Borrower substantially in the form of Exhibit A-2 hereto
with blanks appropriately completed in conformity herewith; and (iii) in the
case of the Swingline Lender's Swingline Loans, a promissory note (a "Swingline
Note") duly executed and delivered by the Borrower substantially in the form of
Exhibit A-3 hereto in a principal amount equal to the Swingline Lender's
Swingline Commitment, with blanks appropriately completed in conformity
herewith. Each Note issued to a Bank shall (x) be payable to the order of such
Bank, (y) be dated the Closing Date, and (z) mature on the Maturity Date or the
end of the Interest Period for such Competitive Bid Loan, as applicable.

(b) Each Bank is hereby authorized, at its option, either (i) to
endorse on the schedule attached to its Note (or on a continuation of such
schedule attached to such Note and made a part thereof) an appropriate notation
evidencing the date and amount of each Loan evidenced thereby and the date and
amount of each principal and interest payment in respect thereof, or (ii) to
record such Loans and such payments in its books and records. Such schedule or
such books and records, as the case may be, shall constitute prima facie
evidence of the accuracy of the information contained therein, provided that the
failure of such Bank to make any such endorsement or recordation shall not
affect the obligations of the Borrower hereunder or under the Notes.

Section 2.7 Interest. (a) The Borrower agrees to pay interest in respect of
the unpaid principal amount of each Base Rate Loan from the date of the making
of such Loan until such Loan shall be paid in full at a rate per annum which
shall be equal to the sum of the Applicable Margin plus the Base Rate in effect
from time to time, such rate to change as and when the Base Rate or Applicable
Margin changes, such interest to be computed on the basis of a year of 365 or
366 days, as the case may be.

(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each LIBOR Loan for each Interest Period therefor from the
date of the making of such Loan until such Loan shall be paid in full at a rate
per annum which shall be equal to the sum of the Applicable Margin plus the
relevant LIBOR Rate for such Interest Period, such interest to be computed on
the basis of a 360-day year. Changes in the Applicable Margin with respect to
LIBOR Loans shall be effective only as to LIBOR Loans borrowed on or after the
effective date of such change, or in the case of LIBOR Loans continued pursuant
to Section 2.10, only to such Loans continued on or after the effective date of
such change or in the case of Loans converted into LIBOR Loans, only to such
Loans converted on or after the effective date of such change.

(c) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Competitive Bid LIBOR Loan from the date of the making
of such Loan until such Loan is paid in full at a rate equal to LIBOR Rate for
such Loan for

<PAGE> 29

the Interest Period therefor plus or minus the Competitive Bid Margin quoted by
the Bank making such Loan in accordance with Section 2.3(d).

(d) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Competitive Bid Absolute Rate Loan from the date of the
making of such Loan until such Loan is paid in full at a rate equal to the
Competitive Bid Absolute Rate for such Loan for the Interest Period therefor
quoted by the Banks making such Loan in accordance with Section 2.3(d).

(e) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Loan shall bear interest at a rate per annum (the
"Default Rate") equal to the sum of two percent (2%) plus the interest rate
otherwise applicable hereunder to such principal amount in effect from time to
time (or, if such overdue payment is not relating to a Loan, 2% above the Base
Rate then in effect).

(f) Interest on any Loan shall accrue from and including the date of
the Borrowing thereof to but excluding the date of any repayment thereof
(provided that any Loan borrowed and repaid on the same day shall accrue one
day's interest) and shall be payable (i) in respect of each Base Rate Loan, in
arrears on each Payment Date, (ii) in respect of each LIBOR Loan and Competitive
Bid Loan, on the last day of each Interest Period applicable to such Loan and,
in the case of an Interest Period of six months, on the date occurring three
months from the first day of such Interest Period and on the last day of such
Interest Period and (iii) in the case of all Loans, on any prepayment or
conversion (on the amount prepaid or converted), at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.

(g) The Agent shall, upon determining the LIBOR Rate for any Interest
Period, promptly notify the Borrower and the Banks thereof.

(h) Each Reference Bank agrees to make the quotes available to the
Agent to permit the Agent to determine the LIBOR Base Rate.

Section 2.8 Interest Periods. (a) The Borrower shall, in any Notice of
Borrowing, in any Competitive Bid Quote Request in respect of the making of a
LIBOR Loan or of a Competitive Bid Loan or in any Notice of Conversion or
Continuation in respect of the conversion into or continuation of a LIBOR Loan,
select the interest period (each an "Interest Period") applicable to such Loan,
which Interest Period shall, at the option of the Borrower, be either a
one-month, two-month, three-month or six-month period for LIBOR Loans or
Competitive Bid LIBOR Loans or any period not exceeding 360 days for Competitive
Bid Absolute Rate Loans, provided that:

(i) the initial Interest Period for any LIBOR Loan, Competitive Bid
Absolute Rate Loan or Competitive Bid LIBOR Loan shall commence on the date of
the making of such Loan (including the date of any conversion from a Base Rate
Loan) and each Interest Period occurring thereafter shall commence on the date
on which the next

<PAGE> 30

preceding Interest Period expires, provided that each Competitive Bid Absolute
Rate Loan and Competitive Bid LIBOR Loan shall mature and be due and payable at
the end of the Interest Period applicable thereto;

(ii) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next succeeding
Business Day, provided, however, that if any Interest Period would otherwise
expire on a day which is not a Business Day but is a day of the month after
which no further Business Day occurs in such month, such Interest Period shall
expire on the next preceding Business Day;

(iii) if any Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month at the end of such Interest
Period, such Interest Period shall end on the last Business Day of such calendar
month;

(iv) no Interest Period in respect of any Loan shall extend beyond the
Maturity Date; and

(v) if upon the expiration of any Interest Period, the Borrower has
failed to elect a new Interest Period to be applicable to the respective LIBOR
Loan as provided above, the Borrower shall be deemed to have elected to convert
such LIBOR Loans into Base Rate Loans effective as of the expiration date of
such current Interest Period.

Section 2.9 Minimum Amount of LIBOR Loans. All borrowings, conversions,
continuations, payments, prepayments (other than prepayments made pursuant to
Section 2.13) and selections of Interest Periods hereunder shall be made or
selected so that, after giving effect thereto, (i) the aggregate principal
amount of any Borrowing comprised of LIBOR Loans shall not be less than
$1,000,000 or an integral multiple of $100,000 in excess thereof, and (ii) there
shall be no more than eight (8) Borrowings comprised of LIBOR Loans outstanding
at any time.

Section 2.10 Conversion or Continuation. (a) Subject to the other
provisions hereof, the Borrower shall have the option (i) to convert at any time
all or any part of outstanding Base Rate Loans (other than Swingline Loans and
Competitive Bid Absolute Rate Loans) to LIBOR Loans, or (ii) to convert all or
any part of outstanding LIBOR Loans which comprise part of the same Borrowing to
Base Rate Loans, on the expiration date of the Interest Period applicable
thereto, or (iii) to continue all or any part of outstanding LIBOR Loans which
comprise part of the same Borrowing as LIBOR Loans for an additional Interest
Period, on the expiration of the Interest Period applicable thereto; provided
that (A) no Loan may be continued as, or be converted into, a LIBOR Loan when
any Default or Event of Default has occurred and is continuing and (B) no
Competitive Bid Loans may be so converted or continued.

(b) In order to elect to convert or continue a Loan under this Section

<PAGE> 31

2.10, the Borrower shall deliver irrevocable written notice thereof (a "Notice
of Conversion or Continuation") to the Agent no later than 10:00 A.M., Detroit
time, (i) at least one Business Day in advance of the proposed conversion date
in the case of a conversion to a Base Rate Loan and (ii) at least three Business
Days in advance of the proposed conversion or continuation date in the case of a
conversion to, or a continuation of, a LIBOR Loan. A Notice of Conversion or
Continuation shall specify (w) the requested conversion or continuation date
(which shall be a Business Day), (x) the Borrowing to be converted or continued,
(y) whether a conversion or continuation is requested, and (z) in the case of a
conversion to, or a continuation of, a LIBOR Loan, the requested Interest
Period. Promptly after receipt of a Notice of Conversion or Continuation under
this Section 2.10(b), the Agent shall provide each Bank with a copy thereof.

Section 2.11 Voluntary Reduction of Commitments. Upon at least three
Business Days' prior irrevocable written notice to the Agent (which notice the
Agent shall promptly transmit to each of the Banks), the Borrower shall have the
right, without premium or penalty, to permanently terminate each Bank's Pro Rata
Share of the unutilized portion of the Total Commitment, in part or in whole,
provided that any such partial reduction shall be in the minimum aggregate
amount of $1,000,000 or any integral multiple of $100,000 in excess thereof;
provided, however, that the Total Commitment may at no time be reduced to an
amount less than the sum of the outstanding Swingline Loans, Competitive Bid
Loans and Letter of Credit Outstandings.

Section 2.12 Voluntary Prepayments. The Borrower shall have the right to
prepay, without premium or penalty, the Loans in whole or in part from time to
time on the following terms and conditions: (i) the Borrower shall give the
Agent written notice, which notice shall be irrevocable, of its intent to prepay
the Loans, at least three Business Days prior to a prepayment of LIBOR Loans and
at least one Business Day prior to a prepayment of Base Rate Loans, which notice
shall specify the amount of such prepayment and what Types and Facilities of
Loans are to be prepaid and, in the case of LIBOR Loans, the specific
Borrowing(s) pursuant to which made, and which notice the Agent shall promptly
transmit to each of the Banks, (ii) each prepayment shall be in an aggregate
principal amount of $1,000,000 or any integral multiple of $100,000 in excess
thereof, and (iii) prepayments of LIBOR Loans and Competitive Bid LIBOR Loans
made pursuant to this Section may only be made on the last day of an Interest
Period applicable thereto unless accompanied by such amounts required pursuant
to Section 2.18. Notice having thus been given the amount of any such prepayment
shall mature and become due and payable on the date specified in such notice.

Section 2.13 Mandatory Prepayments. (a) On each date on which the amount of
aggregate outstanding Revolving Loans plus the outstanding Competitive Bid
Loans, plus the outstanding Swingline Loans, plus the Letter of Credit
Outstandings exceeds the Total Commitment then in effect (including any such
date on which the Total Commitment is reduced or terminated pursuant to Section
2.11 after giving effect to

<PAGE> 32

such reduction or termination), the Borrower shall immediately prepay Loans to
the extent of such excess.

(b) Each Competitive Bid Loan shall mature and be due and payable at
the end of the Interest Period applicable thereto.

Section 2.14 Application of Prepayments. All prepayments of the Loans
required by Section 2.13(a) shall be applied (in each case accompanied by
prepayment of all interest accrued on the amount prepaid) first, to prepay the
Swingline Loans until such Swingline Loans shall have been repaid in full,
second, to prepay the Revolving Loans until such Revolving Loans shall have been
repaid in full, which prepayments shall be applied first to Base Rate Loans and
then LIBOR Loans and third, to all other outstanding Obligations then due and
payable.

Section 2.15 Method and Place of Payment. (a) Except as otherwise
specifically provided herein, all payments and prepayments under this Agreement
and the Notes shall be made to the Agent for the account of the Banks entitled
thereto not later than 12:00 noon, Detroit time, on the date when due and shall
be made in lawful money of the United States of America in immediately available
funds at the Agent's Office, and any funds received by the Agent after such time
shall, for all purposes hereof (including the following sentence), be deemed to
have been paid on the next succeeding Business Day. Except as otherwise
specifically provided herein, the Agent shall thereafter cause to be promptly
distributed to each such Bank in like funds its Pro Rata Share of payments so
received.

(b) Whenever any payment to be made hereunder or under any Note shall
be stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day and, with respect to
payments of principal, interest shall be payable at the applicable rate during
such extension.

(c) All payments made by the Borrower hereunder and under the other
Loan Documents shall be made irrespective of, and without any reduction for, any
setoff or counterclaim.

Section 2.16 Fees. The Borrower agrees to pay to the Agent for the account
of each Bank a facility fee, computed at the Applicable Margin per annum on such
Bank's Revolving Loan Commitment, from and including the Closing Date to but not
including the Maturity Date, payable quarterly in arrears on each Payment Date
and on the Maturity Date or such earlier date, if any, on which the Revolving
Loan Commitment shall terminate in accordance with the terms hereof. Such fees
shall be computed on the basis of a 360-day year.

Section 2.17 Interest Rate Unascertainable, Increased Costs, Illegality.
(a) In the event that the Agent, in the case of clause (i) below, or any Bank,
in the case of clauses (ii) and (iii) below, shall have determined (which
determination shall, absent

<PAGE> 33

manifest error, be final and conclusive and binding upon all parties hereto):

(i) on any date for determining the LIBOR Rate for any Interest
Period, that by reason of any changes arising after the Closing Date affecting
the interbank LIBOR market, adequate and fair means do not exist for
ascertaining the applicable interest rate on the basis provided for in the
definition of LIBOR Rate; or

(ii) at any time that the relevant LIBOR Rate applicable to any of its
Loans shall not represent the effective pricing to such Bank for funding or
maintaining a LIBOR Loan or Competitive Bid LIBOR Loan, or such Bank shall incur
increased costs or reductions in the amounts received or receivable hereunder in
respect of any LIBOR Loan, in any such case because of any change since the
Closing Date in any applicable law or governmental rule, regulation, guideline
or order or any interpretation thereof or any directive or request related
thereto and including the introduction of any new law or governmental rule,
regulation, guideline or order (such as for example but not limited to a change
in official reserve requirements, but, in all events, excluding reserves
required under Regulation D of the Federal Reserve Board to the extent included
in the computation of the LIBOR Rate) whether or not having the force of law
and/or any other circumstances affecting such Bank or the interbank LIBOR market
or the position of such Bank in such market as a result of any such change; or

(iii) at any time that the making or continuance by any Bank of any
LIBOR Loan or Competitive Bid LIBOR Loan has become unlawful by compliance by
such Bank in good faith with any law or governmental rule, regulation, guideline
or order;

then, and in any such event, the Agent or such Bank shall, promptly after making
such determination, give notice (by telephone promptly confirmed in writing) to
the Borrower and (if applicable) the Agent of such determination (which notice
the Agent shall promptly transmit to each of the Banks). Thereafter (x) in the
case of clause (i) above, the Borrower's right to request LIBOR Loans or
Competitive Bid LIBOR Loans shall be suspended, and any Notice of Borrowing
given by the Borrower with respect to any Borrowing of LIBOR Loans or
Competitive Bid LIBOR Loans or any Notice of Conversion or Continuation given by
the Borrower with respect to any Borrowing of LIBOR Loans, in each case which
has not yet been made shall be deemed cancelled and rescinded by the Borrower,
(y) in the case of clause (ii) above, the Borrower shall upon notice by the Bank
in accordance with Section 2.21 pay to such Bank, such additional amounts (in
the form of an increased rate of interest, or a different method of calculating
interest, or otherwise, as such Bank in its reasonable discretion shall
determine) as shall be required to compensate such Bank for such increased costs
or reduction in amounts received or receivable hereunder and (z) in the case of
clause (iii) above, the Borrower's right to request LIBOR Loans or Competitive
Bid LIBOR Loans thereafter shall be suspended, and Borrower shall take one of
the actions specified in clause (b) below as promptly as possible and, in any
event, within the time period required by law.

<PAGE> 34

(b) In the case of any LIBOR Loan or requested LIBOR Loan or
Competitive Bid LIBOR Loan affected by the circumstances described in clause
(a)(ii) above, the Borrower may, and in the case of any LIBOR Loan or
Competitive Bid LIBOR Loan affected by the circumstances described in clause
(a)(iii) above the Borrower shall, either (x) if any such LIBOR Loan or
Competitive Bid LIBOR Loan has not yet been made but is then the subject of a
Notice of Borrowing or a Notice of Conversion or Continuation, be deemed to have
cancelled and rescinded such notice, or (y) if any such LIBOR Loan or
Competitive Bid LIBOR Loan is then outstanding, require the affected Bank to
convert each such LIBOR Loan or Competitive Bid LIBOR Loan into a Base Rate Loan
at the end of the applicable Interest Period or such earlier time as may be
required by law, in each case by giving the Agent notice (by telephone promptly
confirmed in writing) thereof on the Business Day that the Borrower was notified
by the Bank pursuant to clause (a) above; provided, however, that all Banks
whose LIBOR Loans or Competitive Bid LIBOR Loan are affected by the
circumstances described in clause (a) above shall be treated in the same manner
under this clause (b).

(c) In the event that the Agent determines at any time following its
giving of notice based on the conditions described in clause (a)(i) above that
none of such conditions exist, the Agent shall promptly give notice thereof to
the Borrower and the Banks, whereupon the Borrower's right to request LIBOR
Loans and Competitive Bid LIBOR Loans from the Banks and the Banks' obligation
to make LIBOR Loans shall be restored (it being acknowledged that the Banks have
no obligation to make Competitive Bid LIBOR Loans).

(d) In the event that a Bank determines at any time following its
giving of a notice based on the conditions described in clause (a)(iii) above
that none of such conditions exist, such Bank shall promptly give notice thereof
to the Borrower and the Agent, whereupon the Borrower's right to request LIBOR
Loans and Competitive Bid LIBOR Loans from such Bank and such Bank's obligation
to make LIBOR Loans shall be restored (it being acknowledged that the Banks have
no obligation to make Competitive Bid LIBOR Loans).

Section 2.18 Funding Losses. The Borrower shall compensate each Bank, upon
its written request (which request shall set forth the basis for requesting such
amounts), for all reasonable losses, expenses and liabilities (including,
without limitation, lost profits, any loss, expense or liability incurred by
such Bank in connection with the liquidation or reemployment of deposits or
funds required by it to make or carry its LIBOR Loans or Competitive Bid Rate
LIBOR Loans), that such Bank sustains: (i) if for any reason (other than a
default by such Bank) including, without limitation, the failure of any
conditions precedent specified in Section 3 to be satisfied, a Borrowing of, or
conversion from or into, or a continuation of, LIBOR Loans does not occur on a
date specified therefor in a Notice of Borrowing or Notice of Conversion or
Continuation (whether or not rescinded, cancelled or withdrawn or deemed
rescinded, cancelled or withdrawn, pursuant to Section 2.17(a) or 2.17(b) or
otherwise), (ii) if any repayment

<PAGE> 35

(including, without limitation, payment after acceleration) or conversion of any
of its LIBOR Loans or Competitive Bid Rate LIBOR Loans occurs on a date which is
not the last day of the Interest Period applicable thereto or (iii) if any
prepayment of any of its Loans is not made on any date specified in a notice of
prepayment given by the Borrower.

Section 2.19 Increased Capital. If any Bank, the Swingline Lender or the
Issuing Bank shall have determined that compliance with any applicable law,
rule, regulation, guideline, request or directive (whether or not having the
force of law) of any governmental authority, central bank or comparable agency
adopted after the Closing Date, or any change after the Closing Date in any such
law, rule, regulation, guideline, request or directive which was in effect on
the Closing Date has or would have the effect of reducing the rate of return on
the capital or assets of such Bank or any Person controlling such Bank as a
consequence of its commitments or obligations hereunder (including, without
limitation, its obligations to make Loans, issue Letters of Credit or
participate in Letters of Credit), then from time to time upon notice by the
Bank in accordance with Section 2.21, the Borrower shall pay to such Bank,
Swingline Lender or Issuing Bank, as the case may be, such additional amount or
amounts as will compensate such Bank or Person for such reduction.

Section 2.20 Taxes. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without reduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any governmental
authority excluding, in the case of the Agent and each Bank, net income and
franchise taxes imposed on the Agent or such Bank by the jurisdiction under the
laws of which the Agent or such Bank is organized or any political subdivision
or taxing authority thereof or therein, or by any jurisdiction in which such
Bank's Domestic Lending Office or LIBOR Lending Office, as the case may be, is
located or any political subdivision or taxing authority thereof or therein (all
such non-excluded taxes, levies, imposts, deductions, charges or withholdings
being hereinafter called "Taxes"). If any Taxes are required to be withheld from
any amounts payable to the Agent or any Bank hereunder or under the Notes, the
amounts so payable to the Agent or such Bank shall be increased to the extent
necessary to yield to the Agent or such Bank (after payment of all Taxes on any
amounts payable under this Section 2.20) interest on any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement and
the Notes. Whenever any Taxes are payable by the Borrower, as promptly as
possible thereafter, the Borrower shall send to the Agent for its own account or
for the account of such Bank, as the case may be, a certified copy of an
original official receipt received by the Borrower showing payment thereof. If
the Borrower fails to pay any Taxes when due to the appropriate taxing authority
or fails to remit to the Agent the required receipts or other required
documentary evidence, the Borrower shall indemnify the Agent and the Banks for
any incremental taxes, interest or penalties that may become payable by the
Agent or any Bank as a result of any such failure. The agreements in this
Section 2.20

<PAGE> 36

shall survive the termination of this Agreement and the payment of the Notes and
all other Obligations.

(b) Each Bank that is not incorporated under the laws of the United
States of America or a state thereof (including each Purchasing Bank that
becomes a party to this Agreement pursuant to Section 9.4) agrees that, prior to
the first date on which any payment is due to it hereunder, it will deliver to
the Borrower and the Agent (i) two duly completed copies of United States
Internal Revenue Service Form 1001 or 4224 or successor applicable form, as the
case may be, certifying in each case that such Bank is entitled to receive
payments under this Agreement and the Notes payable to it, without deduction or
withholding of any United States federal income taxes, and (ii) an Internal
Revenue Service Form W-8 or W-9 or successor applicable form, as the case may
be, to establish an exemption from United States backup withholding tax. Each
Bank which delivers to the Borrower and the Agent a Form 1001 or 4224 and Form
W-8 or W-9 pursuant to the preceding sentence further undertakes to deliver to
the Borrower and the Agent two further copies of the said letter and Form 1001
or 4224 and Form W-8 or W-9, or successor applicable forms, or other manner of
certification, as the case may be, on or before the date that any such letter or
form expires or becomes obsolete or after the occurrence of any event requiring
a change in the most recent letter and form previously delivered by it to the
Borrower, and such extensions or renewals thereof as may reasonably be requested
by the Borrower, certifying in the case of a Form 1001 or 4224 that such Bank is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, unless in any such case,
any change in treaty, law or regulation after the Closing Date (or the date any
Purchasing Bank became a party hereto) has occurred prior to the date on which
any such delivery would otherwise be required which renders all such forms
inapplicable or which would prevent such Bank from duly completing and
delivering any such letter or form with respect to it and such Bank advises the
Borrower that it is not capable of receiving payments without any deduction or
withholding of United States federal income tax, and in the case of a Form W-8
or W-9, establishing an exemption from United States backup withholding tax.

Section 2.21 Mitigation; Calculations. (a) In the event that any Bank shall
have delivered a notice pursuant to Section 2.17(a)(ii), 2.17(a)(iii) or 2.19 or
any L/C Participant shall have delivered a notice pursuant to Section 2A.5, or
the Borrower shall be required to make additional payments to any Bank under
Section 2.20, the Borrower shall have the right, but not the obligation, at its
own expense (including with respect to the processing and recordation fee
referred to in Section 9.4(c)), upon notice to such Bank and the Agent, to
replace such Bank with an assignee (in accordance with and subject to the
restrictions contained in Section 9.4(c)) approved by the Agent (which approval
shall not be unreasonably withheld), and such Bank hereby agrees to transfer and
assign without recourse (in accordance with and subject to the restrictions
contained in Section 9.4(c)) all its interests, rights and obligations under
this Agreement to such assignee; provided, however, that no Bank shall be
obligated to make any such assignment unless (i) such assignment shall not
conflict with any law or any rule,

<PAGE> 37

regulation or order of any Governmental Authority, (ii) such assignee shall pay
to the affected Bank in immediately available funds on the date of such
assignment the interest accrued to the date of payment on the Loans made by such
Bank hereunder and all other amounts accrued for such Bank's account or owed to
it hereunder.

(b) A certificate of each Bank, the Swingline Lender, any L/C
Participant or the Issuing Bank setting forth such amount or amounts as shall be
necessary to compensate such Bank, the Swingline Lender or the Issuing Bank or
its holding company, if any, as specified in Section 2.17, 2.19, 2.20 or 2A.5,
as the case may be, and setting forth in reasonable detail an explanation of the
basis of requesting such compensation in accordance with such Sections,
including calculations in reasonable detail, shall be delivered to the Borrower
and shall be conclusive absent manifest error. The Borrower shall pay each Bank,
the Swingline Lender or the Issuing Bank the amount shown as due on any such
certificate delivered by it within 10 Business Days after its receipt of the
same.

Section 2.22 Use of Proceeds. The proceeds of the Revolving Loans made on
the Closing Date shall be used to refinance and replace the Existing Credit
Facility and for the Borrower's general corporate purposes and the proceeds of
Loans made thereafter shall be used for the Borrower's general corporate
purposes.

Section 2.23 Extension of Maturity Date. The Maturity Date shall be subject
to extension as set forth in this Section 2.23.

(a) Request for Extension of Maturity Date. Notwithstanding anything
contained in this Agreement to the contrary, not later than 30 days prior to
each anniversary of the Closing Date, the Borrower may, by delivery of a duly
completed extension request to the Agent in the form of Exhibit F hereto (an
"Extension Request"), which Extension Request must be accompanied by the most
recent financial statements required to be delivered hereunder, irrevocably
request that each Bank extend the Maturity Date to a date up to but not beyond 5
years after such anniversary.

(b) Consent to Extension of Maturity Date.

(i) The Agent shall, promptly after receipt of any such Extension
Request pursuant to subsection (a) above, notify each Bank by providing them a
copy of the Extension Request.

(ii) Each Bank shall, within 30 days of receipt of the Extension
Notice, notify the Agent whether it consents to the request of the Borrower set
forth in such Extension Request, such consent to be in the sole discretion of
such Bank. If any Bank does not so notify the Agent of its decision within such
30 day period, such Bank shall be deemed to have not consented to such request
of the Borrower.

(iii) The Agent shall promptly notify the Borrower whether the

<PAGE> 38

Banks have consented to such request. If the Agent does not so notify the
Borrower within 30 days of such Extension Request, the Agent shall be deemed to
have notified the Borrower that the Banks have not consented to the Borrower's
request.

(iv) Each Bank that elects not to extend the Maturity Date or
fails to so notify the Agent of such consent (a "Non-Consenting Bank") hereby
agrees that if any other Bank or financial institution acceptable to the
Borrower and the Agent offers to purchase such Non-Consenting Bank's Revolving
Loan Commitment within sixty days after receipt of the related Extension Notice
for a purchase price equal to the sum of all amounts then owing with respect to
the Loans and all other amounts accrued for the account of such Non-Consenting
Bank, such Non-Consenting Bank will promptly assign, sell and transfer all of
its right, title, interest and obligations with respect to the foregoing to such
other Bank or financial institution pursuant to and on the terms specified in
the form of Transfer Supplement attached hereto as Exhibit H. Before assigning
to a financial institution other than a Bank pursuant to this clause (iv), each
Bank that has elected to extend the Maturity Date (a "Consenting Bank") shall
have the right, but not any obligation, pro rata with all other Consenting Banks
to purchase each such Non-Consenting Bank's Revolving Loan Commitment pursuant
to this clause (iv). The Consenting Banks who elect to purchase a Non-Consenting
Bank's Revolving Loan Commitment shall by mutual agreement determine the amount
of each Non-Consenting Bank's Revolving Loan Commitment being purchased by each
Consenting Bank, provided that if there is any dispute among the Consenting
Banks such purchase shall be based upon a pro rata sharing of each
Non-Consenting Bank's Revolving Loan Commitment. Only if the Consenting Banks
have determined not to purchase all of the Non-Consenting Bank's Revolving Loan
Commitment may financial institutions other than a Consenting Bank then purchase
such Non-Consenting Bank's Revolving Loan Commitment.

(v) Notwithstanding anything herein to the contrary, the Maturity
Date will not be extended unless all Banks have consented to the extension or if
another Bank or financial institution has agreed to purchase each such
Non-Consenting Bank's Revolving Loan Commitment pursuant to the terms of
clause(b)(iv) above and, concurrently with such purchase, consents to such
extension.

SECTION 2A. LETTERS OF CREDIT

Section 2A.1 Issuance of Letters of Credit. (a) Subject to and upon the
terms and conditions herein set forth, the Borrower may request the Issuing Bank
from time to time on any Business Day from the Closing Date until the Business
Day immediately preceding the Maturity Date to issue, and subject to and upon
the terms and conditions herein set forth, the Issuing Bank shall issue, for the
account of the Borrower, any Letter of Credit.

(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued if the issuance of such Letter of Credit would cause the aggregate amount
outstanding

<PAGE> 39

at any time of all Letter of Credit Outstandings to exceed the lesser of (x) the
Total Commitment then in effect minus the aggregate principal amount of the
Revolving Loans, Swingline Loans and Competitive Bid Loans then outstanding and
(y) $10,000,000; (ii) each Letter of Credit shall at all times be in an amount
not less than $100,000; (iii) each Letter of Credit shall by its terms terminate
not later than 365 days after the date of issuance thereof and in any event not
later than the Maturity Date; (iv) each Letter of Credit shall by its terms only
be drawable in U.S. Dollars; (v) each Letter of Credit shall expressly provide
at least two Business Days, notice of drawing before payment under such Letter
of Credit shall be due; and (vi) each stand-by Letter of Credit shall expressly
provide that if an Event of Default shall have occurred and be continuing, the
Issuing Bank shall have the right to terminate such Letter of Credit upon 30
days' notice to the beneficiary thereof during which period of time such
beneficiary shall have the right to make a single drawing under such Letter of
Credit in an amount not to exceed the lesser of (x) the face amount of such
Letter of Credit at such time and (y) the outstanding Indebtedness supported by
such Letter of Credit.

(c) Whenever the Borrower desires that a Letter of Credit be issued
pursuant to Section 2A.1, the Borrower shall give the Issuing Bank not less than
10 Business Days' notice of the date of the proposed date of issuance of such
Letter of Credit and the Issuing Bank shall give to each Bank prompt notice of
such Letter of Credit Request. Each such notice (a "Letter of Credit Request")
shall be made by telephone, telecopy, telex or cable, confirmed immediately in
writing, in substantially the form of Exhibit G hereto, together with a signed
letter of credit application on the Issuing Bank's then-standard form (or other
form acceptable to the Issuing Bank and appropriate, in the sole opinion of the
Issuing Bank, in the circumstances), and may be cancelled by notice thereof
prior to issuance of such Letter of Credit by telephone, telecopy, telex or
cable, confirmed immediately in writing, to the Issuing Bank, which shall give
to each Bank prompt notice of such cancellation.

Section 2A.2 Participation in Letters of Credit. Effective upon the
issuance by the Issuing Bank of any Letter of Credit hereunder, each Bank
severally (and not jointly), irrevocably and unconditionally agrees to purchase
and receive, and does purchase and receive from the Issuing Bank, without
recourse or warranty, an undivided participation interest in such Letter of
Credit in a percentage equal to such Bank's Pro Rata Share.

Section 2A.3 Reimbursement of Letter of Credit Drawings. (a) In the event
that any drawing shall be made under a Letter of Credit, by demand or claim
(including, without limitation, draft), the Issuing Bank shall notify the
Borrower of such drawing and the Borrower shall reimburse the Issuing Bank in
immediately available funds for any amount paid by the Issuing Bank under such
Letter of Credit on the date of such payment, with interest on the amount so
paid or disbursed by the Issuing Bank, to the extent not reimbursed prior to
12:00 noon, Detroit time, on the date of such payment or disbursement, from and
including the date paid or disbursed to (but not including the date, if received
by the Issuing Bank prior to 12:00 noon, Detroit time) the date the

<PAGE> 40

Issuing Bank was reimbursed therefor, at a rate per annum which shall be equal
to the Base Rate plus 2%, all such interest to be payable on demand.
Notwithstanding the first sentence of this Section 2A.3(a) in the event that any
drawing under a Letter of Credit is not reimbursed by the Borrower on the date
of payment by the Issuing Bank, and, pursuant to Sections 2.1 and 3.2 of this
Agreement, the Borrower is then permitted to obtain Revolving Loans under this
Agreement (without regard to the limitations set forth in Section 2.1(c)), the
Borrower shall be deemed to have requested a Borrowing of Revolving Loans
consisting of Base Rate Loans in an aggregate amount equal to such unreimbursed
payment. The Banks shall make the requested Revolving Loans as of the date of
such payment by the Issuing Bank, and the proceeds of such Revolving Loans shall
be paid to the Issuing Bank to reimburse the Issuing Bank for such drawing in
full. In the event that any drawing under a Letter of Credit is not reimbursed
by the Borrower on the date of payment by the Issuing Bank and, because of the
failure of the Borrower to meet the conditions set forth in Sections 2.1 and 3.2
of this Agreement, the Borrower is then not permitted to obtain Revolving Loans
thereunder, a default specified in Section 7.1(a) shall have occurred and the
Issuing Bank shall promptly notify each Bank. Immediately upon receipt of such
notice, the Revolving Loan Banks will pay to the Issuing Bank the amount of
their respective participations in the Letter of Credit. In the event that any
Bank fails timely to make the Revolving Loan or pay the amount of its
participation as required by this Section 2A.3(a), interest shall accrue thereon
at the overnight Federal Funds Rate from the date of payment by the Issuing Bank
to the date of repayment thereof by such Bank.

