10-K405

2001

United States

Securities And Exchange Commission

Washington, D.C. 20549

FORM 10-K

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2001

OR

¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-983

National Steel Corporation

(Exact name of registrant as specified in its charter)

Incorporated under the Laws of the State of Delaware (State or other jurisdiction of incorporation or organization)	25-0687210 (I.R.S. Employer Identification No.)
4100 Edison Lakes Parkway, Mishawaka, IN (Address of principal executive offices)	46545-3440 (Zip Code)
Registrant’s telephone number, including area code:    574-273-7000
Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of each exchange on         which registered
Class B Common Stock	OTC Bulletin Board
First Mortgage Bonds, 8 3/8% Series due 2006	None

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

None

(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (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.    x

At March 28, 2002, there were 41,288,240 shares of the registrant’s common stock outstanding consisting of 22,100,000 shares of Class A Common Stock and 19,188,240 shares of Class B Common Stock.

Aggregate market value of voting stock held by non-affiliates: $3,131,996.

The amount shown is based on the closing price of National Steel Corporation’s Common Stock on the OTC Bulletin Board on March 28, 2002. Voting stock held by officers and directors is not included in the computation. However, National Steel Corporation has made no determination that such individuals are “affiliates” within the meaning of Rule 405 under the Securities Act of 1933.

NATIONAL STEEL CORPORATION

TABLE OF CONTENTS

		Page
Part I
Item 1	Business	3
Item 2	Properties	11
Item 3	Legal Proceedings	14
Item 4	Submission of Matters to a Vote of Security Holders	20
Part II
Item 5	Market for Registrant’s Common Stock and Related Stockholder Matters	23
Item 6	Selected Financial Data	24
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	37
Item 8	Consolidated Financial Statements	37
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	69
Part III
Item 10	Directors and Executive Officers of the Registrant	69
Item 11	Executive Compensation	70
Item 12	Security Ownership of Certain Beneficial Owners and Management	79
Item 13	Certain Relationships and Related Transactions	80
Part IV
Item 14	Exhibits, Financial Statement Schedules and Reports on Form 8-K	82

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PART I

I tem 1.    Business

Introduction

National Steel Corporation, a Delaware corporation, (together with its consolidated subsidiaries, the “Company”) is one of the largest integrated steel producers in the United States and is engaged in the manufacture and sale of a wide variety of flat rolled carbon steel products, including hot-rolled, cold-rolled, galvanized, tin and chrome plated steels. We target high value-added applications of flat rolled carbon steel for sale primarily to the automotive, construction and container markets. Our principal executive offices are located at 4100 Edison Lakes Parkway, Mishawaka, Indiana 46545-3440; telephone (574) 273-7000.

National Steel Corporation was formed through the merger of Great Lakes Steel Corporation, Weirton Steel Corporation and Hanna Iron Ore Company and was incorporated in Delaware on November 7, 1929. Following are the major events impacting our ownership since incorporation:

• We built a finishing facility, now the Midwest Operations (“Midwest”), in Portage, Indiana, in 1961.

• In 1971, we purchased Granite City Steel Corporation, now the Granite City Division.

• On September 13, 1983, we became a wholly-owned subsidiary of National Intergroup, Inc. (which subsequently changed its name to FoxMeyer Health Corporation and then to Avatex Corporation and is hereinafter referred to as “Avatex”).

• On January 11, 1984, we sold the principal assets of our Weirton Steel Division and retained certain liabilities related thereto.

• On August 31, 1984, NKK Corporation (collectively with its subsidiaries, “NKK”) purchased a 50% equity interest in us from Avatex. In connection with this purchase, Avatex agreed to indemnify us for (1) certain environmental liabilities related to our former Weirton Steel Division and our subsidiary, Hanna Furnace Corporation and (2) certain pension and employee benefit liabilities related to the Weirton Steel Division (together, the “Indemnification Obligations”).

• On June 26, 1990, NKK purchased an additional 20% equity interest in us from Avatex. In connection with this purchase, Avatex was issued shares of our Series B Redeemable Preferred Stock and NKK was issued shares of our Series A Preferred Stock.

• In April 1993, we completed an initial public offering of our Class B Common Stock.

• In October 1993, Avatex converted all of its shares of Class A Common Stock to an equal number of shares of Class B Common Stock and subsequently sold substantially all of its shares of Class B Common Stock in the market in January 1994, resulting in NKK owning a 75.6% voting interest at December 31, 1994.

• On February 1, 1995, we completed a primary offering of 6.9 million shares of Class B Common Stock. Subsequent to that transaction, NKK’s voting interest decreased to 67.6%.

• In November 1997, we entered into an agreement with Avatex to redeem all of the Series B Redeemable Preferred Stock held by Avatex and to release Avatex from the Indemnification Obligations.

• In December 1997, we completed the redemption of the Series A Preferred Stock held by NKK for a redemption price of $36.7 million, plus accrued dividends of approximately $0.6 million. Following this transaction, and the settlement with Avatex described above, we no longer have any preferred stock outstanding.

• In 1998 and 1999, we repurchased 2.0 million shares of Class B common stock for $16.3 million. Subsequent to the repurchase of these shares, NKK’s voting interest increased to 69.7%.

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Recent Events

The domestic steel industry has recently experienced difficult times with more than 28 domestic steel companies seeking bankruptcy protection since 1997. High levels of low-priced imported steel, high end user inventories, and the more recent slow-down in the economy have resulted in a reduction in market prices for steel as well as a reduced demand for steel products. These factors have lead many companies within the steel industry to experience financial difficulties, with many seeking bankruptcy protection. We believe that these factors will continue to negatively impact the steel industry through 2002.

On March 6, 2002, National Steel Corporation and forty-one of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Court”). The case was assigned to Judge John H. Squires of the Court for initial proceedings (case numbers 02-08697 through 02-08738). We also received commitments for up to $450 million in Secured Super Priority Debtor In Possession (“DIP”) financing from the existing senior secured bank group subject to court approval, which combined with other actions will be used to fund post-petition operating expenses as well as supplier and employee obligations.

While we believe our core business is operationally sound, historically low steel selling prices and a weak economy have impeded our ability to service our debt and make investments in the business necessary for continued growth. We have worked diligently to reduce costs during these difficult times. In 2001 alone, we reduced our costs by approximately $150 million compared to the prior year and inventory reductions exceeded $130 million. Despite our cost reduction activities, idling of production facilities, focus on value-added shipments and the recent positive movement in steel market prices, these efforts were not enough to overcome the injury to us and the steel industry caused by depressed steel selling prices.

Under bankruptcy law, actions by creditors to collect amounts owed by us at the filing date are stayed and other pre-petition contractual obligations may not be enforced against us, without approval by the Court to settle these claims. We received approval from the Court to pay certain of our pre-petition claims, including employee wages and certain employee benefits. In addition, we have the right, subject to Court approval and other conditions, to assume or reject any pre-petition executory contracts and unexpired leases. Parties affected by these rejections may file claims with the Court. We are in the process of preparing and submitting the schedules setting forth all of our assets and liabilities as of the date of the petition as reflected in our accounting records. The amounts of claims filed by creditors could be significantly different from our recorded amounts. Due to material uncertainties, it is not possible to predict the length of time we will operate under Chapter 11 protection, the outcome of the proceedings in general, whether we will continue to operate under our current organizational structure, the effect of the proceedings on our businesses or the recovery by our creditors and equity holders.

Strategy

National Steel Corporation’s strategy is to improve and sustain overall profitability, thereby enhancing stakeholder value. We intend to accomplish this by developing a restructuring plan, reducing our costs, improving productivity and product quality and increasing shipments of higher value-added products. We have developed a number of strategic initiatives designed to achieve this goal.

Development of a Restructuring Plan. We filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in order to provide us with the necessary time to stabilize our finances and to attempt to develop a plan of reorganization that will enable us to return to sustained profitability. We will be undertaking a detailed review of our operations, with specific emphasis on our cost structure, legacy costs, executory contracts, and leases. We will determine our debt capacity based on our long-term strategic business plan that will incorporate the strategies outlined below. In addition, we will compare our new business plan to other possible merger scenarios to determine the best way to enhance stakeholder value.

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Cost Reduction Initiatives. Reducing all costs associated with the production process is essential to our overall cost reduction program. It is our ongoing focus to reduce the total cost of producing finished steel, of which the single largest component remains the production of hot-rolled bands. Additionally, we are taking measures to reduce other fixed costs. Specific initiatives to reduce production costs include:

(1) improving labor productivity and production yields;

(2) reducing overtime utilization;

(3) utilizing a predictive maintenance program designed to maximize production time and equipment life while minimizing unscheduled outages; and

(4) reducing production of secondary and limited warranty steel.

Increased Penetration in Higher Value-Added Sectors of the Automotive Market. The automotive industry is an important customer base for us, accounting for approximately 26.5% of net sales in 2001. In order to better serve this market and enhance margins, we have identified opportunities to sell higher value-added products, including galvanized products and steel used in exposed automotive applications. Our past initiatives have included:

(1) constructing a new hot dip galvanizing facility at our Great Lakes Operations (“Great Lakes”);

(2) the 1999 acquisition of the remaining 44% interest in ProCoil Corporation (“ProCoil”), previously a 56% owned joint venture, to which we ship approximately 200,000 tons of steel coils per year. ProCoil was formed to provide blanking, slitting, cutting-to-length and laser welding for the automotive markets;

(3) establishing the Center for Product and Applications Development near Great Lakes, centrally located near the major automotive manufacturers;

(4) upgrading the 72-inch galvanizing line at Midwest to service demand for critical exposed material; and

(5) the construction of a 400,000 ton joint venture hot dip galvanizing facility in Windsor, Ontario, which commenced operations in 1993 (“DNN”).

Construction Market. We are continuing to increase value-added shipments to the construction market. We believe that increasing our shipments to this market will positively impact operating margins, reduce competitive threats and maintain high capacity utilization rates. Of our coating capacity added since 1995, approximately 675,000 tons are targeted towards the construction industry. The construction market is also an important customer base for us, accounting for approximately 27.0% of net sales in 2001.

Overall Quality Improvement. An important element of our strategy is to reduce the cost of poor quality production, which results in the sale of nonprime products at lower prices. We have initiatives in this area to change certain work practices, increase process control and utilize employee-based problem solving, thus eliminating dependence on final inspection and reducing internal rejections.

Customers

Automotive. We are a major supplier of hot and cold-rolled steel and higher value-added galvanized coils to the automotive industry, one of the most demanding groups of steel consumers. Our steel has been used in a variety of automotive applications including exposed and unexposed panels, wheels and bumpers. Automotive manufacturers require wide sheets of steel, rolled to exact dimensions. In addition, formability and defect-free surfaces are critical. We have been able to successfully meet these demands.

Construction. We are also a leading supplier of steel to the construction market. Roof and building panels are the principal applications for galvanized and Galvalume^® steel in this market. Steel framing is growing in

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popularity with contractors. We believe that demand for Galvalume^® steel will exhibit strong growth for the next several years, partially as a result of a trend away from traditional building products, and that we are well positioned to profit from this growth as a result of our position in this market.

Container. We produce chrome and tin plated steels to exacting tolerances of gauge, shape, surface flatness and cleanliness for the container industry. Tin and chrome plated steels are used to produce a wide variety of food and non-food containers. In recent years, the market for tin and chrome plated steels has been relatively stable and profitable.

Pipe and Tube. We supply the pipe and tube market with hot-rolled, cold-rolled and coated sheet. We are a key supplier to transmission pipeline, downhole casing and structural pipe producers.

Service Centers. We also supply the service center market with hot-rolled, cold-rolled and coated sheet. Service centers generally purchase steel coils and may process them further or sell them directly to third parties without further processing.

The following table sets forth the percentage of our revenues from various markets for the past three years.

	2001		2000		1999
Automotive	26.5	%	29.0	%	32.6	%
Construction	27.0		24.8		23.5
Containers	13.1		12.0		11.6
Pipe and Tube	7.0		6.9		6.3
Service Centers	21.5		22.0		20.0
All Other	4.9		5.3		6.0
	100.0	%	100.0	%	100.0	%

No customer accounted for more than 10% of net sales in 2001, 2000 or 1999. Export sales accounted for approximately 3.4% of revenues in 2001, 3.6% in 2000 and 2.0% in 1999.

Our products are sold through sales offices and resident sales employees located in Chicago, Detroit, Houston, Kansas City, Nashville, St. Louis and at Midwest. Substantially all of our orders are for short-term delivery even though approximately one-half of our products are sold under long-term sales arrangements. Accordingly, backlog is not meaningful when assessing future results of operations.

Any sales arrangements with a term of six months or more are considered to be “long-term” most of which are negotiated on an annual basis. A significant amount of our flat rolled steel sales to larger customers in the automotive and container markets are made pursuant to such sales arrangements. Our sales arrangements generally provide for set prices for the products ordered during the period that they are in effect. As a result, we may experience a delay in realizing price changes related to our long-term business. Much of the remainder of our products are sold under contracts covering shorter periods at the then prevailing market prices for such product.

Customer Partnership. Our customer technical partnerships program provides our customers with superior products, quality, and service through differentiated product development, technical assistance, and local customer service and sales support. We further differentiate our products and promote customer loyalty by establishing close relationships through early customer involvement, providing focused services and support through our technical resources, and broad interaction between customers and our technical personnel.

Our customer technical partnerships are supported by the scientific and engineering personnel located at our Center for Product and Applications Development (“CPAD”) in Trenton, MI, near Great Lakes. The CPAD, established in late 2001, consolidates the customer applications development function of our former Product Application Center in Livonia, MI and the product development function of our former Technical Research Center in the present Trenton facility. We believe that locating these activities in the same facility enables faster development and application of new products.

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The CPAD comprises Applications Development, Advanced Forming and Structural Modeling, and Product Development groups. Together, these groups identify new customer product requirements, design manufacturing process routes for our mills, and promote customer application of these products with design and product characterization support. The CPAD recently developed a family of ten advanced high strength steels to support emerging automotive customer initiatives to reduce the weight, improve fuel economy, and improve the crash-worthiness performance of their vehicles. Many of these products are or will shortly enter commercial production on North American vehicles. Technical partnerships with our automotive customers’ vehicle design and computer-aided engineering analysis departments are utilized to conduct pioneering research on methods to improve the accuracy of crash safety computer models, and to select and implement our new advanced steels for optimum vehicle performance.

We spent $8.6 million, $9.6 million and $10.7 million for research and development in 2001, 2000 and 1999, respectively. In addition, we participate in various research efforts through the American Iron and Steel Institute (the “AISI”).

Operations

We operate three principal facilities: two integrated steel plants, Great Lakes in Ecorse and River Rouge, Michigan, near Detroit, and the Granite City Division in Granite City, Illinois, near St. Louis and a finishing facility, Midwest in Portage, Indiana, near Chicago. Great Lakes and Midwest operate as the Regional Division, a single business enterprise, in order to improve the planning and coordination of production at both plants and enhance our ability to monitor costs and utilize our resources, thereby allowing us to more effectively meet our customers’ needs.

Our centralized corporate structure, the close proximity of our principal steel facilities and the complementary balance of processing equipment shared by them, enable us to closely coordinate the operations of these facilities in order to maintain high operating rates throughout our processing facilities and to maximize the return on our capital investments.

The following table details our effective steelmaking capacity, actual production, effective capacity utilization and percentage of steel continuously cast and that of the domestic steel industry for the years indicated.

	Raw Steel Production Data
	Effective Capacity	Actual Production	Effective Capacity Utilization		Percentage Continuously Cast
	(Thousands of net tons)
The Company
2001	6,620	5,993	90.5	%	100.0	%
2000	6,580	6,138	93.3		100.0
1999	6,450	6,250	96.9		100.0
1998	6,600	6,087	92.2		100.0
1997	6,800	6,527	96.0		100.0
Domestic Steel Industry*
2001	125,400	99,322	79.2	%	96.9	%
2000	130,300	111,903	85.9		96.2
1999	128,100	107,237	83.7		95.6
1998	125,300	108,752	86.8		95.5
1997	121,400	108,561	89.4		94.7

* Information as reported by the American Iron and Steel Institute. The 2001 industry information is preliminary.

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In 2001, effective capacity was 6,620,000 net tons primarily as a result of the “B” blast furnace at Great Lakes being idled until February of 2001, and the “A” blast furnace at Great Lakes being idled from October through the end of the year. The idling of these blast furnaces was done in an effort to more closely match production with forecasted demand. In 2000, effective capacity was 6,580,000 net tons primarily as a result of the scheduled “B” blast furnace reline at Great Lakes that was completed in the third quarter and was left idle during the remainder of the year in order to reduce our steel inventory levels. In 1999, effective capacity was 6,450,000 net tons primarily as a result of a planned blast furnace reline at the Granite City Division and the idling of the Great Lakes “D” furnace in the early part of the year as a result of decreased business primarily due to the high levels of imported steel experienced in the second half of 1998. In 1998, effective capacity was 6,600,000 net tons primarily as a result of the scheduled “A” blast furnace reline at Great Lakes.

Raw Materials

Iron Ore. Our metallic iron requirements are supplied primarily from iron ore pellets that are produced from a concentration of low grade ore. We have reserves of iron ore adequate to produce approximately 336.5 million gross tons of iron ore pellets through our wholly owned subsidiary, National Steel Pellet Company (“NSPC”). These iron ore reserves are located in Minnesota and Michigan. A significant portion of our average annual consumption of iron ore pellets was obtained from the deposits at NSPC during the last five years. The remaining consumption of iron ore pellets were purchased from third parties. Iron ore pellets available to us from our own deposits and outside suppliers are expected to be sufficient to meet our total iron ore requirements at competitive market prices for the foreseeable future.

Coal. Almost all of our coal requirements are purchased from third parties. We believe that supplies of coal, adequate to meet our needs, are readily available from third parties at competitive market prices.

Coke. We operate and maintain the Great Lakes No. 5 coke battery on a contract basis and purchase the majority of the coke produced from the battery under a requirements contract, with the price being adjusted during the term of the contract, primarily to reflect changes in production costs. We also operate two efficient coke batteries servicing the Granite City Division. Approximately 60% of our annual coke requirements can be supplied by the Great Lakes and Granite City coke batteries. Our remaining coke requirements are met through market purchases. In addition, our coal injection process at Great Lakes continues to reduce our dependency on outside coke supplies.

Limestone. Prior to its sale in 2000, the majority of our average annual consumption of limestone was acquired from the reserves of an affiliated company at competitive market prices. All limestone requirements are now purchased at competitive market prices from unaffiliated third parties.

Scrap and Other Materials. Supplies of steel scrap, tin, zinc and other alloying and coating materials are readily available at competitive market prices.

Patents and Trademarks

We have the patents and licenses necessary for the operation of our business as now conducted. We do not consider our patents and trademarks to be material to our business.

Employees

As of December 31, 2001, we employed 8,342 people. We have labor agreements with the United Steelworkers of America (“USWA”), the International Chemical Workers Council of the United Food and Commercial Workers and other labor organizations which collectively represent approximately 82% of our employees. In 1999, we entered into labor agreements, which expire on or after July 31, 2004, with these various labor organizations.

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Competition

We are 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. Steel industry participants compete primarily on price, service and quality. We believe we are able to differentiate our products from those of our competitors by, among other things, providing technical services and support, utilizing our CPAD facility, and by focusing on improving product quality through, among other things, capital investment and research and development, as previously described. We compete with domestic integrated and mini-mill steel producers, some of which have greater resources than us.

Imports. Domestic steel producers face significant competition from foreign producers and, from time to time, have been adversely affected by what we believe to be unfairly traded imports. The intensity of foreign competition is substantially affected by the relative strength of foreign economies and fluctuations in the value of the United States dollar against foreign currencies. Steel imports increase when the value of the dollar is strong in relation to foreign currencies. The recent economic slowdown in certain foreign markets resulted in an increase in imports at depressed prices. Imports of finished steel products that accounted for approximately 19% of the domestic market during 1993 to 1997 have increased to approximately 27% in 1998, 22% in 1999, 26% in 2000 and 20% in 2001. Some foreign steel producers are owned, controlled or subsidized by their governments. Decisions by these foreign 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. See the discussion under the caption “Trade Litigation” in Item 3, “Legal Proceedings”.

Reorganized/Reconstituted Mills. The intensely competitive conditions within the domestic steel industry have been exacerbated by the continued operation, modernization and upgrading of marginal steel production facilities through bankruptcy reorganization procedures, thereby perpetuating overcapacity in certain industry product lines. Overcapacity is also caused by the continued operation of marginal steel production facilities that have been sold by integrated steel producers to new owners, who operate such facilities with a lower cost structure.

Mini-mills. Mini-mills provide significant competition in certain product lines, including hot-rolled and cold-rolled sheets that represented, in the aggregate, approximately 58% of our shipments in 2001. Mini-mills also compete with our galvanized products focused towards the automotive market. Mini-mills are relatively efficient, low-cost producers which make steel from scrap in electric furnaces, with lower employment and environmental costs. Thin slab casting technologies have allowed mini-mills to enter certain sheet markets which have traditionally been supplied by integrated producers. Certain companies have announced plans for, or have indicated that they are currently considering, additional mini-mill plants for sheet products in the United States.

Steel Substitutes. In the case of many steel products, there is substantial competition from manufacturers of other products, including plastics, aluminum, ceramics, glass, wood and concrete. Conversely, along with other manufacturers of steel products, we have begun to compete in recent years in markets not traditionally served by steel producers.

NKK

Since 1984, we have had an alliance with our principal stockholder, NKK, one of the largest steel companies in Japan and in the world as measured by production. Our relationship has materialized in a number of business contracts in such areas as engineering and construction, slab purchasing, employee transfers, research and development support and financial support. All such contracts with NKK were unanimously approved by all directors of the Company who were not then, and never have been, employees of NKK.

Environmental Matters

Our operations are subject to numerous laws and regulations relating to the protection of human health and the environment. We have made capital expenditures of $2.6 million in connection with matters relating to

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environmental control during 2001. Our current estimates indicate that we will incur capital expenditures in connection with matters relating to environmental control of approximately $5 million and $10 million for 2002 and 2003, respectively. In addition, we have recorded expenses for environmental compliance, including depreciation, of approximately $62 million in 2001 and expect to record expenses of approximately $60 million in each of 2002 and 2003. Since environmental laws and regulations are becoming increasingly stringent, our environmental capital expenditures and costs for environmental compliance may increase in the future. In addition, due to the possibility of future changes in circumstances or regulatory requirements, the amount and timing of future environmental expenditures could vary substantially from those currently anticipated. The costs for environmental compliance may also place us at a competitive disadvantage with respect to foreign steel producers, as well as manufacturers of steel substitutes, that are subject to less stringent environmental requirements.

In 1990, Congress passed amendments to the Clean Air Act, which impose stringent standards on air emissions. The Clean Air Act amendments directly affect the operations of many of our facilities, including the coke ovens. Under such amendments, coke ovens generally will be required to comply with progressively more stringent standards over the thirty-year period beginning on the date of enactment of the amendments. We believe that the costs for complying with the Clean Air Act amendments will not have a material adverse effect on our financial position, results of operations or liquidity.

The Resource Conservation Recovery Act of 1976, as amended (“RCRA”), imposes certain investigative and corrective action obligations on facilities that are operating under a permit, or are seeking a permit, to treat, store or dispose of hazardous waste. As of December 31, 2001, we have recorded $6.4 million as a liability for certain corrective actions which are expected to be necessary at Midwest. At the present time, our other facilities are not subject to corrective action.

We have recorded an aggregate liability of $2.0 million at December 31, 2001 for the reclamation costs to restore our coal and iron ore mines at our shut down locations to their original and natural state, as required by various federal and state mining statutes.

The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), and similar state statutes generally impose joint and several liability on present and former owners, operators, transporters and generators for remediation of contaminated properties, regardless of fault. We have been conducting steel manufacturing and related operations at numerous locations, including our present facilities, for over seventy years. Although we believe that we have utilized operating practices that were standard in the industry at the time, hazardous materials may have been released on or under these currently or previously owned sites. Consequently, we potentially may be required to remediate contamination at some of these sites. However, based on our past experience and the nature of environmental remediation proceedings, we believe that if any such remediation is required at a site, it will likely occur over an extended period of time.

Pursuant to an indemnity provision contained in the agreements with Weirton Steel Corporation (“Weirton Steel”) which were entered into at the time that we sold the assets of our former Weirton Steel Division to Weirton Steel, we have reimbursed Weirton Steel for the costs of certain remediation activities undertaken by Weirton Steel at our former manufacturing site in Weirton, West Virginia. Additional claims for indemnification by Weirton Steel are possible. In addition, our subsidiary, the Hanna Furnace Corporation is currently involved in remediation activities at the site of the former Donner Hanna coke plant in Buffalo, New York (which was operated as a joint venture with LTV Steel Company, Inc.). See the discussion under the caption “Donner Hanna Coke Plant” in Item 3, “Legal Proceedings”.

In addition to the remediation of current and former manufacturing sites, we are also involved as potentially responsible parties (“PRPs”) in a number of off-site CERCLA and other environmental cleanup proceedings.

We have accrued an aggregate liability of $9.0 million as of December 31, 2001, exclusive of accruals for Midwest and the coal and iron ore mines, for superfund and other environmental cleanup liabilities at our current

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and former manufacturing sites and off site disposal facilities. The outcome of these remediation activities and cleanup proceedings is not expected to have a material adverse effect on our financial position, results of operations or liquidity.

As a result of the settlement of a lawsuit we had previously filed against certain of our comprehensive general liability insurance carriers, we have partial insurance coverage for certain existing and future major environmental liabilities.

Forward Looking Statements

Statements made by us in this Form 10-K that are not historical facts constitute “forward looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements, by their nature, involve risk and uncertainty. A variety of factors could cause business conditions and our actual results and experiences to differ materially from those expected or expressed in our forward looking statements. These factors include, but are not limited to, the following:

(1) changes in market prices and market demand for our products;

(2) changes in our mix of products sold;

(3) changes in the costs or availability of raw materials and other supplies used by us in the manufacture of our products;

(4) equipment failures or outages at our steelmaking, mining and processing facilities;

(5) losses of customers;

(6) changes in the levels of our operating costs and expenses;

(7) collective bargaining agreement negotiations, strikes, labor stoppages or other labor difficulties;

(8) actions by our competitors, including domestic integrated steel producers, foreign competitors, mini-mills and manufacturers of steel substitutes such as plastics, aluminum, ceramics, glass, wood and concrete;

(9) changes in industry capacity;

(10) changes in economic conditions in the United States and other major international economies, including rates of economic growth and inflation;

(11) worldwide changes in trade, monetary or fiscal policies, including changes in interest rates;

(12) changes in the legal and regulatory requirements applicable to us;

(13) the effect of the increased tariffs ordered by the President after the ITC conducted an investigation pursuant to Section 201 of the Trade Act;

(14) the impact of our Chapter 11 bankruptcy filing on our business; and

(15) the effects of extreme weather conditions.

I tem 2.    Properties

The Granite City Division

The Granite City Division, located in Granite City, Illinois, has an annual hot-rolled band production capacity of approximately 3.1 million tons. All steel at Granite City is continuous cast. Granite City also uses ladle metallurgy to refine the steel chemistry to enable it to meet the exacting specifications of its customers. The facility’s ironmaking facilities consist of two coke batteries and two blast furnaces. Finishing facilities include an 80-inch hot strip mill, a hot-rolled coil processing line, a continuous pickler, a tandem mill and two hot dip

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galvanizing lines. Granite City ships approximately 10% of its total production to Midwest for finishing. Principal products of the Granite City Division include hot-rolled, hot-dipped galvanized and Galvalume^® steel, grain bin and high strength, low alloy steels.

The Granite City Division is located on 1,540 acres and employs approximately 2,800 people. The Division’s proximity to the Mississippi River and other interstate transit systems, both rail and highway, provides easy accessibility for receiving raw materials and supplying finished steel products to customers.

The Regional Division

Great Lakes Operations

Great Lakes, located in Ecorse and River Rouge, Michigan, is an integrated facility engaged in steelmaking primarily for use in the automotive market with an annual hot-rolled band production capacity of approximately 4.3 million tons. All steel at this location is continuous cast. Great Lakes ironmaking facilities consist of three blast furnaces and a rebuilt 85-oven coke battery which was sold in 1997 to a subsidiary of DTE Energy Company. Great Lakes also operates two basic oxygen process vessels, a vacuum degasser and a ladle metallurgy station. Finishing facilities include a hot strip mill, a skinpass mill, a high speed pickle line, a tandem mill, a batch annealing station, a temper mill, one customer service line and an electrolytic galvanizing line. Additionally, a new automotive hot dip galvanizing line began production during the second quarter of 2000. Great Lakes ships approximately 54% of its production to Midwest and to joint venture coating operations for value-added processing. Principal products include hot-rolled, cold-rolled, electrolytic galvanized, hot dip galvanized, and high strength, low alloy steels.

Great Lakes is located on 1,100 acres and employs approximately 3,100 people. The facility is strategically located with easy access to water, rail and highway transit systems for receiving raw materials and supplying finished steel products to customers.

Midwest Operations

Midwest, located in Portage, Indiana, finishes hot-rolled bands produced at Great Lakes and Granite City primarily for use in the automotive, construction and container markets. All of the processes performed at Midwest help enhance our profitability by turning commodity grades of hot-rolled steel into higher value-added products. Midwest facilities include a continuous pickling line, two cold reduction mills and three continuous galvanizing lines (a 48 inch wide line which can produce galvanized or Galvalume^® steel products and which services the construction market, a 72 inch wide line which services the automotive market and a Galvalume^® line which services the construction market). Additionally, Midwest includes finishing facilities for cold-rolled products consisting of a batch annealing station, a sheet temper mill and a continuous stretcher leveling line. The facility also includes an electrolytic cleaning line, a continuous annealing line, two tin temper mills, two tin recoil lines, an electrolytic tinning line and a chrome line, all of which service the container market. Principal products include tin mill products, hot-dipped galvanized and Galvalume^® steel, cold-rolled and electrical lamination steels.

Midwest is located on 1,100 acres and employs approximately 1,350 people. Its location provides excellent access to rail, water and highway transit systems for receiving raw materials and supplying finished steel products to customers.

National Steel Pellet Company

NSPC, a wholly-owned subsidiary, is located on the western end of the Mesabi Iron Ore Range in Keewatin, Minnesota. NSPC mines, crushes, concentrates and pelletizes low grade taconite ore into iron ore pellets. NSPC operations include two primary crushers, ten primary mills, five secondary mills, a concentrator and a pelletizer.

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The facility has a current annual effective iron ore pellet capacity of over five million gross tons and has a combination of rail and vessel access to our integrated steel mills. NSPC is located on 26,000 acres and employs approximately 500 people.

ProCoil Corporation

ProCoil, a wholly-owned subsidiary, is located in Canton, Michigan. ProCoil operates a steel processing facility which began operations in 1988 and a warehousing facility which began operations in 1993. ProCoil blanks, slits and cuts steel coils to desired specifications to service automotive market customers and provides laser welding services. In addition, ProCoil warehouses material to assist us in providing just-in-time delivery to our automotive customers. ProCoil is located on 30 acres and employs approximately 165 people.

Joint Ventures and Equity Investments

DNN Galvanizing Limited Partnership. As part of our strategy to focus our marketing efforts on high quality steels for the automotive industry, we entered into an agreement with NKK and Dofasco Inc., a large Canadian steel producer (“Dofasco”), to build and operate DNN, a 400,000 ton per year hot dip galvanizing facility in Windsor, Ontario, Canada. This facility incorporates state-of-the-art technology to galvanize steel for critically exposed automotive applications. National Steel owns a 10% equity interest in DNN, NKK owns a 40% equity interest and Dofasco owns the remaining 50%. The facility is modeled after NKK’s Fukuyama Works Galvanizing Line that has provided high quality galvanized steel to the Japanese automotive industry for several years. We are committed to utilize 50% of the available line time of the facility and pay a tolling fee designed to cover fixed and variable costs with respect to 50% of the available line time, whether or not such line time is utilized. The plant began production in January 1993 and is operating close to capacity. Our steel substrate requirements are provided to DNN by Great Lakes.

Double G Coatings, L.P. To continue to meet the needs of the growing construction market, National Steel Corporation and Bethlehem Steel Corporation formed a joint venture to build and operate Double G Coatings, L.P. (“Double G”). We own a 50% equity interest in Double G. Double G is a 300,000 ton per year hot dip galvanizing and Galvalume^® steel facility near Jackson, Mississippi. The facility is capable of coating steel coils with zinc to produce a product known as galvanized steel and with a zinc and aluminum coating to produce a product known as Galvalume^® steel. Double G primarily serves the metal buildings segment of the construction market in the south central United States. We are committed to utilize 50% of the available line time of the facility and pay a tolling fee designed to cover fixed and variable costs with respect to 50% of the available line time, whether or not such line time is utilized. The joint venture commenced production in the second quarter of 1994 and reached full operating capacity in 1995. Our steel substrate requirements are currently provided to Double G by Great Lakes and Granite City.

Tinplate Holdings, Inc. In April 1997, one of our wholly owned subsidiaries purchased 25% of the outstanding common stock of Tinplate Holdings, Inc. (“Tinplate”). During 2000, our ownership interest increased to 42%. Tinplate operates a tin mill service center in Gary, Indiana that purchases tin mill products from us.

National Robinson LLC. In February 1998, National Steel Corporation entered into an agreement with Robinson Steel Co., Inc. to form a joint venture company, named National Robinson LLC. We own a 50% equity interest in National Robinson LLC. This company operates a temper mill, leveler and cut to length facility in Granite City, Illinois to produce high value added cut-to-length steel plates and sheets with superior quality, flatness and dimensional tolerances. National Robinson LLC processes approximately 200,000 tons of hot-rolled steel annually which is supplied by Granite City.

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Other Information With Respect to Our Properties

In addition to the properties described above, we own our corporate headquarters facility in Mishawaka, Indiana. Our properties are well maintained, considered adequate and are being utilized for their intended purposes. Our steel production facilities are owned in fee by us except for:

(1) a continuous caster and related ladle metallurgy facility which service Great Lakes,

(2) an electrolytic galvanizing line, which services Great Lakes, and

(3) one of the two coke batteries, which service the Granite City Division.

Each of these facilities is owned by third parties and leased to us pursuant to the terms of operating leases. The coke battery lease, the electrolytic galvanizing line lease and the continuous caster and related metallurgy facility lease are scheduled to expire in 2004, 2005 and 2008, respectively. Upon expiration, we have the option to extend the respective lease or purchase the facility at fair market value, or return the facility to the third party owner.

Substantially all of the land (excluding certain unimproved land), buildings and equipment (excluding, generally, mobile equipment) that are owned in fee by us at the Granite City Division and the Regional Division are subject to a lien securing the First Mortgage Bonds, 8 ³/8% Series due 2006 and 9 ⁷/8% Series due 2009 (“First Mortgage Bonds”). Included among the items which are not subject to this lien are a vacuum degassing facility and a pickle line which service Great Lakes and a continuous caster facility which services the Granite City Division. However, the pickle line and continuous caster facility are subject to a mortgage granted to the respective lenders who financed the construction of the facilities. We have also agreed to grant to the Voluntary Employees’ Benefit Association Trust (“VEBA Trust”) a second mortgage on that portion of the property which is covered by the lien securing the First Mortgage Bonds and which is located at Great Lakes. The VEBA Trust was established in connection with the 1993 Settlement Agreement with the USWA for the purpose of prefunding certain postretirement employee benefit obligations for USWA represented employees.

For a description of certain properties related to our production of raw materials, see the discussion under the caption “Raw Materials” in Item 1, “Business”.

I tem 3.    Legal Proceedings

In addition to the matters discussed below, the Company is involved in various legal proceedings occurring in the normal course of its business. In the opinion of the Company’s management, adequate provision has been made for losses that are likely to result from these actions.

Chapter 11 Bankruptcy Proceedings

On March 6, 2002, the Company and forty-one of its wholly owned subsidiaries filed voluntary petitions in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division, for reorganization relief under Chapter 11 of the Bankruptcy Code. The Company and its subsidiaries continue to manage and operate their businesses as debtors and debtors in possession pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. We also received commitments for up to $450 million in DIP financing from the existing senior secured bank group subject to court approval, which combined with other actions will be used to fund post-petition operating expenses as well as supplier and employee obligations. We filed for protection under Chapter 11 in order to obtain the necessary time to stabilize the Company’s finances and to attempt to develop a plan of reorganization that will enable us to return to sustained profitability.

Under bankruptcy law, actions by creditors to collect amounts owed by us at the filing date are stayed and other pre-petition contractual obligations may not be enforced against us, without approval by the Court to settle

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these claims. We received approval from the Court to pay certain of our pre-petition claims, including employee wages and certain employee benefits. In addition, we have the right, subject to Court approval and other conditions, to assume or reject any pre-petition executory contracts and unexpired leases. Parties affected by these rejections may file claims with the Court. We are in the process of preparing and submitting the schedules setting forth all of our assets and liabilities as of the date of the petition as reflected in our accounting records. The amounts of claims filed by creditors could be significantly different from our recorded amounts. Due to material uncertainties, it is not possible to predict the length of time we will operate under Chapter 11 protection, the outcome of the proceedings in general, whether we will continue to operate under our current organizational structure, the effect of the proceedings on our businesses or the recovery by our creditors and equity holders.

Trade Litigation

The Company is a party to on-going trade proceedings concerning imports of hot-rolled carbon steel flat products (“Hot-Rolled Steel”), cold-rolled carbon steel flat products (“Cold-Rolled Steel”), and corrosion-resistant carbon steel flat products (“Corrosion-Resistant Steel”). Such imports affect the steel industry generally. These trade proceedings relate to unfair trade practices for which the remedy is the imposition of antidumping and countervailing duties, which are designed to offset dumping and foreign government subsidies to create a level competitive playing field for domestic producers. In these proceedings, the Department of Commerce (the “DOC”) and the International Trade Commission (the “ITC”) initially conduct an investigation to determine whether to issue an antidumping or countervailing duty order. If an order is issued, the duty rate is then subject to change in subsequent annual administrative reviews. In addition, in five-year reviews, the DOC may revoke an order if it determines that revocation would not be likely to lead to continuation or recurrence of dumping or a countervailable subsidy, and the ITC may revoke an order if it determines that revocation would not be likely to lead to continuation or recurrence of material injury.

On September 30, 1998, a number of U.S. steel producers filed unfair trade petitions alleging dumping of imported Hot-Rolled Steel from Brazil, Japan, and Russia. The U.S. steel producers also alleged subsidization of Hot-Rolled Steel from Brazil. The Company joined in the Russian and Brazilian petitions. The resulting investigations led to the imposition of an antidumping duty order on Japanese imports on June 29, 1999. In July 1999, certain Japanese and U.S. steel producers commenced challenges to the DOC’s final dumping determination in the Court of International Trade. The Court of International Trade upheld all but one aspect of the DOC’s dumping determination. On February 25, 2002, the United States and certain U.S. steel producers commenced an appeal of the Court of International Trade’s decision to the Court of Appeals for the Federal Circuit, and a Japanese steel producer filed a cross-appeal of that decision on March 11, 2002. In addition, on February 11, 2000, the Japanese government requested the establishment of a dispute settlement panel to review the antidumping duty order on Hot-Rolled Steel from Japan pursuant to the dispute settlement mechanism of the World Trade Organization (“WTO”). The WTO Panel publicly issued its final report on February 28, 2001. The Panel upheld the determinations by the ITC and the DOC that dumped imports had injured the domestic industry. However, the Panel also found that certain aspects of the DOC’s calculation of the dumping margin violated the United States’ international obligations. On April 25, 2001, the United States appealed these findings to the WTO’s Appellate Body. Japan commenced a cross-appeal on May 10, 2001. On July 24, 2001, the Appellate Body affirmed in part and reversed in part the findings by the WTO Panel that certain aspects of the DOC’s calculation of the dumping margin violated the United States’ international obligations. The Appellate Body also found that certain aspects of the ITC’s injury determination violated the United States’ international obligations. The United States has until November 22, 2002 to implement the Appellate Body’s decision.

In July 1999, in lieu of issuing antidumping and countervailing duty orders, the DOC entered into suspension agreements with Russia, Brazil, and three Brazilian steel producers to impose volume and price restrictions on imports of Hot-Rolled Steel from Russia and Brazil. In August 1999, challenges to the suspension agreements were commenced in the Court of International Trade by several U.S. steel producers, including the Company. In addition, the DOC’s final subsidization determination regarding Brazil is being challenged in the Court of International Trade by affected foreign steel producers. On May 29, 2001 and August 3, 2001,

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respectively, the Court of International Trade remanded to the DOC its determinations to suspend the antidumping duty investigation and the countervailing duty investigation of Hot-Rolled Steel from Brazil. These cases are currently pending before the Court of International Trade. On February 4, 2002, upon finding that Brazilian steel producers had violated the antidumping suspension agreement on imports of Hot-Rolled Steel from Brazil, the DOC terminated that agreement and imposed an antidumping duty order.

On June 2, 1999, a number of U.S. steel producers filed unfair trade petitions alleging dumping of Cold-Rolled Steel from Argentina, Brazil, China, Indonesia, Japan, Russia, South Africa, Slovakia, Taiwan, Thailand, Turkey, and Venezuela and subsidization of Cold-Rolled Steel from Brazil, Indonesia, Thailand, and Venezuela. The Company joined in all of these petitions, except the one against Japan. The resulting subsidy investigations of Indonesia, Thailand, and Venezuela were terminated on July 19, 1999, when the ITC found that imports from those countries were negligible. In Spring and Summer 2000, the ITC made negative final injury determinations with respect to the other cases. In April, June, and September 2000, several U.S. steel producers, including the Company, commenced challenges in the Court of International Trade to the negative final injury determinations of the ITC. Oral argument was conducted before the Court of International Trade in December 2001. A decision is expected later this year.

On September 1, 1999, the DOC and the ITC published notices initiating five-year reviews of antidumping and/or countervailing duty orders entered in 1993 on (i) Corrosion-Resistant Steel from Australia, Canada, France, Germany, Japan, and Korea and (ii) Cold-Rolled Steel from Germany, Korea, the Netherlands, and Sweden. In March and July 2000, the DOC determined that revocation of the orders would likely lead to continuation or recurrence of dumping and/or subsidization. The ITC determined in November 2000 that revocation of the orders on Corrosion-Resistant Steel would be likely to lead to continuation or recurrence of material injury. Therefore, these orders remain in effect. However, the ITC voted to revoke the orders on Cold-Rolled Steel. Several foreign steel producers have commenced challenges to the determinations of the DOC and the ITC regarding Corrosion-Resistant Steel either in the Court of International Trade or before a North American Free Trade Agreement Binational Panel. In addition, in January 2002, the Japanese government requested consultations with the United States regarding the DOC and ITC determinations with respect to Corrosion-Resistant Steel from Japan pursuant to the dispute settlement mechanism of the WTO. In January 2001, several U.S. steel producers, including the Company, commenced challenges in the Court of International Trade to the ITC’s determination regarding the orders on Cold-Rolled Steel.

On November 13, 2000, a number of U.S. steel producers filed unfair trade petitions alleging dumping of Hot-Rolled Steel from Argentina, China, India, Indonesia, Kazakhstan, the Netherlands, Romania, South Africa, Taiwan, Thailand, and the Ukraine and subsidization of Hot-Rolled Steel from Argentina, India, Indonesia, South Africa, and Thailand. The Company joined in all of these petitions. On July 16, 2001, the DOC made a final determination that Hot-Rolled Steel from Argentina had been dumped and subsidized and that Hot-Rolled Steel from South Africa had been dumped. On August 31, 2001, the ITC made a final determination that Hot-Rolled Steel from Argentina and South Africa had injured the domestic industry. The DOC published an antidumping duty order with respect to these two countries and a countervailing duty order with respect to Argentina on September 11, 2001. On September 21, 2001, the DOC made final determinations that Hot-Rolled Steel from India, Indonesia, Kazakhstan, the Netherlands, the People’s Republic of China, Romania, Taiwan, and Thailand had been dumped, and that Hot-Rolled Steel from India, Indonesia, South Africa, and Thailand had been subsidized. On November 2, 2001, the ITC made a final determination that Hot-Rolled Steel from these countries had injured the domestic industry. An antidumping duty order was issued by the DOC on Hot-Rolled Steel from Kazakhstan on November 21, 2001. On November 29, 2001, the DOC issued antidumping duty orders on Hot-Rolled Steel from China, the Netherlands, Romania, Taiwan, Thailand, and the Ukraine. Finally, the DOC issued antidumping and countervailing duty orders on Hot-Rolled Steel from India and Indonesia and countervailing duty orders on Hot-Rolled Steel from South Africa and Thailand on December 3, 2001. Duties to offset the unfair trade practices found by the DOC and the ITC will now be charged on all affected imports from the above-referenced countries. In December 2001 and January 2002, several foreign steel producers commenced challenges in the Court of International Trade to the final injury determinations of the ITC. In addition, in

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December 2001, a steel producer in the Netherlands and several U.S. steel producers, including the Company, commenced challenges to the DOC’s final dumping determination on Hot-Rolled Steel from the Netherlands in the Court of International Trade.

On September 28, 2001, a number of U.S. steel producers filed petitions alleging dumping of Cold-Rolled Steel from Argentina, Australia, Belgium, Brazil, France, Germany, India, Japan, Korea, the Netherlands, New Zealand, the People’s Republic of China, the Russian Federation, South Africa, Spain, Sweden, Taiwan, Thailand, Turkey, and Venezuela and subsidization of Cold-Rolled Steel from Argentina, Brazil, France, and the Republic of Korea. The Company joined in all of the petitions, except the one regarding Japan. On November 13, 2001, the ITC made its preliminary determination that there is a reasonable indication that the domestic industry is materially injured or threatened with material injury by the imports in question. On February 25, 2002, the DOC made its preliminary determination that Cold-Rolled Steel from Brazil, France, and the Republic of Korea had been subsidized. The DOC also preliminarily determined that the ad valorem benefit from the subsidies provided for Cold-Rolled Steel from Argentina was de minimis. The DOC is scheduled to make preliminary determinations of dumping in April 2002. Antidumping and/or countervailing duties will be imposed against those imports for which the DOC makes an affirmative final dumping or subsidization determination and for which the ITC makes an affirmative final injury determination.

In addition to the foregoing antidumping and countervailing duty proceedings to which the Company has been a party, on June 22, 2001, the United States Trade Representative, on behalf of the President, requested that the ITC conduct an investigation of steel imports pursuant to Section 201 of the Trade Act of 1974. On October 22, 2001, the ITC unanimously determined that increased imports had caused or threatened to cause serious injury to domestic producers of several steel products, including slabs, plate, Hot-Rolled Steel, Cold-Rolled Steel, and Corrosion-Resistant Steel. The ITC evenly divided as to whether increased imports caused or threatened to cause serious injury to producers of tin-mill products. On December 19, 2001, the ITC transmitted its recommendations for relief to the President. On March 5, 2002, the President ordered relief in the form of increased tariffs on imports of plate, Hot-Rolled Steel, Cold-Rolled Steel, Corrosion-Resistant Steel, and tin-mill products and a tariff-rate quota on imports of slab. The President excluded imports from certain of our Free Trade Agreement partners and certain developing countries from the relief ordered. A number of countries have indicated that they intend to challenge the United States’ action pursuant to the dispute settlement mechanism of the WTO.

Donner Hanna Coke Plant

The Donner Hanna coke plant was operated from approximately 1920 to 1982, for the majority of that time as a corporation jointly owned by The Hanna Furnace Corporation (“Hanna Furnace”), a subsidiary of the Company, and LTV Steel Company, Inc. (or its predecessor) (collectively “LTV”). In 1989 and 1990, the plant was demolished and, at present, Hanna Furnace and LTV each have a 50% ownership share in the property.

Hanna Furnace has been participating in a voluntary effort with LTV to perform a site cleanup at Donner Hanna, with a goal of eventually transferring ownership of the property to either the City of Buffalo or a third party. A significant amount of site assessment work has been completed. A draft conceptual remedial work plan has been prepared and discussed with the New York State Department of Environmental Conservation (“DEC”), the most recent version of which is dated July 2001.

The preliminary estimated cost to implement the draft remedial work plan for the two areas that are co-owned by LTV and Hanna Furnace is $7,806,000, of which Hanna Furnace’s share would be $3,903,000. The preliminary estimate does not include the remedial costs for several areas related to the plant that still must be assessed, nor does it include the cost for final “cover” that may be required for the property, depending upon the final development plan.

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LTV also has made an informal claim that Hanna Furnace should contribute 50% toward the remediation of an adjacent property owned solely by LTV, on the basis that it appears to be impacted by coke wastes/materials. The preliminary cost estimate to remediate that property is $6,620,000. This estimate also does not include the remedial costs for at least one other related area that still must be assessed. Hanna Furnace has evaluated LTV’s informal claim and has informed LTV that it does not believe that Hanna Furnace is responsible for any portion of the remediation costs for the property.

By letter dated December 4, 2001, DEC forwarded to LTV and Hanna Furnace a revised voluntary cleanup agreement in the form of a Voluntary Order on Consent (the “Consent Order”). The Consent Order would apply to both the former Donner Hanna Coke plant and adjacent properties owned solely by LTV. The Consent Order would limit Hanna Furnace’s obligations thereunder to the former Donner Hanna Coke plant, but would impose those obligations on a joint and several basis with LTV.

In the spring of 1999, contamination was discovered on certain properties in the vicinity of the Donner Hanna coke plant which were transferred by LTV and Hanna Furnace to the Buffalo Urban Renewal Agency (“BURA”) in 1992. These properties are located in a residential housing development commonly known as the Hickory Woods Subdivision. Several of the properties have had houses constructed on them, while several others remain vacant. Contamination was also discovered on a berm constructed on the Donner Hanna coke plant property by BURA pursuant to an easement granted by LTV and Hanna Furnace.

In the spring of 2000, Hanna Furnace, LTV, and BURA entered into an Administrative Order on Consent with the United States Environmental Protection Agency (“EPA”), wherein they agreed to conduct a removal action on the vacant lots and to reimburse EPA for certain oversight costs. The cost estimate to conduct the removal action is approximately $600,000, and the estimated oversight costs are approximately $30,000. Hanna Furnace, LTV, BURA, and the City of Buffalo entered into a cost allocation agreement describing the parties’ responsibilities, as between themselves, for the removal costs and the oversight costs. Under the terms of that agreement, BURA and/or the City must pay $100,000 of the first $600,000 of removal costs, and Hanna Furnace and LTV are responsible for the other $500,000 of the first $600,000 of removal costs. If the removal costs exceed $600,000, then BURA and/or the City pay one-half of all removal costs in excess of $600,000, and Hanna Furnace and LTV are responsible for the other one-half of the excess removal costs. With regard to EPA response and oversight costs, BURA and/or the City pay one-third of such costs, and LTV and Hanna Furnace are responsible for the other two-thirds of such costs. As between LTV and Hanna Furnace, they are each responsible to pay one-half of the companies’ obligation under the agreement. To date, the vacant lots have been stabilized, but EPA has not required the parties to implement the removal action.

During the second half of 2000, EPA conducted a soil sampling program for more than 80 properties in the Hickory Woods Subdivision, including some of the properties that were transferred by LTV and Hanna Furnace. The data from this sampling program was evaluated by the New York State Department of Health (“DOH”). DOH concluded that a few of the properties merit further investigation, but generally the soils in the Hickory Woods Subdivision do not pose an unacceptable risk to human health. The City and BURA have retained an independent group of scientists to conduct a peer review of the DOH study. It appears that the peer review generally supports the DOH study, but believes that there are several areas of potential exposure that merit further study. The final peer review report has not been released to the public.

On September 3, 1999, Hanna Furnace and LTV filed suit in the U.S. District Court for the Western District of New York against the City of Buffalo and BURA arising from defendants’ placement of hazardous substances within a berm on the site of the former Donner Hanna coke plant. Hanna Furnace and LTV seek $3 million to remove the berm and an unspecified amount of other damages, response costs, attorneys fees, and injunctive relief and assert claims under CERCLA, breach of contract, and common law. On December 13, 1999, the City and BURA asserted counterclaims, alleging that Hanna Furnace and LTV disposed of wastes both on the coke plant property and on properties in the Hickory Woods Subdivision. The City and BURA’s counterclaims seek an unspecified amount of response costs, compensatory damages, injunctive relief and attorney fees, plus punitive damages of $250 million, based on CERCLA and New York statutory and common law.

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On February 12, 2002, Hanna Furnace filed its reply to the counterclaims. On March 5, 2002, the City and BURA filed a motion requesting preliminary and permanent injunctive relief and declaratory relief pursuant to several of their counterclaims to: (a) require Hanna Furnace and LTV to abate “nuisance and blighting” conditions on and around the former Donner Hanna coke plant and adjacent LTV properties; (b) require Hanna Furnace and LTV to abate the “blighting conditions existing on certain residential properties” near the former Donner Hanna coke plant by implementing a Fair Market Value Protection Plan to stabilize property values; and (c) such other and further relief as the court may deem just and proper. No replies have been filed to the motion.

On May 11, 2000, Hanna Furnace was granted leave to intervene in an adversary proceeding initiated by LTV in the U.S. Bankruptcy Court for the Southern District of New York against the City of Buffalo and BURA with respect to the formerly owned properties. LTV sought declaratory relief that it is not liable to the City or BURA for claims arising from environmental conditions on the formerly owned properties based on (1) the terms of the 1992 Sale Agreement by which LTV and Hanna Furnace sold the properties, and (2) various other bankruptcy law defenses. Hanna Furnace has intervened as a plaintiff and filed a complaint seeking declaratory relief that it is not liable to the City or BURA for claims arising from environmental conditions on the properties based on the terms of the 1992 Sale Agreement. On August 14, 2000, LTV and Hanna filed motions to enjoin the City and BURA from pursuing their counterclaims in the Western District of New York action with respect to the properties, pending resolution of the issues raised in their complaints in the adversary proceeding. The City and BURA opposed the injunctions, and on November 10, 2000 filed a motion in the U.S. District Court for the Southern District of New York to withdraw the case from bankruptcy court and transfer it to the Western District of New York where their counterclaims are pending. The effect of LTV’s December 29, 2000 petition for bankruptcy under Chapter 11 in the U.S. District Court for the Northern District of Ohio upon this adversary proceeding in New York is in dispute.

In August 2001, National Steel Corporation was named as a defendant, along with Hanna Furnace, LTV, the City, BURA and Donner-Hanna Coke Corporation in four lawsuits in the State of New York Supreme Court, Erie County, initiated by persons residing in more than 80 houses in the vicinity of the former Donner-Hanna coke plant. Plaintiffs allege that defendants are responsible for contamination of plaintiffs’ properties, and their claims are based on various common law theories. In the Blake case, the Blake family seeks punitive damages of $160 million in addition to alleged property and personal injury damages of $80 million. In the other three cases (Acuff, Andriaccio and Gilmour), the remaining plaintiffs claim property and personal injury damages totaling at least $33 million. On March 12, 2002, National Steel Corporation and Hanna Furnace filed a Suggestion of Bankruptcy and Notice of Automatic Stay in all four cases.

On December 7, 2001, the Northern District of Ohio Bankruptcy Court granted LTV’s motion for approval of its asset protection plan, which essentially authorizes LTV to sell assets outside the normal course of business (i.e., to liquidate). By letter dated January 3, 2002, counsel for Hanna Furnace requested clarification from counsel from LTV regarding LTV’s involvement with: (a) settlement discussions with the City and BURA; and (b) the Consent Order with DEC. Counsel for LTV indicated that LTV was not able to respond to a previous settlement offer made by the City and BURA and that it was not able to respond to the Consent Order proposed by DEC. Hanna Furnace continues to monitor the LTV bankruptcy and evaluate its potential impact on this matter.

The effect of Hanna Furnace’s and National Steel Corporation’s March 6, 2002 voluntary petitions for relief under Chapter 11 of the Bankruptcy Code with respect to the foregoing matters involving the Donner Hanna coke plant remains to be determined.

Environmental Regulatory Enforcement Proceedings

From time to time, the Company is involved in proceedings with various regulatory authorities relating to violations of environmental laws and regulations which may require the Company to pay various fines and penalties, comply with applicable standards or other requirements or incur capital expenditures to add or change

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certain pollution control equipment or processes. The more significant of these proceedings which are currently pending are described below:

Granite City Division—IEPA Violation Notice. On October 18, 1996, the IEPA issued a Violation Notice alleging (1) releases to the environment between 1990 and 1996; (2) violations of solid waste requirements; and (3) violations of the NPDES water permit limitations, at the Company’s Granite City Division. No demand or proposal for penalties or other sanctions was contained in the Notice; however, the Notice does contain a recommendation by IEPA that the Company conduct an investigation of these releases and, if necessary, remediate any contamination discovered during that investigation. The Company submitted a written response to the Notice on December 4, 1996 and met with IEPA on December 18, 1996. The Company submitted certain additional information requested by IEPA in 1997. IEPA has not responded to the Company since receiving this additional information.

Release of Acid to Granite City Regional Wastewater Treatment Plant. On October 14, 1999 the Granite City Regional Wastewater Treatment Plant (the “Granite City POTW”) issued a Notice of Violation (“NOV”) to the Company’s Granite City Division. The NOV alleges that the Company discharged significant quantities of concentrated acid into the Granite City POTW without a permit and in violation of the Granite City POTW’s Sewer Use Ordinance. No penalty demand was included in the NOV, although it alleges that the Company is responsible for (i) all costs incurred by the Granite City POTW in investigating and monitoring these alleged violations and (ii) all costs to inspect, repair or replace any portion of the Granite City POTW facility that was damaged by these discharges. The Company has implemented actions to minimize the potential for the release of process wastewater to the Granite City POTW and submitted a response to the NOV on November 11, 1999. On February 25, 2000, the Illinois Emergency Management Agency (“IEMA”) issued an NOV to the Company, alleging that the Company’s reporting of the release of acid to the POTW (as well as an unrelated release of coke oven gas), was not as timely as required under applicable law. On April 14, 2000, the Company received a request for information pursuant to Section 104(e) of CERCLA from the U.S. Environmental Protection Agency seeking information regarding this release. The Company responded to this request on May 12, 2000.

Detroit Water and Sewerage Department NOVs. From November 25, 1998 to September 6, 2001 the Detroit Water and Sewerage Department (“DWSD”) issued numerous NOVs to the Company’s Great Lakes Division alleging that the Company’s discharge to the DWSD contained levels of zinc, cyanide and mercury in excess of the permitted limits. On November 9, 2001, this matter was resolved through the execution of an Administrative Consent Order between Company and DWSD which requires the Company to complete a mercury reduction study, perform more frequent monitoring until the study is completed and pay stipulated penalties ranging from $200 to $500 per day for each violation of a discharge limitation.

U.S. EPA Administrative Complaint—SPCC Plan Violations. On April 25, 2001, the EPA filed an Administrative Complaint which alleges violations of the Clean Water Act as a result of certain deficiencies in the Company’s Spill Prevention Control and Countermeasure (“SPCC”) Plan for its Zug Island facility in River Rouge, Michigan. The Complaint proposes a civil penalty of $136,864. Preliminary settlement discussions have taken place. Both EPA and the Company have filed pre-hearing reports with the Administrative Law Judge. A hearing has been scheduled for June 25, 2002.

For a discussion of the Company’s Superfund and other cleanup liabilities see “Environmental Matters” under Item 1, “Business”.

It em 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 2001.

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Executive Officers of the Registrant

The following sets forth certain information with respect to our executive officers. Executive officers are elected by our Board of Directors, generally at their first meeting after each annual meeting of stockholders. Our officers serve at the discretion of the Board of Directors and are subject to removal at any time.

Hisashi Tanaka, Chairman and Chief Executive Officer. Mr. Tanaka, age 54, has been a director of the Company since April 27, 1998. He was elected Chairman of the Board and Chief Executive Officer of the Company on March 4, 2001. Prior to his election to that position, Mr. Tanaka has served in various capacities with NKK since 1971. His most recent positions have been Director, Technical & Engineering Planning from 1995 to 1996, General Manager, Steelmaking Technology from 1996 to 1998, General Manager Technology Planning and Coordination from 1998 to March 2000 and Vice President, Technology Planning and Coordination from April 2000 to March 2001. He served as a Director of the Board of NKK from June 1999 until March 2000.

John A. Maczuzak, President and Chief Operating Officer. Mr. Maczuzak, age 60, joined National Steel as Vice President and General Manager—Granite City Division in May 1996. He was elected Executive Vice President and Acting Chief Operating Officer in August 1996 and assumed his present position in December 1996. Mr. Maczuzak was formerly employed by ProTec Coating Company as General Manager and USS/Kobe Steel Company as Vice President of Operations and has more than 36 years of broad-based experience in the steel industry.

John F. Kaloski, Senior Vice President—Commercial and Planning. Mr. Kaloski, age 52, joined National Steel in August 1998 as Senior Vice President—Regional Operations and was elected to his present position in May 2000. Prior to joining the Company, Mr. Kaloski served in various capacities at U.S. Steel, including General Manager-U.S. Steel—Gary Works from 1996 to 1998.

Kirk A. Sobecki, Senior Vice President and Chief Financial Officer. Mr. Sobecki, age 40, joined National Steel in January 1999 as Corporate Controller. He was elected Vice President and Corporate Controller in November 2001 and assumed his present position in March 2002. From September 1997 to December 1998, he served as Chief Financial Officer of Luitpold Pharmaceuticals, Inc. From June 1986 to August 1997 Mr. Sobecki held various positions with Zimmer, Inc., a Division of Bristol-Myers Squibb, including Director of Finance/Controller from 1995 to 1997.

Ronald J. Werhnyak, Senior Vice President, General Counsel and Secretary. Mr. Werhnyak, age 56, became National Steel’s Senior Counsel in January 1996. He was elected Acting General Counsel and Secretary in August 1998, Vice President, General Counsel and Secretary in December 1998, and to his current position in March 2002.

John L. Davis, Vice President—Purchasing, Information Technology and Engineering. Mr. Davis, age 47, joined National Steel Corporation in 1995. He has held various positions of increasing responsibility including Director—Strategic Planning, Coordinating Director—Environmental and Technology Services and General Manager—Information Technology and Engineering. Mr. Davis assumed the responsibility for the purchasing function in January 2001. He was elected to his current position in March 2001.

Stephen G. Denner, Vice President—Research and Technology. Dr. Denner, age 51, began his career with National Steel Corporation in 1983. His most recent positions have been General Manager of Technology from March 1995 to December 1999 and General Manager of Technology Planning and Coordination from December 1999 until May 2000. Dr. Denner assumed his current position in May 2000.

Michael D. Gibbons, Vice President and General Manager—Granite City Division. Mr. Gibbons, age 51, joined National Steel Corporation in 1973. He served in various capacities at the Company’s Granite City Division including Controller from February 1995 to May 2000. Mr. Gibbons served as the Company’s Acting Chief Financial Officer from December 1997 to August 1998 and assumed his current position in May 2000.

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Daniel B. Joeright, Vice President and General Manager—Regional Division. Mr. Joeright, age 55, joined National Steel Corporation in May 1991. He served as Director—Cold Roll Operations until December 1998 when he was appointed to the position of Plant Manager—Finishing for the Regional Operations. Mr. Joeright had twenty years of experience with another steel producer prior to joining National Steel Corporation. He was elected to his current position in May 2000.

William E. McDonough, Vice President and Treasurer. Mr. McDonough, age 43, began his career with National Steel in 1985 in the Financial Department. He has held various positions of increasing responsibility including Manager, Treasury Operations, Assistant Treasurer and Treasurer and was elected to his present position in November 2001.

Lawrence F. Zizzo, Jr., Vice President Human Resources. Mr. Zizzo, age 53, began his career with National Steel in 1978. He has held various positions in the Human Resources organization, including Regional Director of Human Resources from December 1998 to January 2000, and Director of Human Resources at the Great Lakes Division from March 1991 to November 1998. Mr. Zizzo was appointed to his present position in February 2000.

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PART II

Item 5.    Market for Registrant’s Common Equity and Related Stockholder Matters

National Steel Corporation’s Class B Common Stock was traded on the New York Stock Exchange (“NYSE”) until March 12, 2002 under the symbol “NS”. The following table sets forth, for the periods indicated, the high and low sales prices of the Class B Common Stock on a quarterly basis as reported on the NYSE Composite Tape.

Period	High		Low
2001
First Quarter	$	2.81	$	1.25
Second Quarter		2.90		1.56
Third Quarter		2.22		1.12
Fourth Quarter		1.97		0.87
2000
First Quarter	$	8 5/8	$	6 1/16
Second Quarter		7 7/16		3 7/8
Third Quarter		4 1/2		2 1/2
Fourth Quarter		3 1/8		1 1/8

After the NYSE delisted our Class B common stock, the stock began being quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the symbol “NSTLB.” OTCBB quotations reflect inter-dealer prices, without mark-up, mark-down or commission and may not necessarily represent actual transactions.

As of December 31, 2001, there were approximately 219 registered holders of Class B Common Stock. (See Note 3. “Capital Structure” for further discussion). During the first three quarters of 2000, we paid quarterly dividends of $0.07 per common share (or an annual total of $0.21 per common share). We did not pay dividends in the fourth quarter of 2000 or during 2001 and do not expect to pay dividends during 2002. The decision whether to pay dividends on the Common Stock is determined by the Board of Directors in light of our earnings, cash flows, financial condition, business prospects, debt covenant restrictions and other relevant factors. Holders of Class A Common Stock and Class B Common Stock are entitled to share ratably, as a single class, in any dividends paid on the Common Stock.

Prior to August 1, 1999, any dividend payments were required to be matched by a like contribution into the VEBA Trust, the amount of which was calculated under the terms of the 1993 Settlement Agreement between the Company and the USWA, until the asset value of the VEBA Trust exceeded $100.0 million. On August 1, 1999, a new five year Basic Labor Agreement became effective between the Company and the USWA. This new agreement provides that if the assets in the VEBA Trust equal or exceed $100 million (1) we will not be required to make contributions to the VEBA Trust and (2) we may withdraw up to $5.5 million from the VEBA Trust in each calendar year to fund current retiree medical and life insurance benefits.

The asset value of the VEBA Trust was $97.2 million at December 31, 2001 and $113.2 million at December 31, 2000. No matching dividend contribution to the VEBA Trust was required for the years ended December 31, 2001, 2000 and 1999 and $5.5 million was withdrawn from the VEBA Trust in each of 2001 and 2000.

Certain debt and lease agreements include restrictions on the amount of stockholders’ equity available for the payment of dividends. Under these agreements, the Company was prohibited from declaring or paying dividends at December 31, 2001.

Currently, it is not possible to predict with certainty the length of time that we will operate under the protection of Chapter 11, the outcome of the Chapter 11 proceedings in general, or the effect of the proceedings on the business of the Company or on the interests of the various creditors and stakeholders. Under the priority scheme established by the Bankruptcy Code, certain post-petition liabilities and pre-petition liabilities need to be satisfied before shareholders can receive any distribution. The ultimate recovery to shareholders, if any, will not be determined until confirmation of a plan or plans of reorganization. There can be no assurance as to what value, if any, will be ascribed to our Class B common stock in the bankruptcy proceedings, and the value of the equity represented by that stock could be substantially diluted or canceled.

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Item 6.    Selected Financial Data

	Year Ended December 31,
	2001			2000			1999			1998			1997
	(Dollars in millions, except per share data)
Statement of Operations Data
Net sales	$	2,492		$	2,979		$	2,954		$	2,936		$	3,222
Cost of products sold		2,649			2,792			2,671			2,579			2,756
Depreciation		168			153			140			129			135
Gross margin		(325	)		34			143			228			331
Selling, general and administrative expense		149			151			148			154			141
Unusual items		(16	)		—			—			(27	)		—
Income (loss) from operations		(455	)		(114	)		(3	)		102			191
Financing costs, net		67			37			28			11			15
Income (loss) before income taxes, extraordinary items and cumulative effect of accounting change		(519	)		(137	)		(31	)		93			235
Extraordinary items		(2	)		—			—			—			(5	)
Cumulative effect of accounting change		17			—			—			—			—
Net income (loss)		(652	)		(130	)		(29	)		89			214
Net income (loss) applicable to common stock		(652	)		(130	)		(29	)		89			203
Basic per share data:
Income (loss) before extraordinary items and cumulative effect of accounting change		(16.16	)		(3.14	)		(0.69	)		2.06			4.82
Net income (loss)		(15.79	)		(3.14	)		(0.69	)		2.06			4.70
Diluted earnings (loss) per share applicable to common stock		(15.79	)		(3.14	)		(0.69	)		2.06			4.64
Cash dividends paid per common share		—			0.21			0.28			0.28			—
	2001			2000			1999			1998			1997
Balance Sheet Data
Cash and cash equivalents	$	1		$	2		$	58		$	138		$	313
Working capital (deficit)		(78	)		179			361			333			367
Net property, plant and equipment		1,385			1,517			1,446			1,271			1,229
Total assets		2,308			2,565			2,749			2,505			2,453
Current maturities of long-term obligations		29			28			31			30			32
Long-term obligations		810			523			556			286			311
Stockholders’ equity (deficit)		(311	)		718			853			852			837
	2001			2000			1999			1998			1997
Other Data
Shipments (net tons, in thousands)		5,904			6,254			6,110			5,587			6,144
Raw steel production (net tons, in thousands)		5,993			6,138			6,250			6,087			6,527
Effective capacity utilization		91	%		93	%		97	%		92	%		96	%
Number of employees (year end)		8,342			9,283			9,395			9,230			9,417
Purchases of property, plant and equipment including capitalized leases	$	52		$	225		$	332		$	171		$	152
Total debt and redeemable preferred stock as a percent of total capitalization		149	%		47	%		41	%		27	%		29	%
Common shares outstanding at year end (in thousands)		41,288			41,288			41,288			42,178			43,288

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

National Steel Corporation is a domestic manufacturer engaged in a single line of business, the production and processing of steel. We target high value-added applications of flat rolled carbon steel for sale primarily to the automotive, construction and container markets. We have two principal divisions: The Granite City Division which is a fully integrated steelmaking facility located near St. Louis; and The Regional Division comprised of Great Lakes, a fully integrated steelmaking facility located near Detroit, and Midwest, a steel finishing facility located near Chicago. These two divisions have been aggregated for financial reporting purposes and represent our only reportable segment—Steel (see Note 4. “Segment Information” for further discussion).