(b) The obligations of the Borrower and the Banks under Section
2A.3(a) shall be absolute, unconditional and irrevocable, and shall be performed
strictly in accordance with the terms thereof, under all circumstances
whatsoever, including the circumstances listed below:

(i) any setoff, counterclaim or defense to payment which the Borrower
may have or has had against the Issuing Bank or Banks;

(ii) any lack of validity or enforceability of any Letter of Credit,
any drawings thereunder or any related contract;

(iii) any statement or any other document presented under any Letter
of Credit that proves to be forged, fraudulent or invalid or insufficient in any
respect or any statement therein that proves to be untrue or inaccurate in any
respect whatsoever; or

(iv) payment by the Issuing Bank under any Letter of Credit against
presentation of a draft or certificate or other document that does not comply
with the terms of such Letter of Credit unless such payment by the Issuing Bank
constituted gross negligence or willful misconduct of the Issuing Bank.

<PAGE> 41

or in connection with any Letter of Credit, if taken or omitted to be taken in
the absence of gross negligence or willful misconduct, shall not put the Issuing
Bank under any resulting liability to any Bank or relieve that Bank of its
obligations hereunder to the Issuing Bank. In determining whether to pay under
any Letter of Credit, the Issuing Bank shall have no obligation to the Banks
other than to confirm that any documents required to be delivered under such
Letter of Credit appear to have been delivered and that they appear to comply on
their face with the requirements of such Letter of Credit.

Section 2A.4 Letter of Credit Fee. The Borrower agrees to pay to the
Issuing Bank (a) its standard issuance and negotiation fees, plus (b) a letter
of credit fee equal to the Applicable Margin per annum of the face amount of
each Letter of Credit for the term of each Letter of Credit for the account of,
and to be distributed by the Agent to, each Bank participating in such Letter of
Credit according to its Pro Rata Share of each such Letter of Credit, plus (c)
an additional fee of 0.05% per annum of the face amount of each solely for the
account of the Issuing Bank. Such letter of credit fees shall be nonrefundable
and shall be payable quarterly in arrears on each Payment Date. All such fees
shall be calculated on the basis of a 360 day year.

Section 2A.5 Increased Costs, Illegality. (a) In the event that the Issuing
Bank or any L/C Participant shall have determined (which determination shall,
absent manifest error, be final and conclusive and binding upon all parties
hereto) at any time that it shall incur increased costs or reductions in the
amounts received or receivable hereunder in respect of any Letter of Credit, in
any such case because of any change since the date hereof in any applicable law
or governmental rule, regulation, guideline or order or any interpretation
thereof or any directive or request related thereto and including the
introduction of any new law or governmental rule, regulation, guideline or order
(such as, for example but not limited to, a change in official reserve
requirements), whether or not having the force of law and/or other circumstances
affecting the Issuing Bank or such L/C Participant as a result of any such
change; then, and in any such event, the Issuing Bank or such L/C Participant
shall, promptly after making such determination, give notice (by telephone
promptly confirmed in writing) to the Borrower and (if applicable) the Issuing
Bank of such determination (which notice the Issuing Bank shall promptly
transmit to each of the Banks). Thereafter, the Borrower shall pay to the
Issuing Bank or such L/C Participant, upon notice by the Issuing Bank or L/C
Participant, as the case may be, in accordance with Section 2.21 therefor, such
additional amounts (in the form of an increased rate of interest, or a different
method of calculating interest, or otherwise, as the Issuing Bank or such L/C
Participant in its reasonable discretion shall determine) as shall be required
to compensate the Issuing Bank or such L/C Participant for such increased costs
or reduction in amounts received or receivable hereunder.

(b) In the case of any Letter of Credit or requested Letter of Credit
affected by the circumstances described above, the Borrower may, if any such
Letter of Credit has not yet been issued but is then the subject of a Letter of
Credit Request, be deemed to have cancelled and rescinded such Request,
provided, however, that all L/C

<PAGE> 42

Participants whose participation in such Letter of Credit are affected by the
circumstances described in clause (a) above shall be treated in the same manner
under this clause (b).

SECTION 3. CONDITIONS PRECEDENT

Section 3.1 Conditions Precedent to Effectiveness. The effectiveness of
this Agreement and the obligation of each Bank to make Loans hereunder, the
obligation of the Swingline Lender to make Swingline Loans hereunder and the
obligation of the Issuing Bank to issue any Letter of Credit hereunder are
subject to the satisfaction on the Closing Date of the following conditions
precedent:

(a) Loan Documents.

(i) Credit Agreement. The Borrower and Holdings shall have executed
and delivered the Credit Agreement to the Agent and each of the Banks.

(ii) Notes. The Borrower shall have executed and delivered to each
Bank the Notes payable to such Bank.

(iii) Guaranty. Holdings shall have executed and delivered the
Holdings Guaranty to the Agent.

(b) Opinions of Counsel. The Agent and the Banks shall have received
legal opinions, dated the Closing Date, from (i) Martin Szymanski, counsel to
the Borrower, substantially in the form set forth as Exhibit H-1 and (ii)
Dickinson, Wright, Moon, Van Dusen & Freeman, special counsel to the Agent,
substantially in the form set forth as Exhibit H-2.

(c) Corporate Documents. The Agent and the Banks shall have received
the Certificate of Incorporation (or its equivalent) of Holdings and the
Borrower, as amended, modified or supplemented to the Closing Date, certified to
be true, correct and complete by the appropriate Secretary of State as of a
recent date prior to the Closing Date, together with a good standing certificate
from such Secretary of State and a good standing certificate from the
Secretaries of State (or the equivalent thereof) of each other State in which
the Borrower is required to be qualified to transact business, each to be dated
the Closing Date or a recent date prior to the Closing Date.

(d) Certified Resolutions, etc. The Agent shall have received a
certificate of the Secretary or Assistant Secretary of each of Holdings and the
Borrower dated the Closing Date certifying (i) the names and true signatures of
their respective incumbent officers authorized to sign the applicable Loan
Documents and act as its representative for the purposes of signing documents
and giving notices and communications in connection therewith, (ii) their
respective By-Laws as in effect on the

<PAGE> 43

Closing Date, (iii) the resolutions of their respective Boards of Directors
approving and authorizing the execution, delivery and performance of all Loan
Documents to which it is a party, and (iv) that there have been no changes in
their respective Certificates of Incorporation since the date of the
certification thereof by the appropriate Secretary of State referred to in
clause (c) above.

(e) Fees and Expenses. NBD shall have received, for its account and
for the account of each Bank, as applicable, all Fees and other fees and
expenses due and payable hereunder on or before the Closing Date.

(f) Additional Matters. The Agent and the Banks shall have received
such other certificates, opinions, documents and instruments relating to this
Agreement, the other Loan Documents and the transactions contemplated by this
Agreement as may have been reasonably requested by the Agent or any Bank
(including without limitation evidence of the termination of the Existing Credit
Facility and the delivery of any guaranties and other documents, if any,
required under Section 6.6(i)), and all corporate and other proceedings and all
other documents (including, without limitation, all documents referred to herein
and not appearing as exhibits hereto), and all matters in connection with this
Agreement, the other Loan Documents and the transactions contemplated by this
Agreement (including, without limitation, legal, tax, labor, benefit, and
environmental matters) shall be satisfactory to the Agent and the Banks.

Section 3.2 Conditions Precedent to All Loans and Issuance of Letters of
Credit. The obligation of each Bank to make any Loan, the obligation of the
Swingline Lender to make any Swingline Loan and the obligation of the Issuing
Bank to issue any Letter of Credit is subject to the satisfaction on or prior to
the date such Loan is made or such Letter of Credit is issued, as the case may
be, of the following conditions precedent:

(a) Representations and Warranties. The representations and warranties
contained herein and in the other Loan Documents (other than representations and
warranties which expressly speak only as of a specific date) shall be true and
correct in all material respects on the date such Loan is made or on the date
such Letter of Credit is issued, as the case may be, both before and after
giving effect to the making of such Loan or the issuance of such Letter of
Credit, as the case may be.

(b) No Default or Event of Default. No Default or Event of Default
shall have occurred and be continuing on such date, either before or after
giving effect to the making of such Loan or the issuance of such Letter of
Credit, as the case may be.

(c) No Injunction. No law or regulation shall have been adopted, and
no order, judgment or decree of any governmental authority shall have been
issued, which would enjoin, prohibit or restrain the making or repayment of the
Loans, the issuance of or the reimbursement for the Letters of Credit.

<PAGE> 44

(d) Notice of Borrowing. In the case where any Loan is to be made, the
Agent and the Banks shall have received a fully executed Notice of Borrowing in
respect of the Loans to be made on such date in accordance with Section 2.1, 2.2
or 2.3, as appropriate.

(e) Letter of Credit Request. In the case where any Letter of Credit
is to be issued, the Issuing Bank shall have received a fully executed Letter of
Credit Request in respect of the Letter of Credit to be issued on such date in
accordance with Section 2A.1(a).

The acceptance of the proceeds of each Loan or the issuance of each Letter
of Credit shall constitute a representation and warranty by Holdings and the
Borrower to each of the Banks or the Issuing Bank, as the case may be, that all
of the conditions required to be satisfied under this Section 3 in connection
with the making of such Loan or the issuance of each Letter of Credit have been
satisfied.

In the case where any Loan is to be made, all of the Notes, certificates,
agreements, legal opinions and other documents and papers referred to in this
Section 3, unless otherwise specified, shall be delivered to the Agent, for the
account of each of the Banks and, except for the Notes, in sufficient
counterparts for each of the Banks, and shall be satisfactory in form and
substance to each of the Banks; and in the case where a Letter of Credit is to
be issued, all of the certificates, agreements, legal opinions and other
documents and papers referred to in this Section 3, unless otherwise specified,
shall be delivered to the Issuing Bank, in sufficient counterparts for each of
the Issuing Bank and the L/C Participants, and shall be satisfactory in form and
substance to the Issuing Bank and each of the L/C Participants.

SECTION 4. REPRESENTATIONS AND WARRANTIES

In order to induce the Banks to enter into this Agreement, to make the
Loans and to issue the Letters of Credit, Holdings and the Borrower make the
following representations and warranties, which shall survive the execution and
delivery of this Agreement and the Notes, the making of the Loans and the
issuance of the Letters of Credit until all obligations are indefeasibly repaid
in full and this Agreement and the Commitments are terminated:

Section 4.1 Corporate Status. Holdings, the Borrower and each of their
respective Subsidiaries (i) is a duly organized and validly existing corporation
in good standing under the laws of the jurisdiction of its organization, (ii)
has the power and authority to own its property and assets and to transact the
business in which it is engaged or presently proposes to engage and (iii) has
duly qualified and is authorized to do business and is in good standing in every
jurisdiction in which it owns or leases real property or in which the nature of
its business requires it to be so qualified.

<PAGE> 45

Section 4.2 Corporate Power and Authority. Each of Holdings and the
Borrower has the corporate power and authority to execute, deliver and carry out
the terms and provisions of each of the Loan Documents to which it is a party
and has taken all necessary corporate action to authorize the execution,
delivery and performance by it of such Loan Documents. Each of Holdings and the
Borrower has duly executed and delivered each such Loan Document to which it is
a party, and each such Loan Document constitutes its legal, valid and binding
obligation, enforceable against it in accordance with its terms subject, as to
enforcement, to bankruptcy, insolvency, moratorium or other similar laws at the
time in effect relating to the enforceability of the rights of creditors
generally and to general principles of equity.

Section 4.3 No Violation. None of the execution, delivery or performance by
Holdings or the Borrower of the Loan Documents to which it is a party,
compliance by it with the terms and provisions thereof or the consummation of
the transactions contemplated thereby, (i) will contravene any applicable
provision of any law, statute, rule or regulation or any applicable order, writ,
injunction or decree of any court or governmental instrumentality or (ii) will
conflict or be inconsistent with or result in any breach of, any of the terms,
covenants, conditions or provisions of, or constitute a default under, or result
in the creation or imposition of (or the obligation to create or impose) any
Lien upon any of the property or assets of Holdings, the Borrower or any other
Subsidiaries pursuant to the terms of any indenture, mortgage, deed of trust, or
other material agreement or other instrument to which Holdings, the Borrower or
any such Subsidiary is a party or by which it or any of its property or assets
is bound or to which it may be subject, or (iii) will violate any provision of
the Certificate of Incorporation or By-Laws of the Borrower.

Section 4.4 Litigation. There are no actions, charges, grievances,
arbitrations, claims, suits or proceedings pending or, to Holdings' or the
Borrower's knowledge, threatened (including any condemnation or similar
proceeding) (i) with respect to any of the Loan Documents or (ii) except as set
forth in Schedule 4.4, that could, individually or in the aggregate, result in a
Material Adverse Effect.

Section 4.5 Financial Statements; Financial Condition; etc. The Borrower
has no material liability (contingent or otherwise) forward or long-term
commitments or anticipated losses from any unfavorable commitments not reflected
in the financial statements most recently made a part of the Borrower's Annual
Report filed on Form 10-K for the fiscal year ended December 31, 1996 and the
Quarterly Report filed on Form 10-Q for the fiscal quarter ended March 31, 1997
or in the notes thereto or on any other financial statements subsequently filed
with the annual or quarterly reports of Holdings on Forms 10-K or 10-Q, as the
case may be.

Section 4.6 Material Adverse Change. Since September 30, 1997, there has
occurred no material adverse change in the condition (financial or otherwise),
operation, assets, nature of assets, liabilities or prospects of Holdings, the
Borrower and their respective Subsidiaries, taken as a whole.

<PAGE> 46

Section 4.7 Use of Proceeds; Margin Regulations. All proceeds of each Loan
will be used by the Borrower only in accordance with the provisions of Section
2.22. No part of the proceeds of any Loan will be used by the Borrower to
purchase or carry any Margin Stock or to extend credit to others for the purpose
of purchasing or carrying any Margin Stock. Neither the making of any Loan nor
the use of the proceeds thereof will violate or be inconsistent with the
provisions of Regulation G, T, U or X of the Federal Reserve Board.

Section 4.8 Governmental Approvals. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority, or any subdivision
thereof, is required to authorize, or is required in connection with (i) the
execution, delivery and performance by Holdings or the Borrower of any Loan
Document or the consummation of any of the transactions contemplated thereby,
(ii) the legality, validity, binding effect or enforceability of any Loan
Document with respect to Holdings or the Borrower, except those that have
already been duly made or obtained and remain in full force and effect.

Section 4.9 Tax Returns and Payments. Each of Holdings, the Borrower and
the other Subsidiaries has filed all tax returns required to be filed by it and
has paid all taxes and assessments payable by it which have become due, other
than those not yet delinquent or those that are reserved against in accordance
with GAAP which are being diligently contested in good faith by appropriate
proceedings.

Section 4.10 ERISA. No accumulated funding deficiency (as defined in
Section 412 of the Code or Section 302 of ERISA) or Reportable Event has
occurred with respect to any Plan that could have a Material Adverse Effect.
There are no Unfunded Benefit Liabilities under any Plan that are reasonably
expected by Holdings or the Borrower to result in a Material Adverse Effect
within the next two calendar years from the date this representation and
warranty is made. Holdings, the Borrower and each member of their ERISA
Controlled Group have complied with the requirements of Section 515 of ERISA
with respect to each Multiemployer Plan and is not in "default" (as defined in
Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan
that could have a Material Adverse Effect. The aggregate potential total
withdrawal liability, and the aggregate potential annual withdrawal liability
payments of the Borrower and the members of its ERISA Controlled Group as
determined in accordance with Title IV of ERISA as if the Borrower and the
members of its ERISA Controlled Group had completely withdrawn from all
Multiemployer Plans is not greater than $3,000,000 and $1,000,000, respectively.
To the best knowledge of Holdings and the Borrower, no Multiemployer Plan is or
is likely to be in reorganization (as defined in Section 4241 of ERISA or
Section 418 of the Code) or is insolvent (as defined in Section 4245 of ERISA),
in either case which could reasonably be expected to result in a Material
Adverse Effect. No material liability to the PBGC (other than required premium
payments) or to any Multiemployer Plan on account of a complete or partial
withdrawal therefrom has been, or is expected by Holdings and the Borrower to
be, incurred by Holdings and the Borrower or any member of their ERISA
Controlled

<PAGE> 47

Group which could result in a Material Adverse Effect. No lien under Section
412(n) of the Code or 302(f) of ERISA or requirement to provide security under
Section 401(a)(29) of the Code or Section 307 of ERISA has been or is reasonably
expected by Holdings and the Borrower to be imposed on the assets of Holdings or
the Borrower or any member of their ERISA Controlled Group.

Section 4.11 Investment Company Act; Public Utility Holding Company Act.
Neither Holdings nor the Borrower is (x) an "investment company" or a company
"controlled" by an "investment company," within the meaning of the Investment
Company Act of 1940, as amended, (y) a "holding company" or a "subsidiary
company" of a "holding company" or an "affiliate" of either a "holding company"
or a "subsidiary company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended, or (z) subject to any other federal or state
law or regulation which purports to restrict or regulate its ability to borrow
money.

Section 4.12 No Material Adverse Effect as of Closing Date. As of the
Closing Date, there is no fact, event or condition known to Holdings or the
Borrower which constitutes or could reasonably be expected to have a Material
Adverse Effect.

Section 4.13 Corporate Structure; Capitalization. Schedule 4.13 hereto sets
forth, as of the Closing Date, the number of authorized and issued shares of
capital stock or other equity interests, as the case may be, of each of
Holdings' and the Borrower's Subsidiaries and Double Eagle, the par value
thereof and the registered owner(s) thereof. All of such stock has been duly and
validly issued and is fully paid and non-assessable.

Section 4.14 Environmental Matters. (a) Except as set forth in Schedule
4.14, (i) each of Holdings and the Borrower, the other Subsidiaries and, to the
best of Holdings' and the Borrower's knowledge, their respective Environmental
Affiliates are in compliance with all applicable Environmental Laws except where
noncompliance could not have a Material Adverse Effect, (ii) each of Holdings,
the Borrower and the other Subsidiaries and, to the best of Holdings' and the
Borrower's knowledge, their respective Environmental Affiliates have all
material Environmental Approvals required to operate their businesses as
presently conducted or as reasonably anticipated to be conducted which the
failure to have could reasonably be expected to have a Material Adverse Effect,
(iii) none of Holdings, the Borrower or any of the other Subsidiaries, or, to
the best of Holdings' and the Borrower's knowledge, any of their respective
Environmental Affiliates has received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that alleges that
Holdings, the Borrower, any other such Subsidiary or such Environmental
Affiliate is not in full compliance with all Environmental Laws, which
noncompliance could reasonably be expected to have a Material Adverse Effect,
and (iv) to Holdings' and the Borrower's best knowledge after due inquiry, there
are no circumstances that may prevent or interfere with such full compliance in
the future, except such noncompliance which could not reasonably be expected to
have a Material Adverse Effect.

<PAGE> 48

(b) Except as set forth in Schedule 4.14, to the best of Holdings' and
the Borrower's knowledge after due inquiry, there is no Environmental Claim
pending or threatened against Holdings, the Borrower, any of the other
Subsidiaries or any of their respective Environmental Affiliates which could
reasonably be expected to have a Material Adverse Effect.

(c) Except as set forth in Schedule 4.14, there are no past or present
actions, activities, circumstances, conditions, events or incidents, including,
without limitation, the release, emission, discharge or disposal of any Material
of Environmental Concern, that could form the basis of any Environmental Claim
against Holdings or the Borrower, any of the other Subsidiaries or, to the best
of Holdings' and the Borrower's knowledge, any of their respective Environmental
Affiliates, which Environmental Claim could reasonably be expected to have a
Material Adverse Effect.

Section 4.15 Patents, Trademarks, etc. Holdings, the Borrower and each of
the other Subsidiaries have obtained and hold in full force and effect all
patents, trademarks, servicemarks, trade names, copyrights and other such
rights, free from burdensome restrictions, which are necessary for the operation
of its business as presently conducted and which the failure to hold could
reasonably be expected to result in a Material Adverse Effect. To the best of
Holdings' and the Borrower's knowledge, no material product, process, method,
substance, part or other material presently sold by or employed by Holdings or
the Borrower or the other Subsidiaries in connection with such business
infringes any patent, trademark, service mark, trade name, copyright, license or
other right owned by any other Person, which infringement could reasonably be
expected to result in a Material Adverse Effect. There is not pending or, to
Holdings' and the Borrower's knowledge, overtly threatened, any claim or
litigation against or affecting Holdings, the Borrower or any of the other
Subsidiaries contesting its right to sell or use any such product, process,
method, substance, part or other material.

Section 4.16 Ownership of Property. Holdings, the Borrower and each of the
other subsidiaries have good and valid title to or valid leasehold interests in
all of their material real property and good title to all of their personal
property subject to no Lien of any kind except Liens permitted hereby. Holdings,
the Borrower and each of the other Subsidiaries enjoy peaceful and undisturbed
possession under all of their material respective leases.

Section 4.17 No Default. None of Holdings, the Borrower or any other
Subsidiary is in default under or with respect to any agreement, instrument or
undertaking to which it is a party or by which it or any of its property is
bound in any respect, which default could reasonably be expected to result in a
Material Adverse Effect.

Section 4.18 Licenses, etc. Each of Holdings, the Borrower and the other
Subsidiaries have obtained and hold in full force and effect, all material
franchises,

<PAGE> 49

licenses, permits, certificates, authorizations, qualifications, accreditations,
easements, rights of way and other rights, consents and approvals which are
necessary for the operation of their respective businesses as presently
conducted and which the failure to hold in full force and effect could
reasonably be expected to have a Material Adverse Effect.

Section 4.19 Compliance with Law. Holdings, the Borrower and each other
Subsidiary is in compliance with all laws, rules, regulations, orders,
judgments, writs and decrees except to the extent such non-compliance,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect.

Section 4.20 No Burdensome Restrictions. None of Holdings, the Borrower nor
any other Subsidiary is a party to any agreement or instrument or subject to any
other obligation or any charter or corporate restriction which could reasonably
be expected to have a Material Adverse Effect.

Section 4.21 Property Rights, Services, etc. All services, means of
transportation, facilities and other materials necessary for the operation of
the Plant and the Power Plant at their designed capacities (including, without
limitation, as necessary, gas, electrical, water and sewage services and
facilities) are available to the Plant and the Power Plant and, to the extent
appropriate, arrangements have been made on commercially reasonable terms for
such services, means of transportation, facilities and other materials.

SECTION 5. AFFIRMATIVE COVENANTS

Each of Holdings and the Borrower covenants and agrees that on and after
the Closing Date, until the Total Commitment has terminated and the obligations
are paid in full:

Section 5.1 Information Covenants. Holdings and/or the Borrower will
furnish to each Bank:

(a) Quarterly Financial Statements. Within forty-five (45) days after
the close of each of the first three quarterly accounting periods in each fiscal
year of Holdings, the consolidated balance sheet of Holdings as at the end of
such quarterly period and the related consolidated statements of operations,
stockholders, equity (or deficiency) and cash flow for such quarterly period and
for the elapsed portion of the fiscal year ended with the last day of such
quarterly period, and in each case setting forth comparative figures for the
related periods in the prior fiscal year.

(b) Annual Financial Statements. Within ninety (90) days after the
close of each fiscal year of Holdings, the consolidated balance sheet of
Holdings as at the end of such fiscal year and the related consolidated
statements of operations,

<PAGE> 50

stockholders, equity (or deficiency) and cash flow for such fiscal year,
certified without qualification by Price Waterhouse or other independent
certified public accountants of recognized national standing reasonably
acceptable to the Required Banks, in each case together with a report of such
accounting firm stating that in the course of its regular audit of the
consolidated financial statements of Holdings, which audit was conducted in
accordance with generally accepted auditing standards, such accounting firm has
obtained no knowledge of any Default or Event of Default, or if in the opinion
of such accounting firm such a Default or Event of Default has occurred and is
continuing, a statement as to the nature thereof.

(c) Management Letters. Promptly after Holdings' or the Borrower's
receipt thereof, a copy of any "management letter" or other material report
received by Holdings or the Borrower from its independent certified public
accountants.

(d) Budgets. Within sixty (60) days after the commencement of each
fiscal year of Holdings, a budget and financial forecast of results of
operations and sources and uses of cash (in form reasonably satisfactory to the
Required Banks) prepared by Holdings for such fiscal year (and, in any event,
covering the Borrower and each of the other Subsidiaries of Holdings),
accompanies by a written statement of the assumptions used in connection
therewith.

(e) Officer's Certificates. At the time of the delivery of the
financial statements under clauses (a) and (b) above, a certificate of the chief
financial officer of Holdings which certifies (x) that such financial statements
fairly present the financial condition and the results of operations of Holdings
on the dates and for the periods indicated, subject, in the case of interim
financial statements, to normally recurring yearend adjustments and (y) that
such officer has reviewed the terms of the Loan Documents and has made, or
caused to be made under his or her supervision, a review in reasonable detail of
the business and condition of Holdings, the Borrower and the other Subsidiaries
during the accounting period covered by such financial statements, and that as a
result of such review such officer has concluded that no Default or Event of
Default has occurred during the period commencing at the beginning of the
accounting period covered by the financial statements accompanied by such
certificate and ending on the date of such certificate or, if any Default or
Event of Default has occurred, specifying the nature and extent thereof and, if
continuing, the action Holdings or the Borrower proposes to take in respect
thereof. Such certificate shall set forth the calculations required to establish
(i) whether Holdings was in compliance with the provisions of Section 6.1 during
(with respect to Sections 6.1(a) and 6.1(b)) and as at the end of (with respect
to Section 6.1(c)) the accounting period covered by the financial statements
accompanied by such certificate, and (ii) a calculation of the Debt to
Capitalization Ratio for the last fiscal quarter covered by such financial
statements.

(f) Notice of Default or Litigation. Promptly, and in any event within
three Business Days after Holdings or the Borrower obtains knowledge thereof,
notice of (i) the occurrence of any Default or Event of Default, (ii) any
litigation or

<PAGE> 51

governmental proceeding pending or threatened, or any material development in
any such litigation or proceeding, against the Borrower which could result in a
Material Adverse Effect and (iii) any other event, act or condition which could
reasonably be expected to result in a Material Adverse Effect.

(g) ERISA. (i) As soon as possible and in any event within 10 days
after Holdings or the Borrower knows, or has reason to know, a Reportable Event
or Termination Event or other condition with respect to any Multiemployer Plan
or ERISA Plan has occurred or will occur which, in any case, could reasonably be
expected to result in a Material Adverse Effect:

(ii) As soon as possible and in any event within three Business
Days after the receipt by Holdings, the Borrower or any member of their ERISA
Controlled Group of a demand letter from the PBGC notifying Holdings or the
Borrower or such member of their ERISA Controlled Group of its final decision
finding liability and the date by which such liability must be paid, a copy of
such letter, together with a certificate of the president or chief financial
officer of Holdings and the Borrower setting forth the action which Holdings and
the Borrower or such member of their ERISA Controlled Group proposes to take
with respect thereto.

(h) SEC Filings. Promptly after the filing thereof, copies of all
regular and periodic financial information, proxy materials and other
information and reports described on Schedule 5.1(h), if any, which Holdings or
the Borrower or any other Subsidiary shall file with the Securities and Exchange
Commission or any governmental agency substituted therefor or which Holdings,
the Borrower or any such other Subsidiary shall send to its stockholders
generally.

(i) Environmental Notices. Promptly, and in any event within ten
Business Days after becoming aware of the existence of any of the following
conditions, a certificate of the chief executive officer or chief financial
officer of Holdings or the Borrower specifying in detail the nature of such
condition and the proposed response thereto: (i) the receipt by Holdings, the
Borrower or any other Subsidiary or any of their respective Environmental
Affiliates of any written communication that alleges that Holdings, the Borrower
or such Subsidiary or such Environmental Affiliate is not in compliance with
applicable Environmental Laws, which noncompliance could reasonably be expected
to have a Material Adverse Effect, (ii) Holdings, the Borrower or any other
Subsidiary or any of their respective Environmental Affiliates shall obtain
actual knowledge that there exists any Environmental Claim pending or threatened
against such Person, which could reasonably be expected to have a Material
Adverse Effect, or (iii) any release, emission, discharge or disposal of any
Material of Environmental Concern that could form the basis of any Environmental
Claim against Holdings, the Borrower or any other Subsidiary or any of their
respective Environmental Affiliates, which Environmental Claim could reasonably
be expected to have a Material Adverse Effect.

<PAGE> 52

(j) Other Information. From time to time, such other information or
documents (financial or otherwise) as any Bank may reasonably request.

Section 5.2 Books, Records and Inspections. Holdings and the Borrower
shall, and shall cause each other Subsidiary to, keep proper books of record and
account in which full, true and correct entries in conformity with GAAP and all
requirements of law shall be made of all dealings and transactions in relation
to its business and activities. Holdings and the Borrower shall, and shall cause
each other Subsidiary to, permit officers and designated representatives of the
Agent and any Bank to visit and inspect any of the properties of Holdings, the
Borrower or any other Subsidiary, and to examine the books of record and
accounts of Holdings, the Borrower or any other Subsidiary, and discuss the
affairs, finances and accounts of Holdings, the Borrower or any other Subsidiary
with, and be advised as to the same by, its and their officers and independent
accountants, all upon reasonable prior notice and at such reasonable times as
the Agent or such Bank may desire.

Section 5.3 Maintenance of Insurance. Holdings and the Borrower shall, and
shall cause each other Subsidiary to, maintain in effect the insurance listed on
Schedule 5.3 hereto with financially sound and reputable insurance companies.
The insurance policies and coverage listed and described thereon shall not be
altered or cancelled without the prior consent of the Required Banks if, as a
result thereof, Holdings and the Borrower shall fail to maintain insurance with
such coverages as is customary for companies in the same general area engaged in
the same or similar business.

Section 5.4 Taxes. Holdings and the Borrower shall pay or cause to be paid,
and shall cause each other Subsidiary to pay or cause to be paid, when due, all
taxes, charges and assessments and other lawful claims required to be paid by
Holdings, the Borrower or any such other Subsidiary, except as contested in good
faith and by appropriate proceedings diligently conducted, if adequate reserves
have been established with respect thereto in accordance with GAAP.

Section 5.5 Corporate Franchises. Holdings and the Borrower shall, and
shall cause each other Subsidiary to, do or cause to be done, all things
necessary to preserve and keep in full force and effect its existence and its
patents, trademarks, service marks, trade names, copyrights, franchises,
licenses, permits, certificates, authorizations, qualifications, accreditations,
easements, rights of way and other rights, consents and approvals except where
the failure to so preserve any of the foregoing could not, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.

Section 5.6 Compliance with Law. Holdings and the Borrower shall, and
shall cause each other Subsidiary to and shall use their best efforts to cause
Double Eagle to, comply with all applicable laws, rules, statutes, regulations,
decrees and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign,

<PAGE> 53

in respect of the conduct of their business and the ownership of their property,
including, without limitation, all Environmental Laws, except such
non-compliance as could not, individually or in the aggregate, reasonably be
expected to result in a Material Adverse Effect.

Section 5.7 Performance of Obligations. Holdings and the Borrower shall,
shall cause each other Subsidiary to and shall use their best efforts to cause
Double Eagle to, perform in all material respects all of their respective
obligations and preserve and protect in all material respects its rights under
the terms of each mortgage, indenture, security agreement, debt instrument,
lease, undertaking and contract by which it or any of its properties is bound or
to which it is a party if the failure to so perform could, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.

Section 5.8 Maintenance of Properties. Holdings and the Borrower shall,
shall cause each other Subsidiary to and shall use its best efforts to cause
Double Eagle to, ensure that its material properties used or useful and
necessary in its business are kept in good repair, working order and condition,
normal wear and tear excepted, provided that neither Holdings, the Borrower nor
any other Subsidiary shall be required to maintain, repair or improve any such
property which in its good faith opinion is obsolete, surplus, unfit for use or
cannot be advantageously employed in the conduct of its business.

Section 5.9 Environmental Matters. (a) Upon the occurrence of any release,
emission, discharge or disposal of any Material of Environmental Concern which
could reasonably be expected to form the basis of an Environmental Claim against
Holdings, the Borrower, any other Subsidiary or any Environmental Affiliate,
which occurrence could reasonably be expected to result in a Material Adverse
Effect, Holdings and the Borrower shall, and shall cause each such other
Subsidiary or Environmental Affiliate to, (i) take all necessary steps and
actions to initiate and expeditiously complete all required remedial actions in
connection therewith, and (ii) keep the Agent informed of such actions and the
results thereof.

(b) Obtain and keep in full force and effect all Environmental
Approvals necessary or required for the management, use, control, ownership or
operations of its business, property or assets, unless the failure to so obtain
and keep in full force and effect any such Environmental Approval could not
reasonably be expected to have a Material Adverse Effect.

SECTION 6. NEGATIVE COVENANTS

Each of Holdings and the Borrower covenants and agrees that on and after
the Closing Date, until the Total Commitment has terminated and the obligations
are paid in full:
<PAGE> 54

Section 6.1 Financial Covenants.

(a) Debt to Capitalization Ratio. Holdings shall not at any time
permit the Debt to Total Capitalization Ratio to be greater than 0.45 to 1.0.

(b) Net Worth. Holdings shall not at any time permit its Net Worth to
be less than an amount equal to the sum of (i) $376,684,000 plus (ii) the
aggregate of the Annual Increase for each fiscal year of Holdings that shall
have elapsed during the period from January 1, 1997 through the date as at which
compliance with this subsection (b) is being determined, such Annual Increase to
be added as of each December 31, commencing December 31, 1997.

(c) Interest Coverage Ratio. Holdings shall not, as of the end of each
fiscal quarter, permit the Interest Coverage Ratio for such fiscal quarter to be
less than 3.0 to 1.0, in each case as calculated for the four consecutive fiscal
quarters then ending.

Section 6.2 Liens. Holdings and the Borrower shall not, and shall not
permit any other Subsidiary to, create, incur, assume or suffer to exist,
directly or indirectly, any Lien on any of its property now owned or hereafter
acquired, other than:

(a) Liens existing on the Closing Date and set forth on Schedule 6.2
hereto;

(b) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings diligently conducted and with respect to which
adequate reserves are being maintained in accordance with GAAP;

(c) Statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen and other Liens arising by operation of Law, in each case
created in the ordinary course of business for amounts not yet due or which are
being contested in good faith by appropriate proceedings diligently conducted
and with respect to which adequate reserves have been established;

(d) Liens incurred or deposits made in the ordinary course of business
in connection with workers, compensation, unemployment insurance and other types
of social security, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations (exclusive
of obligations for the payment of borrowed money);

(e) Easements, rights-of-way, zoning and similar restrictions and
other similar charges or encumbrances not interfering with the ordinary conduct
of the business of Holdings, the Borrower or any other Subsidiary and which do
not detract materially from the value of the property to which they attach or
impair materially the

<PAGE> 55

use thereof by Holdings, the Borrower or any such Subsidiary;

(f) Liens created pursuant to Capitalized Leases to the extent the
Borrower is in compliance with Section 6.1, provided that such Liens are only in
respect of the property or assets subject to, and secure only, the respective
Capitalized Lease;

(g) subject to compliance with Section 6.1, Liens existing on property
or assets of a Person immediately prior to its becoming a Subsidiary of Holdings
or the Borrower and which Lien was not created, incurred or assumed by such
Person in anticipation thereof, provided that such Lien shall at all times be
confined solely to the property subject thereto at the time such Person becomes
a Subsidiary of Holdings or the Borrower;

(h) Liens securing Indebtedness of the Borrower or any other
Subsidiary (and any refinancings, refundings, renewals or extensions thereof on
terms no less favorable (taken as a whole) to the Borrower or such other
Subsidiary, as the case may be, provided that the principal amount of such
Indebtedness is not increased) incurred after the Closing Date solely for the
purpose of financing an acquisition by the Borrower or such other Subsidiary of
real or personal property or the cost of construction or improvements to or on
such property, or Liens existing on such property so acquired at the time of
acquisition thereof, provided that:

(i) each such Lien shall at all times be confined solely to the
property so acquired;

(ii) the principal amount of Indebtedness secured by each such Lien
shall at no time exceed the lesser of (A) the cost to such Person of the
property subject thereto or (B) the fair value of such property (as determined
in good faith by the Board of Directors of the Borrower or such other
Subsidiary, as the case may be), at the time of the acquisition thereof or
completion of construction thereon;

(iii) the aggregate principal amount of all Indebtedness secured by
all such Liens shall not exceed $10,000,000; and

(i) Liens not otherwise permitted pursuant to subclauses (a) through
(h) above securing Indebtedness not in excess of $10,000,000 in the aggregate at
any time outstanding; and

(j) Liens securing Non-Recourse Debt, provided such Liens do not
secure in excess of $30,000,000 aggregate principal amount of Non-Recourse Debt
(plus accrued interest thereon).

Section 6.3 Restriction on Fundamental Changes. (a) Holdings and the
Borrower shall not, and shall not permit any other Subsidiary to, enter into any
merger or consolidation, or liquidate, wind-up or dissolve (or suffer any
liquidation or
<PAGE> 56

dissolution), discontinue its business or convey, lease, sell, transfer or
otherwise dispose of, in one transaction or series of transactions, all or
substantially all of its assets, whether now or hereafter acquired, except as
otherwise permitted under Section 6.4, provided that (x) Holdings or the
Borrower may consolidate or merge with any other Person if (i) Holdings or the
Borrower, as the case may be, shall be the surviving or continuing entity, (ii)
at the time of such consolidation or merger and after giving effect thereto, no
Default shall have occurred and be continuing, (iii) such other Person shall be
primarily engaged in the business of manufacturing and/or processing steel or
steel-related products and (iv) the Agent and the Banks shall have received a
certificate from an Authorized Officer of the Borrower certifying that, after
giving effect to such merger or consolidation, there is no reasonable likelihood
of a Material Adverse Effect resulting therefrom and (y) any Subsidiary of
Holdings (other than the Borrower) may merge with or into any other Subsidiary
of Holdings (other than the Borrower).

(b) Holdings and the Borrower shall not, and shall not permit any
other Subsidiary to, (i) acquire, by purchase or otherwise any other Person
(regardless of whether such transaction is structured as a sale of stock or
assets), or (ii) enter into any partnership or joint venture (other than any
partnership or joint venture in existence on the Closing Date), provided that
Holdings, the Borrower or any other Subsidiary may (x) so acquire any other
Person if (i) at the time of such acquisition and after giving effect thereto,
no Default or Event of Default shall have occurred and be continuing, (ii) the
Person which is being acquired shall be primarily engaged in the business of
manufacturing and/or processing steel or steel-related products and (iii) there
is no reasonable likelihood of a Material Adverse Effect resulting therefrom and
(y) enter into a partnership or joint venture if such partnership or joint
venture (each, a "New JV") shall be primarily engaged in the business of
manufacturing and/or processing steel or steel-related products and, after
giving effect to such New JV, there is no reasonable likelihood of a Material
Adverse Effect resulting therefrom.

(c) Holdings and the Borrower shall not, and shall not permit any
other Subsidiary to, amend or modify its certificate of incorporation or by-laws
or, in the case of the Double Eagle, its Joint Venture Agreement if such
amendment or modification could have a Material Adverse Effect.

(d) Holdings and the Borrower shall not, and shall not permit any
other Subsidiary to, be or become a "holding company" or a "subsidiary company"
of a "holding company" or a "subsidiary company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.

(e) Neither Holdings nor the Borrower shall have or create any
Subsidiaries except those set forth on Schedule 6.3(e) or otherwise permitted to
be formed pursuant to, and subject to the terms and provisions of, Section
6.6(i).

Section 6.4 Sale of Assets. Holdings and the Borrower shall not, and shall
not permit any other Subsidiary to, convey, lease, sell, transfer or otherwise
dispose of (or

<PAGE> 57

agree to do so at any future time) all or any part of its property or assets and
shall not enter into, or agree to, any transaction involving or in connection
with the sale and/or securitization of any of its receivables, except (i) sales
of inventory in the ordinary course of business, (ii) sales of equipment or
other assets which are uneconomic, obsolete or no longer useful in its business,
(iii) sales of assets described on Schedule 6.4 hereof for not less than the
fair market value (as determined by Holdings, or the Borrower's Board of
Directors in good faith), (iv) the sale or other disposition of other assets in
an aggregate amount not to exceed $25,000,000 (based on the fair market value of
such assets at the time of such sale or other disposition) during the term of
this Agreement and until all obligations are paid in full and (v) the Borrower
may transfer all of its interests in any joint venture or Subsidiary, including
Double Eagle, existing on the Closing Date to Holdings or to any wholly-owned
Subsidiary of Holdings.

Section 6.5 Dividends. Holdings and the Borrower shall not, and shall not
permit any other Subsidiary to, declare or pay any dividends (other than
dividends payable solely in common stock), or return any capital to, its
stockholders or authorize or make any other distribution, payment or delivery of
property or cash to its stockholders as such, or redeem, retire, purchase or
otherwise acquire, directly or indirectly, any shares of any class of its
capital stock now or hereafter outstanding (or any options or warrants issued
with respect to its capital stock), or set aside any funds for any of the
foregoing purposes (all the foregoing "Dividends"), except that if no Default or
Event of Default shall have occurred and shall be continuing after giving effect
thereto, (i) dividends may be made on Holdings' common stock in an aggregate
amount in any fiscal year not to exceed the greater of (A) $8,000,000 and (B)
50% of the cumulative consolidated Net Income (if positive) of Holdings for the
immediately preceding four fiscal quarters, (ii) dividends may be made to
Holdings by the Borrower or any other Subsidiary, (iii) dividends may be made on
any preferred stock issued by Holdings or the Borrower, if in each case, after
giving effect thereto, Holdings and the Borrower shall be in compliance with
Section 6.1, (iv) Holdings may make purchases of its common stock in the open
market at the then prevailing market prices solely for the purposes of matching
contributions of any employee benefit or other similar type plan now or
hereafter maintained by the Borrower, and (v) Holdings and the Borrower may
repurchase shares of its common stock and options and warrants thereon granted
to employees and directors of Holdings and the Borrower in accordance with the
terms of any employee benefit or other similar type plan now or hereafter
maintained by Holdings and the Borrower.

Section 6.6 Advances, Investments and Loans. Holdings and the Borrower
shall not, and shall not permit any other Subsidiary to, lend money or credit or
make advances to any Person, or directly or indirectly purchase or acquire any
stock, obligations or securities of, or any other interest in, or make any
capital contribution to, any Person, except that the following shall be
permitted:

(a) accounts receivable, if created or acquired in the ordinary course
of business and payable or dischargeable in accordance with customary trade
terms;
<PAGE> 58

(b) loans and advances to Holdings or any of its Subsidiaries by any
of its Subsidiaries;

(d) loans and advances in cash to, or the provision of credit in the
nature of guarantees for the benefit of, Double Eagle and any New JV in an
aggregate outstanding amount not to exceed the greater of (i) $55,000,000 and
(ii) 10% of Tangible Net Worth;

(e) loans and advances by Holdings or any Subsidiary to their
employees in the ordinary course of its business not exceeding $250,000 in the
aggregate at any one time outstanding;

(f) Holdings, the Borrower and the other Subsidiaries may acquire and
hold Cash Equivalents;

(g) transactions permitted pursuant to Sections 6.3(a) and 6.3(b);

(h) capital contributions by Holdings to Double Eagle to the extent
necessary to fund its operating expenses incurred in the ordinary course of
business and to fund capital expenditures of Double Eagle; and

(i) capital contributions solely in cash to any newly formed
Subsidiary, provided, however, that if any such capital contributions exceeds
$10,000,000 in the aggregate to all such Subsidiaries, Holdings shall cause each
such Subsidiary to guaranty the Obligations to the extent of the total amount of
capital contributions to any such Subsidiary, and Holdings shall cause to be
delivered to the Agent a guaranty agreement in form and substance satisfactory
to the Agent and the Banks, together with such other documents and opinions of
counsel in connection with the foregoing as may be reasonably requested by the
Agent or its counsel.

Section 6.7 Transactions with Affiliates. Holdings and the Borrower shall
not, shall not permit any other Subsidiary to and shall use their best efforts
to not permit Double Eagle or any New JV, to enter into any transaction or
series of related transactions, whether or not in the ordinary course of
business, with any Affiliate (other than Worthington, Double Eagle or any New
JV), other than on terms and conditions at least as favorable to Holdings or the
Borrower or such Subsidiary as would be obtainable by Holdings or the Borrower
or such Subsidiary at the time in a comparable arm's-length transaction with a
Person other than an Affiliate, except as set forth in Schedule 6.7 and except
that the Borrower may purchase pellets from Eveleth Mines for use in the
Borrower's business.

Section 6.8 Changes in Business. Holdings and the Borrower shall not, shall
not permit any other Subsidiary to and shall use its best efforts to not permit
Double

<PAGE> 59

Eagle or any New JV to, enter into any business which is substantially
different from that conducted by Holdings, the Borrower, such Subsidiary, Double
Eagle or any New JV which is in existence on the Closing Date, as the case may
be, on the Closing Date.

Section 6.9 Certain Restrictions. Holdings and the Borrower shall not,
shall not permit any other Subsidiary to, and shall use their best efforts to
not permit Double Eagle or any New JV to, enter into any agreement which
restricts the ability of Holdings, the Borrower, any Subsidiary, any such New JV
or the Double Eagle, as the case may be, to (a) enter into amendments,
modifications or waivers of the Loan Documents, (b) sell, transfer or otherwise
dispose of its assets, (c) create, incur, assume or suffer to-exist any Lien
upon any of its property, (d) create, incur, assume, suffer to exist or
otherwise become liable with respect to any Indebtedness, or (e) pay any
Dividend; provided, however, (i) agreements governing Indebtedness secured by
any Lien permitted pursuant to Section 6.2(a), (f), (g), (h) or (j) which
contain restrictions of the types referred to in clauses (b) or (c) with respect
to the property secured thereby shall be permitted and (ii) any such agreements
may contain the restriction of the types referred to herein to the extent such
restrictions are not more restrictive to Holdings, the Borrower, its
Subsidiaries, such New JV or Double Eagle than those set forth in this
Agreement.

Section 6.10 Fiscal Year; Fiscal Quarter. Holdings and the Borrower shall
not, and shall not permit any Subsidiary to, change its fiscal year or any
fiscal quarter.

Section 6.11 Plans. Holdings and the Borrower shall not, and shall not
permit any member of their ERISA Controlled Group to, take any action which
would increase the aggregate present value of the Unfunded Benefit Liabilities
under all Plans to an amount in excess of 10% of Plan Assets.

SECTION 7. EVENTS OF DEFAULT

Section 7.1 Events of Default. Each of the following events, acts,
occurrences or conditions shall constitute an Event of Default under this
Agreement, regardless of whether such event, act, occurrence or condition is
voluntary or involuntary or results from the operation of law or pursuant to or
as a result of compliance by any Person with any judgment, decree, order, rule
or regulation of any court or administrative or governmental body:

(a) Failure to Make Payments. The Borrower shall default in the
payment when due of any principal of or interest on the Loans, or fail to
reimburse the Issuing Bank for any payment or disbursement made by the Issuing
Bank under any Letter of Credit on the date so made in accordance with Section
2A, or any Fees or any other amounts owing hereunder or under any other Loan
Document; and such default (except in the case of a failure to make payment of
any principal on the Loans and to reimburse for the drawings made under any
Letter of Credit) shall continue unremedied

<PAGE> 60

for a period of five (5) days.

(b) Breach of Representation or Warranty. Any representation or
warranty made by Holdings or the Borrower herein or in any other Loan Document
or in any certificate or statement delivered pursuant hereto or thereto shall
prove to be false or misleading in any material respect on the date as of which
made or deemed made.

(i) Holdings or the Borrower shall fail to perform or observe any
agreement, covenant or obligation arising under Sections 5.1(f), 5.9 and 6.1
through 6.11.

(ii) Holdings or the Borrower shall fail to perform or observe any
agreement, covenant or obligation arising under this Agreement (except those
described in clauses (a), (b) and (c)(i) above), and such failure shall continue
for thirty (30) days.

(iii) Holdings, the Borrower or any other Subsidiary shall fail to
perform or observe any agreement, covenant or obligation arising under any
provision of the Loan Documents other than this Agreement, which failure shall
continue after the end of the applicable grace period provided, if any, therein.

(d) Default Under Other Agreements. Holdings or the Borrower shall
default in the payment when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise), of any amount owing in respect
of any Indebtedness (other than the Obligations) which, individually or in the
aggregate, equals or exceeds $5,000,000; or Holdings or the Borrower shall
default in the performance or observance of any obligation or condition with
respect to any such Indebtedness or any other event shall occur or condition
shall exist, if the effect of such default or event or condition is to
accelerate the maturity of any such Indebtedness or to permit (after giving
effect to any applicable grace period) the holder or holders thereof, or any
trustee or agent for such holders, to accelerate the maturity of any such
Indebtedness, or any such Indebtedness shall become or be declared to be due and
payable prior to its stated maturity.

(e) Bankruptcy, etc. (i) Holdings, the Borrower or any other
Significant Subsidiaries shall commence a voluntary case concerning itself under
the Bankruptcy Code; or (ii) an involuntary case is commenced against Holdings,
the Borrower or any other Significant Subsidiaries and the petition is not
dismissed within 60 days after commencement of the case; or (iii) a custodian
(as defined in the Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of Holdings, the Borrower or any other
Significant Subsidiaries or Holdings, the Borrower or any other Significant
Subsidiaries commences any other proceedings under any reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation

<PAGE> 61

or similar law of any jurisdiction whether now or hereafter in effect relating
to Holdings, the Borrower or such Significant Subsidiaries or there is commenced
against Holdings, the Borrower or any other Significant Subsidiaries any such
proceeding which remains undismissed for a period of 60 days; or (iv) any order
of relief or other order approving any such case or proceeding is entered; or
(v) Holdings, the Borrower or any other Significant Subsidiaries is adjudicated
insolvent or bankrupt; or (vi) Holdings, the Borrower or any other Significant
Subsidiaries suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or (vii) Holdings, the Borrower or any other Significant
Subsidiaries makes a general assignment for the benefit of creditors; or (viii)
Holdings, the Borrower or any other Significant Subsidiaries shall fail to pay,
or shall state in writing that it is unable to pay, or shall be unable to pay,
its debts generally as they become due; or (ix) Holdings, the Borrower or any
other Significant Subsidiaries shall by any act or failure to act consent to,
approve of or acquiesce in any of the foregoing; or (x) any corporate action is
taken by Holdings, the Borrower or any other Significant Subsidiaries for the
purpose of effecting any of the foregoing.

(f) ERISA. (i) Any Termination Event shall occur, or (ii) any Plan
(other than a Multiemployer Plan) shall incur an "accumulated funding
deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA),
whether or not waived or (iii) Holdings, the Borrower or a member of their ERISA
Controlled Group shall have engaged in a transaction which is prohibited under
Section 4975 of the Code or Section 406 of ERISA which would result in the
imposition of liability in excess of $100,000 on Holdings, the Borrower or any
member of their ERISA Controlled Group, or (iv) Holdings, the Borrower or any
member of their ERISA Controlled Group shall fail to pay when due an amount
which it shall have become liable to pay to the PBGC, any Plan or a trust
established under Title IV of ERISA, or (v) a condition shall exist by reason of
which the PBGC would then be entitled to obtain a decree adjudicating that an
ERISA Plan must be terminated or have a trustee appointed to administer any
ERISA Plan, or (vi) Holdings, the Borrower or a member of their ERISA Controlled
Group suffers a partial or complete withdrawal from a Multiemployer Plan; where
the events or conditions described in the preceding clauses (i) through (vi)
individually or in the aggregate would result in liability of $5,000,000 or
more.

(g) Change in Control. A Change in Control has occurred.

(h) Judgments. One or more judgments or decrees (including those
resulting from an Environmental Claim) in an aggregate amount of $5,000,000 or
more shall be entered by a court or courts of competent jurisdiction against
Holdings, the Borrower or any other Subsidiary (other than any judgment as to
which, and to the extent, a reputable insurance company has acknowledged
coverage of such claim in writing) and (i) any such judgment or decree shall not
be stayed, discharged, paid, bonded or vacated within 30 days thereof or (ii)
enforcement proceedings shall be commenced by any creditor on any such judgment
or decree and such proceedings shall not be stayed or bonded within 5 days.

<PAGE> 62

(i) Guaranty. The Holdings Guaranty, or any other guaranty agreement
delivered pursuant to the terms of Section 6.6(i) of this Agreement, shall cease
to be in full force and effect and enforceable or Holdings, or any other
guarantor party to any such guaranty agreement, as the case may be, shall
disaffirm or disavow its obligations thereunder.

Section 7.2 Rights and Remedies. Upon the occurrence of any Event of
Default described in Section 7.1(e), the Commitments shall automatically and
immediately terminate and the unpaid principal amount of and any and all accrued
interest on the Loans and any and all accrued Fees and other Obligations shall
automatically become immediately due and payable, with all additional interest
from time to time accrued thereon and without presentation, demand, or protest
or other requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by
Holdings and the Borrower, and the obligation of each Bank to make any Loan
hereunder shall thereupon terminate; and upon the occurrence and during the
continuance of any other Event of Default, the Agent shall at the request, or
may with the consent, of the Required Banks, by written notice to the Borrower,
(i) declare that the Revolving Loan Commitments are terminated, whereupon the
Revolving Loan Commitments and the obligation of each Bank to make any Loan
hereunder shall immediately terminate, (ii) declare the unpaid principal amount
of and any and all accrued and unpaid interest on the Loans and any and all
accrued Fees and other obligations to be, and the same shall thereupon be,
immediately due and payable with all additional interest from time to time
accrued thereon and without presentation, demand, or protest or other
requirements of any kind (including, without limitation, valuation and
appraisement, diligence, presentment, notice of intent to demand or accelerate
and notice of acceleration), all of which are hereby expressly waived by the
Borrower, (iii) terminate any stand-by Letter of Credit upon 30 days, written
notice to the Borrower and the beneficiary thereunder, and (iv) demand the
Borrower to deposit (and the Borrower agrees that upon receipt of such demand it
will promptly deposit) with the Agent cash or Cash Equivalents of the type
described in subclauses (i), (ii) and (iv) of the definition of Cash Equivalents
in an amount equal to the Letter of Credit Outstandings, which deposit shall be
held by the Agent for the benefit of the Issuing Bank as security for, and to
provide for the payment of, the Letter of Credit Outstandings.

SECTION 8. THE AGENT

Section 8.1 Appointment. Each Bank hereby irrevocably designates and
appoints NBD Bank as the Agent of such Bank under this Agreement and each other
Loan Document to take such action on its behalf under the provisions of this
Agreement and each other Loan Document and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and each other Loan Document, together with such other powers as are
reasonably incidental thereto.

<PAGE> 63

Notwithstanding any provision to the contrary elsewhere in this Agreement, the
Agent shall not have any duties or responsibilities, except those expressly set
forth herein, or any fiduciary relationship with any Bank, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities on
the part of the Agent shall be read into this Agreement or otherwise exist
against the Agent. The provisions of this Section are solely for the benefit of
the Agent and the Banks and the Borrower and the Borrower's Subsidiaries shall
not have any rights as a third party beneficiary or otherwise under any of the
provisions hereof. In performing its functions and duties hereunder and under
the other Loan Documents, the Agent shall act solely as the agent of the Banks
and does not assume (and shall not be deemed to have assumed) any obligation of
relationship of trust or agency with or for the Borrower, its Subsidiaries or
any of their respective successors and assigns.

Section 8.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement, the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys-in-fact selected by it with
reasonable care.

Section 8.3 Exculpatory Provisions. The Agent shall not be (i) liable for
any action lawfully taken or omitted to be taken by it or any Person described
in Section 8.2 under or in connection with this Agreement, any other Loan
Document (except for its or such Person's own gross negligence or willful
misconduct), or (ii) responsible in any manner to any of the Banks for any
recitals, statements, representations or warranties made by the Borrower or any
of its Subsidiaries contained in this Agreement, any other Loan Document or in
any certificate, report, statement or other document referred to or provided for
in, or received under or in connection with, this Agreement, any other Loan
Document or for the value, validity, effectiveness, genuineness, enforceability
or sufficiency of this Agreement, any other Loan Document or for any failure of
the Borrower or any of its Subsidiaries to perform their obligations hereunder
or thereunder. The Agent shall not be under any obligation to any Bank to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement, any other Loan
Document, or to inspect the properties, books or records of the Borrower or any
of its Subsidiaries. This Section is intended solely to govern the relationship
between the Agent, on the one hand, and the Banks, on the other.

Section 8.4 Reliance by the Agent. The Agent shall be entitled to rely, and
shall be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower or any of its Subsidiaries),
independent accountants and other experts selected by the Agent. The Agent may
deem and treat the payee of any Note as the

<PAGE> 64

owner thereof for all purposes unless it shall have received an executed
Transfer Supplement in respect thereof. The Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Required Banks as it deems appropriate or it shall first be indemnified to its
satisfaction by the Banks against any and all liability and expense which may be
incurred by it by reason of taking or continuing to take any such action. The
Agent shall each in all cases be fully protected in acting, or in refraining
from acting, under this Agreement and the other Loan Documents in accordance
with a request of the Required Banks, and such request and any action taken or
failure to act pursuant thereto shall be binding upon all the Banks and all
future holders of the Notes.

Section 8.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default unless
it has received notice from a Bank or the Borrower referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". In the event that the Agent receives such a notice, it
shall promptly give notice thereof to the other Banks. The Agent shall take such
action with respect to such Default or Event of Default as shall be directed by
the Required Banks; provided that unless and until the Agent shall have received
such directions, it may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable and in the best interests of the Banks.

Section 8.6 Non-Reliance on the Agent and Other Banks. Each Bank expressly
acknowledges that neither the Agent nor any of their respective officers,
directors, employees, agents, attorneys-in-fact or affiliates has made any
representations or warranties to it and that no act by the Agent hereafter
taken, including, without limitation, any review of the affairs of any Loan
Party, shall be deemed to constitute any representation or warranty by the
Agent. Each Bank represents and warrants to the Agent that it has, independently
and without reliance upon the Agent or any other Bank and based on such
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, operations, property, prospects,
financial and other conditions and creditworthiness of the Borrower and made its
own decision to make its Loans hereunder and enter into this Agreement. Each
Bank also represents that it will, independently and without reliance upon the
Agent or any other Bank, and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit analysis,
appraisals and decisions in taking or not taking action under this Agreement,
and to make such investigation as it deems necessary to inform itself as to the
business, operations, property, prospects, financial and other condition and
creditworthiness of the Borrower. Except for notices, reports and other
documents expressly required under the Loan Documents, to be furnished to the
Banks by the Agent, the Agent shall not have any duty or responsibility to
provide any Bank with any credit or other information concerning the business,
operations, property, prospects, financial and other condition or
creditworthiness of the Borrower which may come into the possession of the Agent
or any of its respective officers, directors, employees,

<PAGE> 65

agents, attorneys-in-fact or affiliates.

Section 8.7 Indemnification. The Banks agree to indemnify the Agent and its
respective officers, directors, employees, representatives and agents (to the
extent not reimbursed by the Borrower and without limiting the obligation of the
Borrower to do so), ratably according to their Pro Rata Shares, from and against
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including, without limitation, the fees and disbursements of counsel
for the Agent or such Person in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
the Agent or such Person shall be designated a party thereto) that may at any
time (including, without limitation, at any time following the payment of the
Obligations) be imposed on, incurred by or asserted against the Agent or such
Person as a result of, or arising out of, or in any way related to or by reason
of, the Loans, Letters of Credit or any of the other transactions contemplated
hereby or the execution, delivery or performance of any Loan Document (but
excluding any such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the gross negligence or willful misconduct of the Agent or such Person as
finally determined by a court of competent jurisdiction).

Section 8.8 The Agent in Its Respective Individual Capacity. The Agent and
its respective affiliates may make loans to, accept deposits from and generally
engage in any kind of business with the Borrower as though the Agent were not
the Agent hereunder. With respect to Loans made or renewed by it and any Note
issued to it, the Agent shall have the same rights and powers under this
Agreement as any Bank and may exercise the same as though they were not the
Agent and the terms "Bank" and "Banks" shall include each of the Agent in its
individual capacity.

Section 8.9 Successor Agent. The Agent may resign as Agent upon 30 days'
notice to the Borrower and the Banks. The Agent may be removed at any time, with
or without cause, upon 30 days' notice from the Required Banks. If the Agent
shall resign or be removed as Agent under this Agreement, then the Required
Banks during such 30-day period shall appoint from among the Banks a successor
administrative agent, whereupon such successor administrative agent shall
succeed to the rights, powers and duties of the Agent and the term "Agent" shall
mean such successor administrative agent effective upon its appointment, and the
former Agent's rights, powers and duties as Agent shall be terminated, without
any other or further act or deed on the part of such former Agent or any of the
parties to this Agreement or any holders of the Notes. After any retiring
Agent's resignation or removal hereunder as Agent, the provisions of this
Section 8 and Section 9.1 shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent under this Agreement.

SECTION 9. MISCELLANEOUS

<PAGE> 66

Section 9.1 Payment of Expenses, Indemnity, etc. (a) Whether or not the
Closing Date occurs, any Loans are made, any Letters of Credit are issued or the
transactions contemplated hereby are consummated, the Borrower shall pay all
reasonable out-of-pocket costs, fees and expenses of the Agent in connection
with the negotiation, preparation, execution and delivery of the Loan Documents
and the documents and instruments each referred to therein and the satisfaction
of the conditions precedent with respect thereto and any amendment, waiver or
consent relating to any of the Loan Documents (including, without limitation, as
to each of the foregoing, the reasonable fees and disbursements of Dickinson,
Wright, Moon VanDusen & Freeman, special counsel to the Agent) and of the Agent
and each Bank in connection with the preservation of rights under, and
enforcement of, the Loan Documents and the documents and instruments each
referred to therein or in connection with any workout, restructuring or
rescheduling of the Obligations (including, without limitation, the reasonable
fees and disbursements of counsel for the Agent and for each of the Banks).

(b) Whether or not the Closing Date occurs, any Loans are made, any
Letters of Credit are issued or the transactions contemplated hereby are
consummated, the Borrower shall pay, and hold the Agent, and each of the Banks
harmless from and against, any and all present and future stamp, excise and
other similar taxes with respect to the foregoing matters and hold the Agent,
and each Bank harmless from and against any and all liabilities with respect to
or resulting from any delay or omission (other than to the extent attributable
to the Agent or such Bank) to pay such taxes.

(c) Whether or not the Closing Date occurs, any Loans are made, any
Letters of Credit are issued or the transactions contemplated hereby are
consummated, the Borrower shall indemnify the Agent and each Bank, their
respective officers, directors, employees, representatives and agents (each an
"Indemnitee") from, and hold each of them harmless against, any and all losses,
liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements of any kind or nature whatsoever
(including, without limitation, the reasonable fees and disbursements of counsel
for such Indemnitee in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not such Indemnitee
shall be designated a party thereto) that may at any time (including, without
limitation, at any time following the payment of the Obligations) be imposed on,
asserted against or incurred by any Indemnitee as a result of, or arising out
of, or in any way related to or by reason of, (i) the making of any Loans,
issuance of any Letters of Credit, any of the transactions contemplated hereby
or the execution, delivery or performance of any Loan Document, (ii) any
violation by Holdings, the Borrower or any other Subsidiary or their respective
Environmental Affiliates of any applicable Environmental Law, (iii) any
Environmental Claim arising out of the management, use, control, ownership or
operation of property or assets by Holdings, the Borrower or any other
Subsidiary or any of their respective Environmental Affiliates, including,
without limitation, all on-site and off-site activities involving Materials of
Environmental Concern and all activities related to matters disclosed in
Schedule 4.15 and (iv) the breach of

<PAGE> 67

any environmental representation or warranty set forth in Section 4.15 (but
excluding, as to all of the foregoing, any such losses, liabilities, claims,
damages, expenses, obligations, penalties, actions, judgments, suits, costs or
disbursements incurred solely by reason of the gross negligence or willful
misconduct of the Indemnitee as finally determined by a court of competent
jurisdiction).

If and to the extent that the obligations of the Borrower under this
Section are unenforceable for any reason, the Borrower agrees to make the
maximum contribution to the payment and satisfaction of such obligations which
is permissible under applicable law. The Borrower's obligations under this
Section shall survive the termination of this Agreement and the payment of the
obligations.

Section 9.2 Right of Setoff. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of any Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to Holdings,
the Borrower or to any other Person, any such notice being hereby expressly
waived, to set off and to appropriate and apply any and all deposits (general or
special, time or demand, provisional or final) and any other indebtedness at any
time held or owing by such Bank (including, without limitation, by branches and
agencies of such Bank wherever located) to or for the credit or the account of
Holdings or the Borrower against and on account of the Obligations of Holdings
or the Borrower to such Bank under this Agreement and under any of the other
Loan Documents, including, without limitation, all interests in obligations
purchased by such Bank pursuant to Section 9.7, and all other claims of any
nature or description arising out of or connected with this Agreement, any other
Loan Document, irrespective of whether or not such Bank shall have made any
demand hereunder and although said obligations, liabilities or claims, or any of
them, shall be contingent or unmatured. After the exercise of any right of set
off by any Bank in accordance with the terms hereof, such Bank shall notify
Holdings or the Borrower, as the case may be, of such exercise, provided,
however, that the failure of such Bank to give any such notice shall in no event
affect in any manner the obligations of Holdings or the Borrower hereunder or
under any other Loan Document or the rights and remedies of the Agent or such
Bank hereunder or under any other Loan Document.

Section 9.3 Notices. Except as otherwise expressly provided herein, all
notices, requests and demands to or upon the respective parties hereto to be
effective shall be in writing (including by telecopy, telex or nationally
recognized overnight courier service), and shall be deemed to have been duly
given or made when delivered by hand, or five days after being deposited in the
United States mail, postage prepaid, or, in the case of telex notice, when sent,
answerback received, or, in the case of telecopy notice, when sent with receipt
confirmed, or, in the case of a nationally recognized overnight courier service,
one Business Day after delivery to such courier service, addressed, in the case
of each party hereto, at its address specified opposite its signature below, or
to such other address as may be designated by any party in a

<PAGE> 68

written notice to the other parties hereto, provided that notices and
communications to the Agent pursuant to Section 2 shall not be effective until
received by the Agent.

Section 9.4 Successors and Assigns; Participations; Assignments.

(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of Holdings, the Borrower, the Banks, the Agent, all future
holders of the Notes and their respective successors and assigns, except that
neither Holdings nor the Borrower may assign or transfer any of its rights or
obligations under this Agreement without the prior written consent of each Bank.
No Bank may participate, assign or sell any of its Credit Exposure (as defined
in clause (b) below) except as required by operation of law, in connection with
the merger, consolidation or dissolution of any Bank or as otherwise provided in
this Section 9.4.