Outlook

On March 6, 2002, National Steel Corporation and forty-one of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Court”). The case was assigned to Judge John H. Squires of the Court for initial proceedings (case numbers 02-08697 through 02-08738). We also received commitments for up to $450 million in Secured Super Priority Debtor In Possession (“DIP”) financing from the existing senior secured bank group subject to court approval, which combined with other actions will be used to fund post-petition operating expenses as well as supplier and employee obligations. We filed for protection under Chapter 11 in order to obtain the necessary time to stabilize the Company’s finances and to attempt to develop a plan of reorganization that will enable us to return to sustained profitability.

While we believe our core business is operationally sound, historically low steel selling prices and a weak economy have impeded our ability to service our debt and make investments in the business necessary for continued growth. We have worked diligently to reduce costs during these difficult times. In 2001 alone, we reduced our costs by approximately $150 million compared to the prior year and inventory reductions exceeded $130 million. Despite our cost reduction activities, idling of production facilities, our focus on value-added shipments and the recent positive movement in steel market prices, these efforts were not enough to overcome the injury to us and the steel industry caused by the lingering effects of the record levels of unfairly traded steel imports and the downturn in the economy that have led to depressed steel selling prices.

Our financial results discussed below have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and settlement of liabilities in the normal course of business and do not reflect adjustments that may result if we are unable to continue as a going concern. After negotiations with various parties in interest, we expect to present a plan of reorganization to the Court to reorganize our business and to restructure our obligations. Future financial statements will be prepared in accordance with the AICPA’s Statement of Position No. 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”). SOP 90-7 requires us to segregate liabilities subject to compromise by the Court as of the bankruptcy filing date and to identify all transactions and events that are directly associated with our reorganization. A significant portion of the liabilities recorded at December 31, 2001 is expected to be reflected as subject to compromise. Also in accordance with SOP 90-7, after the filing date, interest expense will only be recognized on long-term obligations that are believed to be fully secured.

Under bankruptcy law, actions by creditors to collect amounts owed by us at the filing date are stayed and other pre-petition contractual obligations may not be enforced against us, without approval by the Court to settle these claims. We received approval from the Court to pay certain of our pre-petition claims, including employee wages and certain employee benefits. In addition, we have the right, subject to Court approval and other conditions, to assume or reject any pre-petition executory contracts and unexpired leases. Parties affected by these rejections may file claims with the Court. We are in the process of preparing and submitting the schedules setting forth all of our assets and liabilities as of the date of the petition as reflected in our accounting records. The amounts of claims filed by creditors could be significantly different from our recorded amounts. Due to material uncertainties, it is not possible to predict the length of time we will operate under Chapter 11 protection,

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the outcome of the proceedings in general, whether we will continue to operate under our current organizational structure, the effect of the proceedings on our businesses or the recovery by our creditors and equity holders.

On March 5, 2002, President Bush imposed temporary tariffs of up to 30 percent on steel imports for three years to provide appropriate relief to those parts of the domestic steel industry that have been most damaged by import surges. Flat rolled steel products, representing the type of products we sell, received the highest import tariff of 30% in year one, 24% in year two and 18% in year three. These tariffs are effective beginning on March 20, 2002.

Results of Operations

Comparative operating results for the three years ended December 31, are as follows:

	2001			2000			1999
	Dollars and tons in millions
Net sales	$	2,492.3		$	2,978.9		$	2,953.4
Loss from operations		(454.5	)		(114.4	)		(3.4	)
Net loss		(652.1	)		(129.8	)		(28.6	)
Tons shipped		5.904			6.254			6.110

Year ended December 31, 2001 as compared to 2000

Net Sales

Net sales for 2001 decreased $486.6 million, or 16%, compared to the prior year. This decrease resulted from a $57 per ton, or 13%, reduction in average selling prices and a 350,000 ton, or 6%, decrease in shipment volume. Average selling prices continued to decline throughout the year primarily due to a combination of depressed market prices and, to a lesser extent, a shift in our mix of products sold away from value-added coated product toward commodity grade hot-rolled and non-prime products. General economic conditions as well as the continuing impact of high levels of low-priced imported steel products and the resulting high inventory levels at our customers adversely affected the demand, mix, and market price for our steel products.

Loss from Operations

We reported an operating loss of $454.5 million for 2001 compared to an operating loss of $114.4 million in the prior year. Several factors contributed to the increased loss from operations:

• The impact of the aforementioned reduction in shipping volumes, unfavorable shift in product mix and the lower selling prices for our steel products.

• The underabsorption of fixed costs related to lower production volumes of approximately 6% on our primary and finishing units adversely impacted our 2001 results by $85 million as compared to the prior year. Some significant changes in operating levels include:

• The temporary idling of our narrow galvanizing line at Midwest in the second quarter of 2001. We anticipate the line to be idled throughout 2002.

• The temporary idling of one of our blast furnaces at Great Lakes in the fourth quarter of 2001. This outage had the effect of reducing production levels of downstream finishing units at Great Lakes. We anticipate the blast furnace will be idled throughout the first half of 2002.

• The extended outage and idling of our NSPC production facility in the fourth quarter of 2001. We resumed production on January 1, 2002.

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• Natural gas costs exceeded the prior year by approximately $43 million mainly due to the abnormally high prices in the first half of the year. However, reduced pricing for other raw materials, including scrap and zinc, partially offset the adverse affect of the natural gas pricing by $17 million as compared to the prior year.

• Depreciation expense increased approximately $15 million compared to the prior year due primarily to the full year affect of the hot dip galvanizing facility at Great Lakes that began production at the end of the second quarter of 2000.

• We recorded a charge of approximately $22 million for potentially uncollectible accounts receivable from various customers, representing an increase of approximately $14 million as compared to the year earlier period.

• Our OPEB expense related to medical and life insurance benefits provided to eligible retirees and their dependents was $91.0 million representing an increase of $15.4 million as compared to the prior year. We increased our assumed health care cost trend rate for the year immediately following the measurement date to 9.25%, an increase of 1.65% over the prior year.

• Our successful cost reduction activities served to partially offset these unfavorable impacts. Our cost reduction efforts resulted in savings of approximately $150 million or $25 per ton shipped compared to our performance in the prior year. Our production costs were reduced by approximately $117 million and Selling, General and Administrative expenses were reduced by approximately $17 million (excluding the unfavorable charge for uncollectible accounts receivable). Labor costs, material expenses, and other spending were the primary drivers of the reduction. Some of our accomplishments include the reduction of overtime by over 32% compared to average levels in the prior year, the reduction of approximately 1,000 employees, which is 11% of our workforce, and reductions in other spending. In addition, we recognized an aggregate of $15.9 million of unusual credits during 2001. These credits related to the sale of a natural gas derivative contract and favorable property tax settlements, partially offset by certain expenses related to a Staff Retirement Incentive Program for Salaried Non-Represented Employees and the write-off of a portion of a partially installed computer system (see Note 9 to the financial statements for additional information).

Net Gain on Disposal of Non-Core Assets

During 2001 and 2000, we sold certain non-core assets and recorded net gains on the disposals. During 2001, we received a final payment related to the sale of our equity interest in the Presque Isle Corporation (“Presque Isle”), sold property and certain assets related to an idled pickling operation, and sold property and certain assets related to our Granite City Division building products line and certain trademarks used in that business to one of our customers. The combined net gain that we recognized in 2001 was $3.0 million. During 2000, we sold our 30% equity interest in Presque Isle and received proceeds of $16.9 million (net of expenses) and recognized a net gain of $15.1 million.

Net Financing Costs

Net financing costs increased $29.7 million in 2001 as compared to the prior year. Approximately $15.3 million of the increase relates to lower capitalized interest in 2001 as compared to the year earlier period during which time the new hot dip galvanizing facility was under construction. Additionally, higher levels of borrowing under our credit facilities increased our interest costs and lower levels of cash and cash equivalents reduced our interest income during 2001.

Income Taxes

During 2001, we recorded a non-cash tax expense of $148.8 million. After reviewing our future taxable income and tax planning strategies, we determined that a decrease in our deferred tax assets was necessary. We recorded an income tax benefit of $6.8 million in 2000, utilizing an effective tax rate of 5%.

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Extraordinary Item

During 2001, we closed on a new $465 million Credit Facility secured by both accounts receivable and inventory which expires in September 2004. The Credit Facility replaced our previous $200 million Receivable Purchase Agreement with an expiration date of September 2002 and the $200 million Inventory Facility with an expiration date of November 2004. As a result, we recorded an extraordinary charge of $2.0 million with respect to the write-off of unamortized debt issuance costs in connection with the extinguishment of debt. (See Note 9 to the financial statements for additional information.)

Change in Accounting Principle

Effective January 1, 2001, we changed our method of accounting for investment gains and losses on pension assets used in the calculation of net periodic pension cost. The cumulative effect of this change on prior periods was a credit of $17.2 million. The net loss in 2001 was reduced by $6.7 million or $0.16 per share (basic and diluted) as a result of lower pension expense due to this accounting change. The net loss in 2000 would have been negatively impacted by $1.8 million or $0.04 per share (basic and diluted) had this accounting change been applied retroactively. (See Note 9 to the financial statements for additional information.)

Year ended December 31, 2000 as compared to 1999

Net Sales

Record shipment levels in the early part of the year resulted in the achievement of record annual shipments in 2000. However, the 2.4% increase in net tons shipped was offset by a 1.5% decrease in our average selling price for the year resulting in only a slight increase in net sales in 2000. The higher shipment level contributed to the reduction in our average selling price, as the additional tons shipped were primarily lower cost hot-rolled products that demand a lower market price than our higher value-added products. Additional decreases in market prices for all of our products, as compared to the already depressed prices in 1999, also impacted our average selling price. High levels of low-priced imported steel and high inventory levels at steel service centers coupled with the more recent slow-down in the economy resulted in a reduction in market prices for steel as well as a reduced demand for steel products in the latter part of the year.

Loss from Operations

The strategy implemented in 1999 to optimize the utilization of our production assets had a positive impact on our financial performance during the early part of the year. However, as demand in the marketplace declined during the year, we have delayed this strategy until market conditions become more favorable and have focused more aggressively on our continuing strategy to reduce our costs.

Several factors contributed to the increased loss from operations:

• The mix of our shipments shifted towards lower margin hot-rolled, limited warranty and secondary products. Shipments of these products increased by approximately 4.5%, while shipments of our higher margin cold-rolled and coated products decreased by approximately 4%.

• Our lower average selling prices, as discussed above, resulted in lower profit margins on certain products.

• The planned reline of our B blast furnace at Great Lakes as well as other planned outages increased our outage costs. We kept this furnace idle for the remainder of the year in order to reduce our existing inventory levels.

• Lower production volumes in the second half of the year resulted in increased fixed costs per ton.

• Outside slab and other steel purchases were approximately $34 million higher due primarily to the planned outage of the B blast furnace and our increased production volumes in the early part of the year.

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• Our cost for natural gas increased by approximately $28 million.

• Depreciation expense increased $13 million due primarily to the start-up of the new hot dip galvanizing facility in June 2000.

Net Gain on Disposal of Non-Core Assets

The $15.1 million net gain on disposal of non-core assets in 2000 resulted from the sale of our 30% equity interest in the Presque Isle, which owns and operates a limestone quarry. The sale of Presque Isle was a result of our continued efforts to focus on our core steel operations.

Income Taxes (Credit)

During 2000, we recorded current taxes refundable of $17.1 million as a result of filing federal net operating loss carryback claims. We recorded current taxes payable of $0.8 million in 1999. The current portion of the income tax represents taxes that were expected to be due or refundable, as a result of the filing of the current period’s federal and state income tax returns. For federal purposes, such amounts have generally been determined based on alternative minimum tax payments due or refundable.

The current taxes refundable represented 12.5% of pretax net income (loss). The current taxes payable were minimal in 1999 due to the net loss incurred. The effective tax rates in 2000 and 1999 were more (less) than the combined federal and state statutory rates primarily because of changes in the valuation allowance related to the recognition of deferred tax benefits.

We recorded a deferred tax expense of $10.3 million in the year ended December 31, 2000 due to a decrease in the expectation of future taxable income from operations and tax planning strategies. We recorded a deferred tax benefit of $2.9 million in the year ended December 31, 1999 due to the expectation of additional future taxable income.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period (see Note 2. “Description of the Business and Significant Accounting Polices” for further discussion). On an on-going basis, we evaluate these estimates. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that of our significant accounting policies (see Note 2 to the consolidated financial statements), the following critical accounting policies, among others, affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Pensions

We account for our defined benefit pension plans in accordance with SFAS No. 87, Employers’ Accounting for Pensions (“SFAS 87”), which requires that amounts recognized in financial statements be determined on an actuarial basis. No cash contributions were required under the Employee Retirement Income Security Act of 1974 for our pension plans during 2001. SFAS 87 and the policies we use, including the delayed recognition of

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gains and losses and the use of a calculated value of plan assets (which is further described below), generally reduce the volatility of pension expense due to changes in pension liability assumptions, demographic experience, and the market performance of the pension plan’s assets.

Our pension expense is significantly affected by the expected return on plan assets. We have assumed that the expected long-term rate of return on plan assets will be 9.75%. This assumption is based on reasonable long-term expectations as to the returns available on the underlying asset classes held by the pension trust. The assumed long-term rate of return on assets is applied to the market-related value of assets. This produces the expected return on plan assets component included in the pension expense. The difference between this expected return and the actual return on plan assets will be deferred in accordance with the amortization provisions of SFAS 87. Should actual returns be less than the expected returns, future pension expense would likely increase.

The current year’s asset losses and required benefit payments decreased the fair value of plan assets by approximately $561.5 million, or 26.6%, at September 30, 2001. Recognizing one-third of this asset loss in the market-related value of assets would have the effect of increasing the 2002 pension expense by approximately $20.5 million. However, the recognition of the portion of 2000 and 1999 actual returns in excess of expected returns will offset approximately $18.6 million of this effect.

We use a September 30 measurement date. The discount rate, which is used to discount plan liabilities, reflects the current rate at which the pension liabilities could be effectively settled at the measurement date. In estimating this rate, we look to the Moody’s Average Aa-Rated Corporate Bonds index. At September 30, 2001, we determined this rate to be 7.5%, a reduction of 0.5% from the prior year. This reduction in the discount rate increased our pension liability by approximately $106.3 million, or 4.9%, at September 30, 2001. However, most of this loss will be deferred in accordance with the amortization provisions of SFAS 87. Changes in the discount rate have not materially affected recent years’ pension expense.

SFAS 87 requires us to record, at a minimum, a liability for the difference between our plans’ accumulated benefit obligation and the fair value of the pension trust assets (the “unfunded ABO”). As a result of the 0.5% reduction in the discount rate used to calculate the pension obligation and the asset performance of the pension trust, the unfunded ABO increased significantly from the prior year, resulting in an additional minimum pension liability of $502.3 million at the end of 2001 as compared to $8.4 million at the end of 2000. The increased additional minimum liability resulted in an increase to the intangible pension asset of $119.9 million and a charge to accumulated other comprehensive income (“OCI”) of $374.0 million. This charge to OCI along with the net loss for the year has caused total equity to be in a deficit position as of December 31, 2001.

Other Postretirement Benefits

We provide retiree health care benefits for certain salaried and represented employees that retire under our pension plans. Our retiree health care plans provide health care benefits to approximately 23,000 of our former employees and their dependents. We account for these other postretirement benefit plans in accordance with SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other than Pensions (“SFAS 106”), which requires that amounts recognized in financial statements be determined on an actuarial basis. SFAS 106 and the policies we use, including the delayed recognition of gains and losses, generally reduce the volatility of retiree health care expense due to changes in assumptions, claims experience, demographic experience, and the market performance of the plan’s assets.

Recent per capita claims experience increased our retiree health care liability by approximately $34.3 million, or 3.6%, at September 30, 2001. While most of this loss will be deferred in accordance with the amortization provisions of SFAS 106, the revised per capita claims costs is expected to increase our 2002 retiree health care expense by approximately $4.9 million.

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We use various actuarial assumptions including the discount rate and the expected trend in health care costs to estimate the costs and benefit obligations for our retiree health care plans.

We use a September 30 measurement date. The discount rate, which is used to discount plan liabilities, reflects the current rate at which the retiree health care liabilities could be effectively settled at the measurement date. In estimating this rate, we look to the Moody’s Average Aa-Rated Corporate Bonds index. At September 30, 2001, we determined this rate to be 7.5%, a reduction of 0.5% compared to the prior year. This reduction in the discount rate increased our retiree health care liability by approximately $38.2 million, or 4.5%, at September 30, 2001. While most of this loss will be deferred in accordance with the amortization provisions of SFAS 106, the decrease in the discount rate is expected to increase our 2002 retiree health care expense by approximately $1.3 million.

The health care cost trend is used to project plan liabilities. While the ultimate health care cost trend reflects long-term expectations as to a sustainable growth rate for underlying health care costs, the initial health care cost trends reflect short-term expectations influenced by recent experience. At September 30, 2001, we determined the health care cost trend for 2002 to be 9.25%. The health care cost trend is then expected to decrease by 1.00% per year until an ultimate health care cost trend of 5.25% is reached in 2006. Under the prior year’s assumptions, the health care cost trend for 2002 was to be 7.60%, with an ultimate health care cost trend of 5.25% being reached in 2004. This change in the health care cost trend increased our retiree health care liability by approximately $74.8 million, or 8.5%, at September 30, 2001. While most of this loss will be deferred in accordance with the amortization provisions of SFAS 106, the change in the health care cost trend is expected to increase our 2002 retiree health care expense by approximately $10.0 million.

Allowance for Doubtful Accounts—Methodology

We evaluate the collectibility of our accounts receivable based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us (e.g., bankruptcy filings, substantial down-grading of credit scores), we record a specific reserve for bad debts against outstanding amounts to reduce the net recognized receivable to the amount we reasonably believe will be collected. For customers that are highly leveraged (those customers whose value of debt exceeds equity by a predetermined ratio) and exceed a minimal risk threshold, we record a reserve representing our best estimate of potential losses from these customers in the aggregate. For all other customers, we recognize reserves for bad debts based on the general status of the economy and, specifically, the steel industry and past collections experience. The bankruptcy filing of LTV and other customers and current economic conditions within the United States, especially within the steel industry, have caused us to record a provision for doubtful accounts receivable of $22.1 million during 2001. At December 31, 2001 and 2000, the allowance for doubtful accounts represented 14% and 8% of outstanding trade accounts receivable, respectively. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us), our estimates of the recoverability of amounts due us could be reduced by a material amount.

Environmental Liabilities and Other Contingencies

Our operations are subject to numerous laws and regulations relating to the protection of human health and the environment. We have expended, and can be expected to expend in the future, substantial amounts for ongoing compliance with these laws and regulations, including the Clean Air Act and the Resource Conservation and Recovery Act of 1976. Additionally, the Comprehensive Environmental Response, Compensation and Liability Act of 1980 and similar state superfund statutes have imposed joint and several liability on us as one of many potentially responsible parties at a number of sites requiring remediation.

With respect to those claims for which we have sufficient information to reasonably estimate our future expenditures, we have accrued $17.6 million at December 31, 2001 which represents our best estimate of the

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probable cost for the resolution of these claims. This estimate has been developed in consultation with outside counsel that is handling our defense in these matters and is based upon a combination of litigation and settlement strategies. To the extent additional information arises or our strategies change, it is possible that our best estimate of our probable liability in these matters may change. Since environmental laws are becoming increasingly more stringent, our expenditures and costs for environmental compliance may increase in the future.

Since we have been conducting steel manufacturing and related operations at numerous locations for over sixty years, we potentially may be required to remediate or reclaim any contamination that may be present at these sites. We do not have sufficient information to estimate our potential liability in connection with any potential future remediation at such sites. Accordingly, we have not accrued for such potential liabilities.

One of our subsidiaries, The Hanna Furnace Corporation, is jointly liable with LTV Steel Company, Inc. for environmental clean-up and certain retiree benefit costs related to the closed Donner Hanna Coke plant. On December 31, 2000, LTV filed for Chapter 11 protection under U.S. bankruptcy laws. During the fourth quarter of 2001, LTV announced their intentions to initiate an orderly liquidation in accordance with bankruptcy laws. As a result, in the fourth quarter, we recorded 100% of the obligation for the retiree benefit costs and recorded a charge of $3.6 million.

In the fourth quarter of 2001, Bethlehem Steel Corporation (“Bethlehem”) filed for Chapter 11 protection under U.S. bankruptcy laws. We have a 50% interest in a joint venture coating facility with Bethlehem and a 13% interest in a joint venture family health care facility with Bethlehem and another steel company. We are uncertain what effect, if any, the Bethlehem bankruptcy will have on our future earnings and financial position.

We are also involved in various non-environmental legal proceedings, most of which occur in the normal course of our business. We do not believe that these proceedings will have a material adverse effect, either individually or in the aggregate, on our financial position. However, with respect to certain of the proceedings, if reserves prove to be inadequate and we incur a charge to earnings, such charges could have a material adverse effect on our earnings and liquidity for the applicable period.

Other Operational and Financial Disclosure Matters

Impact of Recently Issued Accounting Standards

On January 1, 2001, we adopted the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), as amended by SFAS No. 137 and SFAS No. 138. As a result, we recognized the fair value of all financial derivative contracts as an asset of $23.8 million. This amount was recorded on the balance sheet as an asset and an adjustment to accumulated other comprehensive income within stockholders’ equity. The adoption of SFAS 133 had no impact on net income.

On April 1, 2001, we adopted SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”). This statement revises the accounting standards for securitizations and other transfers of financial assets and collateral and requires certain disclosures. This statement was effective for transfers and servicing of financial assets occurring after March 31, 2001. Adoption of SFAS 140 did not have a material effect on our earnings or financial position.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Intangible Assets (“SFAS 142”), which requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment on a periodic basis. The adoption of SFAS 142 on January 1, 2002, as required, is expected to have no effect on our earnings or financial position.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”). SFAS 143 applies to legal obligations associated with the retirement of certain long-lived assets. It

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requires companies to record the fair value of the liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the company capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the company either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. We plan to adopt SFAS 143, as required, in our fiscal year beginning on January 1, 2003. We have not yet determined the effect, if any, that adopting SFAS 143 will have on our future earnings and financial position.

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. We early adopted the provisions of SFAS 144 during the fourth quarter of 2001.

As required by SFAS 144 we evaluate our long-lived assets (primarily property, plant and equipment assets) for impairment whenever indicators of impairment exist. Based on our significant increase in operating losses and deterioration in cash flows provided by operating activities combined with the overall economic conditions, we determined that impairment indicators were present at the end of the year for all of our long-lived assets. As such, we compared the estimated undiscounted future cash flows to the carrying value of the attributable long-lived asset groups. As our average long-lived assets are already two-thirds depreciated, the levels of cash flows necessary for recoverability were greatly reduced.

Our recoverability estimates are based essentially on static shipment volumes while pricing levels are expected to grow at 3-4% per annum through 2006 and then remain constant over the remaining average useful life of the long-lived assets. The highest annual average selling price per ton in our impairment model is approximately 7% lower than the average price per ton experienced before the high levels of low-priced imported steel began to flood the market in 1998. We further assume that a reduction in energy costs and improved efficiencies in a major galvanizing line will reduce cost per ton by approximately 3% through 2003 and hold constant for the remainder of the assets’ average useful lives.

Based on the impairment model we utilized, in accordance with SFAS 144, the estimated undiscounted future cash flows exceed the carrying value of the attributable long-lived assets, and therefore, no impairment charge was recorded in 2001. There can be no assurances that we will successfully attain the shipping volumes, average selling prices or cost reductions included in our recoverability estimates. Should our future actual results or assumptions change, we may be required to record an impairment charge in a future period.

Option Agreement between National Steel Corporation, United States Steel Corporation and NKK Corporation

Our board of directors appointed a special committee of independent directors (“Special Committee”) in December 2001 to evaluate a possible transaction with United States Steel Corporation (“U.S. Steel”). Following its review, the Special Committee unanimously recommended that we enter into an Option Agreement and pursue further discussions with U.S. Steel. On January 17, 2002, we announced that we had entered into an Option Agreement with NKK Corporation (“NKK”), our majority stockholder, and U.S. Steel. Under the terms of the Option Agreement, NKK has granted U.S. Steel an option to purchase all of its National Steel stock, which represents approximately 53% of our outstanding shares, and has agreed to restructure a $100 million loan previously made to National Steel by an NKK subsidiary. The option expires on June 15, 2002.

If the option is exercised, NKK will receive warrants to purchase 4,000,000 shares of U.S. Steel common stock in exchange for its National Steel shares. The warrants will be exercisable through June 2007 at a price

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equal to 150% of the average closing price for U.S. Steel’s stock during a 60-day period prior to the issuance of the warrants. If the option is exercised, the NKK subsidiary loan to us would be restructured into an unsecured, non-interest bearing $30 million note, with a twenty year term, convertible into 1,000,000 shares of U.S. Steel common stock. In addition, if the option is exercised, U.S. Steel will offer to acquire our remaining outstanding shares in exchange for either warrants with no less value that those provided to NKK or U.S. Steel stock based upon an exchange ratio of 0.086 shares of U.S. Steel stock for each share of National Steel stock. The option of our minority stockholders to receive warrants will only be available if a sufficient number of those stockholders elect to receive warrants so that the warrants may be listed on the New York Stock Exchange.

As part of the Option Agreement, we have agreed with U.S. Steel to begin negotiation of a transaction pursuant to which U.S. Steel would acquire us through a merger with a newly-formed U.S. Steel subsidiary. The merger would be part of the recently announced goal of achieving significant consolidation in the domestic integrated steel industry.

Although U.S. Steel has the ability to exercise the option at any time during its term, we understand that U.S. Steel does not currently intend to exercise the option or to consummate a merger with us unless a number of significant conditions are satisfied. Some of these conditions would include enactment of a program sponsored by the federal government to provide relief from a significant portion of the steel industry’s retiree legacy liabilities, a new contract with the United Steel Workers of America to provide labor cost savings and efficiencies, approval by the relevant antitrust authorities and a substantial restructuring of our existing debt and other obligations. Although preliminary discussions have been held with certain of the affected parties regarding these matters, there can be no assurance that understandings will be reached that would permit a combination of U.S. Steel and National Steel to be completed.

The Special Committee will continue to actively participate in negotiations with U.S. Steel and will recommend to our full board what action, if any, it should take with respect to any definitive merger agreement with U.S. Steel. However, the commencement of our Chapter 11 case may result in U.S. Steel not being willing or able to execute its option. Any merger or other transaction with U.S. Steel or any other party would be subject to review and approval by the Court.

Job Creation and Worker Assistance Act of 2002

On March 9, 2002, President Bush signed the Job Creation and Worker Assistance Act of 2002 (the “Act”). This new Act, among other provisions, provides for an expansion of the carryback of net operating losses (“NOLs”) from two years to five years for NOLs arising in 2001 and 2002. We are now able to carryback our loss recorded during 2001 to the 1996 through 1998 tax years when we paid an alternative minimum tax. This carryback allows us to recover the entire amount of alternative minimum taxes paid during those prior taxable years. On March 27, 2002, we received a refund of $53.2 million. The impact of this change in the tax law will be reflected in the financial results for the first quarter of 2002.

Discussion of Liquidity and Sources of Capital

Overview

Our liquidity needs arise primarily from working capital requirements, capital investments, principal and interest payments on our indebtedness, and pension and retiree health care funding requirements. We have satisfied these liquidity needs with funds provided by borrowings, the sale of non-core assets and cash provided by operations. Additionally, during 2001 we received $18.6 million in federal income tax refunds.

During 2001, we closed on a new $465 million Credit Agreement secured by both accounts receivable and inventory which expires in September 2004. The Credit Agreement replaced our previous $200 million

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Receivables Purchase Agreement with an expiration date of September 2002 and the $200 million Inventory Facility with an expiration date of November 2004. During 2001, we also closed on a new $100 million revolving credit facility with NUF LLC, a wholly-owned subsidiary of NKK Corporation, our principal stockholder (the “NUF Facility”). The commitment under our NUF Facility expired in February 2002. Our ability to repay any outstanding borrowings under this facility is restricted by our DIP Facility (as described below).

Total liquidity, which includes cash balances plus available borrowing capacity under the Credit Agreement was $107 million at December 31, 2001 as compared to $112 million at December 31, 2000.

At December 31, 2001 we were in compliance with all material covenants of, and obligations under, our various debt instruments. On December 31, 2001, cash borrowings outstanding under our Credit Agreement were $313.6 million with an average annual interest rate of 5.7% and $100 million under the NUF Facility with an average annual interest rate of 5.9%.

At December 31, 2001, total debt as a percentage of total capitalization increased to 149% as compared to 47% at December 31, 2000. This increase is due to additional borrowings and reduced stockholders’ equity due to net losses and a non-cash adjustment related to our year-end pension valuation. In the fourth quarter of 2001, we recorded a non-cash charge of $374 million to stockholders’ equity to reflect a lower discount rate assumption, which increased projected pension liabilities, and the market performance of our pension trust assets.

On March 6, 2002, we received commitments for up to $450 million in Secured Super Priority Debtor in Possession (“DIP”) financing from the lenders under the Credit Agreement subject to Court Approval. The term of the DIP runs from the closing date to the earlier of (i) the second anniversary of the closing date, (ii) the effective date of a Plan of Reorganization in our Chapter 11 case and (iii) acceleration of our obligations under the DIP as a result of certain specified events, including a change of control transaction.

Availability under the DIP will be subject to a borrowing base calculated by applying advance rates to eligible accounts receivable and eligible inventory. Availability under the DIP will be subject to: (i) certain eligibility reserves and availability reserves, (ii) a reserve for certain professional and bankruptcy court expenses related to our Chapter 11 cases and (iii) a liquidity reserve of $35 million. Outstanding pre-petition claims under the Credit Facility also reduce availability.

Proceeds of loans under the DIP will be used solely to pay certain pre-petition claims approved by the Court, for post-petition operating expenses incurred in the ordinary course of business and certain other costs and expenses of administration of the cases as will be specified and as approved by the Court. Except for certain specified circumstances, all cash received by us or any of our subsidiaries shall be applied to outstanding claims under the Credit Facility and after all such claims have been paid, to outstanding obligations under the DIP.

All amounts owing by us under the DIP at all times will constitute allowed super-priority administrative expense claims in our Chapter 11 cases, generally having priority over all our administrative expenses. In addition, all amounts owing by us under the DIP will be secured by valid and perfected security interests in, and liens on, substantially all of our assets.

Cash Flows from Operating Activities

During 2001, we used $241.3 million of cash in operating activities compared to a cash inflow of $110.1 million in 2000. This change is primarily the result of increased losses during the year and the repurchase of previously sold accounts receivable under our Receivables Purchase Agreement partially offset by a reduction in inventories of $134.1 million during the year.

For 2000, cash provided from operating activities totaled $110.1 million, an increase of $101.9 million compared to 1999. The increase was primarily the result of the cash provided from the $95 million sale of accounts receivable.

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Capital Investments

Capital investments including those under capital leases for the years ended December 31, 2001 and 2000 amounted to $51.9 million and $225.2 million, respectively. Spending in 2001 included the replacement of a BOF steam drum at Great Lakes, new computer systems, and various other small projects necessary to maintain our facilities at their current operating levels. A large part of our spending in 2000 was attributable to the B blast furnace reline at Great Lakes, the new hot dip galvanizing facility at Great Lakes, the addition of roll bending capabilities to the hot strip mill at Granite City and the installation of a new order fulfillment system.

Capital investments in 2002 are expected be at a level consistent with 2001, of which approximately $5.6 million was committed at December 31, 2001. The majority of our spending will again be focused on those projects necessary to maintain our facilities in current operating status.

Cash Proceeds from the Sale of Non-Core Assets

During 2001, we sold certain assets and property related to non-core businesses and received net proceeds of $2.5 million and recorded a gain of $3.0 million. During the second quarter of 2001, we sold certain assets related to our Granite City Division building products line and certain trademarks used in that business to one of our customers for $1.5 million and recognized a net gain for the full amount of the proceeds. During the third quarter of 2001, we sold property and certain assets related to a discontinued pickling operation for $0.4 million and recognized a net gain of $0.9 million as a result of the reversal of certain liabilities and cash in excess of the net book value. During the fourth quarter of 2001, we received a final payment of $0.6 million related to the sale of our equity interest in Presque Isle Corporation (“Presque Isle”) and recognized a gain for the full amount.

During the second quarter of 2000, we sold our 30% equity interest in Presque Isle and received proceeds of $16.9 million (net of expenses) and recognized a net gain of $15.1 million.

During 1999, we sold properties located in Michigan for which we received proceeds of $0.8 million (net of taxes and expenses) and recorded a net gain in the same amount.

All proceeds from the aforementioned non-core asset sales were used for general corporate purposes.

Cash Flows from Financing Activities

During 2001, net cash provided by financing activities amounted to $287.4 million. Financing activities included additional short-term borrowings of $13.5 million and long-term borrowings of $313.6 million partially offset by scheduled debt repayments of $28.9 million. In addition, we paid fees of $10.8 million during 2001 related to the closing on our new $465 million Credit Agreement. These fees have been deferred and are being amortized over the term of the Credit Agreement.

During 2000, net cash provided by financing activities amounted to $33.5 million. This resulted from cash borrowings under the Inventory Facility offset by scheduled payments on other outstanding debt and dividend payments on our common stock during the first three quarters of the year.

During 1999, net cash provided by financing activities amounted to $237.0 million. Financing activities included the issuance of $300.0 million in First Mortgage Bonds, offset by costs associated with the bond issuance. Other uses of cash included the prepayment of $16.8 million of ProCoil long-term debt, other scheduled debt payments, dividend payments on our common stock and the repurchase of 890,300 shares of our Class B common stock at a cost of $7.9 million.

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Item 7A.    Quantitative and Qualitative Disclosures About Market Risk

In the normal course of business, our operations are exposed to continuing fluctuations in commodity prices and interest rates that can affect the cost of operating, investing and financing. Accordingly, we address a portion of these risks, primarily commodity price risk, through a controlled program of risk management that includes the use of derivative financial instruments. Our objective is to reduce earnings volatility associated with these fluctuations to allow management to focus on core business issues. Our derivative activities, all of which are for purposes other than trading, are initiated within the guidelines of a documented corporate risk-management policy. We do not enter into any derivative transactions for speculative purposes.

Interest Rate Risk

Our interest rate risk exposure results from changes in interest rates related to our credit facilities and our long-term obligations. Our objectives are to limit the effect of interest rate changes on earnings and cash flows and to lower overall borrowing costs. As a result of the significant levels of borrowings under our credit facilities, we maintain a significant percentage of variable rate debt (44% at December 31, 2001). As such, we are exposed to changes in the interest rates on the borrowings under our credit facilities. A 100 basis point increase in market interest rates on the amounts outstanding at December 31, 2001 under these credit facilities would result in an increase in our annual interest expense of $4.1 million.

Commodity Price Risk

In order to reduce the uncertainty of price movements with respect to the purchase of zinc, we enter into derivative financial instruments in the form of swap contracts with global financial institutions. These contracts typically mature within one year. At expiration, the derivative contracts are settled at a net amount equal to the difference between the then current price of zinc and the fixed contract price. While these hedging instruments are subject to fluctuations in value, such fluctuations are generally offset by changes in the value of the underlying exposures being hedged.

Based on our overall commodity hedge exposure at December 31, 2001 and 2000, a hypothetical 10 percent change in market rates applied to the fair value of the instruments would have had no material impact on our earnings, cash flows, financial position or fair values of commodity price risk sensitive instruments over a one-year period.

Item 8 .    Consolidated Financial Statements

The following consolidated financial statements of National Steel Corporation and subsidiaries are submitted pursuant to the requirements of Item 8:

National Steel Corporation and Subsidiaries

Index to Consolidated Financial Statements

	Page
Management’s Responsibility for Consolidated Financial Statements	38
Report of Ernst & Young LLP Independent Auditors	39
Consolidated Statements of Operations—Years Ended December 31, 2001, 2000 and 1999	40
Consolidated Balance Sheets—December 31, 2001 and 2000	41
Consolidated Statements of Cash Flows—Years Ended December 31, 2001, 2000 and 1999	42
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)—Years Ended December 31, 2001, 2000 and 1999	43
Notes to Consolidated Financial Statements	44

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MANAGEMENT’S RESPONSIBILITY FOR CONSOLIDATED FINANCIAL STATEMENTS

Management is responsible for the preparation, integrity and fair presentation of the consolidated financial statements and related notes. The consolidated financial statements, presented on pages 40 to 68, have been prepared in conformity with accounting principles generally accepted in the United States and include amounts based upon our estimates and judgments, as required. Management also prepared the other information included in the Form 10-K and is responsible for its accuracy and consistency with the consolidated financial statements. The consolidated financial statements have been audited in accordance with auditing standards generally accepted in the United States and reported upon by our independent auditors, Ernst & Young LLP, who were given free access to all financial records and related data, including minutes of the meetings of the Board of Directors and committees of the Board. We believe the representations made to the independent auditors during the audit were valid and appropriate. Ernst & Young LLP’s audit report is presented on page 39.

National Steel Corporation maintains a system of internal accounting control designed to provide reasonable assurance for the safeguarding of assets and reliability of financial records. The system is subject to review through its internal audit function, which monitors and reports on the adequacy of and compliance with the internal control system and appropriate action is taken to address control deficiencies and other opportunities for improving the system as they are identified. Although no cost effective internal control system will preclude all errors and irregularities, management believes that through the careful selection, training and development of employees, the division of responsibilities and the application of formal policies and procedures, National Steel Corporation has an effective and responsive system of internal accounting controls.

The Audit Committee of the Board of Directors, which is composed solely of non-employee directors, provides oversight to the financial reporting process through periodic meetings. The Audit Committee is responsible for recommending to the Board of Directors, subject to approval by the Board and ratification by stockholders, the independent auditors to perform audit and related work for the Company, for reviewing with the independent auditors the scope of their audit of the Company’s financial statements, for reviewing with the Company’s internal auditors the scope of the plan of audit, for meeting with the independent auditors and the Company’s internal auditors to review the results of their audits and the Company’s internal accounting controls and for reviewing other professional services being performed for the Company by the independent auditors. Both the independent auditors and the Company’s internal auditors have free access to the Audit Committee.

Management believes the system of internal accounting controls provides reasonable assurance that business activities are conducted in a manner consistent with the Company’s high standards of business conduct, and the Company’s financial accounting system contains the integrity and objectivity necessary to maintain accountability for assets and to prepare National Steel Corporation’s consolidated financial statements in accordance with accounting principles generally accepted in the United States.

Hisashi Tanaka
Chairman & Chief Executive Officer
John A. Maczuzak	Kirk A. Sobecki
President & Chief Operating Officer	Senior Vice President and Chief Financial Officer

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REPORT OF ERNST & YOUNG LLP

INDEPENDENT AUDITORS

Board of Directors

National Steel Corporation

We have audited the accompanying consolidated balance sheets of National Steel Corporation and subsidiaries (the “Company”) as of December 31, 2001 and 2000, and the related consolidated statements of operations, cash flows, and changes in stockholders’ equity (deficit) for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company at December 31, 2001 and 2000, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States.

As discussed in Note 9 to the consolidated financial statements, in 2001 the Company changed its method for reporting realized and unrealized gains and losses on plan assets in the determination of pension expense.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, on March 6, 2002, the Company filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code (“Chapter 11”). The Company is currently operating its business under the jurisdiction of Chapter 11 and the United States Bankruptcy Court in Chicago, Illinois (the “Bankruptcy Court”), and continuation of the Company as a going concern is dependent upon, among other things, the ability to formulate a plan of reorganization which will be approved by the requisite parties under the United States Bankruptcy Code and be confirmed by the Bankruptcy Court, comply with its debtor-in-possession financing facility, obtain adequate financing sources, and generate sufficient cash flows from operations to meet its future obligations. In addition, the Company has experienced operating losses in 2001, 2000 and 1999. These matters raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classification of liabilities that may result from the outcome of these uncertainties.

ER NST & YOUNG LLP

Indianapolis, Indiana

January 30, 2002 except for

Notes 1 and 5, as to which the

date is March 11, 2002

39

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in Millions, Except Per Share Amounts)

	Years Ended December 31,
	2001			2000			1999
Net Sales	$	2,492.3		$	2,978.9		$	2,953.4
Cost of products sold		2,648.7			2,792.2			2,671.0
Selling, general and administrative expense		148.8			150.9			147.8
Depreciation		167.9			153.0			140.1
Equity income of affiliates		(2.7	)		(2.8	)		(2.1	)
Unusual items		(15.9	)		—			—
Loss from Operations		(454.5	)		(114.4	)		(3.4	)
Other (income) expense
Interest and other financial income		(1.2	)		(4.0	)		(11.5	)
Interest and other financial expense		68.2			41.3			39.6
Net gain on disposal of non-core assets and other related activities		(3.0	)		(15.1	)		(0.8	)
Loss before Income Taxes		(518.5	)		(136.6	)		(30.7	)
Income taxes (credit)		148.8			(6.8	)		(2.1	)
Loss Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle		(667.3	)		(129.8	)		(28.6	)
Extraordinary item		(2.0	)		—			—
Cumulative effect of change in accounting principle		17.2			—			—
Net Loss	$	(652.1	)	$	(129.8	)	$	(28.6	)
Basic and Diluted Earnings Per Share:
Loss Before Extraordinary Item and Cumulative Effect of Change in Accounting Principle	$	(16.16	)	$	(3.14	)	$	(0.69	)
Extraordinary item		(0.05	)		—			—
Cumulative effect of change in accounting principle		0.42			—			—
Net loss	$	(15.79	)	$	(3.14	)	$	(0.69	)
Weighted average shares outstanding (in thousands)		41,288			41,288			41,411
Dividends paid per common share	$	—		$	0.21		$	0.28

See notes to consolidated financial statements.

40

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(Dollars in Millions, Except Per Share Amounts)

	December 31,
	2001			2000
ASSETS
Current assets
Cash and cash equivalents	$	1.4		$	1.6
Restricted cash		2.4			1.7
Receivables, net		224.2			190.6
Inventories		390.4			524.5
Deferred tax assets		3.2			34.5
Other		15.5			14.9
Total current assets		637.1			767.8
Investments in affiliated companies		16.3			18.7
Property, plant and equipment, net		1,385.3			1,517.0
Deferred tax assets		44.5			161.4
Intangible pension asset		126.0			6.1
Other assets		98.4			94.2
	$	2,307.6		$	2,565.2
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
Current liabilities
Accounts payable	$	165.6		$	231.7
Current portion of long-term obligations		29.3			27.9
Short-term borrowings		100.0			86.5
Salaries, wages, benefits and related taxes		119.0			111.9
Pension		169.8			—
Property taxes		40.3			40.5
Income taxes		6.5			5.9
Other accrued liabilities		84.1			84.7
Total current liabilities		714.6			589.1
Long-term obligations		809.7			523.3
Long-term pension liabilities		4.7			158.9
Minimum pension liabilities		502.3			8.4
Postretirement benefits other than pensions		476.1			452.4
Other long-term liabilities		110.9			115.4
Commitments and Contingencies
Stockholders’ equity (deficit)
Common Stock par value $.01:
Class A—authorized 30,000,000 shares; issued and outstanding 22,100,000 shares in 2001 and 2000		0.2			0.2
Class B—authorized 65,000,000 shares; issued 21,188,240 shares in 2001 and 2000		0.2			0.2
Additional paid-in capital		491.8			491.8
Retained earnings (deficit)		(408.0	)		244.1
Treasury stock, at cost: 2,000,000 shares in 2001 and 2000		(16.3	)		(16.3	)
Accumulated other comprehensive loss:
Unrealized loss on derivative instruments		(2.3	)		—
Minimum pension liability		(376.3	)		(2.3	)
Total stockholders’ equity (deficit)		(310.7	)		717.7
	$	2,307.6		$	2,565.2

See notes to consolidated financial statements.

41

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Millions)

	Years Ended December 31,
	2001			2000			1999
Cash Flows from Operating Activities:
Net loss	$	(652.1	)	$	(129.8	)	$	(28.6	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation		167.9			153.0			140.1
Unusual items		12.1			—			—
Net gain on disposal of non-core assets		(3.0	)		(15.1	)		(0.8	)
Extraordinary item		2.0			—			—
Cumulative effect of change in accounting principle		(17.2	)		—			—
Deferred income taxes		148.2			10.3			(2.9	)
Changes in assets and liabilities:
Receivables—trade		44.1			25.8			(79.8	)
Receivables—allowance		17.3			11.4			2.7
Receivables sold		(95.0	)		95.0			—
Inventories		134.1			(3.6	)		(46.7	)
Accounts payable		(66.1	)		(14.4	)		4.4
Pension liability (net of change in intangible pension asset)		31.8			(44.5	)		12.4
Postretirement benefits		26.5			19.4			24.9
Accrued liabilities		2.0			0.8			(1.2	)
Other		6.1			1.8			(16.3	)
Net Cash Provided by (Used in) Operating Activities		(241.3	)		110.1			8.2
Cash Flows from Investing Activities:
Purchases of property, plant and equipment		(48.8	)		(217.3	)		(318.3	)
Net proceeds from sale of assets		—			—			0.5
Net proceeds from disposal of non-core assets		2.5			16.9			0.8
Acquisition of ProCoil		—			—			(7.7	)
Net Cash Used in Investing Activities		(46.3	)		(200.4	)		(324.7	)
Cash Flows from Financing Activities:
Debt repayments		(28.9	)		(43.5	)		(55.4	)
Borrowings—net		327.1			86.5			311.9
Repurchase of Class B common stock		—			—			(7.9	)
Dividend payments on common stock		—			(8.7	)		(11.6	)
Debt issuance costs		(10.8	)		(0.8	)		—
Net Cash Provided by Financing Activities		287.4			33.5			237.0
Net Decrease in Cash and Cash Equivalents		(0.2	)		(56.8	)		(79.5	)
Cash and cash equivalents, at beginning of the year		1.6			58.4			137.9
Cash and cash equivalents, at end of the year	$	1.4		$	1.6		$	58.4
Supplemental Cash Payment (Receipt) Information
Cash paid (received) during the year for:
Interest and other financing costs	$	65.4		$	55.0		$	42.6
Income taxes, net		(18.0	)		(4.0	)		20.7
Noncash Investing and Financing Activities
Purchase of equipment through capital leases	$	3.1		$	7.9		$	13.3

See notes to consolidated financial statements.

42

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

(Dollars in Millions)

	Common Stock— Class A		Common Stock— Class B		Additional Paid-In Capital		Retained Earnings (Deficit)			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity (Deficit)
Balance at January 1, 1999	$	0.2	$	0.2	$	491.8	$	422.8		$	(8.4	)	$	(54.9	)	$	851.7
Comprehensive income (loss):
Net loss								(28.6	)								(28.6	)
Other comprehensive income: Minimum pension liability														49.4			49.4
Comprehensive income																	20.8
Dividends on common stock								(11.6	)								(11.6	)
Purchase of 890,300 shares of Class B common stock											(7.9	)					(7.9	)
Balance at December 31, 1999		0.2		0.2		491.8		382.6			(16.3	)		(5.5	)		853.0
Comprehensive loss:
Net loss								(129.8	)								(129.8	)
Other comprehensive income: Minimum pension liability														3.2			3.2
Comprehensive loss																	(126.6	)
Dividends on common stock								(8.7	)								(8.7	)
Balance at December 31, 2000		0.2		0.2		491.8		244.1			(16.3	)		(2.3	)		717.7
Comprehensive loss:
Net loss								(652.1	)								(652.1	)
Other comprehensive income (loss): Minimum pension liability														(374.0	)		(374.0	)
Cumulative effect of the adoption of SFAS 133														23.8			23.8
Net activity relating to derivative instruments														(26.1	)		(26.1	)
Comprehensive loss																	(1,028.4	)
Balance at December 31, 2001	$	0.2	$	0.2	$	491.8	$	(408.0	)	$	(16.3	)	$	(378.6	)	$	(310.7	)

See notes to consolidated financial statements.

43

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2001

Note 1.    Subsequent Events

Voluntary Petition for Reorganization under Chapter 11 of the Bankruptcy Code

On March 6, 2002, National Steel Corporation and forty-one of its domestic subsidiaries filed voluntary petitions for relief under Chapter 11 of Title 11 of the United States Code in the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Court”). The case was assigned to Judge John H. Squires of the Court for initial proceedings (case numbers: 02-08697 through 02-08738). The Company also received commitments for up to $450 million in Secured Super Priority Debtor In Possession (“DIP”) financing from the existing senior secured bank group subject to court approval, which combined with other actions will be used to fund post-petition operating expenses as well as supplier and employee obligations. The Company filed for protection under Chapter 11 in order to obtain the necessary time to stabilize its finances and to attempt to develop a plan of reorganization that will enable it to return to sustained profitability.

While the Company believes its core business is operationally sound, historically low steel selling prices and a weak economy have impeded its ability to service its debt and make investments in the business necessary for continued growth. The Company has worked diligently to reduce costs during these difficult times. Despite these cost reduction activities, idling of production facilities, the focus on value-added shipments and the recent positive movement in steel market prices, these efforts were not enough to overcome the injury to the Company and the steel industry caused by the lingering effects of the record levels of unfairly traded steel imports and the downturn in the economy that have led to depressed steel selling prices.

The Company’s financial results presented herein have been prepared on a going concern basis, which contemplates continuity of operations, realization of assets and settlement of liabilities in the normal course of business and do not reflect adjustments that may result if it was unable to continue as a going concern. After negotiations with various parties in interest, the Company expects to present a plan of reorganization to the Court to reorganize its business and to restructure its obligations. Future financial statements will be prepared in accordance with the AICPA’s Statement of Position No. 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code (“SOP 90-7”). SOP 90-7 requires the Company to segregate liabilities subject to compromise by the Court as of the bankruptcy filing date and to identify all transactions and events that are directly associated with the reorganization. A significant portion of the liabilities recorded at December 31, 2001 is expected to be reflected as subject to compromise. Also in accordance with SOP 90-7, after the filing date, interest expense will only be recognized on long-term obligations that are believed to be fully secured.

Under bankruptcy law, actions by creditors to collect amounts owed by the Company at the filing date are stayed and other pre-petition contractual obligations may not be enforced against the Company, without approval by the Court to settle these claims. The Company received approval from the Court to pay certain of its pre-petition claims, including employee wages and certain employee benefits. In addition, the Company has the right, subject to Court approval and other conditions, to assume or reject any pre-petition executory contracts and unexpired leases. Parties affected by these rejections may file claims with the Court. The Company is in the process of preparing and submitting the schedules setting forth all of its assets and liabilities as of the date of the petition as reflected in its accounting records. The amounts of claims filed by creditors could be significantly different from the recorded amounts. Due to material uncertainties, it is not possible to predict the length of time the Company will operate under Chapter 11 protection, the outcome of the proceedings in general, whether the Company will continue to operate under its current organizational structure, the effect of the proceedings on its businesses or the recovery by its creditors and equity holders.

44

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Option Agreement between National Steel Corporation, United States Steel Corporation and NKK Corporation

The Company’s board of directors appointed a special committee of independent directors (“Special Committee”) in December of 2001 to evaluate a possible transaction with United States Steel Corporation (“U.S. Steel”). Following its review, the Special Committee unanimously recommended that the Company entered into an Option Agreement and pursue further discussions with U.S. Steel. On January 17, 2002, the Company announced that it had entered into an Option Agreement with NKK Corporation (“NKK”), its majority stockholder, and U.S. Steel. Under the terms of the Option Agreement, NKK has granted U.S. Steel an option to purchase all of its National Steel stock, which represents approximately 53% of the Company’s outstanding shares, and has agreed to restructure a $100 million loan previously made to National Steel by an NKK subsidiary. The option expires on June 15, 2002.

If the option is exercised, NKK will receive warrants to purchase 4,000,000 shares of U.S. Steel common stock in exchange for its National Steel shares. The warrants will be exercisable through June 2007 at a price equal to 150% of the average closing price for U.S. Steel’s stock during a 60-day period prior to the issuance of the warrants. If the option is exercised, the NKK subsidiary loan to the Company would be restructured into an unsecured, non-interest bearing $30 million note, with a twenty year term, convertible into 1,000,000 shares of U.S. Steel common stock. In addition, if the option is exercised, U.S. Steel will offer to acquire the Company’s remaining outstanding shares in exchange for either warrants with no less value than those provided to NKK or U.S. Steel stock based upon an exchange ratio of 0.086 shares of U.S. Steel stock for each share of National Steel stock. The option of the Company’s minority stockholders to receive warrants will only be available if a sufficient number of those stockholders elect to receive warrants so that the warrants may be listed on the New York Stock Exchange.

As part of the Option Agreement, the Company has agreed with U.S. Steel to begin negotiation of a transaction pursuant to which U.S. Steel would acquire the Company through a merger with a newly-formed U.S. Steel subsidiary. The merger would be part of the recently announced goal of achieving significant consolidation in the domestic integrated steel industry.

Although U.S. Steel has the ability to exercise the option at any time during its term, the Company understands that U.S. Steel does not currently intend to exercise the option or to consummate a merger with us unless a number of significant conditions are satisfied. Some of these conditions would include enactment of a program sponsored by the federal government to provide relief from a significant portion of the steel industry’s retiree legacy liabilities, a new contract with the United Steel Workers of America to provide labor cost savings and efficiencies, approval by the relevant antitrust authorities and a substantial restructuring of our existing debt and other obligations. Although preliminary discussions have been held with certain of the affected parties regarding these matters, there can be no assurance that understandings will be reached that would permit a combination of U.S. Steel and National Steel to be completed.

The Special Committee will continue to actively participate in negotiations with U.S. Steel and will recommend to the full board what action, if any, it should take with respect to any definitive merger agreement with U.S. Steel. However, the commencement of the Company’s Chapter 11 case may result in U.S. Steel not being willing or able to execute its option. Any merger or other transaction with U.S. Steel or any other party would be subject to review and approval by the Court.

45

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Job Creation and Worker Assistance Act of 2002

On March 9, 2002, President Bush signed the Job Creation and Worker Assistance Act of 2002 (the “Act”). This new Act, among other provisions, provides for an expansion of the carryback of net operating losses (“NOLs”) from two years to five years for NOLs arising in 2001 and 2002. The Company is now able to carryback the loss recorded during 2001 to the 1996 through 1998 tax years when it paid an alternative minimum tax. As a result of this change in the tax law, the Company expects to receive a refund of approximately $50 million in 2002. This carryback will allow the Company to recover the entire amount of alternative minimum taxes paid during those prior taxable years. The impact of this change in the tax law has not been reflected in the accompanying financial statements for the year ended December 31, 2001.

Note 2.    Description of the Business and Significant Accounting Policies

National Steel Corporation (together with its majority owned subsidiaries, the “Company”) is a domestic manufacturer engaged in a single line of business, the production and processing of steel. The Company targets high value-added applications of flat rolled carbon steel for sale primarily to the automotive, construction and container markets. The Company also sells hot and cold-rolled steel to a wide variety of other users including the pipe and tube industry and independent steel service centers. The Company’s principal markets are located throughout the United States.

Since 1986, the Company has had cooperative labor agreements with the United Steelworkers of America (the “USWA”), the International Chemical Workers Union Council of the United Food and Commercial Workers and other labor organizations, which collectively represent 82% of the Company’s employees. The Company entered into five-year agreements with these labor organizations in 1999. Additionally, these 1999 agreements contain a no-strike clause also effective through the term of the agreements.

Principles of Consolidation

The consolidated financial statements include the accounts of National Steel Corporation and its majority-owned subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation.

Revenue Recognition

The Company applies the provisions of the Securities and Exchange Commission’s Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (“SAB 101”), to recognize revenue. As such, all revenue is recognized when products are shipped to customers or when all provisions of SAB 101 have been met.

Repair and Maintenance Costs

All costs for repair and maintenance projects, including materials, internal labor and external contract labor, are expensed as incurred.

Shipping and Handling Costs

The cost to deliver products to customers is recorded as part of cost of products sold.

Cash and Cash Equivalents

Cash equivalents are short-term liquid investments consisting principally of time deposits and commercial paper at cost which approximates market. Generally, these investments have maturities of three months or less at the time of purchase.

46

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Restricted Cash

At December 31, 2001 and 2000, cash and cash equivalents in the amount of $2.4 million and $1.7 million, respectively, were restricted for use primarily in connection with zinc swap contracts and certain credit arrangements.

Receivables

Receivables consist of trade and notes receivable and other miscellaneous receivables including refundable income taxes. Concentration of credit risk related to trade receivables is limited due to the large number of customers in differing industries and geographic areas and management’s credit practices. Receivables are shown net of allowances and estimated claims of $48.3 million and $31.0 million at December 31, 2001 and 2000, respectively. Activity relating to the allowance was as follows:

	2001			2000			1999
	Dollars in millions
Balance, January 1	$	31.0		$	19.6		$	16.9
Provision for doubtful accounts		22.1			7.7			2.8
Doubtful accounts written off, net of recoveries		(0.4	)		(0.6	)		(0.6	)
Other, net		(4.4	)		4.3			0.5
Balance, December 31	$	48.3		$	31.0		$	19.6

The Company evaluates the collectibility of its accounts receivable based on a combination of factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (e.g., bankruptcy filings, substantial down-grading of credit scores), the Company records a specific reserve for bad debts against outstanding amounts to reduce the net recognized receivable to the amount reasonably believed to be collectible. For customers that are highly leveraged (those customers whose value of debt exceeds equity by a predetermined ratio) and exceed a minimal risk threshold, the Company records a reserve representing its best estimate of potential losses from these customers in the aggregate. For all other customers, the Company recognizes reserves for bad debts based on the general status of the economy and, specifically, the steel industry and past collections experience. The bankruptcy filing of the LTV Steel Company, Inc. (described in Note 12. Commitments and Contingencies) and other customers and current economic conditions within the United States, especially within the steel industry, have caused the Company to record a provision for doubtful accounts receivable of $22.1 million during 2001. If circumstances change (i.e., higher than expected defaults or an unexpected material adverse change in a major customer’s ability to meet its financial obligations to us), the Company’s estimates of the recoverability of amounts due could be reduced by a material amount.

Derivative Instruments

In the normal course of business, the Company’s operations are exposed to continuing fluctuations in commodity prices and interest rates that can affect the cost of operating, investing, and financing. Accordingly, the Company addresses a portion of these risks, primarily commodity price risk, through a controlled program of risk management that includes the purchase of commodity purchase swap contracts from global financial institutions. The Company’s objective is to reduce earnings volatility associated with these fluctuations to allow management to focus on core business issues. The Company’s derivative activities, all of which are for purposes other than trading, are initiated within the guidelines of a documented corporate risk-management policy. The Company does not enter into any derivative transaction for speculative purposes. The Company has adopted the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 133, Accounting for Derivative Instruments and Hedging Activities (“SFAS 133”), as amended and interpreted. (See Note 13. Derivative Instruments)

47

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Inventories

Inventories are stated at the lower of last-in, first-out (“LIFO”) cost or market.

Based on replacement cost, inventories would have been approximately $180.0 million and $156.4 million higher than reported at December 31, 2001 and 2000, respectively. During 2001 certain inventory quantity reductions caused liquidations of LIFO inventory values that had the effect of reducing the net loss by $2.1 million or $0.05 per share (basic and diluted). During 2000 certain inventory quantity reductions caused liquidations of LIFO inventory values that did not have a material effect on the net loss. In 1999 there were no liquidations of LIFO inventory values.

Inventories as of December 31, are as follows:

	2001		2000
	Dollars in millions
Inventories
Finished and semi-finished	$	339.0	$	420.4
Raw materials and supplies		176.9		227.2
		515.9		647.6
Less LIFO reserve		125.5		123.1
	$	390.4	$	524.5

Investments in Affiliated Companies

Investments in affiliated companies (corporate joint ventures and 20.0% to 50.0% owned companies) are stated at cost plus equity in undistributed earnings and/or losses since acquisition. Undistributed deficit of affiliated companies at December 31, 2001 and 2000 amounted to $7.6 million and $4.7 million, respectively.

Property, Plant and Equipment

Property, plant and equipment are stated at cost and include certain expenditures for leased facilities. Interest costs applicable to facilities under construction are capitalized. No interest was capitalized during 2001. Capitalized interest amounted to $15.3 million in 2000 and $13.0 million in 1999. Depreciation of capitalized interest amounted to $5.1 million in 2001, $4.5 million in 2000 and $3.6 million in 1999.

Property, plant and equipment as of December 31, are as follows:

	2001		2000
	Dollars in millions
Land and land improvements	$	175.6	$	177.6
Buildings		361.6		346.5
Machinery and equipment		3,336.3		3,376.2
Total property, plant and equipment		3,873.5		3,900.3
Less accumulated depreciation		2,488.2		2,383.3
Net property, plant and equipment	$	1,385.3	$	1,517.0

48

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), the Company periodically evaluates its long-lived assets for impairment whenever indicators of impairment exist. A long-lived asset is considered impaired when the anticipated undiscounted future cash flows from a logical grouping of assets over the remaining service life of the asset grouping is less than its carrying value. Generally, the Company groups its assets at the facility level, which is the lowest level of the organization for which identifiable cash flows are independent of the cash flows of other assets and liabilities of the Company, for impairment testing.

Based on the Company’s significant increase in operating losses and deterioration in cash flows provided by operating activities combined with the overall economic conditions, impairment indicators were present at December 31, 2001 for all of the Company’s long-lived assets. As such, the Company compared the estimated undiscounted future cash flows to the carrying value of the attributable long-lived assets. As the Company’s average long-lived assets are already two-thirds depreciated, the levels of cash flows necessary for recoverability were greatly reduced.

The Company’s recoverability estimates are based essentially on static volume while pricing levels continue to grow at approximately 3-4% per annum through 2006 and then remain constant over the remaining average useful life of the long-lived assets. The highest annual average selling price per ton in this impairment model is approximately 7% lower than the average price per ton experienced before the high levels of low-priced imported steel began to flood the market in 1998. The Company further assumes that a reduction in energy costs and improved efficiencies in a major galvanizing line will reduce cost per ton by approximately 3% through 2003 and hold constant for the remainder of the assets’ average useful lives.

Based on the impairment model utilized by the Company, in accordance with SFAS 144, the estimated undiscounted future cash flows exceed the carrying value of the attributable long-lived assets, and therefore, no impairment charge was recorded in 2001. There can be no assurances that the Company will successfully attain the shipping volumes, average selling prices or cost reductions included in its recoverability estimates. Should future actual results or assumptions change, the Company may be required to record an impairment charge in a future period.

Depreciation

Depreciation of production facilities, equipment and capitalized lease obligations is generally computed by the straight-line method over their estimated useful lives or, if applicable, remaining lease term, if shorter. The following useful lives are used for financial statement purposes:

Land improvements	10–20 years
Buildings	15–40 years
Machinery and equipment	3–15 years

Depreciation of furnace relinings is computed on the basis of tonnage produced in relation to estimated total production to be obtained from such facilities.

Pensions

The Company accounts for its defined benefit pension plans in accordance with SFAS No. 87, Employers’ Accounting for Pensions (“SFAS 87”), which requires that amounts recognized in financial statements be determined on an actuarial basis. No cash contributions were required under the Employee Retirement Income

49

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Security Act of 1974 for the Company’s pension plans during 2001. SFAS 87 and the policies the Company uses, including the delayed recognition of gains and losses and the use of a calculated value of plan assets, generally reduce the volatility of pension expense due to changes in pension liability assumptions, demographic experience, and the market performance of the pension plan’s assets. (See Note 6. Pension and Other Postretirement Employee Benefits and Note 9. Non-Operational Activities)

Other Postretirement Benefits

The Company provides retiree health care benefits for certain salaried and represented employees that retire under its pension plans. The Company’s retiree health care plans provide health care benefits to approximately 23,000 of its former employees and their dependents. The Company accounts for its other postretirement benefit plans in accordance with SFAS No. 106, Employers’ Accounting for Postretirement Benefits Other than Pensions (“SFAS 106”), which requires that amounts recognized in financial statements be determined on an actuarial basis. SFAS 106 and the policies the Company uses, including the delayed recognition of gains and losses, generally reduce the volatility of retiree health care expense due to changes in assumptions, claims experience, demographic experience, and the market performance of the plan’s assets. (See Note 6. Pension and Other Postretirement Employee Benefits)

Research and Development

Research and development costs are expensed when incurred as a component of cost of products sold. Expenses for 2001, 2000 and 1999 were $8.6 million, $9.6 million and $10.7 million, respectively.

Financial Instruments

Financial instruments consist of cash and cash equivalents and long-term obligations (excluding capitalized lease obligations). The fair value of cash and cash equivalents approximates their carrying amounts at December 31, 2001. The carrying value of long-term obligations (excluding capitalized lease obligations) exceeded the fair value by approximately $247 million at December 31, 2001. The fair value is based on quoted market prices or is estimated using discounted cash flows based on current interest rates for similar issues.

Earnings per Share (Basic and Diluted)

Basic Earnings per Share (“EPS”) is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options. The effect of stock options on diluted EPS is determined through the application of the treasury stock method, whereby proceeds received by the Company based on assumed exercises are hypothetically used to repurchase the Company’s common stock at the average market price during the period. If a net loss is incurred, dilutive stock options are considered antidilutive and are excluded from the dilutive EPS calculation. As a result of the reported net loss for each of the three years ended December 31, 2001, 2000 and 1999, the denominator for both basic and diluted earnings per share were the same.

Stock-Based Compensation

The Company has elected to follow Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (“APB 25”) and related interpretations in accounting for its employee stock options. Under

50

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

APB 25, because the exercise price of employee stock options equals or exceeds the market price of the underlying stock on the date of grant, no compensation expense is recorded. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, Accounting for Stock-Based Compensation (“SFAS 123”). (See Note 14. Long-Term Incentive Plan).

Use of Estimates

Preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the date of the consolidated financial statements, and the reported amounts of revenue and expense during the year. Actual results could differ from those estimates.

Reclassifications

Certain amounts in prior years consolidated financial statements have been reclassified to conform with the current year presentation.

Impact of Recently Issued Accounting Standards

On January 1, 2001, the Company adopted SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments and Hedging Activities—Deferral of the Effective Date of FASB Statement No. 133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain Hedging Activities—An Amendment of FASB Statement No. 133 (collectively “SFAS 133”). As a result, the Company recognized the fair value of all financial derivative contracts as a net asset of $23.8 million at January 1, 2001 and as an adjustment to accumulated other comprehensive income within stockholders’ equity. The adoption of SFAS 133 had no impact on net income. Gains or losses on derivative financial instruments, to the extent they have been effective as hedges, will be reclassified into earnings in the same periods during which the hedged forecasted transactions affects earnings.

On April 1, 2001, the Company adopted SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SFAS 140”). This statement revises the accounting standards for securitizations and other transfers of financial assets and collateral and requires certain disclosures. This statement was effective for transfers and servicing of financial assets occurring after March 31, 2001. Adoption of SFAS 140 did not have a material effect on the Company’s earnings or financial position.

In July 2001, the FASB issued SFAS No. 142, Goodwill and Intangible Assets (“SFAS 142”), which requires that goodwill no longer be amortized to earnings, but instead be reviewed for impairment on a periodic basis. The adoption of SFAS 142 on January 1, 2002, as required, is expected to have no effect on the Company’s earnings or financial position.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations (“SFAS 143”). SFAS 143 applies to legal obligations associated with the retirement of certain long-lived assets. It requires companies to record the fair value of the liability for an asset retirement obligation in the period in which it is incurred. When the liability is initially recorded, the company capitalizes a cost by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. Upon settlement of the liability, the company either settles the obligation for its recorded amount or incurs a gain or loss upon settlement. The Company plans to adopt SFAS 143, as required, in its fiscal year beginning on January 1, 2003. The Company has not yet determined the effect, if any, that adopting SFAS 143 will have on its future earnings and financial position.

51

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets (“SFAS 144”), which addresses financial accounting and reporting for the impairment or disposal of long-lived assets and supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, and the accounting and reporting provisions of APB Opinion No. 30, Reporting the Results of Operations for a disposal of a segment of a business. The early adoption of SFAS 144, during the fourth quarter of 2001, had no impact on the Company’s earnings or financial position.

Note 3.    Capital Structure

At December 31, 2001, the Company’s capital structure was as follows.

Class A Common Stock:  The Company had 30,000,000 shares of $.01 par value Class A Common Stock authorized, of which 22,100,000 shares were issued and outstanding and owned by NKK U.S.A. Corporation. Each share is entitled to two votes. No dividends were paid in 2001. Dividends of $0.21 per share were paid in 2000 and $0.28 per share were paid in 1999. As a result of its ownership of the Class A Common Stock, NKK U.S.A. Corporation controls approximately 69.7% of the voting power of the Company.

Class B Common Stock:  The Company had 65,000,000 shares of $0.01 par value Class B Common Stock authorized, 21,188,240 shares issued, and 19,188,240 outstanding net of 2,000,000 shares of Treasury Stock. No dividends were paid in 2001. Dividends of $0.21 per share were paid in 2000 and $0.28 per share were paid in 1999. All of the issued and outstanding shares of Class B Common Stock are publicly traded and are entitled to one vote.

Note 4.    Segment Information

The Company has one reportable segment: Steel. The Steel segment consists of two operating divisions, the Regional Division and the Granite City Division, that produce and sell hot and cold-rolled steel to automotive, construction, container, and pipe and tube customers as well as independent steel service centers. The Company’s operating divisions are primarily organized and managed by geographic location. A third operating division, National Steel Pellet Company, has been combined with “All Other” as it does not meet the quantitative thresholds for determining reportable segments. “All Other” also includes the Company’s transportation divisions, administrative office and certain steel processing and warehousing operations. “All Other” revenues from external customers are attributable primarily to steel processing, warehousing and transportation services.

The Company evaluates performance and allocates resources based on operating profit or loss before income taxes. The accounting policies of the Steel segment are the same as described in Note 1 to the financial statements. Intersegment sales and transfers are accounted for at market prices and are eliminated in consolidation.

	2001									2000
	Steel			All Other			Total			Steel		All Other			Total
	Dollars in Millions
Revenues from external customers	$	2,475.0		$	17.3		$	2,492.3		$	2,962.1	$	16.8		$	2,978.9
Intersegment revenues		464.2			1,754.7			2,218.9			534.7		3,093.4			3,628.1
Depreciation expense		126.0			41.9			167.9			118.1		34.9			153.0
Unusual items		28.7			(12.8	)		15.9			—		—			—
Segment income (loss) from operations		(223.2	)		(231.3	)		(454.5	)		67.0		(181.4	)		(114.4	)
Extraordinary item		—			(2.0	)		(2.0	)		—		—			—
Cumulative effect of change in accounting principle		23.1			(5.9	)		17.2			—		—			—
Segment assets		1,516.0			791.6			2,307.6			1,728.9		836.3			2,565.2
Expenditures for long-lived assets		38.6			13.3			51.9			165.3		59.9			225.2

52

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Included in “All Other” intersegment revenues in 2001 and 2000, respectively, is $1,524.0 million and $2,849.0 million of qualified trade receivables sold to National Steel Funding Corporation (“NSFC”), a wholly-owned subsidiary. On September 28, 2001, the Company replaced the Receivables Purchase Agreement with a new credit facility as described in Note 5 to the financial statements. As a result, no qualified trade receivables were sold to NSFC subsequent to September 28, 2001.