(b) Participations. Any Bank may at any time sell to one or more banks
or other entities (each a "Participant") participating interests in any Loan
owing to such Bank, any Note held by such Bank, the Revolving Loan Commitment of
such Bank and or any other interest of such Bank hereunder (all of the foregoing
in respect of any such Bank, its "Credit Exposure"). Notwithstanding any such
sale by a Bank of participating interests to a Participant, such Bank's rights
and obligations under this Agreement shall remain unchanged, such Bank shall
remain solely responsible for the performance thereof, such Bank shall remain
the holder of any such Note for all purposes under this Agreement, and the
Borrower and the Agent shall continue to deal solely and directly with such Bank
in connection with such Bank's rights and obligations under this Agreement. The
Borrower agrees that if any Obligations are due and unpaid, or shall have been
declared or shall have become due and payable upon the occurrence and during the
continuance of an Event of Default, each Participant shall be deemed to have the
right of setoff in respect of its participating interest in amounts owing under
this Agreement and any Note to the same extent as if the amount of its
participating interest were owing directly to it as a Bank under this Agreement
or any Note, provided that such right of setoff shall be subject to the
obligations of such Participant to share with the Banks, and the Banks agree to
share with such Participant, as provided in subsection 9.7. The Borrower also
agrees that each Participant shall be entitled to the benefits of Sections 2.17,
2.18 and 2.19, provided that no such Participant shall be entitled to receive
any greater amount pursuant to such Sections than the transferor Bank would have
been entitled to receive in respect of the amount of the participation
transferred by such transferor Bank to such Participant had no such transfer
occurred. Each Bank agrees that any agreement between such Bank and any such
Participant in respect of such participating interest shall not restrict such
Bank's right to agree to any amendment, supplement, waiver or modification to
this Agreement, or any other Loan Document, except where the result of any of
the foregoing would be to extend the final maturity of any Obligation, reduce
the rate or extend the time of payment of interest thereon, reduce the principal
amount thereof, reduce the amount of any fees payable hereunder, or amend this
Section 9.4(b).

<PAGE> 69

(c) Assignments to Purchasing Banks. Subject to the prior written
consent of the Borrower, Issuing Bank and the Agent (which consent, in each
case, shall not be unreasonably withheld and, in the case of the Borrower, may
not be withheld upon the occurrence and during the continuance of any Event of
Default), any Bank may at any time and from time to time assign to one or more
additional banks or financial institutions ("Purchasing Banks") all or any part
(in the amount of at least $10,000,000 or integral multiples of $1,000,000 in
excess thereof or, if less, the entire amount of such Bank's Credit Exposure) of
its Credit Exposure pursuant to a supplement to this Agreement, substantially in
the form of Exhibit H hereto (a "Transfer Supplement"), executed by such
Purchasing Bank, such transferor Bank, and the Agent. Upon (i) such execution of
such Transfer Supplement, (ii) delivery of an executed copy thereof to the
Borrower and the Agent, (iii) payment by such Purchasing Bank to such transferor
Bank of an amount equal to the purchase price agreed between such transferor
Bank and such Purchasing Bank and (iv) payment by the transferor Bank to the
Agent of a non-refundable assignment fee of $3,500, such transferor Bank shall
be released from its obligations hereunder to the extent of such assignment and
such Purchasing Bank shall for all purposes be a Bank party to this Agreement to
the extent of such assignment and shall have all the rights and obligations of a
Bank under this Agreement to the same extent as if it were an original party
hereto, and no further consent or action by the Borrower, the Banks or the Agent
shall be required. Such Transfer Supplement shall be deemed to amend this
Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Bank as a Bank and the resulting adjustment of the
Revolving Loan Commitments, if any, arising from the purchase by such Purchasing
Bank of all or a portion of the Credit Exposure of such transferor Bank.
Promptly after the consummation of any transfer to a Purchasing Bank pursuant
hereto, the transferor Bank, the Agent and the Borrower shall make appropriate
arrangements so that a replacement Note is issued to such transferor Bank and a
new Note, dated the date of such transfer, is issued to such Purchasing Bank, in
each case in principal amounts reflecting such transfer. Notwithstanding the
foregoing, any Bank may at any time assign and pledge all or any portion of its
Loans and Notes to a Federal Reserve Bank as collateral in accordance with
Regulation A of the Board of Governors of the Federal Reserve System and any
operating circular issued by such Federal Reserve Bank.

(d) Disclosure of Information. Holdings and the Borrower
authorize each Bank to disclose to any Participant or Purchasing Bank (each, a
"Transferee") and any prospective Transferee any and all financial and other
information in such Bank's possession concerning Holdings and the Borrower which
has been delivered to such Bank by Holdings and the Borrower pursuant to this
Agreement or which has been delivered to such Bank by Holdings and the Borrower
in connection with such Bank's credit evaluation of Holdings and the Borrower
prior to entering into this Agreement, provided that any such Transferee shall
be subject to the provisions of Section 9.17.

Section 9.5 Amendments and Waivers. Neither this Agreement, any Note,
any other Loan Document, nor any terms hereof or thereof may be amended,

<PAGE> 70

supplemented, modified or waived except in accordance with the provisions of
this Section. The Required Banks, Holdings and the Borrower may, from time to
time, enter into written amendments, supplements, modifications or waivers for
the purpose of adding, deleting, changing or waiving any provisions to this
Agreement, the Notes, or the other Loan Documents to which Holdings and/or the
Borrower is a party, provided, that no such amendment, supplement, modification
or waiver shall (a) extend either the Maturity Date or reduce the rate of
interest or extend the time of payment of interest or principal on any
obligations, or reduce the principal amount of any obligations or reduce any fee
payable to the Banks hereunder, or change the amount of any Revolving Loan
Commitment of any Bank, or increase the payment obligation of any Bank to the
Swingline Lender under Section 2.2(b) hereof or amend, modify or waive any
provision of this Section 9.5 or the definition of Required Banks, or consent to
or permit the assignment or transfer by Holdings or the Borrower of any of its
rights and obligations under this Agreement or any other Loan Document in each
case without the written consent of all the Banks, or (b) amend, modify or waive
any provision of Section 8 or any other provision of any Loan Document if the
effect thereof is to affect the rights or duties of the Agent, without the
written consent of the then Agent. Any such amendment, supplement, modification
or waiver shall apply to each of the Banks equally and shall be binding upon the
Borrower, the Banks, the Agent and all future holders of the Notes. In the case
of any waiver, Holdings, the Borrower, the Banks and the Agent shall be restored
to their former position and rights hereunder and under the outstanding Notes,
and any Default or Event of Default waived shall be deemed to be cured and not
continuing, but no such waiver shall extend to any subsequent or other Default
or Event of Default, or impair any right consequent thereon.

Section 9.6 No Waiver; Remedies Cumulative. No failure or delay on the part
of the Agent or any Bank or any holder of a Note in exercising any right, power
or privilege hereunder, under any other Loan Document and no course of dealing
between Holdings, the Borrower and the Agent or any Bank or the holder of any
Note shall operate as a waiver thereof; nor shall any single or partial exercise
of any right, power or privilege hereunder or under any other Loan Document
preclude any other or further exercise thereof of the exercise of any other
right, power or privilege hereunder or thereunder. The rights and remedies
herein expressly provided are cumulative and not exclusive of any rights or
remedies which the Agent or any Bank or the holder of any Note would otherwise
have. No notice to or demand on the Borrower in any case shall entitle Holdings
or the Borrower to any other or further notice or demand in similar or other
circumstances (except to the extent such notice or demand is expressly provided
hereunder or required under applicable law) or constitute a waiver of the rights
of the Agent, the Banks or the holder of any Note to take any other or further
action in any circumstances without notice or demand.

Section 9.7 Sharing of Payments. Each of the Banks agrees that if it should
receive any amount hereunder (whether by voluntary payment, by realization upon
security, by the exercise of the right of setoff or banker's lien, by
counterclaim or cross action, by the enforcement of any right under the Loan
Documents or otherwise) which

<PAGE> 71

is applicable to the payment of any Loans or other Obligations, of a sum which
with respect to the related sum or sums received by other Banks is in a greater
proportion than the total of such Loans or other obligations then owed and due
to such Bank bears to the total of such Loans or other Obligations then owed and
due to all of the Banks immediately prior to such receipt, then such Bank
receiving such excess payment shall purchase for cash without recourse or
warranty from the other Banks an interest in such Loans or other Obligations
owing to such Banks in such amount as shall result in a proportional
participation by all of the Banks then owed such Loans or other Obligations in
such amount; provided that if all or any portion of such excess amount is
thereafter recovered from such Bank, such purchase shall be rescinded and the
purchase price restored to the extent of such recovery, but without interest.

Section 9.8 Governing Law; Submission to Jurisdiction; Appointment of
Agent. (a) THIS AGREEMENT, THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAWS OF THE STATE OF MICHIGAN.

(b) Any legal action or proceeding with respect to this Agreement, any
other Loan Document and any action for enforcement of any judgment in respect
thereof may be brought in the courts of the State of Michigan or of the United
States of America for the Southern District of Michigan, and, by execution and
delivery of this Agreement, Holdings and the Borrower each hereby accepts for
itself and in respect of its property, generally and unconditionally, the
non-exclusive jurisdiction of the aforesaid courts and appellate courts from any
thereof. Holdings and the Borrower each irrevocably consents to the service of
process out of any of the aforementioned courts in any such action or proceeding
by the mailing of copies thereof by registered or certified mail, postage
prepaid, to Holdings or the Borrower, as the case may be, at its address set
forth opposite its signature below.

(c) Each of Holdings and the Borrower hereby irrevocably waives any
objection which it may now or hereafter have to the laying of venue of any of
the aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Loan Document brought in the courts referred to above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum. Nothing herein shall affect the right of the
Agent, any Bank or any holder of a Note to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
Holdings or the Borrower in any other jurisdiction.

Section 9.9 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties hereto on separate counterparts,
each of which when so executed and delivered shall be an original, but all of
which shall together constitute one and the same instrument.

<PAGE> 72

Section 9.10 Headings Descriptive. The headings of the several Sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.

Section 9.11 Marshalling; Recapture. Neither the Agent, nor any Bank shall
be under any obligation to marshall any assets in favor of Holdings or the
Borrower or any other party or against or in payment of any or all of the
obligations. To the extent any Bank receives any payment by or on behalf of
Holdings or the Borrower, which payment or any part thereof is subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to Holdings or the Borrower or its respective estate, trustee,
receiver, custodian or any other party under any bankruptcy law, state or
federal law, common law or equitable cause, then to the extent of such payment
or repayment, the obligation or part thereof which has been paid, reduced or
satisfied by the amount so repaid shall be reinstated by the amount so repaid
and shall be included within the liabilities of Holdings or the Borrower to such
Bank as of the date such initial payment, reduction or satisfaction occurred.

Section 9.12 Severability. In case any provision in or obligation under
this Agreement or the Notes or the other Loan Documents shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not in any way be affected or
impaired thereby.

Section 9.13 Survival. All indemnities set forth herein including, without
limitation, in Sections 2.17, 2.18, 2.19, 2.20, 8.7 and 9.1 shall survive the
execution and delivery of this Agreement and the Notes and the making and
repayment of the Loans hereunder.

Section 9.14 Domicile of Loans. Each Bank may transfer and carry its Loans
at, to or for the account of any branch office, subsidiary or affiliate of such
Bank.

Section 9.15 Limitation of Liability. No claim may be made by the Borrower
or any other Person against the Agent, or any Bank or their Affiliates,
directors, officers, employees, attorneys or agents of any of them for any
special, indirect, consequential or punitive damages in respect of any claim for
breach of contract or any other theory of liability arising out of or related to
the transactions contemplated by this Agreement, or any act, omission or event
occurring in connection therewith; and each of Holdings and the Borrower hereby
waives, releases and agrees not to sue upon any claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.

Section 9.16 Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY APPLICABLE
LAW, EACH OF HOLDINGS, THE BORROWER, THE AGENT AND THE BANKS HEREBY IRREVOCABLY
WAIVES ALL RIGHT OF TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM
ARISING OUT OF OR IN

<PAGE> 73

CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY MATTER ARISING
HEREUNDER OR THEREUNDER.

Section 9.17 Confidentiality. Each Bank agrees that it will not disclose
Confidential Information (as hereinafter defined) to any person other than (a)
as may be consented to by Holdings and the Borrower, (b) as may be required by
law or pursuant to legal process and (c) to prospective Participants and
Purchasing Banks and those of such Bank's directors, officers, employee,
examiners and professional advisors who have a need to know the Confidential
Information in accordance with customary banking practices and who receive the
Confidential Information having been made aware of the restrictions of this
subsection 9.17. As used herein, the term "Confidential Information" means all
information contained in materials relating to Holdings, the Borrower and any
other Subsidiary provided to the Banks by Holdings, the Borrower or its
representatives or agents other than (i) information which is at the time so
provided or thereafter becomes generally available to the public other than as a
result of a disclosure by one or more Banks and (ii) information which was
available to any Bank prior to its disclosure to the Banks by Holdings, the
Borrower, its representatives or agents.

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute and deliver this Agreement as of the date first above
written.

ROUGE INDUSTRIES, INC.

By:/s/ Gary P. Latendresse
Name: Gary P. Latendresse
Title: Vice President and CFO

Notice Address:
3001 Miller Road
P.O. Box 1699
Dearborn, Michigan 48121

Telephone: (313) 323-2170
Facsimile: (313) 323-2270

ROUGE STEEL COMPANY

By:/s/ Gary P. Latendresse
Name: Gary P. Latendresse
Title: Vice President and CFO

Notice Address:

<PAGE> 74

3001 Miller Road
P.O. Box 1699
Dearborn, Michigan 48121

Telephone: (313) 323-2170
Facsimile: (313) 323-2270

<PAGE> 75

NBD BANK, as Agent, as Issuing Bank, and
individually as a Bank

By:/s/ William H. Canney
Name: William H. Canney
Title: Vice President

Notice Address:
611 Woodward Avenue
Detroit, Michigan 48226

Telephone: (313) 225-3489
Facsimile: (313) 225-2290

<PAGE> 76

COMERICA BANK

By:/s/ Louis A. Zedan
Name: Louis A. Zedan
Title: Vice President

Notice Address:
Michigan Corporate Banking
One Detroit Center
P. O. Box 75000
Detroit, Michigan 48226

Telephone: (313) 222-0267
Facsimile: (313) 222-3776

<PAGE> 77

NATIONAL CITY BANK

By:/s/ Marybeth S. Howe
Name: Marybeth S. Howe
Title: Vice President

Notice Address:
National City Center
1900 E. Ninth Street
Cleveland, Ohio 44114

Telephone: (216) 575-3275
Facsimile: (216) 575-9396

DETROIT 7-3111 160126

<PAGE> 1
EXHIBIT 10.18

OPERATING AGREEMENT

DELACO PROCESSING, L.L.C.

A Michigan Limited Liability Company

Dated as of September 3, 1997

<PAGE> 2

OPERATING AGREEMENT
OF
DELACO PROCESSING, L.L.C.

TABLE OF CONTENTS

PAGE
----
ARTICLE I

DEFINITIONS

<S> <C> <C>
1.1 Definitions...........................................................................................1

ARTICLE II

FORMATION AND NAME, OFFICE, STATUTORY AGENT,
PURPOSE, PARTNERSHIP STATUS, POWERS AND TERM

2.1 Formation and Name....................................................................................5
2.2 Office................................................................................................5
2.3 Registered Office and Resident Agent..................................................................6
2.4 Purpose...............................................................................................6
2.5 Partnership Status....................................................................................6
2.6 Powers................................................................................................6
2.7 Term..................................................................................................6
2.8 Initial Costs.........................................................................................7
2.9 Equipping the Facility................................................................................7
2.10 Toll Processing.......................................................................................7
2.11 Marketing of Secondary and Surplus Material........................................................7
2.12 Employees........................................................................................7
2.13 Minority Business Enterprise Status...................................................................8

ARTICLE III

MEMBERS AND CAPITAL

3.1 Capital Contributions; Additional Members...............................................................8
3.2 Additional Funds........................................................................................9
3.3 Loans by Members........................................................................................9
3.4 No Priority Among Members...............................................................................9
3.5 No Interest on Capital Contributions; No Withdrawal of Capital..........................................9
3.6 Capital Accounts........................................................................................9
3.7 Actions of Members; Meetings of Members.................................................................9

</TABLE>

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<S> <C> <C>
3.8 No Requirement to Restore Deficit in Capital Account...................................................10
3.9 Limited Liability of Members...........................................................................10
3.10 Confidentiality........................................................................................10
3.11 Competition Matters....................................................................................11
3.12 Investment Representations.............................................................................11

ARTICLE IV

ALLOCATIONS AND DISTRIBUTIONS

4.1 Allocation of Profits and Losses.......................................................................12
4.2 Special Allocations and Other Provisions Relating to Allocations.......................................12
4.3 Cash Distributions.....................................................................................13
4.4 Distributions of Liquidation Proceeds Upon Liquidation.................................................13
4.5 Distributions in Kind on Liquidation...................................................................14
4.6 Certain Provisions of the Act Superseded...............................................................14

ARTICLE V

POWER, AUTHORITY, RIGHTS, DUTIES AND OBLIGATIONS OF
THE BOARD OF GOVERNORS

5.1 Management and Control of Company's Business and Affairs by Governors..................................14
5.2 Power and Authority of Governors.......................................................................15
5.3 Prohibited Actions.....................................................................................15
5.4 Management and Services Agreement......................................................................15
5.5 Management Personnel and Officers......................................................................15
5.6 Compensation and Expenses..............................................................................17
5.7 Budgets................................................................................................17
5.8 Meeting of Governors...................................................................................17
5.9 Liability..............................................................................................17
5.10 Indemnification........................................................................................17
5.11 Insurance..............................................................................................18
5.12 Bank Accounts..........................................................................................18
5.13 Tax Matters Member.....................................................................................18
5.14 Certain Provisions of the Act Superseded...............................................................19

ARTICLE VI

TRANSFERS OF INTERESTS BY MEMBERS; SUBSTITUTION OF MEMBERS

6.1 Transfer of Interests by Members.......................................................................19
6.2 Additional Restrictions on Transfers...................................................................19
6.3 Requirements for Substitution..........................................................................20
6.4 Obligations and Rights of Transferees..................................................................20
6.5 Distributions and Allocations in Respect of Transferred Interests......................................20

</TABLE>

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<S> <C> <C>
6.6 Continuation Upon Transfer.............................................................................21
6.7 Restrictions Reasonable................................................................................21
6.8 Certain Provisions of the Act Superseded...............................................................21

ARTICLE VII

PROCEDURE ON LIQUIDATION

7.1 Liquidation............................................................................................21
7.2 Operations During Liquidation..........................................................................21
7.3 Time for Liquidation...................................................................................22
7.4 Termination............................................................................................22

ARTICLE VIII

BOOKS AND RECORDS, BANK ACCOUNTS

8.1 Maintenance of Books and Accounting Method.............................................................22
8.2 Fiscal Year............................................................................................22
8.3 Reports to the Members.................................................................................22
8.4 Tax Elections; Special Basis Adjustments...............................................................23

ARTICLE IX

AMENDMENTS AND MAJOR DECISIONS

9.1 Amendments Requiring Consent of the Governors..........................................................23
9.2 Major Decisions........................................................................................23

ARTICLE X

DISSOLUTION

10.1 Events of Dissolution - General.......................................................................24
10.2 Events of Dissolution - Elective......................................................................24
10.3 Events of Dissolution - Default.......................................................................24
10.4 Notice of Dissolution.................................................................................25
10.5 Winding Up............................................................................................25
10.6 Buy-Out Procedures....................................................................................25
10.7 Necessary Approvals...................................................................................26

</TABLE>

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ARTICLE XI

GENERAL PROVISIONS

<S> <C> <C>
11.1 Non-Waiver............................................................................................26
11.2 Additional Documents and Instruments..................................................................26
11.3 Severability..........................................................................................26
11.4 Entire Agreement......................................................................................27
11.5 Provisions Binding....................................................................................27
11.6 Captions..............................................................................................27
11.7 Counterparts..........................................................................................27
11.8 Word Meanings.........................................................................................27
11.9 Applicable Law........................................................................................27
11.10 Dispute Resolution....................................................................................27

</TABLE>

Exhibit 1 -- Description of Facility
Exhibit 2 -- Members and Percentage Interests
Exhibit 3 -- Major Decisions
Exhibit 4 -- Processing Agreement
Exhibit 5 -- Management and Services Agreement
Exhibit 6 -- Leased Employees Agreement

<PAGE> 6

OPERATING AGREEMENT OF DELACO PROCESSING, L.L.C.

THIS OPERATING AGREEMENT OF DELACO PROCESSING, L.L.C. (this
"Agreement"), effective as of the 3rd day of September, 1997 by and between QS
Steel Inc., a Michigan corporation, ("QS Steel"), and Delaco Supreme Tool & Gear
Co., a Michigan corporation ("Delaco Tool");

W I T N E S S E T H:

WHEREAS, the Members desire to enter into this Agreement and to cause
articles of organization to be filed with the Administrator of the Michigan
Department of Consumer and Industry Services, Corporations, Securities and Land
Development Bureau, thereby forming a limited liability company under the laws
of the State of Michigan; and

WHEREAS, this Agreement shall constitute the "Operating Agreement" of
Delaco Processing, L.L.C., within the meaning of that term as used in the Act;

NOW, THEREFORE, it is mutually agreed as follows:

ARTICLE I
DEFINITIONS

1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings ascribed to them as follows:

Act means the Michigan Limited Liability Company Act, Mich. Comp. Laws
Ann. Section 450.4101 et seq., Mich. Stat. Ann. Section 21.198 et seq.,
governing, among other matters, certain aspects of the formation, operation and
dissolution of limited liability companies in Michigan, as the same may be
amended from time to time.

Adjusted Capital Account Deficit means the deficit balance, if any, in
a Member's Capital Account at the time in question, after (i) reducing the
amount of such deficit by the amount, if any, of such Member's Restoration
Obligation and (ii) increasing the amount of such deficit by the amount, if any,
of the items described in paragraphs (4), (5) and (6) of Section
1.704-1(b)(2)(ii)(d) of the Allocation Regulations. The determination of a
Member's Adjusted Capital Account Deficit is made for purposes of
Section 1.704-1(b)(2)(ii)(d) of the Allocation Regulations and shall be made
consistently therewith.

Affiliate of a Person means an Entity which, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such Entity.

Agreement means this Operating Agreement, as the same may be modified,
amended, supplemented and/or restated from time to time in accordance with its
terms and applicable law.

Allocation Regulations means the Income Tax Regulations promulgated
under Code Section 704(b) (regarding partners' distributive shares of
partnership tax items), as currently in

<PAGE> 7
effect, and as modified and clarified by amendment, successor regulation,
ruling, court decision or other Income Tax Regulation relating to partners'
distributive shares.

Articles of Organization means the Articles of Organization of the
Company filed with the Department upon execution of this Agreement as required
by the Act, as amended and/or restated from time to time in accordance with the
terms of this Agreement and applicable law.

Bankruptcy, in reference to a Member, means that event and date when
(i) the Member makes an assignment for the benefit of creditors; (ii) the Member
files a voluntary petition in bankruptcy; (iii) the Member is adjudicated as
bankrupt or insolvent; (iv) the Member files a petition or answer seeking for
itself any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law, or regulation; (v) the
Member files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against it in any proceeding of the
type referred to in clause (iv); (vi) the Member seeks, consents to, or
acquiesces in the appointment of a trustee, receiver, or liquidator of such
Member or of all or any substantial part of its property; (vii) ninety (90) days
or more have elapsed after the commencement of any proceeding against the Member
seeking reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law, or regulation, if the
proceeding has not been dismissed prior thereto; (viii) ninety (90) days or more
have elapsed after the appointment without its consent or acquiescence of a
trustee, receiver, or liquidator of the Member or of all or any substantial part
of its property, if such appointment has not been vacated or stayed prior
thereto; or (ix) ninety (90) days have elapsed after the expiration of any such
stay, if such appointment has not been vacated.

Capital Account has the meaning specified in Section 3.6.

Capital Contribution means the total amount of cash and/or property
contributed to the Company by each Member as shown in Schedule OA-2, as such
Schedule OA-2 may be modified, supplemented or amended from time to time in
accordance with this Agreement and applicable law, plus any other contributions
to the capital of the Company made by a Member, in such Member's capacity as a
Member, pursuant to the terms of this Agreement, in respect of the Interest of
such Member in the Company.

Code means the Internal Revenue Code of 1986, as amended, or the
corresponding provisions of any subsequent federal income tax law.

Company means Delaco Processing, L.L.C., a Michigan limited liability
company.

Company Minimum Gain means "partnership minimum gain" as set forth in
Sections 1.704-2(b)(2) and 1.704-2(d) of the Allocation Regulations.

Confidential Information means all records and accounts of the Company,
and any technical data or other know-how or information which, prior to or
subsequent to the date of this Agreement, has been or may be disclosed by a
Member or any of its Affiliates, directly or indirectly, to any other Member or
an Affiliate of any other Member (a) in writing and identified in writing as
being confidential at the time of or prior to such disclosure or (b) orally and

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<PAGE> 8

identified at the time of disclosure as confidential and promptly thereafter
identified and described in writing as confidential or (c) is so obviously
confidential that no such identification is necessary.

Consent of a Member or a Governor means the consent of such Member or
Governor, which shall be deemed to have been given if: (a) such consent is given
in a vote (either in person or by proxy) at a duly called meeting of the Member
or Governors, as the case may be, called and held in accordance with the
provisions of this Agreement, or (b) such consent is delivered in writing to
each other Member, in the case of a Member, or to each other Governor, in the
case of a Governor. Such consent may be withheld by any Member or Governor, in
such Member's or Governor's sole and absolute discretion, for any reason or for
no reason at all.

Department means the Administrator of the Michigan Department of
Commerce, Consumer and Industry Services, Corporation Securities and Land
Development Bureau.

Entity means any limited liability company, general partnership,
limited partnership, corporation, joint venture, trust, real estate investment
trust, business trust, estate or association.

Facility means the facility of the Company as defined in Section 2.4.

General Manager means the General Manager appointed and serving from
time to time in accordance with Section 5.5, if any.

Governor means an individual appointed and serving as a Governor in
accordance with Section 5.1 of this Agreement. The Board of Governors shall be
deemed to be the "Managers" in respect of the Company, within the meaning of
that term as used in the Act.

Income Tax Regulations means those regulations promulgated under the
Code. Whenever reference is made to any Income Tax Regulation, unless otherwise
specified, such reference shall include any amendments or successor regulations
thereto.

Interests means the interests in the Company of the Members, including
such Members' respective shares of, and rights to receive distributions and
allocations of, the business, property, assets, capital, profits and losses of
the Company, subject to and as provided in this Agreement and the Act. The
holder of an Interest shall have no right to participate in the management of
the business and affairs of the Company under the terms of this Agreement unless
such holder is also a Member.

Losses means the net losses of the Company for federal income tax
purposes (or as may be otherwise required to comply with the Allocation
Regulations) as determined as of the close of the Company's fiscal year and,
when the context requires, related items of deduction or loss, tax preference,
credits and depreciation, provided that "Losses" shall include items described
in Code Section 705(a)(2)(B) or required by the Income Tax Regulations to be
treated as so described.

Major Decisions means any of the decisions, actions or inactions
referred to and described in Exhibit 3 hereto.

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<PAGE> 9

Member means each Entity identified as a member on Exhibit 2, as such
Exhibit 2 may be modified, supplemented or amended from time to time in
accordance with this Agreement and applicable law, and any Entity which may be
admitted as an additional or Substitute Member as provided herein. Unless the
context otherwise requires, the term "Member" refers to any one of the Members
and to all the Members.

Member Loan shall mean a loan made by a Member to the Company in
accordance with the provisions of this Agreement.

Member Nonrecourse Debt shall mean "partner nonrecourse debt" as set
forth in Section 1.704-2(b)(4) of the Allocation Regulations.

Member Nonrecourse Debt Minimum Gain shall mean "partner nonrecourse
debt minimum gain" as set forth in Section 1.704-2(i) of the Allocation
Regulations.

Member Nonrecourse Deductions shall mean "partner nonrecourse
deductions" as set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the
Allocation Regulations.

Nonrecourse Deductions has the meaning set forth in Sections
1.704-2(b)(1) and 1.704-2(c) of the Allocation Regulations.

Nonrecourse Liability has the meaning set forth in Section
1.704-2(b)(3) of the Allocation Regulations and Section 1.752-1(a)(2) of the
Income Tax Regulations.

Owning Party has the meaning specified in Section 3.10(a).

Percentage Interests means the percentage interests of the Members in
the Company as set forth on Exhibit 2, as amended from time to time.

Person means any natural person or Entity.

Profits means the net profits of the Company for federal income tax
purposes (or as may otherwise be required to comply with the Allocation
Regulations) as determined as of the close of the Company's fiscal year, and,
when the context requires, related items of income or gain, provided that
Profits shall include income exempt from tax.

Quarter means a fiscal quarter of the Company.

Related Agreements means the Management and Services Agreement, the
Processing Agreement, and the Leased Employees Agreement to be executed in
connection with this Agreement.

Restoration Obligation means, with respect to any Member, the sum of
(i) the amount of any express, unconditional obligation of such Member pursuant
to this Agreement to restore to the Company the amount of any deficit in such
Member's Capital Account, which meets the timing requirements of the Allocation
Regulations, and (ii) the amount of any deficit balance in such Member's Capital
Account which such Member is treated as obligated to restore pursuant to

4
<PAGE> 10

(A) Section 1.704-1(b)(2)(ii)(c) of the Allocation Regulations and (B) the
penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Allocation Regulations. Computation of the amount of a Member's Restoration
Obligation, and any determinations related thereto, shall be made in accordance
with the Allocation Regulations.

Retirement means, with respect to any Member, (i) the Bankruptcy of
such Member; (ii) the Member's retirement, resignation, expulsion or other
withdrawal from the Company; (iii) the Transfer by the Member of all of the
Member's Interest in compliance with this Agreement (other than (A) an
assignment merely of its right to receive distributions or (B) a pledge,
hypothecation or other collateral assignment of its rights before the time such
pledge, hypothecation or other collateral assignment becomes absolute); (iv) if
such Member is a corporation, the filing of a certificate of dissolution, or its
equivalent, for said corporation, or the revocation of its charter; or (v) if
such Member is a separate limited liability company or partnership, the
dissolution and termination of such separate limited liability company or
partnership. If this Operating Agreement is amended to permit individuals to be
Members, the death or incapacity of such individual shall also be a Retirement.

Schedules means the Schedules for the Operating Agreement, the
Management and Services Agreement, the Processing Agreement and the Leased
Employees Agreement, which shall be included in a separate "Schedule Packet", if
any.

Site means the land on which the Facility, and all fixtures and
improvements from time to time added to the Facility is built, including a
permanent easement of ingress and egress at all times over roads and
transmission facilities providing access to the Facility.

Substitute Member means any Entity which acquires an Interest from a
Member and is admitted to the Company as a Member.

Tax Matters Member means the Entity at the time designated as such
pursuant to Section 5.14 of this Agreement.

Transfer means a sale, assignment, transfer, conveyance, pledge,
encumbrance, grant, gift or other disposition, whether direct or indirect,
voluntary, involuntary or by operation of law, or with or without consideration.

ARTICLE II

FORMATION AND NAME, OFFICE, REGISTERED OFFICE AND RESIDENT AGENT,
PURPOSE, PARTNERSHIP STATUS, POWERS AND TERM

2.1 FORMATION AND NAME. The Company shall be and is formed upon the
filing of the original Articles of Organization with the Department in
accordance with the provisions of the Act, under the name of DELACO PROCESSING,
L.L.C., as a limited liability company under the Act.

2.2 OFFICE. The principal offices of the Company at which its books and
records shall be kept shall be maintained at 8111 Tireman, Dearborn, Michigan
48126,

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<PAGE> 11

or at such other location as the Governors may from time to time determine. The
Governors shall notify the Members of any change in the principal offices of
the Company.

2.3 REGISTERED OFFICE AND RESIDENT AGENT. The Registered Office of the
Company shall be maintained at 8111 Tireman, Dearborn, Michigan 48126. The
Resident Agent of the Company shall be Mr. Jerry Diez, an individual resident of
Michigan whose business address is the same as that of the Registered Office.
The Governors have the right, power and authority to change the location of the
Registered Office and to revoke the appointment of the Resident Agent of the
Company from time to time, and to appoint a substitute or replacement Resident
Agent, in accordance with applicable law. The Governors shall notify the Members
of any change in the Registered Office of Resident Agent of the Company.

2.4 PURPOSE. The purpose of the Company is to equip and operate a steel
slitting and processing facility, as more particularly described in Exhibit 1
hereto (the "Facility) on the Site in Dearborn, Michigan, which Facility shall
generally be equipped as described in Schedule OA-1, and to engage in any and
all acts or activities incidental thereto for which limited liability companies
legally may be formed in the State of Michigan.

2.5 PARTNERSHIP STATUS. It is intended that the Company be treated as a
partnership for federal income tax purposes (but not for liability purposes).
Accordingly, this Agreement shall be construed in a manner that ensures the
Company's classification as a partnership for federal income tax purposes at all
times, and any provision of this Agreement that would have the effect of
preventing the Company from being classified as a partnership for federal income
tax purposes shall be null and void. The Members shall take all actions, and
execute, acknowledge and deliver all documents, including without limitation any
tax election forms, which in the judgment of the Governors, or in the opinion of
counsel satisfactory to the Governors, are necessary or desirable to obtain
and/or maintain the Company's classification as a partnership for such tax
purposes at all times.

2.6 POWERS. In furtherance of the Company's purposes, the Company shall
have all of the powers granted or permitted to a limited liability company under
the laws of the State of Michigan, including, without limitation, the powers
specifically enumerated in the Act.