The following table sets forth the percentage of the Company’s revenues from various markets for 2001, 2000 and 1999:

	2001		2000		1999
Automotive	26.5	%	29.0	%	32.6	%
Construction	27.0		24.8		23.5
Containers	13.1		12.0		11.6
Pipe and Tube	7.0		6.9		6.3
Service Centers	21.5		22.0		20.0
All Other	4.9		5.3		6.0
	100.0	%	100.0	%	100.0	%

No single customer accounted for more than 10% of net sales in 2001, 2000 or 1999. Export sales accounted for approximately 3.4% of revenues in 2001, 3.6% in 2000 and 2.0% in 1999. The Company has no long-lived assets that are maintained outside of the United States.

Note 5.    Long-Term Obligations

Long-term obligations were as follows:

	December 31,
	2001		2000
	Dollars in millions
First Mortgage Bonds, 9.875% Series due March 1, 2009, with general first liens on principal plants, properties and certain subsidiaries	$	300.0	$	300.0
First Mortgage Bonds, 8.375% Series due August 1, 2006, with general first liens on principal plants, properties and certain subsidiaries		60.5		60.5
Credit Facility, 5.7% effective in December 2001 due September 2004, secured by both accounts receivable and inventory		313.6		—
Continuous Caster Facility Loan, 7.477% effective in December 2000 (the rate was 10.057% prior to being reset in November 2000). Equal semi-annual payments due through 2007, with a first mortgage in favor of the lenders		76.0		85.8
Pickle Line Loan, 7.726% fixed rate due in equal semi-annual installments through 2007, with a first mortgage in favor of the lender		55.9		62.3
ProCoil, various rates and due dates		2.2		3.3
Capitalized lease obligations		13.2		22.3
Other		17.6		17.0
Total long-term obligations		839.0		551.2
Less long-term obligations due within one year		29.3		27.9
Long-term obligations	$	809.7	$	523.3

53

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Future minimum payments for all long-term obligations and leases as of December 31, 2001 are as follows:

	Capitalized Leases		Operating Leases		Other Long-Term Obligations
	Dollars in millions
2002	$	6.5	$	55.6	$	23.6
2003		5.8		58.4		26.2
2004		2.1		55.5		341.3
2005		—		24.8		29.1
2006		—		3.7		37.3
Thereafter		—		5.2		368.3
Total payments		14.4	$	203.2	$	825.8
Less amount representing interest		1.2
Less current portion of obligations under capitalized leases		5.7
Long-term obligations under capitalized leases	$	7.5
Assets under capitalized leases:
Machinery and equipment	$	24.3
Less accumulated depreciation		9.4
	$	14.9

Operating leases include a coke battery facility which services Granite City and expires in 2004, an electrolytic galvanizing facility which services Great Lakes and expires in 2005, and a continuous caster and the related ladle metallurgy facility which services Great Lakes and expires in 2008. Upon expiration, the Company has the option to extend the leases, purchase the equipment at fair market value, or return the facility to the third party owner. The Company’s remaining operating leases cover various types of properties, primarily machinery and equipment, which have lease terms generally for periods of 2 to 20 years, and which are expected to be renewed or replaced by other leases in the normal course of business. Rental expense totaled $65.4 million in 2001, $70.8 million in 2000, and $71.8 million in 1999.

Credit Arrangements

During 2001, the Company closed on a new $465 million Credit Agreement secured by both accounts receivable and inventory which expires in September 2004. The Credit Agreement replaces the Receivables Purchase Agreement with commitments of up to $200.0 million that was to expire in September 2002 and a $200.0 million Inventory Facility that was to expire in November 2004. During March 2001, the Company also closed on a new $100.0 million subordinated revolving credit facility with NUF LLC, a wholly-owned subsidiary of NKK Corporation, the Company’s principal stockholder (the “NUF Facility”) that expires in February 2002.

Prior to the closing of the Credit Agreement, the Company had utilized the Receivables Purchase Agreement to sell $110 million of trade accounts receivable and had borrowed $128.6 million under the Inventory Facility. Upon the closing of the Credit Agreement, the Company purchased the previously sold trade accounts receivable and repaid the outstanding Inventory Facility borrowings.

On December 31, 2001, there was $313.6 million outstanding under the Credit Agreement. These borrowings bear interest at a bank prime rate or at an adjusted Eurodollar rate plus an applicable margin that

54

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

varies, depending upon the type of loan the Company executes. At December 31, 2001, the outstanding borrowings under the Credit Agreement had an average annual interest rate of 5.7%.

Under the Credit Agreement, the maximum amount available from time to time is subject to change based on the level of eligible receivables and inventory and restrictions on concentrations of certain receivables. At December 31, 2001, the maximum amount available, after reduction for letters of credit and outstanding borrowings, was $105.3 million subject to the minimum liquidity requirements set forth below.

On December 31, 2001, there was $100.0 million outstanding under the NUF Facility. These borrowings also bear interest at a bank prime rate or at an adjusted Eurodollar rate plus an applicable margin that varies, depending upon the type of loan the Company executes. At December 31, 2001, the outstanding borrowings under the NUF Facility had an average annual interest rate of 5.9%.

At December 31, 2001, the Company was in compliance with all material covenants of, and obligations under, all debt agreements. Under the most restrictive of the covenants for these debt and certain lease agreements, the Company is prohibited from declaring or paying dividends, has limitations on the amount of capital expenditures and additional debt that can be incurred, has limitations on the repayment of the NUF Facility and has a minimum liquidity requirement of $75 million. NUF has agreed with the lenders under the Credit Agreement to refrain from demanding repayment of the NUF Facility until such time as the conditions to such repayment contained in the Credit Agreement are met. The Company believes that the conditions to such repayment will not be met in the short term.

On March 6, 2002, the Company received commitments for up to a $450 million Secured Super Priority Debtor in Possession (“DIP”) financing from the lenders under the Credit Facility subject to Court approval. The term of the DIP runs from the closing date to the earlier of (i) the second anniversary of the closing date, (ii) the effective date of a Plan of Reorganization in the Company’s Chapter 11 case and (iii) acceleration of the Company’s obligations under the DIP as a result of certain specified events, including a change of control transaction.

Availability under the DIP will be subject to a borrowing base calculated by applying advance rates to eligible accounts receivable and eligible inventory. Availability under the DIP will be subject to: (i) certain eligibility reserves and availability reserves, (ii) a reserve for certain professional and bankruptcy court expenses related to the Company’s Chapter 11 cases and (iii) a liquidity reserve of $35,000,000. Outstanding pre-petition claims under the Credit Agreement also reduce availability.

Proceeds of loans under the DIP will be used solely to pay certain pre-petition claims approved by the Court, for post-petition operating expenses incurred in the ordinary course of business and certain other costs and expenses of administration of the cases as will be specified and as approved by the Court. Except for certain specified circumstances, all cash received by the Company or any of its subsidiaries shall be applied to outstanding claims under the Credit Agreement and after all such claims have been paid, to outstanding obligations under the DIP.

All amounts owing by the Company under the DIP at all times will constitute allowed super-priority administrative expense claims in its Chapter 11 cases, generally having priority over all the Company’s administrative expenses. In addition, all amounts owing by the Company under the DIP will be secured by valid and perfected security interests in, and liens on substantially all of its assets.

Note 6.    Pension and Other Postretirement Employee Benefits

The Company has various qualified and nonqualified pension plans and other postretirement employee benefit (“OPEB”) plans for its employees and retirees. The following tables provide a reconciliation of the

55

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

changes in the plans’ benefit obligations and fair value of assets over the periods ended September 30, 2001 and 2000, and the plans funded status at September 30 reconciled to the amounts recognized on the balance sheet on December 31, 2001 and 2000:

	Pension Benefits						Other Postretirement Benefits
	2001			2000			2001			2000
	Dollars in millions
Reconciliation of benefit obligation
Benefit obligation, October 1 Prior Year	$	2,137.0		$	2,200.2		$	817.0		$	751.2
Service cost		29.4			31.5			12.7			11.3
Interest cost		165.6			161.8			63.2			55.3
Participant contributions		—			—			9.4			5.2
Other contributions		1.9			5.1			—			—
Plan amendments		0.2			5.6			—			—
Actuarial loss (gain)		133.7			(94.9	)		161.0			55.4
Benefits paid		(178.6	)		(172.3	)		(70.5	)		(61.4	)
Special termination benefits		0.6			—			—			—
Benefit obligation, September 30	$	2,289.8		$	2,137.0		$	992.8		$	817.0
Reconciliation of fair value of plan assets
Fair value of plan assets, October 1 Prior Year	$	2,093.7		$	1,944.8		$	116.0		$	119.3
Actual return on plan assets		(367.8	)		236.8			(25.5	)		7.7
Company contributions		0.2			79.3			61.1			45.2
Participant contributions		—			—			9.4			5.2
Other contributions		1.9			5.1			—			—
Benefits paid		(178.6	)		(172.3	)		(70.5	)		(61.4	)
Fair value of plan assets, September 30	$	1,549.4		$	2,093.7		$	90.5		$	116.0
Funded Status
Funded status, September 30	$	(740.4	)	$	(43.3	)	$	(902.3	)	$	(701.0	)
Unrecognized actuarial (gain) loss		493.3			(215.4	)		106.0			(93.0	)
Unamortized prior service cost		126.4			143.9			3.4			3.8
Unrecognized net transition obligation		0.3			9.1			291.4			318.7
Fourth quarter contributions		—			—			22.6			19.1
Net amount recognized, December 31	$	(120.4	)	$	(105.7	)	$	(478.9	)	$	(452.4	)

Pursuant to the terms of the 1993 Settlement Agreement between the Company and the United Steelworkers of America (“USWA”), a VEBA Trust was established for the purpose of pre-funding a portion of future retiree health care benefits. Under the terms of the agreement, the Company agreed to contribute a minimum of $10.0 million annually to the VEBA Trust. Effective August 1, 1999, a new five-year agreement was ratified between the Company and the USWA and the requirement for mandatory contributions to the VEBA Trust was eliminated over the term of the agreement.

Other contributions reflect reimbursements from the Weirton Steel Corporation (“Weirton”), the Company’s former Weirton Steel Division, for retired Weirton employees whose pension benefits are paid by the Company but are partially the responsibility of Weirton. An offsetting amount is reflected in benefits paid.

56

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The following table provides the amounts recognized in the consolidated balance sheet as of December 31 of both years:

	Pension Benefits						Other Postretirement Benefits
	2001			2000			2001			2000
	Dollars in millions
Prepaid benefit cost	$	54.1		$	53.2		$	N/A		$	N/A
Accrued benefit liability		(174.5	)		(158.9	)		(478.9	)		(452.4	)
Additional minimum liability		(502.3	)		(8.4	)		N/A			N/A
Intangible asset		126.0			6.1			N/A			N/A
Accumulated other comprehensive income		376.3			2.3			N/A			N/A
Recognized amount	$	(120.4	)	$	(105.7	)	$	(478.9	)	$	(452.4	)

The projected benefit obligation, accumulated benefit obligation (“ABO”) and fair value of plan assets for pension plans with an ABO in excess of plan assets were $2,289.0 million, $2,170.9 million and $1,548.2 million, respectively, as of September 30, 2001 and $1,230.6 million, $1,163.7 million and $1,138.1 million, respectively, as of September 30, 2000.

The following table provides the components of net periodic benefit cost for the plans for fiscal years 2001, 2000 and 1999.

	Pension Benefits									Other Postretirement Benefits
	2001			2000			1999			2001			2000			1999
	Dollars in millions
Service cost	$	29.4		$	31.4		$	31.1		$	12.7		$	11.3		$	13.1
Interest cost		165.6			161.8			146.8			63.2			55.3			53.0
Expected return on assets		(189.2	)		(186.0	)		(173.6	)		(11.0	)		(10.6	)		(9.7	)
Prior service cost amortization		17.7			18.5			10.8			0.3			0.3			—
Actuarial (gain)/loss amortization		(0.8	)		0.4			3.0			(1.5	)		(8.0	)		(3.0	)
Transition amount amortization		8.8			8.8			8.8			27.3			27.3			27.3
Net periodic benefit cost	$	31.5		$	34.9		$	26.9		$	91.0		$	75.6		$	80.7

The Company generally uses a September 30 measurement date. The assumptions used in the measuring of the Company’s benefit obligations and costs are shown in the following table:

	Weighted-average assumptions, September 30
	2001	2000	1999
Discount rate	7.50%	8.00%	7.50%
Expected return on plan assets—Pension	9.75%	9.75%	9.75%
Expected return on plan assets—Retiree Welfare	9.75%	9.75%	9.75%
Rate of compensation increase	4.20%	4.19%	4.18%

57

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates would have the following effects on 2001 service and interest cost and the accumulated postretirement benefit obligation at September 30, 2001:

	1% Increase		1% Decrease
	Dollars in millions
Effect on total of service and interest cost components of net periodic postretirement health care benefit cost	$	7.7	$	(8.5	)
Effect on the health care component of the accumulated postretirement benefit obligation		106.0		(101.3	)

The Company has assumed a 9.25% healthcare cost trend rate at September 30, 2001, reducing 4.0% over four years and reaching an ultimate trend rate of 5.25% in 2006.

The Company also sponsors a defined contribution Retirement Savings Plan for non-represented salaried employees and a defined contribution Represented Employee Retirement Savings Plan that covers substantially all employees of the Company employed on a full time basis who are covered by a collective bargaining agreement. Eligible employees of these plans may contribute between 1% and 18% of their annual compensation on a before-tax basis, up to a maximum limit imposed by law. The Retirement Savings Plan for non-represented employees provides for a Company match on the first 5% of an eligible employee’s contributions based upon the Company’s profitability in the prior year. During 2001, 2000 and 1999, the Company provided a match of 50%, 57.5% and 85%, respectively. Non-represented salaried employees become vested in Company contributions immediately. Contributions by the Company for 2001, 2000 and 1999 were $2.2 million, $2.7 million and $4.0 million, respectively.

Note 7.    Other Long-term Liabilities

Other long-term liabilities at December 31 consisted of the following:

	2001		2000
	Dollars in millions
Deferred gain on sale leasebacks	$	7.3	$	8.7
Insurance and employee benefits (excluding pensions and OPEBs)		81.6		76.1
Shutdown mines and coal properties		5.4		6.9
Other		16.6		23.7
Total Other Long-Term Liabilities	$	110.9	$	115.4

58

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 8.    Income Taxes

Deferred income taxes reflect the net effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of deferred tax assets and liabilities at December 31 are as follows:

	2001			2000
	Dollars in millions
Deferred tax assets
Accrued liabilities	$	112.4		$	102.9
Employee benefits		239.9			223.9
Net operating loss (“NOL”) carryforwards		280.2			100.4
Leases		—			2.0
Federal tax credits		73.3			73.3
Other		17.6			21.9
Total deferred tax assets		723.4			524.4
Valuation allowance		(441.7	)		(103.1	)
Deferred tax assets net of valuation allowance		281.7			421.3
Deferred tax liabilities
Book basis of property in excess of tax basis		(198.0	)		(183.1	)
Excess tax LIFO over book		(30.5	)		(36.7	)
Other		(5.5	)		(5.6	)
Total deferred tax liabilities		(234.0	)		(225.4	)
Net deferred tax assets after valuation allowance	$	47.7		$	195.9

In 2001 and 2000, the Company determined that it was more likely than not that approximately $123.5 million and $507 million, respectively, of future taxable income could be generated from operations or tax planning strategies to justify the net deferred tax assets after the valuation allowance. Accordingly, the Company decreased net deferred tax assets by $148.2 million in 2001 and $10.3 million in 2000.

Significant components of income taxes (credit) are as follows:

	2001		2000			1999
	Dollars in millions
Current taxes payable (refundable):
Federal tax	$	—	$	(17.8	)	$	—
State and foreign		0.6		0.7			0.8
Deferred tax (credit)		148.2		10.3			(2.9	)
Income taxes (credit)	$	148.8	$	(6.8	)	$	(2.1	)

59

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

The reconciliation of income tax computed at the federal statutory tax rates to the recorded income taxes (credit) is as follows:

	2001			2000			1999
	Dollars in millions
Tax at federal statutory rates	$	(178.0	)	$	(47.3	)	$	(10.6	)
State income taxes, net		(12.6	)		(6.6	)		1.6
Change in valuation allowance		338.6			53.0			10.7
Depletion		—			(3.6	)		(3.2	)
Other, net		0.8			(2.3	)		(0.6	)
Income taxes (credit)	$	148.8		$	(6.8	)	$	(2.1	)

At December 31, 2001, the Company had unused NOL carryforwards of approximately $734.5 million, which expire in 2021, and had unused alternative minimum tax credit and other tax credit carryforwards of approximately $73.3 million which may be applied to offset its future regular federal income tax liabilities. These tax credits may be carried forward indefinitely.

Note 9.    Non-Operational Activities

A number of non-operational activities are reflected in the consolidated statement of operations in each of the three years ended December 31, 2001. A discussion of these items follows.

Unusual Items

During 2001, the Company recognized income (loss) from unusual items consisting of the following items:

Gain on sale of natural gas derivative contract (see Note 13)	$	26.2
Property tax settlements		3.0
Expense related to Staff Retirement Incentive Program for Salaried Non-Represented Employees		(1.2	)
Write-off of computer system costs		(12.1	)
Unusual item	$	15.9

During 2001, the Company completed an evaluation of certain of its computer system software that is in the process of installation. As a result of this evaluation and a reduction in the Company’s capital spending plan, it was determined that certain aspects of projects in process will not be completed or will be delayed indefinitely. This evaluation resulted in a write-off of previously capitalized computer software installation costs of $12.1 million.

During the second quarter of 2001, the Company recorded an unusual credit of $3.0 million for the settlement of property tax issues at the Company’s Midwest and Great Lakes operations relating to prior tax years.

Additionally, the Company offered a Staff Retirement Incentive Program for certain salaried non-represented employees. The voluntary program, available between March 1, 2001 and May 1, 2001, was offered to support the Company’s efforts to reduce the salaried workforce. The expense results from the additional pension, other postretirement employee benefits and severance liabilities incurred as a result of the employees who accepted the program.

60

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Net Gain on the Disposal of Non-Core Assets and Other Related Activities

In 2001, 2000 and 1999, the Company disposed, or made provisions for disposing of, certain non-core assets. The effects of these transactions and other activities relating to non-core assets are presented as a separate component in the consolidated statements of operations. The $3.0 million net gain on disposal of non-core assets in 2001 resulted from the sale of property and certain assets related to an idled pickling operation, the sale of property and certain assets, including trademarks, related to the Granite City Division building products line, and a final payment related to the sale of our equity interest in Presque Isle Corporation (“Presque Isle”) in 2000. The $15.1 million net gain on disposal of non-core assets in 2000 resulted from the sale of our 30% equity interest in the Presque Isle Corporation, a limestone quarry. The Company received proceeds of $16.9 million (net of taxes and expenses) from the sale of this property. During 1999, the Company sold properties located in Michigan and received proceeds of $0.8 million (net of taxes and expenses) and recorded a net gain in the same amount from the sales of these properties.

Extraordinary Item

During 2001, the Company closed on a new $465 million Credit Agreement secured by both accounts receivable and inventory which expires in September 2004. This Credit Agreement replaced the old $200 million Receivables Purchase Agreement with an expiration date of September 2002 and the $200 million revolving credit facility secured by the Company’s inventories (the “Inventory Facility”) with an expiration date of November 2004. As a result, the Company recorded an extraordinary charge of $2.0 million with respect to the write-off of unamortized debt issuance costs in connection with the extinguishment of debt.

Change in Accounting Principle

Effective January 1, 2001, the Company changed its method of accounting for investment gains and losses on pension assets for the calculation of net periodic pension cost. Previously, the Company’s actuary used a method that recognized all realized gains and losses immediately and deferred and amortized all unrealized gains and losses over five years. The Company has decided to change its actuarial method to treat realized and unrealized gains and losses in the same manner. Under the new accounting method, the market value of plan assets will reflect gains and losses at the actuarial expected rate of return. In addition, the difference between actual gains and losses and the amount recognized based on the expected rate of return will be amortized in the market value of plan assets over three years. In management’s opinion, this method of accounting, which is consistent with the practices of many other companies with significant pension assets, will result in improved reporting because the new method more closely reflects the fair value of its pension assets.

The cumulative effect of this change was a credit of $17.2 million recognized in income as of January 1, 2001. There was no income tax expense on the cumulative effect of the change in accounting method. Pension cost and the net loss for the year ended December 31, 2001 was $6.7 million or $0.16 per share less as a result of the change in accounting. The pro forma effect of this change as if it had been made retroactively for the year ended December 31, 2000 would have been to increase pension cost by $1.9 million and decrease net income by $1.8 million or $0.04 per share.

Note 10.    Related Party Transactions

Summarized below are transactions between the Company and NKK (the Company’s principal stockholder) and other affiliates.

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NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

NKK Transactions

During 1998, the Company entered into a Turnkey Engineering and Construction Contract with NKK Steel Engineering, Inc. (“NKK SE”), a subsidiary of NKK, to design, engineer, construct and install a continuous galvanizing facility at Great Lakes. The purchase price payable by the Company to NKK SE for the facility is approximately $150 million. During 2001, 2000, 1999 and 1998, $4.0, $32.2, $98.4, and $15.2 million, respectively, was paid to NKK SE relating to the above mentioned contract. At December 31, 2001, $0.2 million was included in accounts payable. On November 29, 2000, the Company entered into an agreement with NKK SE relating to the final settlement of outstanding claims under the Construction Contract. This agreement required that all amounts relating to the completion of the Turnkey Engineering and Construction Contract be billed and paid by April 2, 2001, with the exception of $3.1 million that was withheld pending the resolution of certain legal matters related to a subcontractor. The Company paid to NKK SE on June 18, 2001 $3.1 million of the retention and received a Letter of Credit in the same amount that has an expiration of June 5, 2002. Additionally, the Company has two other Letters of Credit totaling approximately $6.9 million, both with an expiration of October 31, 2002, which secure the potential settlement for the liquidated damages for the late startup and for other performance issues.

During 2001 and 2000, the Company purchased from a trading company in arms’ length transactions at competitively bid prices, approximately $0.1 million and $5.5 million, respectively, of finished-coated steel produced by NKK.

Effective as of February 16, 2000, the Company entered into a Steel Slab Products Supply Agreement with NKK, the initial term of which extended through December 31, 2000 and continues on a year-to-year basis thereafter until terminated by either party on six months notice. Pursuant to the terms of this Agreement, the Company will purchase steel slabs produced by NKK at a price determined in accordance with a formula set forth in the Agreement that approximates current market price. The quantity of slabs to be purchased is negotiated on a quarterly basis. The Company purchased $28.9 million and $26.2 million of slabs under this agreement during 2001 and 2000, respectively, and has committed to purchase approximately $6.4 million of slabs produced by NKK during 2002.

Effective May 1, 1995, the Company entered into an Agreement for the Transfer of Employees with NKK, the term of which has been extended through 2002. Pursuant to the terms of this Transfer Agreement, technical and business advice is provided through NKK employees who are transferred to the employ of the Company. The Company is obligated to reimburse NKK for the costs and expenses incurred by NKK in connection with the transfer of these employees, subject to an agreed upon cap. The cap was $7.0 million during each of 2001, 2000 and 1999 and will be $6.0 million in 2002. The Company incurred expenditures of approximately $5.0 million, $6.7 million and $6.3 million under this agreement during 2001, 2000 and 1999, respectively. In addition, the Company utilized various other engineering services provided by NKK and incurred expenditures of approximately $1.7 million, $0.2 million and $0.8 million for these services during 2001, and 2000 and 1999, respectively.

During March 2001, the Company entered into a Subordinated Credit Agreement with NUF LLC (“NUF”), a wholly owned subsidiary of NKK, pursuant to which NUF agreed to provide a $100 million revolving credit facility to the Company. This loan is secured by a junior lien on the Company’s inventory and certain unsold receivables and has a scheduled termination date of February 25, 2002. (See Note 5. Long-term Obligations.)

On May 25, 2000, the Company entered into a Cooperation Agreement on Research and Development and Technical Assistance with NKK Corporation with an initial term of five years. The Cooperation Agreement allows for either party to make available to the other party technical assistance and consulting services relating to

62

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

research and development on existing and future steel products and relevant technology. No amounts were paid or received pursuant to the Cooperation Agreement during 2001 and 2000.

All of the transactions between the Company and NKK and its affiliates which are described above were unanimously approved by all directors of the Company who were not then, and never have been, employees of NKK.

In 2001, no dividends were paid. In 2000, cash dividends of $0.21 per share, or approximately $4.6 million, were paid on 22,100,000 shares of Class A Common Stock owned by NKK and in 1999, cash dividends of $0.28 per share, or approximately $6.2 million, were paid on 22,100,000 shares of Class A Common Stock owned by NKK. (See Note 3. Capital Structure.)

Affiliate Transactions

The Company is contractually required to purchase its proportionate share of raw material production or services from certain affiliated companies. Such purchases of raw materials and services aggregated $36.0 million in 2001, $37.6 million in 2000 and $35.8 million in 1999. Additional expenses were incurred in connection with the operation of a joint venture agreement. (See Note 12. Other Commitments and Contingencies.) Accounts payable at December 31, 2001 and 2000 included amounts with affiliated companies accounted for by the equity method of $1.3 million and $1.6 million, respectively.

The Company sold various prime and non-prime steel products and services to affiliated companies at prices that approximate market price. Sales totaled approximately $36.7 million in 2001, $65.3 million in 2000 and $25.1 million in 1999. Accounts receivable at December 31, 2001 and 2000 included amounts with affiliated companies of $13.2 million and $15.4 million, respectively.

Note 11.    Environmental Liabilities

The Company’s operations are subject to numerous laws and regulations relating to the protection of human health and the environment. Because these environmental laws and regulations are quite stringent and are generally becoming more stringent, the Company has expended, and can be expected to expend in the future, substantial amounts for compliance with these laws and regulations. Due to the possibility of future changes in circumstances or regulatory requirements, the amount and timing of future environmental expenditures could vary substantially from those currently anticipated.

It is the Company’s policy to expense or capitalize, as appropriate, environmental expenditures that relate to current operating sites. Environmental expenditures that relate to past operations and which do not contribute to future or current revenue generation are expensed. With respect to costs for environmental assessments or remediation activities, or penalties or fines that may be imposed for noncompliance with such laws and regulations, such costs are accrued when it is probable that liability for such costs will be incurred and the amount of such costs can be reasonably estimated. The Company has accrued an aggregate liability for such costs of $6.4 million and $6.7 million as of December 31, 2001 and 2000, respectively.

The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended (“CERCLA”), and similar state statutes generally impose joint and several liability on present and former owners and operators, transporters and generators for remediation of contaminated properties regardless of fault. The Company and certain of its subsidiaries are involved as a potentially responsible party (“PRP”) in a number of CERCLA and other environmental cleanup proceedings. At some of these sites, the Company does not have

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NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

sufficient information regarding the nature and extent of the contamination, the wastes contributed by other PRPs, or the required remediation activity to estimate its potential liability. With respect to those sites for which the Company has sufficient information to estimate its potential liability, the Company has accrued an aggregate liability of $9.0 million and $16.0 million as of December 31, 2001 and 2000, respectively.

The Company has also recorded reclamation and other costs to restore its shutdown coal locations to their original and natural state, as required by various federal and state mining statutes. The Company has recorded an aggregate liability of $2.0 million at December 31, 2001 and 2000, relating to these properties.

Since the Company has been conducting steel manufacturing and related operations at numerous locations for over seventy years, the Company potentially may be required to remediate or reclaim any contamination that may be present at these sites. The Company does not have sufficient information to estimate its potential liability in connection with any potential future remediation at such sites. Accordingly, the Company has not accrued for such potential liabilities.

As these matters progress or the Company becomes aware of additional matters, the Company may be required to accrue charges in excess of those previously accrued. Although the outcome of any of the matters described, to the extent they exceed any applicable accruals or insurance coverages, could have a material adverse effect on the Company’s results of operations and liquidity for the applicable period, the Company has no reason to believe that such outcomes, whether considered individually or in the aggregate, will have a material adverse effect on the Company’s financial condition.

Note 12.    Other Commitments and Contingencies

The Company has an interest in DNN Galvanizing Limited Partnership, a joint venture which constructed a 400,000 ton per year continuous galvanizing line to serve North American automakers. The joint venture coats steel products for the Company and an unrelated third party. The Company is a 10% equity owner of the facility, an unrelated third party is a 50% owner and a subsidiary of NKK owns the remaining 40%. The Company is committed to utilize and pay a tolling fee in connection with 50% of the available line-time of the facility. The agreement extends for 20 years after the start of production, which commenced in January 1993.

The Company has a 50% interest in a joint venture with Bethlehem Steel Corporation (“Bethlehem”), which commenced production in May 1994. The joint venture, Double G Coatings Company, L.P. (“Double G”), constructed a 300,000 ton per year coating facility near Jackson, Mississippi which produces galvanized and Galvalume^® steel sheet for the construction market. The Company is committed to utilize and pay a tolling fee in connection with 50% of the available line-time at the facility through May 10, 2004. Double G provided a first mortgage on its property, plant and equipment and the Company has separately guaranteed $9.8 million of Double G’s debt as of December 31, 2001.

The Company has entered into certain commitments with suppliers which are of a customary nature within the steel industry. Commitments have been entered into relating to future expected requirements for such commodities as coal, coke, iron ore pellets, natural and industrial gas, electricity and certain transportation and other services. Commitments have also been made relating to the supply of pulverized coal and coke briquettes. Certain commitments contain provisions which require that the Company “take or pay” for specified quantities without regard to actual usage for periods of up to 12 years. In 2002 and 2003 the Company has commitments with “take or pay” or other similar commitment provisions for approximately $243.6 million and $216.7 million, respectively. The Company fully utilized all such “take or pay” requirements during the past three years and

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NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

purchased $277.3 million, $405.9 million and $350.5 million in 2001, 2000 and 1999, respectively, under these contracts. The Company believes that production requirements will be such that consumption of the products or services purchased under these commitments will occur in the normal production process. The Company also believes that prices in the contracts are such that the products or services will approximate the market price over the lives of the contracts.

The Company is jointly liable with LTV Steel Company, Inc. (“LTV”) for environmental clean-up and certain retiree benefit costs related to the closed Donner Hanna Coke plant. On December 31, 2000, LTV filed for Chapter 11 protection under U.S. bankruptcy laws. During the fourth quarter of 2001, LTV announced their intentions to initiate an orderly liquidation in accordance with bankruptcy laws. As a result, the Company recorded 100% of the obligation for the retiree benefit costs and recorded a charge of $3.6 million.

In the fourth quarter of 2001, Bethlehem filed for Chapter 11 protection under U.S. bankruptcy laws. The Company has a 50% interest in a joint venture coating facility with Bethlehem and a 13% interest in a joint venture family health care facility with Bethlehem and another steel company. The Company is uncertain what effect, if any, the Bethlehem bankruptcy will have on its future earnings and financial position.

The Company is involved in various routine legal proceedings which are incidental to the conduct of its business. Management believes that the Company is not party to any pending legal proceeding which, if decided adversely to the Company, would individually or in the aggregate, have a material adverse effect on the Company.

Letters of Credit

The Company utilizes third-party standby letters of credit to provide financial assurance for certain insurance activities, employee benefit payments and other activities in the normal course of business. These letters of credit are irrevocable and generally have one-year renewable terms. Outstanding standby letters of credit as of December 31, 2001 and 2000 were $24.7 million and $32.1 million, respectively. The contract amounts of these letters of credit approximate their fair value.

Note 13.    Derivative Instruments

In order to reduce the uncertainty of price movements with respect to the purchase of zinc, the Company enters into financial derivative instruments in the form of swap contracts with global financial institutions. These contracts, which typically mature within one year, have been designated as cash flow hedges. Therefore, these contracts are recorded at their fair value on the balance sheet and any changes in their fair value, to the extent they have been effective as hedges, will be reclassified into earnings in the period during which the hedged forecasted transaction affects earnings. The fair value of commodity purchase swap contracts are calculated using pricing models used widely in financial markets. Additionally, the Company had one forward contract for the purchase of natural gas that upon adoption of SFAS 133 was classified as a derivative instrument. This contract was sold in January 2001 for $26.2 million. Upon the sale of the contract, the resulting gain was recognized as an unusual item in the income statement.

The estimated fair value of derivative financial instruments used to hedge the Company’s risks will fluctuate over time. At December 31, 2001, the Company had recorded a liability of $2.3 million with an offset to accumulated other comprehensive income.

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NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 14.    Long-Term Incentive Plan

The Long-Term Incentive Plan, established in 1993, has authorized the granting of options for up to 3,400,000 shares of Class B Common Stock to certain executive officers and other key employees of the Company. The Non-Employee Directors Stock Option Plan, also established in 1993, has authorized the grant of options for up to 100,000 shares of Class B Common Stock to certain non-employee directors. The exercise price of the options equals the fair market value of the Common Stock on the date of the grant. All options granted have ten year terms. Options generally vest and become fully exercisable ratably over three years of continued employment. However, in the event that termination of employment is by reason of retirement, permanent disability or death, the option must be exercised in whole or in part within 24 months of such occurrences. There were 1,757,837 and 2,044,282 options available for granting under the stock option plans as of December 31, 2001 and 2000, respectively.

No compensation expense was recorded in 2001, 2000 or 1999. In addition, the Company cancelled 66,666 SARs and converted them back to options during 1999.

As permitted by SFAS 123, the Company has chosen to continue accounting for stock options at their intrinsic value at the date of grant consistent with the provisions of APB 25. Accordingly, no compensation expense has been recognized for the stock option plans. Had compensation cost for the option plans been determined based on the fair value at the grant date for awards in 2001, 2000, and 1999 consistent with the provisions of SFAS 123, the Company’s net loss and earnings per share would have been adjusted to the pro forma amounts indicated below:

	2001			2000			1999
	Dollars in millions, except EPS
Net loss—pro forma	$	(653.1	)	$	(130.5	)	$	(29.2	)
Basic and diluted earnings per share—pro forma		(15.82	)		(3.16	)		(0.71	)

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:

	2001	2000	1999
Dividend yield	0.0%	2.8%	3.1%
Expected volatility	74.5%	58.5%	57.2%
Risk-free interest rate	5.0%	6.6%	5.4%
Expected term (in years)	7.0	7.0	7.0

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NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

A reconciliation of the Company’s stock option activity and related information follows:

	Number of Options		Exercise Price (Weighted Average)
Balance outstanding at January 1, 1999	735,634		$	12.31
Granted	304,000			8.27
Forfeited	(36,307	)		13.12
SARs cancelled and converted to options	66,666			12.48
Balance outstanding at December 31, 1999	1,069,993			11.15
Granted	501,500			6.72
Forfeited	(319,581	)		12.65
Balance outstanding at December 31, 2000	1,251,912			8.99
Granted	775,000			2.05
Forfeited	(326,889	)		7.35
Balance outstanding at December 31, 2001	1,700,023		$	6.14

The following table summarizes information about stock options outstanding at December 31, 2001:

Range of Exercise Prices	Number Outstanding at 12/31/01	Weighted Average Remaining Life (in years)	Weighted Average Exercise Price		Number Exercisable at 12/31/01	Weighted Average Exercise Price
$1 1/10 to $4	719,973	8.6	$	2.06	8,305	$	2.64
$4 to $8	443,889	7.0		7.05	186,994		7.02
$8 to $12	359,027	4.7		8.81	301,697		8.91
$12 to $19	177,134	3.7		15.01	177,134		15.01
Total	1,700,023	6.9	$	6.14	674,130	$	9.91

There were 505,077 exercisable stock options with a weighted average exercise price of $10.84 as of December 31, 2000.

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NATIONAL STEEL CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS—(Continued)

Note 15.    Quarterly Results of Operations (Unaudited)

Following are the unaudited quarterly results of operations for the years 2001 and 2000.

	2001
	Three Months Ended
	March 31			June 30			September 30			December 31
	Dollars in millions, except per share amounts
Net sales	$	589.4		$	673.2		$	637.0		$	592.7
Gross margin		(76.7	)		(51.1	)		(75.5	)		(121.0	)
Unusual items		(26.0	)		(2.0	)		10.9			1.2
Extraordinary item		—			—			(2.0	)		—
Cumulative effect of change in accounting principal		17.2			—			—			—
Net loss		(108.7	)		(110.3	)		(152.8	)		(280.3	)
Basic and diluted earnings per share:
Net loss	$	(2.63	)	$	(2.67	)	$	(3.70	)	$	(6.79	)
	2000
	Three Months Ended
	March 31			June 30			September 30			December 31
	Dollars in millions, except per share amounts
Net sales	$	835.1		$	799.1		$	693.1		$	651.6
Gross margin		57.2			27.4			(16.6	)		(34.3	)
Net income (loss)		10.6			0.3			(57.3	)		(83.4	)
Basic and diluted earnings per share:
Net income (loss)	$	0.26		$	0.01		$	(1.39	)	$	(2.02	)

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

None.

PART III

Item 10.    Directors and Executive Officers of the Registrant

The information required by this Item regarding executive officers is incorporated by reference from the section captioned “Executive Officers of the Registrant” in Part I of this report.

Information Concerning Directors

Set forth below for each director is his name and age; the date on which he first became a director of the Company; the names of other companies of which he serves as a director; and his principal occupation during at least the last five years.

Arthur H. Aronson

Mr. Aronson, age 66, has been a director of the Company since March 14, 2001. Mr. Aronson served as Chairman and Chief Executive Officer of Allegheny Ludlum Corporation from 1994 to 1996. From 1996 to 1998, he served as Executive Vice President and President of the Specialty Metals Group of Allegheny Teledyne, Inc., which manufactures stainless and specialty metals. Mr. Aronson was a consultant to Allegheny Teledyne Incorporated from 1999 until his retirement in July 2000. Mr. Aronson also serves as a director of Cooper Tire & Rubber Company and Keystone Powder Metal Corp. Mr. Aronson is a member of the Audit and Compensation Committees.

Edsel D. Dunford

Mr. Dunford, age 66, has been a director of the Company since April 27, 1998. Mr. Dunford has held a variety of management and technical positions with TRW, Inc., a manufacturer of products for the automotive, space and defense and information systems industries. He served as President of TRW from 1991 until his retirement in 1994. Mr. Dunford also serves as a director of Cooper Tire & Rubber Company. Mr. Dunford is Chairman of the Compensation Committee and a member of the Audit Committee.

Mitsuoki Hino

Mr. Hino, age 54, has been a director of the Company since October 27, 1998. Since 1971, Mr. Hino has served in various capacities with NKK Corporation (“NKK”), a Japanese steel manufacturer and the parent company of NKK U.S.A. Corporation (the holder of all of the outstanding shares of the Company’s Class A Common Stock). His most recent positions have been Director of Human Resources from 1993 to 1995, General Manager, Sales and Production Planning from 1995 to March 2000 and Vice President, Planning, Logistics and Information Technology from April 2000 to the present. He served as a Director of the Board of NKK from June 1999 until March 2000.

Bruce K. MacLaury

Mr. MacLaury, age 70, has been a director of the Company since April 30, 1996. From 1977 to 1995, Mr. MacLaury served as President of The Brookings Institution which is engaged in public policy research and education. Mr. MacLaury also serves as a director of American Express Bank, Ltd. and the St. Paul Companies Inc. Mr. MacLaury is Chairman of the Audit Committee and a member of the Nominating Committee.

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Mineo Shimura

Mr. Shimura, age 50, has been a director of the Company since April 21, 1997. Mr. Shimura has served as a senior executive for various U.S. affiliates of NKK and presently holds the following positions with NKK affiliates: President of NUF LLC (a finance company), President of NKK America, Inc. (a service company), President of NKK U.S.A. Corporation (a holding company), President of NKK Windsor Corporation (a finance company) and President of Galvatek Ontario Corporation (a holding company). Mr. Shimura is Chairman of the Nominating Committee.

Hisashi Tanaka

Mr. Tanaka, age 54, has been a director of the Company since April 27, 1998. He was elected Chairman of the Board and Chief Executive Officer of the Company on March 4, 2001. Prior to his election to that position, Mr. Tanaka served in various capacities with NKK since 1971. His most recent positions have been Director, Technical & Engineering Planning from 1995 to 1996, General Manager, Steelmaking Technology from 1996 to 1998, General Manager Technology Planning and Coordination from 1998 to March 2000 and Vice President, Technology Planning and Coordination from April 2000 to March 2001. He served as a Director of the Board of NKK from June 1999 until March 2000.

Akira Uemura

Mr. Uemura, age 51, has been a director of the Company since March 14, 2001. Mr. Uemura has served in various capacities with NKK since 1974. His most recent positions have been Team Manager of the Plant Construction and Engineering Department at NKK’s head office from 1995 to 1997, General Manager of the Plant Engineering Department at NKK’s Fukuyama Works from 1998 to 1999 and General Manager of the Plant Construction and Engineering Department at NKK’s head office from 2000 to the present.

Sotaro Wakabayashi

Mr. Wakabayashi, age 52, has been a director of the Company since December 16, 1998. Mr. Wakabayashi has served in various capacities with NKK since 1974. His most recent positions have been Senior Manager, International Legal Affairs from 1993 to 1994, Senior Counselor from 1994 to 1998 and Chief Senior Counselor from 1998 to the present. Mr. Wakabayashi is a member of the Compensation Committee.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers and directors and persons who owned greater than 10% of a class of the Company’s equity securities to file with the Securities and Exchange Commission an initial statement of beneficial ownership and certain statements of changes in beneficial ownership of equity securities of the Company. Based solely upon a review of the copies of the forms furnished to the Company, or written representations from certain reporting persons that no other forms were required, the Company believes that all Section 16(a) filing requirements with respect to its executive officers and directors were met during 2001.

Item 11 .    Executive Compensation

Compensation of Directors

Directors who are not employees of the Company or any of its subsidiaries receive an annual fee of $30,000 plus a fee of $1,000 for attendance at each meeting of the Board of Directors and at each meeting of a committee of the Board of Directors. The chairman of each standing committee receives an additional annual payment of

70

$3,000. All directors are reimbursed for expenses incurred in attending Board and committee meetings. In addition, any non-employee director who, at the request of the Chairman of the Board, performs special services or assignments on behalf of the Board, receives compensation of $1,000 per day plus reasonable out-of-pocket expenses. Each non-employee director also receives, upon his initial election to the Board of Directors, a stock option grant of 2,500 shares of Class B Common Stock at the then market price pursuant to the terms of the 1993 National Steel Corporation Non-Employee Directors Stock Option Plan (“Directors Plan”). An additional stock option grant of 1,000 shares of Class B Common Stock is granted to each non-employee director pursuant to the Directors Plan at each anniversary of Board service. All stock options granted pursuant to the Directors Plan vest in one-third annual increments commencing on the first anniversary date of the initial grant.

The Compensation Committee of the Board of Directors

The Compensation Committee of the Board of Directors reviews and approves the philosophy and guidelines for compensation programs and develops recommendations for the Board of Directors regarding compensation levels for the Company’s executive officers and directors. The Compensation Committee also administers the Company’s annual Management Incentive Compensation Plan (“MICP”). The Compensation Committee is composed exclusively of independent directors who are not eligible to participate in any of management’s compensation programs. The current members of the Compensation Committee are Edsel D. Dunford (Chairman), Arthur H. Aronson and Sotaro Wakabayashi.

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Executive Compensation

The following table sets forth separately, for the fiscal years indicated, each component of compensation paid or awarded to, or earned by, each individual who served as Chief Executive Officer of the Company during the last fiscal year, and each of the other four most highly compensated executive officers who were serving as executive officers at the end of the last fiscal year (collectively referred to herein as the “Named Executive Officers”).

SUMMARY COMPENSATION TABLE

		Annual Compensation			Long-Term Compensation Awards
Name and Principal Position	Year	Salary ($)	Bonus ($)	Other Annual Compensation ($)(1)	Securities Underlying Options/SARs (#)(2)	All Other Compensation ($)(3)
Hisashi Tanaka	2001	413,144	0	15,420	50,000	19,427
Chairman of the Board and	2000	—	—	—	1,000	—
Chief Executive Officer(4)	1999	—	—	—	500	—
Yutaka Tanaka	2001	96,704	0	18,154	70,000	560,523
Former Chairman of the Board and	2000	552,500	0	18,751	70,000	22,872
Chief Executive Officer(5)	1999	520,834	0	18,751	50,000	22,872
John A. Maczuzak	2001	425,004	0	11,896	50,000	29,822
President and	2000	422,920	0	12,287	50,000	26,936
Chief Operating Officer	1999	395,830	0	12,287	45,000	36,529
John F. Kaloski	2001	275,004	0	4,981	25,000	16,016
Senior Vice President	2000	272,921	0	5,192	25,000	15,529
Commercial and Planning	1999	250,008	0	5,192	20,000	20,643
Ronald J. Werhnyak	2001	245,004	0	5,510	20,000	16,067
Senior Vice President, General Counsel	2000	243,754	0	5,695	20,000	14,689
and Secretary	1999	229,129	0	13,191	20,000	26,287
Daniel B. Joeright	2001	200,004	0	4,144	20,000	12,328
Vice President and General Manager-	2000	185,203	0	7,917	20,000	16,647
Regional Division(6)	1999	138,000	0	0	0	6,302

(1) The amount shown represents amounts paid to the Named Executive Officer for reimbursement of taxes.

(2) All grants shown were made pursuant to the Long Term Incentive Plan, except for the grants made to Mr. H. Tanaka in 1999 and 2000 which were made pursuant to the Directors Plan.

(3) The amount shown for 2001 includes (a) the Company’s contribution to the National Steel Retirement Savings Program for Messrs. Maczuzak, Kaloski, Werhnyak and Joeright in the amount of $4,250 each; (b) the dollar value of life insurance premiums paid by the Company on behalf of the Named Executive Officer for Messrs. H. Tanaka, Y. Tanaka, Maczuzak, Kaloski, Werhnyak and Joeright in the amounts of $19,427, $22,872, $14,988, $7,518, $8,045 and 6,000, respectively; (c) the Company’s contribution to the Executive Deferred Compensation Plan for Messrs. Maczuzak, Kaloski, Werhnyak and Joeright in the amounts of $6,199, $4,010, $2,041 and $1,250, respectively; (d) an adjustment to the MICP payment previously paid to the Named Executive Officer for services during 1998 for Messrs. Y. Tanaka, Maczuzak, Kaloski, Werhnyak and Joeright in the amounts of $5,770, $4,385, $238, $1,731 and $828, respectively; and (e) in the case of Mr. Y. Tanaka, $531,881 paid pursuant to his Employment Contract following his resignation as Chairman of the Board and Chief Executive Officer on March 4, 2001.

(4) Mr. H. Tanaka was appointed Chairman of the Board and Chief Executive Officer on March 4, 2001.

(5) Mr. Y. Tanaka resigned his position as Chairman of the Board and Chief Executive Officer on March 4, 2001.

(6) Mr. Joeright became an executive officer of the Company on May 8, 2000.

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Stock Option Tables

The following table contains information relating to stock options which were granted to the Named Executive Officers in 2001.

OPTION GRANTS IN 2001

Name	Number of Securities Underlying Options Granted (#)(1)	Percent of Total Options Granted To Employees in Fiscal Year	Exercise or Base Price ($/Share)(2)	Expiration Date	Grant Date Present Value ($)(3)
Hisashi Tanaka	50,000	6.5	2.040	3/4/11	74,000
Yutaka Tanaka	70,000	9.0	2.075	2/5/11	106,400
John A. Maczuzak	50,000	6.5	2.075	2/5/11	76,000
John F. Kaloski	25,000	3.2	2.075	2/5/11	38,000
Ronald J. Werhnyak	20,000	2.6	2.075	2/5/11	30,400
Daniel B. Joeright	20,000	2.6	2.075	2/5/11	30,400

(1) These grants represent nonqualified stock options to purchase shares of the Company’s Class B Common Stock which were granted under the Long Term Incentive Plan. The options become exercisable in annual one third increments commencing one year from the date of the initial grant. The options can be exercised only while the optionee is in the employ of the Company; however, in the event that termination of employment is by reason of retirement, permanent disability or death, the options may be exercised in whole or in part within 24 months of the date of any such occurrence, to the extent they have vested as described in the Long Term Incentive Plan. In the event of a change in control, as defined in the Long Term Incentive Plan, all options become immediately exercisable unless provided otherwise at the time of grant of such options.

(2) The exercise price for these stock option grants was equal to the fair market value of the Class B Common Stock on the grant date.

(3) The grant date present value was determined using the Black-Scholes valuation methodology. The Company does not advocate or necessarily agree that the Black-Scholes model can properly determine the value of an option. The actual value, if any, a Named Executive Officer may realize will depend on the excess of the stock price over the exercise price on the date the option is exercised so that there is no assurance the value realized by an individual will be at or near the value estimated by the Black-Scholes model. With the exception of the grant to Mr. H. Tanaka, the following assumptions were made when applying the Black-Scholes valuation methodology to these grants: (a) expected volatility: 75.08%; (b) expected dividend yield: 0.00%; (c) expected risk free rate of return: 5.10%; (d) expected timing of exercise: 7 years; and (e) Black-Scholes ratio: 73.25%. The following assumptions were made when applying the Black-Scholes valuation methodology to the grant to Mr. H. Tanaka: (a) expected volatility: 74.08%; (b) expected dividend yield: 0.00%; (c) expected risk free rate of return: 5.02%; (d) expected timing of exercise: 7 years; and (e) Black-Scholes ratio: 72.55%.

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The following table sets forth certain information concerning options to purchase the Company’s Class B Common Stock which were held by the Named Executive Officers as of December 31, 2001.

DECEMBER 31, 2001 OPTION VALUES (1)

	Shares Acquired on Exercise (#)	Value Realized ($)	Number of Securities Underlying Unexercised Options at December 31, 2001 (#)		Value of Unexercised In-the-Money Options at December 31, 2001 ($)(2)
Name			Exercisable	Unexercisable	Exercisable	Unexercisable
Hisashi Tanaka	0	0	3,167	50,833	0	0
Yutaka Tanaka	0	0	101,667	133,333	0	0
John A. Maczuzak	0	0	146,667	98,333	0	0
John F. Kaloski	0	0	51,667	48,333	0	0
Ronald J. Werhnyak	0	0	42,801	39,999	0	0
Daniel B. Joeright	0	0	6,666	33,334	0	0

(1) No options were exercised during 2001.

(2) There were no in-the-money stock options held by the Named Executive Officers at December 31, 2001 because the exercise prices of all unexercised stock options exceeded the market price of the Company’s Class B Common Stock of $1.45 per share on December 31, 2001.

Pension Plans

The following table shows the annual benefits payable under the Company’s qualified defined benefit pension plan along with the non-qualified defined pension plans, which provide for the payment of retirement benefits in excess of certain maximum limitations imposed by the Internal Revenue Code. The amounts shown are approximate benefits payable as a straight life annuity for an employee retiring in 2002 at age 65, computed at various levels of average compensation and years of service at retirement.

Average Annual Eligible Compensation Preceding Retirement		PENSION PLAN TABLE
		Years of Service
		10		15		20		25		30		35		40		45
$	100,000	$	13,000	$	20,000	$	26,500	$	33,000	$	39,500	$	46,000	$	53,000	$	59,500
	150,000		20,500		30,500		40,500		50,500		61,000		71,000		81,000		91,500
	200,000		27,500		41,000		54,500		68,500		82,000		95,500		109,500		123,000
	250,000		34,500		51,500		69,000		86,000		103,500		120,500		137,500		155,000
	300,000		41,500		62,500		83,000		104,000		124,500		145,500		166,000		187,000
	350,000		48,500		73,000		97,000		121,500		145,500		170,000		194,500		218,500
	400,000		55,500		83,500		111,500		139,000		167,000		195,000		222,500		250,500
	450,000		62,500		94,000		125,500		157,000		188,000		219,500		251,000		282,500
	500,000		70,000		104,500		139,500		174,500		209,500		244,500		279,000		314,000
	600,000		84,000		126,000		168,000		210,000		252,000		294,000		336,000		378,000
	700,000		98,000		147,000		196,000		245,500		294,500		343,500		392,500		441,500
	800,000		112,500		168,500		224,500		280,500		337,000		393,000		449,000		505,000
	900,000		126,500		189,500		253,000		316,000		379,000		442,500		505,500		569,000
	1,000,000		140,500		211,000		281,000		351,500		421,500		492,000		562,000		632,500

Eligible compensation covered by the Company’s retirement plans includes the eligible employee’s base salary, before reduction for any salary deferral agreements, and MICP awards paid for the sixty highest consecutive months during the last ten years of employment. Benefits paid under the Company’s plans are not subject to reduction for social security payments received by the Company’s executive officers.

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MICP awards are shown in the bonus column of the Summary Compensation Table in the year in which they were earned. Eligible compensation under the retirement plans includes the bonus in the year in which the payment was made and, as such, MICP awards earned in a particular year are included in the following year as eligible compensation under the retirement plans.

The table below shows for each of the Named Executive Officers (a) the years of service under the retirement plans as of December 31, 2001, and (b) the amount of eligible compensation under the retirement plans for 2001:

Name	Years of Service	Eligible Compensation
Hisashi Tanaka	.8333	$413,143
Yutaka Tanaka	3.75	164,741
John A. Maczuzak	5.6667	429,389
John F. Kaloski	3.4167	277,312
Ronald J. Werhnyak	9.4167	246,735
Daniel B. Joeright	10.667	200,832

Employment Contracts

The Company has entered into employment contracts (“Contracts”) with certain executives, including the Named Executive Officers identified below. Set forth below is a summary of certain terms of the Contracts applicable to such Named Executive Officers.

The Contract with Mr. Yutaka Tanaka, who terminated his employment with the Company for “good reason” effective as of March 4, 2001, provided for certain post termination covenants including non-disclosure, non-solicitation of employees, cooperation during a transition period and release of employment claims. The Contract with Mr. Tanaka also provided for certain payments and benefits upon termination of Mr. Tanaka’s employment. Because Mr. Tanaka terminated his employment for “good reason”, he received special termination benefits consisting of: (i) a severance payment equal to 50% of his annual base salary; (ii) an incentive compensation payment for the year of termination equal to his target incentive compensation percentage multiplied by his then current base salary, pro-rated to reflect the part of the year completed before termination; (iii) continued stock option vesting and exercisability for a five year period; and (iv) a two year continuation of health care and certain other employee benefits on the same basis as if he had remained an employee for such period. During the benefit continuation period, Company provided employee benefits will be secondary to any benefits provided under an NKK sponsored benefit plan, or any Japanese government benefit plan or other available benefit plan. Mr. Tanaka also agreed to make himself available to provide consulting services to the Company for a period of three months following the effective date of his termination, in exchange for which the Company paid to Mr. Tanaka his then current monthly salary for each of the three months.

The Contract with Mr. Hisashi Tanaka provides for (i) non-competition for a period of two years subsequent to termination of employment by Mr. Tanaka without “good reason”; and (ii) other post termination covenants including non-disclosure, non-solicitation of employees, cooperation during a transition period and release of employment claims. The term of the Contract with Mr. Tanaka expires on February 29, 2004. The Contract provides that (i) the annual base salary of Mr. Tanaka under the Contract shall be equal to the base salary in effect on the date of the Contract, subject to adjustment from time to time and (ii) Mr. Tanaka’s annual target incentive compensation opportunity shall be equal to at least 50% of base salary. The Contract further provides that any reduction in Mr. Tanaka’s then current base salary or target incentive opportunity constitutes “good reason” for termination of the Contract by Mr. Tanaka.

The Contract with Mr. Hisashi Tanaka provides for certain payments and benefits upon termination of Mr. Tanaka’s employment. If Mr. Tanaka’s employment terminates due to death or disability, he will receive a

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payment equal to the average incentive compensation paid to him in the three preceding years or, if greater, his target incentive compensation percentage multiplied by his then current base salary, in each case pro-rated to reflect the part of the year completed before termination. If his employment is terminated by the Company without “cause” or by Mr. Tanaka for “good reason”, he would be entitled to special termination benefits consisting of: (i) a severance payment equal to 50% of his annual base salary; (ii) a pro-rata incentive compensation payment for the year of termination, based on the formula applied in the case of death or disability; (iii) continued stock option vesting and exercisability for a five year period; and (iv) a two year continuation of health care and certain other employee benefits on the same basis as if he had remained an employee for such period. During the benefit continuation period, Company provided employee benefits would be secondary to any benefits provided under an NKK sponsored benefit plan, or any Japanese government benefit plan or other available benefit plan. If Mr. Tanaka is age 69 at the time of a qualifying termination, the benefit continuation period is reduced to one year. If termination occurs on or after age 70, there is no benefit continuation period. After expiration of his Contract term, Mr. Tanaka would be entitled to the special termination benefits described above in the event he terminates his employment with or without “good reason”, or if the Company terminates his employment without “cause”. The Contract also provides that the Company will reimburse Mr. Tanaka for expenses incurred in seeking in good faith to enforce his Contract.

The Contract with Mr. Maczuzak provides for non-competition subsequent to termination of employment by the executive without “good reason” for a period of two years. The Contract with Mr. Maczuzak also provides other post termination covenants including non-disclosure, non-solicitation of employees, cooperation during a transition period and release of employment claims. The Contract had an initial term ending July 1, 1998 and is subject to automatic month-to-month extensions unless either party elects not to extend the term. Prior to the date the executive reaches age 65, an election by the Company not to extend the term of the Contract will automatically result in a termination of employment without “cause”. The Contract provides that (i) the executive’s annual base salary under his Contract shall be equal to the base salary in effect on the date of the Contract, subject to adjustment from time to time, (ii) his annual target incentive compensation opportunity shall be equal to at least 40% of his base salary and (iii) any reduction in the executive’s then current base salary or target incentive opportunity constitutes “good reason” for termination of the Contract by the executive.

The Contract with Mr. Maczuzak provides for certain payments and benefits upon termination of employment. If employment terminates for any reason on or after age 65, or due to death or disability, the executive will receive a payment equal to the average incentive compensation paid to the executive in the three preceding years or, if greater, the executive’s target incentive compensation percentage multiplied by his then current base salary, in each case pro-rated to reflect the part of the year completed before termination. If employment is terminated by the Company without “cause” or by the executive for “good reason” before the executive reaches age 64, Mr. Maczuzak would be entitled to special termination benefits consisting of: (i) a severance payment equal to two times the executive’s annual base salary, a pro-rata incentive compensation payment for the year of termination plus, if such termination follows a change of control, an additional amount equal to two times the average incentive compensation paid to the executive in the three preceding years or, if greater, the executive’s target incentive compensation amount based on the formula applied in the case of death or disability; (ii) continued stock option vesting and exercisability for a two year period; (iii) outplacement services; and (iv) a two year continuation of health care and certain other employee benefits on the same basis as if the executive had remained an employee for such period. During the benefit continuation period, Company provided health care benefits would be secondary to any health care benefits provided under another employer provided plan. If a qualifying termination occurs after Mr. Maczuzak reaches age 64, the two year severance and two year benefit continuation periods are reduced to one year, and if a qualifying termination occurs after the executive reaches age 65, there is no severance payment and no benefit continuation period.

The Contract with Mr. Maczuzak also provides that, in the event of a change of control, the benefits provided under the various Company plans and programs may not be less favorable than those provided at any time during the 120 day period immediately preceding the change of control. If a termination by the Company without “cause” or by the executive for “good reason” follows a change of control, then, in addition to the special

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termination benefits described above, a lump sum cash payment equal to the actuarially equivalent value of non-qualified unfunded retirement benefits will be paid to the executive. If payments under the Contract following a change in control are subject to excise tax, the Company will make a “gross-up” payment sufficient to ensure that the net after-tax amount retained by the executive (taking into account all taxes, including those on the gross-up payment) is the same as would have been the case had such excise tax not applied. The Contract also provides that the Company will reimburse the executive for expenses incurred in seeking in good faith to enforce his Contract.

The Contract with Mr. Kaloski provides for non-competition for a period of one year subsequent to a voluntary termination of employment by the executive under circumstances that do not constitute a “constructive discharge”. The Contract also provides other post termination covenants including non-disclosure, non-solicitation of employees, no unfavorable publicity and cooperation during a transition period. The Contract has an initial term ending July 31, 2002 but will be extended for successive one-year periods unless terminated by written notice from either party not less than 60 days prior to any scheduled expiration date. Notice of termination of the Contracts, if given by the Company, will constitute “constructive discharge.” The Contract provides that (i) the executive’s annual base salary under his Contract shall be equal to at least $250,000, (ii) his annual target incentive compensation opportunity shall be equal to at least 40% of his base salary and (iii) any reduction in the executive’s then current base salary, target incentive opportunity or other benefits constitutes “constructive discharge.”

The Contract with Mr. Kaloski provides for certain payments and benefits upon termination of employment. If employment is terminated by the Company without “cause” or by the executive due to a “constructive discharge”, the executive would be entitled to receive: (i) a lump sum payment equal to the executive’s annual base salary (two times the annual base salary if the executive executes a Release of any claims against the Company); (ii) outplacement services; and (iii) a one year continuation of health care benefits on the same basis as if the executive had remained an employee for such period. If Mr. Kaloski remains employed by National Steel until he reaches age 60, he is also entitled to receive a single sum payment in the amount of $442,000 within thirty days after termination of employment, plus simple interest at a rate of 3% per annum for each full year of continued employment after his 60th birthday. If Mr. Kaloski dies while employed by National Steel, a payment will be made to Mr. Kaloski’s surviving spouse or other designated beneficiary in the amount of $221,000 within 30 days after his death, discounted at a rate of 3% per year for each full year by which his death precedes his 60th birthday, or increased by simple interest at a rate of 3% per annum for each full year of continued employment after his 60th birthday.

The Contract with Mr. Kaloski also provides that, in the event of a change of control, the benefits provided under the various Company plans and programs may not be less favorable than those provided at any time during the 120 day period immediately preceding the change of control. If, within two years following a change of control, the executive’s employment is terminated by the Company without “cause” or by the executive due to a “constructive discharge”, the executive is entitled to receive, in addition to the payments and benefits described in the preceding paragraph, (i) an amount equal to the average incentive compensation paid to the executive in preceding years during the Contract term or, if greater, the executive’s target incentive compensation percentage multiplied by his then current base salary (two times either such amount if the executive executes a Release of any claims against the Company); and (ii) a lump sum cash payment equal to the actuarially equivalent value of non-qualified unfunded retirement benefits to which the executive is entitled. If payments under the Contract following a change in control are subject to excise tax, the Company will make a “gross-up” payment sufficient to ensure that the net after-tax amount retained by the executive (taking into account all taxes, including those on the gross-up payment) is the same as would have been the case had such excise tax not applied. The Contract also provides that disputes will be resolved through arbitration, and the Company will be responsible for all of the fees and expenses of the arbitration (including the executive’s reasonable attorney’s fees) if the executive prevails on any material issue which is the subject of the arbitration.

The Contracts with Mr. Werhnyak and Mr. Joeright also provide for non-competition for a period of one year subsequent to a voluntary termination of employment by the executive under circumstances that do not

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constitute a “constructive discharge.” In addition, the Contracts provide other post-termination covenants including non-disclosure, non-solicitation of employees or customers, no unfavorable publicity and cooperation during a transition period. The Contracts have an initial term ending February 28, 2003, but will be extended for successive one-year periods unless terminated by written notice from either party not less than 60 days prior to any scheduled expiration date. Notice of termination of the Contracts, if given by the Company, will constitute “constructive discharge.” The Contracts provide that (i) the executive’s annual base salary shall be equal to the base salary in effect on the date of the Contract, subject to adjustment from time to time; (ii) his annual target incentive compensation opportunity shall be provided in accordance with short-term incentive compensation programs offered by the Company from time to time for its senior level executives; and (iii) any reduction in the executive’s then current base salary, target incentive opportunity or other benefits constitutes “constructive discharge.”

The Contracts with Mr. Werhnyak and Mr. Joeright provide for certain payments and benefits upon termination of employment. If employment is terminated by the Company without “cause” or by the executive due to a “constructive discharge,” the executive would be entitled to receive: (i) a lump sum payment equal to 2.0, in the case of Mr. Werhnyak, or 1.75, in the case of Mr. Joeright, times the executive’s annual base salary; (ii) a lump sum payment equal to 2.0, in the case of Mr. Werhnyak, or 1.75, in the case of Mr. Joeright, times the greater of (A) the average annual incentive compensation paid to the executive in the three preceding years or (B) the executive’s target incentive compensation percentage multiplied by his then current base salary; (iii) a lump sum payment of all amounts accrued to the executive under the Executive Deferred Compensation Plan, whether or not otherwise forfeitable; (iv) executive outplacement services at a cost not to exceed thirty percent of annual base salary; (v) a one-year continuation of health care and other benefits on the same basis as if the executive had remained an employee for such period (and in the case of Mr. Joeright, if he has not reached age 55 at the end of the one-year period, health care benefits only will continue for an additional period ending on the earlier of his 55th birthday or the second anniversary of the last day of his employment term); (vi) supplemental retirement benefits in an amount sufficient to provide the executive with retirement benefits from all Company sources equal to the pension provided under the National Steel Corporation Retirement Program, unreduced for early commencement and based on service of not less than 10 years in the case of Mr. Werhnyak and 15 years in the case of Mr. Joeright, and in the case of Mr. Werhnyak, with an option to receive a portion of those payments in the form of an actuarially equivalent lump sum if his actual service at the time of termination is fewer than 10 years; (vii) retiree health care coverage; and (viii) continued stock option vesting and exercisability for a two-year period. If payments under the Contracts following a change in control of the Company are subject to excise tax, the Company will make a gross-up payment sufficient to ensure that the net after-tax amount retained by the executive (taking into account all taxes, including those on the gross-up payment) is the same as would have been the case had such excise tax not applied. All payments and other benefits under the Contracts are expressly conditioned on the executive’s execution of a Release of any claims against the Company. The Contracts also provide that disputes will be resolved through arbitration, and the Company will be responsible for all of the fees and expenses of the arbitration (including the executive’s reasonable attorney’s fees) if the executive prevails on any material issue which is the subject of the arbitration.

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Item 12 .    Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Directors and Management

The following table sets forth the number of shares of the Company’s Class B Common Stock and the number of shares of common stock of NKK beneficially owned by each of the Company’s directors, nominees for director and Named Executive Officers and by the Company’s directors and executive officers as a group as of March 1, 2002 in the case of the Company’s Class B Common Stock and as of December 31, 2001 in the case of NKK common stock. None of the Company’s directors, nominees for director or Named Executive Officers beneficially owned any shares of the Company’s Class A Common Stock. In general, “beneficial ownership” includes those shares over which a director or executive officer has the power to vote, or the power to transfer, and stock options that are currently exercisable or will become exercisable within 60 days of March 1, 2002. Except as otherwise indicated, each director, nominee for director or Named Executive Officer had sole voting and investment power with respect to any shares beneficially owned.

	NKK Corporation Stock		Class B Common Stock of Company
Name	Number of Shares Beneficially Owned(1)	Percent of Class	Number of Shares Beneficially Owned(2)		Percent of Class
Arthur H. Aronson	0	0	833		*
Edsel D. Dunford	0	0	18,999		*
Mitsuoki Hino	33,712	*	3,167		*
Bruce K. MacLaury	0	0	4,999		*
Mineo Shimura	11,000	*	4,499		*
Akira Uemura	18,838	*	833		*
Sotaro Wakabayashi	11,834	*	3,167		*
Hisashi Tanaka	29,000	*	20,333		*
Yutaka Tanaka	4	*	164,999		*
John A. Maczuzak	0	0	202,077	(3)(4)	1.05	%
John F. Kaloski	0	0	79,499		*
Ronald J. Werhnyak	0	0	64,801		*
Daniel B. Joeright	0	0	46,615	(3)	*
All directors and executive officers as a group (19 persons)	104,161	*	764,732	(3)	3.99	%

* Less than 1% of the outstanding shares on March 1, 2002 in the case of the Company’s Class B Common Stock and on December 31, 2001 in the case of NKK common stock.

(1) NKK Corporation stock can be voted in units of 1,000 shares only, and units of less than 1,000 shares have no voting power. In addition, Messrs. Hino, Uemura and Wakabayashi have no voting power with respect to 712, 10,718 and 6,634 shares of NKK Corporation stock, respectively, owned by them which are held by the trustee of NKK Corporation’s employee stock ownership program.

(2) Includes shares which the individual has the right to acquire through the exercise of stock options which are exercisable within 60 days of March 1, 2002 in the following amounts: for Mr. Aronson 833 shares; for Mr. Dunford 3,999 shares; for Mr. Hino 3,167 shares; for Mr. MacLaury 4,999 shares; for Mr. Shimura 4,499 shares; for Mr. Uemura 833 shares; for Mr. Wakabayashi 3,167 shares; for Mr. Hisashi Tanaka 20,333 shares; for Mr. Yutaka Tanaka 164,999 shares; for Mr. Maczuzak 195,001 shares; for Mr. Kaloski 74,999 shares; for Mr. Werhnyak 62,801 shares; for Mr. Joeright 16,666 shares; and for all directors and executive officers as a group 687,126 shares.

(3) Includes shares held by the trustee of the Company’s Salaried Employees Retirement Savings Program as of December 31, 2001 in the following amounts: for Mr. Maczuzak 3,416 shares; for Mr. Joeright 29,949 shares; and for all directors and executive officers as a group 51,646 shares.

(4) Includes 3,500 shares owned by Mr. Maczuzak’s spouse.

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Additional Information Relating to Voting Securities

The following table sets forth the only holders known to the Company to beneficially own more than 5% of the Company’s Class A Common Stock or Class B Common Stock as of March 1, 2002, unless otherwise indicated. The information contained in this table is based upon the statements filed with the Securities and Exchange Commission pursuant to Sections 13(d) and 13(g) of the Securities Exchange Act of 1934.

Name and Address of Beneficial Owner	Number of Shares Beneficially Owned		Class of Common Stock	Percent of Class Outstanding		Percent of Total Common Stock Outstanding
NKK U.S.A. Corporation 1013 Centre Road Wilmington, Delaware 19805-1297	22,100,000	(1)	Class A	100.00	%	53.53	%
Donald Smith & Co., Inc. East 80, Rte. 4 Suite 360 Paramus, New Jersey 07652	2,392,400	(2)	Class B	12.47	%	5.79	%
Dimensional Fund Advisors Inc.  1299 Ocean Avenue 11th Floor Santa Monica, California 90401	1,527,875	(3)	Class B	7.96	%	3.70	%

(1) According to a Schedule 13D/A dated January 18, 2002 filed with the Securities and Exchange Commission, NKK had shared voting and investment power with respect to 22,100,000 shares of Class B Common Stock listed as beneficially owned as a result of its ownership of Class A Common Stock convertible into an equal number of shares of Class B Common Stock.

(2) According to a Schedule 13G dated January 17, 2002 filed with the Securities and Exchange Commission, Donald Smith & Co., Inc. reported that it had sole voting power and sole dispositive power with respect to 2,392,400 shares.

(3) According to a Schedule 13G dated January 30, 2002 filed with the Securities and Exchange Commission, Dimensional Fund Advisors Inc. reported that it had sole voting power and sole dispositive power with respect to 1,527,875 shares.

Item 13 .    Certain Relationships and Related Transactions

Effective May 1, 1995, the Company entered into an Agreement for the Transfer of Employees with NKK, the term of which has been extended through the calendar year 2002. Pursuant to the terms of this Agreement, technical and business advice is provided through NKK employees who are transferred to the employ of the Company. The Company is obligated to reimburse NKK for the costs and expenses incurred by NKK in connection with the transfer of these employees, subject to an agreed upon cap. The cap was $7 million during 2001 and will be reduced to $6 million in 2002. The Company incurred expenditures of approximately $5.0 million under this Agreement during 2001. In addition, the Company paid approximately $1.7 million to NKK for various other engineering services provided by NKK during 2001.

On October 23, 1998, the Company entered into a Turnkey Engineering and Construction Contract with NKK Steel Engineering, Inc. (“NKK SE”), a subsidiary of NKK, to design, engineer, construct and install a continuous galvanizing facility at Great Lakes. The purchase price payable by the Company to NKK SE for the facility is approximately $150 million. During 2001, $4.0 million was paid to NKK SE relating to this contract. At December 31, 2001, $0.2 million was included in accounts payable. On February 27, 2002, the Company and NKK-SE entered into an agreement resolving all outstanding claims of the parties under the Contract. NKK-SE has provided the Company with a letter of credit in the amount of $3.1 million as security for its indemnification obligations with respect to a claim filed by a subcontractor.

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Effective as of February 16, 2000, the Company entered into a Steel Slab Products Supply Agreement with NKK, the initial term of which extended through December 31, 2000 and continues on a year to year basis thereafter until terminated by either party on six months notice. Pursuant to the terms of this Agreement, the Company purchases steel slabs manufactured by NKK at a price determined in accordance with a formula set forth in the Agreement that approximates current market price. The quantity of slabs to be purchased is negotiated on a quarterly basis. The Company purchased $28.9 million of slabs under this agreement during 2001 and has committed to purchase approximately $6.4 million of slabs produced by NKK during 2002.

During 2001, the Company purchased from a trading company, in arms’ length transactions at competitively bid prices, approximately $0.1 million of finished-coated steel produced by NKK.

On May 25, 2000, the Company entered into a Cooperation Agreement on Research and Development and Technical Assistance with NKK Corporation, with an initial term of five years. The Cooperation Agreement allows either party to make available to the other party technical assistance and consulting services relating to research and development on existing and future steel products and relevant technology. No amounts were paid or received pursuant to the Cooperation Agreement during 2001.

During March 2001, the Company entered into a Subordinated Credit Agreement with NUF LLC (“NUF”), a wholly owned subsidiary of NKK, pursuant to which NUF agreed to provide a $100 million revolving credit facility to the Company. This loan is secured by a junior lien on the Company’s inventory and certain unsold receivables and has a scheduled termination date of February 25, 2002.

In March of 2001, the Company approved the purchase of a Laser Ablation ICP Analysis System from NKK at an estimated total cost of $0.6 million. This system will be used by the Company at Great Lakes for the analysis of steel defects.

All transactions between the Company and NKK and its affiliates which are described above have been unanimously approved by all directors of the Company who were not then, and never have been, employees of NKK.

In December 2001, NKK and Kawasaki Steel Corporation (“KSC”), another large steel company in Japan, announced that NKK and KSC will jointly establish JFE Holdings, Incorporated (“JFE”) and become wholly-owned subsidiaries of JFE by the “stock-for-stock exchange” method by October 2002. It was also announced that the steel businesses of KSC and NKK under JFE Holdings will be reorganized into JFE Steel Corporation by April 2003. The transaction to create JFE Holdings is subject to a number of conditions. No assurance can be given that these conditions will be satisfied or waived by the parties.

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PART IV

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

(a)  Documents filed as part of this Report:

The following is a list of the financial statements, schedules and exhibits included in this Report or incorporated herein by reference.

(1) Financial Statements

NATIONAL STEEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999

Consolidated Balance Sheets as of December 31, 2001 and 2000

Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

Consolidated Statements of Shareholders’ Equity (Deficit) for the years ended December 31, 2001, 2000 and 1999

Notes to Consolidated Financial Statements (Including Quarterly Financial Data)

(2) Consolidated Financial Statement Schedules

Schedules have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto.

Separate financial statements of subsidiaries not consolidated and 50 percent or less owned persons accounted for by the equity method have been omitted because considered in the aggregate as a single subsidiary they do not constitute a significant subsidiary.

(3) Exhibits

See the attached Exhibit Index. Items 10-CC through 10-AAA are management contracts or compensatory plans or arrangements.

(b)  Reports on Form 8-K:

During the quarter ended December 31, 2001, the Company filed the following reports on Form 8-K:

(i) The Company filed a report on Form 8-K dated October 3, 2001, reporting on Item 5, Other Events and Regulation FD Disclosure and Item 7, Financial Statements and Exhibits.

(ii) The Company filed a report on Form 8-K dated October 22, 2001, reporting on Item 5, Other Events and Regulation FD Disclosure and Item 7, Financial Statements and Exhibits.

(iii) The Company filed a report on Form 8-K dated October 26, 2001, reporting on Item 5, Other Events and Regulation FD Disclosure and Item 7, Financial Statements and Exhibits.

(iv) The Company filed a report on Form 8-K dated November 27, 2001, reporting on Item 5, Other Events and Regulation FD Disclosure and Item 7, Financial Statements and Exhibits.

(v) The Company filed a report on Form 8-K dated December 11, 2001, reporting on Item 5, Other Events and Regulation FD Disclosure and Item 7, Financial Statements and Exhibits.

82

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Mishawaka, State of Indiana, on April 1, 2002.

NA TIONAL STEEL CORPORATION

/s/    John A. Maczuzak        

By:                                              

John A. Maczuzak

President and Chief Operating Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company in the capacities indicated on April 1, 2002.

Name	Title
/s/     HISASHI TANAKA         Hisashi Tanaka	Director; Chairman of the Board and Chief Executive Officer
/s/    ARTHUR H. ARONSON         Arthur H. Aronson	Director
/s/    EDSEL D. DUNFORD         Edsel D. Dunford	Director
/s/    MITSUOKI HINO         Mitsuoki Hino	Director
/s/    BRUCE K. MACLAURY         Bruce K. MacLaury	Director
/s/    MINEO SHIMURA         Mineo Shimura	Director
/s/    AKIRA UEMURA         Akira Uemura	Director
/s/    SOTARO WAKABAYASHI         Sotaro Wakabayashi	Director
/s/    KIRK A. SOBECKI         Kirk A. Sobecki	Senior Vice President and Chief Financial Officer

83

EXHIBIT INDEX

Except for those exhibits which are incorporated by reference, as indicated below, all exhibits are being filed along with this Form 10-K.

Exhibit Number	Exhibit Description
2-A	Assets Purchase Agreement between Weirton Steel Corporation and the Company, dated as of April 29, 1983, together with collateral agreements incident to such Assets Purchase Agreement, filed as Exhibit 2-A to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.
2-B	Stock Purchase Agreement by and among NKK Corporation, National Intergroup, Inc. and the Company, dated August 22, 1984, together with certain collateral agreements incident to such Stock Purchase Agreement and certain schedules to such agreements, filed as Exhibit 2-B to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.
2-C	Stock Purchase and Recapitalization Agreement by and among National Intergroup, Inc., NII Capital Corporation, NKK Corporation, NKK U.S.A. Corporation and the Company, dated as of June 26, 1990, filed as Exhibit 2-C to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.
2-D	Amendment to Stock Purchase and Recapitalization Agreement by and among National Intergroup, Inc., NII Capital Corporation, NKK Corporation, NKK U.S.A. Corporation and the Company, dated July 31, 1991, filed as Exhibit 2-D to the annual report of the Company on Form 10-K for the year ended December 31, 1997, Commission File Number 1-983, is incorporated herein by reference.
3-A	The Sixth Restated Certificate of Incorporation of the Company, filed as Exhibit 3.1 to the Company’s Registration Statement on Form S-1 (Registration No. 33-57952), is incorporated herein by reference.
3-B	Form of Amended and Restated By-laws of the Company, filed as Exhibit 3-A to the quarterly report of the Company on Form 10-Q for the quarter ended March 31, 2001, Commission File Number 1-983, is incorporated herein by reference.
4-A	Indenture of Mortgage and Deed of Trust dated May 1, 1952 between the Company and Great Lakes Steel Corporation and City Bank Farmers Trust Company and Ralph E. Morton, as Trustee, filed as Exhibit 4.1 to the Company’s Registration Statement on Form S-1 (Registration No. 2-9639), is incorporated herein by reference.
4-B	Second Supplemental Indenture dated as of January 1, 1957 between the Company and City Bank Farmers Trust Company and Francis M. Pitt, as Trustees, filed as Exhibit 2-C to the Company’s Registration Statement on Form S-9 (Registration No. 2-15070), is incorporated herein by reference.
4-C	Fourth Supplemental Indenture dated as of December 1, 1960 between the Company and First National City Trust Company and Francis M. Pitt, as Trustees, filed as Exhibit 4(b)(5) to the Registration Statement of M.A. Hanna Company on Form S-1 (Registration No. 2-19169), is incorporated herein by reference.
4-D	Fifth Supplemental Indenture dated as of May 1, 1962 between the Company, First National City Trust Company, as Trustee, and First National City Bank, as Successor Trustee, filed as Exhibit 4-D to the Company’s Registration Statement on Form S-4 (Registration No.333-76541), is incorporated herein by reference.

84

Exhibit Number	Exhibit Description
4-E	Eighth Supplemental Indenture dated as of September 19, 1973 between the Company and First National City Bank and E. J. Jaworski, as Trustees, filed as Exhibit 2-I to the Company’s Registration Statement on Form S-7 (Registration No. 2-56823), is incorporated herein by reference.
4-F	Ninth Supplemental Indenture dated as of August 1, 1976 between the Company and Citibank, N.A. and E. J. Jaworski, as Trustees, filed as Exhibit 2-J to the Company’s Registration Statement on Form S-7 (Registration No. 2-5622916), is incorporated herein by reference.
4-G	Tenth Supplemental Indenture dated as of March 8, 1999 between the Company and The Chase Manhattan Bank and Frank J. Grippo, as Trustees, filed as Exhibit 4-G to the Company’s Registration Statement on Form S-4 (Registration No.333-76541), is incorporated herein by reference.
4-H	Eleventh Supplemental Indenture dated as of March 31, 1999 between the Company and The Chase Manhattan Bank and Frank J. Grippo, as Trustees, filed as Exhibit 4-H to the Company’s Registration Statement on Form S-4 (Registration No.333-76541), is incorporated herein by reference.
4-I	NSC Stock Transfer Agreement between National Intergroup, Inc., the Company, NKK Corporation and NII Capital Corporation dated December 24, 1985, filed as Exhibit 4-A to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.
4-J	$450,000,000 Credit Agreement dated as of September 28, 2001 among the Company, Citicorp USA, Inc., as Administrative Agent, Fleet Capital Corporation and The CIT Group/Business Credit, Inc., as Documentation Agents, Heller Financial, Inc. and GMAC Business Credit, LLC, as Syndication Agents, The Fuji Bank Limited, as Co-Arranger, Salomon Smith Barney Inc., as Sole Book Manager and Sole Lead Arranger, and the other lenders party thereto, filed as Exhibit 4-A to the quarterly report of the Company on Form 10-Q for the quarter ended September 30, 2001, Commission File Number 1-983, is incorporated herein by reference.
4-K	Amendment No. 1 to the $450,000,000 Credit Agreement dated as of September 28, 2001 among the Company, Citicorp USA, Inc., as Administrative Agent, Fleet Capital Corporation and The CIT Group/Business Credit, Inc., as Documentation Agents, Heller Financial, Inc. and GMAC Business Credit, LLC, as Syndication Agents, The Fuji Bank Limited, as Co-Arranger, Salomon Smith Barney Inc., as Sole Book Manager and Sole Lead Arranger, and the other lenders party thereto.
4-L	$450,000,000 Secured Super Priority Debtor in Possession Credit Agreement dated as of March 6, 2002 among the Company, the subsidiaries of the Company party thereto, Citicorp USA, Inc., as Administrative Agent, Heller Financial, Inc., as Collateral Monitoring Agent, Fleet Capital Corporation and The CIT Group/Business Credit, Inc., as Documentation Agents, Heller Financial, Inc. and GMAC Business Credit, LLC, as Syndication Agents, The Fuji Bank Limited, as Co-Arranger, Salomon Smith Barney Inc., as Sole Book Manager and Sole Lead Arranger and the other lenders party thereto.
4-M	The Company is a party to certain long-term debt agreements where the amount involved does not exceed 10% of the Company’s total assets. The Company agrees to furnish a copy of any such agreement to the Commission upon request.
10-A	Amended and Restated Lease Agreement between the Company and Wilmington Trust Company, dated as of December 20, 1985, relating to the Electrolytic Galvanizing Line, filed as Exhibit 10-A to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.

85

Exhibit Number	Exhibit Description
10-B	Lease Agreement between The Connecticut National Bank as Owner Trustee and Lessor and National Acquisition Corporation as Lessee dated as of September 1, 1987 for the Ladle Metallurgy and Caster Facility located at Ecorse, Michigan, filed as Exhibit 10-B to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.
10-C	Lease Supplement No. 1 dated as of September 1, 1987 between The Connecticut National Bank as Owner Trustee and National Acquisition Corporation as the Lessee for the Ladle Metallurgy and Caster Facility located at Ecorse, Michigan, filed as Exhibit 10-C to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.
10-D	Lease Supplement No. 2 dated as of November 18, 1987 between The Connecticut National Bank as Owner Trustee and National Acquisition Corporation as Lessee for the Ladle Metallurgy and Caster Facility located at Ecorse, Michigan, filed as Exhibit 10-D to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.
10-E	Purchase Agreement dated as of March 25, 1988 relating to the Stinson Motor Vessel among Skar-Ore Steamship Corporation, Wilmington Trust Company, General Foods Credit Investors No. 1 Corporation, Stinson, Inc. and the Company, and Time Charter between Stinson, Inc. and the Company, filed as Exhibit 10-E to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.
10-F	Form of Indemnification Agreement, filed as Exhibit 10-R to the Annual Report of the Company on Form 10-K for the year ended December 31, 1996, Commission File Number 1-983, is incorporated herein by reference.
10-G	Form of Indemnification Agreement between the Company and its directors and officers.
10-H	Shareholders’ Agreement, dated as of September 18, 1990, among DNN Galvanizing Corporation, 904153 Ontario Inc., National Ontario Corporation and Galvatek America Corporation, filed as Exhibit 10.27 to the Company’s Registration Statement on Form S-1 (Registration No. 33-57952), is incorporated herein by reference.
10-I	Partnership Agreement, dated as of September 18, 1990, among Dofasco, Inc., National Ontario II, Limited, Galvatek Ontario Corporation and DNN Galvanizing Corporation, filed as Exhibit 10.28 to the Company’s Registration Statement on Form S-1 (Registration No. 33-57952), is incorporated herein by reference.
10-J	Amendment No. 1 to the Partnership Agreement, dated as of September 18, 1990, among Dofasco, Inc., National Ontario II, Limited, Galvatek Ontario Corporation and DNN Galvanizing Corporation, filed as Exhibit 10.29 to the Company’s Registration Statement on Form S-1 (Registration No. 33-57952), is incorporated herein by reference.
10-K	Agreement for the Transfer of Employees by and between the Company and NKK Corporation, dated as of May 1, 1995, filed as Exhibit 10-CC to the annual report of the Company on Form 10-K for the year ended December 31, 1995, Commission File Number 1-983, is incorporated herein by reference.
10-L	Amendment No. 1 to Agreement for the Transfer of Employees by and between the Company and NKK Corporation, filed as Exhibit 10-NN to the annual report of the Company on Form 10-K for the year ended December 31, 1996, Commission File Number 1-983, is incorporated herein by reference.

86

Exhibit Number	Exhibit Description
10-M	Amendment No. 2 to Agreement for the Transfer of Employees by and between the Company and NKK Corporation, filed as Exhibit 10-Q to the annual report of the Company on Form 10-K for the year ended December 31, 1997, Commission File Number 1-983, is incorporated herein by reference.
10-N	Amendment No. 3 to Agreement for the Transfer of Employees by and between the Company and NKK Corporation, filed as Exhibit 10-R to the annual report of the Company on Form 10-K for the year ended December 31, 1998, Commission File Number 1-983, is incorporated herein by reference.
10-O	Amendment No. 4 to Agreement for the Transfer of Employees by and between the Company and NKK Corporation, filed as Exhibit 10-S to the annual report of the Company on Form 10-K for the year ended December 31, 1999, Commission File Number 1-983, is incorporated herein by reference.
10-P	Amendment No. 5 to Agreement for the Transfer of Employees by and between the Company and NKK Corporation, filed as Exhibit 10-T to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-Q	Amendment No. 6 to Agreement for the Transfer of Employees by and between the Company and NKK Corporation.
10-R	Agreement dated as of November 25, 1997 among the Company, Avatex Corporation, NKK Corporation and NKK U.S.A. Corporation, filed as Exhibit 10-R to the Annual Report of the Company on Form 10-K for the year ended December 31, 1997, Commission File Number 1-983, is incorporated herein by reference.
10-S	No. 1 Continuous Galvanizing Line Turnkey Engineering and Construction Contract dated October 23, 1998 between the Company and NKK Steel Engineering, Inc., filed as Exhibit 10-II to the annual report of the Company on Form 10-K for the year ended December 31, 1998, Commission File Number 1-983, is incorporated herein by reference.
10-T	Amendment No. 1 dated March 19, 1999 to No. 1 Continuous Galvanizing Line Turnkey Engineering and Construction Contract dated October 23, 1998 between the Company and NKK Steel Engineering, Inc., filed as Exhibit 10-JJ to the Company’s Registration Statement on Form S-4 (Registration No. 333-76541), is incorporated herein by reference.
10-U	Amendment No. 2 dated June 22, 1999 to No. 1 Continuous Galvanizing Line Turnkey Engineering and Construction Contract dated October 23, 1998 between the Company and NKK Steel Engineering, Inc., filed as Exhibit 10-KK to the annual report of the Company on Form 10-K for the year ended December 31, 1999, Commission File Number 1-983, is incorporated herein by reference.
10-V	Agreement dated February 27, 2002 between the company and NKK Steel Engineering, Inc. regarding the close out of the No. 1 Continuous Galvanizing Line Turnkey Engineering and Construction Contract dated October 23, 1998 between the Company and NKK Steel Engineering, Inc.
10-W	Steel Slab Products Supply Agreement dated as of February 16, 2000 between the Company and NKK Corporation, filed as Exhibit 10-LL to the annual report of the Company on Form 10-K for the year ended December 31, 1999, Commission File Number 1-983, is incorporated herein by reference.

87

Exhibit Number	Exhibit Description
10-X	Cooperation Agreement on Research and Development and Technical Assistance dated May 25, 2000 between NKK Corporation and the Company, filed as Exhibit 10-A to the quarterly report of the Company on Form 10-Q for the quarter ended June 30, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-Y	Amended and Restated $100 Million Subordinated Credit Agreement dated September 28, 2001 between NUF LLC and the Company.
10-Z	Technical Assistance Agreement dated June 25, 1990 between the Company and NKK Corporation.
10-AA	Amendment No. 1 dated July 29, 1998 to Technical Assistance Agreement dated June 25, 1990 between the Company and NKK Corporation.
10-BB	Amendment No. 2 dated December 11, 2000 to Technical Assistance Agreement dated June 25, 1990 between the Company and NKK Corporation.
10-CC	1993 National Steel Corporation Long-Term Incentive Plan, filed as Exhibit 10.1 to the Company’s Registration Statement on Form S-1 (Registration No. 33-57952), is incorporated herein by reference.
10-DD	1993 National Steel Corporation Non-Employee Directors’ Stock Option Plan, filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-1 (Registration No. 33-57952), is incorporated herein by reference.
10-EE	Amendment Number One to the 1993 National Steel Corporation Non-Employee Directors’ Stock Option Plan, filed as Exhibit 10-A to the quarterly report of the Company on Form 10-Q for the quarter ended June 30, 1997, Commission File Number 1-983, is incorporated herein by reference.
10-FF	Amendment Number Two to the 1993 National Steel Corporation Non-Employee Directors’ Stock Option Plan, filed as Exhibit 10-V to the Annual Report of the Company on Form 10-K for the year ended December 31, 1997, Commission File Number 1-983, is incorporated herein by reference.
10-GG	Amendment Number Three to the 1993 National Steel Corporation Non-Employee Directors’ Stock Option Plan, filed as Exhibit 10-Y to the Annual Report of the Company on Form 10-K for the year ended December 31, 1999, Commission File Number 1-983, is incorporated herein by reference.
10-HH	National Steel Corporation Management Incentive Compensation Plan dated January 30, 1989, filed as Exhibit 10.3 to the Company’s Registration Statement on Form S-1 (Registration No. 33-57952), Commission File Number 1-983, is incorporated herein by reference.
10-II	Employment Contract dated May 1, 1996 between the Company and John A. Maczuzak, filed as Exhibit 10-G to the quarterly report of the Company on Form 10-Q for the quarter ended June 30, 1996, Commission File Number 1-983, is incorporated herein by reference.
10-JJ	Employment Contract dated as of March 4, 2001 between the Company and Hisashi Tanaka, filed as Exhibit 10-A to the quarterly report of the Company on Form 10-Q for the quarter ended March 31, 2001, Commission File Number 1-983, is incorporated herein by reference.
10-KK	Employment Contract dated as of August 1, 1998 between the Company and John F. Kaloski, filed as Exhibit 10-B to the quarterly report of the Company on Form 10-Q for the quarter ended September 30, 1998, Commission File Number 1-983, is incorporated herein by reference.
10-LL	Agreement dated January 28, 1999 between the Company and John F. Kaloski, filed as Exhibit 10-FF to the annual report of the Company on Form 10-K for the year ended December 31, 1998, Commission File Number 1-983, is incorporated herein by reference.

88

Exhibit Number	Exhibit Description
10-MM	Amendment dated May 8, 2001 to Employment Contract dated as of August 1, 1998 between the Company and John F. Kaloski, filed as Exhibit 10-A to the quarterly report of the Company on Form 10-Q for the quarter ended June 30, 2001, Commission File Number 1-983, is incorporated herein by reference.
10-NN	Employment Contract dated as of September 1, 1998 between the Company and Yutaka Tanaka, filed as Exhibit 10-C to the quarterly report of the Company on Form 10-Q for the quarter ended September 30, 1998, Commission File Number 1-983, is incorporated herein by reference.
10-OO	Employment Contract dated as of March 1, 2001 between the Company and John L. Davis, filed as Exhibit 10-NN to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-PP	Employment Contract dated as of March 1, 2001 between the Company and Stephen G. Denner, filed as Exhibit 10-OO to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-QQ	Employment Contract dated as of March 1, 2001 between the Company and Michael D. Gibbons, filed as Exhibit 10-PP to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-RR	Employment Contract dated as of March 1, 2001 between the Company and Daniel B. Joeright, filed as Exhibit 10-QQ to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-SS	Employment Contract dated as of March 1, 2001 between the Company and Ronald J. Werhnyak, filed as Exhibit 10-RR to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-TT	Amendment dated February 22, 2002 to Employment Contract dated as of March 1, 2001 between the Company and Ronald J. Werhnyak.
10-UU	Employment Contract dated as of March 1, 2001 between the Company and Lawrence F. Zizzo, filed as Exhibit 10-SS to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-VV	Employment Contract dated as of March 1, 2001 between the Company and William E. McDonough, filed as Exhibit 10-TT to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-WW	Amendment dated November 7, 2001 to Employment Contract dated as of March 1, 2001 between the Company and William E. McDonough.
10-XX	Employment Contract dated as of March 1, 2001 between the Company and Kirk A. Sobecki, filed as Exhibit 10-UU to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
10-YY	Amendment dated November 7, 2001 to Employment Contract dated as of March 1, 2001 between the Company and Kirk A. Sobecki.
10-ZZ	Amendment dated February 22, 2002 to Employment Contract dated as of March 1, 2001 between the Company and Kirk A. Sobecki.
10-AAA	National Steel Corporation Executive Deferred Compensation Plan restated effective as of January 1, 2000, filed as Exhibit 10-VV to the annual report of the Company on Form 10-K for the year ended December 31, 2000, Commission File Number 1-983, is incorporated herein by reference.
21	List of Subsidiaries of the Company.
23	Consent of Independent Auditors.

89

EX-4.K

                                 First Amendment
                                       TO
                         National Steel Credit Agreement

          This First Amendment (the "First Amendment"), dated as of December 10,
2001, by and among National Steel Corporation, a Delaware corporation (the
"Borrower"), the Requisite Lenders (as defined below), the Issuers (as defined
below), Citicorp USA, InC. ("CUSA"), as agent for the Lenders and the Issuers
(in such capacity, the "Administrative Agent"), Fleet Capital Corporation
("Fleet") and The CIT Group/business Credit, Inc. ("CIT") as Documentation
Agents, Heller Financial, Inc. ("Heller") and GMAC Business Credit, Llc ("GMAC")
as Syndication Agents, The Fuji Bank, Limited ("Fuji") as Co-Arranger, and
Salomon Smith Barney Inc. as Sole Book Manager and Sole Lead Arranger, to that
certain Credit Agreement dated as of September 28, 2001 by and among the
Borrower, the Administrative Agent, the Documentation Agents, the Syndication
Agents, the Co-Arranger, the Lenders and Issuers, and SSBI (the "Credit
Agreement"; capitalized terms used herein but not defined herein being used
herein as defined in the Credit Agreement).

                              W i t n e s s e t h:

          Whereas, the Borrower, the Requisite Lenders, the Administrative
Agent, the Documentation Agents and the Syndication Agents are parties to the
Credit Agreement and, as of the date hereof, the Requisite Lenders collectively
hold Commitments aggregating more than 50% of the aggregate outstanding amounts
of the Commitments; and

          Whereas, the parties hereto wish to amend the terms of the Credit
Agreement as set forth herein;

          Now, therefore, in consideration of the foregoing, the mutual
covenants and obligations herein set forth and other good and valuable
consideration, the adequacy and receipt of which is hereby acknowledged, and in
reliance upon the representations, warranties and covenants herein contained,
the parties hereto, intending to be legally bound, hereby agree as follows:

     Section 1. Amendment to Article II The Facilities. Section 2.13 of Article
II of the Credit Agreement is hereby amended in its entirety by replacing the
entire subsection (f) as follows:

               (f) Collateral Proceeds. The Borrower hereby
          irrevocably waives the right to direct, after the occurrence
          and during the continuance of an Event of Default, the
          application of any and all payments in respect of the
          Obligations and any proceeds of Collateral, and agrees that
          the Administrative Agent may, and, upon either (A) the
          written direction of the Requisite Lenders or (B) the
          acceleration of the Obligations pursuant to Section 9.2
          (Remedies), shall (x) deliver a Blockage Notice to each
          Deposit Account Bank and (y) apply all payments in respect



          of any Obligations and all funds on deposit in any Cash
          Collateral Account (including all proceeds arising from a
          Reinvestment Event that are held in the Cash Collateral
          Account pending application of such proceeds as specified in
          a Reinvestment Notice) and all other proceeds of Collateral
          in the following order:

                    (i) first, to pay interest on and then
               principal of any portion of the Revolving Loans
               that the Administrative Agent or any of its
               Affiliates may have advanced on behalf of any
               Lender for which the Administrative Agent or such
               Affiliate has not then been reimbursed by such
               Lender or the Borrower;

                    (ii) second, to pay interest on and then
               principal of any Swing Loan;

                    (iii) third, to pay any cash management fee
               or any Obligation due under any Hedging Contract
               with any Lender or any of its Affiliates that (x)
               the Administrative Agent is fully aware of at the
               time of entry into such cash management
               arrangement or Hedging Contract, as the case may
               be, and (y) for which an appropriate amount has
               been reserved for by the Administrative Agent at
               or about such time as the entry into such cash
               management arrangement or Hedging Contract, as the
               case may be;

                    (iv) fourth, to pay Obligations in respect of
               any expense reimbursements or indemnities then due
               the Administrative Agent or any of its Affiliates;

                    (v) fifth, to pay Obligations in respect of
               any expense reimbursements or indemnities then due
               to the Lenders and the Issuers;

                    (vi) sixth, to pay Obligations in respect of
               any fees then due to the Administrative Agent or
               any of its Affiliates, the Lenders and the
               Issuers;

                    (vii) seventh, to pay interest then due and
               payable in respect of the Loans and Reimbursement
               Obligations;

                    (viii) eighth, to pay or prepay principal
               payments on the Loans and Reimbursement
               Obligations and to provide cash collateral for
               outstanding Letter of Credit Undrawn Amounts in
               the manner described in Section 9.3

                                      -2-



               (Actions in Respect of Letters of Credit), ratably
               to the aggregate principal amount of such Loans,
               Reimbursement Obligations and Letter of Credit
               Undrawn Amounts, to the ratable payment of all
               other Obligations; and

                    (ix) ninth, to pay any other cash management
               fee or any Obligation due under any Hedging
               Contract with any Lender or any of its Affiliates
               for which no payment has been made in respect of
               (iii) hereinabove;

          provided, however, that, if sufficient funds are not
          available to fund all payments to be made in respect of any
          Obligation described in any of clauses (i) through (ix)
          above, the available funds being applied with respect to any
          such Obligation (unless otherwise specified in such clause)
          shall be allocated to the payment of such Obligations
          ratably, based on the proportion of the Administrative
          Agent's and each Lender's or Issuer's interest in the
          aggregate outstanding Obligations described in such clauses.
          The order of priority set forth in this clause (f) and the
          related provisions hereof are set forth solely to determine
          the rights and priorities of the Administrative Agent, the
          Swing Loan Lender, the Lenders, the Issuers and other
          Secured Parties as among themselves. The order of priority
          set forth in clauses (i) through (ix) hereinabove may at any
          time and from time to time be changed by the agreement of
          the Requisite Lenders without necessity of notice to or
          consent of or approval by the Borrower, any Secured Party
          which is not a Lender or Issuer or any other Person. The
          order of priority set forth in clauses (i) through (v) above
          may be changed only with the prior written consent of the
          Administrative Agent in addition to the Requisite Lenders.

     Section 2. Amendment to Article XI Miscellaneous. Section 11.2 of Article
XI of the Credit Agreement is hereby amended by adding the phrase "if such
Eligible Assignee is not an existing Lender," immediately after the "(ii)" in
subsection (a).

     Section 3. Conditions of Effectiveness. This First Amendment shall become
effective when, and only when, the Administrative Agent shall have received
copies of this First Amendment duly executed by the Borrower and Lenders
constituting the Requisite Lenders.

     Section 4. Representations and Warranties. The Borrower represents and
warrants to the Administrative Agent and each Lender that this First Amendment
has been duly authorized, executed and delivered by the Borrower and constitutes
a legal, valid and binding obligation of the Borrower, enforceable against the
Borrower in accordance with its terms. After giving effect to this First
Amendment, each of the representations and warranties set forth in Article IV
(Representations and Warranties) of the Credit Agreement is true and correct on
and as of the date hereof, and no Default or Event of Default has occurred and
is continuing.

                                      -3-



     Section 5. Reference to the Effect on the Loan Documents.

          (a) Upon the effectiveness of this First Amendment, on and after the
date hereof, each reference in the Credit Agreement to "this Agreement,"
"hereunder," "hereof," "herein," or words of like import, and each reference in
the other Loan Documents to the Credit Agreement, shall mean and be a reference
to the Credit Agreement as amended hereby, and this Amendment and the Credit
Agreement shall be read together and construed as a single instrument.

          (b) Except as specifically amended herein, the Credit Agreement and
all other Loan Documents shall remain in full force and effect in accordance
with their respective terms and are hereby ratified and confirmed.

          (c) The Borrower reaffirms its prior grant under the Pledge and
Security Agreement of a valid and continuing security interest in, lien on, and
right of set-off against, all of the Collateral of the Borrower, whether now
owned or existing or hereafter acquired or arising, regardless of where located,
and the priority of the Administrative Agent's Lien as prior to all other Liens
on the Collateral except for Customary Permitted Liens.

          (d) The execution, delivery and effectiveness of this First Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of the Lenders or the Administrative Agent under any of
the Loan Documents, nor constitute a waiver of any covenant, agreement or
provision of any of the Loan Documents.

     Section 6. Guarantors' Consent. Each Guarantor hereby consents to, and
agrees to be bound by, the terms of the Credit Agreement as amended hereby and
agrees that the terms of this Amendment shall not affect in any way its
obligations and liabilities under the Loan Documents, all of which obligations
and liabilities shall remain in full force and effect and each of which is
hereby reaffirmed.

     Section 7. Execution in Counterparts. This First Amendment may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original and all of which taken together shall constitute but one and the
same agreement.

     Section 8. Governing Law. This First Amendment shall be governed by and
construed in accordance with the law of the State of New York.

     Section 9. Headings. Section headings in this First Amendment are included
herein for convenience of reference only and shall not constitute a part of this
First Amendment for any other purpose.

                            [Signature Page Follows]

                                      -4-



          In witness whereof, the parties hereto have caused this First
Amendment to be executed by their respective officers and members thereunto duly
authorized, as of the date first above written.

                                      National steel corporation,
                                         as Borrower


                                      By:
                                          --------------------------------------
                                          Title:


                                      Citicorp USA, Inc.,
                                         as Administrative Agent


                                      By:
                                          --------------------------------------
                                          Title:


                                      Heller Financial, Inc.
                                         as Syndication Agent


                                      By:
                                          --------------------------------------
                                          Title:


                                      GMAC Business Credit, LLC
                                         as Syndication Agent


                                      By:
                                          --------------------------------------
                                          Title:


                                      Fleet Capital Corporation
                                         as Documentation Agent


                                      By:
                                          --------------------------------------
                                          Title:


                                      The CIT Group/ Business Credit, Inc.
                                         as Documentation Agent


                                      By:
                                          --------------------------------------
                                          Title:


                                      The Fuji Bank, Limited
                                         as Co-Arranger


                                      By:
                                          --------------------------------------
                                          Title:

          [Signature Page For First Amendment To The Credit Agreement]



                                      Citibank, N.a.
                                         as Issuer


                                      By:
                                          --------------------------------------
                                          Title:


                                      Lenders:


                                      Citicorp Usa, Inc.


                                      By:
                                          --------------------------------------
                                          Title:


                                      National City Commercial Finance, Inc.


                                      By:
                                          --------------------------------------
                                          Title:


                                      The Fuji Bank, Limited


                                      By:
                                          --------------------------------------
                                          Title:


                                      Heller Financial, Inc.


                                      By:
                                          --------------------------------------
                                          Title:


                                      Fleet Capital Corporation


                                      By:
                                          --------------------------------------
                                          Title:


                                      The CIT Group/business Credit, Inc.


                                      By:
                                          --------------------------------------
                                          Title:


                                      GMAC Business Credit, LLC


                                      By:
                                          --------------------------------------
                                          Title:

          [Signature Page For First Amendment To The Credit Agreement]



                                      Arranger:


                                      SALOMON SMITH BARNEY INC.


                                      By:
                                          -----------------------------------
                                          Title:

Consented to, Acknowledged and
   Agreed as of December 10, 2001


National Steel Pellet Company,
   as Guarantor


By:
   --------------------------------------
   Name:
   Title:


NS Holdings Corporation,
   as Guarantor


By:
   --------------------------------------
   Name:
   Title:


ProCoil Corporation,
   as Guarantor


By:
   --------------------------------------
   Name:
   Title:


National Steel Funding Corporation,
   as Guarantor


By:
   --------------------------------------
   Name:
   Title:

          [Signature Page For First Amendment To The Credit Agreement]

EX-4.L

                                U.S. $450,000,000

                   SECURED SUPER PRIORITY DEBTOR IN POSSESSION

                                CREDIT AGREEMENT

                            Dated as of March 6, 2002

                                      among

                           National Steel Corporation

                       A Debtor and Debtor in Possession,

                                  as Borrower,

                                       and

                     The Subsidiaries of the Borrower Party

                              HERETO as Guarantors,

                      as Debtors and Debtors in Possession,

                      The Lenders and Issuers Party Hereto,

                               Citicorp USA, Inc.
                             as Administrative Agent

                             Heller Financial, Inc.
                         as Collateral Monitoring Agent

                            Fleet Capital Corporation

                                       AND

                       The CIT Group/Business Credit, Inc.

                            as Documentation Agents,

                             Heller Financial, Inc.

                                       AND

                            GMAC Business Credit, LLC

                             as Syndication Agents,

                             The Fuji Bank, Limited

                                 as Co-Arranger

                                       and

                           Salomon Smith Barney, Inc.

                   as Sole Book Manager and Sole Lead Arranger

                           Weil, Gotshal & Manges LLP
                                767 Fifth Avenue
                             New York, NY 10153-0119




                                TABLE OF CONTENTS



                                                                                             Page
                                                                                        
Article I      Definitions, Interpretation and Accounting Terms................................2

     Section 1.1       Defined Terms...........................................................2

     Section 1.2       Computation of Time Periods............................................31

     Section 1.3       Quantities.............................................................31

     Section 1.4       Accounting Terms and Principles........................................32

     Section 1.5       Certain Terms and References...........................................32

Article II     The Facilities.................................................................33

     Section 2.1       The Commitments........................................................33

     Section 2.2       Borrowing Procedures...................................................34

     Section 2.3       Swing Loans............................................................35

     Section 2.4       Letters of Credit......................................................37

     Section 2.5       Reduction and Termination of the Commitments...........................42

     Section 2.6       Repayment of Loans.....................................................43

     Section 2.7       Evidence of Indebtedness...............................................43

     Section 2.8       Optional Prepayments...................................................43

     Section 2.9       Mandatory Prepayments..................................................44

     Section 2.10      Application of Proceeds................................................44

     Section 2.11      Interest...............................................................45

     Section 2.12      Conversion and Continuation Options....................................45

     Section 2.13      Fees...................................................................46

     Section 2.14      Payments and Computations; Protective Advances.........................48

     Section 2.15      Special Provisions Governing Eurodollar Rate Loans.....................52

     Section 2.16      Capital Adequacy.......................................................54

     Section 2.17      Taxes..................................................................54

     Section 2.18      Substitution of Lenders................................................56

     Section 2.19      Collateral Audits......................................................56

Article III    Conditions Precedent to the Effectiveness of this Agreement
               and to Loans and Letters of Credit.............................................58

     Section 3.1       Conditions Precedent to the Effectiveness

                       of this Agreement......................................................58


                                        i



                                TABLE OF CONTENTS
                                   (continued)



                                                                                             Page
                                                                                        
     Section 3.2       Conditions Precedent to Each Loan

                       and Letter of Credit...................................................59

     Section 3.3       Determinations of Initial Borrowing Conditions.........................60

Article IV     Representations and Warranties.................................................61

     Section 4.1       Corporate Existence; Compliance with Law...............................61

     Section 4.2       Corporate Power; Authorization;

                       Enforceable Obligations................................................61

     Section 4.3       Financial Statements...................................................62

     Section 4.4       Legal Proceedings......................................................63

     Section 4.5       Material Adverse Change................................................63

     Section 4.6       Litigation.............................................................63

     Section 4.7       Taxes..................................................................63

     Section 4.8       Full Disclosure........................................................64

     Section 4.9       Margin Regulations.....................................................64

     Section 4.10      Ownership of the Subsidiaries and Certain Assets.......................64

     Section 4.11      ERISA..................................................................65

     Section 4.12      Liens..................................................................65

     Section 4.13      No Burdensome Restrictions; No Defaults................................65

     Section 4.14      No Other Ventures......................................................66

     Section 4.15      Investment Company Act.................................................66

     Section 4.16      Insurance..............................................................66

     Section 4.17      Labor Matters..........................................................66

     Section 4.18      Use of Proceeds........................................................67

     Section 4.19      Environmental Matters..................................................67

     Section 4.20      Title; Real Property...................................................68

     Section 4.21      Deposit Accounts.......................................................68

     Section 4.22      Bankruptcy Orders......................................................68

     Section 4.23      Pledged Collateral.....................................................68

     Section 4.24      Intellectual Property..................................................69

Article V      Financial Covenants............................................................70


                                       ii




                                TABLE OF CONTENTS
                                   (continued)



                                                                                             Page
                                                                                        
     Section 5.1       Capital Expenditures...................................................70

Article VI     Reporting Covenants............................................................71

     Section 6.1       Financial Statements and Information...................................71

     Section 6.2       Default Notices........................................................73

     Section 6.3       ERISA Matters..........................................................73

     Section 6.4       Litigation.............................................................74

     Section 6.5       SEC Filings; Press Releases............................................74

     Section 6.6       Labor Relations........................................................74

     Section 6.7       Insurance..............................................................74

     Section 6.8       Environmental Matters..................................................75

     Section 6.9       Customer Contracts.....................................................75

     Section 6.10      Bankruptcy Court.......................................................76

     Section 6.11      Other Information......................................................76

Article VII    Affirmative Covenants..........................................................76

     Section 7.1       Preservation of Corporate Existence, Etc...............................76

     Section 7.2       Compliance with Law, Etc...............................................76

     Section 7.3       Conduct of Business....................................................76

     Section 7.4       Payment of Taxes, Etc..................................................77

     Section 7.5       Maintenance of Insurance...............................................77

     Section 7.6       Access.................................................................77

     Section 7.7       Keeping of Books.......................................................77

     Section 7.8       Maintenance of Properties, Etc.........................................77

     Section 7.9       Maintenance of Contractual Obligations, Etc............................78

     Section 7.10      Application of Proceeds................................................78

     Section 7.11      Fiscal Year............................................................78

     Section 7.12      Environmental..........................................................78

     Section 7.13      Borrowing Base Determination...........................................78

     Section 7.14      Control Accounts; Blocked Accounts.....................................79

     Section 7.15      Accounting Changes.....................................................80

     Section 7.16      Field Examination......................................................80


                                       iii



                                TABLE OF CONTENTS
                                   (continued)



                                                                                             Page
                                                                                        

     Section 7.17      Post Closing Matters...................................................80

Article VIII   Negative Covenants.............................................................81

     Section 8.1       Indebtedness...........................................................81

     Section 8.2       Liens, Etc.............................................................82

     Section 8.3       Investments in Other Persons...........................................83

     Section 8.4       Sale of Assets.........................................................83

     Section 8.5       Restricted Payments....................................................84

     Section 8.6       Restriction on Fundamental Changes.....................................85

     Section 8.7       Change in Nature of Business...........................................85

     Section 8.8       Transactions with Affiliates...........................................85

     Section 8.9       Restrictions on Subsidiary Distributions;

                       No New Negative Pledge.................................................86

     Section 8.10      Modification of Constituent Documents..................................86

     Section 8.11      Margin Regulations.....................................................86

     Section 8.12      Operating Leases; Sale and Leaseback Transactions......................87

     Section 8.13      Cancellation of Indebtedness Owed to It................................87

     Section 8.14      No Speculative Transactions............................................87

     Section 8.15      Compliance with ERISA..................................................87

     Section 8.16      Chapter 11 Claims......................................................87

Article IX     Events of Default..............................................................87

     Section 9.1       Events of Default......................................................87

     Section 9.2       Remedies...............................................................90

     Section 9.3       Actions in Respect of Letters of Credit................................91

     Section 9.4       Rescission.............................................................92

Article X      Guaranty.......................................................................92

     Section 10.1      The Guaranty...........................................................92

     Section 10.2      Nature of Liability....................................................92

     Section 10.3      Independent Obligation.................................................93

     Section 10.4      Authorization..........................................................93

     Section 10.5      Reliance...............................................................94


                                       iv



                                TABLE OF CONTENTS
                                   (continued)



                                                                                             Page
                                                                                       

     Section 10.6      Subordination..........................................................94

     Section 10.7      Waiver.................................................................94

     Section 10.8      Limitation on Enforcement..............................................95

Article XI     Security.......................................................................95

     Section 11.1      Security...............................................................95

     Section 11.2      Perfection of Security Interests.......................................96

     Section 11.3      Rights of Lender; Limitations on Lenders' Obligations..................97

     Section 11.4      Covenants of the Loan Parties with

                       Respect to Collateral..................................................98

     Section 11.5      Performance by Agent of the Loan Parties' Obligations.................103

     Section 11.6      Limitation on Agent's Duty in Respect of Collateral...................103

     Section 11.7      Remedies, Rights Upon Default.........................................104

     Section 11.8      The Administrative Agent's Appointment

                       as Attorney-in-Fact...................................................106

     Section 11.9      Modifications.........................................................107

Article XII    The Administrative Agent; The Agents..........................................108

     Section 12.1      Authorization and Action..............................................108

     Section 12.2      Administrative Agent's Reliance, Etc..................................109

     Section 12.3      The Agents as Lenders.................................................110

     Section 12.4      Lender Credit Decision................................................110

     Section 12.5      Indemnification.......................................................110

     Section 12.6      Successor Administrative Agent;

                       Successor Collateral Monitoring Agent.................................111

     Section 12.7      Concerning the Collateral and the Loan Documents......................112

     Section 12.8      Collateral Matters Relating to Related Obligations....................113

     Section 12.9      Special Provisions Relating to a Borrower's Plan......................113

     Section 12.10     Collateral Monitoring Agent...........................................114

Article XIII   Miscellaneous.................................................................114

     Section 13.1      Amendments, Waivers, Etc..............................................114

     Section 13.2      Assignments and Participations........................................116


                                        v



                                TABLE OF CONTENTS
                                   (continued)



                                                                                             Page
                                                                                       
     Section 13.3      Costs and Expenses....................................................119

     Section 13.4      Indemnities...........................................................120

     Section 13.5      Limitation of Liability...............................................122

     Section 13.6      Right of Set-off......................................................122

     Section 13.7      Sharing of Payments, Etc..............................................122

     Section 13.8      Updating of Schedules.................................................123

     Section 13.9      Independence of Representations and Warranties........................123

     Section 13.10     Governing Law.........................................................123

     Section 13.11     Submission to Jurisdiction;

                       Consent to Service of Process.........................................123

     Section 13.12     Waiver of Jury Trial..................................................124

     Section 13.13     Notices, Etc..........................................................124

     Section 13.14     No Waiver; Remedies...................................................125

     Section 13.15     Execution in Counterparts;

                       Effectiveness; Assignments by the Borrower............................126

     Section 13.16     Entire Agreement......................................................126

     Section 13.17     Further Assurances....................................................126

     Section 13.18     Confidentiality.......................................................126

     Section 13.19     Reservation of Rights to Object.......................................127


                                       vi



          Secured Super Priority Debtor In Possession Credit Agreement, dated as
of March 6, 2002, is entered into by and among National Steel Corporation, a
Delaware corporation, as debtor and debtor in possession under chapter 11 of the
Bankruptcy Code (as defined below) (the "Borrower"), the Guarantors (as defined
below), as debtors and debtors in possession under chapter 11 of the Bankruptcy
Code, the Lenders (as defined below), the Issuers (as defined below), Citicorp
Usa, Inc. ("CUSA"), as agent for the Lenders and the Issuers (in such capacity,
the "Administrative Agent"), and Heller Financial, Inc. ("Heller"), as
Collateral Monitoring Agent, Fleet Capital Corporation ("Fleet") and The Cit
Group/business Credit, Inc. ("CIT"), as Documentation Agents, Heller Financial,
Inc. and GMAC Business Credit, LLC ("GMAC"), as Syndication Agents, The Fuji
Bank, Limited ("Fuji"), as Co-Arranger, and Solomon Smith Barney, Inc. ("SSBI"),
as Sole Book Manager and Sole Lead Arranger.

                              W i t n e s s e t h:

          Whereas, on March 6, 2002 (the "Petition Date") the Borrower and the
Guarantors each filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code (collectively, the "Cases") with the United States Bankruptcy
Court for the Northern District of Illinois (Eastern Division) (said court or
any other court having jurisdiction over the Cases from time to time, the
"Bankruptcy Court");

          Whereas, the Borrower and the Guarantors are continuing to operate
their respective businesses, possess their respective assets and manage their
respective properties as debtors in possession under sections 1107 and 1108 of
the Bankruptcy Code;

          Whereas, the Borrower is a party to a Credit Agreement dated as of
September 28, 2001 among CUSA as Administrative Agent, Fleet and CIT, as
Documentation Agents, Heller and GMAC, as Syndication Agents, Fuji, as
Co-Arranger, SSBI, as Sole Book Manager and Sole Lead Arranger and the Lenders
and issuers party thereto as modified, amended and supplemented to the date
hereof ("Pre-petition Credit Agreement");

          Whereas, certain of Borrower's subsidiaries have guaranteed all of
Borrower's obligations under the Pre-petition Credit Agreement;

          Whereas, the obligations of the Borrower under the Pre-petition Credit
Agreement and the obligations of the guarantors thereof are secured by valid,
perfected first priority liens and security interests in substantially all of
the Accounts and Inventory of the Borrower and a perfected security interest in
substantially all of the other personal property of Borrower and such
guarantors;

          Whereas, as of the Petition Date, the Borrower is indebted to the
lenders under the Pre-petition Credit Agreement in an aggregate outstanding
principal amount of $306,019,925, plus accrued and unpaid interest thereon and
other amounts due under the Pre-petition Credit Agreement;

          Whereas, the Borrower has requested that the Lenders and Issuers
provide a secured super priority revolving credit and letter of credit facility
of up to $450,000,000 in order to fund the continued operation of the Borrower's
and the Guarantors' businesses as debtors in possession under the Bankruptcy
Code; and




                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          Whereas, each of the Guarantors has agreed to guaranty the obligations
of Borrower hereunder and each of the Borrower and the Guarantors has agreed to
secure its obligations to the Lenders and the Issuers hereunder with, inter
alia, security interests in, and liens on, all of its property and assets,
whether real or personal, tangible or intangible, now existing or hereafter
arising, all as more fully provided herein;

          Whereas, the Lenders and Issuers are willing to make available to the
Borrower such revolving credit and letter of credit facility upon the terms and
subject to the conditions set forth herein;

          Now, therefore, in consideration of the foregoing, the mutual
covenants and obligations herein set forth and other good and valuable
consideration, the adequacy and receipt of which is hereby acknowledged, and in
reliance upon the representations, warranties and covenants herein contained,
the parties hereto, intending to be legally bound, hereby agree as follows:

                                   ARTICLE I

                Definitions, Interpretation And Accounting Terms

          Section 1.1 Defined Terms

          As used in this Agreement, the following terms have the following
meanings (such meanings to be equally applicable to both the singular and plural
forms and, unless the context otherwise requires, to all genders and all other
grammatical forms of the terms defined):

          "Account" has the meaning given to it in Article 9 of the UCC.

          "Account Debtor" has the meaning given to it in Article 9 of the UCC.

          "Additional Pledged Collateral" means all shares of, limited and/or
general partnership interests in, and limited liability company interests in,
and all securities convertible into, and warrants, options and other rights to
purchase or otherwise acquire, stock of, either (i) any Person that, after the
date of this Agreement, as a result of any occurrence, becomes a direct
Subsidiary of any Loan Party or (ii) any issuer of Pledged Stock, any
Partnership or any LLC that are acquired by any Loan Party after the date
hereof; all certificates or other instruments representing any of the foregoing;
all Security Entitlements of any Loan Party in respect of any of the foregoing;
all additional indebtedness from time to time owed to any Loan Party by any
obligor on the Pledged Notes and the instruments evidencing such indebtedness;
and all interest, cash, instruments and other property or Proceeds from time to
time received, receivable or otherwise distributed in respect of or in exchange
for any or all of the foregoing. Additional Pledged Collateral may be General
Intangibles or Investment Property.

          "Administrative Agent" has the meaning specified in the preamble
hereto.

          "Advance Rate" means, at any time, (a) up to 85% in the case of
Eligible Receivables and (b) in the case of Eligible Inventory, up to the lower
of (i) 65% of the cost, on a first-in, first-out basis, of all categories of
such Inventory and (ii) the lower of (x) up to 75% of the lower of cost or
market, on a first-in, first-out basis, of specified categories of Inventory as
determined by the Collateral Monitoring Agent and (y) up to 85% of the orderly
liquidation

                                      -2-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

valuation (net of expenses projected to be expended in such liquidation) for
such specified categories of Inventory, as set forth in the most recent
independent third party appraisal obtained by the Collateral Monitoring Agent,
as each such rate may be increased or decreased from time to time with respect
to all or any portion of Eligible Receivables or all or any portion of any class
of Eligible Inventory by the Collateral Monitoring Agent in its sole discretion,
acting commercially reasonably and in accordance with its regular practices and
policies applicable to debtor in possession asset based loans with advance rates
based on current assets in effect from time to time (which practices and
policies may be changed by the Collateral Monitoring Agent in its sole
discretion), with any change in such rates to be effective two (2) Business Days
after written notice thereof from the Collateral Monitoring Agent to the
Borrower; provided, however, that (i) in the case of Eligible Receivables, the
Collateral Monitoring Agent shall not increase any such rates above the Original
Advance Rates without the consent of the Super-Majority Lenders and (ii) in the
case of Eligible Inventory, the Collateral Monitoring Agent may increase such
rates above the Original Advance Rates based on an independent third party
appraisal of the Inventory at the time of such increase but in no event in
excess of 85% of the orderly liquidation valuation (net of expenses projected to
be expended in such liquidation) for such Inventory as set forth in the most
recent independent third party appraisal obtained by the Collateral Monitoring
Agent; and, provided, further, that the Collateral Monitoring Agent shall not
increase any such rates more than five percent (5%) above the Original Advance
Rates for Eligible Inventory without the consent of the Super-Majority Lenders.

          "Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with,
such Person and each officer, director or general partner of such Person. For
the purposes of this definition, "control" means the possession of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise.

          "Affiliate Transaction" has the meaning specified in Section 8.8
(Transactions with Affiliates).

          "Agents" means the Administrative Agent, the Collateral Monitoring
Agent, each Documentation Agent and each Syndication Agent.

          "Agreement" means this Secured Super Priority Debtor In Possession
Credit Agreement, together with all exhibits and schedules hereto, as the same
may be amended, supplemented or otherwise modified from time to time.

          "Applicable Lending Office" means, with respect to each Lender, its
Domestic Lending Office in the case of a Base Rate Loan and its Eurodollar
Lending Office in the case of a Eurodollar Rate Loan.

          "Applicable Margin" means, with respect to the Loans maintained as (i)
Base Rate Loans, a rate equal to two and one half percent (2.5%) per annum and
(ii) Eurodollar Rate Loans, a rate equal to three and one half percent (3.5%)
per annum.

          "Approved Fund" means, any fund that is advised or managed by (a) a
Lender, (b) an Affiliate of a Lender or (c) an entity or affiliate of an entity
that administers or manages a Lender.

                                      -3-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Approved Securities Intermediary" means a securities intermediary or
commodity intermediary selected or approved by the Administrative Agent and with
respect to which a Loan Party has delivered to the Administrative Agent a
Control Account Agreement.

          "Arranger" means SSBI, in its capacity as sole book manager and sole
lead arranger.

          "Asset Sale" has the meaning specified in Section 8.4 (Sale of
Assets).

          "Assignment and Acceptance" means an assignment and acceptance, in
substantially the form of Exhibit G (Form of Assignment and Acceptance), entered
into by a Lender and an Eligible Assignee and accepted by the Administrative
Agent.

          "Availability Reserves" means, the following, individually and
collectively, (i) a reserve equal to the "Outstandings" as defined in and under
the Pre-petition Credit Agreement, (ii) a liquidity reserve equal to thirty five
million Dollars ($35,000,000), (iii) a reserve in an amount equal to the
Carve-Out, (iv) a reserve in respect of Hedging Contracts between the
Administrative Agent, any Lender (or any Affiliate thereof) and any Loan Party
in an amount as determined by the Administrative Agent, in its sole discretion
acting commercially reasonably, and (v) as of two (2) Business Days after the
receipt of written notice by the Borrower from the Administrative Agent of any
determination thereof, such other reserves as the Administrative Agent, in its
sole discretion acting commercially reasonably and in accordance with its
regular business practices and policies applicable to debtor in possession asset
based loans with advance rates based on current assets in effect from time to
time (which practices and policies may be changed by the Administrative Agent in
its sole discretion), may from time to time establish as reserves against the
Available Credit in order either (a) to preserve the value of the Collateral or
the Administrative Agent's Lien thereon or (b) to provide for the payment of
unanticipated liabilities of any Loan Party arising after the Effective Date
that are reasonably likely to affect adversely the Secured Parties' rights or
remedies in respect of the Collateral.

          "Available Credit" means, at any time, an amount equal to (a) the
lower of (i) the then effective aggregate Commitments and (ii) the Borrowing
Base at such time minus (b) the aggregate Outstandings at such time.

          "Average Available Credit" has the meaning specified in clause (b)(v)
of Section 2.13 (Fees).

          "Bailee's Letter" means a letter in form and substance acceptable to
the Administrative Agent and executed by any Person (other than the Borrower)
that is in possession of Inventory on behalf of the Borrower pursuant to which
such Person acknowledges, among other things, the Administrative Agent's Lien
with respect thereto or shall be in the form attached hereto as Exhibit D-1.

          "Bankruptcy Code" means title 11, United States Code, as amended from
time to time.

          "Bankruptcy Court" has the meaning specified in the recitals to this
Agreement.

          "Bankruptcy Orders" means the Interim Order or the Final Order, as
applicable.

                                      -4-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Base Rate" means, with respect to any period, a fluctuating interest
rate per annum as shall be in effect from time to time, which rate per annum
shall be equal at all times to the highest of:

          (a) the rate of interest announced publicly by Citibank in New York,
     New York, from time to time, as Citibank's base rate;

          (b) the sum (adjusted to the nearest one-fourth of one percent (0.25%)
     or, if there is no nearest one-fourth of one percent (0.25%), to the next
     higher one-fourth of one percent (0.25%)) of (i) one-half of one percent
     (0.5%) per annum plus (ii) the rate per annum obtained by dividing (A) the
     latest three-week moving average of secondary market morning offering rates
     in the United States for three-month certificates of deposit of major
     United States money market banks, such three-week moving average being
     determined weekly on each Monday (or, if any such Monday is not a Business
     Day, on the next succeeding Business Day) for the three-week period ending
     on the previous Friday by Citibank on the basis of such rates reported by
     certificate of deposit dealers to, and published by, the Federal Reserve
     Bank of New York or, if such publication shall be suspended or terminated,
     on the basis of quotations for such rates received by Citibank from three
     (3) New York certificate of deposit dealers of recognized standing selected
     by Citibank, by (B) a percentage equal to one hundred percent (100%) minus
     the average of the daily percentages specified during such three-week
     period by the Federal Reserve Board for determining the maximum reserve
     requirement (including any emergency, supplemental or other marginal
     reserve requirement) for Citibank in respect of liabilities consisting of
     or including (among other liabilities) three-month Dollar nonpersonal time
     deposits in the United States, plus (iii) the average during such
     three-week period of the maximum annual assessment rates estimated by
     Citibank for determining the then current annual assessment payable by
     Citibank to the Federal Deposit Insurance Corporation (or any successor)
     for insuring Dollar deposits in the United States; and

          (c) the sum of (i) one-half of one percent (0.5%) per annum plus (ii)
     the Federal Funds Rate.

          "Base Rate Loan" means Loans the rate of interest applicable to which
is based upon the Base Rate.

          "Blocked Account" means a Deposit Account over which the
Administrative Agent has control pursuant to a Deposit Account Control
Agreement.

          "Blocking Amount" has the meaning specified in Section 9.2(c)
(Blocking Lenders).

          "Blocking Event Notice" has the meaning specified in Section 9.2(c)
(Blocking Lenders).

          "Blocking Lenders" has the meaning specified in Section 9.2(c)
(Blocking Lenders).

          "Borrower" has the meaning specified in the preamble hereto.

                                      -5-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Borrower's Accountants" means Ernst & Young, LLP or any other
independent nationally-recognized public accountants reasonably acceptable to
the Administrative Agent.

          "Borrower's Plan" means a plan of reorganization filed by the Borrower
and its debtor subsidiaries under section 1121 of the Bankruptcy Code.

          "Borrowing" means a borrowing consisting of Revolving Loans made on
the same day by the Lenders ratably according to their respective Commitments.

          "Borrowing Base" means, at any time, (a) the sum of (i) the product of
the Advance Rate then in effect for Eligible Receivables and the face amount of
all Eligible Receivables of the Borrower (calculated net of all finance charges,
late fees and other fees that are unearned, sales, excise or similar taxes, and
credit or allowances granted at such time) and (ii) the lesser of (A) the
Inventory Sublimit and (B) the product of the Advance Rate then in effect for
Eligible Inventory and (x) the cost at which such Eligible Inventory is carried
on the books of the Borrower or Pellet, as the case may be, on a first-in,
first-out basis, (y) the market value of such Eligible Inventory or (z) the
orderly liquidation valuation (net of expenses projected to be expended in such
liquidation) for such Inventory as set forth in the most recent independent
third party appraisal obtained by the Collateral Monitoring Agent (in each case
with respect to (x), (y) and (z) in a manner consistent with the scheme of
Advance Rates for Inventory described in clause (b) of the definition of
"Advance Rates"), less (b) any Eligibility Reserves then in effect.

          "Borrowing Base Certificate" means a certificate of the Borrower
substantially in the form of Exhibit E (Form of Borrowing Base Certificate),
including the details of how the Outside Processing Inventory Reserve was
computed.

          "Borrowing Base Deficiency" means, at any time, the failure of the
Borrowing Base to exceed the aggregate Outstandings.

          "Business Day" means a day of the year on which banks are not required
or authorized to close in New York City and, if the applicable Business Day
relates to notices, determinations, fundings and payments in connection with the
Eurodollar Rate or any Eurodollar Rate Loans, a day on which dealings in Dollar
deposits are also carried on in the London interbank market.

          "Capital Expenditures" means, with respect to any Person for any
period, the aggregate of amounts that would be reflected as additions to
property, plant or equipment on a consolidated balance sheet of such Person and
its Subsidiaries prepared in conformity with GAAP, excluding interest
capitalized during construction and excluding amounts expended, in the case of
an Asset Sale permitted hereunder, to acquire replacement assets, or in the case
of a Property Loss Event, to effect repairs, to the extent of the Net Cash
Proceeds received by the Borrower in connection with such Asset Sale or Property
Loss Event, as the case may be.

          "Capital Lease" means, with respect to any Person, any lease of
property by such Person as lessee (or other arrangement conveying the right to
use) that would be accounted for as a capital lease on a balance sheet of such
Person prepared in conformity with GAAP.

          "Capital Lease Obligations" means, with respect to any Person, the
capitalized amount of all obligations of such Person or any of its Subsidiaries
under Capital Leases, as determined on a consolidated basis in conformity with
GAAP.

                                      -6-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Carve-Out" means (i) the unpaid fees of the clerk of the Bankruptcy
Court and of the United States Trustee pursuant to 28 U.S.C. Section 1930(a) and
(b), and (ii) the aggregate allowed unpaid fees and expenses payable under
sections 330 and 331 of the Bankruptcy Code to professional persons retained
pursuant to an order of the Court by the Borrower and the Guarantors or any
Committee appointed in the Cases (other than the fees and expenses, if any, of
any such professional persons incurred, directly or indirectly, in respect of,
arising from or relating to, the initiation or prosecution of any action for
preferences, fraudulent conveyances, other avoidance power claims or any other
claims or causes of action against the Agents or the Lenders or with respect to
the Obligations or the Pre-petition Credit Agreement Claims), paid after the
occurrence and during the continuance of an Event of Default not to exceed seven
million Dollars ($7,000,000) in the aggregate.

          "Cases" shall have the meaning specified in the recitals hereto.

          "Cash Collateral Account" means any deposit account (including Blocked
Accounts) or securities account established by the Administrative Agent in which
cash and Cash Equivalents may from time to time be on deposit or held therein as
provided herein.

          "Cash Equivalents" means (a) securities issued or fully guaranteed or
insured by the United States government or any agency thereof, (b) certificates
of deposit, eurodollar time deposits, overnight bank deposits and bankers'
acceptances of any Lender or any commercial bank organized under the laws of the
United States, any state thereof or the District of Columbia or any foreign bank
or its branches or agencies (fully protected against currency fluctuations),
which, at the time of acquisition, are rated at least "A-1" by Standard & Poor's
or "P-1" by Moody's, (c) commercial paper of an issuer rated at least "A-1" by
Standard & Poor's or "P-1" by Moody's and (d) shares of any money market fund
that (i) has at least ninety-five percent (95%) of its assets invested
continuously in the types of investments referred to in clauses (a) through (c)
above, (ii) has net assets of not less than five hundred million Dollars
($500,000,000) and (iii) is rated at least "A-1" by S&P or "P-1" by Moody's;
provided, however, that the maturities of all obligations of the type specified
in clauses (a) through (c) above shall not exceed one hundred and eighty (180)
days.

          "Change of Control" means any of the following: (a) NKK shall cease to
own and control, directly or indirectly, all of the voting rights associated
with a majority of the outstanding Stock and the outstanding Voting Stock of the
Borrower, (b) NKK shall cease to own and control all of the economic rights
associated with twenty five percent (25%) or more of the outstanding Stock of
the Borrower or (c) the Borrower shall cease to own and control, directly or
indirectly, all of the economic and voting rights associated with all of the
outstanding Stock of any of its Material Subsidiaries.

          "Chattel Paper" has the meaning specified in Article 9 of the UCC.

          "Citibank" means Citibank, N.A., a national banking association.

          "Claim" has the meaning ascribed to such term in Section 101(5) of the
Bankruptcy Code.

          "Code" means the United States Internal Revenue Code of 1986 (or any
successor legislation thereto).

                                      -7-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Collateral" has the meaning specified in Section 2.20 (Priority and
Liens).

          "Collateral Monitoring Agent" means Heller, in its capacity as
collateral monitoring agent hereunder.

          "Commitment" means, with respect to each Lender, such Lender's Tranche
A Commitment or Tranche B Commitment, as the case may be.

          "Committee" means any statutory committee approved in the cases
pursuant to section 1102 of the Bankruptcy Code.

          "Compliance Certificate" has the meaning specified in clause (d) of
Section 6.1 (Financial Statements and Information).

          "Constituent Documents" means, with respect to any Person, (a) the
articles of incorporation, certificate of incorporation or certificate of
formation (or the equivalent organizational documents) of such Person, (b) the
bylaws, operating agreement (or the equivalent governing documents) of such
Person and (c) any document setting forth the manner of election and duties of
the directors or managing members of such Person (if any) and the designation,
amount or relative rights, limitations and preferences of any class or series of
such Person's Stock.

          "Consummation Date" means the date of the substantial consummation (as
defined in section 1101 of the Bankruptcy Court and which for purposes of this
Agreement shall be no later than the effective date) of a plan of reorganization
that is confirmed pursuant to an order of the Bankruptcy Court.

          "Contaminant" means any material, substance or waste that is
classified, regulated or otherwise characterized under any Environmental Law as
hazardous, toxic, a contaminant or a pollutant or by other words of similar
meaning or regulatory effect, including any petroleum or petroleum-derived
substance or waste, asbestos and polychlorinated biphenyls.

          "Contracts" means with respect to any Loan Party, any and all
"contracts" of such Loan Party as such term is defined in Article 1 of the UCC.

          "Contractual Obligation" of any Person means any obligation, promise,
agreement (whether written or oral, express or implied and whether or not
legally binding), contract (including settlements and collective bargaining
agreements), undertaking or similar provision of any Security issued by such
Person or of any agreement, undertaking, contract, lease, indenture, mortgage,
deed of trust or other instrument (excluding a Loan Document) to which such
Person is a party or by which it or any of its property is bound or to which any
of its properties is subject.

          "Control Account" means a Securities Account or commodity account
maintained by any Loan Party with an Approved Securities Intermediary which
account is the subject of an effective Control Account Agreement, and includes
all financial assets held therein and all certificates and instruments, if any,
representing or evidencing such Control Account.

          "Control Account Agreement" means a letter agreement, substantially in
the form of Exhibit K (with such changes as may be agreed to by the
Administrative Agent), executed by

                                      -8-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

any Loan Party and the Administrative Agent and acknowledged and agreed to by
the relevant Approved Securities Intermediary.

          "Copyright Licenses" means any written agreement naming any Loan Party
as licensor or licensee granting any right under any Copyright, including the
grant of rights to copy, publicly perform, create derivative works, manufacture,
distribute, exploit and sell materials derived from any Copyright.

          "Copyrights" means (a) all copyrights arising under the laws of the
United States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any foreign counterparts thereof and (b)
the right to obtain all renewals thereof.

          "CUSA" has the meaning specified in the preamble hereto.