2.7 TERM. The term of the Company commenced with the filing of Articles
of Organization with the Department. The Company shall continue until dissolved
upon the occurrence of the earliest of (a) December 31, 2025, (b) the passage of
ninety (90) days from the sale or other disposition of all or substantially all
of the assets of the Company unless the Governors elect to continue the Company
for the sole purpose of collecting the proceeds of such sale or other
disposition, (c) the Retirement of any Member, unless the Company is continued
as provided in Section 6.6 or a Substitute Member is admitted and all Members
consent to a continuation of the Company; (d) the voluntary or elective
dissolution of the Company; (e) at any time when there are less than two Members
of the Company, unless the sole remaining Member admits a Substitute Member to
the Company; or (f) the entry of a judicial decree of dissolution; and shall
terminate as soon as the winding up of its affairs upon such dissolution has
been completed. The provisions of this Section 2.7 are intended to and shall, to
the fullest extent

6
<PAGE> 12

permitted by law, supersede the provisions of the Act regarding the dissolution
of limited liability companies.

2.8 INITIAL COSTS. The anticipated initial capital, funding and other
costs and cash needs for the Company are as set forth on Schedule OA-1. The
parties shall amend Schedule OA-1 from time to time prior to start-up of the
facility to reflect any changes in such costs or cash needs. The Members shall
each bear their own management time and attorneys fees incurred in connection
with the preparation of this Agreement and the related documents.

2.9 EQUIPPING THE FACILITY. Members have agreed upon the design and
equipping of the Facility as set forth in Schedule OA-1. Any changes to or
improvement of the Facility shall require approval of the Board of Governors.

2.10 TOLL PROCESSING.

(a) The Members intend that the Company will offer slitting
services to any customer that may provide appropriate earnings opportunities. It
is intended, however, that QS Steel and Delaco Tool will make every effort to
insure the effective utilization of the equipment installed by the Company.

(b) A toll slitting pricing schedule shall be established by
the Company for any processing performed for the Members. This schedule will be
based on processing costs, return on investment considerations and other
relevant factors all of which shall be set forth in the Processing Agreement.

2.11 MARKETING OF SECONDARY AND SURPLUS MATERIAL. QS Steel or its
affiliate, Rouge Steel Company, will on occasion sell to the Company certain
amounts of secondary and surplus steel material. The amount of such material
sold to the Company and the frequency of such sales will be at the sole
discretion of QS Steel. The selling price to the Company for such material shall
be comparable to the price for which this same material is sold by QS Steel or
Rouge Steel Company to other customers of this material. If necessary, the
Company will engage an agent to effectively re-sell this material. For such
services, the agent will receive a management fee to be determined.

2.12 EMPLOYEES. Most of the employees will be leased by the Company.
Delaco Tool may supply certain non-management employees to the Company on a
lease type basis from time to time ("Direct Employees") and the cost (including
benefits) will be charged to the Company and paid to Delaco Tool. The Company
and Delaco Tool or Delaco Tool's designee shall enter into a Leased Employees
Agreement in the form of Exhibit 6 to cover Direct Employees leased from Delaco
Tool or its designee. Management services received from employees of Delaco Tool
will be covered under the Management and Services Agreement referred to in
Section 5.4.

2.13 MINORITY BUSINESS ENTERPRISE STATUS. The Members have formed the
Company with the specific intention of having the Company certified as a
bonafide Minority Business Enterprise ("MBE") by the Michigan Minority Business
Development Council ("MMBDC"). As soon as reasonably practical after formation
of the Company, an MBE

7
<PAGE> 13

certification application will be completed and submitted to the MMBDC for
approval. All members agree to take all actions reasonably necessary to
accomplish the certification of the Company as an MBE. Upon approval of the
Company as an MBE by the MMBDC, no member will take any actions which would
jeopardize the Company's status as a certified MBE.

ARTICLE III

MEMBERS AND CAPITAL

3.1 CAPITAL CONTRIBUTIONS; ADDITIONAL MEMBERS.

(a) Capital Contributions. The total initial Capital
Contribution to the Company to be made by the Members shall be to fund the
venture's cash needs as set forth in Schedule OA-1, with each Member paying its
prorata share thereof, in accordance with its Percentage Interest. Accordingly,
Delaco Tool' s total initial contribution shall be 51% and QS Steel's
total initial capital contributions shall be 49% of the Company's initial cash
needs as set forth in Schedule OA-1. The initial capital contributions shall be
made by the Members either in lump sums or in periodic payments as determined
by the Board of Governors. Payments of the Capital Contributions shall be made
by the Members within ten business days after the request of the Board of
Governors.

(b) Failure to Contribute. Should either Member fail to pay
all or a portion of its Capital Contribution on time, the other Member may, but
need not, loan such funds to the Company. If a Member fails to make its capital
contribution, it shall be obligated to pay to the Company interest compounded
monthly at the prime interest rate in effect on date the payment was due, quoted
by First Chicago-NBD, as publicly announced, plus 3%, or the maximum amount as
may be permitted by applicable law, whichever is less. Such interest shall
accrue on the date the contribution was due and shall cease to accrue on the
date the contribution is finally made to the Company by the non-contributing
Member. Upon receipt by the Company of such funds from the previously
non-contributing Member, the Member who covered for the non-contributing Member
shall be repaid by the Company for the amount covered, plus interest as set
forth above. In addition, during such period of non-contribution, the covering
Member shall have a lien on the Capital Account of the non-contributing Member
for the amount of its cover.

In addition to the foregoing, at any time a non-contributing
Member has not paid its appropriate Capital Contribution, it shall be considered
in default of its obligations under the Operating Agreement. Accordingly, the
non-defaulting Member shall be entitled, by written notice to the
non-contributing Member, to call the non-contributing Member in default and if
payment is not made within 15 business days after such notice, then the
provisions of Section 10.3 may be invoked by the non-defaulting Member and once
such provisions have been invoked, the non-contributing Member shall no longer
be able to cure its failure to make its contribution.

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<PAGE> 14

3.2 ADDITIONAL FUNDS . Any funds required by the Company in excess of
the Capital Contributions by the Members shall be obtained from borrowings by
the Members which shall be presented and approved by the Board of Governors.

3.3 LOANS BY MEMBERS. Any Member may, but is not obligated to, loan to
the Company such sums as the Governors determine to be appropriate for the
conduct of the Company's business. Any such Member loans shall be made on such
terms and for such maturities as are approved by the Consent of the Governors.

3.4 NO PRIORITY AMONG MEMBERS. No Member shall have priority over any
other Member either as to the return of its original capital contribution or as
to distributions by the Company, except as specifically provided in this
Agreement.

3.5 NO INTEREST ON CAPITAL CONTRIBUTIONS; NO WITHDRAWAL OF CAPITAL. No
interest shall be paid by the Company to any Member with respect to any Capital
Contribution. Except as otherwise specifically set forth in this Agreement, no
Member shall have the right to (a) demand to receive property other than cash in
return for its Capital Contribution or as distributions of income, (b) withdraw
any part of its Capital Contribution (regardless of whether or not such Member
has withdrawn from the Company), or (c) demand to receive any funds or property
of the Company.

3.6 CAPITAL ACCOUNTS. A single Capital Account shall be established,
determined and maintained for each Member on the books and records of the
Company in accordance with the provisions of the Allocation Regulations. The
property of the Company shall be revalued on the books of the Company in any
case in which such revaluation is required by the Allocation Regulations and may
be revalued in any case where such revaluation is permitted by the Allocation
Regulations and such revaluation is determined to be appropriate by the Members.
Any such revaluation shall be carried out in accordance with the principles and
methodology agreed to by the Members. In the event any Company property is
revalued on the books of the Company in accordance with the Allocation
Regulations, the Members' Capital Accounts shall be adjusted in accordance with
the Allocation Regulations to reflect such revaluations and for allocations to
them of Profits and Losses, and items thereof, as computed for book purposes,
with respect to such property. In the event the property of the Company is
revalued on the books of the Company, all Company property shall be valued for
such purpose at its fair market value, as determined by the Members.

3.7 ACTIONS OF MEMBERS; MEETINGS OF MEMBERS. Any action or inaction by
Consent of Members holding greater than 50% of the Percentage Interests shall
constitute an action of the Members. Any Member may from time to time by written
notice to each other Member call a meeting of the Members. Upon receipt of a
written request for such a meeting, the Members shall promptly, and in any event
not later than ten (10) days after receipt of such request, fix a place and time
for such meeting. To the extent possible, such meeting shall be held at a place
convenient to all the Members. Such meeting shall be held not less than fifteen
(15) nor more than sixty (60) days after receipt of a request for a meeting
unless the Members otherwise agree. In the absence of agreement of Members, such
meeting shall be held at 10:00 a.m. local time on the first business day falling
on or after the fifteenth (15th) day after receipt of a request for a

9
<PAGE> 15

meeting at the principal place of business of the Company. Meetings of the
Members may be held through any communications equipment if all those
participating can hear each other and participation in any such meeting shall
constitute presence thereat.

3.8 NO REQUIREMENT TO RESTORE DEFICIT IN CAPITAL ACCOUNT. Nothing
contained in this Agreement shall be construed to require any Member to restore
any deficit in its Capital Account.

3.9 LIMITED LIABILITY OF MEMBERS. Subject to the provisions of the Act,
the liability of a Member for the debts and obligations of the Company shall be
limited to the amount of such Member's Capital Contribution, and no Member shall
be obligated to contribute money to the Company or to otherwise answer for an
obligation of the Company beyond such Member's obligation to pay such Member's
Capital Contribution, except to the extent required by law.

3.10 CONFIDENTIALITY.

(a) Restrictions on Disclosure. Each Member, on behalf of
itself and its Affiliates, agrees with respect to the Confidential Information
of the Company or the other Member (the "Owning Party"), to:

(i) treat in strict confidence such Confidential
Information and use reasonable efforts to ensure that its employees and
others subject directly or indirectly to its control shall not
reproduce, disclose or make available to any third party any of such
Confidential Information;

(ii) limit access to such Confidential Information to
such of its employees and representatives, including without limitation
members of each Member's outside law and accounting firms, as may be
reasonably required in connection with the activities of the Company as
contemplated by this Agreement; and

(iii) not use such Confidential Information for any
purpose other than the activities of the Company as contemplated by
this Agreement;

unless the Owning Party otherwise consents thereto in writing. Without limiting
the generality of the foregoing, each Member and its Affiliates specifically
agrees not to directly or indirectly use or disclose Confidential Information in
any judicial or administrative proceeding, unless (i) served with compulsory
process or otherwise required by law, or (ii) consented to by the other Member.

(b) Exceptions. The obligations of each Member and its
Affiliates set forth in Section 3.10(a) shall not apply to Confidential
Information which:

(i) is or becomes generally available to the public
other than as a result of disclosure by the Member or its Affiliates in
whom the Confidential Information is confided;

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<PAGE> 16

(ii) becomes available to the confidant Member on a
non-confidential basis from a source other than the Owning Party, or
its Affiliates, and provided that such source has represented to the
confidant Member (and which confidant Member has no reason to
disbelieve after due inquiry) that it is entitled to disclose the
Confidential Information; or

(iii) was known to the confidant Member on a
non-confidential basis prior to the disclosure thereof to the confidant
Member by the Owning Party or its Affiliates.

(c) Return of Confidential Information. All Confidential
Information furnished by any Member to the other Member shall be returned by
such other Member to the Owning Party immediately upon the request of the Owning
Member. The confidentiality obligations and restrictions on use contained in
this Section 3.10 shall survive this Agreement.

3.11 COMPETITION MATTERS.

(a) Acknowledgment of Competitive Situation. Each Member
acknowledges that it and its Affiliates now are and/or hereinafter may be
engaged in businesses which may compete with, relate to or are similar to the
businesses of each other. Because the Members may compete with each other in
various areas, no Member shall be obligated to render any information to any
other Member, on demand or otherwise, if the Member reasonably believes it to be
inappropriate to disclose such information to a competitor.

(b) Dealing with Company. Nothing in this Agreement shall be
construed to prevent a Member, or its Affiliates, or entity in which a Member,
or its Affiliates, shall have an interest, from dealing with the Company in good
faith as vendor, customer or otherwise in a manner not specifically covered by
this Agreement, provided the Member or entity shall have given notice of such
interest to the Governors, and the Governors designated by the unaffiliated
Member shall have approved or ratified such dealing.

3.12 INVESTMENT REPRESENTATIONS .

(a) Each Member represents and warrants to the other Member
and the Company as follows: (i) such Member is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization;
(ii) such Member has full power and authority to execute, deliver and perform
such Member's obligations under this Agreement and the Related Agreements;
(iii) such Member has duly authorized, executed and delivered this Agreement and
has duly authorized the performance of such Member's obligations under this
Agreement and the Related Agreements; and (iv) such Member's authorization,
execution, delivery and performance under this Agreement and the Related
Agreements do not and will not conflict with any organizational document,
agreement or law applicable to such Member or by which such Member is bound.

(b) Each Member further represents and warrants to the Company
that such Member is acquiring such Member's Interest for such Member's own
account and not with a view toward the distribution or resale thereof, and each
Member agrees that such Member will not sell

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<PAGE> 17

or offer to sell all or any portion of its Interest, or negotiate in respect
thereof with any Person or Persons whomsoever, so as thereby to bring the
transaction in which such Member acquired such Member's Interest or any other
offering of interests in the Company within the provisions of Section 5 of the
Securities Act of 1933, as amended, or the registration requirement of any
other federal or state securities statute.

(c) Each Member further represents and warrants to the other
Member and the Company that (i) such Member has been given access to all
information concerning the Company and the terms and conditions of the Interest
such Member is purchasing hereby; (ii) such Member understands and acknowledges
that the Interest such Member is purchasing hereby is a speculative investment
and involves a high degree of risk and that no federal or state agency has made
any finding or determination as to the fairness for public or private investment
in, nor any recommendations or endorsement of, such Interest as an investment;
(iii) such Member has such knowledge and experience in business and financial
matters that such Member is capable of evaluating the merits and risks of an
investment in such Interest; and (iv) such Member's financial situation is such
that such Member can afford the risks of an investment in such Interest.

ARTICLE IV

ALLOCATIONS AND DISTRIBUTIONS

4.1 ALLOCATION OF PROFITS AND LOSSES. Except as provided in Section
4.2, Profits and Losses shall be allocated among the Members in proportion to
their respective Percentage Interests.

4.2 SPECIAL ALLOCATIONS AND OTHER PROVISIONS RELATING TO ALLOCATIONS.

(a) Allocation of Nonrecourse Deductions. Any Member
Nonrecourse Deductions for any fiscal year shall be specially allocated to the
Members who bear the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are attributable in
accordance with the Allocation Regulations. Such Members shall be specially
allocated items of Company income and gain as are required by the "chargeback of
partner nonrecourse debt minimum gain" requirements of the Allocation
Regulations.

(b) Manner of Allocation. Nonrecourse Deductions for any
fiscal year shall be specially allocated to the Members (with the Members
intending to satisfy the reasonable consistency requirement contained in the
Allocation Regulations as a result of this allocation) in proportion to their
respective Percentage Interests. Such Members shall be specially allocated items
of Company income and gain as are required by the "minimum gain chargeback"
requirements of the Allocation Regulations.

(c) Disallowed Deduction. If the deduction of all or any part
of any fee paid by the Company to a Member is disallowed by recharacterizing
such fee as a distribution to such Member, such Member shall be, to the extent
permitted by the Code, allocated items of

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Company income and gain for the taxable year in which such disallowed deduction
was claimed by the Company in the amount of such disallowed deduction.

(d) Qualified Income Offset. In the event any Member's
unexpected receipt of any adjustments, allocations or distributions described in
Sections 1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or
1.704-1(b)(2)(ii)(d)(6) of the Allocation Regulations causes such Member to have
(or increases) an Adjusted Capital Account Deficit, items of Company income and
gain shall be specially allocated to each such Member in an amount and manner
sufficient to eliminate, to the extent required by the Allocation Regulations,
the Adjusted Capital Account Deficit of such Member as quickly as possible,
provided that an allocation pursuant to this Section 4.2(d) shall be made only
if and to the extent that such Member would have an Adjusted Capital Account
Deficit after all other allocations provided for in this Article IV have been
tentatively made as if this Section 4.2(d) were not in the Agreement.

(e) Curative Allocations. The allocations set forth in
paragraphs (a), (b) and (d) of this Section 4.2 (the "Regulatory Allocations")
are intended to comply with certain requirements of the Allocation Regulations.
It is the intent of the Members that, to the extent possible, all Regulatory
Allocations will be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss or deduction
pursuant to this Section 4.2(e). Therefore, notwithstanding any other provision
of this Article IV (other than the Regulatory Allocations), the Members shall
make such offsetting special allocations in whatever manner the Members
determine appropriate so that, after such offsetting allocations are made, each
Member's Capital Account balance is, to the extent possible, equal to the
Capital Account balance such Member would have had if the Regulatory Allocations
were not part of this Agreement and all Company items were allocated pursuant to
Section 4.1. In exercising its discretion under this Section 4.2(e), the Members
may take into account future Regulatory Allocations under the last sentence of
each of Sections 4.2(a) and 4.2(b) that, although not yet made, are likely to
offset other Regulatory Allocations previously made under the first sentence of
each of Sections 4.2(a) and 4.2(b), respectively.

4.3 CASH DISTRIBUTIONS. Cash shall be distributed to the Members
from the Company in such amounts and at such times as the Governors may
determine, consistent with the Act. Each distribution of cash shall be made to
the Members in proportion to their respective Percentage Interests in the
Company at the time of such distribution. The Company shall distribute to the
Members any cash in excess of the Company's current and reasonably anticipated
future cash needs. It is the intent of the Company, to the extent cash is
available, to make sufficient cash distributions to the Members to fund federal
income tax payments which may become owing by the Members on the Company's
Profits. In such case, the cash distributed to the Members shall be based on the
higher of the two Members' applicable tax rates then in effect.

4.4 DISTRIBUTIONS OF LIQUIDATION PROCEEDS UPON LIQUIDATION. Upon
the liquidation of the Company, the Governors shall attempt to liquidate the
assets of the Company and the proceeds of such liquidation shall be applied and
distributed in the following order of priority:

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<PAGE> 19

(i) First, to creditors, including Members who are creditors,
to the extent permitted by law, in satisfaction of liabilities of the Company
(other than liabilities to Members for distributions of cash to which they may
be entitled), and to the expenses of liquidation;

(ii) Second, to the setting up of reserves that the Governors
determine are necessary to pay all contingent, conditional or unmatured claims
and obligations that are known to the Company and all claims and obligations
that are known to the Company but with respect to which the claimant or obligee
is unknown; such reserves may be paid over by the Governors to any attorney at
law or other party selected by the Governors, as escrow agent to be held for
disbursement in payment of any of the aforementioned liabilities or obligations,
or at the expiration of such period as shall be deemed advisable by the
Governors, for distribution in accordance with clause (c) of this Section 4.4;

(iii) Thereafter, to the Members in accordance with their
respective positive Capital Account balances, determined after all allocations
pursuant to Sections 4.1 through 4.2 (including, without limitation, allocations
to reflect the gain or loss recognized upon the sale of the Company's assets)
and all distributions pursuant to Section 4.3 have been made, but before any
distributions pursuant to this Section 4.4(c) are made.

4.5 DISTRIBUTIONS IN KIND ON LIQUIDATION. Upon the liquidation of
the Company, to the extent the Company's assets are not sold or otherwise
disposed of, such assets (if any) may be distributed in kind to the Members as
follows: the value of such assets shall be appraised (by an appraiser selected
by the Governors) to determine the Profits and Losses that would have resulted
if such assets had been sold; the Capital Account of each Member shall be
credited or debited with such Member's respective share of the hypothetical
gains or losses resulting from such assumed sales in the same manner as such
Capital Account would have been credited or debited on the actual disposition of
such assets; and such assets shall be distributed in accordance with the
Members' Capital Account balances as thus adjusted, each Member taking an
undivided interest in such assets subject to a pro rata share of the Company's
liabilities.

4.6 CERTAIN PROVISIONS OF THE ACT SUPERSEDED. The provisions of
this Agreement regarding allocations and distributions among the Members are
intended to and should, to the fullest extent permitted by law, supersede the
provisions of the Act regarding allocations and distributions.

ARTICLE V

POWER, AUTHORITY, RIGHTS, DUTIES AND OBLIGATIONS OF THE BOARD OF GOVERNORS

5.1 MANAGEMENT AND CONTROL OF COMPANY'S BUSINESS AND AFFAIRS BY
GOVERNORS. Subject to the restrictions hereinafter set forth, the Governors
shall have full and exclusive right, power and authority to conduct the business
and manage the affairs of the Company in accordance with the terms and
conditions of this Agreement. Any action or inaction by Consent of Governors
designated by Members holding greater than 50% of the Percentage Interests shall
constitute the action of the Governors and shall bind all of the Governors and
the Company. No Governor, acting alone, shall have the power or authority to
bind the Governors or the Company. The

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<PAGE> 20

Governors may delegate such power and authority by Consent of Governors
designated by Members holding a majority of the Percentage Interests. Each
Member shall be entitled to name one Governor for each 25%, or part thereof, of
Percentage Interests held by such Member. Delaco Tool shall be entitled to
designate three Governors and QS Steel shall be entitled to designate two
Governors. Each Governor shall serve at the pleasure of the Member entitled to
designate such Governor. All designations and removals of Governors shall be
made by written notice by the designating or removing Member, as the case may
be, to the other Members.

5.2 POWER AND AUTHORITY OF GOVERNORS. The Governors shall have
all power and authority necessary to carry out the purposes, business and
objectives of the Company.

5.3 PROHIBITED ACTIONS .The Governors may not:

(i) change the nature of the business of the Company
or enter into any business other than or in addition to that
contemplated by this Agreement:

(ii) sell, exchange, transfer, convey, assign,
mortgage, lease or otherwise dispose of all or substantially all of the
assets of the Company except to secure loans of the Company;

(iii) enter into any merger of or consolidation
involving the Company, whether or not the Company shall be the survivor
thereof;

(iv) authorize or undertake a major capital expansion
of the Company's facilities beyond that originally contemplated; and

(v) add new Members, except as permitted under
Article VI hereof.

5.4 MANAGEMENT AND SERVICES AGREEMENT . The Company shall enter
into a Management and Services Agreement with Delaco Tool or its designee
substantially in the form set forth in Exhibit 5 hereto, pursuant to which
Delaco Tool or its designee will provide certain management and other services
to the Company.

5.5 MANAGEMENT PERSONNEL AND OFFICERS .

(a) The Governors shall have the authority to nominate
Company officers and employ and dismiss from employment any and all Company
management personnel. Company officers and management personnel shall serve at
the pleasure of the Governors and may be removed at any time by the Governors,
subject to guidelines and policies established by the Governors from time to
time.

(b) Delaco Tool may nominate the Company's officers and
management personnel and shall consider candidates proposed by QS Steel. Such
nominations shall be subject to the approval of the Governors.

(c) The Company's officers and management personnel shall
provide general management and supervision for the Company and have such power
and duties as the

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<PAGE> 21

Governors may assign. Initially, the Company's officers and General Manager or
other designated management personnel shall have the powers and duties set
forth as follows, subject to the Governors authority to amend such powers and
duties;

(i) oversee the operations of the business of the
Company;

(ii) execute and implement the plans and policies of
the Governors;

(iii) authorize the making of unbudgeted capital
expenditures in amounts not exceeding the dollar limitations as set by
the Governors;

(iv) authorize the execution, delivery and
performance of any contract or agreement to be entered into by the
Company in the ordinary course of business, involving an aggregate
amount of not more than the dollar limitations set by the Governors, or
consistent with approved budgets;

(v) execute and deliver on behalf of the Company any
and all contracts and agreements as shall have been approved by the
Governors if required under this Agreement or as provided in clause
(iv);

(vi) approve all expenditures and the payment of all
obligations of the Company in accordance with the authority provided by
or consistent with approved budgets and the plans and policies of the
Governors;

(vii) employ and dismiss from employment any and all
Company personnel, other than management personnel designated from time
to time by the Governors;

(viii) prepare or arrange for the preparation of
financial statements concerning the Company;

(ix) propose and prepare annual budgets and
operational plans of the Company;

(x) make recommendations to the Governors concerning
appropriate policies, procedures, facilities and equipment;

(xi) arrange for the obtaining of insurance by
the Company;

(xii) authorize the opening of bank accounts and the
establishment of other depository relationships on behalf of the
Company with such signatories and on such terms as the Governors shall
deem appropriate;

(xiii) oversee the preparation of financial
statements and tax information concerning the Company and its business,
and the preparation and filing of all Company tax returns, subject to
the authority of the Tax Matters Member;

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<PAGE> 22

(xiv) supervise the procurement, construction,
erection and installation of facilities and improvements to the
facilities of the Company, consistent with approved budgets; and

(xv) authorize the employment and dismissal from
employment of any and all Company agents, independent contractors,
consultants, attorneys and accountants for amounts not in excess of the
dollar limitations as set by the Governors.

5.6 COMPENSATION AND EXPENSES. The philosophy and guidelines with
respect to the salary, benefits and other terms and conditions of employment of
the Company's management shall be established and reviewed from time to time by
the Governors. The officers shall be entitled to such compensation, if any, as
may be approved from time to time by the unanimous determination of the
Governors.

5.7 BUDGETS. The Governors shall consider and approve from time to time
budgets for the Company. Upon approval of a budget by the Governors, the
management personnel of the Company, shall have the right without further
consent or approval by the Governors, to incur and pay on behalf of the Company
the expenses set forth in such approved budget.

5.8 MEETINGS OF GOVERNORS . Any Governor may by written notice to each
other Governor call a meeting of all the Governors. Upon receipt of a written
request for such a meeting, the Governors shall promptly, and in any event not
later than ten (10) days after receipt of such request, fix a place and time for
such meeting. To the extent possible, such meeting shall be held at a place
convenient to all the Governors. Such meeting shall be held not less than
fifteen (15) nor more than sixty (60) business days after receipt of a request
for a meeting. In the absence of agreement by a majority of the Governors, such
meeting shall be held at 10:00 a.m. local time on the fifteenth (15th) business
day after receipt of a request for a meeting at the principal place of business
of the Company. Meetings of the Governors may be held through any communications
equipment if all those participating can hear each other and participation in
any such meeting shall constitute presence thereat.

5.9 LIABILITY. When acting with respect to the Company, the Governors
shall not be liable to the Company or to any Member for any mistake or error in
judgment or for any act or omission believed in good faith to be within the
scope of the authority conferred by this Agreement. When acting with respect to
the Company, the Governors shall be liable only for willful misconduct or
failure to act in good faith.

5.10 IDEMNIFICAITON. The Company shall, to the fullest extent
permitted under the Act and other applicable law, indemnify any Person who is a
party, or is threatened to be made a party, to any threatened, pending or
completed civil, criminal, administrative or investigative action, suit or
proceeding because such Person is or was a Member, Affiliate of a Member,
Governor, General Manager, officer, employee or agent of the foregoing or
is or was serving at the request of the Company as a member, manager,
director, trustee, partner, officer, employee or agent of another limited
liability company, corporation, partnership, joint venture, trust or other
enterprise, against costs, claims, damages, losses, judgments, fines and
expenses (including without limitation, reasonable attorneys' fees, filing
fees, court reporters' fees and transcript costs) actually and

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<PAGE> 23

reasonably incurred by such Person in connection with such action, suit or
proceeding if such Person's act or omission giving rise to any claim for
indemnification under this Section 5.11 was not occasioned by such Person's
fraud, willful misconduct, gross negligence or intent to cause injury to the
Company or by such Person's reckless disregard for the best interests of the
Company, and in respect of any criminal action or proceeding, such Person had no
reasonable basis to believe such Person's conduct was unlawful.

5.11 INSURANCE. The Company shall, with the assistance of Delaco Tool
arrange for the necessary and desirable insurance coverages with respect to
Company and its business, the type of policies and the amounts of coverage to be
determined by the Board of Governors. Such policies may be separate policies of
the Company, or if approved by the Board of Governors, may be maintained under
blanket insurance policies maintained by Delaco Tool or its Affiliates. The
premiums and deductibles for such insurance shall be paid by the Company. If
insurance is obtained under blanket policies, premiums shall be pro rated and
reimbursed to Delaco Tool (or its Affiliates), and any deductibles, copayment
or other self-insured amounts applicable to claims of or against the Company
shall be the responsibility of the Company.

5.12 BANK ACCOUNTS.

(a) ESTABLISHMENT. All funds received in connection
with the operation of the Company shall be deposited in such bank
account or accounts as approved by the Board of Governors. The Company
shall also create and designate one or more disbursing accounts from
which the obligation owing by the Company shall be paid. Such account
may be the same as or separate from the collection account. The
operating expenses of the Company shall be paid out of such disbursing
account.

(b) WORKING CAPITAL. No monies received from the
Company are to be commingled with Member funds.The Members may agree to
advance funds to the Company in order to make disbursements or for
other purposes. A revolving line of credit shall be established with
each Member and the Member shall be entitled to a reasonable interest
expense allocation, as agreed upon by the parties for such funds. Any
advances obtained by the Company from the Members shall be repaid with
interest before any cash dividend will be distributed.

(c) SIGNATORIES. The Board of Governors shall
designate the persons permitted access to the bank accounts of the
Company.

5.13 TAX MATTERS MEMBER. The Tax Matters Member (referred to as the
"tax matters partner" in Section 6231(a)(7) of the Code) initially shall be
Delaco Tool. The Tax Matters Member may at any time resign as the Tax Matters
Member, and the Tax Matters Member may be removed as the Tax Matters Member by
Consent of Members. In the event that the Tax Matters Member resigns or is
removed, a new Tax Matters Member shall be appointed with the Consent of
Members. The Tax Matters Member shall represent the Company and the Members, at
Company expense, in any administrative or judicial proceeding with the Internal
Revenue Service. Any other Member may, at such Member's own expense, participate
in such proceeding to the extent permitted by the Code. If an administrative
proceeding results in the issuance of a

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<PAGE> 24

"final partnership administrative adjustment" ("FPAA"), as that term is used in
Sections 6223 et seq. of the Code, the Tax Matters Member shall determine
whether the Company shall seek judicial review of such FPAA. If the Tax Matters
Member determines that the Company shall not seek judicial review, such Member
shall promptly notify each Member of this determination and each Member shall be
entitled, at such Member's own expense, to pursue whatever rights such Member
may have under the Code. Any amounts paid by the Tax Matters Member on behalf of
the Company in connection with any administrative or judicial proceeding shall
be considered a loan to the Company, and not a contribution to capital. The Tax
Matters Member shall not be liable to the Company or the other Members for any
action such Member takes or fails to take in connection with any such judicial
or administrative proceeding, including, without limitation, the agreement to
or failure to agree to a settlement or the extension of, or failure to extend
the relevant statutes of limitations, unless such action or failure
constitutes willful misconduct or failure to act in good faith.

5.14 CERTAIN PROVISIONS OF THE ACT SUPERSEDED. The provisions of this
Agreement regarding the management of the Company and the power, authority,
rights, duties and obligations of the Members are intended to and shall, to the
fullest extent permitted by law, supersede the provisions of the Act regarding
the management of a limited liability company and the power, authority, rights,
duties and obligations of limited liability company members set forth in the
Act.

ARTICLE VI

TRANSFERS OF INTERESTS BY MEMBERS; SUBSTITUTION OF MEMBERS

6.1 TRANSFER OF INTERESTS BY MEMBERS.

General. No Member may Transfer its Interest to any
Person without the Consent of the other Members, provided, however, that the
other Members shall not unreasonably withhold consent to a transfer to an
Affiliate of another Member. Any transfer permitted by this Section 6.1 shall
be subject to the further limitations set forth in Section 6.2 and the
admission of a Substitute Member shall be subject to Section 6.3.

6.2 ADDITIONAL RESTRICTIONS ON TRANSFERS. Notwithstanding anything in
this Article VI to the contrary, the following additional restrictions apply to
the Interests:

(a) Unless the other Members consent, no Member shall make any
assignment or transfer of any Interest if the transfer would, when considered
with all other assignments and transfers during the same applicable twelve-month
period, cause a termination of the Company for federal income tax purposes.

(b) No Member shall make an assignment or transfer to a
tax-exempt Entity under Section 168(h) of the Code.

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<PAGE> 25

(c) No Member shall make any assignment or transfer of any
Interest unless such Member gives a copy of this Agreement to the assignee or
transferee before such assignment or transfer is effected.

6.3 REQUIREMENTS FOR SUBSTITUTION. Notwithstanding anything in
this Article VI to the contrary, upon the assignment or transfer of any
Interest, no assignee or transferee shall have the right to become a
Substitute Member in place of its assignor or transferor unless the conditions
of Sections 6.1 and 6.2 have been satisfied and:

(a) The assignor or transferor has evidenced in a written
instrument of assignment or transfer its intention that the assignee or
transferee be admitted as a Substitute Member pursuant to the provisions hereof;

(b) Consent shall have been given by the remaining Member
which consent may be withheld by such remaining Member in its sole and absolute
discretion, for any reason or for no reason at all, except in the case of a
transfer to an Affiliate, in which case consent may not be unreasonably
withheld;

(c) The assignee or transferee has adopted and agreed in
writing to be bound by all of the provisions hereof, as the same may have been
amended; and

(d) All documents reasonably required by the Governors to
effect the substitution of the assignee or transferee as a Member shall have
been executed.

When and if all of the provisions of this Section 6.3 have been complied with,
the assignee or transferee shall thereupon become a Member of the Company.

6.4 OBLIGATIONS AND RIGHTS OF TRANSFEREES. Whether or not an
Entity which acquires an interest in the Company has accepted in writing the
terms and provisions of this Agreement and assumed in writing the obligations
hereunder of its predecessor in interest, such Entity shall be deemed, by such
acquisition of such interest, to have agreed to be subject to and bound by all
the obligations of this Agreement with the same effect as any predecessor in
interest of such Entity. An Entity acquiring an interest in the Company shall
have only such rights and shall be subject to all the obligations as provided
in this Agreement, and, without limiting the foregoing, such Entity shall not
have the right to have the value of its interest ascertained or receive the
value of such interest or, in lieu thereof, profits attributable to any right
in the Company, except as set forth in this Agreement.

6.5 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED
INTERESTS.
If any Interest is sold, assigned or transferred during any accounting period in
compliance with the provisions of this Article VI, Profits, Losses, each item
thereof and all other items attributable to such Interest for such period shall
be divided and allocated between the transferor and the transferee by taking
into account their varying interests during the period in accordance with Code
Section 706 (d), using any conventions permitted by law and selected by the
Governors. Unless otherwise determined by Governors, all distributions made on
or before the date thirty (30) days following the date on which the Company
receives written notice of such transfer

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(accompanied by the transfer documents) shall be made to the transferor, and
all distributions made thereafter shall be made to the transferee. Solely for
purposes of making such allocations and distributions, the Company shall
recognize such transfer not later than the end of the calendar month during
which it is given notice of such transfer, provided that if the Company does not
receive a notice stating the date such Interest was transferred and such other
information as the Governors may reasonably require within thirty (30) days
after the end of the accounting period during which the transfer occurs, then,
at the Governors' option, all of such items shall be allocated, and all
distributions shall be made, to the Entity which, according to the books and
records of the Company, on the last day of the accounting period during which
the transfer occurs, was the owner of the Interest. Neither the Company nor the
Governors shall incur any liability for making allocations and distributions in
accordance with the provisions of this Section 6.5, whether or not the
Governors or the Company have knowledge of any transfer of ownership of any
Interest.

6.6 The Company shall be dissolved upon the Transfer of the Interest
of a Member in compliance with the Agreement (other than (i) an assignment
merely of its right to receive distributions or (ii) a pledge, hypothecation or
other collateral assignment of its rights before the time such pledge,
hypothecation or other collateral assignment becomes absolute); provided,
however, that the Company and its business shall be continued after such
Transfer if the transferee becomes a Substitute Member in accordance with the
provisions of this Agreement including the Consent of all remaining Members. In
the event the Company's business has been validly continued as provided in the
preceding sentence, such business shall be continued in the form of a successor
limited liability company, which shall be deemed constituted and continued on
the terms and conditions in this Agreement except as may be modified by the
Agreement of the Members as provided in Article IX hereof; and the assets of the
Company shall not be liquidated. Each Member hereby agrees to execute and
deliver all documents necessary to effectuate the purposes of this Section.

6.7 RESTRICTIONS REASONABLE. Each Member acknowledges and agrees that
the restrictions or the transfer of Interests imposed by this Agreement are
imposed to accomplish legitimate purposes of the Company, and that such
restrictions are not more restrictive than necessary to accomplish those
purposes.

6.8 CERTAIN PROVISIONS OF THE ACT SUPERSEDED. The provisions of this
Agreement regarding the Transfer of a Member's Interest are intended to and
shall, to the fullest extent permitted by law, supersede the provisions of the
Act regarding the withdrawal of a member set forth in the Act.

ARTICLE VII

PROCEDURE ON DISSOLUTION

7.1 LIQUIDATION. Upon the dissolution of the Company, unless the
Company is continued or reformed as provided in this Agreement, the Members
shall proceed to liquidate the

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Company and to apply and distribute the proceeds of liquidation as set forth in
Sections 4.4 and 4.5 and as is consistent with the Act.

7.2 OPERATIONS DURING LIQUIDATION. Upon the determination that the
Company is to be dissolved and liquidated, the business of the Company during
the period of liquidation shall be carried on by the Governors, or by a designee
of the Governors, who shall possess all the powers of the Governors to the
extent necessary to wind up the business and affairs of the Company.

7.3 TIME FOR LIQUIDATION. In the event the Company is "liquidated"
within the meaning of the Allocation Regulations, distributions shall be made
pursuant to Section 4.4 in compliance with the timing requirements of the
Allocation Regulations; provided, however, that if, in the opinion of counsel
satisfactory to the Governors, failure to comply with the Allocation Regulations
would not cause the allocations of Profits and Losses (or any item thereof) to
the respective Members to lack substantial economic effect within the meaning of
Section 704(b) of the Code, then distributions need not be made in compliance
with the timing requirements of the Allocation Regulations.

7.4 TERMINATION. Upon compliance with the foregoing distribution plan
(including payment over to an escrow agent or trustee, if deemed appropriate by
the Governors and if there be sufficient funds therefor), the Company shall
cease to be such, and the Governors and/or the Members shall execute,
acknowledge and cause to be filed a certificate of dissolution of the Company
with the Department, including the name of the Company and the effective date of
its dissolution subject to and in accordance with applicable law.

ARTICLE VIII

BOOKS AND RECORDS, BANK ACCOUNTS

8.1 MAINTENANCE OF BOOKS AND ACCOUNTING METHOD. The Governors shall
keep or cause to be kept the following: (i) a current list of the name and last
known business or residence addresses of all Members and Governors; (ii) a copy
of the Articles of Organization, including any amendments thereof and any
written powers of attorney relating to the execution thereof; (iii) a copy of
this Agreement, including any amendments thereof and any written powers of
attorney relating to the execution thereof; (iv) copies of federal, state and
local income tax returns and reports of the Company for the three (3) most
recent years; (v) copies of any financial statements of the Company for the
three (3) most recent years; and (vi) copies of any records that would enable a
Member to determine the Member's relative share of the Company's distributions
and the Member's relative voting rights. Such books and records shall be
maintained at the Registered Office of the Company or at such other place as the
Governors may designate and shall be available upon reasonable notice, at
reasonable times, for inspection and examination by the Members or their duly
authorized agents or representatives. Such books and records shall be consistent
with the rules referred to in Section 3.7 of this Agreement. The books and
records of the Company shall be kept in accordance with accounting policies and
methods unless other policies or methods are selected by the Governors.

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8.2 FISCAL YEAR. The fiscal year of the Company shall end on
December 31.

8.3 REPORTS TO THE MEMBERS.

(a) On a quarterly basis (or on a monthly basis if the
Governors so determine), the Governors shall cause to be prepared and shall send
to each Member: (i)(A) a statement of operations of the Company and (B) a
statement of cash flows of the Company for the preceding period (and
year-to-date through and including such period); and (ii) a balance sheet of the
Company as of the close of such period. The annual financial statements of the
Company will be audited by the outside auditing firm of the Tax Matters Member,
or such other independent accounting firm as may be selected by the Governors,
unless all Members agree that no audit is necessary.

(b) The Governors shall cause to be prepared and distributed
to each Member, in a timely manner copies of all Single Business Tax and other
state and local tax returns prior to filing the same with the respective tax
authorities, as well as the Member's Schedule K-1 (Form 1065) and all other
information reasonably necessary for the preparation of such Member's federal,
state and local tax returns.

(c) No cause of action shall accrue to any Member under this
Section 8.3 if the Governors shall have acted in good faith in attempting to
meet its obligations under this Section yet failed to deliver any required
statements, reports, returns or information within the specified time period.

(d) In the event of any dispute among the Members relating to
the financial statements or accounting for the Company, the dispute shall be
submitted, at the request of any Member involved, to the public accounting firm
which has been engaged to audit the books of the Company, or if no accounting
firm has been so engaged, then to a public accounting firm to be selected as
provided in Section 8.3(a). In the case of any such disputes, the determination
of the accounting firm shall be final and binding on the Members.

8.4 TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS. The Tax Matters Member
shall make all tax elections on behalf of the Company. In the event of a
transfer of all or any part of the Interest of any Member for an amount in
excess of the adjusted basis for such interest for federal income tax purposes,
the Governors may elect, pursuant to Section 754 of the Code (or corresponding
provisions of succeeding law), to enable an adjustment to be made to the basis
of the Company's property. Any costs incurred by the Company in connection with
such Section 754 election shall be borne by the Member seeking a transfer of its
Interest. Any adjustments made pursuant to an election under Section 754 shall
affect only the successor in Interest to the transferring Member. Each Member
will furnish the Company with all information necessary to give effect to such
election.

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<PAGE> 29

ARTICLE IX

AMENDMENTS AND MAJOR DECISIONS

9.1 AMENDMENTS REQUIRING CONSENT OF GOVERNORS. The Governors may amend
this Agreement or the Articles of Organization only with the Consent of all the
Governors.

9.2 MAJOR DECISIONS. Major Decisions shall require the convening of a
Governors' meeting where an attempt will be made to obtain the unanimous
agreement of the Governors prior to approving a Major Decision. If the
Governors fail to reach a unanimous agreement, a Major Decision can,
nevertheless, be made, if the Governors representing a Member holding more
than 50% of the Percentage Interests vote in favor thereof. In such case,
however, the dissenting Member shall be entitled to invoke the provisions of
Section 10.2 (c) hereof.

ARTICLE X

DISSOLUTION

10.1 EVENTS OF DISSOLUTION - GENERAL. The Company will be terminated
upon the mutual written agreement of the Members that the Company be dissolved
and the term of the Agreement ended.

10.2 EVENTS OF DISSOLUTION - ELECTIVE. The Company may be dissolved,
at the election of a Member, as follows:

(a) Any Member may elect to dissolve the Company upon the
occurrence of:

(i) any event or the existence of any condition
beyond the reasonable control of the Members which prevents the Company from
producing commercially acceptable products consistent with the purpose of the
Company or the Company is otherwise unable to carry out its purpose, and such
event or condition cannot be corrected within a reasonable time, at a reasonable
expense; or

(ii) the Company fails or ceases to qualify as an
MBE as described in paragraph 2.13 hereof.

(b) Either Member may elect to dissolve the Company as of the
end of the third full year after the Company's inception or as of the end of any
year thereafter. Such election to dissolve must be made at least 24 months
before the end of such year.

(c) QS Steel may elect to dissolve the Company if Delaco Tool
invokes its right to effect a Major Decision without the unanimous agreement of
the Governors as provided in Section 9.2 hereof. Such election may be made by
written notice from QS Steel to Delaco Tool within 90 days after Delaco Tool
invokes such right.

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<PAGE> 30

10.3 EVENTS OF DISSOLUTION - DEFAULT. The non-defaulting Member may
elect to terminate and dissolve the Company in the event of a default, as
specified below, by the other Member. The occurrence of any of the following
events shall constitute a default by a Member:

(a) A Member shall have defaulted in its obligation to
make any capital contribution or to provide financial support as required in
Section 3.1 hereof and such default shall continue to exist for a period of
fifteen (15) business days after the other Member gives such defaulting Member
notice of such default.

(b) A Member or its Affiliate shall materially default
in the observance or performance of any material agreement, covenant, or
condition contained in this Agreement or in any material agreement with or
relating to the Company and such default shall continue to exist for a period
of 30 days after the other Member or the Company gives such defaulting Member
or its Affiliate written notice of such Default;

(c) A representation or warranty made by the Member
herein (or in any certificate or financial or other statement furnished by such
Member to the other pursuant to the terms hereof) or by the Member's Affiliate
in connection herewith shall prove to be false or misleading in any material
respect when made;

(d) The Bankruptcy of such Member.

10.4 NOTICE OF DISSOLUTION. If a Member is entitled to dissolve the
Company, it may do so by giving notice to the other Member, in writing, that
it is electing to dissolve the Company.

10.5 WINDING UP. If the Company is to be dissolved, then the Members
shall proceed jointly to wind up the affairs of the Company; provided, however,
that if the dissolution is occurring pursuant to Section 10.3, then the
non-defaulting Member may unilaterally wind up the affairs of the Company if it
so chooses.

10.6 BUY-OUT PROCEDURES.

(a) If an election is made by Delaco Tool to dissolve the
Company pursuant to Section 10.3 above (i.e. for Default), Delaco Tool may also
elect, by written notice given within ninety (90) days of the date of the
election to dissolve, to either (i) purchase QS Steel's Interest in the Company
for an amount equal to ninety (90) percent of the fair market value of QS
Steel's interest, or (ii) require QS Steel to purchase Delaco Tool's Interest in
the Joint Venture for an amount equal to 110% of the fair market value of QS
Steel's Interest.

(b) If an election is made by QS Steel to dissolve the Company
pursuant to Section 10.3 above (i.e. for Default) QS Steel may also elect by
written notice given within 90 days of the election to dissolve, to either (i)
purchase Delaco Tool's Interest in the Company for an amount equal to ninety
percent (90%) of the fair market value of Delaco Tool's Interest, or
(ii) require Delaco Tool to purchase QS Steel's Interest in the Company for an
amount equal to 110% of the fair market value of QS Steel's Interest.

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<PAGE> 31

(c) If an election is made by a Member (the "Terminating
Member") to dissolve the Company pursuant to Section 10.2 (a), (b) or (c), the
other Member may elect, by written notice given within 90 days of the date of
the election to dissolve, to continue the business of the Company by acquiring
the Terminating Member's interest in the Company for an amount equal to one
hundred percent (100%) of the fair market value of the Terminating Member's
Interest.

(d) If an election is made by QS Steel to dissolve the Company
pursuant to Section 10.2 (c), QS Steel may also elect in its notice of
dissolution to require Delaco Tool to purchase QS Steel's Interest in the
Company for an amount equal to 100% of the fair market value of QS Steel's
Interest.

(e) If the Company is dissolved pursuant to Section 10.1
above, either Member may elect, by written notice given within ninety (90) days
of the date of dissolution, to continue conducting the business of the Company.
Unless the Members otherwise agree, the acquiring Member shall purchase the
Terminating Member's interest in the Company for an amount equal to one hundred
percent (100%) of the fair market value of the Terminating Member's interest.

(f) In case of any election under this Agreement requiring the
determination of fair market value of the Company, the Members shall use their
best efforts to agree as to the fair market value of the Company. If the Members
fail to agree on such fair market value within sixty (60) days following the
election which requires such a determination, then the Members shall attempt to
agree upon a single appraiser to determine fair market value. If the parties
fail to agree on a single appraiser within 15 days, each Member shall appoint a
reputable appraiser, and the two appraisers shall appoint a third appraiser. The
appraiser or appraisers shall then determine in good faith such fair market
value(s), with such determination to be due within 60 days. In the event three
appraisers are appointed and the appraisers cannot agree upon a fair value, each
of the three appraisers shall set forth, in good faith, their own valuation, and
the highest and lowest valuations shall be discarded and the middle of the three
valuations shall be deemed to be the fair value.

10.7 NECESSARY APPROVALS. The provisions as to liquidation of the
Company and the purchase of the business of the Company and the purchase of the
business of the Company shall be subject to any necessary governmental
approvals, and the Members shall agree upon such reasonable extensions of time
with respect to such provisions as may be reasonably necessary in order to
obtain any such approvals.

ARTICLE XI

GENERAL PROVISIONS

11.1 NON-WAIVER. No provision of this Agreement shall be deemed to have
been waived unless such waiver is contained in a written notice given by the
party granting such waiver to the party claiming such waiver and no such waiver
shall be deemed to be a waiver of

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<PAGE> 32

any other or further obligation or liability of the party or parties in whose
favor the waiver was given or a waiver by any party not executing such waiver
of any of its rights.

11.2 ADDITIONAL DOCUMENTS AND INSTRUMENTS. The Members shall execute
and deliver to each other such other and further documents and instruments as
may be necessary to carry out the purposes of this Agreement and which are
required by the Governor, or any federal, state or local governmental agency
having jurisdiction over the Company.

11.3 SEVERABILITY. If any provision or provisions of this Agreement (or
any part thereof) or the application thereof to any particular facts or
circumstances shall be illegal and unenforceable by reason of any statute or
rule of law, or shall be deemed null and void pursuant to Section 2.5 of this
Agreement, the remaining provisions (or parts thereof) of this Agreement or the
application of the particular provision or provisions (or parts thereof) to
other facts or circumstances shall not be affected thereby and shall remain in
full force and effect. It is the intention of the provisions of this Section to
make clear that the agreement of the parties to this Agreement is that this
Agreement shall be enforced insofar as it may be enforced consistent with
applicable statutes and rules of law.

11.4 ENTIRE AGREEMENT. This Agreement and any schedules and exhibits
annexed hereto, each of which is made a part hereof by this reference,
constitute the entire operating agreement of the Company within the meaning of
the Act and contain the entire understanding and agreement between the parties
upon the subject matter of this Agreement and may only be amended or changed in
a writing executed by Members holding the requisite Percentage Interests as
specified in Article IX. Any prior understandings and agreements between the
parties are merged herein, except only as herein otherwise expressly stated.

11.5 PROVISIONS BINDING. This Agreement shall inure to the benefit of
and be binding upon the parties and their respective heirs, executors,
administrators, successors and assigns and any additional or Substitute Members
(except as may otherwise be specifically provided herein).

11.6 CAPTIONS. The table of contents and captions set forth herein are
for convenience and reference only and are not intended to modify, limit,
describe or affect in any way the contents, scope or intent of this Agreement.

11.7 COUNTERPARTS. This Agreement may be executed in several
counterparts and all so executed shall constitute one and the same agreement
binding on all parties hereto, notwithstanding that all parties have not signed
the same counterpart or that any such counterpart does not have attached copies
of all signature pages attached hereto that constitute part of this Agreement.

11.8 WORD MEANINGS. The words such as "herein," "hereinafter," "hereof"
and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall include the plural, and the masculine gender shall include
the feminine and neuter, and vice versa, unless the context otherwise requires.

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<PAGE> 33

11.9 APPLICABLE LAW. This Agreement and the rights of the parties
hereto shall be construed under and enforced in accordance with the laws of the
State of Michigan (exclusive of its choice of law principles).

11.10 DISPUTE RESOLUTION.

(a) Initial Procedure. Any claim, dispute, difference or
controversy arising out of or relative to this Agreement or the operation of the
Company and any deadlock in voting relative to the operation of the Company
which cannot be settled by mutual understanding between the Members or their
Governors, will first be submitted to the chief executive officers of the
Members, who will meet and attempt to resolve such dispute.

(b) Formal Dispute Resolution. Should said claim, dispute,
difference or controversy or the deadlock not be resolved as above provided
within sixty (60) days after submission to the named persons, then at the
written request of the Company or any Member involved, the said claim, dispute,
difference or controversy or the deadlock shall be submitted to Alternative
Dispute Resolution in Michigan in accordance with a procedure to be agreed upon
by the Members.

IN WITNESS WHEREOF, the undersigned have duly executed this Operating
Agreement of Delaco Processing, L.L.C.

QS STEEL INC., a Michigan corporation DELACO SUPREME TOOL & GEAR CO., a
Michigan corporation

By: /s/ Gary P. Latendresse By: /s/ Gerald F. Diez
------------------------------- --------------------------
Printed Name: Gary P. Latendresse Printed Named: Gerald F. Diez
--------------------- ---------------
Title: President Title: CEO
---------------------------- ------------------------

<PAGE> 1
EXHIBIT 10.19

OPERATING AGREEMENT

FOR

BING BLANKING, L.L.C.

A MICHIGAN LIMITED LIABILITY COMPANY
<PAGE> 2

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE #
------
<S> <C>
ARTICLE I - ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Formation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Name. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Purposes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.4 Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Registered Office and Resident Agent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Intention for Company. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Minority Business Enterprise Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.8 Competition. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9 Joint Developments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

ARTICLE II - DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

ARTICLE III - BOOKS, RECORDS AND ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Fiscal Year: Accounting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Reports. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.4 Member's Accounts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
</TABLE>

<PAGE> 3

<TABLE>
<S> <C>
ARTICLE IV - CAPITAL CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.1 Initial Commitments and Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.2 Additional Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.3 Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.4 Return of Contributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.1 Allocations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.2 Distributions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
5.3 Distributions to Pay Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

ARTICLE VI - MEETINGS OF MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.1 Voting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
6.2 Required Vote. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 Action by Written Consent or Telephone Conference. . . . . . . . . . . . . . . . . . . . . . . . 13
6.5 Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.6 Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>

ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE VII - MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.1 Management by Managers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.2 Number of Managers; Establishment of Management Committee . . . . . . . . . . . . . . . . . . . 19
7.3 Management Committee. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
7.4 Functions Reserved to the Management Committee. . . . . . . . . . . . . . . . . . . . . . . . . 24
7.5 Officers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.6 Duties of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
7.7 Rights to Obtain Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.8 Compensation of Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.9 Employees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

ARTICLE VIII - EXCULPATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.1 Exculpation of Liability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
8.2 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

ARTICLE IX - DISPOSITION OF MEMBERSHIP INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.1 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
9.2 Withdrawal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.3 Admission of Substitute Members. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
9.4 Repurchase of QS' or Shiloh's Membership Interest. . . . . . . . . . . . . . . . . . . . . . . . 35
9.5 Requirements for Effectiveness of Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
9.6 Prohibited Dispositions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>

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<TABLE>
<S> <C>
9.7 Absolute Restriction. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

ARTICLE X - DISSOLUTION AND WINDING UP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.1 Dissolution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.2 No Voluntary Termination. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
10.3 Methods of Winding Up of Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
10.4 Rights of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.5 Deemed Distribution and Recontribution. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
10.6 Alternative Distribution Methods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
10.7 Reimbursement of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

ARTICLE XI - TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.1 Method of Accounting For Tax Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.2 Tax Matters Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
11.3 Tax Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

ARTICLE XII - MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.1 Terms. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.2 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.3 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
12.4 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.5 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
</TABLE>

iv
<PAGE> 6
<TABLE>
<S> <C>
12.6 Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.7 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
12.8 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
12.10 Rights of Creditors and Third Parties Under This Agreement . . . . . . . . . . . . . . . . . . 53
12.11 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.12 Antitrust Policy Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
12.13 Settlement of Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

APPENDIX & TAX ALLOCATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

EXHIBIT A . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

EXHIBIT D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78

EXHIBIT E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81

EXHIBIT F . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
</TABLE>

v
<PAGE> 7

OPERATING AGREEMENT
FOR
BING BLANKING, L.L.C.
A MICHIGAN LIMITED LIABILITY COMPANY

THIS OPERATING AGREEMENT (the "Agreement") is made and entered into
effective as of the 26th day of November, 1997 by and among Bing Blanking,
L.L.C., a Michigan limited liability company (the "Company"), QS STEEL INC., a
Michigan corporation, ("QS"), SHILOH CORPORATION, an Ohio corporation
("Shiloh") and BING MANAGEMENT II, L.L.C., a Michigan limited liability company
("Bing") (QS, Shiloh and Bing individually a "Member," and collectively,
"Members"), who agree as follows:

ARTICLE I
ORGANIZATION

1.1 Formation. The Company has been organized as a Michigan limited
liability company under and pursuant to the Michigan Limited Liability Company
Act, being Act No. 23, Public Acts of 1993 (the "Act"), by the filing of
Articles of Organization ("Articles") with the Department of Commerce of the
State of Michigan as required by the Act.
<PAGE> 8

1.2 Name. The name of the Company shall be Bing Blanking, L.L.C. The
Company may also conduct its business under one or more assumed names.

1.3 Purposes. The purposes of the Company are to engage in any activity
for which limited liability companies may be formed under the Act. The Company
shall have all the powers necessary or convenient to effect any purpose for
which it is formed, including all powers granted by the Act.

1.4 Duration. The Company's existence shall be perpetual or until the
earlier dissolution of the Company in accordance with the Act or this
Agreement.

1.5 Registered Office and Resident Agent. The Registered Office and
Resident Agent of the Company shall be as designated in the initial Articles or
any amendment thereof. The Registered Office and/or Resident Agent may be
changed from time to time. Any such change shall be made in accordance with the
Act. If the Resident Agent shall ever resign, the Company shall promptly
appoint a successor.

1.6 Intention for Company. The Members have formed the Company as a
limited liability company under and pursuant to the Act. The Members
specifically intend and agree that the Company not be a partnership (including
a limited partnership) or any other venture but a limited liability company
under and pursuant to the Act. No Member

<PAGE> 9

shall be construed to be a Partner in the Company or a partner of any other
Member or person and the Articles, this Agreement and the relationships created
thereby and arising therefrom shall not be construed to suggest otherwise.

1.7 Minority Business Enterprise Status. The Members have formed the
Company with the specific intention of having the Company certified as a
bonafide Minority Business Enterprise ("MBE") by the Michigan Minority Business
Development Council ("MMBDC") of the National Minority Supplier Development
Council ("NMSDC"). As soon as reasonably practical after formation of the
Company, a MBE certification application will be completed and submitted to the
MMBDC for approval. All Members agree to take all actions reasonably necessary
to accomplish the certification of the Company as an MBE. Upon approval of the
Company as a MBE by the MMBDC no Member will take any actions which would
jeopardize the Company's status as a certified MBE, except as otherwise
specifically permitted in this Agreement.

1.8 Competition. Each Member will have access to the blanking and/or
tolling operations of the Company as a benefit of its ownership in the Company.
Although no specific allocations of capacity shall be made to any Member, in
determining to accept an order generated by the efforts of an individual
Member, the Company may consider factors such as longevity and volume, in
addition to the Company' s operating margin, on a particular order. A Member
shall be entitled to enter into transactions that are competitive with the
business of the Company. Neither the Company nor any Member

<PAGE> 10

shall have any right by virtue of this Agreement to share or participate in
such other transactions. If the Company generates orders to sell blanks,
independent of the efforts of an individual Member and said order does not
specify the steel supplier or the tooling and fixture supplier, the Company
will offer QS or one of its direct or indirect subsidiaries or affiliates a
right of first refusal to supply the steel to the Company, pursuant to a
certain Supply Agreement referred to in Section 7.8 hereof, and will offer
Shiloh or one of its direct or indirect subsidiaries or affiliates a right of
first refusal to supply all tooling and fixtures and all prototyping and design
work to the Company on terms acceptable to the Company. Any Member may engage
in the business of selling steel blanks or carrying on tolling operations in
competition with the Company or any other Member, in any territory, at any time
during the term of this Agreement, whether directly or indirectly through
another venture or entity, and no Member shall be deemed to be in violation of
a fiduciary duty to the Company on account of the production and sale of steel
blanks, tolling operations or related activities. Each Member will conduct
business with the Company on an arms length basis and no Member under any
circumstances will interfere with or restrict the operations or management of
the Company unless otherwise specifically permitted in this Agreement.

1.9 Joint Developments. Any and all developments, inventions, patents,
copyrights, or other confidential or proprietary information relating to any of
the foregoing, which is produced, generated or developed by the Company or any
of its employees or agents while working for the Company (each a "Joint
Development") shall

<PAGE> 11

be the property of, and belong to, the Company. If either QS, Shiloh or Bing
desires to use a Joint Development in its own business or operations, or in the
business or operations of any of their subsidiaries and/or affiliates
(including without limitation any subsidiary or affiliate of any one or more of
QS, Shiloh or Bing or any of their subsidiaries and/or affiliates, direct or
indirect) (collectively referred to herein as "Related Entities"), they may do
so without restraint by the Company; provided, however, neither QS, Shiloh nor
Bing may allow third parties, other than Related Entities, to use a Joint
Development unless QS, Shiloh and Bing shall agree to allow the Company to
enter into a license agreement with the third party which provides for a
nonexclusive license to use the Joint Development for a period of years, not to
exceed the period of existence of the Company, at a fair commercial rate. The
agreement of QS, Shiloh and Bing to such request shall not be unreasonably
withheld.

Any and all developments, inventions, patents, copyrights, or other
confidential or proprietary information of any Member which is disclosed to the
Company in confidence, shall at all times remain the property of such
disclosing Member and shall be for the sole use of the Company, the Members and
the Related Entities only, and, following the purchase of the Membership
Interest of the disclosing Member pursuant to Article IX hereof, the Company's
successors and assigns.

<PAGE> 12

ARTICLE II
DEFINITIONS

For purposes of this Agreement, unless the context clearly indicates
otherwise, (i) all of the capitalized words in this Agreement shall have the
meanings set forth in the text or Appendix and (ii) all non-capitalized words
defined in the Act shall have the meanings set forth therein.

ARTICLE III
BOOKS, RECORDS AND ACCOUNTING

3.1 Books and Records. The Company shall maintain complete and accurate
books and records of the Company's business and affairs as required by the Act
and such books and records shall be kept at the Company's Registered Office.

3.2 Fiscal Year: Accounting. The Company's fiscal year shall begin the
first day of January and shall end on December 31 ("Fiscal Year"). Subject to
the terms of this Agreement, the particular accounting methods and principles
to be followed by the Company shall be selected by the Management Committee.
The Company's method of accounting for depreciation, capital purchases,
expenses and amortization shall be consistent with the procedures and
methodology utilized under GAAP.

<PAGE> 13

3.3 Reports. The Management Committee shall prepare reports concerning
the financial condition and results of operation of the Company and the Capital
Accounts of the Members in the time, manner and form as the Management
Committee determines. Such reports shall be provided at least quarterly as
soon as practicable after the end of each fiscal quarter and shall include a
statement of each Member's share of Profits and other items of income, gain,
loss, deduction and credit. Any Member may reasonably request additional
substantiating financial information for clarification of such quarterly
reports which will be prepared by the Management Committee.

The books and records of the Company shall be examined as of the close of
each Fiscal Year by Plante and Moran, P.C. or other independent certified
public accountant selected by the Management Committee, who shall make an
annual certified audit thereon within one hundred and twenty (120) days
following the end of each Fiscal Year, unless waived unanimously by all of the
Managers on the Management Committee.

3.4 Member's Accounts. Separate Capital Accounts for each Member shall
be maintained by the Company. Each Member's Capital Account shall reflect the
Member's Capital Contributions and increases for the Member's share of any net
Profits, income or gain of the Company. Each Member's Capital Account shall
also reflect decreases for distributions made to the Member and the Member's
share of any Losses and deductions of the Company.

<PAGE> 14

ARTICLE IV
CAPITAL CONTRIBUTIONS

4.1 Initial Commitments and Contributions. By the execution of this
Agreement, the Members hereby agree to make the capital contributions set forth
in the attached Exhibit A, no later than sixty (60) days from the date of this
Agreement (each an "Initial Capital Contribution"). The Sharing Ratios and
Units of the Members are set forth in Exhibit A. Any additional Member (other
than an assignee of a Membership Interest (as hereinafter defined) who has been
admitted as a Member) shall make the Capital Contribution set forth in an
Admission Agreement. No interest shall accrue on any Capital Contribution and
no Member shall have any right to withdraw or to be repaid any Capital
Contribution except as provided in this Agreement.

4.2 Additional Contributions. No Member shall be required to contribute
additional capital to the Company in excess of its Initial Capital Contribution
except in accordance with Section 7.1(b).

4.3 Loans. The Members recognize that on a lease basis, the project
costs, including reasonably necessary equipment, would be approximately
$3,000,000 and that the necessary initial working capital needs of the Company
will be approximately $500,000 and that contributions to be made by the
Members as set forth in Section 4.1 hereof will not be sufficient to fund such
initial project costs and working capital needs.

<PAGE> 15

The Company is hereby authorized to borrow the funds required in excess of the
initial capital contributions to be made by the Members to finance such initial
project costs and working capital needs as set forth herein. QS shall cause
its parent company, Rouge Industries, Inc. ("Rouge"), to provide any
unconditional guarantees of payment which are required in order to obtain such
additional financing relating to the initial project costs, and to execute in
such regard such forms of guarantee as shall be reasonably requested by the
lending institution providing such financing to the Company for the initial
project costs set forth herein. Bing, Shiloh and QS hereby agree that the
Company will use its best efforts to obtain in any Rouge guarantee of bank debt
incurred by the Company said bank's agreement that upon Rouge's payment in full
to the bank of the Company's obligations to the bank that Rouge shall have full
rights of subrogation and be entitled to an assignment of all rights of the
bank against the Company under the applicable loan documents.

4.4 Return of Contributions. A Member is not entitled to demand the
return of any part of its Capital Contributions or to interest in respect of
either its Capital Account or its Capital Contributions. Neither the Company
nor any Member has any obligation to return the Capital Contributions of any
Member, except as otherwise provided under this Agreement.

<PAGE> 16

ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS

5.1 Allocations. Except as may be required by the By-Laws, Code or this
Agreement, net Profits, net Losses, and other items of income, gain, Loss,
deduction and credit of the Company shall be allocated among the Members in
accordance with their Sharing Ratios.

5.2 Distributions. The Company may make distributions to the Members
from time to time. Distributions may be made only after the Management
Committee determines that the Company has sufficient cash on hand which exceeds
the current and the anticipated needs of the Company to fulfill its business
purposes (including needs for operating expenses, technical service expenses,
debt service, acquisitions, reserves and mandatory distributions, if any). All
distributions shall be made to the Members in accordance with their Sharing
Ratios. Distributions shall be in cash, as determined by the Management
Committee. No distribution shall be declared or made if, after giving it
effect, the Company would not be able to pay its debts as they become due in
the usual course of business or the Company's total assets would be less than
the sum of its total liabilities plus the amount that would be needed if the
Company were to be dissolved at the time of the distribution to satisfy the
preferential rights, if any, of other Members upon dissolution that are
superior to the rights of the Members receiving the distribution.