          "Customary Permitted Liens" means, with respect to any Person, any of
the following Liens:

          (a) Liens (excluding Environmental Liens) with respect to the payment
     of taxes, assessments or governmental charges in all cases that are not yet
     due or that are being contested in good faith by appropriate proceedings
     and with respect to which adequate reserves or other appropriate provisions
     are being maintained to the extent required by GAAP to the extent that all
     such Liens in the aggregate would, if all such contests were adversely
     determined, have no Material Adverse Effect;

          (b) Liens of landlords arising by statute and liens of suppliers,
     mechanics, carriers, materialmen, warehousemen or workmen and other liens
     imposed by law created in the ordinary course of business for amounts not
     yet due or that are being contested in good faith by appropriate
     proceedings and with respect to which adequate reserves or other
     appropriate provisions are being maintained to the extent required by GAAP
     to the extent that all such Liens in the aggregate would, if all such
     contests were adversely determined, have no Material Adverse Effect;

          (c) deposits made in the ordinary course of business in connection
     with workers' compensation, unemployment insurance or other types of social
     security benefits or to secure the performance of bids, tenders, sales,
     contracts (other than for the repayment of borrowed money), leases (whether
     real or personal) and surety, appeal, customs or performance bonds;

          (d) encumbrances arising by reason of zoning restrictions, easements,
     licenses, reservations, covenants, rights-of-way, utility easements,
     building restrictions and other similar encumbrances on the use of Real
     Property not materially detracting from the value of such Real Property or
     not materially interfering with the ordinary conduct of the business
     conducted and proposed to be conducted at such Real Property;

          (e) encumbrances arising under leases or subleases of Real Property
     that do not, in the aggregate, materially detract from the value of such
     Real Property or interfere with

                                       -9-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

     the ordinary conduct of the business conducted and proposed to be conducted
     at such Real Property;

          (f) financing statements with respect to a lessor's rights in and to
     personal property leased to such Person in the ordinary course of such
     Person's business; and

          (g) deposits made by the Borrower or any Guarantor and escrow or
     similar arrangements to secure obligations or liabilities arising from
     agreements of the Borrower or a Guarantor providing for indemnification,
     adjustment of purchase price, earn-out or other similar obligations, in
     each case incurred or assumed in connection with the disposition of any
     business or assets.

          "Default" means any event that, with the passing of time or the giving
of notice or both, would become an Event of Default.

          "Delray" has the meaning specified in clause (i) of Section 8.3
(Investments in Other Persons).

          "Deposit Account" has the meaning given to it in Article 9 of the UCC.

          "Deposit Account Bank" means a financial institution selected or
approved by the Administrative Agent and with respect to which a Loan Party has
delivered to the Administrative Agent a Deposit Account Control Agreement.

          "Deposit Account Control Agreement" means a letter agreement in such
form as may be agreed to by the Administrative Agent, executed by the relevant
Loan Party, the Administrative Agent and the relevant Deposit Account Bank.

          "Documentation Agent" means Fleet Capital Corporation and The CIT
Group/Business Credit, Inc., each in its capacity as documentation agent.

          "Documentary Letter of Credit" means any letter of credit issued by an
Issuer pursuant to clause (a) of Section 2.4 (Letters of Credit) for the account
of the Borrower, which is drawable upon presentation of documents evidencing the
sale or shipment of goods purchased by the Borrower or any of its Subsidiaries
in the ordinary course of its business.

          "Dollars" and the sign "$" each mean the lawful money of the United
States of America.

          "Domestic Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Domestic Lending Office" opposite its
name on Schedule II (Applicable Lending Offices and Addresses for Notices) or on
the Assignment and Acceptance by which it became a Lender or such other office
of such Lender as such Lender may from time to time specify to the Borrower and
the Administrative Agent.

          "Effective Date" has the meaning specified in Section 3.1 (Conditions
Precedent to the Effectiveness of this Agreement).

          "Election Notice" has the meaning specified in Section 9.2(c)
(Blocking Lenders).

                                      -10-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Eligibility Reserves" means (a) the Outside Processing Inventory
Reserve, and (b) effective as of two (2) Business Days after the date of written
notice of any determination thereof to the Borrower by the Collateral Monitoring
Agent, such other amounts as the Collateral Monitoring Agent, in its sole
discretion acting commercially reasonably and in accordance with its regular
business practices and policies in effect from time to time and applicable to
debtor in possession asset based loans with advance rates based on current
assets (which practices and policies may be changed by the Collateral Monitoring
Agent in its sole discretion), may from time to time establish against the gross
amounts of Eligible Inventory or Eligible Receivables to reflect risks or
contingencies that (i) arise after the Effective Date, (ii) relate to, or may
otherwise affect, the Collateral or the Secured Parties' risks or remedies in
respect thereof and (iii) have not already been taken into account in the
calculation of the Borrowing Base.

          "Eligible Inventory" means Inventory of the Borrower and Pellet
including raw materials, work in process, finished goods, parts and supplies
(other than any Inventory which has been consigned by the Borrower or Pellet)
(i) that is owned solely by the Borrower or Pellet, (ii) with respect to which
the Administrative Agent has a valid and perfected first-priority Lien (subject
only to the Liens securing the Pre-petition Credit Agreement Claims), (iii) that
is located on premises (1) owned by the Borrower or Pellet, (2) leased by the
Borrower with respect to which the Borrower has delivered to the Administrative
Agent a duly executed Landlord's Waiver for each such location (provided that
for the ninety (90) day period immediately following the Effective Date premises
leased by the Borrower at a location for which a landlord's waiver was delivered
in respect of such location in connection with the Pre-petition Credit Agreement
shall be deemed for the purposes of this subclause (2) to be subject to a "duly
executed Landlord's Waiver" regardless of whether a new Landlord's Waiver has
actually been obtained) or (3) owned by third parties and either (x) covered by
an appropriate Bailee's Letter or comparable agreement for such location that
waives any statutory or common law lien of such third party or subordinates such
lien to the Lien of the Administrative Agent for the benefit of the Lenders
(provided that for the ninety (90) day period immediately following the
Effective Date, no Outside Processing Inventory Reserve shall be reserved in
respect of Inventory at a third party location for which a bailee's letter and a
landlord's waiver was delivered in respect of such location in connection with
the Pre-petition Credit Agreement) or (y) such third party's claims arising from
its provision of services have been adequately reserved for under the Outside
Processing Inventory Reserve, (iv) with respect to which none of the warranties
contained in the Loan Documents has been breached, (v) that is not, as
determined in the sole discretion of the Collateral Monitoring Agent acting in a
commercially reasonable manner, obsolete or unmerchantable, (vi) with respect to
which (in respect of any Inventory labeled with a brand name or trademark and
sold by such Loan Party pursuant to a trademark owned by such Loan Party or a
license granted to such Loan Party) the Administrative Agent would have rights
under such trademark or license pursuant to this Agreement or any other
agreement satisfactory to the Administrative Agent to sell such Inventory in
connection with a liquidation thereof, and (vii) that the Collateral Monitoring
Agent deems to be Eligible Inventory, based on such credit and collateral
considerations as the Collateral Monitoring Agent may deem appropriate, in its
sole discretion acting commercially reasonably and in accordance with its
regular business practices and policies in effect from time to time and
applicable to asset based loans with advance rates based on current assets
(which practices and policies may be changed by the Collateral Monitoring Agent
in its sole discretion).

          "Eligible Receivable" means the gross outstanding balance of each
Account of the Borrower arising out of the sale of merchandise, goods or
services in the ordinary course of

                                      -11-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

business, that is made by the Borrower to a Person that is not an Affiliate of
the Borrower, that is not in dispute and that constitutes Collateral in which
the Administrative Agent has a fully perfected first priority Lien (subject only
to the Liens securing the Pre-petition Credit Agreement Claims); provided,
however, that an Account shall in no event be an Eligible Receivable if:

          (a) (i) such Account is more than 60 days past due according to the
     original terms of sale or (ii) 90 days past the original invoice date
     thereof; or

          (b) any warranty contained in this Agreement or any other Loan
     Document with respect to such specific Account is not true and correct with
     respect to such Account; or

          (c) the Account Debtor on such Account has disputed liability or made
     any claim with respect to any other Account due from such Account Debtor to
     the Borrower but only to the extent of such dispute or claim; or

          (d) the Account Debtor on such Account has (i) filed a petition for
     bankruptcy or any other relief under the Bankruptcy Code or any other law
     relating to bankruptcy, insolvency, reorganization or relief of debtors,
     (ii) made an assignment for the benefit of creditors, (iii) had filed
     against it any petition or other application for relief under the
     Bankruptcy Code or any such other law, (iv) has failed, suspended business
     operations, become insolvent, called a meeting of its creditors for the
     purpose of obtaining any financial concession or accommodation or (v) had
     or suffered a receiver or a trustee to be appointed for all or a
     significant portion of its assets or affairs; or

          (e) the Account Debtor on such Account or any of its Affiliates is
     also a supplier to or creditor of the Borrower unless such supplier or
     creditor has executed a no-offset letter satisfactory to the Administrative
     Agent, in its sole discretion; provided, however, that the Administrative
     Agent may in its sole and absolute discretion determine that the balance of
     such Account Debtor's receivables are eligible after instituting a reserve
     in an amount equal to 125% of such Account Debtor's (or its Affiliate's)
     accounts payable from the Borrower; provided, further, that the amount
     payable to such Account Debtor by the Borrower is in excess of $10,000 at
     any one time; or

          (f) the sale represented by such Account is to an Account Debtor
     located outside the United States unless (i) the sale is on letter of
     credit or banker's acceptance terms acceptable, in its sole discretion, to
     the Collateral Monitoring Agent, (ii) the sale represented by such Account
     is to an Account Debtor domiciled in Canada and such Account is denominated
     in Dollars, (iii) the sale represented by such Account is covered by credit
     insurance acceptable to the Collateral Monitoring Agent, in its sole
     discretion or (iv) the sale represented by such Account is to a foreign
     Account Debtor which has been pre-approved, in its sole discretion, by the
     Collateral Monitoring Agent; or

          (g) the sale to such Account Debtor on such Account is on a
     bill-on-hold, guaranteed sale, sale-and-return, sale-on-approval or
     consignment basis; or

          (h) such Account is subject to a Lien in favor of any Person other
     than the Administrative Agent for the benefit of the Secured Parties and
     the lenders under the Pre-petition Credit Agreement; or

                                      -12-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          (i) such Account is subject to any deduction, offset, counterclaim,
     return privilege or other conditions other than volume sales discounts
     given in the ordinary course of the Borrower's business; provided, however,
     that such Account shall be ineligible only to the extent of such deduction,
     offset, counterclaim, return privilege or other condition (unless otherwise
     deemed ineligible hereunder); or

          (j) the Account Debtor on such Account is located in New Jersey or
     Minnesota, unless the Borrower (i) has received a certificate of authority
     to do business and is in good standing in such state or (ii) has filed a
     Notice of Business Activities Report with the appropriate office or agency
     of such state for the current year; or

          (k) the Account Debtor on such Account is a Governmental Authority,
     unless the Borrower has assigned its rights to payment of such Account to
     the Administrative Agent pursuant to the Assignment of Claims Act of 1940,
     as amended, in the case of a federal Governmental Authority, and pursuant
     to applicable law, if any, in the case of any other Governmental Authority,
     and such assignment has been accepted and acknowledged by the appropriate
     government officers; or

          (l) 50% or more of the outstanding Accounts of the Account Debtor
     (other than those Accounts that are not Eligible Receivables solely by
     reason of clause (p) below) have become, or have been determined by the
     Collateral Monitoring Agent in accordance with the provisions hereof to be,
     ineligible other than solely by reason of clause (p) below; or

          (m) the sale represented by such Account is denominated in a currency
     other than Dollars; or

          (n) such Account is not evidenced by an invoice or other writing in
     form acceptable to the Collateral Monitoring Agent, in its sole discretion;
     or

          (o) the Borrower, in order to be entitled to collect such Account, is
     required to perform any additional service for, or perform or incur any
     additional obligation to, the Person to whom or to which it was made; or

          (p) the total Accounts of the Borrower on which the same Person is the
     Account Debtor represent more than 20% of the Eligible Receivables at such
     time, but only to the extent of such excess; or

          (q) the Collateral Monitoring Agent, based on such credit and
     collateral considerations as the Collateral Monitoring Agent may deem
     appropriate, in its sole discretion acting commercially reasonably and in
     accordance with its regular business practices and policies in effect from
     time to time and applicable to debtor in possession asset-based loans with
     advance rates based on current assets (which practices and policies may be
     changed by the Collateral Monitoring Agent in its sole discretion),
     determines such Account to be ineligible.

          "Eligible Tranche A Assignee" means a Tranche A Lender or any
Affiliate of such Tranche A Lender.

                                      -13-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Eligible Tranche B Assignee" means (a) a Lender or any Affiliate of
such Lender; (b) any financial institution which has been pre-approved to be a
Lender in writing by the Borrower, (c) a commercial bank having total assets in
excess of five billion Dollars ($5,000,000,000) acceptable to the Borrower
(which acceptance may not be unreasonably withheld); or (d) a finance company,
insurance company, other financial institution or fund, reasonably acceptable to
the Administrative Agent and the Borrower, that regularly is engaged in making,
purchasing or investing in loans; provided, however, that the consent of the
Borrower required in clauses (c) and (d) above shall not be required during the
continuance of an Event of Default.

          "Encumbrances" means, with respect to Real Property, all Liens,
leases, options, preferences, priorities, rights of first refusal, easements,
servitudes, rights-of-way, licenses, securities purchase option, call or similar
right, restrictions under any shareholder agreement or any other Contractual
Obligation, encumbrance or any other restriction or limitation whatsoever on any
right incident to the ownership in fee of such property (including rights to
transfer, use or possess such property), whether contingent or non-contingent,
matured or unmatured, known or unknown.

          "Entry Date" means the date of the entry of the Final Order.

          "Environmental Laws" means all applicable Requirements of Law now or
hereafter in effect and as amended or supplemented from time to time, relating
to pollution or the regulation and protection of human health, safety, the
environment or natural resources, including the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C.Section
9601 et seq.); the Hazardous Material Transportation Act, as amended (49
U.S.C.Section 1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide
Act, as amended (7 U.S.C.Section 136 et seq.); the Resource Conservation and
Recovery Act, as amended (42 U.S.C.Section 6901 et seq.); the Toxic Substance
Control Act, as amended (42 U.S.C.Section 7401 et seq.); the Clean Air Act, as
amended (42 U.S.C.Section 740 et seq.); the Federal Water Pollution Control Act,
as amended (33 U.S.C.Section 1251 et seq.); the Occupational Safety and Health
Act, as amended (29 U.S.C.Section 651 et seq.); the Safe Drinking Water Act, as
amended (42 U.S.C.Section 300f et seq.); and each of their state and local
counterparts or equivalents and any transfer of ownership notification or
approval statute, including the Industrial Site Recovery Act (N.J. Stat.
Ann.Section13:1K-6 et seq.).

          "Environmental Liabilities and Costs" means, with respect to any
Person, all liabilities, obligations, responsibilities, Remedial Actions,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including all fees, disbursements and expenses of counsel, experts
and consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim or demand by
any other Person, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute, including any thereof arising under
any Environmental Law, Permit, Order or Contractual Obligation with any
Governmental Authority or other Person, relating to any environmental, health or
safety condition or a Release or threatened Release and result from the past,
present or future operations of, or ownership of property by, such Person or any
of its Subsidiaries.

          "Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.

                                      -14-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Equipment" has the meaning specified Article 9 of the UCC.

          "ERISA" means the Employee Retirement Income Security Act of 1974 (or
any successor legislation thereto) as amended from time to time.

          "ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control or treated as a single employer with the
Borrower or any of its Subsidiaries within the meaning of Section 414 (b), (c),
(m) or (o) of the Code.

          "ERISA Event" means (a) a reportable event described in Section
4043(b) or 4043(c)(1), (2), (3), (5), (6), (8) or (9) of ERISA with respect to a
Title IV Plan or a Multiemployer Plan, (b) the withdrawal of the Borrower, any
of its Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer,
as defined in Section 4001(a)(2) of ERISA, (c) the complete or partial
withdrawal of the Borrower, any of its Subsidiaries or any ERISA Affiliate from
any Multiemployer Plan, (d) notice of reorganization or insolvency of a
Multiemployer Plan, (e) the filing of a notice of intent to terminate a Title IV
Plan or the treatment of a plan amendment as a termination under Section 4041 of
ERISA, (f) the institution of proceedings to terminate a Title IV Plan or
Multiemployer Plan by the PBGC, (g) the failure to make any required
contribution to a Title IV Plan or Multiemployer Plan or (h) the imposition of a
lien under Section 412 of the Code or Section 302 of ERISA on the Borrower or
any of its Subsidiaries or any ERISA Affiliate.

          "Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Federal Reserve Board.

          "Eurodollar Base Rate" means the rate of interest determined by the
Administrative Agent to be the average (rounded upward to the nearest whole
multiple of one sixteenth of one percent (0.0625%) per annum, if such average is
not such a multiple) of the rates per annum at which deposits in Dollars are
offered by the principal office of Citibank in London, to major banks in the
London interbank market at 11:00 A.M. (London time) two (2) Business Days before
the first day of such Interest Period in an amount substantially equal to the
Eurodollar Rate Loan for a period equal to such Interest Period.

          "Eurodollar Borrowing Unit" means five million Dollars ($5,000,000).

          "Eurodollar Lending Office" means, with respect to any Lender, the
office of such Lender specified as its "Eurodollar Lending Office" opposite its
name on Schedule II (Applicable Lending Offices and Addresses for Notices) or on
the Assignment and Acceptance by which it became a Lender (or, if no such office
is specified, its Domestic Lending Office) or such other office of such Lender
as such Lender may from time to time specify to the Borrower and the
Administrative Agent.

          "Eurodollar Rate" means, with respect to any Interest Period for any
Eurodollar Rate Loan, an interest rate per annum equal to the rate per annum
obtained by dividing (a) the Eurodollar Base Rate by (b)(i) a percentage equal
to one hundred percent (100%) minus (ii) the reserve percentage applicable two
(2) Business Days before the first day of such Interest Period under regulations
issued from time to time by the Federal Reserve Board for determining the
maximum reserve requirement (including any emergency, supplemental or other
marginal reserve requirement) for a member bank of the United States Federal
Reserve System in New York City with respect to liabilities or assets consisting
of or including Eurocurrency Liabilities (or with

                                      -15-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

respect to any other category of liabilities that includes deposits by reference
to which the Eurodollar Rate is determined) having a term equal to such Interest
Period.

          "Eurodollar Rate Loan" means any Revolving Loan that, for an Interest
Period, bears interest based on the Eurodollar Rate.

          "Event of Default" has the meaning specified in Section 9.1 (Events of
Default).

          "Exercise of Remedies" has the meaning specified in Section 9.2(c)
(Blocking Lenders).

          "Facility" means the Commitments and the provisions herein related to
the Revolving Loans, Swing Loans and Letters of Credit.

          "Fair Market Value" means (a) with respect to any asset or group of
assets (other than a marketable Security) at any date, the value of the
consideration obtainable in a sale of such asset at such date assuming a sale by
a willing seller to a willing purchaser dealing at arm's length and arranged in
an orderly manner over a reasonable period of time having regard to the nature
and characteristics of such asset; provided, however, that, if such asset shall
have been the subject of a relatively contemporaneous appraisal by an
independent third-party appraiser for which the basic underlying assumptions
have not materially changed since its date, the "Fair Market Value" of such
asset shall be the value set forth in such appraisal and (b) with respect to any
marketable Security at any date, the closing sale price of such Security on the
Business Day next preceding such date, as appearing in any published list of any
national securities exchange or the NASDAQ Stock Market or, if there is no such
closing sale price of such Security, the final price for the purchase of such
Security at face value quoted on such Business Day by a financial institution of
recognized standing regularly dealing in securities of such type selected by the
Administrative Agent.

          "Federal Funds Rate" means, 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 United
States 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 that is a Business Day, the average of the quotations
for such day on such transactions received by the Administrative Agent from
three Federal funds brokers of recognized standing selected by it.

          "Federal Reserve Board" means the Board of Governors of the United
States Federal Reserve System, or any successor thereto.

          "Final Order" means an order of the Bankruptcy Court pursuant to
section 364 of the Bankruptcy Code approving this Agreement and the other Loan
Documents and authorizing the incurrence by the Borrower of permanent
post-petition secured and super-priority Indebtedness in accordance with, and
the granting by the Borrower of the Liens in favor of the Secured Parties having
the priority set forth in, this Agreement, and as to which no stay has been
entered and which has not been reversed, modified, vacated or overturned, and
which is substantively identical to the Interim Order and acceptable to the
Administrative Agent or otherwise in form and substance satisfactory to the
Administrative Agent and Tranche A Lenders

                                      -16-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

consisting of more than fifty percent (50%) in number and two thirds in amount
of the then outstanding Tranche A Commitments that vote to accept or reject such
revised Final Order.

          "Financial Statements" means the financial statements of the Borrower
and its Subsidiaries delivered in accordance with Sections 4.3 (Financial
Statements) and 6.1 (Financial Statements).

          "First Day Orders" means all orders entered by the Bankruptcy Court
based on motions by the Borrower on the Petition Date or within five (5)
Business Days of the Petition Date.

          "Fiscal Quarter" means each of the three month periods ending on March
31, June 30, September 30 and December 31.

          "Fiscal Year" means the twelve month period ending on December 31.

          "Fully Subscribing Lender" has the meaning specified in Section 9.2(c)
(Blocking Lenders).

          "GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, or in such other statements by such other
entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.

          "General Intangibles" has the meaning specified in Article 9 of the
UCC.

          "GMAC" has the meaning specified in the preamble hereto.

          "Governmental Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of, or generally
pertaining to, a government, nation, state or other political subdivision
thereof, including any central bank, the PBGC or arbitrator.

          "Guarantor" means, individually, each Person listed on the signature
pages to this Agreement as a guarantor and executing this Agreement as such or
any other Person that guaranties the Obligations, and, such entities
collectively, the "Guarantors".

          "Guaranty" means the guaranty of the obligations of the Borrower made
by the Guarantors pursuant to Article X (Guaranty) of this Agreement.

          "Guaranty Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
Indebtedness of another Person, if the purpose or intent of such Person in
incurring the Guaranty Obligation is to provide assurance to the obligee of such
Indebtedness that such Indebtedness will be paid or discharged, that any
agreement relating thereto will be complied with or that any holder of such
Indebtedness will be protected (in whole or in part) against loss in respect
thereof including (a) the direct or indirect guaranty, endorsement (other than
for collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of

                                      -17-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

Indebtedness of another Person and (b) any liability of such Person for
Indebtedness of another Person through any agreement (contingent or otherwise)
(i) to purchase, repurchase or otherwise acquire such Indebtedness or any
security therefor or to provide funds for the payment or discharge of such
Indebtedness (whether in the form of a loan, advance, stock purchase, capital
contribution or otherwise), (ii) to maintain the solvency or any balance sheet
item, level of income or financial condition of another Person, (iii) to make
take-or-pay or similar payments, if required, regardless of non-performance by
any other party or parties to an agreement, (iv) to purchase, sell or lease (as
lessor or lessee) property, or to purchase or sell services, primarily for the
purpose of enabling the debtor to make payment of such Indebtedness or to assure
the holder of such Indebtedness against loss or (v) to supply funds to or in any
other manner invest in such other Person (including to pay for property or
services irrespective of whether such property is received or such services
irrespective of whether such property is received or such services are
rendered), if, in the case of any agreement described under clause (b)(i), (ii),
(iii), (iv) or (v) above, the primary purpose or intent thereof is as described
in the preceding sentence. The amount of any Guaranty Obligation shall be equal
to the amount of the Indebtedness so guaranteed or otherwise supported.

          "Hedging Contracts" means all Interest Rate Contracts, foreign
exchange contracts, currency swap or option agreements, forward contracts,
commodity swap, purchase or option agreements, other commodity price hedging
arrangements and all other similar agreements or arrangements designed to alter
the risks of any Person arising from fluctuations in interest rates, currency
values or commodity prices.

          "Heller" has the meaning specified in the preamble hereto.

          "Immediate Default" means any Default other than those Defaults that
are unmatured on account of the cure periods set forth in clause (e)(ii) of
Section 9.1 (Events of Default).

          "Indebtedness" of any Person means without duplication (a) all
indebtedness of such Person for borrowed money (b) all obligations of such
Person evidenced by notes, bonds, debentures or similar instruments or that bear
interest, (c) all reimbursement and all obligations with respect to letters of
credit, bankers' acceptances, surety bonds and performance bonds, whether or not
matured), (d) all indebtedness for the deferred purchase price of property or
services, other than (i) trade payables incurred prior to the Petition Date and
(ii) trade payables incurred after the Petition Date that are in the ordinary
course of business and that are not overdue for more than 90 days, (e)
indebtedness of such Person created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such Person
(even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or sale of such
property), (f) all Capital Lease Obligations of such Person and the present
value of future rental payments under all synthetic leases, (g) all Guaranty
Obligations of such Person, (h) all obligations of such Person to purchase,
redeem, retire, defease or otherwise acquire for value any Stock or Stock
Equivalents of such Person, valued, in the case of redeemable preferred stock,
at the greater of its voluntary or involuntary liquidation preference plus
accrued and unpaid dividends, (i) all payments that such Person would have to
make in the event of an early termination on the date Indebtedness of such
Person is being determined in respect of Hedging Contracts of such Person and
(j) all Indebtedness of the type referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including Accounts and general

                                      -18-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

intangibles) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness.

          "Indemnitees" has the meaning specified in Section 13.3 (Costs;
Expenses; Indemnities).

          "Indenture" means the Original Indenture, as supplemented by all
instruments supplemental thereto, through and including the Eleventh
Supplemental Indenture, dated as of March 31, 1999, to the Original Indenture,
and any duly appointed successor trustees.

          "Instrument" has the meaning specified in Article 9 of the UCC, other
than instruments that constitute, or are a part of a group of writings that
constitute, Chattel Paper.

          "Intellectual Property" means, collectively, all rights, priorities
and privileges of any Loan Party relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks,
Trademark licenses and trade secrets, and all rights to sue at law or in equity
for any infringement or other impairment thereof, including the right to receive
all proceeds and damages therefrom.

          "Interest Period" means, in the case of any Eurodollar Rate Loan but
in any event subject to Section 2.2(f) (Borrowing Procedures - Continuation of
Eurodollar Rate Lending), (x) initially, the period commencing on the date such
Eurodollar Rate Loan is made or on the date of conversion of a Base Rate Loan to
such Eurodollar Rate Loan and ending one (1), two (2), three (3) or six (6)
months thereafter, as selected by the Borrower in its Notice of Borrowing or
Notice of Conversion or Continuation given to the Administrative Agent pursuant
to Section 2.2 (Borrowing Procedures) or 2.12 (Conversion and Continuation
Options) and (y) thereafter, if such Eurodollar Rate Loan is continued, in whole
or in part, as a Eurodollar Rate Loan pursuant to Section 2.12, a period
commencing on the last day of the immediately preceding Interest Period therefor
and ending one (1), two (2), three (3) or six (6) months thereafter, as selected
by the Borrower in its Notice of Conversion or Continuation given to the
Administrative Agent pursuant to Section 2.12; provided, however, that all of
the foregoing provisions relating to Interest Periods in respect of Eurodollar
Rate Loans are subject to the following:

          (a) if any Interest Period would otherwise end on a day that is not a
     Business Day, such Interest Period shall be extended to the next succeeding
     Business Day, unless, the result of such extension would be to extend such
     Interest Period into another calendar month, in which event such Interest
     Period shall end on the immediately preceding Business Day;

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

          (c) the Borrower may not select any Interest Period that ends after
     the Scheduled Termination Date;

                                      -19-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          (d) the Borrower may not select any Interest Period in respect of
     Revolving Loans having an aggregate principal amount of less than five
     million Dollars ($5,000,000); and

          (e) there shall be outstanding at any one time no more than six (6)
     Interest Periods in the aggregate.

          "Interest Rate Contracts" means all interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements and interest rate
insurance.

          "Interim Facility" means that portion of the Facility made available
to the Borrower prior to the Entry Date, as approved by the Interim Order, which
portion shall not exceed two hundred thirty million Dollars ($230,000,000).

          "Interim Order" means that certain order issued by the Bankruptcy
Court in substantially the form of Exhibit I or otherwise substantively
identical thereto and acceptable to the Administrative Agent and Tranche A
Lenders consisting of more than fifty percent (50%) in number and two thirds in
amount of the then outstanding Tranche A Commitments that vote to accept or
reject any revisions to such Interim Order.

          "Inventory" has the meaning specified in Article 9 of the UCC,
wherever located.

          "Inventory Sublimit" means three hundred fifteen million Dollars
($315,000,000).

          "Investment" means, with respect to any Person, (a) any purchase or
other acquisition by that Person of (i) any Security issued by, (ii) a
beneficial interest in any Security issued by, or (iii) any other equity
ownership interest in, any other Person, (b) any purchase by that Person of all
or a significant part of the assets of a business conducted by another Person,
(c) any loan, advance (other than deposits with financial institutions available
for withdrawal on demand, prepaid expenses, accounts receivable and similar
items made or incurred in the ordinary course of business as presently
conducted), or capital contribution by that Person to any other Person,
including all Indebtedness of any other Person to that Person arising from a
sale of property by that Person other than in the ordinary course of its
business and (d) any Guaranty Obligation incurred by that Person in respect of
Indebtedness of any other Person.

          "Investment Property" means, with respect to any Loan Party, any and
all "investment property", as such term is defined in Article 9 of the UCC, of
such Loan Party, wherever located.

          "IRS" means the Internal Revenue Service of the United States or any
successor thereto.

          "Issue" means, with respect to any Letter of Credit, to issue, extend
the expiry of, renew or increase the maximum stated amount (including by
deleting or reducing any scheduled decrease in such maximum stated amount) of,
such Letter of Credit, and terms "Issued" and "Issuance" shall have a
corresponding meaning.

          "Issuer" means each Lender or Affiliate of a Lender that (a) is listed
on the signature pages hereof as an "Issuer" or (b) hereafter becomes an Issuer
with the approval of the

                                      -20-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

Administrative Agent and the Borrower by agreeing pursuant to an agreement with
and in form and substance satisfactory to the Administrative Agent and the
Borrower to be bound by the terms hereof applicable to Issuers.

          "Landlord's Waiver" means a landlord's waiver in the form attached
hereto as Exhibit D-2.

          "Leases" means, with respect to any Person, all of those leasehold
estates in real property of such Person, as lessee, as such may be amended,
supplemented or otherwise modified from time to time.

          "Legal Proceeding" means any judicial, administrative, investigative,
informal or arbitral action, arbitration, suit, claim, demand, audit,
investigation, litigation, hearing (public or private), including proceedings of
a Governmental Authority.

          "Lender" means each financial institution or other entity that (a) is
listed on the signature pages hereof as a "Lender" (whether as a Tranche A
Lender or a Tranche B Lender) or (b) from time to time becomes a party hereto by
execution of an Assignment and Acceptance, including pursuant to Section 2.18
(Substitution of Lenders).

          "Letter of Credit" means any letter of credit issued or deemed issued
pursuant to Section 2.4 (Letters of Credit).

          "Letter of Credit Fee" means, with respect to a Letter of Credit, a
rate equal to three and one quarter percent (3.25%) per annum.

          "Letter of Credit Obligations" means, at any time, the aggregate of
all liabilities at such time of the Borrower to all Issuers with respect to
Letters of Credit, whether or not any such liability is contingent, including
the sum of (a) the Reimbursement Obligations at such time and (b) the Letter of
Credit Undrawn Amounts at such time.

          "Letter of Credit Reimbursement Agreement" has the meaning specified
in clause (f) of Section 2.4(f) (Execution of Letter of Credit Reimbursement
Agreement).

          "Letter of Credit Request" has the meaning specified in Section 2.4(c)
(Contents of Letter of Credit Request).

          "Letter of Credit Sublimit" has the meaning specified in Section
2.4(a)(iv).

          "Letter of Credit Undrawn Amounts" means, at any time, the aggregate
undrawn face amount of all Letters of Credit outstanding at such time.

          "Lien" means any mortgage, deed of trust, pledge, hypothecation,
assignment, charge, deposit arrangement, encumbrance, lien (statutory or other),
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to assure
payment of any Indebtedness or other obligation, including any conditional sale
or other title retention agreement, the interest of a lessor under a Capital
Lease and any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any signed financing statement under the
Uniform Commercial Code or

                                      -21-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

comparable Requirement of Law naming the owner of the asset to which such Lien
relates as debtor.

          "Loan Documents" means, collectively, this Agreement, the Notes (if
any), each Letter of Credit Reimbursement Agreement, each Hedging Contract to
which a Loan Party and a Lender or an Affiliate of a Lender is a party, each
agreement pursuant to which a Lender or an Affiliate of a Lender provides cash
management services to a Loan Party, the Loan Documents and each certificate,
agreement or document executed by a Loan Party and delivered to the
Administrative Agent or any Lender in connection with or pursuant to any of the
foregoing.

          "Loan Party" means each of the Borrower and each Guarantor.

          "Loan" or "Loans" means any of the Revolving Loans or the Swing Loans.

          "Material Adverse Change" means a material adverse change in any of
(a) the condition (financial or otherwise), business, performance, prospects,
operations or properties of the Borrower or the Borrower and its Subsidiaries
taken as a whole other than any change of the type which customarily occurs as a
result of events leading up to and following the commencement of a proceeding
under chapter 11 of the Bankruptcy Code and the commencement of the Cases
(including, without limitation, those reflected in the financial projections
heretofore made available to the Administrative Agent), (b) the legality,
validity or enforceability of any Loan Document, (c) the perfection or priority
of the Liens granted pursuant to this Agreement or the Bankruptcy Orders, (d)
the ability of the Borrower to repay the Obligations or of the Loan Parties to
perform their respective obligations under the Loan Documents other than any
change of the type which customarily occurs as a result of events leading up to
and following the commencement of a proceeding under chapter 11 of the
Bankruptcy Code and the commencement of the Cases (including, without
limitation, those reflected in the financial projections heretofore made
available to the Administrative Agent) or (e) the rights and remedies of the
Administrative Agent, the Lenders or the Issuers under the Loan Documents.

          "Material Adverse Effect" means an effect that results in or causes,
or could reasonably be expected to result in or cause, a Material Adverse
Change.

          "Material Intellectual Property" means Intellectual Property owned by
or licensed to the Borrower or any Material Subsidiary which is material to its
business.

          "Material Subsidiary" means Pellet, ProCoil and NSH.

          "Maximum Credit" means, at any time, the lesser of (a) the Commitments
in effect at such time and (b) the Borrowing Base at such time minus the
aggregate amount of any Availability Reserve in effect at such time; provided,
however, that prior to the Entry Date the Maximum Credit shall be no greater
than the amount of the Interim Facility.

          "Maximum Tranche A Amount" means $306,019,925.00.

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

                                      -22-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Multiemployer Plan" means a multiemployer plan, as defined in Section
4001(a)(3) of ERISA, to which the Borrower, any of its Subsidiaries or any ERISA
Affiliate has any obligation or liability, contingent or otherwise.

          "Net Cash Proceeds" means proceeds received by any Loan Party after
the Effective Date in cash or Cash Equivalents from any (a) Asset Sale net of
(i) the reasonable cash costs of sale, assignment or other disposition, (ii)
taxes paid or payable as a result thereof and (iii) any amount required by the
Bankruptcy Court to be paid or prepaid on Indebtedness (other than the
Obligations) secured by a perfected and unavoidable lien on the assets subject
to such Asset Sale; provided, however, that evidence of each of (i), (ii) and
(iii) above is provided to the Administrative Agent in form and substance
reasonably satisfactory to it; and (b) Property Loss Event.

          "NKK" means NKK Corporation, a company organized and existing under
the laws of Japan, and each and every successor thereto.

          "Non-Blocking Lender" has the meaning specified in Section 9.2(c)
(Blocking Lenders).

          "Non-Consenting Lender" has the meaning specified in Section 13.1(c)
(Amendments, Waivers, Etc.).

          "Non-Funding Lender" has the meaning specified in Section 2.2(d)
(Independence of Funding Obligations).

          "Non-Stayed Order" means an order of the Bankruptcy Court which is in
full force and effect, as to which no stay has been entered and which has not
been reversed, modified, vacated or overturned.

          "Non-U.S. Lender" means each Lender or Administrative Agent that is
not a United States person as defined in Section 7701(a)(30) of the Code.

          "Notes" has the meaning specified in clause (d) of Section 2.7
(Evidence of Indebtedness).

          "Notice of Borrowing" has the meaning specified in Section 2.2(a)
(Form of Notice of Borrowing).

          "Notice of Conversion or Continuation" has the meaning specified in
Section 2.12(a) (Delivery of Notice of Conversion or Continuation).

          "NSFC" means National Steel Funding Corporation, a Delaware
corporation.

          "NSH" means NS Holdings Corporation, a Delaware corporation.

          "NUF" means NUF LLC, a Delaware limited liability company that is an
Affiliate of NKK, and any assignee permitted under the terms of the NUF Loan
Documents as in effect on the date hereof.

                                      -23-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "NUF Credit Agreement" means the Amended and Restated Subordinated
Credit Agreement, dated as of September 28, 2001, between the Borrower and NUF.

          "NUF Loan Documents" means the NUF Credit Agreement, the Subordinated
Security Agreement, dated as of September 28, 2001, between the Borrower and
NUF, and each certificate, agreement (including any pledge or guaranty) and
document executed in connection with the foregoing.

          "Obligations" means (a) the Revolving Loans and the Letter of Credit
Obligations and all obligations of the Borrower to provide cash collateral for
Letter of Credit Obligations, (b) all other amounts, obligations, covenants and
duties owing by the Borrower to the Administrative Agent, any Lender, any
Issuer, any Affiliate of any of them or any Indemnitee, of every type and
description, present or future arising under this Agreement or the Notes and (c)
all other amounts, obligations, covenants and duties owing by the Borrower to
the Administrative Agent, any Issuer or any Affiliate of either of them under
any other Loan Document, any Hedging Contract or any agreement for cash
management services entered into in connection with this Agreement (and, in the
case of Hedging Contracts, entered into in connection with the Pre-petition
Credit Agreement) (in each case under this clause (c), whether by reason of an
extension of credit, opening or amendment of a letter of credit or payment of
any draft drawn thereunder, loan, guaranty, indemnification, foreign exchange or
currency swap transaction, interest rate hedging transaction or otherwise), in
each case described in clause (a), (b) or (c) above, whether direct or indirect
(including those acquired by assignment), absolute or contingent, due or to
become due, now existing or hereafter arising and however acquired and whether
or not evidenced by any note, guaranty or other instrument or for the payment of
money, including fees (and, in the case of clause (c) above, all letters of
credit and cash management fees), interest, charges, expenses, fees, attorneys'
fees and disbursements and other sums chargeable to the Borrower under this
Agreement or any Note or, in the case of clause (c) above, any other Loan
Document, any Hedging Contract or any agreement for cash management services
entered into in connection with this Agreement or any other Loan Document.

          "Order" means any order, award, injunction, judgment, decree,
settlement, process, ruling, subpoena, writ, assessment, arbitration award,
verdict (whether temporary, preliminary or permanent) or any determination or
pronouncement (whether or not such determination or pronouncement can be
appealed or otherwise modified) of any Governmental Authority reached as a
result of a Legal Proceeding.

          "Original Advance Rates" means Advance Rates in effect on the
Effective Date.

          "Original Indenture" means the Indenture of Mortgage and Deed of
Trust, dated May 1, 1952, between the Borrower, Great Lakes Steel Corporation (a
predecessor in interest of the Borrower), and City Bank Farmers Trust Company
and Ralph E. Morton, as Trustee.

          "Outside Processing Inventory Reserve" means an amount equal to one
hundred and twenty percent (120%) of the amount of the total aggregate
outstanding payables due to any third party for processing, warehousing or
storage of Inventory of the Borrower that, on the last Business Day of the
calendar month preceding the date of the most recent Borrowing Base Certificate
delivered pursuant to and in accordance with clause (f) of Section 6.1
(Financial Statements) or Section 3.1 (Conditions Precedent to the Effectiveness
of this Agreement), has been located, stored, used or otherwise held at the
premises of such third parties (but excluding any Inventory that the Collateral
Monitoring Agent has determined is located, stored, used or

                                      -24-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

otherwise held at locations covered by appropriate Bailee's Letters, Landlord's
Waivers or comparable agreements and so advised the Borrower).

          "Outstandings" means, at any particular time, the sum of (a) the
principal amount of the Revolving Loans outstanding at such time plus (b) the
Letter of Credit Obligations outstanding at such time plus (c) the principal
amount of the Swing Loans outstanding at such time.

          "PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.

          "Partially Subscribing Lender" has the meaning specified in Section
9.2(c) (Blocking Lenders).

          "Patents" means (a) all letters patent of the United States, any other
country or any political subdivision thereof and all reissues and extensions
thereof, (b) all applications for letters patent of the United States or any
other country and all divisions, continuations and continuations-in-part
thereof, and (c) all rights to obtain any reissues or extensions of the
foregoing.

          "Patent License" means all agreements, whether written or oral,
providing for the grant by or to any Loan Party of any right to manufacture,
use, import, sell or offer for sale any invention covered in whole or in part by
a Patent.

          "Pellet" means National Steel Pellet Company, a Delaware corporation.

          "Permit" means any certificate, permit, franchise, approval,
authorization, license, variance, exemption, privilege, immunity, waiver, or
permission required from, or otherwise granted by, a Governmental Authority
under an applicable Requirement of Law or in connection with any Contractual
Obligation with a Governmental Authority.

          "Permitted Pre-petition Claim Payment" means a payment (as adequate
protection or otherwise) on account of any Claim arising or deemed to have
arisen prior to the Petition Date, which is made pursuant to authority granted
by a Non-Stayed Order of the Bankruptcy Court; provided, that (a) the Loan
Parties shall make good faith efforts to minimize such payments (other than with
respect to Pre-petition Credit Agreement Claims) and (b) no such payment (other
than with respect to Pre-petition Credit Agreement Claims) shall be made after
the acceleration of the maturity of the Obligations so long as such acceleration
shall not have been rescinded.

          "Person" means an individual, partnership, corporation (including a
business trust), joint stock company, estate, trust, labor union, limited
liability company, unincorporated association, joint venture or other entity or
a Governmental Authority.

          "Petition Date" has the meaning specified in the recitals to this
Agreement.

          "Pledged Collateral" means, collectively, the Pledged Notes, the
Pledged Stock, the Pledged Partnership Interests, the Pledged LLC Interests, any
other Investment Property of any Loan Party in excess of $10,000, all
certificates or other instruments representing any of the foregoing, all
Security Entitlements of any Loan Party in respect of any of the foregoing, all

                                      -25-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

dividends, interest distributions, cash, warrants, rights, instruments and other
property or Proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the foregoing.
Pledged Collateral may be General Intangibles or Investment Property.

          "Pledged LLC Interests" means all of any Loan Party's right, title and
interest as a member of any LLCs and all of such Loan Party's right, title and
interest in, to and under any LLC Agreement to which it is a party.

          "Pledged Notes" means all right, title and interest of any Loan Party,
in the Instruments evidencing all Indebtedness owed to such Loan Party and all
interest, cash, Instruments and other property or Proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of such Indebtedness.

          "Pledged Partnership Interests" shall mean all of any Loan Party's
right, title and interest as a limited and/or general partner in all
Partnerships and all of such Loan Party's right, title and interest in, to and
under any Partnership Agreements to which it is a party.

          "Pledged Stock" means the shares of capital stock owned by each Loan
Party.

          "Pre-petition Credit Agreement" has the meaning ascribed to it in the
Recitals hereto.

          "Pre-petition Credit Agreement Claim" means all Claims relating to the
"Obligations" (as defined in the Pre-petition Credit Agreement) as of the
Petition Date.

          "Pre-petition Eurodollar Rate Loans" means the Pre-petition Credit
Agreement Claims on the Petition Date that were "Eurodollar Rate Loans" as
defined in and under the Pre-petition Credit Agreement.

          "Pre-petition Liens" means the Liens securing on the Petition Date the
Pre-petition Credit Agreement Claims.

          "Pre-petition Outstandings" means, as of the Petition Date, the
aggregate amount of "Outstandings" as defined in the Pre-petition Credit
Agreement.

          "ProCoil" means ProCoil Corporation, a Delaware corporation.

          "Proceeds" means any and all "proceeds", as such term is defined in
Article 9 of the UCC.

          "Projections" means those financing projections dated February 15,
2002 covering the Fiscal Years ending December 31, 2002 through 2003, inclusive
to be delivered to the Lenders.

          "Property Loss Event" means any loss of or damage to property of the
Borrower or any Guarantor that results in the receipt by such Person of proceeds
of insurance or any taking of property of the Borrower or any of its
Subsidiaries that results in the receipt by such Person of a compensation
payment in respect thereof.

                                      -26-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Proposed Change" has the meaning specified in Section 13.1(c)
(Amendments, Waivers, Etc.).

          "Protective Advances" means all expenses, disbursements and advances
incurred by the Administrative Agent pursuant to the Loan Documents after the
occurrence and during the continuance of an Event of Default that the
Administrative Agent, in its sole discretion, deems necessary or desirable to
preserve or protect the Collateral or any portion thereof or to enhance the
likelihood, or maximize the amount, of repayment of the Obligations; provided,
however, no Protective Advance shall result in the aggregate amount of the
Obligations exceeding the then effective aggregate Commitment.

          "Purchasing Lender" has the meaning specified in Section 13.7(a)
(Purchase of Participations).

          "Ratable Portion" or "ratably" means, with respect to any Lender and
any Tranche, the percentage obtained by dividing (a) the Commitment of such
Lender with respect to such Tranche by (b) the aggregate Commitments of all
Lenders with respect to such Tranche (or, at any time after the Termination
Date, the percentage obtained by dividing the aggregate outstanding principal
balance of the Outstandings attributable to such Tranche owing to such Lender by
the aggregate outstanding principal balance of the Outstandings attributable to
such Tranche owing to all Lenders).

          "Real Property" means all of those plots, pieces or parcels of land
now owned, leased or hereafter acquired or leased by the Borrower or any
Guarantor (the "Land") together with the right, title and interest of the
Borrower or such Guarantor, if any, in and to the streets, the land lying in the
bed of any streets, roads or avenues, opened or proposed, in front of, the air
space and development rights pertaining to the Land and the right to use such
air space and development rights, all rights of way, privileges, liberties,
tenements, hereditaments and appurtenances belonging or in any way appertaining
thereto, all fixtures, all easements now or hereafter benefiting the Land and
all royalties and rights appertaining to the use and enjoyment of the Land,
including all alley, vault, drainage, mineral, water, oil and gas rights,
together with all of the buildings and other improvements now or hereafter
erected on the Land, and any fixtures appurtenant thereto.

          "Register" has the meaning specified in Section 13.2(c) (Assignments
and Participations).

          "Reimbursement Date" has the meaning specified in Section 2.4(i)
(Letters of Credit).

          "Reimbursement Obligations" means all unpaid matured reimbursement or
repayment obligations of the Borrower to any Issuer with respect to amounts
drawn under Letters of Credit.

          "Related Obligations' has the meaning specified in Section 12.8
(Collateral Matters Relating to Related Obligations).

          "Release" means, with respect to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration, in each case, of any Contaminant into the indoor or
outdoor environment or into or out of any property

                                      -27-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

owned by such Person, including the movement of Contaminants through or in the
air, soil, surface water, ground water or property.

          "Remedial Action" means all actions required to (a) clean up, remove,
treat or in any other way address any Contaminant in the indoor or outdoor
environment, (b) prevent the Release or threat of Release or minimize the
further Release so that a Contaminant does not migrate or endanger or threaten
to endanger public health or welfare or the indoor or outdoor environment or (c)
perform pre-remedial studies and investigations and post-remedial monitoring and
care.

          "Requirement of Law" means with respect to any Person, the common law
and all federal, state, local and foreign or international laws, treaty,
constitution, equity principles, rules and regulations, Orders (including the
Bankruptcy Orders), judgments, decrees and other determinations of any
Governmental Authority or arbitrator, applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is
subject.

          "Requisite Lenders" means, collectively, Lenders having more than (a)
before the termination of the Commitments, fifty percent (50%) of the aggregate
outstanding amount of the Commitments or (b) otherwise, fifty percent (50%) of
the aggregate Outstandings. A Non-Funding Lender shall not be included in the
calculation of "Requisite Lenders."

          "Responsible Officer" means, with respect to any Person, any principal
executive officer, managing member or general partner of such Person but, in any
event, with respect to financial matters (including matters relating to the
solvency of such Person, Financial Statements or the Borrowing Base), the chief
financial officer, treasurer or controller of such Person.

          "Restricted Payment" means (a) any dividend or other distribution,
direct or indirect, on account of any Stock or Stock Equivalents of the Borrower
or any Guarantor now or hereafter outstanding, except a dividend payable solely
in Stock or Stock Equivalents or a dividend or distribution payable solely to
the Borrower and/or one or more Guarantors, (b) any redemption, retirement,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any Stock or Stock Equivalents of the Borrower or any Guarantor
now or hereafter outstanding other than one payable solely to the Borrower
and/or one or more of the Guarantors and (c) any payment or prepayment of
principal, premium (if any), interest, fees (including fees to obtain any waiver
or consent in connection with any Security) or other charges on, or redemption,
purchase, retirement, defeasance, sinking fund or similar payment with respect
to, any Indebtedness of the Borrower or any of its Subsidiaries or any other
Loan Party.

          "Revolving Credit Note" means a promissory note of the Borrower
payable to the order of any Lender in a principal amount equal to the amount of
such Lender's Commitment evidencing the aggregate Indebtedness of the Borrower
to such Lender resulting from Revolving Loans owing to such Lender.

          "Revolving Loan" has the meaning specified in Section 2.1 (The
Commitments).

          "Sale and Leaseback Transaction" means any arrangement, directly or
indirectly, whereby a Person or its Subsidiary sells or transfers any property,
real or personal, and used or useful in its business, whether now owned or
hereafter acquired, and thereafter rent or lease such property that such Person
or its Subsidiary intends to use for substantially the same purpose as the
property being sold or transferred.

                                      -28-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

          "Scheduled Termination Date" means the second anniversary of the
Effective Date.

          "Secured Obligations" means, in the case of the Borrower, the
Obligations, and, in the case of any Guarantor, the obligations of such
Guarantor under the Guaranty and the other Loan Documents to which it is a
party.

          "Secured Parties" means the Lenders, the Issuers, the Agents and each
of their respective successors and assigns and any other holder of any
Obligation or any obligations under any Revolving Loan.

          "Security" means any Stock, Stock Equivalent, voting trust
certificate, bond, debenture, note or other evidence of Indebtedness, whether
secured, unsecured, convertible or subordinated, or any certificate of interest,
share or participation in, or any temporary or interim certificate for the
purchase or acquisition of, or any right to subscribe to, purchase or acquire,
any of the foregoing, but shall not include any evidence of the Obligations.

          "Selling Lender" has the meaning specified in Section 13.7(a) (Sharing
of Payments, Etc.).

          "Senior Liens" has the meaning specified in Section 2.20 (Priority and
Liens).

          "Special Event of Default" means an Event of Default other than (a)
those described in clauses (a), (b), (d) (with respect to any material
misrepresentation in a Borrowing Base Certificate), (g), (h), (i), (j), (k) and
(l) of Section 9.1 (Events of Default) or (b) arising as a result of a breach of
the representation set forth in Section 4.18 (Use of Proceeds) or the covenants
set forth in Section 7.6 (Access) and Section 7.14 (Control Accounts; Blocked
Accounts).

          "Special Purpose Vehicle" means any special purpose funding vehicle
identified as such in writing by any Lender to the Administrative Agent.

          "Special Majority Lenders" means, collectively, Tranche A Lenders
having more than fifty percent (50%) in number and two thirds in amount of
Special Voting Claims actually voting on the Borrower's Plan. For purposes of
computing the number of Tranche A Lenders for this definition, a Tranche A
Lender and all of its Affiliates (including, any related Approved Fund) shall be
deemed to be one Tranche A Lender.

          "Special Voting Claims" means, as of the date of determination, all
Outstandings in respect of Tranche A Revolving Loans.

          "Standard & Poor's" means Standard & Poor's Rating Corp., a division
of The McGraw-Hill Companies.

          "Standby Letter of Credit" means any letter of credit issued pursuant
to Section 2.4 (Letters of Credit) that is not a Documentary Letter of Credit.

          "Stock" means shares of capital stock (whether denominated as common
stock or preferred stock), beneficial, partnership or membership interests,
participations or other

                                      -29-



                                                      NATIONAL STEEL CORPORATION
                                                                CREDIT AGREEMENT

equivalents (regardless of how designated) of or in a corporation, partnership,
limited liability company or equivalent entity, whether voting or non-voting.

          "Stock Equivalents" means all securities convertible into or
exchangeable for Stock and all warrants, options or other rights to purchase or
subscribe for any Stock, whether or not presently convertible, exchangeable or
exercisable.

          "Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company or other business entity of which an
aggregate of more than fifty percent (50%) of the outstanding Voting Stock is,
at the time, directly or indirectly, owned or controlled by such Person and/or
one or more Subsidiaries of such Person.

          "Super-Majority Lenders" means, collectively, Lenders having more than
(a) before the termination of the Commitments, ninety percent (90%) of the
aggregate outstanding amount of the Commitments or (b) otherwise, ninety percent
(90%) of the aggregate Outstandings. A Non-Funding Lender shall not be included
in the calculation of "Super-Majority Lenders."

          "Superpriority" has the meaning specified in Section 2.20 (Priority
and Liens).

          "Swing Loan" has the meaning specified in Section 2.3 (Swing Loans).

          "Swing Loan Lender" means CUSA and each other Lender that becomes the
Administrative Agent or that agrees with the approval of the Administrative
Agent and the Borrower to act as the Swing Loan Lender hereunder.

          "Swing Loan Maximum Amount" means forty million Dollars ($40,000,000).

          "Swing Loan Request" has the meaning specified in Section 2.3(b)
(Swing Loans).

          "Syndication Agents" Heller and GMAC, each in its capacity as
syndication agent.

          "Tax Affiliate" means, with respect to any Person, (a) any Subsidiary
of such Person and (b) any Affiliate of such Person with which such Person files
or is eligible to file consolidated, combined or unitary tax returns.

          "Tax Return" has the meaning specified in Section 4.7(a) (Taxes).

          "Taxes" has the meaning specified in Section 2.17(a) (Taxes).

          "Termination Date" means the earliest of (a) the Scheduled Termination
Date, (b) the date of termination of the Commitments pursuant to the terms
hereof, (c) the Consummation Date, and (d) the date on which the Obligations
become due and payable pursuant to Section 9.2 (Remedies).

          "Title IV Plan" means a pension plan, other than a Multiemployer Plan,
that is covered by Title IV of ERISA to which the Borrower any of its
Subsidiaries or any ERISA Affiliate has any obligation or liability (contingent
or otherwise).

                                      -30-



          "Trademarks" means (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, service
marks, logos and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common-law
rights related thereto, and (b) the right to obtain all renewals thereof.

          "Tranche" means the Tranche A Revolving Loans or the Tranche B
Revolving Loans.

          "Tranche A Commitment" means, with respect to each Tranche A Lender,
the commitment of such Tranche A Lender to make Tranche A Revolving Loans to the
Borrower and to acquire interests in other Outstandings in the amount set forth
opposite such Lender's name on Schedule I under the caption "Tranche A Loan
Commitment" as amended to reflect each Assignment and Acceptance executed by
such Tranche A Lender and as such amount may be reduced pursuant to this
Agreement.

          "Tranche A Lender" means each Lender having a Tranche A Commitment or
any Tranche A Revolving Loan.

          "Tranche A Revolving Loan" has the meaning specified in Section 2.1
(The Commitments).

          "Tranche B Commitment" means, with respect to each Tranche B Lender,
the commitment of such Tranche B Lender to make Tranche B Revolving Loans to the
Borrower in the aggregate principal amount outstanding not to exceed the amount
set forth opposite such Tranche B Lender's name on Schedule I under the caption
"Tranche B Commitment" as amended to reflect each Assignment and Acceptance
executed by such Tranche B Lender and as such amount may be reduced pursuant to
this Agreement.

          "Tranche B Lender" means each Lender having a Tranche B Commitment or
any Tranche B Revolving Loan.

          "Tranche B Revolving Loan" has the meaning specified in Section 2.1
(The Commitments).

          "Uniform Commercial Code" or "UCC" means the Uniform Commercial Code
as the same may, from time to time, be in effect in the State of New York.

          "United States" or "U.S." means the United States of America or any
political subdivision thereof.

          "Unrestricted Loan Amount" means the amount of the Commitments on the
Effective Date minus the amount of the Pre-petition Credit Agreement Claims on
the Effective Date.

          "Unused Commitment Fee" has the meaning specified in Section 2.13
(Fees).

                                      -31-



          "Vehicles" means all vehicles covered by a certificate of title law of
any state.

          "Voting Stock" means Stock of any Person having ordinary power to vote
in the election of members of the board of directors, managers, trustees or
other controlling Persons, of such Person (irrespective of whether, at the time,
Stock of any other class or classes of such entity shall have or might have
voting power by reason of the happening of any contingency).

          "Withdrawal Liability" means with respect to the Borrower at any time,
the aggregate liability incurred (whether or not assessed) with respect to all
Multiemployer Plans pursuant to Section 4201 of ERISA or for increases in
contributions required to be made pursuant to Section 4243 of ERISA.

          "Year" means the calendar year.

          Section 1.2 Computation of Time Periods

          In this Agreement, in the computation of periods of time from a
specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each mean "to but excluding" and the
word "through" means "to and including."

          Section 1.3 Quantities

          In any Loan Document, in all instances where the same Dollar amount,
time period, percentage or other quantity is expressed both using numerals and
fully written out, the latter expression shall prevail over the expression using
numerals in case of direct conflicts.

          Section 1.4 Accounting Terms and Principles

          (a) Accounting Terms. Except as set forth below, all accounting terms
not specifically defined herein shall be construed in conformity with GAAP and
all accounting determinations required to be made pursuant hereto shall, unless
expressly otherwise provided herein, be made in conformity with GAAP.

          (b) Changes. If any change in the accounting principles used in the
preparation of the most recent Financial Statements referred to in Section 6.1
(Financial Statements) is hereafter required or permitted by the rules,
regulations, pronouncements and opinions of the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or any
successors thereto) and such change is adopted by the Borrower with the
agreement of the Borrower's Accountants and results in a change in any
calculation required by Article V (Financial Covenants) had such accounting
change not occurred, the parties hereto agree to enter into negotiations in
order to amend such provisions so as to equitably reflect such change with the
desired result that the criteria for evaluating compliance with such covenants
by the Borrower shall be the same after such change as if such change had not
been made; provided, however, that no change in GAAP that would affect a
calculation that measures compliance with any covenant contained in Article V
(Financial Covenants) shall be given effect until such provisions are amended to
reflect such changes in GAAP.

                                      -32-



          Section 1.5 Certain Terms and References

          (a) The words "herein," "hereof" and "hereunder" and similar words
refer to this Agreement as a whole and not to any particular Article, Section,
clause or sub-clause in, this Agreement.

          (b) Unless otherwise expressly indicated herein, (i) references in
this Agreement to an Exhibit, Schedule, Article, Section, clause or sub-clause
refer to the appropriate Exhibit or Schedule to, or Article, Section, clause or
sub-clause in this Agreement and (ii) the words "above" and "below", when
following a reference to a clause or a sub-clause of any Loan Document, refer to
a clause or sub-clause within, respectively, the same Section or clause.

          (c) Each agreement defined in this Article I shall include all
appendices, exhibits and schedules thereto. Unless the prior written consent of
the Requisite Lenders is required hereunder for an amendment, restatement,
supplement or other modification to any such agreement and such consent is not
obtained, references in this Agreement to such agreement shall be to such
agreement as so amended, restated, supplemented or modified.

          (d) References in this Agreement to any statute shall be to such
statute as amended or modified and in effect at the time any such reference is
operative.

          (e) The term "including" when used in any Loan Document means
"including without limitation" except when used in the computation of time
periods. When used in any Loan Document, the words "either" and "or" do not
refer to an exclusive choice.

          (f) The terms "Lender," "Issuer" and "Administrative Agent" include,
without limitation, their respective successors.

          (g) Upon the appointment of any successor Administrative Agent
pursuant to Section 12.6 (Successor Administrative Agent; Successor Collateral
Monitoring Agent), references to CUSA in Section 12.3 (The Agents as Lenders)
and to Citibank in the definitions of Base Rate and Eurodollar Rate shall be
deemed to refer to the financial institution then acting as the Administrative
Agent or one of its Affiliates if it so designates.

          (h) Table of Contents and Headings. The table of contents and section
titles of any Loan Document are and shall be without substantive meaning or
content of any kind whatsoever and are not a part of the agreement between the
parties hereto.

          (i) References to Agreements. References to each agreement defined in
this Article I shall include, without limitation, all appendices, exhibits and
schedules thereto and, unless specifically stated otherwise, shall include,
without limitation, amendments, restatements, supplements or other modifications
thereto and as the same may be in effect at any and all times such reference
becomes operative, but only (if required) with the prior written consent of the
Requisite Lenders.

          (j) Reference to Indenture. Any reference herein to any numbered
section of the Indenture (but not any other reference to the Indenture) shall be
a reference to a section of the Eleventh Supplemental Indenture, dated as of
March 31, 1999 to the Indenture of Mortgage and Deed of Trust, dated May 1,
1952, between the Borrower and The Chase Manhattan Bank and Frank J. Grippo, as
Trustees as in effect on the date hereof.

                                      -33-



                                   ARTICLE II

                                 The Facilities

          Section 2.1 The Commitments; Tranches; Priority of Funding and Use

          (a) Tranche A Revolving Loans. On the terms and subject to the
conditions contained in this Agreement, each Tranche A Lender severally agrees
to make loans (each a "Tranche A Revolving Loan") to the Borrower from time to
time on any Business Day during the period from the date hereof until the
Termination Date in an aggregate principal amount at any time outstanding (for
all such Tranche A Revolving Loans by such Tranche A Lender) not to exceed such
Tranche A Lender's Tranche A Commitment.

          (b) Tranche B Revolving Loans. On the terms and subject to the
conditions contained in this Agreement, each Tranche B Lender severally agrees
to make loans (each a "Tranche B Revolving Loan") to the Borrower from time to
time on any Business Day during the period from the date hereof until the
Termination Date in an aggregate principal amount at any time outstanding (for
all such loans by such Tranche B Lender) not to exceed such Tranche B Lender's
Tranche B Commitment (each a "Tranche B Revolving Loan" and together with the
Tranche A Revolving Loans, "Revolving Loans"). Anything to the contrary in this
Section 2.1 notwithstanding, the Borrower shall not have the right to require
Lenders with Tranche B Commitments to make Tranche B Revolving Loans unless the
Tranche A Lenders' Outstandings that are Tranche A Revolving Loans at the time
of Borrowing (or after giving effect to the Tranche A Revolving Loans which will
be part of the proposed Borrowing) equal the Maximum Tranche A Amount.

          (c) Maximum Credit. At no time shall any Lender be obligated pursuant
to this Section 2.1 (The Commitments) to make a Revolving Loan to the extent
that the aggregate Outstandings, after giving effect to such Revolving Loan,
would exceed the Maximum Credit in effect at such time. Within the limits of
each Lender's Commitment, amounts of Revolving Loans repaid may be reborrowed
under this Section 2.1 on the terms and subject to the conditions contained in
this Section 2.1 and the remainder of this Agreement.

          (d) Priority of Funding. In the event that the Tranche A Lenders'
Ratable Portion of the Outstandings are less than the Maximum Tranche A Amount
as of the date of any Borrowing, such Borrowing shall be made first as a Tranche
A Revolving Loan until the Tranche A Lenders' Outstandings that are Tranche A
Revolving Loans (after giving effect to such Borrowing) equals the Maximum
Tranche A Commitment as of such date, and the balance of such Borrowing shall be
made as Tranche B Revolving Loans.

          Section 2.2 Borrowing Procedures

          (a) Form of Notice of Borrowing. Each Borrowing shall be made on
notice given by the Borrower to the Administrative Agent not later than 1:00
P.M. (New York City time) (i) one (1) Business Day, in the case of a Borrowing
of Base Rate Loans and (ii) three (3) Business Days, in the case of a Borrowing
of Eurodollar Rate Loans, prior to the date of the proposed Borrowing. Each such
notice shall be in substantially the form of Exhibit B (Form of Notice of
Borrowing) (a "Notice of Borrowing"), specifying therein (A) the date of such
proposed Borrowing, (B) the aggregate amount of such proposed Borrowing, (C)
whether any portion of the proposed Borrowing will be of Base Rate Loans or
Eurodollar Rate Loans, (D) the initial

                                      -34-



Interest Period or Periods for any such Eurodollar Rate Loans and (E) the
Available Credit (after giving effect to the proposed Borrowing). The Revolving
Loans shall be made as Base Rate Loans unless, subject to Section 2.15 (Special
Provisions Governing Eurodollar Rate Loans), the Notice of Borrowing specifies
that all or a portion thereof shall be Eurodollar Rate Loans. Each Borrowing of
Eurodollar Rate Loans shall be in an aggregate amount of two Eurodollar
Borrowing Units or an integral multiple of Eurodollar Borrowing Units in excess
thereof; provided, however, that the aggregate amount of the Eurodollar Rate
Loans for each Interest Period must be in an amount of two Eurodollar Borrowing
Units or an integral multiple of Eurodollar Borrowing Units in excess thereof.

          (b) Disbursement. The Administrative Agent shall give to each Lender
prompt notice of the Administrative Agent's receipt of a Notice of Borrowing
and, if Eurodollar Rate Loans are properly requested in such Notice of
Borrowing, the applicable interest rate determined pursuant to Section 2.11(b)
(Interest). Each Lender shall, before 11:00 A.M. (New York City time) on the
date of the proposed Borrowing, make available for the account of its Applicable
Lending Office to the Administrative Agent at its address referred to in Section
13.13 (Notices, Etc.), in immediately available funds, such Lender's Ratable
Portion of such proposed Borrowing. After the Administrative Agent's receipt of
such funds and upon fulfillment of the applicable conditions set forth in
Sections 3.1 (Conditions Precedent to the Effectiveness of this Agreement) and
3.2 (Conditions Precedent to Each Loan and Letter of Credit), the Administrative
Agent shall make such funds available to the Borrower.

          (c) Assumption of Lender Funding. Unless the Administrative Agent
shall have received notice from a Lender prior to the date of any proposed
Borrowing that such Lender shall not make available to the Administrative Agent
such Lender's Ratable Portion of such Borrowing, the Administrative Agent may
assume that such Lender has made such Ratable Portion available to the
Administrative Agent on the date of such Borrowing in accordance with this
Section 2.2 and the Administrative Agent may, in reliance upon such assumption,
make available to the Borrower on such date a corresponding amount. If and to
the extent that such Lender shall not have so made such Ratable Portion
available to the Administrative Agent, such Lender and the Borrower severally
agree to repay to the Administrative Agent forthwith on demand such
corresponding amount together with interest thereon, for each day from the date
such amount is made available to the Borrower until the date such amount is
repaid to the Administrative Agent, at (i) in the case of the Borrower, the
interest rate applicable at the time to the Revolving Loans comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds Rate for the
first Business Day and thereafter at the interest rate applicable at the time to
the Revolving Loans comprising such Borrowing. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount so repaid shall
constitute such Lender's Revolving Loan as part of such Borrowing for purposes
of this Agreement. If the Borrower shall repay to the Administrative Agent such
corresponding amount, such payment shall not relieve such Lender of any
obligation it may have hereunder to the Borrower.

          (d) Independence of Funding Obligations. The failure of any Lender to
make the Revolving Loan or any payment required by it hereunder on the date
specified therefor, including any payment in respect of its participation in
Swing Loans and Letter of Credit Obligations (a "Non-Funding Lender"), shall not
relieve any other Lender of its obligations to make such Revolving Loan or
payment on such date but no such other Lender shall be responsible for the
failure of any Non-Funding Lender to make a Revolving Loan or payment required
under this Agreement.

                                      -35-



          (e) Administrative Agent's Option. Notwithstanding anything to the
contrary contained herein or in clause (a) of Section 2.3 (Swing Loans), if any
Notice of Borrowing requests a Borrowing of Base Rate Loans, the Administrative
Agent may, at its option and in its sole discretion, make a Swing Loan available
to the Borrower in an amount up to but not to exceed the amount of such
requested Borrowing, and the aggregate amount of the requested Borrowing shall
be reduced accordingly by the principal amount of such Swing Loan, if made.

          (f) Continuation of Eurodollar Rate Lending. Notwithstanding anything
to the contrary contained herein, Revolving Loans hereunder may at the
Borrower's option be Eurodollar Rate Loans having an Interest Period ending
April 3, 2002 and bear interest at a per annum rate equal to five and 1875/10000
percent (5.1875%); provided, however, that the maximum amount of such Eurodollar
Rate Loans having such Interest Period shall not at any time exceed two hundred
sixty five million Dollars ($265,000,000) less the principal amount of the
Pre-petition Credit Agreement Claims at such time bearing interest at such rate
and having an Interest Period ending on such date. So long as the sum of the
Eurodollar Rate Loans permitted pursuant to this clause (f) plus Pre-petition
Outstandings bearing interest at such rate is not at any time prior to April 3,
2002 less than two hundred sixty five million Dollars ($265,000,000), each
Lender signatory hereto agrees that it will not charge the breakage costs
otherwise chargeable pursuant to clause (e) of Section 2.15 (Special Provisions
Governing Eurodollar Rate Loans) of the Pre-Petition Credit Agreement in
connection with the repayment of the Pre-petition Eurodollar Rate Loans and each
such Lender further agrees that no such breakage will be included as
Pre-petition Credit Agreement Claims.

          Section 2.3 Swing Loans

          (a) Terms of the Swing Loans. On the terms and subject to the
conditions contained in this Agreement, the Swing Loan Lender shall make loans
(each a "Swing Loan") otherwise available to the Borrower under the Facility
from time to time on any Business Day during the period from the date hereof
until the Termination Date in an aggregate principal amount at any time
outstanding at any time not to exceed the Swing Loan Maximum Amount; provided,
however, that the Swing Loan Lender shall not make any Swing Loan to the extent
that, after giving effect to such Swing Loan, the aggregate Outstandings would
exceed the Maximum Credit. The Swing Loan Lender shall be entitled to rely on
the most recent Borrowing Base Certificate delivered to the Administrative
Agent. Each Swing Loan shall be a Base Rate Loan and in an aggregate amount of
not less than one hundred thousand Dollars ($100,000). Within the limits set
forth in the first sentence of this clause (a), amounts of Swing Loans repaid
may be reborrowed under this clause (a). Within the limits set forth in the
first sentence of this clause (a), amounts prepaid pursuant to Section 2.8
(Optional Prepayments) may be reborrowed under this clause (a).

          (b) Notice of Borrowing. In order to request a Swing Loan, the
Borrower shall telecopy (or forward by electronic mail or similar means) to the
Administrative Agent a duly completed request setting forth the date, the
requested amount and date of the Swing Loan (a "Swing Loan Request"), to be
received by the Administrative Agent not later than 1:00 P.M. (New York City
time) on the day of the proposed borrowing. The Administrative Agent shall
promptly notify the Swing Loan Lender of the details of the requested Swing
Loan. Subject to the terms of this Agreement, the Swing Loan Lender shall make a
Swing Loan available to the Administrative Agent and, in turn, the
Administrative Agent shall make such amounts available to the Borrower on the
date of the relevant Swing Loan Request. The Swing Loan Lender shall not make
any Swing Loan in the period commencing on the first Business Day after it
receives

                                      -36-



written notice from any Lender that one or more of the conditions precedent
contained in Section 3.2 (Conditions Precedent to Each Loan and Letter of
Credit) shall not on such date be satisfied and ending when such conditions are
satisfied. The Swing Loan Lender shall not otherwise be required to determine
that, or take notice whether, the conditions precedent set forth in Section 3.2
(Conditions Precedent to Each Loan and Letter of Credit) have been satisfied in
connection with the making of any Swing Loan.

          (c) Periodic Notifications. The Swing Loan Lender shall notify the
Administrative Agent in writing (which writing may be a telecopy or electronic
mail) weekly, by no later than 10:00 A.M. (New York City time) on the first
Business Day of each week, of the aggregate principal amount of its Swing Loans
then outstanding.

          (d) Payment on Demand. The Swing Loan Lender may demand at any time
that each Lender pay to the Administrative Agent, for the account of the Swing
Loan Lender, in the manner provided in clause (e) below, such Lender's Ratable
Portion of all or a portion of the outstanding Swing Loans, which demand shall
be made through the Administrative Agent, shall be in writing and shall specify
the outstanding principal amount of Swing Loans demanded to be paid.

          (e) Settlement of the Swing Loans. The Administrative Agent shall
forward each notice referred to in clause (c) above and each demand referred to
in clause (d) above to each Lender on the day such notice or such demand is
received by the Administrative Agent (except that any such notice or demand
received by the Administrative Agent after 2:00 P.M. (New York City time) on any
Business Day or any such demand received on a day that is not a Business Day
shall not be required to be forwarded to the Lenders by the Administrative Agent
until the next succeeding Business Day), together with a statement prepared by
the Administrative Agent specifying the amount of each Lender's Ratable Portion
of the aggregate principal amount of the Swing Loans stated to be outstanding in
such notice or demanded to be paid pursuant to such demand, and, notwithstanding
whether or not the conditions precedent set forth in Section 3.1 (Conditions
Precedent to the Effectiveness of this Agreement) or 3.2 (Conditions Precedent
to Each Loan and Letter of Credit) shall have been satisfied (which conditions
precedent the Lenders hereby irrevocably waive), each Lender shall, subject to
the provisions of Section 2.1 (Tranches; Priority of Funding and Use), before
11:00 A.M. (New York City time) on the Business Day next succeeding the date of
such Lender's receipt of such written statement, make available to the
Administrative Agent, in immediately available funds, for the account of such
Swing Loan Lender, the amount specified in such statement. Upon such payment by
a Lender, such Lender shall, except as provided in clause (f) below, be deemed
to have made a Tranche A Revolving Loan or a Tranche B Revolving Loan (as the
case may be) to the Borrower. The Administrative Agent shall use such funds to
repay the Swing Loans to the Swing Loan Lender. To the extent that any Lender
fails to make such payment available to the Administrative Agent for the account
of the Swing Loan Lender, the Borrower shall repay such Swing Loan on demand.

          (f) Pro-Rata Participation Upon Default. Upon the occurrence of a
Default under Section 9.1 (Events of Default), each Lender shall acquire,
without recourse or warranty, an undivided participation in each Swing Loan
otherwise required to be repaid by such Lender pursuant to clause (e) above,
which participation shall be in a principal amount equal to, (i) in the case of
each Tranche A Lender, the lesser of (A) the outstanding amount of such Tranche
A Lender's Ratable Portion of such Swing Loan (B) such Tranche A Lender's unused
Tranche A Commitment (but not exceeding such Tranche A Lender's Ratable Portion
of the Maximum Tranche A Amount) and (ii) in the case of each Tranche B Lender,
such Tranche B Lender's

                                      -37-



Ratable Portion of the remaining outstanding amount of such Swing Loan, by
paying to the Swing Loan Lender on the date on which such Lender would otherwise
have been required to make a payment in respect of such Swing Loan pursuant to
clause (e) above, in immediately available funds, an amount equal to such
Lender's Ratable Portion of such Swing Loan as determined in accordance with
this clause (f). If such amount is not in fact made available by such Lender to
the Swing Loan Lender on such date, the Swing Loan Lender shall be entitled to
recover such amount on demand from such Lender together with interest accrued
from such date at the Federal Funds Rate for the first Business Day after such
payment was due and thereafter at the rate of interest then applicable to Base
Rate Loans.

          (g) Post-Default Distribution of Payments. From and after the date on
which any Lender is deemed to have made a Revolving Loan with respect to any
Swing Loan pursuant to clause (e) above or purchases an undivided participation
interest in a Swing Loan pursuant to clause (f) above, a Swing Loan Lender shall
promptly distribute to such Lender such Lender's Ratable Portion of all payments
of principal of and interest received by the Swing Loan Lender on account of
such Swing Loan other than those received from a Lender pursuant to clause (e)
or (f) above.

          Section 2.4 Letters of Credit

          (a) Obligation to Issue/Amend. On the terms and subject to the
conditions contained in this Agreement, each Issuer agrees to Issue, one or more
Letters of Credit at the request of the Borrower for the account of the Borrower
from time to time during the period commencing on the Effective Date and ending
thirty (30) days prior to the Scheduled Termination Date or such later date
prior to the Scheduled Termination Date as may be agreed to by the
Administrative Agent; provided, however, that no Issuer shall be under any
obligation to Issue any Letter of Credit if:

               (i) any order, judgment or decree of any Governmental Authority
     shall purport by its terms to enjoin or restrain such Issuer from Issuing
     such Letter of Credit or any Requirement of Law applicable to such Issuer
     or any request or directive (whether or not having the force of law) from
     any Governmental Authority with jurisdiction over such Issuer shall
     prohibit, or request that such Issuer refrain from, the Issuance of letters
     of credit generally or such Letter of Credit in particular or shall impose
     upon such Issuer with respect to such Letter of Credit any restriction or
     reserve or capital requirement (for which such Issuer is not otherwise
     compensated) not in effect on the date of this Agreement or result in any
     unreimbursed loss, cost or expense which was not applicable, in effect or
     known to such Issuer as of the date of this Agreement and which such Issuer
     in good faith deems material to it;

               (ii) such Issuer shall have received written notice from the
     Administrative Agent, any Lender or the Borrower, on or prior to the
     requested date of Issuance of such Letter of Credit, that one or more of
     the applicable conditions contained in Section 3.1 (Conditions Precedent to
     the Effectiveness of this Agreement) and 3.2 (Conditions Precedent to Each
     Loan and Letter of Credit) is not then satisfied;

               (iii) after giving effect to the Issuance of such Letter of
     Credit, the aggregate Outstandings would exceed the Maximum Credit at such
     time;

                                      -38-



               (iv) after giving effect to the Issuance of such Letter of
     Credit, the sum of (x) the Letter of Credit Undrawn Amounts at such time
     and (y) the Reimbursement Obligations at such time exceeds ninety million
     Dollars ($90,000,000) (the "Letter of Credit Sublimit");

               (v) any fees due in connection with a requested Issuance have not
     been paid; or

               (vi) such Letter of Credit is not denominated in Dollars.

None of the Lenders (other than the Issuers in their capacity as such)
shall have any obligation to Issue any Letter of Credit. Any Letter of
Credit which has been Issued hereunder may be amended at any time to reduce
the amount outstanding thereunder; any Letter of Credit Request which seeks
to increase the amount outstanding under a Letter of Credit shall be
subject to the same conditions set forth hereinabove for Issuance.

          (b) Expiration Date. In no event shall the expiration date of any
Letter of Credit (i) be more than one (1) year after the date of issuance
thereof or (ii) be less than seven (7) days prior to the Scheduled Termination
Date; provided, however, that any Letter of Credit with a one-year term may
provide for the renewal thereof for additional one-year periods (which shall in
no event extend beyond the expiry date referred to in clause (ii) above); and
provided, further, that during the period beginning sixty (60) days prior to the
Scheduled Termination Date and ending on the Scheduled Termination Date Letters
of Credit in an aggregate face amount of up to five million Dollars ($5,000,000)
of Letters of Credit having an expiration date after the Scheduled Termination
Date may be issued and the Borrower agrees to deliver to the Administrative
Agent on the Scheduled Termination Date a letter of credit or letters of credit
in form and substance and issued by a bank acceptable to the Administrative
Agent and/or cash collateral in an amount equal to 105% of the face amount of
any such Letters of Credit.

          (c) Contents of Letter of Credit Request. In connection with the
Issuance or amendment of each Letter of Credit, the Borrower shall give the
relevant Issuer and the Administrative Agent at least two (2) Business Days'
prior written notice, in substantially the form of Exhibit H (Form of Letter of
Credit Request) (or in such other written or electronic form as is acceptable to
the Issuer), of the requested Issuance or amendment of such Letter of Credit (a
"Letter of Credit Request"). Such notice shall be irrevocable and shall specify:
the Issuer of such Letter of Credit; the stated amount of the Letter of Credit
requested or to be amended, which in the case of an Issuance such stated amount
shall not be less than two hundred and fifty thousand Dollars ($250,000); the
date of Issuance or amendment of such requested Letter of Credit (which day
shall be a Business Day); the date on which such Letter of Credit is to expire
(which date shall be a Business Day); and the beneficiary of such Letter of
Credit. Such notice, to be effective, must be received by the relevant Issuer
and the Administrative Agent not later than 11:00 A.M. (New York time) on the
last Business Day on which notice can be given under the immediately preceding
sentence.

          (d) Procedure for Issuance. Subject to the satisfaction of the
conditions set forth in this Section 2.4, the relevant Issuer shall, on the
requested date, Issue a Letter of Credit on behalf of the Borrower in accordance
with such Issuer's usual and customary business practices. No Issuer shall Issue
any Letter of Credit in the period commencing on the first Business Day after it
receives written notice from any Lender that one or more of the conditions
precedent contained in Section 3.2 (Conditions Precedent to Each Loan and Letter
of Credit) shall not on

                                      -39-



such date be satisfied and ending when such conditions are satisfied. The
relevant Issuer shall not otherwise be required to determine that, or take
notice whether, the conditions precedent set forth in Section 3.2 (Conditions
Precedent to Each Loan and Letter of Credit) have been satisfied in connection
with the Issuance of any Letter of Credit.

          (e) Compliance with Conditions Precedent. On the date of the proposed
Issuance of the Letter of Credit, the Administrative Agent shall confirm to the
relevant Issuer that the applicable conditions set forth in Section 3.1
(Conditions Precedent to the Effectiveness of this Agreement) and 3.2
(Conditions Precedent to Each Loan and Letter of Credit) are satisfied.

          (f) Execution of Letter of Credit Reimbursement Agreement. If
requested by the relevant Issuer, prior to the Issuance of each Letter of Credit
by such Issuer and as a condition of such Issuance and of the participation of
each Lender in the Letter of Credit Obligations arising with respect thereto,
the Borrower shall have delivered to such Issuer a letter of credit
reimbursement agreement, in such form as the Issuer may employ in its ordinary
course of business for its own account (a "Letter of Credit Reimbursement
Agreement"), signed by the Borrower, and such other documents or items as may be
required pursuant to the terms thereof. In the event of any conflict between the
terms of any Letter of Credit Reimbursement Agreement and this Agreement, the
terms of this Agreement shall govern.

          (g) Obligations of the Issuer. Each Issuer shall:

               (i) give the Administrative Agent written notice (or telephonic
     notice confirmed promptly thereafter in writing), which writing may be a
     telecopy or electronic mail, of the Issuance of a Letter of Credit Issued
     by it, of all drawings under a Letter of Credit issued by it and the
     payment (or the failure to pay when due) by the Borrower of any
     Reimbursement Obligation when due (which notice the Administrative Agent
     shall promptly transmit by telecopy, electronic mail or similar
     transmission to each Lender);

               (ii) upon the request of any Lender, furnish to such Lender
     copies of any Letter of Credit to which such Issuer is a party; and

               (iii) no later than ten (10) Business Days following the last day
     of each calendar month, provide to the Administrative Agent (and the
     Administrative Agent shall provide a copy to each Lender requesting the
     same) and the Borrower separate schedules for Documentary and Standby
     Letters of Credit issued by it, in form and substance reasonably
     satisfactory to the Administrative Agent, setting forth the aggregate
     Letter of Credit Obligations outstanding at the end of each month and any
     information requested by the Borrower or the Administrative Agent relating
     thereto.

          (h) Lenders' Purchase of Interest and Participation. Immediately upon
the issuance by an Issuer of a Letter of Credit in accordance with the terms and
conditions of this Agreement, such Issuer shall subject to the provisions of
Section 2.1 (Tranches; Priority of Funding and Use), be deemed to have sold and
transferred to each Lender, and each Lender shall be deemed irrevocably and
unconditionally to have purchased and received from such Issuer, without
recourse or warranty, an undivided interest and participation, to the extent of,
in the case of each Tranche A Lender, the lesser of (i) such Tranche A Lender's
Ratable Portion in the face amount of such Letter of Credit and (ii) such
Tranche A Lender's unused Tranche A Commitment, and in the case of each Tranche
B Lender, such Tranche B Lender's Ratable

                                      -40-



Portion of the remaining face amount of such Letter of Credit together in the
case of each such purchasing Lender, the corresponding obligations of the
Borrower with respect thereto (including all Letter of Credit Obligations with
respect thereto) and any security therefor and guaranty pertaining thereto.

          (i) Payment Obligations. The Borrower agrees to pay to the Issuer of
any Letter of Credit the amount of all Reimbursement Obligations owing to such
Issuer under any Letter of Credit issued for its account no later than the date
(the "Reimbursement Date") that is one (1) Business Day after the Borrower
receives written notice from such Issuer that payment has been made under such
Letter of Credit, irrespective of any claim, set-off, defense or other right
that the Borrower may have at any time against such Issuer or any other Person.
In the event that any Issuer makes any payment under any Letter of Credit and
the Borrower shall not have repaid such amount to such Issuer pursuant to this
clause (i) or such payment is rescinded or set aside for any reason, such
Reimbursement Obligation shall be payable on demand with interest thereon
computed from (i) the date on which such Reimbursement Obligation arose to the
Reimbursement Date, at the rate of interest applicable to Base Rate Loans and
(ii) the Reimbursement Date to the date of repayment in full in cash, at the
rate of interest applicable to past due Revolving Loans bearing interest at a
rate based on the Base Rate during such period, and such Issuer shall promptly
notify the Administrative Agent, which shall promptly notify each Lender of such
failure, and each Lender shall promptly and unconditionally pay to the
Administrative Agent for the account of such Issuer the amount of such Lender's
Ratable Portion of such payment (as determined pursuant to clause (h) of Section
2.4 (Lenders' Purchase of Interest and Participation) in Dollars and in
immediately available funds. If the Administrative Agent so notifies such Lender
prior to 11:00 A.M. (New York time) on any Business Day, such Lender shall make
available to the Administrative Agent for the account of such Issuer its Ratable
Portion of the amount of such payment on such Business Day in immediately
available funds. Upon such payment by a Lender, such Lender shall,
notwithstanding whether or not the conditions precedent set forth in Section 3.2
(Conditions Precedent to Each Loan and Letter of Credit) shall have been
satisfied (which conditions precedent the Lenders hereby irrevocably waive), be
deemed to have made a Revolving Loan to the Borrower in the principal amount of
such payment. Whenever any Issuer receives from the Borrower a payment of a
Reimbursement Obligation as to which the Administrative Agent has received for
the account of such Issuer any payment from a Lender pursuant to this clause
(i), such Issuer shall pay to the Administrative Agent and the Administrative
Agent shall promptly pay to each Lender, in immediately available funds, an
amount equal to such Lender's Ratable Portion of the amount of such payment
adjusted, if necessary, to reflect the respective amounts the Lenders have paid
in respect of such Reimbursement Obligation.

          (j) Obligations Absolute. The Borrower's obligation to pay each
Reimbursement Obligation and the obligations of the Lenders to make payments to
the Administrative Agent for the account of the Issuers with respect to Letters
of Credit shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under any and
all circumstances whatsoever, including the occurrence of any Default or Event
of Default, and irrespective of:

               (i) any lack of validity or enforceability of any Letter of
     Credit or any Loan Document, or any term or provision therein;

               (ii) any amendment or waiver of or any consent to departure from
     all or any of the provisions of any Letter of Credit or any Loan Document;

                                      -41-



               (iii) the existence of any claim, set off, defense or other right
     that the Borrower, any other party guaranteeing, or otherwise obligated
     with, the Borrower, any Subsidiary or other Affiliate thereof or any other
     Person may at any time have against the beneficiary under any Letter of
     Credit, any Issuer, the Administrative Agent or any Lender or any other
     Person, whether in connection with this Agreement, any other Loan Document
     or any other related or unrelated agreement or transaction;

               (iv) any draft or other document presented under a Letter of
     Credit proving to be forged, fraudulent, invalid or insufficient in any
     respect or any statement therein being untrue or inaccurate in any respect;

               (v) payment by the Issuer under a Letter of Credit against
     presentation of a draft or other document that does not comply with the
     terms of such Letter of Credit; and

               (vi) any other act or omission to act or delay of any kind of the
     Issuer, the Lenders, the Administrative Agent or any other Person or any
     other event or circumstance whatsoever, whether or not similar to any of
     the foregoing, that might, but for the provisions of this Section 2.4,
     constitute a legal or equitable discharge of the Borrower's obligations
     hereunder.

Any action taken or omitted to be taken by the relevant Issuer under or in
connection with any Letter of Credit, if taken or omitted in the absence of
gross negligence or willful misconduct, shall not put such Issuer under any
resulting liability to the Borrower or any Lender. In determining whether drafts
and other documents presented under a Letter of Credit comply with the terms
thereof, the Issuer may accept documents that appear on their face to be in
order, without responsibility for further investigation, regardless of any
notice or information to the contrary and, in making any payment under any
Letter of Credit, the Issuer may rely exclusively on the documents presented to
it under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter of
Credit, whether or not the amount due to the beneficiary thereunder equals the
amount of such draft and whether or not any document presented pursuant to such
Letter of Credit proves to be insufficient in any respect, if such document on
its face appears to be in order, and whether or not any other statement or any
other document presented pursuant to such Letter of Credit proves to be forged
or invalid or any statement therein proves to be inaccurate or untrue in any
respect whatsoever, and any noncompliance in any immaterial respect of the
documents presented under such Letter of Credit with the terms thereof shall, in
each case, be deemed not to constitute willful misconduct or gross negligence of
the Issuer.

          (k) Non-Payment by a Lender. If and to the extent any Lender shall not
have so made its payment required by clause (i) (Payment Obligations of the
Borrower) above available to the Administrative Agent for the account of such
Issuer, such Lender agrees to pay to the Administrative Agent for the account of
such Issuer forthwith on demand such amount together with interest thereon, for
the first (1st) Business Day after payment was first due at the Federal Funds
Rate, and thereafter until such amount is repaid to the Administrative Agent for
the account of such Issuer, at the rate per annum applicable to Base Rate Loans
under the Facility. The failure of any Lender to make available to the
Administrative Agent for the account of such Issuer its payment shall not
relieve any other Lender of its obligation hereunder to make available to the
Administrative Agent for the account of such Issuer its payment on the date such
payment

                                      -42-



is to be made, but no Lender shall be responsible for the failure of any other
Lender to make available to the Administrative Agent for the account of the
Issuer such other Lender's payment.

          (l) Letters of Credit Issued Pursuant to the Pre-petition Credit
Agreement. Schedule 2.4 (Existing Letters of Credit) contains a schedule of
certain letters of credit issued prior to the Effective Date for the account of
the Borrower pursuant to the Pre-petition Credit Agreement. On the Effective
Date, (i) such letters of credit, to the extent outstanding, shall be
automatically and without further action by the parties thereto converted to
Letters of Credit issued pursuant to this Section 2.4 for the account of the
Borrower and subject to the provisions hereof, and for this purpose the fees
specified in Section 2.12(c) (Fees) shall be payable (in substitution for any
fees set forth in the applicable letter of credit reimbursement agreements or
applications relating to such letters of credit) as if such letters of credit
had been issued on the Effective Date (provided no issuance fee shall be payable
hereunder in connection the deemed issuance of any Letter of Credit pursuant to
this clause (l)), (ii) the issuers of such Letters of Credit shall be deemed to
be "Issuers" hereunder solely for the purpose of maintaining such letters of
credit, (iii) the face amount of such letters of credit shall be included in the
calculation of Letter of Credit Obligations and (iv) all liabilities of the
Borrower with respect to such letters of credit shall constitute Obligations. No
letter of credit converted in accordance with this clause (l) shall be amended,
extended or renewed without the prior written consent of the Administrative
Agent.

          Section 2.5 Reduction and Termination of the Commitments

          The Borrower may, upon at least three (3) Business Days' prior notice
to the Administrative Agent, terminate in whole or reduce in part ratably the
unused portions of the respective Commitments of the Lenders; provided, however,
that each partial reduction shall be in the aggregate amount of not less than
five million Dollars ($5,000,000) or an integral multiple of one million Dollars
($1,000,000) in excess thereof; and provided, further, no Tranche A Commitment
may be reduced until all Tranche B Commitments shall first have been reduced to
zero.

          Section 2.6 Repayment of Loans

          The Borrower promises to repay the entire unpaid amount of the
Obligations on the Scheduled Termination Date (it being understood that other
provisions of this Agreement may require all or part of such Obligations to be
repaid earlier).

          Section 2.7 Evidence of Indebtedness

          (a) Maintenance of Accounts by Lenders. Each Lender shall maintain in
accordance with its usual practice an account or accounts evidencing
indebtedness of the Borrower to such Lender resulting from each Revolving Loan
of such Lender from time to time, including the amounts of principal and
interest payable and paid to such Lender from time to time under this Agreement.

          (b) Maintenance of Accounts by Administrative Agent. The
Administrative Agent shall maintain accounts in accordance with its usual
practice in which it shall record (i) the amount of each Loan made and, if a
Eurodollar Rate Loan, the Interest Period applicable thereto, (ii) the amount of
any principal or interest due and payable by the Borrower to each Lender

                                      -43-



hereunder and (iii) the amount of any sum received by the Administrative Agent
hereunder from the Borrower and each Lender's share thereof, if applicable.

          (c) Accounts as Prima Facie Evidence. The entries made in the accounts
maintained pursuant to clauses (a) and (b) above shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
obligations recorded therein; provided, however, that the failure of any Lender
or the Administrative Agent to maintain such accounts or any error therein shall
not in any manner affect the obligations of the Borrower to repay the Revolving
Loans in accordance with their terms.

          (d) Prompt Execution of Notes. Notwithstanding any other provision of
the Agreement, in the event that any Lender requests that the Borrower execute
and deliver a promissory note or notes payable to such Lender in order to
evidence the Indebtedness owing to such Lender by the Borrower hereunder (the
"Notes"), the Borrower shall promptly execute and deliver a Note or Notes to
such Lender evidencing any Revolving Loans of such Lender, substantially in the
form of Exhibit A (Form of Revolving Credit Note)(with such modifications as may
be necessary to indicate the appropriate Tranche), and the interests evidenced
by such note or notes shall at all times (including after assignment of all or
part of such interests) be evidenced by one or more Notes payable to the payee
named therein or its registered assigns.

          Section 2.8 Optional Prepayments

          The Borrower may prepay the outstanding principal amount of the
Revolving Loans in whole or ratably in part at any time, together with accrued
interest to the date of such prepayment on the principal amount prepaid (but
shall have no right to prepay the principal amount of any Revolving Loan other
than as provided in this Section 2.8); provided, however, that if any prepayment
of any Eurodollar Rate Loan is made by the Borrower other than on the last day
of an Interest Period for such Revolving Loan, the Borrower shall also pay any
amounts owing pursuant to clause (e) of Section 13.4(b)2.15 (Special Provisions
Governing Eurodollar Rate Loans). The proceeds of any optional prepayment
pursuant to this Section 2.8 shall be applied as provided in clause (f) or (g)
of Section 2.14 (Payments and Computations; Protective Advances), as applicable.

          Section 2.9 Mandatory Prepayments

          If at any time, the aggregate principal amount of Outstandings exceed
the Maximum Credit at such time, the Borrower shall forthwith pay to the
Administrative Agent for application in accordance with clause (f) or (g) of
Section 2.14 (Payments and Computations; Protective Advances) an amount equal to
such excess.

          Section 2.10 Application of Proceeds

          (a) Proceeds of Asset Sales Etc. Prior to Repayment of Pre-Petition
Credit Agreement Claims. Prior to repayment in full of the Pre-Petition Credit
Agreement Claims, upon receipt by the Borrower or any Guarantor of Net Cash
Proceeds, all such Net Cash Proceeds shall be used to immediately repay the
Pre-petition Credit Agreement Claims; provided, however, that if an Event of
Default shall have occurred and be continuing Net Cash Proceeds shall be applied
in accordance with clause (g) of Section 2.14(Payments and Computations;
Protective Advances). The Administrative Agent agrees to so apply such funds and
the Borrower consents to such application. So long as no Event of Default shall
have occurred and be continuing and so long as

                                      -44-



such Borrowing is being drawn to avoid breakage costs as contemplated by clause
(f) of Section 2.2, upon such receipt of Net Cash Proceeds and application of
such Net Cash Proceeds towards repayment of the Pre-petition Credit Agreement
Claims as provided above, the Borrower shall be deemed without further action to
have requested a Revolving Loan from the Lenders in an amount equal to the
amount of Pre-petition Credit Agreement Claims so repaid and the Lenders shall
advance to the Borrower Revolving Loans in such amount. Unless the Borrower
shall have elected the option provided in clause (f) of Section 2.2 (if
available), such Revolving Loans shall be Base Rate Loans.

          (b) Proceeds of Asset Sales Etc. Following Full Repayment of
Pre-Petition Credit Agreement Claims. After the Pre-petition Credit Agreement
Claims have been repaid in full, Net Cash Proceeds shall be applied in
accordance with clause (f) or (g) of Section 2.14 (Payments and Computations;
Protective Advances), as applicable; provided, however, that so long as no Event
of Default has occurred and is continuing, in the event that the application of
Net Cash Proceeds as provided in this clause (b) would cause the Borrower to
incur breakage costs pursuant to clause (e) of Section 2.15 (Special Provisions
Governing Eurodollar Rate Loans), the Administrative Agent, at the request of
the Borrower, shall not apply such Net Cash Proceeds as provided in clause (f)
of Section 2.14 (Payments and Computations; Protective Advances) but shall
instead deposit such funds in a Cash Collateral Account and apply such Net Cash
Proceeds (to the extent still available after giving effect to the last sentence
of this clause (b)) in accordance with clause (f) or (g) of Section 2.14
(Application of Payments) on the earlier to occur of (i) the first date on which
such application would not give rise to the incurrence by the Borrower of
breakage costs pursuant to clause (e) of Section 2.15 (Special Provisions
Governing Eurodollar Rate Loans) and (ii) the occurrence of an Event of Default.
The Administrative Agent agrees to so apply such funds and the Borrower consents
to such application. Until such time as the funds deposited in such Cash
Collateral Account are applied as provided in the preceding sentence, the
Borrower shall be entitled to draw funds from such account upon request from the
Borrower to the Administrative Agent.

          Section 2.11 Interest

          (a) Rate. All Revolving Loans and the outstanding amount of all other
Obligations shall bear interest, in the case of Revolving Loans, on the unpaid
principal amount thereof from the date such Revolving Loans are made and, in the
case of such other Obligations, from the date such other Obligations are due and
payable until, in all cases, paid in full, except as otherwise provided in
clause (b) below , as follows:

               (i) if a Base Rate Loan or such other Obligation, at a rate per
     annum equal to the sum of (A) the Base Rate as in effect from time to time
     as interest accrues, plus (B) the Applicable Margin; and

               (ii) if a Eurodollar Rate Loan, at a rate per annum equal to the
     sum of (A) the Eurodollar Rate determined for the applicable Interest
     Period, plus (B) the Applicable Margin in effect from time to time during
     such Interest Period.

          (b) Interest Payments. (i) Interest accrued on each Base Rate Loan
(other than Swing Loans) shall be due and payable (A) on the first Business Day
of each calendar month, commencing on the first such Business Day following the
making of such Base Rate Loan and (B) if not previously paid in full, at
maturity (whether by acceleration or otherwise) of such Base Rate Loan, (ii)
interest accrued on Swing Loans shall be due and payable on the first Business

                                      -45-



Day of the immediately succeeding calendar month, (iii) interest accrued on each
Eurodollar Rate Loan shall be due and payable (A) on the last day of each
Interest Period applicable to such Revolving Loan and, if such Interest Period
has a duration of more than three (3) months, on each day during such Interest
Period occurring every three months after the first day of such Interest Period,
(B) upon the payment or prepayment thereof in full or in part and (C) if not
previously paid in full, at maturity (whether by acceleration or otherwise) of
such Eurodollar Rate Loan and (iv) interest accrued on the amount of all other
Obligations shall be due and payable (A) on the first Business Day of each
calendar month, commencing on the first such Business Day following the
incurrence of such Obligation, (B) upon repayment thereof in full or in part and
(C) if not theretofore paid in full, at the time such other Obligation becomes
due and payable (whether by acceleration or otherwise).

          (c) Default Interest. Notwithstanding the rates of interest specified
in Section 2.11(a) (Interest) or elsewhere herein, effective immediately upon
the occurrence of an Event of Default, and for as long thereafter as such Event
of Default shall be continuing, the principal balance of all Revolving Loans and
the amount of all other Obligations then due and payable shall bear interest at
a rate that is two percent (2%) per annum in excess of the rate of interest
applicable to such Obligations from time to time.

          Section 2.12 Conversion and Continuation Options

          (a) Delivery of Notice of Conversion or Continuation. The Borrower may
elect (i) at any time, to convert Base Rate Loans (other than Swing Loans) or
any portion thereof to Eurodollar Rate Loans or (ii) at the end of any
applicable Interest Period, to convert Eurodollar Rate Loans or any portion
thereof into Base Rate Loans or to continue such Eurodollar Rate Loans or any
portion thereof for an additional Interest Period; provided, however, that the
aggregate amount of the Eurodollar Loans for each Interest Period must be in the
amount of two Eurodollar Borrowing Units or an integral multiple of Eurodollar
Borrowing Units in excess thereof. Each conversion or continuation shall be
allocated among the Revolving Loans of each Lender in accordance with its
Ratable Portion. Each such election shall be made by giving the Administrative
Agent at least three (3) Business Days' prior written notice (a "Notice of
Conversion or Continuation"), which shall in substantially the form of Exhibit C
(Form of Notice of Conversion or Continuation) hereto and shall specify (A) the
amount and type of Revolving Loan being converted or continued, (B) in the case
of a conversion to, or a continuation of, Eurodollar Rate Loans, the applicable
Interest Period and (C) in the case of a conversion, the date of conversion
(which date shall be a Business Day and, if a conversion from Eurodollar Rate
Loans, shall also be the last day of the applicable Interest Period).

          (b) Notice. The Administrative Agent shall promptly notify each Lender
of its receipt of a Notice of Conversion or Continuation and of the options
selected therein.

          (c) Event of Default; Failure to Give Appropriate Notice.
Notwithstanding the foregoing, no conversion in whole or in part of Base Rate
Loans to Eurodollar Rate Loans, and no continuation in whole or in part of
Eurodollar Rate Loans upon the expiration of any applicable Interest Period,
shall be permitted at any time at which (A) a Default or an Event of Default
shall have occurred and be continuing or (B) the continuation of, or conversion
into, a Eurodollar Rate Loan would violate any provision of Section 2.15
(Special Provisions Governing Eurodollar Rate Loans). If, within the time period
required under the terms of this Section 2.12, the Administrative Agent does not
receive a Notice of Conversion or Continuation from the Borrower containing a
permitted election to continue any Eurodollar Rate Loans for an additional

                                      -46-



Interest Period or to convert any such Revolving Loans, then, upon the
expiration of the applicable Interest Period, such Revolving Loans shall be
automatically converted to Base Rate Loans. Each Notice of Conversion or
Continuation shall be irrevocable.

          Section 2.13 Fees

          (a) Unused Commitment Fee. The Borrower agrees to pay to each Lender a
commitment fee (the "Unused Commitment Fee") accruing at the rate of one-half of
one percent (0.50%) per annum on the average daily amount by which the
Commitment of such Lender exceeds such Lender's Ratable Portion of the
Outstandings from the Effective Date until the Termination Date, payable in
arrears (i) on the first Business Day of each calendar month, commencing on the
first such Business Day following the Effective Date and (ii) on the Termination
Date.

          (b) Additional Fees. The Borrower agrees to pay the following amounts
with respect to the Revolving Loans and this Agreement:

               (i) Upfront Fee. The Borrower agrees to pay an upfront fees in
     the amount of(A) eighty seven and one half basis points (87.5 bps) of the
     Commitments, to the Administrative Agent for the benefit of the Lenders and
     (B) in the amount of twelve and one half basis points (12.5 bps) of the
     Commitments to the Administrative Agent for its own account, payable, in
     each case, on the Effective Date with respect to the Commitments
     represented by the Interim Facility and on the Entry Date with respect to
     the balance.

               (ii) Agency Fee. The Borrower agrees to pay an agency fee in an
     amount equal to twenty five thousand Dollars ($25,000) per annum, payable
     to the Administrative Agent, for the benefit of the Agents, on the
     Effective Date and each anniversary of the Effective Date until all
     Obligations are paid in full and all Commitments terminated.

               (iii) Administrative Agent's Fee. The Borrower agrees to pay an
     administrative agent's fee in an amount equal to one hundred thousand
     Dollars ($100,000) per annum, payable to the Administrative Agent, for its
     own account, on the Effective Date and each anniversary of the Effective
     Date until all Obligations are paid in full and all Commitments terminated.

               (iv) Collateral Monitoring Fee. The Borrower agrees to pay a
     collateral monitoring fee in an amount equal to two hundred thousand
     Dollars ($200,000) per annum, payable to the Collateral Monitoring Agent,
     for its own account, on the Effective Date and each anniversary of the
     Effective Date until all Obligations are paid in full and all Commitments
     terminated.

               (v) Deferred Fee. The Borrower agrees to pay, on the first
     anniversary of the Effective Date, a deferred fee (the "Deferred Fee") to
     the Agent, for the benefit of the Agent and the Lenders. The Deferred Fee
     shall be payable for the account of the Agent (18.19%) and the ratable
     account of the Lenders (81.81%). The Deferred Fee shall be in an amount
     equal to $550,000 reducing $27,500 for each $1,000,000 increment by which
     Average Available Credit (as defined below) exceeds $60,000,000. No
     Deferred Fee shall be payable if Average Available Credit is

                                      -47-



     $80,000,000 or more. For purposes of calculating the Deferred Fee, "Average
     Available Credit" shall mean the daily average Available Credit during the
     months of January and February, 2003.

          (c) Letter of Credit Fees. The Borrower agrees to pay the following
amounts with respect to Letters of Credit issued by any Issuer:

               (i) to the Administrative Agent for the account of each Issuer of
     a Letter of Credit, with respect to each Letter of Credit issued by such
     Issuer, an issuance fee equal to one quarter of one percent (0.25%) per
     annum of the maximum amount available from time to time to be drawn under
     such Letter of Credit, payable in arrears (x) on the first Business Day of
     each calendar month, commencing on the first such Business Day following
     the issuance of such Letter of Credit and (y) on the Termination Date;

               (ii) to the Administrative Agent for the ratable benefit of the
     Lenders, with respect to each Letter of Credit, an amount equal to the
     Letter of Credit Fee on the average daily outstanding balance of such
     Letter of Credit for the immediately preceding month (or portion thereof
     or, in the case of clause (y) below, since the end of the last period in
     respect of which such fee was paid), payable in arrears (x) on the first
     Business Day of each calendar month, commencing on the first such Business
     Day following the issuance of such Letter of Credit and (y) on the
     Termination Date; provided, however, that during the continuance of an
     Event of Default, the Letter of Credit Fee shall be increased by two
     percent (2%) per annum and shall be payable on demand; and

               (iii) to the Issuer of any Letter of Credit, with respect to the
     issuance, amendment or transfer of each Letter of Credit and each drawing
     made thereunder, documentary and processing charges in accordance with such
     Issuer's standard schedule for such charges in effect at the time of
     issuance, amendment, transfer or drawing, as the case may be.

          Section 2.14 Payments and Computations; Protective Advances

          (a) Payment Procedures. The Borrower shall make each payment hereunder
(including interest, fees and expenses) not later than 1:00 P.M. (New York City
time) on the day when due and payable, in Dollars, to the Administrative Agent
at its address referred to in Section 13.13 (Notices, Etc.) in immediately
available funds without set-off or counterclaim. The Borrower authorizes the
Administrative Agent to debit the Facility on the day when due for interest and
fees and, after ten (10) Business Day's notice, for expenses (provided no notice
shall be required to debit the Facility for expenses if a Default or an Event of
Default shall have occurred and is continuing). The Administrative Agent shall
promptly thereafter cause to be distributed immediately available funds relating
to the payment of principal or interest or fees to the Lenders, in accordance
with the application of payments set forth in clauses (f) and (g) below, as
applicable, for the account of their respective Applicable Lending Offices and
like funds relating to the payment of any other amount payable to any Lender to
such Lender for the account of its Applicable Lending Office, in each case to be
applied in accordance with the terms of this Agreement; provided, however, that
amounts payable pursuant to Section 2.15(c) or (d) (Special Provisions Governing
Eurodollar Rate Loans), Section 2.16 (Capital Adequacy) or 2.17 (Taxes) shall be
paid only to the affected Lender or Lenders and amounts payable with respect to
Swing

                                      -48-



Loans shall be paid only to the Swing Loan Lender. Payments received by the
Administrative Agent after 1:00 P.M. (New York City time) shall be deemed to be
received on the next Business Day.

          (b) Computations of Interest. All computations of interest and of fees
shall be made by the Administrative Agent on the basis of a year of three
hundred and sixty (360) days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest and fees are payable. Each determination by the
Administrative Agent of an interest rate hereunder shall be conclusive and
binding for all purposes, absent manifest error.

          (c) Set-off against Deposit Account. If and to the extent any payment
owed to the Administrative Agent or any Lender is not made within three Business
Days after the date it was due, the Borrower hereby authorizes the
Administrative Agent and such Lender, subject to any notice period provided in
the Bankruptcy Orders, to setoff and charge any amount so due against any
deposit account maintained by the Borrower with the Administrative Agent or such
Lender, whether or not the deposit therein is then due.

          (d) Payments on Business Days; Order. Whenever any payment hereunder
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or fees, as the
case may be; provided, however, that if such extension would cause payment of
interest on or principal of any Eurodollar Rate Loan to be made in the next
calendar month, such payment shall be made on the immediately preceding Business
Day. All repayments of any Revolving Loans shall be applied as follows: first,
to repay such Revolving Loans outstanding as Base Rate Loans and then to repay
such Revolving Loans outstanding as Eurodollar Rate Loans, with those Eurodollar
Rate Loans having earlier expiring Interest Periods being repaid prior to those
that having expiring Interest Periods.

          (e) Assumption that Payment Has Been Made. Unless the Administrative
Agent shall have received notice from the Borrower prior to the date on which
any payment is due hereunder that the Borrower will not make such payment in
full, the Administrative Agent may assume that the Borrower has made such
payment in full to the Administrative Agent on such date and the Administrative
Agent may, in reliance upon such assumption, cause to be distributed to each
Lender on such due date an amount equal to the amount then due such Lender. If
and to the extent that the Borrower shall not have made such payment in full to
the Administrative Agent, each Lender shall repay to the Administrative Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon at the Federal Funds Rate, for the first Business Day, and,
thereafter, at the rate applicable to Base Rate Loans, for each day from the
date such amount is distributed to such Lender until the date such Lender repays
such amount to the Administrative Agent.

          (f) Application of Payments. Subject to the provisions of clause (g)
below and Section 2.10 (Application of Proceeds), all payments and any other
amounts received by the Administrative Agent from or for the benefit of the
Borrower shall be applied as follows:

               (i) first, to the payment of Pre-petition Credit Agreement Claims
     (until repaid in full) payable in the order prescribed in the Pre-petition
     Credit Agreement;

                                      -49-



               (ii) second; to pay interest then due on and then principal of
     any portion of the Revolving Loans that the Administrative Agent may have
     advanced pursuant to the express provisions of this Agreement on behalf of
     any Lender, for which the Administrative Agent has not then been reimbursed
     by such Lender or the Borrower;

               (iii) third, to pay interest then due on and then principal of
     any Swing Loan;

               (iv) fourth, ratably to pay any cash management fee or any
     Obligation then due under any Hedging Contract with any Lender or any of
     its Affiliates that (x) the Administrative Agent is fully aware of at the
     time of entry into such cash management arrangement or Hedging Contract, as
     the case may be, and (y) for which an appropriate amount has been reserved
     for by the Administrative Agent at or about such time as the entry into
     such cash management arrangement or Hedging Contract, as the case may be;

               (v) fifth, to pay Obligations in respect of any expense
     reimbursements or indemnities then due to the Administrative Agent and the
     Collateral Monitoring Agent or any of their respective Affiliates;

               (vi) sixth, to pay Obligations in respect of any expense
     reimbursements or indemnities then due to the Lenders and the Issuers

               (vii) seventh, to pay Obligations in respect of any fees then due
     to the Agents or any of their respective Affiliates, the Lenders and the
     Issuers;

               (viii) eighth, to pay interest and Unused Commitment Fees then
     due and payable in respect of the Revolving Loans and Reimbursement
     Obligations;

               (ix) ninth, to the ratable payment of principal on the Tranche B
     Revolving Loans which are Base Rate Loans;

               (x) tenth, to the ratable payment of principal on the Tranche B
     Revolving Loans which are Eurodollar Rate Loans;

               (xi) eleventh, to the ratable payment of principal on the Tranche
     A Revolving Loans which are Base Rate Loans;

               (xii) twelfth, to the ratable payment of principal on the Tranche
     A Revolving Loans which are Eurodollar Loans;

               (xiii) thirteenth, to provide cash collateral for outstanding
     Letter of Credit Undrawn Amounts in the manner described in Section 9.3
     (Actions in Respect of Letters of Credit);

               (xiv) fourteenth, to pay any other cash management fee or any
     Obligation then due under any Hedging Contract with any Lender or any of
     its Affiliates for which no payment has been made in respect of clause (iv)
     hereinabove, with the balance, if any, to be made available to the
     Borrower;

                                      -50-



          provided, however, that, if sufficient funds are not available to fund
all payments to be made in respect of any Obligation described in any of clauses
(i) through (xiv) above, the available funds being applied with respect to any
such Obligation (unless otherwise specified in such clause) shall be allocated
to the payment of such Obligations ratably, based on the proportion of the
applicable Agent's and each Lender's or Issuer's interest in the aggregate
outstanding Obligations described in such clauses.

Payments in respect of Swing Loans received by the Administrative Agent shall be
distributed to the Swing Loan Lender; payments in respect of Tranche A Revolving
Loans and Tranche B Revolving Loans received by the Administrative Agent shall
be distributed to each Tranche A Lender and each Tranche B Lender (as the case
may be) in accordance with such Lender's Ratable Portion thereof; and all
payments of fees and all other payments in respect of any other Obligation shall
be allocated among such of the Lenders and Issuers as are entitled thereto and,
for such payments allocated to the Tranche A Lenders and the Tranche B Lenders,
in proportion to their respective Ratable Portions.

          (g) Application of Payments After an Event of Default. The Borrower
hereby irrevocably waives the right to direct, after the occurrence and during
the continuance of an Event of Default, the application of any and all payments
in respect of the Obligations and any proceeds of Collateral, and agrees that
the Administrative Agent may, and, upon either (A) the written direction of the
Requisite Lenders or (B) the acceleration of the Obligations pursuant to Section
9.2 (Remedies), shall and (y) apply all payments in respect of any Obligations
and all funds on deposit in any Cash Collateral Account (including all proceeds
arising from a Reinvestment Event that are held in the Cash Collateral Account
pending application of such proceeds as specified in a Reinvestment Notice) and
all other proceeds of Collateral in the following order:

               (i) first, to the Pre-petition Credit Agreement Claims (until
     repaid in full) payable in the order prescribed in the Pre-petition Credit
     Agreement;

               (ii) second, to pay interest on and then principal of any portion
     of the Revolving Loans that the Administrative Agent or any of its
     Affiliates may have advanced on behalf of any Lender for which the
     Administrative Agent or such Affiliate has not then been reimbursed by such
     Lender or the Borrower;

               (iii) third, to pay interest on and then principal of any Swing
     Loan;

               (iv) fourth, to pay any cash management fee or any Obligation due
     under any Hedging Contract with any Lender or any of its Affiliates that
     (x) the Administrative Agent is fully aware of at the time of entry into
     such cash management arrangement or Hedging Contract, as the case may be,
     and (y) for which an appropriate amount has been reserved for by the
     Administrative Agent at or about such time as the entry into such cash
     management arrangement or Hedging Contract, as the case may be;

               (v) fifth, to pay Obligations in respect of any expense
     reimbursements or indemnities then due the Administrative Agent or the
     Collateral Monitoring Agent or any of their respective Affiliates;

               (vi) sixth, to pay Obligations in respect of any expense
     reimbursements or indemnities then due to the Lenders and the Issuers;

                                      -51-



               (vii) seventh, to pay Obligations in respect of any fees then due
     to the Agents or any of their respective Affiliates, the Lenders and the
     Issuers;

               (viii) eighth, to pay interest then due and payable in respect of
     the Revolving Loans and Reimbursement Obligations; (with Revolving Loans
     and Reimbursement Obligations owing to Tranche A Lenders and Tranche B
     Lenders being treated pari passu)

               (ix) ninth, to provide cash collateral for outstanding Letter of
     Credit Undrawn Amounts in the manner described in Section 9.3 (Actions in
     Respect of Letters of Credit);

               (x) tenth, to pay or prepay principal of Revolving Loans payments
     on the Revolving Loans and Reimbursement Obligations (with Revolving Loans
     and Reimbursement Obligations owing to Tranche A Lenders and Tranche B
     Lenders being treated pari passu); and

               (xi) eleventh, to pay any other cash management fee or any
     Obligation due under any Hedging Contract with any Lender or any of its
     Affiliates for which no payment has been made in respect of clause (iv)
     hereinabove;

          provided, however, that, if sufficient funds are not available to fund
all payments to be made in respect of any Obligation described in any of clauses
(i) through (xi) above, the available funds being applied with respect to any
such Obligation (unless otherwise specified in such clause) shall be allocated
to the payment of such Obligations ratably, based on the proportion of the
applicable Agent's and each Lender's or Issuer's interest in the aggregate
outstanding Obligations described in such clauses. The order of priority set
forth in this clause (f) and the related provisions hereof are set forth solely
to determine the rights and priorities of the Administrative Agent, the Swing
Loan Lender, the Lenders, the Issuers and other Secured Parties as among
themselves. The order of priority set forth in clauses (i) through (xi)
hereinabove may at any time and from time to time be changed by the agreement of
the Lenders without necessity of notice to or consent of or approval by the
Borrower, any Secured Party which is not a Lender or Issuer or any other Person.

          (h) Payments from Loans; Protective Advances. At the option of the
Administrative Agent, principal on the Swing Loans, the Reimbursement
Obligations, interest, fees, expenses and other sums due and payable in respect
of the Revolving Loans, Swing Loans, and Protective Advances may be paid from
the proceeds of Swing Loans or Revolving Loans. The Borrower hereby authorizes
the Swing Loan Lender to make Swing Loans pursuant to Section 2.3 (Swing Loans)
and the Lenders to make Revolving Loans pursuant to Section 2.2 (Borrowing
Procedures) (and each Lender hereby agrees to make, regardless of whether, after
giving effect to such Revolving Loan, either the then effective aggregate
Commitment or the Borrowing Base at such time exceeds the Maximum Credit in
effect at such time), from time to time in the Swing Loan Lender's, or, in the
case of the Lenders, the Administrative Agent's discretion, Swing Loans or
Revolving Loans, as applicable, that in the aggregate amount of any and all
principal payable with respect to the Swing Loans and interest, fees, expenses
and other sums payable in respect of the Revolving Loans, Swing Loans and
Protective Advances, and further authorizes the Administrative Agent to give the
Lenders notice of any such Borrowing with respect to such Swing Loans and
Revolving Loans and to distribute the proceeds of such Swing Loans and Revolving
Loans to pay such amounts; provided, however, that the aggregate

                                      -52-



principal amount outstanding in respect of such Swing Loans and Revolving Loans
for payments under this clause (h) of Section 2.14 (Payments and Computations;
Protective Advances) shall not exceed five million Dollars ($5,000,000) and the
provisions of Section 2.1(b) (Tranches; Priority of Funding and Use) shall
apply. The Borrower agrees that all such Swing Loans and Revolving Loans so made
shall be deemed to have been requested by it (irrespective of the satisfaction
of the conditions in Section 3.2 (Conditions Precedent to Each Loan and Letter
of Credit), which conditions the Lenders irrevocably waive in respect of such
Swing Loans and Revolving Loans) and directs that all proceeds thereof shall be
used to pay such amounts.

          Section 2.15 Special Provisions Governing Eurodollar Rate Loans

          (a) Determination of Interest Rate. The Eurodollar Rate for each
Interest Period for Eurodollar Rate Loans shall be determined by the
Administrative Agent pursuant to the procedures set forth in the definition of
"Eurodollar Rate." The Administrative Agent's determination shall be presumed to
be correct, absent manifest error, and shall be binding on the Borrower.

          (b) Interest Rate Unascertainable, Inadequate or Unfair. In the event
that: (i) the Administrative Agent determines that adequate and fair means do
not exist for ascertaining the applicable interest rates by reference to which
the Eurodollar Rate then being determined is to be fixed or (ii) the Requisite
Lenders notify the Administrative Agent that the Eurodollar Rate for any
Interest Period will not adequately reflect the cost to the Lenders of making or
maintaining such Revolving Loans for such Interest Period, the Administrative
Agent shall forthwith so notify the Borrower and the Lenders, whereupon each
Eurodollar Loan shall automatically, on the last day of the current Interest
Period for such Revolving Loan, convert into a Base Rate Loan and the
obligations of the Lenders to make Eurodollar Rate Loans or to convert Base Rate
Loans into Eurodollar Rate Loans shall be suspended until the Administrative
Agent shall notify the Borrower that the Requisite Lenders have determined that
the circumstances causing such suspension no longer exist.

          (c) Increased Costs. If at any time any Lender shall determine that
the introduction of, or any change in or in the interpretation of, any law,
treaty or governmental rule, regulation or order (other than any change by way
of imposition or increase of reserve requirements included in determining the
Eurodollar Rate) or the compliance by such Lender with any guideline, request or
directive promulgated or given on behalf of any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to such Lender of agreeing to make or making, funding
or maintaining any Eurodollar Rate Loans, then the Borrower shall from time to
time, upon demand by such Lender (with a copy of such demand to the
Administrative Agent), pay to the Administrative Agent for the account of such
Lender additional amounts sufficient to compensate such Lender for such
increased cost. If any Lender becomes entitled to claim any additional amount
pursuant to this clause (c), it shall promptly notify the Borrower (with a copy
to the Administrative Agent) of the event by reason of which it has become so
entitled. A certificate as to the amount of such increased cost, submitted to
the Borrower and the Administrative Agent by such Lender, shall be conclusive
and binding for all purposes, absent manifest error.

          (d) Illegality. Notwithstanding any other provision of this Agreement,
if any Lender determines that the introduction of, or any change in or in the
interpretation of, any Requirement of Law shall make it unlawful, or any central
bank or other Governmental Authority shall assert that it is unlawful, for any
Lender or its Eurodollar Lending Office to make

                                      -53-



Eurodollar Rate Loans or to continue to fund or maintain Eurodollar Rate Loans,
then, on notice thereof and demand therefor by such Lender to the Borrower
through the Administrative Agent, (i) the obligation of such Lender to make or
to continue Eurodollar Rate Loans and to convert Base Rate Loans into Eurodollar
Rate Loans shall be suspended, and each such Lender shall make a Base Rate Loan
as part of any requested Borrowing of Eurodollar Rate Loans and (ii) if the
affected Eurodollar Rate Loans are then outstanding, the Borrower shall
immediately convert each such Revolving Loan into a Base Rate Loan. If, at any
time after a Lender gives notice under this clause (d), such Lender determines
that it may lawfully make Eurodollar Rate Loans, such Lender shall promptly give
notice of that determination to the Borrower and the Administrative Agent, and
the Administrative Agent shall promptly transmit the notice to each other
Lender. The Borrower's right to request, and such Lender's obligation, if any,
to make Eurodollar Rate Loans, shall thereupon be restored.

          (e) Breakage Costs. In addition to all amounts required to be paid by
the Borrower pursuant to Section 2.11 (Interest), the Borrower shall compensate
each Lender, upon demand, for all losses, expenses and liabilities (including
any loss or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such Lender to fund or maintain such
Lender's Eurodollar Rate Loans to the Borrower but excluding any loss of the
Applicable Margin on the relevant Revolving Loans) that such Lender may sustain
(i) if for any reason a proposed Borrowing, conversion into or continuation of
Eurodollar Rate Loans does not occur on a date specified therefor in a Notice of
Borrowing or a Notice of Conversion or Continuation given by a Borrower or in a
telephonic request by it for borrowing or conversion or continuation or a
successive Interest Period does not commence after notice therefor is given
pursuant to Section 2.12(a) (Conversion and Continuation Options), (ii) if for
any reason any Eurodollar Rate Loan is prepaid (including mandatorily pursuant
to Section 2.10) on a date that is not the last day of the applicable Interest
Period, (iii) as a consequence of a required conversion of a Eurodollar Rate
Loan to a Base Rate Loan as a result of any of the events indicated in clause
(b) or (d) above or (iv) as a consequence of any failure by a Borrower to repay
Eurodollar Rate Loans when required by the terms hereof. The Lender making
demand for such compensation shall deliver to the Borrower concurrently with
such demand a written statement as to such losses, expenses and liabilities, and
this statement shall be conclusive as to the amount of compensation due to that
Lender, absent manifest error.

          Section 2.16 Capital Adequacy

          If at any time any Lender determines that (a) the adoption of, or any
change in, or in the interpretation of, any Requirement of Law regarding capital
adequacy, (b) compliance with any such Requirement of Law or (c) compliance with
any guideline or request or directive from any central bank or other
Governmental Authority (whether or not having the force of law) shall have the
effect of reducing the rate of return on such Lender's (or any Person
controlling such Lender's) capital as a consequence of its obligations
hereunder, or under or in respect of any Letter of Credit, to a level below the
level that such Lender or such Person could have achieved but for such adoption,
change, compliance or interpretation, then, upon demand from time to time by
such Lender (with a copy of such demand to the Administrative Agent), the
Borrower shall pay to the Administrative Agent for the account of such Lender,
from time to time as specified by such Lender, additional amounts sufficient to
compensate such Lender for such reduction. A certificate as to such amounts
submitted to the Borrower and the Administrative Agent by such Lender shall be
conclusive and binding for all purposes absent manifest error.

                                      -54-



          Section 2.17 Taxes

          (a) Deduction of Taxes. Any and all payments by the Borrower under
each Revolving Loan Document shall be made free and clear of and without
deduction for any and all present or future taxes, levies, imposts, deductions,
charges or withholdings, and all liabilities with respect thereto, excluding (i)
in the case of each Lender and the Administrative Agent (A) taxes measured by
its net income or net profit, and franchise taxes imposed on it, by the
jurisdiction (or any political subdivision thereof) under the laws of which such
Lender or the Administrative Agent (as the case may be) is organized or doing
business and (B) any United States withholding taxes payable with respect to
payments under the Loan Documents under Requirement of Laws in effect on the
Effective Date (or, in the case of an Eligible Assignee, the date of the
Assignment and Acceptance) applicable to such Lender or the Administrative
Agent, as the case may be, but not excluding any United States withholding taxes
payable as a result of any change in such Requirement of Laws occurring after
the Effective Date (or the date of such Assignment and Acceptance) and (ii) in
the case of each Lender, taxes measured by its net income or net profit, and
franchise taxes imposed on it, by the jurisdiction in which such Lender's
Applicable Lending Office is located (all such non-excluded taxes, levies,
imposts, deductions, charges, withholdings and liabilities being hereinafter
referred to as "Taxes"). If any Taxes shall be required by any Requirement of
Law to be deducted from, or in respect of, any sum payable under any Loan
Document to any Lender or the Administrative Agent (w) the sum payable shall be
increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.17) such Lender or the Administrative Agent (as the case may be) receives an
amount equal to the sum it would have received had no such deductions been made,
(x) the Borrower shall make such deductions, (y) the Borrower shall pay the full
amount deducted to the relevant taxing authority or other authority in
accordance with applicable Requirements of Law and (z) the Borrower shall
deliver to the Administrative Agent evidence of such payment.

          (b) Stamp or Documentary Taxes. In addition, the Borrower agrees to
pay any present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies of the United States or any applicable
foreign jurisdiction, and all liabilities with respect thereto, arising from any
payment made under any Loan Document or from the execution, delivery or
registration of, or otherwise with respect to, any Loan Document (collectively,
"Other Taxes").

          (c) Indemnification. The Borrower shall indemnify each Lender and the
Administrative Agent for the full amount of Taxes and Other Taxes (including any
Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this
Section 2.17) paid by such Lender or the Administrative Agent (as the case may
be) and any liability (including for penalties, interest and expenses) arising
therefrom or with respect thereto, whether or not such Taxes or Other Taxes were
correctly or legally asserted. This indemnification shall be made within thirty
(30) days from the date such Lender or the Administrative Agent (as the case may
be) makes written demand therefor.

          (d) Receipt. Within thirty (30) days after the date of any payment of
Taxes or Other Taxes, the Borrower shall furnish to the Administrative Agent, at
its address referred to in Section 13.13 (Notices, Etc.), the original or a
certified copy of a receipt evidencing payment thereof.

                                      -55-



          (e) Survival. Without prejudice to the survival of any other agreement
of the Borrower hereunder, the agreements and obligations of the Borrower
contained in this Section 2.17 shall survive the payment in full of the
Obligations.

          (f) Non-U.S. Lenders. Prior to the Effective Date in the case of each
Non-U.S. Lender that is a signatory hereto, and on the date of the Assignment
and Acceptance pursuant to which it becomes a Lender in the case of each other
Non-U.S. Lender and from time to time thereafter if requested by the Borrower or
the Administrative Agent, each Non-U.S. Lender that is entitled at such time to
an exemption from United States withholding tax, or that is subject to such tax
at a reduced rate under an applicable tax treaty, shall provide the
Administrative Agent and the Borrower with two completed copies of (i) Form
W-8ECI (claiming exemption from withholding because the income is effectively
connected with a U.S. trade or business) or any successor form, (ii) Form W-8BEN
(claiming exemption from, or a reduction of, withholding tax under an income tax
treaty) or any successor form, (iii) in the case of a Non-U.S. Lender claiming
exemption under Sections 871(h) or 881(c) of the Code, a Form W-8BEN (claiming
exemption from withholding under the portfolio interest exemption) or any
successor form or (iv) any other applicable form, certificate or document
prescribed by the IRS certifying as to such Non-U.S. Lender's entitlement to
such exemption from United States withholding tax or reduced rate with respect
to all payments to be made to such Non-U.S. Lender under the Loan Documents.
Unless the Borrower and the Administrative Agent have received forms or other
documents satisfactory to them indicating that payments under any Loan Document
to or for a Non-U.S. Lender are not subject to United States withholding tax or
are subject to such tax at a rate reduced by an applicable tax treaty, the
Borrower or the Administrative Agent shall withhold taxes from such payments at
the applicable statutory rate.

          (g) Obligation to Try to Change Jurisdiction. Any Lender claiming any
additional amounts payable pursuant to this Section 2.17 shall use its
reasonable efforts (consistent with its internal policy and legal and regulatory
restrictions) to change the jurisdiction of its Applicable Lending Office if the
making of such a change would avoid the need for, or reduce the amount of, any
such additional amounts that would be payable or may thereafter accrue and would
not, in the sole determination of such Lender, be otherwise disadvantageous to
such Lender.

          Section 2.18 Substitution of Lenders

          In the event that (a)(i) any Lender makes a claim under Section
2.15(c) or (d) (Special Provisions Governing Eurodollar Rate Loans) or Section
2.16 (Capital Adequacy), (ii) it becomes illegal for any Lender to continue to
fund or make any Eurodollar Rate Loan and such Lender notifies the Borrower
pursuant to Section 2.15(e) (Special Provisions Governing Eurodollar Rate
Loans), (iii) the Borrower is required to make any payment pursuant to Section
2.17 (Taxes) that is attributable to any Lender or (iv) any Lender is a
Non-Funding Lender, (b) in the case of sub-clause (i) of clause (a) above, as a
consequence of increased costs in respect of which such claim is made, the
effective rate of interest payable to such Affected Lender under this Agreement
with respect to its Revolving Loans materially exceeds the effective average
annual rate of interest payable to the Requisite Lenders under this Agreement
and (c) Lenders holding at least seventy-five percent (75%) of the Commitments
are not subject to such increased costs or illegality, payment or proceedings
(in each case, any such Lender, an "Affected Lender"), the Borrower may
substitute another financial institution for such Affected Lender hereunder,
upon reasonable prior written notice (which written notice must be given within
ninety (90) days following the occurrence of any of the events described in
sub-clauses (i) through (iv) of

                                      -56-



clause (a) above) by the Borrower to the Administrative Agent and the Affected
Lender that the Borrower intends to make such substitution, which substitute
financial institution must be an Eligible Assignee and, if not a Lender,
reasonably acceptable to the Administrative Agent; provided, however, that if
more than one Lender claims increased costs, illegality or right to payment
arising from the same act or condition and such claims are received by the
Borrower within thirty (30) days of each other then the Borrower may substitute
all, but not (except to the extent the Borrower has already substituted one of
such Affected Lenders before the Borrower's receipt of the other Affected
Lenders' claim) less than all, Lenders making such claims. In the event that the
proposed substitute financial institution or other entity is reasonably
acceptable to the Administrative Agent and the written notice was properly
issued under this Section 2.18, the Affected Lender shall sell, and the
substitute financial institution or other entity shall purchase, pursuant to an
Assignment and Acceptance, all rights and claims of such Affected Lender under
the Loan Documents and the substitute financial institution or other entity
shall assume and the Affected Lender shall be relieved of such Commitments, and
all other prior unperformed obligations of the Affected Lender under the Loan
Documents (other than in respect of any damages (other than exemplary or
punitive damages, to the extent permitted by applicable Requirement of Law) in
respect of any such unperformed obligations). Upon the effectiveness of such
sale, purchase and assumption (that, in any event shall be conditioned upon the
payment in full by the Borrower to the Affected Lender in cash of all fees
unreimbursed costs and expenses and indemnities accrued and unpaid through such
effective date), the substitute financial institution or other Person shall
become a "Lender" hereunder for all purposes of this Agreement having a
Commitment in the amount of such Affected Lender's Commitment assumed by it and
being bound by all of the terms hereof, including, without limitation, Section
12.9 (Special Provisions Relating to a Borrower's Plan) and such Commitment (if
applicable) of the Affected Lender shall be terminated; provided, however, that
all indemnities under the Loan Documents shall continue in favor of such
Affected Lender.

          Section 2.19 Collateral Audits

          As long as any Commitment or Revolving Loan is outstanding, the
Collateral Monitoring Agent shall conduct, at the sole cost and expense of the
Borrower, at least one collateral audit each quarter, and more frequently as the
Collateral Monitoring Agent may determine, acting reasonably.

          Section 2.20 Priority and Liens

          Each of the Borrower and each Guarantor hereby covenants, represents
and warrants, as security for all Secured Obligations which may now or from time
to time hereafter be owing by the Borrower and the Guarantor to the Secured
Parties, and each hereby grants to the Administrative Agent for the sole benefit
of the Secured Parties a valid, binding, enforceable and perfected Lien in the
Collateral, including without limitation all currently owned or hereafter
acquired property and assets of the Borrower and each Guarantor of any kind or
nature, whether real or personal, tangible or intangible, wherever located, now
owned or hereafter acquired or arising and all proceeds, products, rents and
profits thereof, including, without limitation, all cash (including all cash
collateral, wherever held), goods, accounts receivable, inventory,
cash-in-advance deposits, real estate, machinery, equipment, vehicles,
trademarks, trade names, licenses, causes of action, rights to payment including
tax refund claims, insurance proceeds and commercial tort claims (including,
subject to entry of the Final Order, actions for preferences, fraudulent
conveyances, and other avoidance power claims and any recoveries under sections
506(c), 542, 544, 545, 547, 548, 549, 550, 552(b) and 553 of the Bankruptcy
Code) and the

                                      -57-



proceeds, products, rents and profits of all of the foregoing (all
of the foregoing, the "Collateral"), (i) subject only to the Carve-out, the
Pre-petition Liens and to any other valid, binding, enforceable, perfected and
unavoidable Liens of record (other than the Liens securing the obligations
outstanding under the NUF Loan Documents) existing in the Collateral on the
Petition Date and Liens permitted pursuant to clause (d) of Section 8.2 (Liens,
Etc.) and (ii) senior and superior pursuant to section 364(d) of the Bankruptcy
Code to the Liens securing the obligations outstanding under the NUF Loan
Documents. Except as expressly set forth in the Bankruptcy Orders, the Liens
granted in the Bankruptcy Orders and hereunder shall not be (i) subject to any
Lien which is avoided and preserved for the benefit of the Borrower's and each
Guarantor's estates under section 551 of the Bankruptcy Code or (ii)
subordinated to or made pari passu with any other Lien under section 364(d) of
the Bankruptcy Code or otherwise. In addition, the Secured Obligations shall
have priority in all of the Cases in accordance with the provisions of section
364(c)(l) of the Bankruptcy Code over all administrative expenses of the kind
specified in section 503(b) or 507(b) of the Bankruptcy Code ("Superpriority"),
subject only to the Carve-out. Except for the Carve-out, no costs or
administrative expenses which have been or may be incurred in any of the Cases,
in any conversion of the Borrower's and each Guarantor's Cases pursuant to
section 1112 of the Bankruptcy Code, or in any other proceeding related thereto,
and no priority Claims, including, without limitation, any other Superpriority
Claims, are or will be prior to or on a parity with the (i) Claims of the
Agents, the Lenders or the other Secured Parties against the Borrower and each
Guarantor arising out of the Secured Obligations or any provision of Bankruptcy
Order or (ii) Liens granted herein and in the other Loan Documents in and to the
Collateral.

                                  ARTICLE III

           Conditions Precedent to the Effectiveness of this Agreement
                       and to Loans and Letters of Credit

          Section 3.1 Conditions Precedent to the Effectiveness of this
Agreement

          This Agreement shall become effective on the date (the "Effective
Date") on which the Administrative Agent receives each of the following, each
dated the Effective Date (which shall also be the date the initial Revolving
Loans (if any) are made and the initial Letters of Credit (if any) are Issued
hereunder), unless otherwise indicated or agreed to by the Administrative Agent,
in form and substance satisfactory to the Administrative Agent and in sufficient
copies for each Lender:

          (a) Bankruptcy Court Order; First Day Orders. The Bankruptcy Court
shall have entered the Interim Order, certified by the Clerk of the Bankruptcy
Court as having been duly entered, and the Interim Order shall be in full force
and effect and shall not have been vacated, reversed, modified, amended or
stayed without the prior written consent of the Administrative Agent and the
Tranche A Lenders consisting of more than fifty percent (50%) in number and two
thirds in amount of the outstanding Tranche A Commitments. The First Day Orders
shall be satisfactory to the Administrative Agent and the Tranche A Lenders
consisting of more than fifty percent (50%) in number and two thirds in amount
of the outstanding Tranche A Commitments.

          (b) Certain Documents. The Administrative Agent shall have received on
the Effective Date each of the following, each dated the Effective Date unless
otherwise indicated or

                                      -58-



agreed to by the Administrative Agent, in form and substance satisfactory to the
Administrative Agent and each Lender and each of their respective counsel, and
in sufficient copies for each Lender:

               (i) this Agreement, duly executed and delivered by each of the
     Loan Parties and, for the account of each Lender requesting the same, a
     Revolving Credit Note or Revolving Credit Notes of the Borrower conforming
     to the requirements set forth herein;

               (ii) copies of UCC search reports as of a recent date listing all
     effective financing statements that name any Loan Party as debtor, together
     with copies of such financing statements;

               (iii) a favorable opinion of Skadden, Arps, Slate, Meagher & Flom
     (Illinois), counsel to the Loan Parties, in substantially the form of
     Exhibit F, addressed to the Administrative Agent and the Lenders and
     addressing such other matters as any Lender through the Administrative
     Agent may reasonably request;

               (iv) a copy of the articles or certificate of incorporation (or
     equivalent Constituent Document) of the Borrower and each Material
     Subsidiary, certified as of a recent date by the Secretary of State of the
     state of formation of such Person, together with certificates of such
     official attesting to the good standing of each such Person;

               (v) a certificate of the Secretary or an Assistant Secretary of
     each Loan Party certifying (A) the names and true signatures of each
     officer of such Loan Party who has been authorized to execute and deliver
     any Loan Document or other document required hereunder to be executed and
     delivered by or on behalf of such Loan Party, (B) the by-laws (or
     equivalent Constituent Document) of such Loan Party as in effect on the
     date of such certification, (C) the resolutions of such Loan Party's Board
     of Directors (or equivalent governing body) approving and authorizing the
     execution, delivery and performance of this Agreement and the other Loan
     Documents to which it is a party and (D) that there have been no changes in
     the certificate of incorporation (or equivalent Constituent Document) of
     such Loan Party from the certificate of incorporation (or equivalent
     Constituent Document) delivered pursuant to the immediately preceding
     clause;

               (vi) a certificate of a Responsible Officer of the Borrower to
     the effect that the condition set forth in Section 3.2(b) has been
     satisfied;

               (vii) evidence satisfactory to the Administrative Agent that the
     insurance policies required by Section 7.5 (Maintenance of Insurance) are
     in full force and effect, together with endorsements naming the
     Administrative Agent, on behalf of the Secured Parties, as an additional
     insured and/or loss payee under all insurance policies to be maintained
     with respect to the properties of each Loan Party; and

               (viii) such other certificates, documents, agreements and
     information respecting any Loan Party as any Lender through the
     Administrative Agent may reasonably request.