<PAGE> 17

5.3 DISTRIBUTIONS TO PAY TAXES. Notwithstanding Section 5.2 above, the
Company shall, to the extent allowed by the Act, make annual proportional cash
distributions to each Member within ninety (90) days following the conclusion
of each Fiscal Year of the Company equal to forty-four percent (44%) of each
Member's share of the taxable income of the Company. To the maximum extent
possible, periodic distributions shall be made so as to provide each Member
with an amount equal to its estimated tax payment obligations and such periodic
distributions will be reconciled as of the end of the Fiscal Year. Such
distributions are intended to be sufficient for purposes of paying any and all
types of federal, state and local income tax incurred by the Members of their
affiliates with respect to taxable income of the Company.

ARTICLE VI
MEETINGS OF MEMBERS

6.1 Voting. All Members shall be entitled to vote on any matter
submitted to a vote of the Members. Each Member shall be entitled to a vote
weighted to reflect the proportion of the Member's Sharing Ratio to the total
Sharing Ratios of all Members.

Any vote or action by any Member of the Company will be by such Member's
Board of Directors (or Managers, in the case of Bing) or its Executive
Committee acting on behalf of the Board of Directors; provided, however, that
the Board of Directors (or Managers, in the case of Bing) or the Executive
Committee of any Member may by

<PAGE> 18

resolution appoint an officer, director, employee, consultant or agent to act
as its proxy to vote or take action on behalf of that Member. Assignees of a
Member are entitled to receive the Member/Assignor's economic interest only and
are not automatically Members and do not have a right to vote unless admitted
as a Member.

6.2 Required Vote. Unless a greater vote is required by the Act or the
Articles, the affirmative vote or consent of a majority of the Sharing Ratios
of all the Members entitled to vote or consent shall be required on any matter
submitted to a vote of the Members.

6.3 Meetings. An annual meeting of Members for the transaction of such
business as may properly come before the meeting shall be held on the 15th day
of March each year (or if that day is a legal holiday, then on the next
succeeding day not a holiday) at 10:00 a.m., at the Company's principal place
of business or at such other time or place as from time to time may be
determined by the Members, provided, however, that the failure to hold an
annual meeting shall not be grounds for dissolution of the Company. Special
meetings of Members for any proper purpose or purposes may be called at any
time by the holders of greater than ten percent (10%) of the Sharing Ratios of
all Members. The Company shall give notice stating the date, time, place and
purposes of any meeting to each Member entitled to vote at the meeting. The
notice shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting. All meetings of Members shall be presided over
by the Chairman of the Management

<PAGE> 19

Committee. Meetings may be held pursuant to teleconference or conference
telephone call.

6.4 Action by Written Consent or Telephone Conference. Any action
permitted or required to be taken at a meeting of the Members may be taken
without a meeting if a consent in writing, setting forth the action to be
taken, is signed by all the Members. Such consent shall have the same force
and effect as a unanimous vote at a meeting. Members may participate in and
hold a meeting of the Members by means of a conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in such meeting shall constitute
attendance and presence in person at such meeting, except when a person
participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.

6.5 Quorum. The presence in person or by proxy of the Members
representing fifty-one percent (51%) of the Sharing Ratios of the Company,
shall constitute a quorum at any meeting of Members.

6.6 Record Date. The officers of the Company may fix a record date for
any lawful purpose, including without limiting the generality of the foregoing,
the determination of Members entitled to (i) receive notice of or to vote at
any meeting, (ii) receive payment of any distribution (subject to any
applicable requirements of the

<PAGE> 20

Internal Revenue Code of 1986, as amended), (iii) receive or exercise rights of
purchase of or subscription for, or exchange or conversion of, interests,
certificates or other securities, subject to any contract right with respect
thereto, or (iv) participate in the execution of written consents, waivers or
releases. Said record date shall not be more than sixty (60) days preceding
the date of such meeting, the date fixed for the payment of any distribution or
the date fixed for the receipt or the exercise of rights, as the case may be.
If a record date is not fixed, the record date for the determination of Members
who are entitled to notice of, or who are entitled to vote at, a meeting of
Members, shall be the close of business on the date next preceding the day on
which notice is given, or the close of business on the date next preceding the
day on which the meeting is held, as the case may be.

ARTICLE VII
MANAGEMENT

7.1 Management by Managers.

(a) Except for situations in which the approval of the Members is
required by this Agreement or by nonwaivable provisions of the Act, and
subject to the provisions of subsection (b) below, the powers of the
Company shall be exercised by or under the authority of, and the business
and affairs of the Company shall be managed under the direction of,
Managers acting by and through a

<PAGE> 21

Management Committee (as defined below). The Management Committee shall
manage, control, administer and operate, and make all decisions relating
to, the business and affairs of the Company and exercise all power
conferred upon the Company in the Act, except such as are by law, by the
Articles or by this Agreement conferred upon or reserved to the Members.
The Management Committee shall have the right to delegate to the officers
of the Company authority to exercise any power, duty or responsibility of
the Management Committee not specifically reserved to the Management
Committee or the Members under this Agreement.

(b) Notwithstanding any other provision of this Agreement to the
contrary, the following actions may be undertaken only upon the
affirmative vote of all the Managers:

(i) Admit a new or substitute Member;

(ii) Establish an annual capital budget for the Company in
excess of One Hundred Fifty Thousand ($150,000.00) Dollars per year;
provided, however, that an initial capital budget of $3,000,000 is
hereby approved;

(iii) Amend or restate the Articles of Organization, the By-Laws
of the Company or this Agreement;

<PAGE> 22

(iv) Enter into, amend or terminate, other than in accordance
with the terms of such agreement, any agreement between the Company
and any Member of the Company, other than on terms of an Arm's Length
Transaction;

(v) Guarantee any loans to a third party;

(vi) Sell, lease, exchange or otherwise dispose of substantially
all of the property and assets, with or without the goodwill, of the
Company;

(vii) Invest in, acquire, merge with or form a legally binding
affiliation or association with another entity;

(viii) Change the nature of the Company's business or the purpose
for which the Company was formed from other than that of
manufacturing, buying, selling and processing steel and steel related
products;

(ix) Make any request for or accept additional Contributions of
capital from a Member or offer an equity interest in the Company to
any third-party;

<PAGE> 23

(x) Except as otherwise permitted in Section 4.3 hereof, borrow
money or otherwise commit the credit of the Company for Company
activities if such borrowing or commitment of credit requires an
additional guarantee from any Member; provided, however,
notwithstanding anything to the contrary contained in this
subparagraph 7.1(b), only the consent of the Manager(s) of the
Member(s) providing such guarantee shall be required for purposes of
this subparagraph;

(xi) Change the status or certification of the Company as a
Minority Business Enterprise;

(xii) Amend, modify or terminate the Medina Blanking Technical
Services Contract, or the QS Supply Agreement other than in
accordance with the terms thereof;

(xiii) Appoint the plant manager of the Company; candidates for
plant manager shall be nominated by Bing and submitted to the
Managers not designated by Bing for approval. Provided however, any
plant manager appointed by the Management Committee as provided
herein may be later removed by the Management Committee upon the
vote of a majority of its members;

<PAGE> 24

(xiv) Make a distribution as provided in Section 5.2 of this
Agreement during the five (5) year period beginning on the effective
date of this Agreement; nothing contained in this subparagraph shall
restrict the making of distributions as provided in Section 5.3
hereof.

In the event that any such action is consummated without the consent of
all Managers, such act shall be null and void and of no legal force or effect
and shall be terminated.

(c) (i) Prior to filing a bankruptcy petition on behalf of the
Company or making any assignment for the benefit of creditors of the
Company or compromising any material sums due the Company, the
Management Committee in a meeting at which a quorum of Managers are
present shall discuss said bankruptcy petition, assignment or
compromise.

(ii) Prior to initiating or settling any litigation for an
amount in excess of One Hundred Thousand Dollars ($100,000.00) and/or
which is likely to affect a significant customer relationship, except
for litigation involving routine employment matters, the Management
Committee in a meeting at which a quorum of Mangers are present shall
discuss the proposed litigation.

<PAGE> 25

7.2 Number of Managers; Establishment of Management Committee. There
shall be five Managers of the Company. Unless and until this Agreement is
amended by the Members in accordance with Article XII of this Agreement, Shiloh
and QS shall each have the right to appoint one of the five Managers and Bing
shall have the right to appoint three of the five Managers. The following
individuals are hereby appointed as initial Managers of the Company to serve
until their respective successors are duly elected and qualify:

Shiloh Appointee QS Appointee Bing Appointees

William R. Burton Ronald J. Nock Dave Bing
David J. Olson
Kirk J. Lewis

The Managers each shall be either an officer, director or employee of the
Member that appointed such Manager and each shall serve at the pleasure and on
behalf of the Member that appointed such Manager. Any Manager may be removed,
with or without cause, only by the Member that appointed such Manager. Any
vacancy shall be filled by the Member that appointed the Manager whose seat is
then vacant. Each Manager shall serve in such capacity until removed by the
Member that appointed such Manager or until such seat otherwise becomes vacant.
The Managers shall act by and through a management committee (the "Management
Committee") consisting of all five Managers,

<PAGE> 26

and no individual Manager shall have authority to act individually on behalf of
the Company or to bind the Company absent a specific grant of authority from
the Management Committee. Bing shall designate from among the members of the
Management Committee one designee to act as Chairman (the "Chairman") of the
Management Committee.

7.3 Management Committee.

(a) Quorum. A majority of the members of the Management Committee
shall constitute a quorum. No action shall be taken at any meeting of
the Management Committee unless a quorum of the Members of the Management
Committee are present in person at such meeting. Notwithstanding that a
quorum consisting of less than all of the members of the Management
Committee may be present at any meeting of the Management Committee, all
actions of the Management Committee shall require the consent of a
majority of the whole authorized number of members of the Management
Committee (unless a greater number is required under the provisions of
the Operating Agreement of the Company).

(b) Annual Meeting. An annual meeting of the members of the
Management Committee shall be held immediately following the annual
meeting

<PAGE> 27

of the Members, or as soon thereafter as is practicable. Such annual
meeting shall be held at the same place at which such Members' meeting
was held.

(c) Regular Meetings. Except as the Management Committee may, by
resolution or by-law, from time-to-time otherwise determine, regular
meetings of the members of the Management Committee shall be held on a
quarterly basis on the 15th day of each March, June, August and November
during the term hereof at the principal offices of the Company. The
Secretary shall give notice of each such resolution or by-law to any
member of the Management Committee who was not present at the time the
same was adopted, but no further notice of such regular meeting need be
given.

(d) Special Meetings. Special meetings of the members of the
Management Committee may be called by the Chairman, the President, any
Vice President, or any two members of the Management Committee that have
not been appointed to the Management Committee by the same Member, and
shall be held at such times and places, within or without the State of
Michigan, as may be specified in such call.

(e) Notice of Annual or Special Meetings. Notice of the time and
place of each annual or special meeting shall be given to each member of
the Management Committee by the secretary or by the person or persons
calling such

<PAGE> 28

meeting. Such notice need not specify the purpose or purposes of the
meeting and may be given in any manner or method and at such time so that
the member of the Management Committee receiving it may have reasonable
opportunity to participate in the meeting. Such notice shall, in all
events, be deemed to have been properly and duly given if mailed at least
forty-eight (48) hours prior to the meeting and directed to the business
address of each member of the Management Committee as shown upon the
secretary's records and, in the event of a meeting to be held through the
use of communications equipment, if the notice sets forth the telephone
number at which each member of the Management Committee may be reached
for purposes of participation in the meeting as shown upon the
secretary's records and states that the secretary must be notified if a
member of the Management Committee desires to be reached at a different
telephone number. The giving of notice shall be deemed to have been
waived by any member of the Management Committee who shall participate in
such meeting and may be waived, in a writing, by any member of the
Management Committee either before or after such meeting.

(f) Compensation. Unless the members of the Management Committee
unanimously otherwise agree, neither members of the Management Committee
nor the President, as such, shall be entitled to receive from the Company
any compensation for their services but shall be entitled to
reimbursement of any expenses of attendance at any meeting of the
Management Committee.

<PAGE> 29

(g) Action by Written Consent or Telephone Conference. Any action
permitted or required to be taken at a meeting of the Management
Committee or any committee designated by the Management Committee may
be taken without a meeting if a consent in writing, setting forth the
action to be taken, is signed by all of the members of the Management
Committee or members of such committee, as the case may be. Such
consent shall have the same force and effect as a unanimous vote at a
meeting. Members of the Management Committee, or members of any
committee designated by the Management Committee, may participate in
and hold a meeting of the Management Committee or any committee of
Management Committee, as the case may be, by means of a conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and
participation in such meeting shall constitute attendance and presence
in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or
convened.

(h) Proxies. A person who is entitled to attend a meeting of the
Management Committee, to vote thereat or to execute consents, waivers or
releases may be represented at such meeting or vote thereat, and execute
consents, waivers and releases, and exercise any of his other rights, by
proxy or proxies appointed by a writing signed by such person.

<PAGE> 30

(i) Chairman to Preside. The Chairman of the Management Committee
shall preside at all meetings of Members and at all meetings of the
Management Committee.

7.4 Functions Reserved to the Management Committee

The following actions shall not be taken by any officer of the Company
without the specific authorization of the Management Committee:

(a) Engagement of termination of officers of the Company and
designation of compensation for such officers.

(b) Establishment or termination of all banking relationships.

(c) Any other action set forth in this Agreement which requires the
approval of the Management Committee, including all actions specified in
Section 7.1(b) of this Agreement.

7.5 Officers.

(a) The day-to-day operations and management of the Company shall be
exercised by such officers as may annually be appointed from time to time
in

<PAGE> 31

accordance with this Section 7.5. Subject to Section 7.1(b)(xiii)
hereof, the Management Committee shall appoint, by majority vote of the
members of the Management Committee, such officers as it may determine
from time to time, which may include a President, such number of Vice
Presidents as it may from time to time determine, a Secretary, an
Assistant Secretary, and a Treasurer. Any two of such offices, other
than President and Vice President, and Secretary and Assistant Secretary,
may be held by the same person, but no officer shall execute, acknowledge
or verify any instrument in more than one capacity. Each officer of the
Company shall hold office at the pleasure of the Management Committee and
no officer may hold office for more than twelve (12) months following his
appointment to office unless he is reappointed to office by the
Management Committee at the end of the twelve (12) month period following
that appointment. The officers, subject to the direction and control of
the Management Committee shall do all things and take all actions
necessary to run the business of the Company. Each officer shall have
the duties assigned to him by this Agreement or by the Management
Committee. In addition to any duties assigned by this Agreement, the
President of the Company shall be responsible for preparing an annual
budget including a detailed salary plan for all officers and associates
of the Company for approval by the Management Committee (the "Annual
Budget"). The officers shall be entitled to such compensation, if any,
as may be approved from time to time by the unanimous determination of
the Management Committee. Any officer may be removed at any time, with
or without cause, by majority vote

<PAGE> 32

of the members of the Management Committee. Subject to Section
7.1(b)(xiii), any vacancy in any office may be filled by majority vote
of the whole authorized number of members of the Management Committee.

7.6 Duties of Officers.

(a) President. The President shall be the chief executive officer
of the Company and shall exercise supervision over the business of the
Company and over its several officers, subject, however, to the control of
the Management Committee. In the absence of the Chairman, the President
shall preside at meetings of Members and at meetings of the Management
Committee. He shall have authority to sign all certificates for interests
and all deeds, mortgages, bonds, agreements, notes, and other instruments
requiring his signature; and shall have all the powers and duties as may
from time to time be assigned to him by the Management Committee. The
initial President of the Company shall be David J. Olson.

(b) Plant Manager. The Plant Manager shall have general supervision
of the day-to-day operations of the plant, including the authority to
hire and terminate production personnel, and shall be responsible for the
productivity of the plant and the quality of the products produced
therefrom, subject, however, to the

<PAGE> 33

control of the President. The duties of the Plant Manager may be
expanded by the President in his sole discretion, subject to the control
of the President.

7.7 Rights to Obtain Information. Each Member shall have the right
to obtain, at such Member's sole cost and expense, during business hours
and upon at least twenty-four hours' notice to the Company, all of the
following:

(a) True and full information regarding the status of the business
and the financial condition of the Company, including access to the
Company's books and records by a representative of the Member;

(b) Promptly after becoming available, a copy of the federal, state
and local income tax returns of the Company for each year;

(d) A copy of the Articles and all amendments to the Articles;

(e) A copy of this Agreement (including the Bylaws) and all
amendments hereto; and

<PAGE> 34

(f) True and full information regarding the date on which each
Member became a Member and the amount of cash, and a description and
statement of the agreed value of any contributed property, if any, that
has been contributed by each Member and that each Member has agreed to
contribute in the future.

In making the foregoing information available to Members, the Company may
either provide the Member requesting such information the right to
examine documents in person at the principal office of the Company and to
make copies or extracts of the documents, or provide to such Member true
and accurate copies of documents responsive to such Member's request.

7.8 Compensation of Members. Except as hereinafter provided, no Member
shall receive monetary or any other form of compensation for routine services
rendered to the Company. Provided, however, Shiloh or one of its direct or
indirect subsidiaries or affiliates will provide technical expertise services,
specialized engineering services and/or make available specialized equipment
for the benefit of the Company at fair market rates pursuant to the terms and
conditions of a certain Technical Services Contract, a copy of which is
attached hereto as Exhibit "B." In addition, QS or one of its direct or
indirect subsidiaries or affiliates will have a right to first refusal to
supply steel to the Company pursuant to the terms and conditions of a certain
Supply Agreement, a copy of which is attached hereto as Exhibit "C." Finally,
Bing or one of its direct or indirect subsidiaries or affiliates may, in
addition to the officers of the Company set forth in Sections 7.5 and 7.6
hereof, provide management and related services to the Company on an arms
length basis upon the approval of the Management Committee.

<PAGE> 35

7.9 Employees. In addition to the terms and conditions of the Technical
Services Agreement, it is envisioned that the Company may utilize the services
of additional employees of the Members from time to time. In such cases, the
Company shall reimburse the Member for the cost of salary, payroll taxes and
benefits of such loaned or "seconded" employees, without any markup for
overhead. The Company shall not hire or appoint any outside, independent,
management. The Company shall not hire any manager or otherwise appoint any
officer or employee if such conduct would jeopardize the Company's status as: a
limited liability company analogous to a partnership for taxation and control
purposes; or as a bonafide MBE.

ARTICLE VIII
EXCULPATION OF LIABILITY

8.1 Exculpation of Liability. Anything herein to the contrary
notwithstanding, except as otherwise expressly agreed in writing, a Member
shall not be liable for any debts, liabilities, or obligations of the Company,
whether to the Company, to any of the other Members, or to creditors of the
Company, beyond the Capital Contribution of the Member, together with the
Member's share of the assets and undistributed profits of the Company. In the
event any Member has incurred any debt, liability or obligation prior

<PAGE> 36

to the organization of the Company that relates to or otherwise affects the
Company, neither the Company nor any other Member shall have any liability or
responsibility for or with respect thereto unless the Company assumes such
debt, liability or obligation pursuant to a written instrument approved by the
Management Committee. No Member shall be obligated to restore a deficit
balance in its Capital Account except as required by law or under this
Agreement.

8.2 Indemnification.

(a) To the maximum extent permitted by law, the Company shall
indemnify and hold harmless all Members, all members of the Management
Committee, the officers, employees and agents of the Company, and the Tax
Matters Partner (each, an "Indemnitee") from and against any and all
losses, liabilities, judgments, fines, settlements, penalties and
expenses, including attorneys' fees, actually and reasonably incurred by
the Indemnitee in connection with any and all claims, demands, actions,
suits, or proceedings, civil, criminal, administrative or investigative,
arising out of or incidental to the business of the Company and in which
the Indemnitee may be involved, as a party or otherwise, by reason of the
fact that the Indemnitee is or was a Member, a member of the Management
Committee, or is or was an officer, employee or agent of the Company.
Such indemnification shall not be provided if the Indemnitee's conduct
constitutes (i) fraud, breach of fiduciary duty or willful misconduct; or
(ii) a breach

<PAGE> 37

of this Agreement. The termination of any action, suit, or proceeding by
judgment, order, settlement, conviction, or upon a plea of no contest, or
its equivalent, shall not, in and of itself, create a presumption or
otherwise constitute evidence that the Indemnitee acted in a manner
contrary to that specified above.

(b) Expenses incurred by an Indemnitee in defending any claim,
demand, action, suit or proceeding subject to this Section 8.2 may, from
time to time, be advanced by the Company prior to the final disposition
of such claim, demand, action, suit or proceeding upon receipt by the
Company of an undertaking by or on behalf of the Indemnitee to repay such
amount if it shall ultimately be determined that the Indemnitee is not
entitled to be indemnified as authorized in this Section 8.2.

(c) The indemnification provided by this Section 8.2 shall be in
addition to any other rights to which the Indemnitee may be entitled
under any agreement, by action of the Management Committee, as a matter
of law or equity, or otherwise, and shall inure to the benefit of the
successors, assignees, heirs, personal representatives and administrators
of the Indemnitee.

(d) The Company shall purchase and maintain insurance, at the
Company's expense, on behalf of any Indemnitees against any liability
that may be asserted against or expense that may be incurred by an
Indemnitee in connection

<PAGE> 38

with the activities of the Company regardless of whether the Company would
have the power to indemnify such Indemnitee against such liability under
the provisions of this Agreement.

ARTICLE IX
DISPOSITION OF MEMBERSHIP INTERESTS

9.1 General.

(a) No Member shall, without the prior written consent of the other
Members, sell, assign, transfer, exchange, mortgage, pledge, grant or
dispose of (herein a "Transfer" or any root derivative thereof)
(voluntarily, involuntarily, by operation of law, or otherwise) all or
any part of its Membership Interest in the Company or this Agreement.
Any Transfer or purported Transfer of any Units not made in accordance
with this Article IX shall be null and void.

(b) Notwithstanding the foregoing, in the event of the liquidation
of Bing, Bing may Transfer its Units to the members of Bing, pro rata, in
accordance with the unit ownership of such members; provided, however,
that such members shall acknowledge the obligations under this Agreement,
and such transfers shall not disqualify the Company's status as an MBE.

<PAGE> 39

(c) Notwithstanding the foregoing, if the Company is required by
law or otherwise unanimously elects through the Management Committee, to
recognize a Transfer that is not authorized by this Agreement, such
Transfer shall not entitle the Assignee to participate in the management
and affairs of the Company or to exercise any rights of a Member. A
Transfer entitles the Assignee to receive, to the extent assigned, only
the distributions to which the assignor would be entitled.

9.2 Withdrawal. Except as set forth in this Agreement or otherwise
agreed in a writing executed by the Members, a Member does not have the right
or power to withdraw from the Company as a Member.

9.3 Admission of Substitute Members.

(a) Upon a Transfer of a Unit by a Member in accordance with Section
9.1 (but not otherwise), the assignor shall have the power to give, and
by transfer of any certificate issued shall be deemed to have given, the
Assignee the right to apply to become a Substitute Member with respect to
the Units acquired, subject to the conditions of and in the manner
permitted under this Agreement. An Assignee of a certificate
representing a Unit shall not be a Substitute Member with respect to the
transferred Units unless and until (i) the instrument of assignment sets
forth the intentions of the assignor that the Assignee succeed to the
assignor's interest as a Substitute Member in his place, (ii) the
assignor and Assignee shall

<PAGE> 40

have fulfilled all other requirements of this Agreement, (iii) the
Assignee shall have paid all reasonable legal fees and filing costs
incurred by the Company in connection with the Assignee's substitution as
a Member, and (iv) the Members by unanimous vote of the Units held by the
Members other than the transferring Member, shall have approved such
substitution in writing, which approval may be granted or withheld in
each such Member's sole discretion; whereupon the books and records of
the Company shall be modified to reflect the substitution of the
Substitute Member for the transferring Member.

(b) The admission of an Assignee as a Substitute Member with respect
to a transferred Unit shall become effective on the date the Members
other than the transferring Member give their written approval to the
admission and the books and records of the Company have been modified to
reflect such substitution. With respect to any transfer under Section
9.1(b), such approval shall not be unreasonably withheld. Any Member who
Transfers all of the Member's Units with respect to which it had been
admitted as a Member shall cease to be a Member of the Company upon a
Transfer of such Units in accordance with Article IX and the execution of
a counterpart of this Agreement by the transferee (which execution the
transferring Member shall obtain prior to such Transfer) and shall have
no further rights as a Member in or with respect to the Company.

<PAGE> 41

9.4 Repurchase of QS' or Shiloh's Membership Interest.

(a) Notwithstanding any other provision of this Agreement to the
contrary, upon the occurrence of the fifth (5th) anniversary of the
effective date of this Agreement and at the end of every two (2) years
thereafter (each such date being referred to herein as an "Option Date"),
QS and/or Shiloh (herein referred to as a "Minority Member") shall have
the right to require the Company to repurchase its Membership Interest,
upon sixty (60) days advance notice in writing by such Minority Member to
the Company. Notwithstanding anything to the contrary set forth in this
Section 9.4(a), in the event that a Minority Member exercises its option
as set forth in Section 9.4(a), Bing (or an affiliate of Bing which shall
be referred to as "Bing" for purposes of this Section 9.4) shall have the
option, given by written notice to the Company and to the Minority
Members before the closing of the purchase and sale of such Membership
Interest to purchase all or any part of the Membership Interest of the
applicable Minority Member in lieu of the Company at the same price and
the same terms and conditions as would apply to such purchase by the
Company.

(b) Notwithstanding any other provision of this Agreement to the
contrary, upon the occurrence of the tenth (10th) anniversary of the
effective date of this Agreement and at the end of every two (2) years
thereafter (each such date being referred to herein as an "Option Date"),
the Company shall have the right

<PAGE> 42
to repurchase all but not less than all of the Membership Interest of
either or both of the Minority Members, upon sixty (60) days advance
notice in writing by the Company to each Minority Member. Notwithstanding
anything to the contrary set forth in this Section 9.4(b), in the event
the Company shall exercise said option pursuant to this Section 9.4(b),
Bing shall have the option, by written notice to the Company and the
Minority Members given before the closing of the purchase and sale of the
Shares, to purchase all or any part of the Shares of subject to such
option in lieu of the Company at the same price and upon the same terms
and conditions as would apply to such purchase by the Company.

(c) The purchase price of a Minority Member's Membership Interest
under Section 9.4(a) above, shall equal the Fair Market Value (as defined
below) of the Company, determined as of the Valuation Date, multiplied by
the Minority Member's Membership Interest (the "Put Purchase Price").
The purchase price of a Minority Member's Membership Interest under
Section 9.4(b) above, shall equal one hundred fifteen percent (115%) of
the Put Purchase Price (the "Call Purchase Price"). The Put Purchase
Price and the Call Purchase Price may each be referred to in this
Agreement as the "Purchase Price." The "Fair Market Value" of the
Company shall mean the enterprise value of the Company as a going
concern, taking into consideration those characteristics of the Company
which an outside investor would evaluate when contemplating an investment
in the Company, including but not limited to the income and cash
generating capabilities

<PAGE> 43

of the Company and its assets and the risks associated with investing in
the Company, less any discounts for lack of marketability, if appropriate
because the Company is not publicly traded. The Fair Market Value of the
Company shall be determined in accordance with the following:

(i) The Fair Market Value of the Company may be determined by the
unanimous consent of the Members in writing. The parties may enter
such value when and as often as so agreed upon. If the date of the
last determination of value is more than fifteen (15) months prior to
the Valuation Date, or if no determination has been made, then the
Fair Market Value of the Company shall be determined by an appraisal
conducted by the valuation firm of Houlihan, Lokey, Howard and Zukin,
Inc., of Los Angeles, California, whose fees shall be borne by the
Company. If Houlihan, Lokey, Howard and Zukin, Inc. is not then
available, the Fair Market Value of the Company shall be determined by
a valuation firm of comparable expertise, ability, and qualifications,
selected by mutual and unanimous agreement of the Members, whose fees
shall be borne by the Company. If the Members involved are unable to
agree upon the valuation firm to be appointed within the fifteen (15)
day period after the applicable Option Date, each such Member shall
have the opportunity to appoint, at its own cost, a qualified
valuation firm within five (5) days after the expiration of the
fifteen (15) day period. If either Member fails to appoint

<PAGE> 44

a valuation firm within this five (5) day period, the other valuation
firm shall unilaterally establish the Fair Market Value of the Company.
If two valuation firms are appointed, they shall establish the Fair
Market Value of the Company in a single written opinion agreed to by
both of them. If the valuation firms so appointed cannot agree on the
Fair Market Value of the Company, they shall appoint a third valuation
firm who shall establish such value in its sole but reasonable opinion.

(ii) If, between the applicable Valuation Date and the
consummation of the sale, (A) the Company has made a distribution to
the Members other than distributions made with respect to income
taxes, or (B) the Company has declared any distributions to be paid to
the Members, other than distributions made with respect to income
taxes as of a date within such period but which are not in fact paid
during such period, then the aggregate of (A) and (B) shall be
deducted from the Fair Market Value of the Company.

(d) Upon an election by a Minority Member to sell its Membership
Interest under Section 9.4(a), the Purchase Price shall be paid in the
following manner: At the closing, the Company or Bing, as the case may
be, shall pay to the Minority Member involved a down payment equal to ten
percent ( 10%) of the Purchase Price in cash or by certified or bank
cashier's check, delivery of a

<PAGE> 45

promissory note substantially in the form of Exhibit D attached hereto,
which note shall require monthly payments of principal and interest over a
period of sixty (60) months and shall bear interest on the unpaid
principal thereof at a floating rate, adjusted on a monthly basis, which
shall be equal to the prime rate of interest charged by Michigan National
Bank and published as its prime rate from time to time; provided, however,
that such rate shall not be less than six percent (6%) per annum or
greater than fifteen percent (15%) per annum.

The Company or Bing, as the case may be, shall grant a security
interest to the applicable Minority Member in the Membership Interest so
acquired and shall place a certificate representing such Membership
Interest in escrow and the Company or Bing, as the case may be, and the
applicable Minority Member shall execute a Collateral Pledge and Escrow
Agreement substantially in the form of Exhibit E attached hereto.

(e) Upon the election of the Company or Bing, as the case may be, to
purchase a Minority Member's Membership Interest under Section 9.4(b),
the Purchase Price shall be paid in cash by certified check or cashier's
check.

<PAGE> 46

(f) The following terms and conditions shall also apply:

(i) The closing of any purchase or sale pursuant to this Section
9.4 shall occur within ninety (90) days after the applicable Option
Date; provided however, if because of the time required to determine
the Purchase Price of the Membership Interest being purchased such
closing cannot take place within such ninety (90) day period, the
closing shall take place within ten (10) days after the determination
of such Purchase Price at the time, date and place designated by the
Company or Bing, as the case may be.

(ii) If the seller does not deliver any certificate evidencing its
Membership Interest or does not execute any document required to
transfer its Membership Interest as required under this Section 9.4,
at the closing, then: (A) The purchaser of such Membership Interest
shall deposit the purchase price by check with the Company's
accountant or attorney as escrow agent, and (B) the Company will
adjust its transfer books to reflect that the Membership Interest of
the Member selling its Membership Interest has been transferred as of
the date of closing.

(iii) Each Member appoints the Company, through its Secretary or
such other officer as the Management Committee may designate, as its
attorney-in-fact to execute and deliver all documents needed to convey
a

<PAGE> 47

Membership Interest under this Section 9.4. This power of attorney is
coupled with an interest and continues for as long as this Agreement is
in effect.

9.5 Requirements for Effectiveness of Transfer. As a condition to
recognizing the effectiveness of any proposed transfer of Membership Interest,
the remaining Members may require the transferor and/or the proposed transferee
to perform all other acts which the remaining Members may deem necessary or
desirable to:

(a) Constitute such Transferee, as an Assignee or a Substitute
Member;

(b) Confirm that the Person acquiring a Membership Interest, or being
admitted as a Member, has agreed to be subject to and bound by this
Agreement, as it may be further amended, regardless of whether the Person
is to be admitted as a Substitute Member or will merely be an Assignee;

(c) Preserve the Company' s status under the laws of each
jurisdiction in which the Company is qualified, organized or does
business after the Transfer;

(d) Maintain the Company's classification as a partnership for
federal income tax purposes; and

<PAGE> 48

(e) Assure compliance with any applicable state and federal laws
including securities laws and regulations; and

(f) Confirm or preserve the Company's status as a certified MBE.

9.6 Prohibited Dispositions. Except insofar as may otherwise be
required by law, or permitted by Article IX hereof, no Member's Membership
Interest in the Company, in whole or in part, shall be subject in any manner to
alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge,
attachment, charge, or encumbrance of any kind, nor in any manner be subject to
the debts or liabilities of any Member, and any attempt to so alienate or
subject any such Membership Interest shall be null and void.

9.7 Absolute Restriction. Notwithstanding any provision of this
Agreement to the contrary, the disposition of a Membership Interest, (including
any assignment under this Article IX) or any right, title or interest therein
or thereto will not be permitted if the interest sought to be disposed of added
to the total of all other Membership Interest disposed of within the period of
twelve (12) consecutive months ending with the proposed date of the disposition
results in a termination of the Company under Section 708 of the Internal
Revenue Code or if the Membership Interest sought to be disposed of would
jeopardize in the reasonable opinion of the remaining Members the status of the
Company as a certified MBE.