                                      -59-



          (c) Fees and Expenses Paid. There shall have been paid to the
Administrative Agent, for the account of the Administrative Agent, the
Collateral Monitoring Agent, the Arranger and the Lenders, as applicable, all
fees and expenses due and payable on or before the Effective Date.

          Section 3.2 Conditions Precedent to Each Loan and Letter of Credit

          The obligation of each Lender on any date (including the Effective
Date) to make any Revolving Loan and of each Issuer on any date (including the
Effective Date) to Issue any Letter of Credit is subject to the satisfaction of
all of the following conditions precedent:

          (a) Request for Borrowing or Issuance of Letter of Credit. With
respect to any Revolving Loan, the Administrative Agent shall have received a
duly executed Notice of Borrowing or, in the case of Swing Loans, a duly
executed Swing Loan Request, and with respect to any Issuance or amendment of
any Letter of Credit, the Administrative Agent and the Issuer shall have
received a duly executed Letter of Credit Request.

          (b) Representations and Warranties; No Defaults. The following
statements shall be true on the date of such Revolving Loan or Issuance, both
before and after giving effect thereto and, in the case of such Revolving Loan,
to the application of the proceeds therefrom:

               (i) The representations and warranties set forth in Article IV
     (Representations and Warranties) and in the other Loan Documents shall be
     true and correct in all material respects on and as of the Effective Date
     and shall be true and correct in all material respects on and as of any
     such date after the Effective Date with the same effect as though made on
     and as of such date, except to the extent such representations and
     warranties expressly relate to an earlier date;

               (ii) no Borrowing Base Deficiency shall exist; and

               (iii) no Immediate Default or Event of Default shall have
     occurred and be continuing.

          (c) Borrowing Base. The Borrower shall have delivered the Borrowing
Base Certificate required by clause (f) of Section 6.1 (Financial Statements and
Information). After giving effect to the Revolving Loans and/or Letters of
Credit requested to be made and/or Issued on any such date and the use of
proceeds thereof the Outstandings shall not exceed the Maximum Credit at such
time.

          (d) No Legal Impediments. The making of such Revolving Loans or the
Issuance of such Letter of Credit on such date does not violate any Requirement
of Law on the date of or immediately following such Revolving Loan or Issuance,
is not enjoined, temporarily, preliminarily or permanently.

          (e) Final Order. From and after the 45th day after the Effective Date,
the Bankruptcy Court shall have entered the Final Order, certified by the Clerk
of the Bankruptcy Court as having been duly entered, and the Final Order shall
be in full force and effect and shall not have been vacated, reversed, modified,
amended or stayed without the prior written consent of the Administrative Agent
and Tranche A Lenders consisting of more than fifty percent (50%) in number and
two thirds in amount of the then outstanding Tranche A Commitments.

                                      -60-



          (f) Additional Matters. The Administrative Agent shall have received
such additional documents, information and materials relating to the Borrowing
Base as any Lender, through the Administrative Agent, may reasonably request.

Each submission by the Borrower to the Administrative Agent of a Notice of
Borrowing or a Swing Loan Request and the acceptance by the Borrower of the
proceeds of each Revolving Loan requested therein, and each submission by the
Borrower to an Issuer of a Letter of Credit Request and the Issuance of each
Letter of Credit requested therein, shall be deemed to constitute a
representation and warranty by the Borrower as to the matters specified in
clause (b) above on the date of the making of such Revolving Loan or the
Issuance of such Letter of Credit as to the matters specified in clause (b)
above.

          Section 3.3 Determinations of Initial Borrowing Conditions

          For purposes of determining compliance with the conditions specified
in Section 3.1 (Conditions Precedent to the Effectiveness of this Agreement),
each Lender shall be deemed to have consented to, approved or accepted or be
satisfied with each document or other matter required thereunder to be consented
to or approved by or acceptable or satisfactory to the Lenders unless an officer
of the Administrative Agent responsible for the transactions contemplated by the
Loan Documents shall have received notice from such Lender prior to the initial
Borrowing hereunder specifying its objection thereto and such Lender shall not
have made available to the Administrative Agent such Lender's Ratable Portion of
such Borrowing.

                                   ARTICLE IV

                         REPRESENTATIONS AND WARRANTIES

          To induce the Lenders, the Issuers and the Administrative Agent to
enter into this Agreement, the Borrower represents and warrants to the Lenders,
the Issuers and the Administrative Agent that, on and as of the Effective Date
(after giving effect to the making of any Revolving Loan or other financial
accommodations to be made on the Effective Date) and on and as of each date as
required by Section 3.2(b)(i) (Conditions Precedent to Each Loan and Letter of
Credit):

          Section 4.1 Corporate Existence; Compliance with Law

          Each of the Borrower and its Material Subsidiaries (a) is duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (b) is duly qualified as a foreign corporation,
limited liability company or partnership (as applicable) and in good standing
under the laws of each jurisdiction where such qualification is necessary,
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect, (c) subject to the Bankruptcy Orders, has all requisite
power and authority and the legal right to own, pledge, mortgage and operate its
properties, to lease the property it operates under lease and to conduct its
business as now or currently proposed to be conducted, (d) is in compliance with
its Constituent Documents, (e) is in compliance with all applicable Requirements
of Law except where the failure to be in compliance would not in the aggregate
have a Material Adverse Effect and (f) has obtained all Permits from or by, has
made all necessary filings with, and has given all necessary notices to, each
Governmental Authority having jurisdiction, to the extent required for such
ownership, operation and conduct, except for Permits which can be obtained or
made by the

                                      -61-



taking of ministerial action to secure the grant or transfer thereof or the
failure to obtain or make would not in the aggregate have a Material Adverse
Effect.

          Section 4.2 Corporate Power; Authorization; Enforceable Obligations

          (a) Noncontravention. The execution, delivery and performance by each
Loan Party of the Loan Documents to which it is a party and the consummation of
the transactions contemplated thereby:

               (i) subject to the entry of the Bankruptcy Orders, are within
     such Loan Party's corporate, limited liability company, partnership or
     other powers;

               (ii) have been, or at the time of delivery thereof pursuant to
     Article III (Conditions Precedent to the Effectiveness of this Agreement
     and to Loans and Letters of Credit) will have been, duly authorized by all
     necessary corporate, limited liability company or partnership action,
     including the consent of shareholders, members or partners where required;

               (iii) subject to the entry of the Bankruptcy Orders, do not and
     will not (A) contravene any Loan Party's respective Constituent Documents,
     (B) violate any other Requirement of Law applicable to any Loan Party
     (including under its Constituent Documents or Regulations T, U and X of the
     Federal Reserve Board, as the same are from time to time in effect, and all
     official rulings and interpretations thereunder) or any Order of any
     Governmental Authority applicable to any Loan Party, (C) conflict with or
     result in the breach of, or constitute a default under, or result in or
     permit the termination or acceleration of, any material Contractual
     Obligation of any Loan Party entered into after the Petition Date or (D)
     result in the creation or imposition of any Lien or Encumbrance upon any
     property of any Loan Party, other than those in favor of the Secured
     Parties pursuant to the Loan Documents; and

               (iv) subject to the entry of the Bankruptcy Orders, do not
     require obtaining any Permit from or filing or registration with, any
     Governmental Authority or any other Person, other than those listed on
     Schedule 4.2 and which have been obtained or made, copies of which have
     been or will be delivered to the Administrative Agent pursuant to Section
     3.1 (Conditions Precedent to the Effectiveness of this Agreement) and each
     of which on the Effective Date will be in full force and effect and, with
     respect to the Collateral, filings required to perfect the Liens created by
     the Loan Documents.

          (b) Due Execution. Subject to entry of the Bankruptcy Orders, this
Agreement has been, and each of the other Loan Documents will have been upon
delivery thereof pursuant to the terms of this Agreement, duly executed and
delivered by each Loan Party party thereto. Subject to the entry of the
Bankruptcy Orders this Agreement is, and the other Loan Documents will be, when
delivered hereunder, the legal, valid and binding obligation of each Loan Party
party thereto, enforceable against such Loan Party in accordance with its terms.

          Section 4.3 Financial Statements

          (a) Accuracy of Financial Statements. The consolidated balance sheets
of the Borrower and its Subsidiaries as at December 31, 2000, and the related
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for the Fiscal Year

                                      -62-



then ended, certified by Ernst & Young, LLP, and the consolidated balance sheets
of the Borrower and its Subsidiaries as at December 31, 2001, and the related
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for the twelve (12) months then ended, certified
by a Responsible Officer of the Borrower, copies of which have been furnished to
each Lender, fairly present, subject, in the case of said balance sheets as at
December 31, 2001, and said statements of income, retained earnings and cash
flows for the twelve (12) months then ended, to the absence of footnote
disclosure and normal recurring year-end audit adjustments, the consolidated
financial condition of the Borrower and its Subsidiaries as at such dates and
the consolidated results of the operations of the Borrower and its Subsidiaries
for the period ended on such dates, all in conformity with GAAP.

          (b) No Additional Liability. Neither the Borrower nor any of its
Subsidiaries has any material obligation, contingent liability or liability for
taxes, long-term leases or unusual forward or long-term commitment that is not
reflected in the Financial Statements referred to in Section 4.3(a) (Financial
Statements) or in the Financial Statements delivered pursuant to clauses (a),
(b) or (c) of Section 6.1 (Financial Statements and Information) or in the notes
thereto or otherwise permitted by this Agreement.

          (c) Projections. The Projections have been prepared by the Borrower in
light of the past operations of its business and reflect projections for the
period beginning on January 1, 2002 and ending on December 31, 2003, on a
monthly basis for the Fiscal Year ending December 31, 2002 and quarterly for the
balance. The Projections are based upon estimates and assumptions stated
therein, all of which the Borrower believes to be reasonable and fair in light
of current conditions and current facts known to the Borrower and, as of the
Effective Date, reflect the Borrower's good faith and reasonable estimates of
the future financial performance of the Borrower and its Subsidiaries and of the
other information projected therein for the periods set forth therein.

          Section 4.4 Legal Proceedings

          There are no pending, or, to the knowledge of the Borrower,
threatened, unstayed Legal Proceedings that may affect the Borrower or any of
its Material Subsidiaries or their respective properties before any Governmental
Authority other than (i) the Cases and (ii) those that, if determined adversely
to any Loan Party, would not have a Material Adverse Effect. Subject to the
Bankruptcy Orders, the performance of any action by any Loan Party required or
contemplated by any Loan Document is not restrained or enjoined (either
temporarily, preliminarily or permanently).

          Section 4.5 Material Adverse Change

          Other than the filing of the Cases, since September 30, 2001, there
has been no Material Adverse Change and there have been no events or
developments that, in the aggregate, have had a Material Adverse Effect, other
than has been disclosed in the Borrower's form 10-Q for the period ended
September 30, 2001.

          Section 4.6 Litigation

          Other than the Cases, there are no pending or, to the knowledge of the
Borrower, threatened unstayed actions, investigations or proceedings affecting
the Borrower, or any of its Material Subsidiaries before any court, Governmental
Authority or arbitrator other than those

                                      -63-



that, in the aggregate, are not reasonably likely to be determined adversely to
any Loan Party and, if so determined, would not have a Material Adverse Effect.
Subject to the Bankruptcy Orders, the performance of any action by any Loan
Party required or contemplated by any Loan Document is not restrained or
enjoined (either temporarily, preliminarily or permanently).

          Section 4.7 Taxes

          (a) Payment of Taxes; Filing of Tax Returns. All federal, state,
material local and foreign income and material franchise and other material tax
returns, reports and statements (collectively, the "Tax Returns") required to be
filed by the Borrower or any of its Tax Affiliates have been filed with the
appropriate governmental agencies in all jurisdictions in which such Tax Returns
are required to be filed, all such Tax Returns are true and correct in all
material respects, and all taxes, charges and other impositions incurred after
the Petition Date have been paid prior to the date on which any fine, penalty,
interest, late charge or loss may be added thereto for non-payment thereof,
except where contested in good faith and by appropriate proceedings if adequate
reserves therefor have been established on the books of the Borrower or such Tax
Affiliate in conformity with GAAP. Except as set forth on Schedule 4.7, no
material Tax Return is under audit or examination by any Governmental Authority
and no notice of such an audit or examination or any assertion of any claim for
Taxes has been given or made by any Governmental Authority. Proper and accurate
amounts have been withheld by the Borrower and each of its Tax Affiliates from
their respective employees for all periods in full and complete compliance with
the tax, social security and unemployment withholding provisions of applicable
Requirements of Law and such withholdings have been timely paid to the
respective Governmental Authorities.

          (b) Tax-Sharing Agreements. None of the Borrower or any of its Tax
Affiliates has executed or filed with the IRS or any other Governmental
Authority any agreement or other document extending, or having the effect of
extending, the period for the filing of any Tax Return or the assessment or
collection of any charges except for agreements or documents relating to
extensions which are permitted or consented to by a Governmental Authority and
which are made in the ordinary course of business of the Borrower or any of its
Tax Affiliates. None of the Borrower or any of its Tax Affiliates has (i) any
obligation under any tax sharing agreement or other tax sharing arrangement
other than those of which the Administrative Agent has received a copy prior to
the date hereof or (ii) been a member of an affiliated, combined or unitary
group other than the group of which the Borrower (or its Tax Affiliate) is the
common parent.

          Section 4.8 Full Disclosure

          The information prepared or furnished by or on behalf of the Borrower
in connection with this Agreement or the consummation of the financing hereunder
taken as a whole does not contain any untrue statement of a material fact and
does not omit to state a material fact necessary to make the statements
contained therein or herein not misleading. All facts known to the Borrower that
are material to an understanding of the financial condition, business,
properties or prospects of the Borrower and its Material Subsidiaries taken as
one enterprise have been disclosed to the Lenders.

          Section 4.9 Margin Regulations

          The Borrower is not engaged in the business of extending credit for
the purpose of purchasing or carrying margin stock (within the meaning of
Regulation U of the Federal

                                      -64-



Reserve Board, as the same is from time to time in effect, and all official
rulings and interpretations thereunder), and no proceeds of any Borrowing will
be used to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock in contravention of
Regulation T, U or X of the Federal Reserve Board, as the same are from time to
time in effect, and all official rulings and interpretations thereunder.

          Section 4.10 Ownership of the Subsidiaries and Certain Assets

          Set forth on Schedule 4.10 (Subsidiaries) is a true, complete and
accurate list showing, as of the Effective Date, all Subsidiaries of the
Borrower and, as to each such Subsidiary, the jurisdiction of its formation, the
number of shares of each class of Stock authorized (if applicable), the number
outstanding on the Effective Date and the percentage of the outstanding shares
of each such class owned (directly or indirectly) by the Borrower and any other
Stock and Stock Equivalents of such Subsidiary. All of the outstanding Stock of
each Subsidiary of the Borrower has been, if such Subsidiary is a corporation,
validly issued, is fully paid and non-assessable and is owned by the Borrower or
a Subsidiary of the Borrower free and clear of all Liens and Encumbrances (other
than the Lien in favor of the Secured Parties created pursuant to this
Agreement). The Borrower does not own or hold, directly or indirectly, any
Securities of any Person other than such Subsidiaries and Investments permitted
by Section 8.3 (Investments in Other Persons). There are no Subsidiaries that
are debtors in the Cases other than the Guarantors on the Effective Date. No
Subsidiary of the Borrower other than Pellet and NSFC owns any material amount
of Accounts or Inventory.

          Section 4.11 ERISA

          (a) List of Employee Benefit Plans. Schedule 4.11 separately
identifies, as of the date hereof, all Title IV Plans, all Multiemployer Plans
and all of the employee benefit plans within the meaning of Section 3(3) of
ERISA to which the Borrower or any of its Material Subsidiaries has any
obligation or liability, contingent or otherwise. The Borrower has provided to
the Administrative Agent the current funding status of each Title IV Plan.

          (b) Tax Qualification. Each employee benefit plan of the Borrower or
any of its Material Subsidiaries which is intended to qualify under Section 401
of the Code does so qualify, and any trust created thereunder is exempt from tax
under the provisions of Section 501 of the Code, except where all such failures
have no Material Adverse Effect.

          (c) No Withdrawal Liability. Except to the extent set forth on
Schedule 4.11, none of the Borrower or any Subsidiary or any ERISA Affiliate
thereof would have any Withdrawal Liability as a result of a complete withdrawal
as of the date hereof from any Multiemployer Plan.

          Section 4.12 Liens

          There are no Liens of any nature whatsoever on any properties of any
Loan Party or any of its Material Subsidiaries other than those permitted by
Section 8.2 (Liens, Etc.). The Liens granted by the Loan Parties to the
Administrative Agent pursuant to the Loan Documents are fully perfected Liens in
and to the Collateral, subject to the priority set forth in Section 2.20
(Priority and Liens) and to the Bankruptcy Orders.

                                      -65-



          Section 4.13 No Burdensome Restrictions; No Defaults

          (a) Material Contracts. None of the Borrower or any of its Material
Subsidiaries (i) is a party to any Contractual Obligation entered into or
assumed after the Petition Date the compliance with which would have a Material
Adverse Effect or the performance of which by any thereof, either
unconditionally or upon the happening of an event, would result in the creation
of a Lien or other Encumbrance (other than a Lien or Encumbrance granted
pursuant to a Loan Document or otherwise permitted hereby) on the property or
assets of any thereof or (ii) is subject to any restriction under its
Constituent Documents that would have a Material Adverse Effect.

          (b) No Default under Contractual Obligations. None of the Borrower or
any of its Material Subsidiaries is in default under or with respect to any
Contractual Obligation entered into or assumed after the Petition Date owed by
it and, to the knowledge of the Borrower, no other party is in default under or
with respect to any Contractual Obligation owed to any Loan Party or to any
Material Subsidiary of a Loan Party, other than, in either case, (i) those
defaults which in the aggregate would not have a Material Adverse Effect or (ii)
a Default which is not an Immediate Default.

          (c) No Default. No Immediate Default or Event of Default has occurred
and is continuing.

          (d) No Adverse Requirement of Law. To the best knowledge of the
Borrower, there is no Requirement of Law applicable to any Loan Party the
compliance with which by such Loan Party would have a Material Adverse Effect.

          (e) Restrictions on Stock. No Material Subsidiary of the Borrower is
subject to any Contractual Obligation incurred or assumed after the Petition
Date restricting or limiting its ability to declare or make any dividend payment
or other distribution on account of any shares of any class of its Stock or its
ability to purchase, redeem, or otherwise acquire for value or make any payment
in respect of, any such shares or any shareholder rights, except pursuant to a
Loan Document.

          Section 4.14 No Other Ventures

          Except as set forth on Schedule 4.14 or as permitted by Section 8.3,
none of the Borrower or any of its Material Subsidiaries is engaged in any joint
venture or partnership with any other Person.

          Section 4.15 Investment Company Act

          None of the Borrower or any of its Material Subsidiaries is (a) an
"investment company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined in the
Investment Company Act of 1940, as amended or (b) a "holding company," or an
"affiliate" or a "holding company" or a "subsidiary company" of a "holding
company," as each such term is defined and used in the Public Utility Holding
Act of 1935, as amended.

                                      -66-



          Section 4.16 Insurance

          All policies of insurance of any kind or nature of the Borrower or any
of its Material Subsidiaries, including policies of life, fire, theft, product
liability, public liability, property damage, other casualty, employee fidelity,
workers' compensation and employee health and welfare insurance, are in full
force and effect and are of a nature and provide such coverage as is sufficient
and as is customarily carried by businesses of the size and character of such
Person. Since June 30, 2001, none of the Borrower or any of its Material
Subsidiaries has had any material policy of insurance terminated (other than at
its request).

          Section 4.17 Labor Matters

          (a) No Strikes. There are no strikes, work stoppages, slowdowns or
lockouts pending, threatened against or involving, the Borrower or any of its
Material Subsidiaries, other than those that in the aggregate would not have a
Material Adverse Effect.

          (b) No Claims or Complaints. There are no unfair labor practices or
unstayed grievances or complaints pending, or, to the best of the Borrower's
knowledge after due inquiry, threatened, against or involving the Borrower or
any of its Material Subsidiaries, nor are there any unstayed arbitrations or
grievances threatened involving the Borrower or any of its Material
Subsidiaries, other than those that, in the aggregate, if resolved adversely to
the Borrower or such Material Subsidiary, would not have a Material Adverse
Effect.

          Section 4.18 Use of Proceeds

          The proceeds of the Loans and the Letters of Credit are being used by
the Borrower solely to fund post-petition operating expenses of the Loan Parties
incurred in the ordinary course of business, to pay certain other costs and
expenses of administration of the Cases to be specified in writing to the
Administrative Agent (including by notice of application for Orders), for
working capital, capital expenditures and other general corporate purposes of
the Loan Parties not in contravention of any Requirement of Law or the Loan
Documents and as long as no acceleration of the Obligations, termination of the
Commitments or other exercise of remedies under Section 9.2 (Remedies) has
occurred and has not been rescinded, to pay certain Permitted Prepetition Claim
Payments. The Borrower shall use the entire amount of the proceeds of each Loan
advance in accordance with this Section 4.18 (Use of Proceeds); provided,
however, that nothing herein shall in any way prejudice or prevent the
Administrative Agent or the Lenders from objecting, for any reason, to any
requests, motions or applications made in the Bankruptcy Court, including any
applications for interim or final allowances of compensation for services
rendered or reimbursement of expenses incurred under sections 105(a), 330 or 331
of the Bankruptcy Code, by any party in interest, and provided, further, that
the Borrower shall not use the proceeds from any Loans or Letters of Credit for
any purpose that is prohibited under the Bankruptcy Code and shall not use the
proceeds from any Loans or Letters of Credit to contest any Pre-petition Credit
Agreement Claims or any Lien in respect thereof.

          Section 4.19 Environmental Matters

          (a) Environmental Laws. The operations of the Borrower and each of its
Material Subsidiaries and their respective tenants have been since the Petition
Date and are in compliance with all Environmental Laws, including obtaining and
complying with all required environmental, health and safety Permits, other than
non-compliances that in the aggregate have

                                      -67-



no Material Adverse Effect or have been disclosed in the Financial Statements
delivered pursuant to clause (a) of Section 4.3(a) (Financial Statements).

          (b) No Threatened Legal Proceeding. None of the Borrower or any of its
Material Subsidiaries or any Real Property currently or, to the best of the
knowledge of the Borrower after due inquiry, previously owned, operated or
leased by or for the Borrower or any of its Material Subsidiaries is subject to
any pending or, to the knowledge of the Borrower, threatened unstayed Claim,
Order, Contractual Obligation, notice of violation or unstayed potential
liability or is subject to any pending, or, to the Borrower's knowledge,
threatened, unstayed Legal Proceeding with respect to (i) any Environmental Law,
(ii) a Remedial Action or (iii) Environmental Liabilities and Costs arising from
a Release or threatened Release, other than those that in the aggregate have no
Material Adverse Effect.

          (c) Disposal Facilities. Except as set forth on Schedule 4.19, from
and after the Petition Date none of the Borrower or any of its Material
Subsidiaries maintains a treatment, storage or disposal facility requiring a
Permit under the Resource Conservation and Recovery Act, 42 U.S.C.ss. 6901 et
seq., as amended, the regulations thereunder or similar Requirement of Law.

          (d) No Undisclosed Information. There are no facts, circumstances or
conditions arising out of or relating to the operations or ownership of real
property owned or operated or leased by the Borrower or any of its Material
Subsidiaries that are not specifically included in the financial information
furnished to the Lenders other than those that in the aggregate have no Material
Adverse Affect.

          (e) No Environmental Lien. As of the date hereof, no Environmental
Lien has attached to any property of the Borrower or any of its Material
Subsidiaries.

          Section 4.20 Title; Real Property

          (a) Title. Each of the Borrower and its Material Subsidiaries has good
and marketable title to, or valid leasehold interests in, all Real Property and
good title to all material personal property purported to be owned by it,
including those reflected on the most recent Financial Statements delivered by
the Borrower, and none of such properties and assets is subject to any Lien or
other Encumbrance, except Liens permitted under Section 8.2 (Liens, Etc.).

          (b) Permits. All Permits required to have been issued or appropriate
to enable all Real Property owned or leased by the Borrower or any of its
Material Subsidiaries to be lawfully occupied and used for all of the purposes
for which they are currently occupied and used have been lawfully issued and are
in full force and effect, other than those that, in the aggregate, would not
have a Material Adverse Effect.

          (c) No Condemnation Proceeding. None of the Borrower or any of its
Material Subsidiaries has received any notice, or has any knowledge, of any
pending, threatened or contemplated condemnation proceeding or other Legal
Proceeding affecting any Real Property owned or leased by the Borrower or any of
its Material Subsidiaries or any part thereof, except those which, in the
aggregate, would not have a Material Adverse Effect.

          (d) No Damage. No portion of any real property owned or leased by the
Borrower or any of its Material Subsidiaries which is material to its business
has suffered any

                                      -68-



material damage by fire or other casualty loss which has not heretofore been
completely repaired and restored to its original condition.

          Section 4.21 Deposit Accounts

          Schedule 4.21 contains a complete and accurate list, as of the
Effective Date, of each Deposit Account of the Borrower and its Material
Subsidiaries, specifying the nature of such account and whether any proceeds of
Collateral are deposited therein.

          Section 4.22 Bankruptcy Orders

          The Bankruptcy Orders and the transactions contemplated hereby and
thereby, are in full force and effect and have not been vacated, reversed,
modified, amended or stayed without the prior written consent of the
Administrative Agent.

          Section 4.23 Pledged Collateral

          (a) Percentage of Pledged Interests. As of the Effective Date, the
Pledged Stock, Pledged Partnership Interests and Pledged LLC Interests pledged
hereunder by each Loan Party constitutes that percentage of the issued and
outstanding equity of all classes of each issuer thereof as set forth on
Schedule 4.23.

          (b) Fully Paid and Nonassessable. All of the Pledged Stock of Material
Subsidiaries have been duly and validly issued and are fully paid and
nonassessable.

          (c) Pledged Notes Valid and Binding. Each of the Pledged Notes
constitutes the legal, valid and binding obligation of the obligor with respect
thereto, enforceable in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, and
general equitable principles (whether considered in a proceeding in equity or at
law), except where the failure of such Pledged Notes to constitute the legal,
valid, and binding obligation of the obligor with respect thereto would not in
the aggregate have a Material Adverse Effect.

          (d) Pledged Interests. All Pledged Stock, Pledged Partnership
Interests and Pledged LLC Interests of each Loan Party as of the date hereof are
listed on Schedule 4.23.

          (e) Cerificated Pledged Securities. All Pledged Collateral consisting
of certificated securities or Instruments has been or will be delivered to the
Administrative Agent on or prior to the date required under this Agreement.

          (f) Uncertificated Pledged Securities. All Pledged Collateral held by
a Securities Intermediary in a Securities Account is in a Control Account.

          (g) No Other Pledged Collateral. Other than the Pledged Partnership
Interests and the Pledged LLC Interests that constitute General Intangibles,
there is no Pledged Collateral other than that represented by certificated
securities or Instruments in the possession of the Administrative Agent,
consisting of Financial Assets held in a Control Account or which is not
required to be delivered hereunder until a later date.

                                      -69-



          (h) Exclusive Control of Administrative Agent. No Person other than
the Administrative Agent has "control" (as defined in 8-106 of the UCC) over any
Investment Property of such Loan Party.

          Section 4.24 Intellectual Property

          (a) Ownership; Use. The Borrower and its Material Subsidiaries own or
license or otherwise have the right to use all licenses, permits, patents,
patent applications, trademarks, trademark applications, service marks, trade
names, copyrights, copyright applications, franchises, authorizations and other
intellectual property rights (including all Intellectual Property) that are
necessary for the operations of their respective businesses, without material
infringement upon or conflict with the rights of any other Person with respect
thereto, including all trade names associated with any private label brands of
the Borrower or any of its Material Subsidiaries. To the Borrower's knowledge,
no slogan or other advertising device, product, process, method, substance, part
or component, or other material now employed, or now contemplated to be
employed, by the Borrower or any of its Material Subsidiaries infringes upon or
conflicts with any rights owned by any other Person, and no material unstayed
claim or litigation regarding any of the foregoing is pending or threatened. No
Subsidiary of the Borrower other than a Material Subsidiary owns any
Intellectual Property that is material to its business or that of the Borrower.

          (b) Validity, Enforceability. On the date hereof, all Material
Intellectual Property owned by such Loan Party is valid, subsisting, unexpired
and enforceable, has not been adjudged invalid and has not been abandoned and
the use thereof in the business of such Loan Party does not infringe the
intellectual property rights of any other Person.

          (c) Licensing. None of the Material Intellectual Property owned by
such Loan Party is the subject of any licensing or franchise agreement pursuant
to which such Loan Party is the licensor or franchisor.

          (d) No Judgments. No unstayed holding, decision or judgment has been
rendered by any Governmental Authority which would limit, cancel or question the
validity of, or such Loan Party's rights in, any Material Intellectual Property.

          (e) Litigation. No unstayed action or proceeding seeking to limit,
cancel or question the validity of any Material Intellectual Property owned by
such Loan Party or such Loan Party's ownership interest therein is on the date
hereof pending or, to the knowledge of such Loan Party, threatened. There are no
Claims, judgments or settlements to be paid by such Loan Party relating to the
Material Intellectual Property.

                                      -70-



                                    ARTICLE V

                               FINANCIAL COVENANTS

          As long as any Obligation (other than contingent indemnification
Obligations) or Commitment remains outstanding, unless the Requisite Lenders
otherwise consent in writing, the Borrower agrees with the Lenders and the
Administrative Agent that:

          Section 5.1 Capital Expenditures

          The Borrower shall not permit any Capital Expenditures to be made
during each of the periods set forth below, to be in excess of the maximum
amount set forth below:

                                              Maximum
                                              Capital
Period                                      Expenditures
- ------                                      ------------

Fiscal Year ending December 31,2002         $ 66,000,000

Fiscal Year ending December 31,2003         $ 66,000,000

Fiscal Quarter ending March 31,2004         $ 22,000,000

provided, however, that unused amounts of Capital Expenditures in any Fiscal
Year may be carried forward to the next succeeding Fiscal Year to be used in
such Fiscal Year after all amounts permitted for use as Capital Expenditures in
such Fiscal Year have been expended.

                                   ARTICLE VI

                               REPORTING COVENANTS

          As long as any Obligation (other than contingent indemnification
Obligations) or Commitment remains outstanding, unless the Requisite Lenders
otherwise consent in writing, the Borrower agrees with the Lenders and the
Administrative Agent that:

          Section 6.1 Financial Statements and Information

          The Borrower shall furnish to the Administrative Agent (with
sufficient copies for each of the Lenders) the following Financial Statements
and information:

          (a) Monthly Reports. As soon as available and in any event within
thirty (30) days after the end of each fiscal month in each Fiscal Year (other
than any fiscal month ending on the last day of any Fiscal Quarter),
consolidated and consolidating unaudited balance sheets of the Borrower and its
Subsidiaries as of the close of such month and consolidated and consolidating
statements of income, retained earnings and cash flow of the Borrower and its
Subsidiaries for such month and that portion of the current Fiscal Year ending
as of the close of such month, in each case prepared in accordance with GAAP
(subject to the absence of footnote disclosure and normal recurring year-end
audit adjustments) together with (i) a schedule of all monies advanced or loaned
by the Borrower to a Guarantor, (ii) a statement by a Responsible Officer of the
Borrower that such financial information presents fairly in accordance with GAAP
(subject to the absence of footnote disclosure and normal recurring year-end
adjustments) the financial position,

                                      -71-



results of operations and statements of cash flow of the Borrower and its
Subsidiaries, on both a consolidated and consolidating basis, as at the end of
such month and for the period then ended and (iii) a certificate of such
Responsible Officer stating that no Default or Event of Default has occurred and
is continuing or, if a Default or an Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which the
Borrower proposes to take with respect thereto;

          (b) Quarterly Financial Statements and Compliance Certificates. As
soon as available and in any event within fifty (50) days after the end of each
Fiscal Quarter of each Fiscal Year, consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as of the end of such quarter and
consolidated and consolidating statements of income, retained earnings and cash
flow of the Borrower and its Subsidiaries for the period commencing at the end
of the previous Fiscal Year and ending with the end of such Fiscal Quarter, all
prepared in conformity with GAAP and certified by the Responsible Officer of the
Borrower and accompanied by a statement in reasonable detail (each, a
"Compliance Certificate") certifying compliance with the financial covenants set
forth in Article V (Financial Covenants) with (i) a statement by such
Responsible Officer that such financial information presents fairly in
accordance with GAAP (subject to the absence of footnote disclosure and normal
recurring year-end adjustments) the financial position, results of operations
and statements of cash flow of the Borrower and its Subsidiaries, on both a
consolidated and consolidating basis, as at the end of such Fiscal Quarter and
for the period then ended, (ii) a certificate of such Responsible Officer
stating that no Default or Event of Default has occurred and is continuing or,
if a Default or an Event of Default has occurred and is continuing, a statement
as to the nature thereof and the action which the Borrower proposes to take with
respect thereto and (iii) a written discussion and analysis by the management of
the Borrower of the financial statements furnished in respect of such Fiscal
Quarter;

          (c) Annual Audited Financial Statements. As soon as available and in
any event within ninety-five (95) days after the end of each Fiscal Year,
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such year and consolidated and consolidating
statements of income, retained earnings and cash flows of the Borrower and its
Subsidiaries for such Fiscal Year, all prepared in conformity with GAAP and
certified, in the case of such consolidated financial statements, without
qualification as to the scope of the audit by the Borrower's Accountants,
together with (i) a certificate of such accounting firm stating that in the
course of the regular audit of the business of the Borrower and its
Subsidiaries, which audit was conducted by such accounting firm in accordance
with generally accepted auditing standards, such accounting firm has obtained no
knowledge that a Default or Event of Default has occurred and is continuing or,
if in the opinion of such accounting firm a Default or Event of Default has
occurred and is continuing, a statement as to the nature thereof, (ii) a
schedule in form satisfactory to the Administrative Agent of the computations
used by such accountants in determining, as of the end of such Fiscal Year, the
Borrower's compliance with all financial covenants set forth in Article V
(Financial Covenants) and (iii) a written discussion and analysis by the
management of the Borrower of the financial statements furnished in respect of
such Fiscal Year;

          (d) Compliance Certificate. Together with each delivery of any
financial statement pursuant to clause (b) or (c) above, a certificate of a
Responsible Officer of the Borrower (each, a "Compliance Certificate") stating
that no Default or Event of Default has

                                      -72-



occurred and is continuing or, if a Default or an Event of Default has occurred
and is continuing, stating the nature thereof and the action the Borrower
proposes to take with respect thereto;

          (e) Annual Operating Plans. Not later than thirty (30) days after the
end of each Fiscal Year beginning with the Fiscal Year ending December 31, 2002,
an update to the Projections prepared in accordance with clause (c) of Section
4.3(c) (Financial Statements) and containing substantially the types of
financial information contained in the Projections and an annual operating plan
of the Borrower and its Subsidiaries for the following Fiscal Year, approved by
the Board of Directors of the Borrower, which shall include, without limitation,
a statement of all of the material assumptions on which such plan is based,
monthly balance sheets and a monthly budget for the following year and which
shall integrate sales, gross profits, operating expenses, operating profit and
cash flow projections all prepared on the same basis and in similar detail as
that on which operating results are reported (and in the case of cash flow
projections, representing management's good faith estimates of future financial
performance through the Fiscal Year ending after the Scheduled Termination Date
based on historical performance);

          (f) Borrowing Base Certificate. As soon as available and in any event
not later than (i) three (3) Business Days after the end of each week and (ii)
twenty (20) days after the end of each calendar month, a Borrowing Base
Certificate as of the end of such period executed by a Responsible Officer of
the Borrower, and setting forth: (1) Eligible Receivables as at the end of such
period, (2) Eligible Inventory as of the most recent month-end, and (3) the
amount of the Outside Processing Inventory Reserve; provided, however, that if
at any time Available Credit is fifty million Dollars ($50,000,000) or less the
Borrower shall deliver on each Business Day a Borrowing Base Certificate setting
forth Eligible Receivables as of the immediately preceding day until such time
as Available Credit has been greater than sixty five million Dollars
($65,00,000) for at least thirty (30) consecutive days; provided, further, that
the Administrative Agent, in its sole discretion, acting reasonably, may at any
time and from time to time require more or less frequent delivery of the
Borrowing Base Certificates;

          (g) Changes in Bank Accounts. (i) Prior written notice of any closing
or other change in the existing Deposit Accounts of the Borrower or Pellet (or
the establishment of any new Deposit Account by the Borrower or Pellet) or any
agreement relating thereto if such Deposit Account is required to be subject to
a Deposit Account Control Agreement, and (ii) notice within 30 days of any
closing change in or establishment of any other Deposit Account not required to
be subject to a Deposit Account Control Agreement;

          (h) Additional Information. Promptly, and in any event within five (5)
Business Days of such request, from time to time, such other information
regarding the operations, including information regarding specific product
categories and lines of business of the Borrower and its Subsidiaries, the
business affairs and financial condition (including financial controls and
accounting practices) of the Borrower or any of its Subsidiaries or compliance
by any Loan Party with the terms of any Loan Document, as the Administrative
Agent or any Lender may reasonably request; and

          (i) Revised Financial Projections. As soon as available, and in any
event not later than February 28, 2003, and containing substantially the types
of financial information contained in the Projections, forecasts prepared by
management of the Borrower for each fiscal month in such Fiscal Year and for
each Fiscal Year thereafter through and including the Fiscal Year ending after
the Scheduled Termination Date including (i) a projected year-end consolidated

                                      -73-



balance sheet and income statement and statement of cash flows and (ii) a
statement of all the material assumptions on which such forecasts are based.

          Section 6.2 Default Notices

          Promptly, and in any event within five (5) Business Days after any
Responsible Officer of the Borrower becomes aware of any occurrence which it
knows to constitute any Default or Event of Default, the Borrower shall deliver
to the Administrative Agent a certificate of a Responsible Officer setting forth
the details of such occurrence and the action which the Borrower is taking or
proposes to take with respect thereto.

          Section 6.3 ERISA Matters

          The Borrower shall furnish the Administrative Agent (with sufficient
copies for each of the Lenders):

          (a) ERISA Event. Promptly and in any event within thirty (30) days
after the Borrower, any of its Subsidiaries or any ERISA Affiliate knows or has
reason to know that any ERISA Event has occurred, a written statement of a
Responsible Officer of the Borrower describing such ERISA Event and the action,
if any, that the Borrower, its Subsidiaries or its ERISA Affiliates propose to
take with respect thereto and a copy of any notice filed with any Governmental
Authority pertaining thereto;

          (b) Request for Minimum Funding Waiver. Promptly and in any event
within ten (10) days after the Borrower, any of its Subsidiaries or any ERISA
Affiliate knows or has reason to know that a request for a minimum funding
waiver under Section 412 of the Code has been filed with respect to any Title IV
Plan or Multiemployer Plan, a written statement of a Responsible Officer of the
Borrower describing such waiver request and the action, if any, which the
Borrower, its Subsidiaries or its ERISA Affiliates propose to take with respect
thereto and a copy of any notice filed with any Governmental Authority
pertaining thereto; and

          (c) Notice of Intent to Terminate. Promptly and in any event within
ten (10) days after the Borrower, any of its Subsidiaries or any ERISA Affiliate
files a notice of intent to terminate any Title IV Plan, if such termination
would require material additional contributions in order to be considered a
standard termination within the meaning of Section 4041(b) of ERISA, a copy of
each notice.

          Section 6.4 Litigation

          Promptly, and in any event within five (5) Business Days, after the
commencement thereof, the Borrower shall give the Administrative Agent written
notice of the commencement of any unstayed Legal Proceeding (other than the
Cases) that, if adversely determined, would have a Material Adverse Effect. Not
later than fifty (50) days after the end of each Fiscal Quarter, the Borrower
shall deliver to the Administrative Agent a written report describing any Legal
Proceeding (other than the Cases) that may affect the Borrower or any of its
Subsidiaries and that, in the reasonable judgment of the Borrower, exposes the
Borrower or such Subsidiary to any administrative claim or post-petition
liability in an amount aggregating two million Dollars ($2,000,000) or more.

                                      -74-



          Section 6.5 SEC Filings; Press Releases

          Promptly, and in any event within five (5) Business Days, after the
sending or filing thereof, the Borrower shall send the Administrative Agent
copies of (a) all reports which the Borrower sends to its security holders
generally or to the holders of Securities issued under the Indenture or any
other material indenture of the Borrower, (b) all reports and registration
statements which the Borrower or any Guarantor files with the Securities and
Exchange Commission or any national or foreign securities exchange or the
National Association of Securities Dealers, Inc., (c) all press releases and (d)
all other statements concerning material changes or developments in the business
of such Loan Party made available by any Loan Party to the public.

          Section 6.6 Labor Relations

          Promptly, and in any event within five (5) Business Days, after
becoming aware of the same, the Borrower shall give the Administrative Agent
written notice of (a) any material labor dispute to which the Borrower of any of
its Material Subsidiaries is or may become a party, including any strikes,
lockouts or other unstayed disputes relating to any of such Person's plants and
other facilities and (b) any Worker Adjustment and Retraining Notification Act
or related unstayed liability incurred with respect to the closing of any plant
or other facility of any of such Person.

          Section 6.7 Insurance

          As soon as is practicable and in any event within thirty (30) days
prior to the expiration or termination of any insurance coverage for which the
Borrower is required to name the Administrative Agent as additional insured or
loss payee hereunder or under any Loan Document, the Borrower shall furnish the
Administrative Agent (in sufficient copies for each of the Lenders) a
confirmation executed by the insurance company or the Borrower's insurance
broker and in form and substance satisfactory to the Administrative Agent that
such coverage has been continued.

          Section 6.8 Environmental Matters

          The Borrower shall provide the Administrative Agent promptly and in
any event within ten (10) days of the Borrower or any of its Material
Subsidiaries learning of any of the following, written notice of each of the
following:

          (a) Environmental Lien. The receipt by any Loan Party of notification
that any real or personal property of such Loan Party is or is reasonably likely
to be subject to any Environmental Lien arising after the Petition Date;

          (b) Notice of Violation of an Environmental Law. The receipt after the
Petition Date by any Loan Party of any notice of violation of or potential
liability under, or knowledge by such Loan Party that there exists a condition
that could reasonably be expected to result in a violation of or liability
under, any Environmental Law, except for violations and liabilities the
consequence of which, in the aggregate, would not be reasonably likely to
subject the Loan Parties collectively to Environmental Liabilities and Costs
that have a Material Adverse Effect;

                                      -75-



          (c) Commencement of a Legal Proceeding. The commencement after the
Petition Date of any Legal Proceeding alleging a violation of or liability under
any Environmental Law, other than those the consequences of which in the
aggregate would have no reasonable likelihood of subjecting the Loan Parties
collectively to Environmental Liabilities and Costs that have a Material Adverse
Effect;

          (d) Property Acquisition. Any proposed acquisition after the Petition
Date of Securities, assets or Real Property or any proposed leasing after the
Petition Date of property or any other action after the Petition Date by any
Loan Party other than those the consequences of which in the aggregate have
reasonable likelihood of subjecting the Loan Parties collectively to
Environmental Liabilities and Costs that have a Material Adverse Effect;

          (e) Additional Permits; Additional Capital Improvements. Any proposed
action by any Loan Party or any change in Environmental Laws that, in the
aggregate, have a reasonable likelihood of requiring the Loan Parties to obtain
after the Petition Date additional environmental, health or safety Permits or
make additional capital improvements after the Petition Date to obtain
compliance with Environmental Laws that in the aggregate subject the Loan
Parties to additional Environmental Liabilities and Costs that have a Material
Adverse Effect; and

          (f) Status Report. Upon written request by any Lender through the
Administrative Agent, a report providing an update of the status of any
environmental, health or safety compliance, hazard or liability issue identified
in any notice or report delivered pursuant to this Agreement.

          Section 6.9 Customer Contracts

          Promptly, and in any event within five (5) Business Days, after a
Responsible Officer of the Borrower becomes aware of the same, the Borrower and
each of its Subsidiaries shall give the Administrative Agent written notice of
any cancellation, termination or loss prior to the Termination Date of any
material Contractual Obligation or other customer arrangement of the Borrower or
any of its Material Subsidiaries if such cancellation, termination or loss could
have a Material Adverse Effect.

          Section 6.10 Bankruptcy Court.

          The Borrower will use its commercially reasonable best efforts to
obtain the approval of the Bankruptcy Court of this Agreement and the other Loan
Documents and deliver to the Administrative Agent and the Administrative Agent's
counsel all material pleadings, motions and other documents filed on behalf of
all of the Loan Parties with the Bankruptcy Court.

          Section 6.11 Other Information

          The Borrower shall provide the Administrative Agent or, as the case
may be, any Lender with such other information respecting the business,
properties, condition, financial or otherwise, or operations of the Borrower or
any of its Subsidiaries as the Administrative Agent or any Lender through the
Administrative Agent may, from time to time, reasonably request.

                                   ARTICLE VII

                              AFFIRMATIVE COVENANTS

                                      -76-



          As long as any Obligation (other than contingent indemnification
Obligations) or Commitment remains outstanding, unless the Requisite Lenders
otherwise consent in writing, the Borrower agrees with the Lenders and the
Administrative Agent that:

          Section 7.1 Preservation of Corporate Existence, Etc.

          The Borrower shall, and shall cause each of its Material Subsidiaries
to, preserve and maintain, its corporate existence, material rights (charter and
statutory) and material franchises, except as permitted by Section 8.6
(Restriction on Fundamental Changes).

          Section 7.2 Compliance with Law, Etc.

          The Borrower shall, and shall cause each of its Material Subsidiaries
to, comply in all material respects with all applicable Requirements of Law,
Contractual Obligations (other than Contractual Obligations that have not been
assumed by the Borrower or such Material Subsidiary and Contractual Obligations
entered into prior to the Petition Date) and Permits, except where the failure
so to comply would not, in the aggregate, have a Material Adverse Effect.

          Section 7.3 Conduct of Business

          The Borrower shall, and shall cause each of its Material Subsidiaries
to conduct its business in the ordinary course and use its reasonable efforts,
in the ordinary course, to preserve its business and the goodwill and business
of the customers, advertisers, suppliers and others having business relations
with the Borrower or any of its Material Subsidiaries; provided, however, that
the Borrower shall not be deemed in default of this Section 7.3 if all such
failures to comply in the aggregate would have no Material Adverse Effect.

          Section 7.4 Payment of Taxes, Etc.

          The Borrower shall, and shall cause each of its Material Subsidiaries
to, pay and discharge before the same shall become delinquent, all lawful
claims, taxes, assessments, charges and levies of a Governmental Authority
arising after the Petition Date or ordered to be paid by the Bankruptcy Court,
except where contested in good faith, by proper proceedings and adequate
reserves therefor have been established on the books of the Borrower or the
appropriate Subsidiary in conformity with GAAP.

          Section 7.5 Maintenance of Insurance

          The Borrower shall maintain, and cause to be maintained for each of
its Material Subsidiaries insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is usually
carried by companies engaged in similar businesses and owning similar properties
in the same general areas in which the Borrower or such Material Subsidiary
operates and, in any event, all insurance required by any Loan Documents.

          Section 7.6 Access

          The Borrower shall from time to time, permit the Administrative Agent
and any of its agents or representatives, within five (5) Business Days after
written notification of the same (except that during the continuance of an Event
of Default, no such notice or rescheduling

                                      -77-



shall be required), on any Business Day (provided that so long as the no Event
of Default is continuing, if the Business Day appointed by the Administrative
Agent for such access presents substantial hardship to the Borrower, its agents
and representatives, the Borrower and the Administrative Agent shall use
reasonable efforts to reschedule for another Business Day), to (a) examine and
make copies of and abstracts from the records and books of account of the
Borrower and each of its Subsidiaries, (b) visit the properties of the Borrower
and each of its Subsidiaries, (c) discuss the affairs, finances and accounts of
the Borrower and each of its Subsidiaries with any of their respective officers
or directors and (d) communicate directly with the Borrower's Accountants and
any other certified public accountants. The Borrower shall authorize its
certified public accountants (including the Borrower's Accountants) to disclose
to the Administrative Agent and any Lender any and all financial statements and
other information of any kind, as the Administrative Agent or any Lender
reasonably requests from the Borrower and that such accountants may have with
respect to the business, financial condition, results of operations or other
affairs of the Borrower or any of its Subsidiaries.

          Section 7.7 Keeping of Books

          The Borrower shall, and shall cause each of its Material Subsidiaries
to, keep, proper books of record and account, in which full and correct entries
shall be made consistent with GAAP of all financial transactions and the assets
and business of the Borrower and each such Material Subsidiary.

          Section 7.8 Maintenance of Properties, Etc.

          The Borrower shall, and shall cause each of its Material Subsidiaries
to, maintain and preserve (a) in good working order and condition all of its
properties that are necessary in the conduct of its business, (b) all rights,
permits, licenses, approvals and privileges (including all Permits) necessary in
the conduct of its business and (c) all registered patents, trademarks, trade
names, copyrights and service marks with respect to its business except where
failure to so maintain and preserve the items set forth in clauses (a) through
(c) above would not, in the aggregate, have a Material Adverse Effect.

          Section 7.9 Maintenance of Contractual Obligations, Etc.

          The Borrower shall, and shall cause each of its Material Subsidiaries
to, perform, observe and comply with each of the covenants, conditions and
agreements set forth under each Contractual Obligation expressly assumed in the
Cases or entered into after the Petition Date under which it or any of its
Material Subsidiaries may be bound (including to pay all rent and other charges
payable under any lease and all Indebtedness and other obligations as the same
become due) and do all things necessary to preserve and to keep unimpaired any
rights the Borrower or any of its Material Subsidiaries may have under any
Contractual Obligation expressly assumed in the Cases or entered into after the
Petition Date; provided, however, that the Borrower shall not be deemed in
default of this Section 7.9 if all such failures in the aggregate would have no
Material Adverse Effect.

          Section 7.10 Application of Proceeds

          The Borrower shall use the entire amount of the proceeds of the Loans
only as provided in Section 4.18 (Use of Proceeds).

                                      -78-



          Section 7.11 Fiscal Year

          The Borrower shall, and shall cause each of its Material Subsidiaries
to, maintain as its fiscal year the twelve month period ending on the
thirty-first (31st) of December of each year.

          Section 7.12 Environmental

          The Borrower shall, and shall cause any Material Subsidiary to, comply
in all material respects with Environmental Laws and, without limiting the
foregoing, the Borrower shall, at its sole cost and expense, upon receipt of any
notification or otherwise obtaining knowledge of any Release or other event that
has any reasonable likelihood of the Borrower and its Material Subsidiaries
incurring Environmental Liabilities and Costs that have a Material Adverse
Effect, promptly advise the Administrative Agent thereof and (a) if requested by
the Administrative Agent, conduct or pay for consultants to conduct, tests or
assessments of environmental conditions at such operations or properties,
including the investigation and testing of subsurface conditions and (b) take
such Remedial Action, make such investigation or take such other action as
required by Environmental Laws or other Requirements of Law or as any
Governmental Authority requires or as is appropriate and consistent with good
business practice to address the Release or event.

          Section 7.13 Borrowing Base Determination

          (a) Appraisals and Investigations. The Borrower shall conduct, or
shall cause to be conducted, at its expense, and upon request of the Collateral
Monitoring Agent, and present to the Collateral Monitoring Agent for approval,
such appraisals, investigations and reviews as the Collateral Monitoring Agent
shall request for the purpose of determining the Borrowing Base, all upon notice
and at such times during normal business hours and as often as may be reasonably
requested. The Borrower shall furnish to the Collateral Monitoring Agent any
information which the Collateral Monitoring Agent may reasonably request
regarding the determination and calculation of the Borrowing Base including
correct and complete copies of any invoices, underlying agreements, instruments
or other documents and the identity of all Account Debtors in respect of
Accounts referred to therein. At any time and from time to time, the Borrower
and Pellet shall furnish to the Collateral Monitoring Agent any additional
information which the Collateral Monitoring Agent may reasonably request
regarding the determination and calculation of the Borrowing Base, including
correct and complete copies of any invoices, underlying agreements, instruments
or other documents and the identity of all Account Debtors in respect of
Accounts referred to therein.

          (b) Sharp Decreases in Borrowing Base. The Borrower shall promptly
notify each of the Collateral Monitoring Agent and Administrative Agent in
writing in the event that at any time the Borrower or any of its Material
Subsidiaries receives or otherwise gains knowledge that (i) the Borrowing Base
is less than ninety (90%) of the Borrowing Base reflected in the most recent
Borrowing Base Certificate delivered pursuant to Section 6.1(f) (Financial
Statements) or (ii) a Borrowing Base Deficiency exists as a result of a decrease
in the Borrowing Base (in which case such notice shall include the amount of
such deficiency).

          (c) Verifications. The Collateral Monitoring Agent may, at the
Borrower's sole cost and expense, make physical or other forms of verifications
of the Collateral at any time and in any manner and through any medium that the
Collateral Monitoring Agent considers advisable,

                                      -79-



and the Borrower and the Guarantors shall furnish, or shall cause to be
furnished, all such assistance and information as the Collateral Monitoring
Agent may require in connection therewith; provided that any verification which
                                           --------
involves contact or communication with a customer of any Loan Party shall be
done through an independent accounting or like firm in accordance with the
Collateral Monitoring Agent's customary monitoring practices.

          Section 7.14 Control Accounts; Blocked Accounts

          (a) Maintenance of Control Accounts and Blocked Accounts. The Borrower
will (i) deposit in a Blocked Account all cash and all Proceeds received by any
Loan Party (other than the amounts referenced in clause (i), (ii) and (iii) of
the definition of "Net Cash Proceeds" which are paid directly to the Person
entitled to receive such amounts) except that cash which is used to make
Investments permitted by the this Agreement may be deposited in a Control
Account, (ii) not establish or maintain, or permit any other Loan Party to
establish or maintain, any Securities Account that is not a Control Account and
(iii) not establish or maintain, or permit any other Loan Party to establish or
maintain, any account with any financial or other institution in which Proceeds
are deposited other than with a Deposit Account Bank, a Lender or an Affiliate
of a Lender; provided, however, that any Loan Party may (x) maintain payroll,
withholding tax and other fiduciary accounts (including trust, escrow and other
ordinary course performance or collateral accounts) and (y) maintain other
accounts so long as the aggregate balance in all such accounts does not exceed
two million Dollars ($2,000,000), and the accounts described in clauses (x) and
(y) above need not be Blocked Accounts.

          (b) Instruction of Account Debtors. The Borrower shall instruct each
Account Debtor or other Person obligated to make a payment to any Loan Party to
make payment, or to continue to make payment, as the case may be, to a Blocked
Account, except for the amounts referenced in clauses (i), (ii) and (iii) of the
definition of "Net Cash Proceeds" which are paid directly to the Person entitled
to receive such amounts.

          (c) Termination. In the event (i) any Loan Party or any Approved
Securities Intermediary or Deposit Account Bank shall, after the date hereof,
terminate an agreement with respect to the maintenance of a Control Account or
Blocked Account for any reason, (ii) the Administrative Agent shall demand such
termination as a result of the failure of an Approved Securities Intermediary or
Deposit Account Bank to comply with the terms of the applicable Control Account
Agreement or Deposit Account Control Agreement, or (iii) the Administrative
Agent determines in its sole discretion that the financial condition of an
Approved Securities Intermediary or Deposit Account Bank, as the case may be,
has materially deteriorated, such Loan Party agrees to notify all of its
obligors that were making payments to such terminated Control Account or Blocked
Account, as the case may be, to make all future payments to another Control
Account or Blocked Account, as the case may be, as may be mutually agreed by the
Borrower and the Administrative Agent, or if no agreement is reached, to a
Control Account or Blocked Account maintained with the Administrative Agent or
its Affiliates.

          Section 7.15 Accounting Changes

          The Borrower shall disclose in writing to the Administrative Agent,
promptly after such change, any change in the accounting treatment, reporting
practices or tax reporting treatment of the Borrower or any of its Material
Subsidiaries.

                                      -80-



          Section 7.16 Field Examination

          The Borrower and each of the Guarantors shall cooperate with the
Collateral Monitoring Agent in the conduct of a Field Examination of the
Borrower and the Guarantors conducted by the Collateral Monitoring Agent's
internal auditors following the Effective Date.

          Section 7.17 Post Closing Matters

          (a) Share Certificates. No later than fifteen (15) days after the
Effective Date or such later date as may be consented to by the Administrative
Agent, for all Material Subsidiaries, and no later than ninety (90) days after
the Effective Date or such later date as may be consented to by the
Administrative Agent for all other Subsidiaries, the Borrower shall have
delivered to the Administrative Agent share certificates representing all
certified Stock being pledged pursuant to this Agreement and stock powers for
such share certificates executed in blank., as the Administrative Agent may
require.

          (b) Pledged Notes. No later than ninety (90) days after the Effective
Date or such later date as may be consented to by the Administrative Agent, the
Borrower shall have delivered to the Administrative Agent all instruments
representing such of the Notes pledged pursuant to this Agreement as shall be
requested by the Administrative Agent.

          (c) Control Account Agreements. No later than thirty (30) days after
the Effective Date or such later date as may be consented to by the
Administrative Agent, the Administrative Agent shall have received Control
Account Agreements from (i) all securities intermediaries with respect to all
Securities Accounts and securities entitlements of each Loan Party, and (ii)
except with respect to the futures commission agents and clearing houses set
forth in Schedule 7.17, all futures commission agents and clearing houses with
respect to all commodities contracts and commodities accounts held by each Loan
Party.

          (d) Deposit Account Control Agreements. No later than thirty (30) days
after the Effective Date or such later date as may be consented to by the
Administrative Agent, the Administrative Agent or its Affiliates shall have
assumed the cash management system currently in existence in connection with the
Pre-petition Credit Agreement; provided, however, that in the event that after
the expiration of such thirty (30) day period such cash management system shall
not have been so assumed, the Borrower shall use commercially reasonable efforts
to assist the Administrative Agent to establish new Blocked Accounts in lieu of
such assumption. In addition, no later than fifteen (15) days after the
Effective Date, the Borrower shall have delivered to the Administrative Agent a
certified copy of the Borrower's irrevocable instruction to Comerica Bank, N.A.
to wire to the Concentration Account all amounts at any time deposited in the
collection accounts maintained by the Borrower or any Guarantor with Comerica
Bank, N.A.

          (e) Mortgages. To the extent Real Property of the Borrower or any
Guarantor is not the subject of a mortgage Lien (other than Liens created
hereunder and under Bankruptcy Orders), the Loan Parties will use their
commercially reasonable efforts to deliver to the Administrative Agent such
documents relating to the filing of a mortgage for the benefit of the Lenders in
respect of such property as the Administrative Agent may request.

                                      -81-



                                  ARTICLE VIII

                               NEGATIVE COVENANTS

          As long as any Obligation (other than contingent indemnification
Obligations) or Commitment remains outstanding and unless the Requisite Lenders
otherwise consent in writing, the Borrower agrees with the Lenders and the
Administrative Agent that:

          Section 8.1 Indebtedness

          None of the Borrower or any Guarantor shall, directly or indirectly
create, incur, assume, maintain or otherwise become or remain directly or
indirectly liable with respect to any Indebtedness except:

          (a) the Secured Obligations;

          (b) Indebtedness existing on the Petition Date;

          (c) Guaranty Obligations incurred by the Borrower or a Guarantor in
respect of Indebtedness of the Borrower or a Guarantor otherwise permitted by
this Section 8.1;

          (d) Capital Lease Obligations and purchase money Indebtedness incurred
by the Borrower or any Guarantor subsequent to the Petition Date to finance the
acquisition of fixed assets in an aggregate outstanding principal amount not to
exceed at any time the Fair Market Value of such fixed assets and, in the
aggregate for all such Capital Lease Obligations and Indebtedness, twenty
million Dollars ($20,000,000) through the Fiscal Year ending December 31, 2002,
forty million Dollars ($40,000,000) through the Fiscal Year ending December 31,
2003, and fifty million Dollars ($50,000,000) through the Fiscal Quarter ending
March 31, 2004; provided, however, that, in the case of Capital Lease
Obligations, the Capital Expenditure related thereto is otherwise permitted by
Section 5.1 (Capital Expenditures); and provided, further, that, if the
corresponding Capital Lease is the result of the conversion of an operating
lease of the Borrower existing as of the Effective Date and the present value of
all payments due under the corresponding Capital Lease shall not be more than
one hundred and five percent (105%) of the present value of all payments due or
that will become due under such operating lease;

          (e) Renewals, extensions, refinancings and refundings of Indebtedness
permitted by clause (d) above; provided, however, that any such renewal
extension, refinancing or refunding is in an aggregate principal amount not
greater than the principal amount of, and is on terms no less favorable to the
Borrower or such Subsidiary, including as to weighted average maturity, than the
Indebtedness being renewed, extended, refinanced or refunded;

          (f) Indebtedness arising from intercompany loans (i) from the Borrower
to a Guarantor or from any Guarantor to the Borrower or from any Guarantor to
any other Guarantor, and (ii) from the Borrower or any Guarantor to any
Subsidiary of the Borrower other than a Guarantor; provided, however, with
respect to clause (ii), that the Investment in the intercompany loan to such
Subsidiary is permitted under Section 8.3 (Investments in Other Persons);

          (g) Indebtedness arising under any performance or surety bond entered
into in the ordinary course of business;

                                      -82-



          (h) Indebtedness with respect to Hedging Contracts to the extent such
Hedging Contracts are not prohibited by Section 8.14 (No Speculative
Transactions); and

          (i) Indebtedness owed to the Administrative Agent or any Lender or any
of their respective Affiliates in respect of any overdrafts and related
liabilities arising from treasury, depository and cash management services or in
connection with any automated clearing house transfers of funds.

          Section 8.2 Liens, Etc.

          None of the Borrower or any Guarantor shall create or suffer to exist,
any Lien or other Encumbrance upon, or with respect to, any of its properties or
assets, whether now owned or hereafter acquired, or assign, or permit any of its
Subsidiaries which is a Guarantor to assign, any right to receive income, except
for:

          (a) Liens created pursuant to the Loan Documents (including Liens in
favor of any Deposit Account Bank provided for in any Deposit Account Control
Agreement or in favor of any Approved Securities Intermediary provided for in
any Control Account Agreement);

          (b) Liens existing on the Petition Date;

          (c) Customary Permitted Liens of the Borrower and its Subsidiaries;

          (d) Liens granted by the Borrower or any Subsidiary of the Borrower
(including the interest of a lessor under a Capital Lease and Liens to which any
property is subject at the time of the Borrower's or such Subsidiary's
acquisition thereof) securing Indebtedness permitted under clause (d) of Section
8.1 (Indebtedness) and limited to the property purchased with the proceeds of
such purchase money Indebtedness or subject to such Capital Lease;

          (e) Liens securing the renewal, extension, refinancing or refunding of
any Indebtedness secured by any Lien permitted by clause (b), (c) or (d) above
without any change in the assets subject to such Lien;

          (f) Liens in favor of lessors securing operating leases; and

          (g) adequate protection Liens approved by the Bankruptcy Court and not
inconsistent with the Bankruptcy Orders on any asset which replaces any asset
that was, on the Petition Date, subject to a valid, enforceable, perfected and
nonavoidable Lien, provided such Lien is in favor of the Person holding such
pre-petition Lien and secures a Claim in an amount not exceeding the Claim
secured by such pre-petition Lien.

          Section 8.3 Investments in Other Persons

          None of the Borrower or any Guarantor shall, directly or indirectly
make or maintain any Investment, except:

          (a) Investments existing on the date of this Agreement and disclosed
on Schedule 8.3;

                                      -83-



          (b) Investments in cash and Cash Equivalents held in a Cash Collateral
Account or a Control Account with respect to which the Administrative Agent for
the benefit of the Secured Parties has a first priority perfected Lien or in the
other accounts permitted to be maintained pursuant to this Agreement;

          (c) Investments in accounts, contract rights and chattel paper (each
as defined in the UCC), notes receivable and similar items arising or acquired
from the sale of Inventory in the ordinary course of business consistent with
the past practice of the Borrower and its Subsidiaries or a new practice
approved in writing by the Administrative Agent (such approval not to be
unreasonably withheld);

          (d) Investments received in settlement of amounts due to the Borrower
or any Subsidiary of the Borrower effected in the ordinary course of business
(including as a result of transfers permitted by Section 8.4 (Sale of Assets);

          (e) Investments by (i) the Borrower in Pellet, (ii) any Guarantor in
the Borrower or any other Guarantor, and (iii) the Borrower or Pellet in any
other Guarantor; provided, however, that the aggregate outstanding amount of
Investments permitted under clause (iii) above shall not exceed one million
Dollars ($1,000,000) at any time;

          (f) loans or advances to employees of the Borrower or any of its
Subsidiaries in the ordinary course of business, which loans and advances shall
not in the aggregate exceed the aggregate outstanding principal amount of two
million Dollars ($2,000,000) at any time;

          (g) Investments in respect of Indebtedness permitted by clause (f)
Section 8.1 (Indebtedness);

          (h) Investments in joint ventures made after the Petition Date not in
any case to exceed the aggregate amount of seven million five hundred thousand
Dollars ($7,500,000) at any time in the Fiscal Year ending December 31, 2002,
and otherwise shall not exceed ten million Dollars ($10,000,000) in the
aggregate at any time; and

          (i) Investments in Delray Connecting Railway Company ("Delray") in the
form of Indebtedness in an amount not to exceed $2,000,000 outstanding from time
to time, which Indebtedness shall be secured by a Lien in favor of the Borrower
or any Guarantor on the assets of Delray junior only to pre-existing Liens on
Delray's assets (such Lien to be granted by the later of (i) ten (10) Business
Days after the date of the Investment and (ii) thirty (30) days after the
Effective Date); provided, however, that the Investment permitted by this clause
(i) may be unsecured so long as the granting of such security interest by Delray
violates any material Contractual Obligation of Delray.

          Section 8.4 Sale of Assets

          None of the Borrower or any Guarantor shall sell, convey, transfer,
lease or otherwise dispose of, any of its assets or any interest therein
(including the sale or factoring at maturity or collection of any accounts) to
any Person, or permit or suffer any other Person to acquire any interest in any
of its assets (other than cash or Cash Equivalents) or, in the case of any
Subsidiary, issue or sell any shares of such Subsidiary's Stock or Stock
Equivalent (any such disposition being an "Asset Sale"), except:

                                      -84-



          (a) the sale, disposition or consignment of Inventory in the ordinary
course of business;

          (b) the sale or disposition of Inventory in connection with the
permitted sale of fixed assets at the location where such Inventory is
maintained; provided, however, that the aggregate Fair Market Value of all such
Inventory disposed of in any Fiscal Year shall not exceed ten million Dollars
($10,000,000);

          (c) Any Asset Sale (i) in respect of fixed assets provided the
aggregate of all such sales under this clause (c) does not exceed seven million
five hundred thousand Dollars ($7,500,000) in the aggregate for any Fiscal Year,
(ii) with the consent of the Administrative Agent (such consent not to be
unreasonably withheld) in respect of fixed assets to the extent the aggregate of
all such sales under this clause (c) exceeds seven million five hundred thousand
Dollars ($7,500,000) in any Fiscal Year but does not exceed ten million Dollars
($10,000,000) in such Fiscal Year and (iii) with the consent of the Required
Lenders in respect of fixed assets to the extent the aggregate of all such sales
under this clause (c) exceeds ten million Dollars ($10,000,000) in any Fiscal
Year but does not exceed thirty million Dollars ($30,000,000) in such Fiscal
Year and (iv) with the consent of the Lenders holding 66 and 2/3% of the
Outstandings in respect of fixed assets to the extent the aggregate of all such
sales under this clause (c) exceeds thirty million Dollars ($30,000,000) in any
Fiscal Year;

          (d) assignments and licenses of intellectual property of the Borrower
and its Subsidiaries in the ordinary course of business;

          (e) any Asset Sale to the Borrower or Pellet; and

          (f) subject to the consent of the Administrative Agent which shall not
be unreasonably withheld, the sale of all or any part of the assets or the Stock
of Ingleside Holdings, L.P.;

provided, that the foregoing limitations are not intended to prevent the
Borrower or any Guarantor from rejecting unexpired leases or executory contracts
pursuant to Section 365 of the Bankruptcy Code.

          Section 8.5 Restricted Payments

          None of the Borrower or any Guarantor shall, directly or indirectly,
declare, order, pay, make or set apart any sum for any Restricted Payment
except:

          (a) Restricted Payments by any Guarantor to the Borrower or to any
other Guarantor;

          (b) Restricted Payments in respect of Permitted Pre-petition Claim
Payments; and

          (c) Restricted Payments by any Guarantor in respect of Indebtedness
permitted to be incurred under clauses (a), (c), (d), (e), (f), (g), (h) and (i)
of Section 8.1 (Indebtedness).

                                      -85-



          Section 8.6 Restriction on Fundamental Changes

          None of the Borrower or any Guarantor shall (a) merge with any Person,
except that any Guarantor may merge with the Borrower or any other Guarantor,
(b) consolidate with any Person, (c) acquire all or substantially all of the
Stock or Stock Equivalents of any Person, (d) acquire all or substantially all
of the assets of any Person or all or substantially all of the assets
constituting the business of a division, branch or other unit operation of any
Person, (e) enter into any joint venture or partnership with any Person or (f)
acquire or create any Subsidiary; provided, however, any Subsidiary of the
Borrower which is not material may be dissolved or liquidated.

          Section 8.7 Change in Nature of Business

          The Borrower shall not, and shall not permit any of its Material
Subsidiaries to, make any material change in the nature of its business as
carried on at the date hereof.