<PAGE> 49

ARTICLE X
DISSOLUTION AND WINDING UP

10.1 Dissolution. Subject to the provisions herein, the Company shall
be dissolved and its affairs shall be wound up upon the occurrence of any of
the following: (i) the Members unanimously consent in writing to dissolve the
Company; or (ii) any other event causing dissolution of the Company under the
Act. At the election of QS or Shiloh, the Company shall be dissolved and its
affairs wound up if the Company is not certified as a Minority Business
Enterprise ("MBE") by the Michigan Minority Business Development Council
("MMBDC") within 120 days of the date hereof or if the Company ceases to be
certified as an MBE by the MMBDC at any time. Notwithstanding the occurrence
of an event causing the dissolution of the Company under the Act, the Members
not causing the dissolution may, within ninety (90) days after the occurrence
of such event, unanimously consent to continue the business of the Company and
to the admission of additional members, as necessary. If the Company is
continued as provided herein upon the death, withdrawal, bankruptcy, legal
incapacity, expulsion, or dissolution of a Member, the Membership Interest of
such member (the "Terminated Member") or the assignee or personal
representative or estate of the Terminated member (subject to Section 9.3)
shall only be an Assignee and shall have no other rights as a Member of the
Company.

<PAGE> 50

10.2 No Voluntary Termination. Except as provided herein, no Member
shall have the right voluntarily to dissolve or terminate the Company at any
time.

10.3 Method of Winding Up of Company. Upon the occurrence of any
event under Section 10.1 requiring the dissolution of the Company, the Company
shall continue solely for the purposes of winding up its affairs in an orderly
manner, liquidating its assets, and satisfying the claims of its creditors and
Members. No Member shall take any action that is inconsistent with, or not
necessary or appropriate for, the winding up of the Company's business and
affairs. To the extent not inconsistent with the foregoing, all covenants and
obligations in this Agreement shall continue in full force and effect until
such time as the assets of the Company have been distributed pursuant thereto
and the Articles of Organization have been canceled in accordance with the Act.

(a) The Management Committee shall be responsible for
overseeing the winding up and dissolution of the Company, shall take full
account of the Company's liabilities and assets, and shall cause the
Company's assets to be liquidated as promptly as is consistent with
obtaining the fair market value thereof unless the Members unanimously
consent to distributions of all or any part of the assets in kind.

(b) In the event of the sale of any assets used in the
operation of the Company's business, the Members shall have the right to
meet any such proposed

<PAGE> 51
sale price for any asset for a period of not more than 10 days from the
receipt of a third party offer to purchase, and to purchase such assets at
the same price and on the same terms and conditions as such third party
offer. If more than one Member desires to meet such price, a controlled
auction shall be held by the Company. Such controlled auction shall be
conducted by an investment banker or firm of attorneys familiar with steel
matters selected by the Management Committee. A reasonable period of time
and reasonable access shall be provided to all Members to permit each
member desiring to do so to prepare and submit a bid upon the terms
specified by such auctioneer. All bids shall be submitted in accordance
with the procedures established by the auctioneer who shall be charged
with the responsibility for an expeditious procedure producing the best
possible price. All expenses of the auction shall be paid out of the
auction proceeds.

(c) Upon the sale or liquidation of the assets of the Company and the
determination of the fair market value of the assets to be distributed,
the Management Committee shall obtain the following: (i) a final
examination, under United States generally accepted auditing standards,
of the Company's financial statements prepared in accordance with the
Untied States generally accepted accounting principles shall be made by
the Company's independent public accountants, (ii) statements setting
forth the Members' Capital Accounts as maintained for financial reporting
purposes under Section 3.4. The Capital

<PAGE> 52

Accounts subsequent to these adjustments shall be termed the "Final Capital
Accounts."

(d) Thereafter, the Management Committee shall cause the assets or
the proceeds therefrom, to the extent sufficient therefore, to be
applied and distributed in the following order:

(1) To the payment of debts and liabilities of the Company,
including the payment of the expenses of liquidation.

(2) To the establishment of any reserves which the Management
Committee, in its reasonable discretion, may deem reasonably necessary
for any contingent or unforeseen liabilities or obligations of the
Company. Such reserves may, but shall not be required to, be paid
over by the Management Committee to any banking institution or title
company in the States, as escrowee, to be held by it in an interest
bearing account for the purpose of disbursing such reserves in payment
of any of the aforesaid contingencies. At the expiration of such
period as the Membership Committee shall deem advisable, the escrowee,
if any, shall distribute the balance thereafter remaining in the
manner hereinafter provided.

<PAGE> 53

(3) To each Member, an amount equal to its Final Capital
Account; provided that in the event there are insufficient funds to
return to each Member the full amount of its Final Capital Account,
available funds shall be allocated pro rata among all Members in the
same proportion that each Member's Final Capital Account bears to the
Final Capital Accounts of all Members. No Member who has a negative
Final Capital Account shall have any obligation to the Company or the
other Members for such Member's negative balance.

(4) To the Members in the same proportion that the number of
Units owned by each Member bears to the number of Units owned by all
Members.

(e) The Company shall be dissolved when all property owned by the
Company shall have been disposed of and the net proceeds, after payment
or satisfaction of liabilities to Company creditors, shall have been
distributed to the Members.

10.4 Rights of Members. Except as otherwise provided by this
Agreement, (a) each Member shall look solely to the assets of the Company for
the return of its Capital Contribution and shall have no right or power to
demand or receive property other than

<PAGE> 54

cash from the Company, and (b) no Member shall have priority over any other
Member as to the return of its Capital Contributions, distributions or
allocations.

10.5 Deemed Distribution and Recontribution. Notwithstanding any
other provisions of Article X of this Agreement, in the event the Company is
"liquidated" within the meaning of Regulations Section 1.704-l(b)(2)(ii)(g) but
no event described in Section 10.1 has occurred, the Company shall not be
liquidated, the Company's liabilities shall not be paid or discharged, and the
Company's affairs shall not be wound up. Instead, the Company shall be deemed
to have distributed its assets in kind to the Members, who shall be deemed to
have assumed and taken such assets subject to all Company liabilities, all in
accordance with their respective Capital Accounts. Immediately thereafter, the
Members shall be deemed to have recontributed the assets in kind to the
Company, which shall be deemed to have assumed and taken such assets subject to
all such liabilities.

10.6 Alternative Distribution Methods. In the discretion of the
Management Committee, a pro rata portion of the distributions that would
otherwise be made to the Members pursuant to Article X of this Agreement may
be:

(a) Distributed to a trust established for the benefit of the Members
for the purposes of liquidating Company assets, collecting amounts owed
to the Company, and paying any contingent or unforeseen liabilities or
obligations of the Company or the Members arising out of or in connection
with the Company. The

<PAGE> 55

assets of any such trust shall be distributed to the Members from time to
time, in the reasonable discretion of the Management Committee, in the
same proportions as the amount distributed to such trust by the Company
would otherwise have been distributed to the Members pursuant to this
Agreement; or

(b) Withheld to provide a reasonable reserve for Company
liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Company, provided
that such withheld amounts shall be distributed to the Members as soon
as practicable.

10.7 Reimbursement of Expenses. Subject to the limitations contained
herein including those set forth in Section 7.3, the Members shall be entitled
to reimbursement for out-of-pocket expenses incurred in connection with the
winding up and liquidation of the business carried on by the Company. Such
reimbursement shall be paid as an expense of the business carried on by the
Company after all liabilities to creditors of the Company (other than any of
the Members) have been repaid but prior to any repayments of or distributions
to any of the Members.

<PAGE> 56

ARTICLE XI
TAXES

11.1 Method of Accounting For Tax Purposes. The records of the
Company shall be maintained on the accrual method of accounting for federal
income tax purposes.

11.2 Tax Matters Member. Bing shall be designated as the "tax matters
partner" of the Company pursuant to Section 6231(a)(7) of the Code. Bing shall
take such actions as are necessary to cause each other Member and Assignee to
become a "notice partner" within the meaning of Section 6223 of the Code. Bing
shall not take any action contemplated by Sections 6223 through 6229 of the
Code without the approval by a unanimous vote of the Members.

11.3 Tax Allocations. All tax allocations shall be made in accordance
with the provisions set forth in Article V and the Appendix.

ARTICLE XII
MISCELLANEOUS PROVISIONS

12.1 Terms. Nouns and pronouns will be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the person
or persons, firm or corporation may in the context require.

<PAGE> 57

12.2 Headings. The headings contained in this Agreement have been
inserted only as a matter of convenience and for reference, and in no way shall
be construed to define, limit or describe the scope or intent of any provision
of this Agreement.

12.3 Counterparts. This Agreement may be executed in several
counterparts, each of which will be deemed an original but all of which will
constitute one and the same instrument.

12.4 Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto and contains all of the agreements among
said parties with respect to the subject matter hereof. This Agreement
supersedes any and all other agreements, either oral or written, between said
parties with respect to the subject matter hereof.

12.5 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect the other provisions
hereof, and this Agreement shall be construed in all respects as if such
invalid or unenforceable provision were omitted.

12.6 Amendment. This Agreement may be amended or revoked at any time
by a written agreement executed by all of the parties to this Agreement. No
change or modification to this Agreement shall be valid unless in writing and
signed by all of the parties to this Agreement.

51
<PAGE> 58

12.7 Notices. Unless a party provides written notice of a new
address, any notice, demand, or any written instrument required or permitted to
be given hereunder, shall be in writing, signed by the party giving or making
the same, and shall be delivered by certified mail, return receipt requested,
by personal hand delivery, or by facsimile with copy by regular U.S. mail to
all parties hereto at their respective addresses hereinafter set forth.

To: Company or Bing:

6349 Strong Street
Detroit, MI 48211
ATTN: David Olson
Telephone: (313) 922-1390
Fax: (313) 922-8649

Copy to:

W. Patrick Dreisig, Esq.
Raymond & Prokop, P.C.
2000 Town Center, Ste. 2400
Southfield, MI 48075
Telephone: (248) 357-3010
Fax: (248) 357-2720

To: Shiloh

402 Ninth Avenue
P.O. Box 2037
Mansfield, OH 44905
Telephone: (419) 525-2315
Fax: (419) 522-7545

Copy to:

Steven E. Pryatel, Esq.
Wegman, Hessler, Vanderburg & O'Toole
6055 Rockside Woods Boulevard
Suite 200

<PAGE> 59

Cleveland, OH 44131
Telephone: (216) 642-3342
Fax: (216) 642-8826

To: QS Steel Inc.
P.O. Box 1699
3001 Miller Road
Dearborn, MI 48121-1699
ATTN: President
Telephone: (313) 323-1540
Fax: (313) 845-0199

Copy to:

Martin Szymanski
Associate General Counsel
Rouge Steel Company
3001 Miller Road
Dearborn, MI 48121-1699
Telephone: (313) 317-6788
Fax: (313) 317-6796

12.8 Binding Effect. Subject to the provisions of this Agreement
relating to transferability, this Agreement will be binding upon and shall
inure to the benefit of the parties, and their respective distributees, heirs,
successors and permitted assigns.

12.9 Governing Law. This Agreement is made under, and shall be
governed by and construed in accordance with, the laws of the State of Michigan
applicable to contracts made and to be performed entirely within such State and
without giving effect to choice of law principles of such State.

12.10 Rights of Creditors and Third Parties Under This Agreement. This
Agreement is entered into among the Members for the exclusive benefit of the
Company,

<PAGE> 60

its Members, and their successors and permitted assignees. This Agreement is
expressly not intended for the benefit of any creditor of the Company or any
other person. Except and only to the extent provided by applicable statute, no
creditor or third party shall have any rights under this Agreement or any
agreement between the Company and any Member with respect to any Capital
Contribution or otherwise.

12.11 Non-Waiver. No delay or failure by a party to exercise any right
under this Agreement, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise expressly
provided herein.

12.12 Antitrust Policy Statement. The Company shall abide by the
terms, conditions and declarations in the Company's Antitrust Policy Statement,
executed by the appropriate representatives of the Members, attached hereto and
incorporated herein as Exhibit F.

12.13 Settlement of Disputes. Notwithstanding any other provision of
this Agreement, any dispute which may arise relating to this Agreement shall be
submitted to binding arbitration by the American Arbitration Association. The
arbitration is to be conducted before a panel of three (3) arbitrators, all of
which have extensive experience in the steel industry, in Southfield, Michigan
in accordance with the commercial arbitration rules, as existing as of the time
the arbitration is commenced, of the American Arbitration Association.
Judgment upon the arbitration award may be entered by any

54
<PAGE> 61

court of competent jurisdiction. The arbitrators will be entitled to apportion
the costs of the arbitration proceedings and to award any party its attorney
fees on such grounds as they deem just. The arbitrators will have the
authority to award injunctive relief and specific performance of the respective
obligations of the parties under this Agreement. The arbitrators will not have
authority, under any circumstances, to award punitive or exemplary damages.
The arbitration and any judicial proceedings relating thereto shall be subject
to the Federal Arbitration Act.

IN WITNESS WHEREOF, the parties hereto make and execute this Agreement on
the dates set below their names to be effective on the date first above
written.

BING BLANKING, L.L.C. Members:

SHILOH CORPORATION

/s/ David J. Olson /s/ R.L. Grissinger
- ------------------ ----------------------
By: David J. Olson By: R. L. Grissinger

Its: President Its: President

<PAGE> 62
QS STEEL INC.

/s/ Gary P. Latendresse
-------------------------
By: Gary P. Latendresse

Its: President

BING MANAGEMENT II L.L.C.

/s/ David J. Olson
-------------------------
By: David J. Olson

Its: President

<PAGE> 1
EXHIBIT 10.39

ROUGE STEEL COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
(EFFECTIVE JANUARY 1, 1997)

WHEREAS, ROUGE STEEL COMPANY, a Delaware corporation (the "Company"),
deems it desirable to adopt a supplemental executive retirement benefit plan
for its key employees and their respective spouses, if any.

NOW, THEREFORE, the Company hereby establishes the Rouge Steel Company
Supplemental Executive Retirement Plan (the "Plan"), effective January 1, 1997,
to read as follows:

ARTICLE I
PLAN PURPOSE

The purpose of this Plan is to attract and retain key management
employees by supplementing retirement benefit payments to those key management
employees of the Company designated in writing from time to time by the
Compensation Committee of the Board of Directors of the Company (the
"Participants").

ARTICLE II
BENEFIT DESCRIPTION

A Participant or the Participant's surviving spouse shall be entitled
to benefits under this Plan only when the Participant (i) has accrued at least
five (5) continuous Years of Service after his or her designation as a
Participant in this Plan and (ii) is entitled to normal retirement, regular
early retirement, special early retirement, or total and permanent disability
retirement benefits pursuant to the Rouge Steel Company Salaried Employee
Retirement Plan (the "Retirement Plan"); provided, however, the Compensation
Committee of the Board of Directors of the Company ("Compensation Committee")
may, in its sole discretion by written resolution, waive or reduce the five (5)
continuous Years of Service requirement for entitlement to benefits under the

<PAGE> 2

Plan. Subject to Article VI of this Plan, a Participant entitled to
benefits under this Plan shall be entitled to a monthly benefit, upon the
Participant's retirement under the Retirement Plan, payable pursuant to Article
III of this Plan, equal to 1.9% of the Participant's "Final Average Monthly
Compensation" multiplied by the number of his or her Years of Service (but not
in excess of thirty-five (35)).

For purposes of this Plan, "Final Average Monthly Compensation" means
the quotient of the average of the Participant's highest five (5) annual
incentive compensation payments (and which may be zero for a year) attributable
to calendar years (which need not be consecutive) under the Rouge Steel Company
Incentive Compensation Plan that occur during the ten (10) full calendar years
prior to termination of employment, divided by twelve (12). Notwithstanding
the foregoing, even if a Participant has not been eligible for annual incentive
compensation payments for five (5) years, Final Average Monthly Compensation
shall still be computed as if a Participant had been eligible for annual
incentive compensation for five (5) years, but had received no such
compensation for such additional years.

For purposes of this Plan, "Years of Service" means years of credited
service, as defined in the Retirement Plan provided, solely for purposes of
computing benefits under the formula set forth herein (and not eligibility or
entitlement), Years of Service for any Participant who is a Group I Employee or
Group II Employee as defined in the Retirement Plan shall also include years of
creditable service used in determining eligibility for benefits under the
Retirement Plan; and, provided further, at the time a key employee becomes a
Participant, the Compensation Committee, in its sole discretion, may in
writing, credit such Participant with additional whole Years of Service solely
for the purposes of computing benefits under the formula set forth herein, but
not for any other purposes such as Plan eligibility or entitlement.

-2-

<PAGE> 3

ARTICLE III
BENEFIT PAYOUT

The benefits under this Plan shall become payable when a Participant
retires from the Company under the Retirement Plan and begins to receive
payments, or when the Participant dies and the Participant's spouse, if any,
begins to receive payments, under the Retirement Plan.

Benefits payable under this Plan shall be payable to a Participant or
the Participant's spouse, if any, in the same form and manner as contributory
life income benefits are paid to the Participant or the Participant's spouse,
if any, pursuant to the Retirement Plan; provided, however, if Retirement Plan
benefits are paid pursuant to a contingent annuitant election for benefits by
the Participant pursuant to Article VII, Section 5B, thereof, benefits payable
pursuant to this Plan shall not be paid in the form of a contingent annuitant
election but instead shall be paid in the same form as the normal form of
benefit payment for Retirement Plan noncontributory benefits as if the only
life income benefits payable to the Participant under the Retirement Plan were
noncontributory benefits; and provided, further, that in the event of a
Participant's regular early retirement, special early retirement, or total and
permanent disability retirement under the Retirement Plan, as applicable, the
monthly benefit provided hereunder shall be reduced and/or adjusted in the same
manner as Retirement Plan contributory retirement benefits are reduced or
adjusted in the event of a regular early retirement, special early retirement,
or total and permanent disability retirement, as applicable, but determined as
if Final Average Monthly Compensation is in excess of the Breakpoint in the
Retirement Plan.

ARTICLE IV
UNFUNDED AND NON-QUALIFIED PLAN

-3-
<PAGE> 4

Plan be unfunded for tax purposes and for purposes of Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"). Neither a
Participant nor any beneficiary nor any other person shall have, by reason of
this Plan, any rights, title or interest of any kind in or to any property of
the Company, nor any beneficial interest in any trust which may be established
by the Company in connection with this Plan. If the Company transfers any
property to a trust in connection with this Plan such trust shall not be held
for the exclusive benefit of Participants, and any assets held in such trust
shall be subject to the claims of the Company's general creditors in the event
of the Company's insolvency or bankruptcy.

ARTICLE V
ADMINISTRATION

The Plan shall be administered by the Compensation Committee of the
Board of Directors of the Company which shall have full and exclusive power to
interpret the Plan, to determine the amount and manner of any deferrals and
payments and to adopt such rules and regulations as are necessary for its
administration. The Compensation Committee may delegate specific
responsibilities it assumes under this Plan which are administrative or
ministerial in nature by notifying a delegate as to the duties and
responsibilities delegated. In that regard, the Compensation Committee
delegates responsibility for claims administration to the Retirement Committee
for the Rouge Steel Company Salaried Employee Retirement Plan (the "Retirement
Committee").

Claims for benefits under the Plan shall be made in writing to the
Retirement Committee. If a claim for benefits is wholly or partially denied,
the Retirement Committee shall, within a reasonable period of time, but not
later than ninety (90) days after receipt of the claim, provide the claimant
written notice in a manner calculated to be understood by the claimant of:

(A) The specific reason or reasons for denial;

(B) Specific reference to the pertinent Plan provisions on which the
denial is based;

-4-
<PAGE> 5

(C) A description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why such material
or information is necessary; and

(D) Any explanation of the Plan's claim review procedure.

A Participant or beneficiary whose claim for benefits under the Plan
has been denied, or his or her duly authorized representative, may request a
review upon written application to the Retirement Committee, and may submit
issues and comments in writing. The claimant's written request for review
must be submitted to the Retirement Committee within sixty (60) days after
receipt by the claimant of written notification of the denial of the claim. A
decision by the Retirement Committee shall be made promptly, and not later than
sixty (60) days after the Retirement Committee's receipt of a request for
review, unless special circumstances require an extension of time for
proceeding, in which case a decision shall be rendered as soon as possible, but
not later than one hundred twenty (120) days after receipt of the request for
review. The decision on review shall be in writing and shall include specific
reasons for the decision, specific reference to the pertinent Plan provisions
on which the decision is based and be written in a manner calculated to be
understood by the claimant.

The decisions of the Compensation Committee and/or the Retirement
Committee shall be final and conclusive on all persons and neither the
Compensation Committee or the Retirement Committee shall be subject to
liability thereon.

ARTICLE VI
TERMINATION FOR CAUSE

Notwithstanding anything in this Plan to the contrary, if the Company
terminates a Participant's employment for Cause, then the Company shall have no
obligation to such Participant or his or her spouse pursuant to this Plan, and
no payments of any kind shall thereafter be made by the Company to the
Participant hereunder.

For purposes of the foregoing, "Cause" means:

-5-
<PAGE> 6

(i) any act or acts of the Participant constituting a felony
(or its equivalent) under the laws of the United States, any state
thereof or any foreign jurisdiction;

(ii) any material breach, as determined by the Company, by the
Participant of any employment agreement with the Company or the
policies of the Company or any of its subsidiaries or the willful
and persistent (after written notice to the Participant) failure or
refusal, as determined by the Company, of the Participant to perform
his or her duties of employment or comply with any lawful directives
of the Board of Directors of the Company;

(iii) conduct which the Company determines amounts to gross
neglect, willful misconduct or dishonesty; or

(iv) any misappropriation of material property of the Company
by the Participant or any misappropriation of a corporate or
business opportunity of the Company by the Participant, all as
determined by the Company.

ARTICLE VII
ERISA COMPLIANCE
NON-QUALIFIED PLAN

Notwithstanding any provisions of this Plan to the contrary, the
Company, by written resolution of the Board of Directors or the Compensation
Committee, may terminate the Plan, or may amend or modify the Plan at any time
and in any respect, including as necessary or advisable in order that the
benefits provided by the Plan shall constitute unfunded deferred compensation
for a select group of management or highly compensated employees as described
in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. However, no such
amendment or termination shall adversely affect the rights of a Participant or
their spouse, if any, to the extent of any vested benefits accrued as of the
date of amendment or termination of the Plan.

ARTICLE VIII
NO EMPLOYMENT CONTRACT

-6-

<PAGE> 7

contained in this Plan, or any amendment hereto, shall be construed as
restricting in any way the right of the Company to reassign a Participant for
any reason to a new employment position at lower or higher compensation.

ARTICLE IX
NONASSIGNABILITY

No rights of any kind under this Plan shall be transferable, or
assignable by a Participant, spouse or any other person, or be subject to
alienation, encumbrance, garnishment, attachment, execution, or levy of any
kind, voluntary or involuntary.

ARTICLE X
RULES OF CONSTRUCTION

In the event that any provision of the Plan is determined by any
judicial, quasi-judicial or administrative body to be void or unenforceable for
any reason, all other provisions of the Plan shall remain in full force and
effect as if such void or unenforceable provision had never been part of the
Plan. The singular herein shall include the plural, or vice versa, wherever the
context so requires. A pronoun in the masculine, feminine or neuter gender
shall be deemed, where appropriate, to include also the masculine, feminine or
neuter gender.

ARTICLE XI
WITHHOLDING; PAYROLL TAXES

To the extent required by law in effect at the time payments are made,
the Company shall withhold from payments made hereunder any taxes required to
be withheld from a Participant's wages for the Federal or any state or local
government.

-7-

<PAGE> 8

ARTICLE XII
APPLICABLE LAW

Except as governed by ERISA, and the Internal Revenue Code of 1986, as
amended, the Plan shall be construed in accordance with, and governed by, the
laws of the State of Michigan.

ARTICLE XIII
HEADINGS

Headings to the Articles of this Plan are included for convenience only
and shall not control the meaning or interpretation of any provision of this
Plan.

IN WITNESS WHEREOF, the Company has adopted this Plan this 11th day of
September, 1997.

ROUGE STEEL COMPANY

By:/s/ William E. Hornberger
---------------------------------
William E. Hornberger
Its: Vice President

<PAGE> 1
EXHIBIT 10.40

ROUGE STEEL COMPANY
BENEFIT RESTORATION PLAN
(EFFECTIVE JANUARY 1, 1997)

WHEREAS, ROUGE STEEL COMPANY, a Delaware corporation (the "Company"),
deems it desirable to adopt a supplemental benefit plan for its key employees
and respective spouses, if any, as a supplement to the Rouge Steel Company
Salaried Employee Retirement Plan (the "Retirement Plan").

NOW, THEREFORE, the Company hereby establishes the Rouge Steel Company
Benefit Restoration Plan (the "Plan"), effective January 1, 1997, to read as
follows:

ARTICLE I
PLAN PURPOSE

The purpose of this Plan is to attract and retain key management
employees by supplementing retirement benefit payments under the Retirement
Plan to those key management employees designated in writing from time to time
by the Compensation Committee of the Board of Directors of the Company (the
"Participants") and their spouses, if any, in order to provide each such
Participant and his or her spouse, if any, retirement payments which, together
with the retirement benefit payments that they are entitled to receive under
the Retirement Plan, will not be reduced by applicable laws.

ARTICLE II
BENEFIT DESCRIPTION

A Participant or the Participant's surviving spouse shall be entitled
to benefits under this Plan only when the Participant (i) has accrued at least
five (5) continuous Years of Service after his or her designation as a
Participant in this Plan, and (ii) is entitled to normal retirement, regular
early retirement, special early retirement or total and permanent disability
retirement benefits pursuant to the Retirement Plan; provided, however, the
Compensation Committee of the Board of Directors of the Company (the
"Compensation Committee") may, in its sole discretion by written resolution,
waive or reduce the five (5) continuous Years of Service requirement for
entitlement to benefits under the Plan. Subject to Article VI of this Plan, a

<PAGE> 2

Participant entitled to benefits under this Plan shall be entitled to a monthly
benefit, upon the Participant's retirement under the Retirement Plan, payable
pursuant to Article III of this Plan, equal to the excess, if any, of:

(a) The amount of annual benefit which would be payable to
or on behalf of such Participant or their spouse under said Retirement
Plan computed under the provisions of said Retirement Plan, plus, if
the Participant is a Group I Employee or a Group II Employee as
defined in the Retirement Plan (a "Group I Employee or a Group II
Employee"), the amount of additional annual benefit which would be
payable to or on behalf of such Participant or their spouse under the
Retirement Plan if such benefit were computed by counting those
additional years of contributory service and non-contributory service
with a predecessor corporation to Rouge Steel Company used to compute
Retirement Plan benefit eligibility for a Group I Employee or Group II
Employee as such years under the Retirement Plan, but computed as if:

(1) The limitations contained in Section 415 of the
Internal Revenue Code of 1986, as amended from time to
time (the "Code") were inapplicable; and

(2) The limitation of $150,000 ($200,000 prior to January
1, 1994), multiplied by the applicable adjustment
factor under Internal Revenue Code Section 401(a)(17) on the
amount of "Salary" and/or "Compensation" to be taken into
account for all Retirement Plan purposes in any Plan Year was
inapplicable;

over

(b) The amount of such Participant's or spouse's annual benefit
under (i) the Retirement Plan and (ii) if the Participant was a
Group I Employee or a Group II Employee, under the Ford Motor
Company General Retirement Plan.

For purposes of entitlement to benefits under this Plan, Years of
Service means years of credited service, as defined in the Retirement Plan.

ARTICLE III
BENEFIT PAYOUT

<PAGE> 3

ARTICLE IV
UNFUNDED AND NON-QUALIFIED PLAN

This Plan is completely separate from the Retirement Plan. The
undertakings of the Company herein to each Participant constitute merely the
obligation to make payments as provided for herein, and it is the Company's
intention that the Plan be unfunded for tax purposes and for purposes of Title
I of the Employee Retirement Income Security Act of 1974, as amended ("ERISA").
Neither a Participant nor any beneficiary nor any other person shall have, by
reason of this Plan, any rights, title or interest of any kind in or to any
property of the Company, nor any beneficial interest in any trust which may be
established by the Company in connection with this Plan. If the Company
transfers any property to a trust in connection with this Plan, such trust
shall not be held for the exclusive benefit of Participants, and any assets
held in such trust shall be subject to the claims of the Company's general
creditors in the event of the Company's insolvency or bankruptcy.

<PAGE> 4

ARTICLE V
ADMINISTRATION

(A) The specific reason or reasons for denial;

(B) Specific reference to the pertinent Plan provisions on which
the denial is based;

(C) A description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why such
material or information is necessary; and

(D) Any explanation of the Plan's claim review procedure.

<PAGE> 5

possible, but not later than one hundred twenty (120) days after receipt of the
request for review. The decision on review shall be in writing and shall
include specific reasons for the decision, specific reference to the pertinent
Plan provisions on which the decision is based and be written in a manner
calculated to be understood by the claimant.

ARTICLE VI
TERMINATION FOR CAUSE

For purposes of the foregoing, "Cause" means:

(i) any act or acts of the Participant constituting a
felony (or its equivalent) under the laws of the United
States, any state thereof or any foreign jurisdiction;

(ii) any material breach, as determined by the Company, by
the Participant of any employment agreement with the Company
or the policies of the Company or any of its subsidiaries or
the willful and persistent (after written notice to the
Participant) failure or refusal, as determined by the Company,
of the Participant to perform his or her duties of employment
or comply with any lawful directives of the Board of Directors
of the Company;

(iii) conduct which the Company determines amounts to gross
neglect, willful misconduct or dishonesty; or

(iv) any misappropriation of material property of the
Company by the Participant or any misappropriation of a
corporate or business opportunity of the Company by the
Participant, all as etermined by the Company.

<PAGE> 6

ARTICLE VII
ERISA COMPLIANCE
NON-QUALIFIED PLAN

Notwithstanding any provisions of this Plan to the contrary, the
Company by written resolution of the Board of Directors or the Compensation
Committee may terminate the Plan, or may amend or modify the Plan at any time
and in any respect, including as necessary or advisable in order that the
benefits provided by the Plan shall constitute unfunded deferred compensation
for a select group of management or highly compensated employees as described
in Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA. However, no such
amendment or termination shall adversely affect the rights of a Participant or
their spouse, if any, to the extent of any vested benefits accrued as of the
date of amendment or termination of the Plan.

ARTICLE VIII
NO EMPLOYMENT CONTRACT

Nothing contained in this Plan, or any amendment hereto, shall be
construed as entitling a Participant to be continued in the employ of the
Company for any period of time, or as obliging the Company to keep said
Participant in its employ for any period of time. Furthermore, nothing
contained in this Plan, or any amendment hereto, shall be construed as
restricting in any way the right of the Company to reassign a Participant for
any reason to a new employment position at lower or higher compensation.

ARTICLE IX
NONASSIGNABILITY

ARTICLE X
RULES OF CONSTRUCTION

In the event that any provision of the Plan is determined by any
judicial, quasi-judicial or administrative body to be void or unenforceable for
any reason, all other provisions of the Plan

<PAGE> 7

shall remain in full force and effect as if such void or unenforceable
provision had never been part of the Plan. The singular herein shall include
the plural, or vice versa, wherever the context so requires. A pronoun in the
masculine, feminine or neuter gender shall be deemed, where appropriate, to
include also the masculine, feminine or neuter gender.

ARTICLE XI
WITHHOLDING; PAYROLL TAXES

ARTICLE XII
APPLICABLE LAW

Except as governed by ERISA, and the Internal Revenue Code of 1986, as
amended, the Plan shall be construed in accordance with, and governed by, the
laws of the State of Michigan.

ARTICLE XIII
HEADINGS

Headings to the Articles of this Plan are included for convenience
only and shall not control the meaning or interpretation of any provision of
this Plan.

IN WITNESS WHEREOF, the Company has adopted this Plan this 11th day of
September, 1997.

ROUGE STEEL COMPANY

By:/s/ William E. Hornberger
-----------------------------
William E. Hornberger
Its: Vice President

<PAGE> 1
EXHIBIT 21

SUBSIDIARIES OF THE REGISTRANT

State of
Incorporation
Wholly-Owned Subsidiaries of the Registrant or Organization
- ------------------------------------------- ---------------

1. Rouge Steel Company Delaware

2. QS Steel Inc. Michigan

3. Eveleth Taconite Company Minnesota

<PAGE> 1
EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Prospectus
constituting part of the Registation Statement on Form S-3 (No. 333-16183)
amended as of Febraury 11, 1997 and in the Registration Statements on Form S-8
(No. 33-88518 and No. 33-88520) of Rouge Industries, Inc. of our report dated
January 28, 1998 appearing on Page 29 of the Annual Report on Form 10-K for the
year ended December 31, 1997. We also consent to the application of such
report to the Financial Statement Schedules for the three years ended December
31, 1997 listed under Item 14(a) of the Rouge Industries, Inc. Annual Report on
Form 10-K for the year ended December 31, 1997 when such schedules are read in
conjunction with the financial statements referred to in our report. The
audits referred to in such report also included these schedules.

PRICE WATERHOUSE LLP
Detroit, Michigan
March 6, 1998

<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1997 AND THE RELATED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 12,570
<SECURITIES> 0
<RECEIVABLES> 117,799
<ALLOWANCES> 6,333
<INVENTORY> 248,317
<CURRENT-ASSETS> 380,915
<PP&E> 310,724
<DEPRECIATION> 42,162
<TOTAL-ASSETS> 728,509
<CURRENT-LIABILITIES> 203,739
<BONDS> 17,900
0
0
<COMMON> 220
<OTHER-SE> 438,401
<TOTAL-LIABILITY-AND-EQUITY> 728,509
<SALES> 1,341,560
<TOTAL-REVENUES> 1,341,560
<CGS> 1,278,351
<TOTAL-COSTS> 1,293,914
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 630
<INCOME-PRETAX> 31,226
<INCOME-TAX> 8,094
<INCOME-CONTINUING> 22,414
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,414
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02

</TABLE>