          Section 8.8 Transactions with Affiliates

          None of the Borrower or any Guarantor shall, except as otherwise
expressly permitted herein, do any of the following: (a) make any Investment in
an Affiliate of the Borrower which is not a Subsidiary of the Borrower; (b)
transfer, sell, lease, assign or otherwise dispose of any asset to any Affiliate
of the Borrower which is not a Subsidiary of the Borrower; (c) merge into or
consolidate with or purchase or acquire assets from any Affiliate of the
Borrower which is not a Subsidiary of the Borrower; (d) repay any Indebtedness
to any Affiliate of the Borrower which is not a Subsidiary of the Borrower; or
(e) enter into any other transaction directly or indirectly with or for the
benefit of any Affiliate of the Borrower which is not a Guarantor (including
guaranties and assumptions of obligations of any such Affiliate), except for:

               (i) transactions in the ordinary course of business on a basis no
     less favorable to the Borrower or such Guarantor as would be obtained in a
     comparable arm's length transaction with a Person not an Affiliate;

               (ii) any transaction between the Borrower and any Guarantor;

               (iii) any Restricted Payment permitted to be made pursuant to
     Section 8.5 (Restricted Payments);

               (iv) salaries and other employee compensation to officers or
     directors of the Borrower or any of its Subsidiaries;

               (v) loans and advances to employees made in the ordinary course
     of business and consistent with the past practices of the Borrower or such
     Subsidiary, as the case may be, provided, however, that such loans and
     advances do not exceed two million Dollars ($2,000,000) in the aggregate at
     any time outstanding;

               (vi) any payments for the purchase of steel products from NKK or
     any of its Affiliates or the provision of services by NKK or any of its
     Affiliates, including the construction by NKK or any Affiliate thereof of
     the new hot dip galvanizing facility at the "Great Lakes Division";
     provided, however, that, in each case, the terms of such payments are based
     on fair market terms and are approved by the disinterested members of the
     board of directors of the Borrower;

                                      -86-



               (vii) any Affiliate Transaction between the Borrower or any
     Guarantor, on the one hand, and one or more joint ventures that are
     Affiliates of the Borrower or any Guarantor, on the other hand, that (A)
     are on terms no less favorable to the Borrower or such Subsidiary, as the
     case may be, than those that could be obtained in a comparable arm's length
     transaction with a person that is not an Affiliate of the Borrower and (B)
     if such Affiliate Transactions involve aggregate payments or value in
     excess of five million Dollars ($5,000,000), the board of directors of the
     Borrower (including a majority of the disinterested members thereof)
     approves such Affiliate Transaction and, in its good faith judgment,
     believes that such Affiliate Transaction complies with subclause (A) of
     this clause (vii); and

               (viii) any Affiliate Transaction which is otherwise permitted
     under clause (a), (e), (g), (h) or (i) of Section 8.3(g) (Investments in
     Other Persons).

          Section 8.9 Restrictions on Subsidiary Distributions; No New Negative
Pledge

          Other than pursuant to the Loan Documents and any agreements governing
any purchase money Indebtedness or Capital Lease Obligations permitted by
Section 8.1(b), (d) or (e) (Indebtedness) (in which latter case, any prohibition
or limitation shall only be effective against the assets financed thereby), none
of the Borrower or any Guarantor shall, (a) agree to enter into or suffer to
exist or become effective any consensual encumbrance or restriction of any kind
on the ability of any Guarantor to pay dividends or make any other distribution
or transfer of funds or assets or make loans or advances to or other Investments
in, or pay any Indebtedness owed to, the Borrower or any other Guarantor or (b)
enter into or, other than pursuant to agreements in effect on the Effective
Date, suffer to exist or become effective any agreement prohibiting or limiting
the ability of the Borrower or any Guarantor to create, incur, assume or suffer
to exist any Lien or Encumbrance upon any of its property, assets or revenues,
whether now owned or hereafter acquired, to secure the Obligations, including
any agreement requiring other Indebtedness or Contractual Obligation to be
equally and ratably secured with the Obligations.

          Section 8.10 Modification of Constituent Documents

          None of the Borrower or any Guarantor shall change its capital
structure (including in the terms of its outstanding Stock) or amend its
Constituent Documents other than for changes and amendments which in the
aggregate have no Material Adverse Effect and of which the Borrower has
delivered advance notice thereof to the Administrative Agent.

          Section 8.11 Margin Regulations

          None of the Borrower or any Guarantor shall use all or any portion of
the proceeds of any credit extended hereunder to purchase or carry margin stock
(within the meaning of Regulation U of the Federal Reserve Board) in
contravention of Regulation U of the Federal Reserve Board.

          Section 8.12 Operating Leases; Sale and Leaseback Transactions

          (a) Operating Leases. None of the Borrower or any Guarantor shall
become or remain liable as lessee or guarantor or other surety with respect to
any operating lease except that the Borrower and the Guarantors may (i) remain
liable with respect to any operating lease entered

                                      -87-



into prior to the Petition Date and (ii) become and remain liable with respect
to operating leases enteredinto on and after the Petition Date so long as the
aggregate amount of all rents paid or accrued under all such operating leases
entered into after the Petition Date shall not exceed ten million Dollars
($10,000,000) in any Fiscal Year.

          (b) Sale and Leaseback Transactions. The Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into any Sale and Leaseback
transaction.

          Section 8.13 Cancellation of Indebtedness Owed to It

          None of the Borrower or any Guarantor shall cancel any Claim or
Indebtedness owed to it except in the ordinary course of business consistent
with past practice.

          Section 8.14 No Speculative Transactions

          None of the Borrower or any Guarantor shall engage in any speculative
transaction or in any transaction involving Hedging Contracts except for the
sole purpose of hedging in the normal course of business and consistent with
industry practices.

          Section 8.15 Chapter 11 Claims

          None of the Borrower or any Guarantor will incur, create, assume,
suffer to exist or permit any administrative expense, unsecured Claim, or other
super-priority Claim or lien which is pari passu with or senior to the Claims of
the Secured Parties against the Loan Parties hereunder, or apply to the
Bankruptcy Court for authority to do so, except for the Carve-Out and Liens
permitted pursuant to clause (d) of Section 8.2 (Liens, Etc.).

                                   ARTICLE IX

                                EVENTS OF DEFAULT

          Section 9.1 Events of Default

          Each of the following events shall be an Event of Default:

          (a) Failure to Repay Principal. The Borrower shall fail to pay any
principal of any Loan or any Reimbursement Obligation when the same becomes due
and payable; or

          (b) Failure to Pay Interest. The Borrower shall fail to pay any
interest on any Loan, any fee under any Loan Document or any other Obligation
(other than those subject to Section 9.1(a) (Events of Default)) and such
non-payment continues for a period of five (5) Business Days after the due date
therefor; or

          (c) Borrowing Base Deficiency. A Borrowing Base Deficiency shall exist
and be continuing for three (3) Business Days after a Responsible Officer of the
Borrower first becomes aware of such Borrowing Base Deficiency; or

          (d) Representation and Warranties. Any representation or warranty made
or deemed made by any Loan Party in any Loan Document or by any Loan Party (or
any of its

                                      -88-



officers) in connection with any Loan Document shall prove to have been
incorrect in any material respect when made or deemed made; or

          (e) Covenants. (i) Any Loan Party shall fail to perform or observe any
term, covenant or agreement contained in Article V (Financial Covenants),
Article VIII (Negative Covenants), Section 6.2 (Default Notices), Section 7.1
(Preservation of Corporate Existence, Etc.), Section 7.3 (Conduct of Business),
Section 7.5 (Maintenance of Insurance), Section 7.6 (Access), Section 7.10
(Application of Proceeds), Section 7.11 (Fiscal Year), Section 7.13 (Borrowing
Base Determination), Section 7.14 (Control Accounts; Blocked Accounts) or
Section 7.17 (Post Closing Matters) or (ii) any Loan Party shall fail to perform
or observe (A) any term, covenant or agreement contained in clauses (f) or (h)
of Section 6.1 (Financial Statements and Information), Section 6.9 (Customer
Contracts), Section 6.11 (Other Information) or Section 7.16 (Field
Examination), if such failure shall remain unremedied for three (3) Business
Days, or (B) any other term, covenant or agreement contained in this Agreement
or in any other Loan Document, if such failure shall remain unremedied for ten
(10) days, in each case with respect to clauses (ii)(A) and (ii)(B), after the
earlier of the date on which (x) a Responsible Officer of the Borrower becomes
aware of such failure or (y) written notice thereof shall have been given to the
Borrower by the Administrative Agent or any Lender; or

          (f) Default Under Other Indebtedness. (i) The Borrower or any of its
Material Subsidiaries shall fail to make any payment on any post-petition
Indebtedness of the Borrower or any such Material Subsidiary (other than the
Obligations) or any post-petition Guaranty Obligation in respect of Indebtedness
of any other Person, and, in each case, such failure relates to post-petition
Indebtedness having a principal amount not less than ten million Dollars
($10,000,000) (individually or in the aggregate with other Indebtedness to which
this clause (f) would otherwise apply), when the same becomes due and payable
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise); or (ii) any other event shall occur or condition shall exist under
any agreement or instrument relating to any such post-petition Indebtedness, if
the effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness; or (iii) any such
post-petition Indebtedness shall become or be declared to be due and payable, or
required to be prepaid or repurchased (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof; or

          (g) Lien Invalidation. The Loan Documents and the Bankruptcy Orders
shall, for any reason, cease to create a valid Lien on any of the Collateral
purported to be covered thereby or such Lien shall cease to be a perfected Lien
having the priority provided herein pursuant to section 364 of the Bankruptcy
Code against each Loan Party, or any Loan Party shall so allege in any pleading
filed in any court or any material provision of any Loan Document shall, for any
reason, cease to be valid and binding on each Loan Party party thereto or any
Loan Party shall so state in writing; or

          (h) Orders. One or more judgments or Orders (or other similar process)
involving, in any single case or in the aggregate, an amount in excess of ten
million Dollars ($10,000,000) in the case of a money judgment, to the extent not
fully covered by insurance, shall be rendered against the Borrower or any of its
Material Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or Order or (ii) there shall be any
period of thirty (30) consecutive days during which a stay of enforcement of
such judgment or Order, by reason of a pending appeal or otherwise (including
the automatic stay of the Cases), shall not be in effect; or

                                      -89-



          (i) Dismissal or Conversion of Case; Priority of Claim. Any of the
Borrower's, any Material Subsidiary's or NSFC's Cases shall be dismissed (or the
Bankruptcy Court shall issue an order requiring the dismissal of the Cases),
suspended or converted to a case under chapter 7 of the Bankruptcy Code, or any
of the Borrower, any Material Subsidiary or NSFC shall file any pleading
requesting any such relief; or an application shall be filed by any Loan Party
for the approval of, or there shall arise (i) any other Claim having priority
senior to or pari passu with the claims of the Administrative Agent and the
Lenders under the Loan Documents or any other Claim having priority over any or
all administrative expenses of the kind specified in sections 503(b) or 507(b)
of the Bankruptcy Code (other than the Carve-Out) or (ii) any Lien on the
Collateral having a priority junior to, senior to or pari passu with the Liens
and security interests granted herein, except as expressly provided or permitted
herein; or

          (j) Certain Motions; Orders. Any Loan Party shall file a motion
seeking, or the Bankruptcy Court shall enter, an order (i) granting relief from
the automatic stay applicable under section 362 of the Bankruptcy Code to any
holder of any security interest to permit foreclosure on any core operating
assets of the Borrower or any Material Subsidiary (other than certain assets
identified by the Borrower and agreed to by the Administrative Agent) or (ii)
allowing the use of cash collateral of the Secured Parties under the Loan
Documents or of the "Secured Parties" as defined in and under the Pre-petition
Credit Agreement and related documents other than as expressly set forth in the
Bankruptcy Orders; or

          (k) Orders not in Force. (i) The Interim Order shall cease to be in
full force and effect and the Final Order shall not have been entered prior to
such cessation, or (ii) the Final Order shall not have been entered by the
Bankruptcy Court on or before the 45th day following the Effective Date, or
(iii) from and after the Entry Date, the Final Order shall cease to be in full
force and effect, or (iv) any Loan Party shall fail to comply with the terms of
the Interim Order or the Final Order in any material respect, or (v) the Interim
Order or the Final Order shall be amended, supplemented, stayed, reversed,
vacated or otherwise modified (or any of the Loan Parties shall apply for
authority to do so) without the written consent of the Requisite Lenders; or

          (l) Examiners. The Bankruptcy Court shall enter an order appointing a
responsible officer or an examiner with powers beyond the duty to investigate
and report, as set forth in section 1106(a)(3) and (4) of the Bankruptcy Code,
in any of the Cases; or

          (m) Material Adverse Change. There shall occur a Material Adverse
Change or any event or circumstances which could have a Material Adverse Effect;
or

          (n) Change of Control. There shall occur any Change of Control; or

          (o) Environmental Law Violation. The Borrower or any of its Material
Subsidiaries shall have entered into one or more consent or settlement decrees
or any Contractual Obligation, agreement or similar arrangement with a
Governmental Authority or any judgment, Order, decree or similar actions shall
have been entered against one or more of the Borrower or any of its Material
Subsidiaries, in either case based on or arising from the violation of or
pursuant to, any Environmental Law or the generation, storage, transportation,
treatment, disposal or Release of any Contaminant and, in connection with all
the foregoing, the Borrower and its Material Subsidiaries are likely to incur
Environmental Liabilities and Costs which are administrative claims or
post-petition liabilities in excess of twenty-five million Dollars ($25,000,000)
in the aggregate in any Fiscal Year.

                                      -90-



          Section 9.2 Remedies

          (a) Events of Default other than Special Events of Default. During the
continuance of any Event of Default other than Special Events of Default, the
Administrative Agent (i) may, and, at the request of the Requisite Lenders,
shall, by notice to the Borrower, declare that all or any portion of the
Commitments be terminated, whereupon the obligation of each Lender to make any
Loan and each Issuer to Issue any Letter of Credit shall immediately terminate
and (ii) may and shall at the request of the Requisite Lenders, by notice to the
Borrower, declare the Loans, all interest thereon and all other amounts and
Obligations payable under this Agreement to be forthwith due and payable,
whereupon the Loans, all such interest and all such amounts and Obligations
shall become and be forthwith due and payable, without presentment, demand,
protest or further notice of any kind, all of which are hereby expressly waived
by the Borrower; provided, however; that upon the occurrence of the Event of
Default specified in clauses (k)(i), (k)(ii) or (k)(iii) of Section 9.1 (Events
of Default), (x) the Commitments of each Lender to make Loans and the
commitments of each Issuer to issue Letters of Credit shall automatically be
terminated and (y) the Loans, all such interest and all such amounts and
Obligations shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower. In addition, subject solely to any requirement
of the giving of notice by the terms of the Bankruptcy Orders, the automatic
stay provided in section 362 of the Bankruptcy Code shall be deemed
automatically vacated without further action or order of the Bankruptcy Court
and the Administrative Agent and the Lenders shall be entitled to exercise all
of their respective rights and remedies under the Loan Documents, including,
without limitation, all rights and remedies with respect to the Collateral and
the Guarantors.

          (b) Special Events of Default. During the continuance of any Special
Event of Default, the Administrative Agent shall at the direction of the Lenders
holding at least 66 and 2/3% of the aggregate Outstandings, by notice to the
Borrower, declare that all or any portion of the Commitments be terminated,
whereupon the obligation of each Lender to make any Loan and each Issuer to
issue any Letter of Credit shall immediately be terminated and shall at the
direction of Lenders holding at least 66 and 2/3% of the aggregate Outstandings,
by notice to the Borrower, declare the Loans, all interest thereon and all
amounts and Obligations payable under this Agreement to be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided, however; that
upon the occurrence of the Event of Default specified in clauses (k)(i), (k)(ii)
or (k)(iii) of Section 9.1 (Events of Default), (x) the Commitments of each
Lender to make Loans and the commitments of each Issuer to issue Letters of
Credit shall automatically be terminated and (y) the Loans, all such interest
and all such amounts and Obligations shall automatically become and be due and
payable, without presentment, demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Borrower. In addition, subject solely
to any requirement of the giving of notice by the terms of the Bankruptcy
Orders, the automatic stay provided in section 362 of the Bankruptcy Code shall
be deemed automatically vacated without further action or order of the
Bankruptcy Court, each of the Administrative Agent and the Lenders shall be
entitled to exercise all of their respective rights and remedies under the Loan
Documents, including, without limitation, all rights and remedies with respect
to the Collateral and the Guaranty. Except as expressly provided in this Section
9.2(b), neither the Agent nor any Lender shall have the right to terminate any
of the Commitments or declare the Loans or any other Obligations to be due and
payable due to the occurrence of a Special Event of Default.

                                      -91-



          (c) Blocking Lenders. If at any time, the Administrative Agent seeks
the consent of the Lenders to take any action under clause (b) of Section 9.2
(Remedies) (an "Exercise of Remedies") and a Lender or Lenders holding
(individually or in the aggregate) more than thirty three and one third percent
(33 and 1/3%) of the aggregate Outstandings held by all Lenders at such time
shall not give such consent ("Blocking Lenders") then, the Administrative Agent
may by notice ("Blocking Event Notice") to all Lenders, given at any time and
from time to time during the continuance of any Special Event of Default,
implement the following procedures:

               (i) Each Lender which has given its consent to the Exercise of
     Remedies ("Non-Blocking Lender") may at any time after the date of the
     Blocking Notice by written notice ("Election Notice") given to the
     Administrative Agent (who shall forthwith deliver a copy thereof to all
     other Lenders) elect to purchase, at par, its pro rata share (based on the
     aggregate amount of Outstandings held by all Non-Blocking Lenders) of that
     portion of the Outstandings held by each Blocking Lender equal to such
     Blocking Lender's pro rata share (based on the aggregate amount of
     Outstandings held by all Blocking Lenders) of the Blocking Amount (as
     defined below). If one or more Non- Blocking Lender does not elect to
     purchase the full amount of Outstandings that it is entitled to purchase
     ("Partially Subscribing Lenders"), each Non-Blocking Lender that has
     elected to purchase the full amount of Outstandings that it is entitled to
     purchase (a "Fully Subscribing Lender") may by written notice to the
     Administrative Agent given within four (4) Business Days of the Blocking
     Notice, elect to purchase, at par, its pro rata share (based on the
     aggregate amount of all Outstandings held by all Fully Subscribing Lenders)
     of Blocked Amount not purchased by the Partially Subscribing Lenders. The
     procedure described in this clause (c) of Section 9.2 (Remedies) shall be
     repeated until the Non-Blocking Lenders have elected to purchase so much of
     the Blocking Amount as they desire to purchase.

               (ii) "Blocking Amount" means the amount by which the aggregate
     Outstandings held by all Blocking Lenders exceeds thirty three percent
     (33%) of the Outstandings held by all Lenders.

          Section 9.3 Actions in Respect of Letters of Credit

          Upon the Termination Date or as required by Section 2.10 (Application
of Proceeds), the Borrower shall pay to the Administrative Agent in immediately
available funds at the Administrative Agent's office referred to in Section
13.13 (Notices, Etc.), for deposit in a Cash Collateral Account, an amount equal
to one hundred and five percent (105%) of the sum of all outstanding Letter of
Credit Obligations or deliver to each Issuer a "back-to-back" letter of credit
issued on behalf, or for the account of, such Issuer in form and substance, and
issued by a financial institution, satisfactory to the Administrative Agent and
having a face amount equal to one hundred and five percent (105%) of the sum of
all outstanding Letter of Credit Obligations arising from the letters of credit
issued by such Issuer. The Administrative Agent may, from time to time after
funds are deposited in any Cash Collateral Account, apply funds then held in
such Cash Collateral Account to the payment of any amounts, in accordance with
Section 2.14 (Payments and Computations; Protective Advances), as shall have
become or shall become due and payable by the Borrower to the Issuers or Lenders
in respect of the Letter of Credit Obligations. The Administrative Agent shall
promptly give written notice of any such application; provided, however, that
the failure to give such written notice shall not invalidate any such
application.

                                      -92-



          Section 9.4 Rescission

          If, at any time after termination of the Commitments or acceleration
of the maturity of the Loans, the Borrower shall pay all arrears of interest and
all payments on account of principal of the Loans and Reimbursement Obligations
that shall have become due otherwise than by acceleration (with interest on
principal and, to the extent permitted by law, on overdue interest, at the rates
specified herein) and all Events of Default and Defaults (other than non-payment
of principal of and accrued interest on the Loans or Swing Loans due and payable
solely by virtue of acceleration) shall be remedied or waived pursuant Section
13.1 (Amendments, Waivers, Etc.), then, upon the written consent of the
Requisite Lenders and written notice to the Borrower, the termination of the
Commitments or the acceleration and their consequences may be rescinded and
annulled; provided, however, that such action shall not affect any subsequent
Event of Default or Default or impair any right or remedy consequent thereon.
The provisions of the preceding sentence are intended merely to bind the Lenders
and the Issuers to a decision that may be made at the election of the Requisite
Lenders; they are not intended to benefit the Borrower and do not give the
Borrower the right to require the Lenders to rescind or annul any acceleration
hereunder, even if the conditions set forth herein are met.

                                   ARTICLE X

                                    GUARANTY

          Section 10.1 The Guaranty

          In order to induce the Lenders to enter into this Agreement and to
extend credit hereunder and in recognition of the direct benefits to be received
by each Guarantor from the proceeds of the Loans and the issuance of the Letters
of Credit, each Guarantor hereby agrees with the Administrative Agent and the
Lenders that such Guarantor hereby unconditionally and irrevocably, jointly and
severally, guarantees as primary obligor and not merely as surety the full and
prompt payment when due, whether upon maturity, by acceleration or otherwise, of
any and all of the Obligations of the Borrower to the Lenders. If any or all of
the Obligations of the Borrower to the Lenders become due and payable hereunder,
each Guarantor, jointly and severally, unconditionally promises to pay such
Obligations to the Lenders, or order, on demand, together with any and all
reasonable expenses incurred by the Administrative Agent or the Lenders in
collecting any of the Obligations.

          Section 10.2 Nature of Liability

          The liability of each Guarantor hereunder is exclusive and independent
of any security for or other guaranty of the Obligations of the Borrower whether
executed by such Guarantor, any other Guarantor, any other guarantor or by any
other party, and the liability of each Guarantor hereunder shall not be affected
or impaired by (a) any direction as to application of payment by the Borrower or
by any other party, or (b) any other continuing or other guaranty, undertaking
or maximum liability of a guarantor or of any other party as to the Obligations
of the Borrower, or (c) any payment on or in reduction of any such other
guaranty or undertaking, or (d) any dissolution, termination or increase,
decrease or change in personnel by the Borrower, or (e) any payment made to the
Administrative Agent or the Lenders on the indebtedness which the Administrative
Agent or such Lenders repay to the Borrower pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and each

                                      -93-



Guarantor waives any right to the deferral or modification of its obligations
hereunder by reason of any such proceeding.

          Section 10.3 Independent Obligation

          The obligations of each Guarantor hereunder are independent of the
obligations of any other Guarantor, any other guarantor or the Borrower, and a
separate action or actions may be brought and prosecuted against each Guarantor
whether or not action is brought against any other Guarantor, any other
guarantor or the Borrower and whether or not any other Guarantor, any other
guarantor or the Borrower be joined in any such action or actions. Each
Guarantor waives, to the fullest extent permitted by law, the benefit of any
statute of limitations affecting its liability hereunder or the enforcement
thereof. Any payment by the Borrower or other circumstance which operates to
toll any statute of limitations as to the Borrower shall operate to toll the
statute of limitations as to the Guarantor.

          Section 10.4 Authorization

          Subject to the notice requirements provided in the Bankruptcy Orders,
each Guarantor authorizes the Administrative Agent and the Lenders without
notice or demand (except as shall be required by applicable statute and cannot
be waived), and without affecting or impairing its liability hereunder, from
time to time to:

          (a) change the manner, place or terms of payment of, and/or change or
extend the time of payment of, renew, increase, accelerate or alter, any of the
Obligations (including any increase or decrease in the rate of interest
thereon), any security therefor, or any liability incurred directly or
indirectly in respect thereof, and the Guaranty herein made shall apply to the
Obligations as so changed, extended, renewed or altered; provided, however, that
the provisions of this Article X may not be amended, modified, supplemented or
otherwise changed without the written consent of each Guarantor;

          (b) take and hold security for the payment of the Obligations and
sell, exchange, release, surrender, realize upon or otherwise deal with in any
manner and in any order any property by whomsoever at any time pledged or
mortgaged to secure, or howsoever securing, the Obligations or any liabilities
(including any of those hereunder) incurred directly or indirectly in respect
thereof or hereof, and/or any offset there against;

          (c) exercise or refrain from exercising any rights against the
Borrower or others or otherwise act or refrain from acting;

          (d) release or substitute any one or more endorsers, guarantors, the
Borrower or other obligors;

          (e) settle or compromise any of the Obligations, any security therefor
or any liability (including any of those hereunder) incurred directly or
indirectly in respect thereof or hereof, or subordinate the payment of all or
any part thereof to the payment of any liability (whether due or not) of the
Borrower to its creditors;

          (f) apply any sums by whomsoever paid or howsoever realized to any
liability or liabilities of the Borrower to the Lenders regardless of what
liability or liabilities of such Guarantor or the Borrower remain unpaid; and/or

                                      -94-



          (g) consent to or waive any breach of, or any act, omission or default
under, this Agreement or any of the instruments or agreements referred to
herein, or otherwise amend, modify or supplement this Agreement or any of such
other instruments or agreements; provided, however, that the provisions of this
Article X may not be amended, modified, supplemented or otherwise changed
without the written consent of each Guarantor.

          Section 10.5 Reliance

          It is not necessary for the Administrative Agent or the Lenders to
inquire into the capacity or powers of the Borrower or its Subsidiaries or the
officers, directors, partners or agents acting or purporting to act on its
behalf, and any Obligations made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.

          Section 10.6 Subordination

          Any of the Indebtedness of the Borrower now or hereafter owing to any
Guarantor is hereby subordinated to the Obligations of the Borrower; provided,
however, that payment may be made by the Borrower on any such Indebtedness owing
to such Guarantor so long as the same is not prohibited by this Agreement; and
provided further, that subject to any notice requirements provided in the
Bankruptcy Orders if the Administrative Agent so requests at a time when an
Event of Default exists, all such Debt of the Borrower to such Guarantor shall
be collected, enforced and received by such Guarantor as trustee for the Lenders
and be paid over to the Administrative Agent on behalf of the Lenders on account
of the Obligations of the Borrower to Lenders, but without affecting or
impairing in any manner the liability of such Guarantor under the other
provisions of this Guaranty. Prior to the transfer by any Guarantor of any note
or negotiable instrument evidencing any of the Indebtedness of the Borrower to
such Guarantor, such Guarantor shall mark such note or negotiable instrument
with a legend that the same is subject to this subordination.

          Section 10.7 Waiver

          (a) Certain Waivers. Each Guarantor waives any right (except as shall
be required by applicable statute and cannot be waived) to require the
Administrative Agent or the Lenders to (i) proceed against the Borrower, any
other Guarantor, any other guarantor or any other party, (ii) proceed against or
exhaust any security held from the Borrower, any other Guarantor, any other
guarantor or any other party or (iii) pursue any other remedy in the
Administrative Agent's or the Lenders' power whatsoever. Each Guarantor waives
(except as shall be required by applicable statute and cannot be waived) any
defense based on or arising out of any defense of the Borrower, any other
Guarantor, any other guarantor or any other party other than payment in full of
the Obligations, including, without limitation, any defense based on or arising
out of the disability of the Borrower, any other Guarantor, any other guarantor
or any other party, or the unenforceability of the Obligations or any part
thereof from any cause, or the cessation from any cause of the liability of the
Borrower other than payment in full of the Obligations. Subject to the notice
requirements provided in the Bankruptcy Orders, the Administrative Agent and
other Secured Parties may, at their election, foreclose on any security held by
the Administrative Agent or any other Secured Party in respect of the Secured
Obligations by one or more judicial or nonjudicial sales, whether or not every
aspect of any such sale is commercially reasonable (to the extent such sale is
permitted by applicable law), or exercise any other right or remedy the
Administrative Agent and the Lenders may have against the Borrower or any other
party, or any security, without affecting or impairing in any way the

                                      -95-



liability of any Guarantor hereunder except to the extent the Obligations have
been paid. Each Guarantor waives any defense arising out of any such election by
the Administrative Agent and the Lenders, even though such election operates to
impair or extinguish any right of reimbursement or subrogation or other right or
remedy of such Guarantor against the Borrower or any other party or any
security.

          (b) Additional Waivers. Each Guarantor waives all presentments,
demands for performance, protests and notices, including without limitation
notices of nonperformance, notices of protest, notices of dishonor, notices of
acceptance of this Guaranty, and notices of the existence, creation or incurring
of new or additional Obligations. Each Guarantor assumes all responsibility for
being and keeping itself informed of the Borrower's financial condition and
assets, and of all other circumstances bearing upon the risk of nonpayment of
the Obligations and the nature, scope and extent of the risks which such
Guarantor assumes and incurs hereunder, and agrees that the Administrative Agent
and the Lenders shall have no duty to advise such Guarantor of information known
to them regarding such circumstances or risks.

          Section 10.8 Limitation on Enforcement

          The Lenders agree that this Guaranty may be enforced only by the
action of the Administrative Agent, in each case acting upon the instructions of
the Requisite Lenders, and that no Lender shall have any right individually to
seek to enforce or to enforce this Guaranty it being understood and agreed that
such rights and remedies may be exercised by the Administrative Agent for the
benefit of the Lenders upon the terms of this Agreement.

                                   ARTICLE XI

                                    SECURITY

          Section 11.1 Security

          To induce the Lenders to make the Loans, the Issuers to issue Letters
of Credit, and the Swing Loan Lenders to make the Swing Loans, each Loan Party
hereby grants to the Administrative Agent, for itself and for the ratable
benefit of the Secured Parties, as security for the full and prompt payment when
due (whether at stated maturity, by acceleration or otherwise) of the
obligations of such Loan Party, a continuing Lien and security interest in and
to all of such Loan Party's right, title and interest in and to the Collateral.
For purposes of this Agreement, all of the following property now owned or at
any time hereafter acquired by a Loan Party or in which a Loan Party now has or
at any time in the future may acquire any right, title or interests shall also
be included within the definition of "Collateral":

          (a) all Accounts;

          (b) all Inventory;

          (c) all Equipment;

          (d) all General Intangibles, including all Intellectual Property and
that portion of the Pledged Collateral constituting General Intangibles;

          (e) all commercial tort claims;

                                      -96-



          (f) all Investment Property, including all Control Accounts and that
portion of the Pledged Collateral constituting Investment Property;

          (g) all Documents, Instruments and Chattel Paper;

          (h) all Cash Collateral Accounts, Blocked Accounts and other deposit
accounts;

          (i) all Vehicles;

          (j) all Real Property;

          (k) all books and records pertaining to the property described in this
Section 11.1;

          (l) all other goods and personal property of such Loan Party, whether
tangible or intangible, wherever located, including money, letters of credit and
all rights of payment or performance under letters of credit;

          (m) all property of any Loan Party held by the Administrative Agent or
any Secured Party, including all property of every description, in the
possession or custody of or in transit to the Administrative Agent or such
Secured Party for any purpose, including safekeeping, collection or pledge, for
the account of such Loan Party, or as to which such Loan Party may have any
right or power;

          (n) to the extent not otherwise included, all monies and other
property of any kind which is, after the Petition Date, received by such Loan
Party in connection with refunds with respect to taxes, assessments and
governmental charges imposed on such Loan Party or any of its property or
income;

          (o) to the extent not otherwise included, all causes of action (other
than claims of the Loan Parties under sections 544, 545, 547 and 548 of the
Bankruptcy Code) and all monies and other property of any kind received
therefrom, and all monies and other property of any kind recovered by any Loan
Party; and

          (p) to the extent not otherwise included, all Proceeds of each of the
foregoing and all accessions to, substitutions and replacements for, and rents,
profits and products of, each of the foregoing, any and all proceeds of
insurance, indemnity, warranty or guaranty payable to any Loan Party from time
to time with respect to any of the foregoing.

          Section 11.2 Perfection of Security Interests

          (a) Further Action. Each Loan Party shall, at its expense, perform any
and all actions reasonably requested by the Administrative Agent at any time to
perfect, maintain, protect, and enforce the Lenders' security interest in the
Collateral of such Loan Party, including, without limitation, (i) executing and
filing financing or continuation statements, and amendments thereof, in form and
substance satisfactory to the Administrative Agent, (ii) maintaining complete
and accurate stock records, (iii) using its best efforts in delivering to the
Administrative Agent negotiable warehouse receipts, if any, and, upon the
Administrative Agent's request therefor, non-negotiable warehouse receipts
covering any portion of the Collateral located in warehouses and for which
warehouse receipts are issued, (iv) placing notations on such Loan Party's books
of

                                      -97-



account to disclose the Administrative Agent's security interest therein, (v)
delivering to the Administrative Agent all documents, certificates and
Instruments necessary or desirable to perfect the Administrative Agent's Lien in
letters of credit on which such Loan Party is named as beneficiary and all
acceptances issued in connection therewith, (vi) after the occurrence and during
the continuation of an Event of Default, transferring Inventory maintained in
warehouses to other warehouses designated by the Administrative Agent and (vii)
taking such other steps as are deemed necessary or desirable to maintain the
Administrative Agent's security interest in the Collateral.

          (b) Authorization. Each Loan Party hereby authorizes the
Administrative Agent to execute and file financing statements or continuation
statements on such Loan Party's behalf covering the Collateral. The
Administrative Agent may file one or more financing statements disclosing the
Administrative Agent's security interest under this Agreement without the
signature of such Loan Party appearing thereon. Each Loan Party shall pay the
costs of, or incidental to, any recording or filing of any financing statements
concerning the Collateral. Each Loan Party agrees that a carbon, photographic,
photostatic, or other reproduction of this Agreement or of a financing statement
is sufficient as a financing statement. If any Collateral is at any time in the
possession or control of any warehouseman, bailee or such Loan Party's agents or
processors, such Loan Party shall notify such warehouseman, bailee, agents or
processors of the Administrative Agent's security interest, which notification
shall specify that such Person shall, upon the occurrence and during the
continuance of an Event of Default, hold all such Collateral for the
Administrative Agent's account subject to the Administrative Agent's
instructions. From time to time, each Loan Party shall, upon the Administrative
Agent's request, execute and deliver written instruments pledging to the
Administrative Agent the Collateral described in any such instruments or
otherwise, but the failure of such Loan Party to execute and deliver such
confirmatory instruments shall not affect or limit the Administrative Agent's
security interest or other rights in and to the Collateral. Until all
Obligations (other than contingent indemnification obligations) have been fully
satisfied and the Revolving Credit Commitments shall have been terminated, the
Administrative Agent's security interest in the Collateral, and all Proceeds and
products thereof, shall continue in full force and effect.

          (c) Savings Clause. Notwithstanding subsections (a) and (b) of this
Section 11.2, or any failure on the part of any Loan Party or the Administrative
Agent to take any of the actions set forth in such subsections, the Liens and
security interests granted herein shall be deemed valid, enforceable and
perfected by entry of the Interim Order and the Final Order, as applicable. No
financing statement, notice of lien, mortgage, deed of trust or similar
instrument in any jurisdiction or filing office need be filed or any other
action taken in order to validate and perfect the Liens and security interests
granted by or pursuant to this Agreement, the Interim Order or the Final Order.

          Section 11.3 Rights of Lender; Limitations on Lenders' Obligations

          (a) Liability Under Contracts. Subject to each Loan Party's rights and
duties under the Bankruptcy Code (including section 365 of the Bankruptcy Code),
it is expressly agreed by each Loan Party that, anything herein to the contrary
notwithstanding, such Loan Party shall remain liable under its Contracts to
observe and perform all the conditions and obligations to be observed and
performed by it thereunder. Neither the Administrative Agent nor any Secured
Party shall have any obligation or liability under any Contract by reason of or
arising out of this Agreement, the Loan Documents, or the granting to the
Administrative Agent of a security interest therein or the receipt by the
Administrative Agent or any Lender of any payment relating

                                      -98-



to any Contract pursuant hereto, nor shall the Administrative Agent be required
or obligated in any manner to perform or fulfill any of the obligations of any
Loan Party under or pursuant to any Contract, or to make any payment, or to make
any inquiry as to the nature or the sufficiency of any payment received by it or
the sufficiency of any performance by any party under any Contract, or to
present or file any Claim, or to take any action to collect or enforce any
performance or the payment of any amounts which may have been assigned to it or
to which it may be entitled at any time or times.

          (b) Authorization. Subject to Section 11.5 (Performance by Agent of
the Loan Parties' Obligations) hereof, the Administrative Agent authorizes each
Loan Party to collect its Accounts, provided that such collection is performed
in accordance with such Loan Party's customary procedures, and the
Administrative Agent may, upon the occurrence and during the continuation of any
Event of Default and without notice, other than any requirement of notice
provided in the Bankruptcy Orders, limit or terminate said authority at any
time.

          (c) Notification of Account Debtors after Event of Default. Subject to
any requirement of notice provided in the Bankruptcy Orders, the Administrative
Agent may at any time, upon the occurrence and during the continuation of any
Event of Default, after first notifying the Borrower of its intention to do so,
notify Account Debtors, notify the other parties to the Contracts of the
Borrower or any other Loan Party, notify obligors of Instruments and Investment
Property of the Borrower or any other Loan Party and notify obligors in respect
of Chattel Paper of the Borrower or any other Loan Party that the right, title
and interest of the Borrower or such Loan Party in and under such Accounts, such
Contracts, such Instruments, such Investment Property and such Chattel Paper
have been assigned to the Administrative Agent and that payments shall be made
directly to the Administrative Agent. Subject to any requirement of notice
provided in the Bankruptcy Orders, upon the request of the Administrative Agent,
the Borrower or such other Loan Party will so notify such Account Debtors, such
parties to Contracts, obligors of such Instruments and Investment Property and
obligors in respect of such Chattel Paper. Subject to any requirement of notice
provided in the Bankruptcy Orders, upon the occurrence and during the
continuation of an Event of Default, the Administrative Agent may in its own
name, or in the name of others, communicate with such parties to such Accounts,
Contracts, Instruments, Investment Property and Chattel Paper to verify with
such Persons to the Administrative Agent's reasonable satisfaction the
existence, amount and terms of any such Accounts, Contracts, Instruments,
Investment Property or Chattel Paper.

          Section 11.4 Covenants of the Loan Parties with Respect to Collateral

          Each Loan Party hereby covenants and agrees with the Administrative
Agent that from and after the date of this Agreement and until the Obligations
are fully satisfied:

          (a) Maintenance of Records. Such Loan Party will keep and maintain, at
its own cost and expense, satisfactory and complete records of the Collateral,
in all material respects, including, without limitation, a record of all
payments received and all credits granted with respect to the Collateral and all
other dealings concerning the Collateral. For the Administrative Agent's further
security, each Loan Party agrees that the Administrative Agent shall have a
property interest in all of such Loan Party's books and records pertaining to
the Collateral and, upon the occurrence and during the continuation of an Event
of Default and subject to the requirement of notice provided in the Bankruptcy
Orders, such Loan Party shall deliver and turn over any such books and records
to the Administrative Agent or to its representatives at any time on demand of
the Administrative Agent.

                                      -99-



          (b) Indemnification With Respect to Collateral. In any suit,
proceeding or action brought by the Administrative Agent relating to any
Account, Chattel Paper, Contract, General Intangible, Investment Property,
Instrument, Intellectual Property or other Collateral for any sum owing
thereunder or to enforce any provision of any Account, Chattel Paper, Contract,
General Intangible, Investment Property, Instrument, Intellectual Property or
other Collateral, such Loan Party will save, indemnify and keep the Secured
Parties harmless from and against all expense, loss or damage suffered by the
Secured Parties by reason of any defense, setoff, counterclaim, recoupment or
reduction of liability whatsoever of the obligor thereunder, arising out of a
breach by such Loan Party of any obligation thereunder or arising out of any
other agreement, indebtedness or liability at any time owing to, or in favor of,
such obligor or its successors from such Loan Party, and all such obligations of
such Loan Party shall be and remain enforceable against and only against such
Loan Party and shall not be enforceable against the Administrative Agent.

          (c) Limitation on Liens on Collateral. Such Loan Party will not
create, permit or suffer to exist, and will defend the Collateral against and
take such other action as is necessary to remove, any Lien on the Collateral
arising after the Petition Date except Liens permitted under Section 8.2 (Liens,
Etc.) and will defend the right, title and interest of the Administrative Agent
in and to all of such Loan Party's rights under the Chattel Paper, Leases, Real
Property, Contracts, Documents, General Intangibles, Instruments, Investment
Property and to the Intellectual Property, Equipment and Inventory and in and to
the Proceeds thereof against the Claims and demands of all Persons whomsoever
other than Claims or demands arising out of Liens permitted under Section 8.2
(Liens, Etc.).

          (d) Limitations on Modifications of Accounts. Such Loan Party will
not, without the Administrative Agent's prior written consent, grant any
extension of the time of payment of any of the Accounts, Chattel Paper or
Instruments, compromise, compound or settle the same for less than the full
amount thereof, release, wholly or partly, any Person liable for the payment
thereof, or allow any credit or discount whatsoever thereon other than any of
the foregoing which are done in the ordinary course of business, and for trade
discounts granted in the ordinary course of business of such Loan Party.

          (e) Cash Collateral Accounts. The Administrative Agent has established
a Deposit Account at Citibank, designated as "Citicorp USA, Inc. - National
Steel Corporation Concentration Account". The Administrative Agent may establish
one or more other Deposit Accounts and one or more Securities Accounts with such
depositaries and securities intermediaries as it in its sole discretion shall
determine. Each such account shall be in the name of the Administrative Agent
(but may also have words referring to the Borrower and the account's purpose).
The Borrower agrees that each such account shall be under the sole dominion and
control of the Administrative Agent. The Administrative Agent shall be the
entitlement holder with respect to each such Securities Account and the only
Person authorized to give entitlement orders with respect thereto. Without
limiting the foregoing, funds on deposit in any Cash Collateral Account may be
invested in Cash Equivalents at the direction of the Administrative Agent and,
except during the continuance of an Event of Default, the Administrative Agent
agrees with the Borrower to issue entitlement orders for such investments in
Cash Equivalents as requested by the Borrower; provided, however, that the
Administrative Agent shall not have any responsibility for, or bear any risk of
loss of, any such investment or income thereon. Neither the Borrower nor any
other Loan Party or Person claiming on behalf of or through the Borrower or any
other Loan Party shall have any right to demand payment of any

                                     -100-



of the funds held in any Cash Collateral Account at any time prior to the
termination of all outstanding Letters of Credit and the payment in full of all
then outstanding monetary Obligations then due and payable. The Administrative
Agent shall apply all funds on deposit in any Cash Collateral Account as
provided in this Agreement and, except during the continuance of an Event of
Default, agrees to cause any funds remaining on deposit therein after all
Obligations then due and payable have been satisfied and all Letter of Credit
Obligations have been cash collateralized at 105% to be paid at the written
direction of the Borrower.

          (f) Notices. Such Loan Party will advise the Lenders promptly, in
reasonable detail, (i) of any Lien asserted against any of the Collateral other
than Liens permitted under Section 8.2 (Liens, Etc.), and (ii) of the occurrence
of any other event which would result in a material adverse change with respect
to the aggregate value of the Collateral or on the security interests created
hereunder.

          (g) Maintenance of Equipment. Such Loan Party will keep and maintain
the Equipment in good operating condition sufficient for the continuation of the
business conducted by such Loan Party on a basis consistent with past practices,
ordinary wear and tear excepted.

          (h) Pledged Collateral.

               (i) Upon request of the Administrative Agent, such Loan Party
     will (x) deliver to the Administrative Agent, all certificates or
     Instruments representing or evidencing any Pledged Collateral, whether now
     arising or hereafter acquired, in suitable form for transfer by delivery
     or, as applicable, accompanied by such Loan Party's endorsement, where
     necessary, or duly executed instruments of transfer or assignment in blank,
     all in form and substance reasonably satisfactory to the Administrative
     Agent, together with a Pledge Amendment, duly executed by the Loan Party,
     in such form as is required by the Administrative Agent, in respect of such
     Additional Pledged Collateral and authorizes the Administrative Agent to
     attach each Pledge Amendment to this Agreement and (y) maintain all other
     Pledged Collateral constituting Investment Property in a Control Account.
     The Administrative Agent shall have the right, at any time in its
     discretion and without notice to the Loan Party, to transfer to or to
     register in its name or in the name of its nominees any or all of the
     Pledged Collateral. The Administrative Agent shall have the right at any
     time to exchange certificates or instruments representing or evidencing any
     of the Pledged Collateral for certificates or instruments of smaller or
     larger denominations.

               (ii) Except as provided in Section 11.7 (Remedies, Rights Upon
     Default), such Loan Party shall be entitled to receive all cash dividends
     paid in respect of the Pledged Collateral (other than liquidating or
     distributing dividends) with respect to the Pledged Collateral. Any sums
     paid upon or in respect of any of the Pledged Collateral upon the
     liquidation or dissolution of any issuer of any of the Pledged Collateral,
     any distribution of capital made on or in respect of any of the Pledged
     Collateral or any property distributed upon or with respect to any of the
     Pledged Collateral pursuant to the recapitalization or reclassification of
     the capital of any issuer of Pledged Collateral or pursuant to the
     reorganization (other than a merger permitted by Section 8.6 (Restriction
     on Fundamental Changes))thereof shall, unless otherwise subject to a
     perfected security interest in favor of the Administrative Agent, be
     delivered to the Administrative Agent to be held by it hereunder as
     additional collateral security for the Secured Obligations. If any sums of
     money or property so paid or distributed in respect

                                     -101-



     of any of the Pledged Collateral shall be received by such Loan Party, such
     Loan Party shall, until such money or property is paid or delivered to the
     Administrative Agent, hold such money or property in trust for the
     Administrative Agent, segregated from other funds of such Loan Party, as
     additional security for the Secured Obligations.

               (iii) Except as provided in Section 11.7 (Remedies, Rights Upon
     Default), such Loan Party will be entitled to exercise all voting, consent
     and corporate rights with respect to the Pledged Collateral; provided,
     however, that no vote shall be cast, consent given or right exercised or
     other action taken by such Loan Party which would impair the Collateral or
     which would be inconsistent with or result in any violation of any
     provision of this Agreement or any other Loan Document or, without prior
     notice to the Administrative Agent, to enable or take any other action not
     otherwise expressly permitted pursuant to this Agreement to permit any
     issuer of Pledged Collateral to issue any stock or other equity securities
     of any nature or to issue any other securities convertible into or granting
     the right to purchase or exchange for any stock or other equity securities
     of any nature of any issuer of Pledged Collateral.

               (iv) Such Loan Party shall not grant Control over any Investment
     Property to any Person other than the Administrative Agent.

               (v) In the case of each Loan Party which is an issuer of Pledged
     Collateral, such Loan Party agrees to be bound by the terms of this
     Agreement relating to the Pledged Collateral issued by it and will comply
     with such terms insofar as such terms are applicable to it. In the case of
     each Loan Party which is a partner in a Partnership, such Loan Party hereby
     consents to the extent required by the applicable Partnership Agreement to
     the pledge by each other Loan Party, pursuant to the terms hereof, of the
     Pledged Partnership Interests in such Partnership and to the transfer of
     such Pledged Partnership Interests to the Administrative Agent or its
     nominee and to the substitution of the Administrative Agent or its nominee
     as a substituted partner in such Partnership with all the rights, powers
     and duties of a general partner or a limited partner, as the case may be,
     in each case in accordance with the provisions of this Agreement. In the
     case of each Loan Party which is a member of an LLC, such Loan Party hereby
     consents to the extent required by the applicable LLC Agreement to the
     pledge by each other Loan Party, pursuant to the terms hereof, of the
     Pledged LLC Interests in such LLC and to the transfer of such Pledged LLC
     Interests to the Administrative Agent or its nominee and to the
     substitution of the Administrative Agent or its nominee as a substituted
     member of the LLC with all the rights, powers and duties of a member of the
     LLC in question, in each case in accordance with the provisions of this
     Agreement.

               (vi) Such Loan Party will not agree to any amendment of an LLC
     Agreement or Partnership Agreement that in any way adversely materially
     affects the perfection of the security interest of the Administrative Agent
     in the Pledged Partnership Interests or Pledged LLC Interests pledged by
     such Loan Party hereunder, including electing to treat the membership
     interest or partnership interest of such Loan Party as a security under
     Section 8-103 of the UCC.

          (i) Intellectual Property.

               (i) Such Loan Party (either itself or through licensees) will (i)
     continue to use each Trademark that is Material Intellectual Property in
     order to maintain

                                     -102-



     such Trademark in full force and effect with respect to each class of goods
     for which such Trademark is currently used, free from any claim of
     abandonment for non-use, (ii) use such Trademark with the appropriate
     notice of registration and all other notices and legends required by
     applicable Requirements of Law, (iii) not adopt or use any mark which is
     confusingly similar or a colorable imitation of such Trademark unless the
     Administrative Agent shall obtain a perfected security interest in such
     mark pursuant to this Agreement and (iv) not (and not permit any licensee
     or sublicensee thereof to) do any act or knowingly omit to do any act
     whereby such Trademark may become invalidated or impaired in any way.

               (ii) Such Loan Party (either itself or through licensees) will
     not do any act, or omit to do any act, whereby any Patent which is Material
     Intellectual Property may become forfeited, abandoned or dedicated to the
     public.

               (iii) Such Loan Party (either itself or through licensees) (i)
     will not (and will not permit any licensee or sublicensee thereof to) do
     any act or omit to do any act whereby any portion of the Copyrights which
     is Material Intellectual Property may become invalidated or otherwise
     impaired and (ii) will not (either itself or through licensees) do any act
     whereby any portion of the Copyrights which is Material Intellectual
     Property may fall into the public domain.

               (iv) Such Loan Party (either itself or through licensees) will
     not do any act, or omit to do any act, whereby any trade secret which is
     Material Intellectual Property may become publicly available or otherwise
     unprotectable.

               (v) Such Loan Party (either itself or through licensees) will not
     do any act that knowingly uses any Material Intellectual Property to
     infringe the intellectual property rights of any other Person.

               (vi) Such Loan Party will notify the Administrative Agent
     immediately if it knows, or has reason to know, that any application or
     registration relating to any Material Intellectual Property may become
     forfeited, abandoned or dedicated to the public, or of any adverse
     determination or development (including the institution of, or any such
     determination or development in, any proceeding in the United States Patent
     and Trademark Office, the United States Copyright Office or any court or
     tribunal in any country) regarding such Loan Party's ownership of, right to
     use, interest in, or the validity of, any Material Intellectual Property or
     such Loan Party's right to register the same or to own and maintain the
     same.

               (vii) Whenever such Loan Party, either by itself or through any
     agent, licensee or designee, shall file an application for the registration
     of any material Intellectual Property with the United States Patent and
     Trademark Office, the United States Copyright Office or any similar office
     or agency within or outside the United States, such Loan Party shall report
     such filing to the Administrative Agent within five Business Days after the
     last day of the fiscal quarter in which such filing occurs. Upon request of
     the Administrative Agent, such Loan Party shall execute and deliver, and
     have recorded, any and all agreements, instruments, documents, and papers
     as the Administrative Agent may request to evidence the Administrative
     Agent's security interest in any Copyright, Patent or Trademark and the
     goodwill and general intangibles of such Loan Party relating thereto or
     represented thereby.

                                     -103-



               (viii) Such Loan Party will take all reasonable actions necessary
     or requested by the Administrative Agent, including in any proceeding
     before the United States Patent and Trademark Office, the United States
     Copyright Office or any similar office or agency, to maintain and pursue
     each application (and to obtain the relevant registration) and to maintain
     each registration of any Copyright, Trademark or Patent that is Material
     Intellectual Property, including filing of applications for renewal,
     affidavits of use, affidavits of incontestability and opposition and
     interference and cancellation proceedings.

               (ix) In the event that any Material Intellectual Property is
     infringed upon or misappropriated or diluted by a third party, such Loan
     Party shall notify the Administrative Agent promptly after such Loan Party
     learns thereof. Such Loan Party shall take appropriate action in response
     to such infringement, misappropriation of dilution, including promptly
     bringing suit for infringement, misappropriation or dilution and to recover
     any and all damages for such infringement, misappropriation of dilution,
     and shall take such other actions may be appropriate in its reasonable
     judgment under the circumstances to protect such Material Intellectual
     Property.

          Section 11.5 Performance by Agent of the Loan Parties' Obligations

          If any Loan Party fails to perform or comply with any of its
agreements contained herein and the Administrative Agent, as provided for by the
terms of this Agreement, shall itself perform or comply, or otherwise cause
performance or compliance, with such agreement, the expenses of the
Administrative Agent incurred in connection with such performance or compliance,
together with interest thereon at the rate then in effect in respect of the
Loan, shall be payable by such Loan Party to the Administrative Agent on demand
and shall constitute Obligations secured by the Collateral. Performance of such
Loan Party's obligations as permitted under this Section 11.5 (Performance by
Agent of the Loan Parties' Obligations) shall in no way constitute a violation
of the automatic stay provided by section 362 of the Bankruptcy Code and each
Loan Party hereby waives applicability thereof. Moreover, the Administrative
Agent shall in no way be responsible for the payment of any costs incurred in
connection with preserving or disposing of Collateral pursuant to section 506(c)
of the Bankruptcy Code and the Collateral may not be charged for the incurrence
of any such cost.

          Section 11.6 Limitation on Agent's Duty in Respect of Collateral

          Neither the Administrative Agent nor any Lender shall have any duty as
to any Collateral in its possession or control or in the possession or control
of any agent or nominee of it or any income thereon or as to the preservation of
rights against prior parties or any other rights pertaining thereto, except that
the Administrative Agent shall, with respect to the Collateral in its possession
or under its control, deal with such Collateral in the same manner as the
Administrative Agent deals with similar property for its own account. Upon
request of the Borrower, the Administrative Agent shall account for any moneys
received by it in respect of any foreclosure on or disposition of the Collateral
of any Loan Party.

          Section 11.7 Remedies, Rights Upon Default

          (a) Remedies, Rights Upon Default. If any Event of Default shall occur
and be continuing, the Administrative Agent may exercise in addition to all
other rights and remedies granted to it in this Agreement and in any other Loan
Document, all rights and remedies of a

                                     -104-



secured party under the UCC. Without limiting the generality of the foregoing,
each Loan Party expressly agrees that in any such event the Administrative
Agent, without demand of performance or other demand, advertisement or notice of
any kind (except the notice required by the Interim Order or Final Order or the
notice specified below of time and place of public or private sale) to or upon
such Loan Party or any other Person (all and each of which demands,
advertisements and/or notices are hereby expressly waived to the maximum extent
permitted by the UCC and other applicable law), may forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give an option or options to purchase, or sell or
otherwise dispose of and deliver said Collateral (or contract to do so), or any
part thereof, in one or more parcels at public or private sale or sales, at any
exchange or broker's board or at any of the Administrative Agent's offices or
elsewhere at such prices at it may deem best, for cash or on credit or for
future delivery without assumption of any credit risk. The Administrative Agent
shall have the right upon any such public sale or sales to purchase the whole or
any part of said Collateral so sold, free of any right or equity of redemption,
which equity of redemption each Loan Party hereby releases. Each Loan Party
further agrees, at the Administrative Agent's request, to assemble the
Collateral make it available to the Administrative Agent at places which the
Administrative Agent shall reasonably select, whether at such Loan Party's
premises or elsewhere. The Administrative Agent shall apply the proceeds of any
such collection, recovery, receipt, appropriation, realization or sale (net of
all expenses incurred by the Administrative Agent in connection therewith,
including, without limitation, attorney's fees and expenses), to the Obligations
as provided for in Section 2.14 (Payments and Computations; Protective Advances)
in any order deemed appropriate by the Administrative Agent, such Loan Party
remaining liable for any deficiency remaining unpaid after such application, and
only after so paying over such net proceeds and after the payment by the
Administrative Agent of any other amount required by any provision of law,
including the UCC, need the Administrative Agent account for the surplus, if
any, to such Loan Party. To the maximum extent permitted by applicable law, each
Loan Party waives all Claims, damages, and demands against the Administrative
Agent and the Lenders arising out of the repossession, retention or sale of the
Collateral except such as arise out of the gross negligence or willful
misconduct of the Administrative Agent. Each Loan Party agrees that the
Administrative Agent need not give more than seven (7) days' notice to the
Borrower (which notification shall be deemed given when mailed or delivered on
an overnight basis, postage prepaid, addressed to the Borrower at its address
referred to in Section 13.8) of the time and place of any public sale or of the
time after which a private sale may take place and that such notice is
reasonable notification of such matters. The Loan Parties shall remain liable
for any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which the Administrative Agent is
entitled.

          (b) Waiver. Each Loan Party hereby waives presentment, demand, protest
or any notice subject to any requirement of notice provided in the Bankruptcy
Order (to the maximum extent permitted by applicable law) of any kind in
connection with this Agreement or any Collateral.

          (c) Pledged Collateral.

               (i) During the continuance of an Event of Default, after the
     Administrative Agent shall give notice of its intent to exercise such
     rights to the relevant Loan Party or Loan Parties to the extent required in
     the Bankruptcy Orders, (i) the Administrative Agent shall have the right to
     receive any and all cash dividends, payments

                                     -105-



     or other Proceeds paid in respect of the Pledged Collateral and make
     application thereof to the Obligations in the order set forth herein, and
     (ii) the Administrative Agent or its nominee may exercise (A) all voting,
     consent, corporate and other rights pertaining to the Pledged Collateral at
     any meeting of shareholders, partners or members, as the case may be, of
     the relevant issuer or issuers of Pledged Collateral or otherwise and (B)
     any and all rights of conversion, exchange and subscription and any other
     rights, privileges or options pertaining to the Pledged Collateral as if it
     were the absolute owner thereof (including the right to exchange at its
     discretion any and all of the Pledged Collateral upon the merger,
     consolidation, reorganization, recapitalization or other fundamental change
     in the corporate structure of any issuer of Pledged Securities, the right
     to deposit and deliver any and all of the Pledged Collateral with any
     committee, depositary, transfer agent, registrar or other designated agency
     upon such terms and conditions as the Administrative Agent may determine),
     all without liability except to account for property actually received by
     it, but the Administrative Agent shall have no duty to any Loan Party to
     exercise any such right, privilege or option and shall not be responsible
     for any failure to do so or delay in so doing.

               (ii) In order to permit the Administrative Agent to exercise the
     voting and other consensual rights which it may be entitled to exercise
     pursuant hereto and to receive all dividends and other distributions which
     it may be entitled to receive hereunder, (i) each Loan Party shall promptly
     execute and deliver (or cause to be executed and delivered) to the
     Administrative Agent all such proxies, dividend payment orders and other
     instruments as the Administrative Agent may from time to time reasonably
     request and (ii) without limiting the effect of clause (i) above, such Loan
     Party hereby grants to the Administrative Agent an irrevocable proxy to
     vote all or any part of the Pledged Collateral and to exercise all other
     rights, powers, privileges and remedies to which a holder of the Pledged
     Collateral would be entitled (including giving or withholding written
     consents of shareholders, partners or members, as the case may be, calling
     special meetings of shareholders, partners or members, as the case may be,
     and voting at such meetings), which proxy shall be effective, automatically
     and without the necessity of any action (including any transfer of any
     Pledged Collateral on the record books of the issuer thereof) by any other
     person (including the issuer of such Pledged Collateral or any officer or
     agent thereof) during the continuance of an Event of Default and subject to
     any notice requirement provided for in the Bankruptcy Order and which proxy
     shall only terminate upon the payment in full of the Secured Obligations.

               (iii) Each Loan Party hereby expressly authorizes and instructs
     each issuer of any Pledged Collateral pledged hereunder by such Loan Party
     to (i) comply with any instruction received by it from the Administrative
     Agent in writing that (A) states that an Event of Default has occurred and
     is continuing and (B) is otherwise in accordance with the terms of this
     Agreement, without any other or further instructions from such Loan Party,
     and each Loan Party agrees that such issuer shall be fully protected in so
     complying and (ii) unless otherwise expressly permitted hereby, pay any
     dividends or other payments with respect to the Pledged Collateral directly
     to the Administrative Agent.

          Section 11.8 The Administrative Agent's Appointment as
Attorney-in-Fact

          (a) Appointment. Each Loan Party hereby irrevocably constitutes and
appoints the Administrative Agent and any officer or agent thereof, with full
power of substitution, as its

                                     -106-



and its Subsidiaries true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of such Loan Party and in the name of
such Loan Party, or in its own name, from time to time in the Administrative
Agent's discretion, for the purpose of carrying out the terms of this Agreement,
to take any and all appropriate action and to execute and deliver any and all
documents and instruments which may be necessary and desirable to accomplish the
purposes of this Agreement and the transactions contemplated hereby, and,
without limiting the generality of the foregoing, hereby give the Administrative
Agent the power and right, on behalf of such Loan Party, subject to any notice
requirement provided in the Bankruptcy Orders, do the following:

               (i) to ask, demand, collect, receive and give acquittances and
     receipts for any and all moneys due and to become due under any Collateral
     and, in the name of such Loan Party, its own name or otherwise, to take
     possession of and endorse and collect any checks, drafts, notes,
     acceptances or other Instruments for the payment of moneys due under any
     Collateral and to file any Claim or to take any other action or proceeding
     in any court of law or equity or otherwise deemed appropriate by the
     Administrative Agent for the purpose of collecting any and all such moneys
     due under any Collateral whenever payable and to file any Claim or to take
     any other action or proceeding in any court of law or equity or otherwise
     deemed appropriate by the Administrative Agent for the purpose of
     collecting any and all such moneys due under any Collateral whenever
     payable;

               (ii) to pay or discharge taxes, liens, security interests or
     other encumbrances levied or placed on or threatened against the
     Collateral, to effect any repairs or any insurance called for by the terms
     of this Agreement and to pay all or any part of the premiums therefor and
     the costs thereof; and

               (iii) (A) to direct any party liable for any payment under any of
     the Collateral to make payment of any and all moneys due, and to become due
     thereunder, directly to the Administrative Agent or as the Administrative
     Agent shall direct; (B) to receive payment of and receipt for any and all
     moneys, Claims and other amounts due, and to become due at any time, in
     respect of or arising out of any Collateral; (C) to sign and indorse any
     invoices, freight or express bills, bills of lading, storage or warehouse
     receipts, drafts against debtors, assignments, verifications and notices in
     connection with accounts and other documents constituting or relating to
     the Collateral; (D) to commence and prosecute any suits, actions or
     proceedings at law or equity in any court of competent jurisdiction to
     collect the Collateral or any part thereof and to enforce any other right
     in respect of any Collateral; (E) to defend any suit, action or proceeding
     brought against any Loan Party with respect to any Collateral of such Loan
     Party; (F) to settle, compromise or adjust any suit, action or proceeding
     described above and, in connection therewith, to give such discharges or
     releases as the Administrative Agent may deem appropriate; (G) to license
     or, to the extent permitted by an applicable license, sublicense, whether
     general, special or otherwise, and whether on an exclusive or non-exclusive
     basis, any trademarks, throughout the world for such term or terms, on such
     conditions, and in such manner, as the Administrative Agent shall in its
     sole discretion determine; and (H) generally to sell, transfer, pledge,
     make any agreement with respect to or otherwise deal with any of the
     Collateral as fully and completely as though the Administrative Agent were
     the absolute owner thereof for all purposes, and to do, at the
     Administrative Agent's option and such Loan Party's expense, at any time,
     or from time to time, all acts

                                     -107-



     and things which the Administrative Agent reasonably deems necessary to
     protect, preserve or realize upon the Collateral and the Administrative
     Agent's Lien therein, in order to effect the intent of this Agreement, all
     as fully and effectively as such Loan Party might do.

          (b) Limitations. The Administrative Agent agrees that it will forbear
from exercising the power of attorney or any rights granted to the
Administrative Agent pursuant to this Section 11.8, except upon the occurrence
or during the continuation of an Event of Default. The Loan Parties hereby
ratify, to the extent permitted by law, all that said attorneys shall lawfully
do or cause to be done by virtue hereof. Subject only to the any requirement of
notice provided in the Bankruptcy Orders, exercise by the Administrative Agent
of the powers granted hereunder is not a violation of the automatic stay
provided by section 362 of the Bankruptcy Code and each Loan Party waives
applicability thereof. The power of attorney granted pursuant to this Section
11.8 is a power coupled with an interest and shall be irrevocable until the
Obligations are indefeasibly paid in full.

          (c) Purpose of Grant. The powers conferred on the Administrative Agent
hereunder are solely to protect the Secured Parties' interests in the Collateral
and shall not impose any duty upon it to exercise any such powers. The
Administrative Agent shall be accountable only for amounts that it actually
receives as a result of the exercise of such powers and neither it nor any of
its officers, directors, employees or agents shall be responsible to any Loan
Party for any act or failure to act, except for its or its employees or agents
own gross negligence or willful misconduct.

          Section 11.9 Modifications

          (a) Liens. The Liens, lien priority, administrative priorities and
other rights and remedies granted to the Administrative Agent for the benefit of
the Lenders and the other Secured Parties pursuant to this Agreement and the
Bankruptcy Orders (specifically, including, but not limited to, the existence,
perfection and priority of the Liens provided herein and therein and the
administrative priority provided herein and therein) shall not be modified,
altered or impaired in any manner by any other financing or extension of credit
or incurrence of Indebtedness by any of the Loan Parties (pursuant to section
364 of the Bankruptcy Code or otherwise), or by any dismissal or conversion of
any of the Cases, or by any other act or omission whatsoever.

          (b) Effect of Interim Order and Final Order. Notwithstanding any
failure on the part of any Loan Party or the Administrative Agent or the other
Secured Parties to perfect, maintain, protect or enforce the liens and security
interests in the Collateral granted hereunder, the Interim Order and the Final
Order (when entered) shall automatically, and without further action by any
Person, perfect such liens and security interests against the Collateral.

                                  Article XII

                      THE ADMINISTRATIVE AGENT; THE AGENTS

          Section 12.1 Authorization and Action

          (a) Appointment of Agents. Each Lender and each Issuer hereby appoints
CUSA as the Administrative Agent hereunder, and each Lender and each Issuer
authorizes the

                                     -108-



Administrative Agent to take such action as agent on its behalf and to exercise
such powers under this Agreement and the other Loan Documents as are delegated
to the Administrative Agent under such agreements and to exercise such powers as
are reasonably incidental thereto. Without limiting the foregoing, each Lender
and each Issuer hereby authorizes the Administrative Agent to execute and
deliver, and to perform its obligations under, each of the Loan Documents to
which the Administrative Agent is a party, to exercise all rights, powers and
remedies that the Administrative Agent may have under such Loan Documents to act
as agent for the Lenders, Issuers and the other Secured Parties under such Loan
Documents. Each Lender and each Issuer hereby appoints (i) each of Fleet and CIT
as Documentation Agent, (ii) each of Heller and GMAC as Syndication Agent and
(iii) Heller as Collateral Monitoring Agent, and hereby authorizes each of them
to act in their respective capacity on behalf of such Lender in accordance with
the terms of this Agreement and the other Loan Documents.

          (b) Instructions of the Requisite Lenders. As to any matters not
expressly provided for by this Agreement and the other Loan Documents (including
enforcement or collection), neither the Administrative Agent nor the Collateral
Monitoring Agent shall be required to exercise any discretion or take any
action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Requisite Lenders, and such instructions shall be binding upon all Lenders
and each Issuer; provided, however, that neither the Administrative Agent nor
the Collateral Monitoring Agent shall be required to take any action that (i)
the Administrative Agent or the Collateral Monitoring Agent, as the case may be,
in good faith believes could expose it to personal liability unless the
Administrative Agent or the Collateral Monitoring Agent, as the case may be,
receives an indemnification satisfactory to it from the Lenders and the Issuers
with respect to such action or (ii) is contrary to this Agreement or applicable
Requirements of Law. The Administrative Agent and the Collateral Monitoring
Agent each agree to give to each Lender and each Issuer prompt notice of each
notice given to it by any Loan Party pursuant to the terms of this Agreement or
the other Loan Documents.

          (c) No Fiduciary Relationship. In performing its functions and duties
hereunder and under the other Loan Documents, each of the Administrative Agent
and the Collateral Monitoring Agent is acting solely on behalf of the Lenders
and the Issuers and the duties of the Administrative Agent and the Collateral
Monitoring Agent are entirely administrative in nature. Neither the
Administrative Agent nor the Collateral Agent assumes (and shall not be deemed
to have assumed) any obligation other than as expressly set forth herein and in
the other Loan Documents or any other relationship as the agent, fiduciary or
trustee of or for any Lender, Issuer or holder of any other Obligation. Each of
the Administrative Agent and the Collateral Monitoring Agent may perform any of
its duties under any Loan Document by or through its agents or employees.

          (d) Duties of Certain Agents. Notwithstanding anything to the contrary
contained in this Agreement, each of the Documentation Agents and Syndication
Agents is a Lender designated as "Documentation Agent" or "Syndication Agent",
as the case may be, for title purposes only and in such capacity shall have no
obligations or duties whatsoever under this Agreement or any other Loan Document
to any Loan Party, any Lender or any Issuer and shall have no rights separate
from its rights as a Lender except as expressly provided in this Agreement.

          (e) Duties of Collateral Monitoring Agent. Notwithstanding anything to
the contrary contained in this Agreement, the Collateral Monitoring Agent is a
Lender designated as

                                     -109-



"Collateral Monitoring Agent", for title purposes only and in such capacity
shall have no obligations or duties whatsoever under this Agreement or any other
Loan Document to any Loan Party, any Lender or any Issuer except as expressly
provided in this Agreement and shall have no rights separate from its rights as
a Lender except as expressly provided in this Agreement.

          (f) Duties of the Arranger and Co-Arranger. Notwithstanding anything
to the contrary contained in this Agreement, each of the Arranger and the
Co-Arranger are designated as such for title purposes only and in such capacity
shall have no obligations or duties whatsoever under this Agreement or any other
Loan Document to any Loan Party, any Lender or any Issuer and shall have no
rights except as expressly provided for in the Agreement or the other Loan
Documents.

          (g) Removal of Collateral Monitoring Agent. The Requisite Lenders by
written notice may remove the Collateral Monitoring Agent and appoint a
successor Collateral Monitoring Agent. Such notice shall be effective
immediately upon receipt by the Collateral Monitoring Agent. In the event that
the Requisite Lenders deliver notice of the removal of the Collateral Monitoring
Agent and do not appoint a successor Collateral Monitoring Agent, or such
successor Collateral Monitoring Agent does not accept such appointment, the
Administrative Agent shall act as Collateral Monitoring Agent in accordance with
Section 12.6 (Successor Administrative Agent; Successor Collateral Monitoring
Agent).

          Section 12.2 Agents' Reliance, Etc.

          None of the Administrative Agent, the Collateral Monitoring Agent, any
of their respective Affiliates or any of their respective directors, officers,
agents or employees shall be liable for any action taken or omitted to be taken
by it, him, her or them under or in connection with this Agreement or the other
Loan Documents, except for its, his, her or their own gross negligence or
willful misconduct. Without limiting the foregoing, the Administrative Agent (a)
may treat the payee of any Note as its holder until such Note has been assigned
in accordance with Section 13.2 (Assignments and Participations), (b) may rely
on the Register to the extent set forth in Section 13.2(c) (Assignments and
Participations), (c) may consult with legal counsel (including counsel to the
Borrower or any other Loan Party), independent public accountants and other
experts selected by it and shall not be liable for any action taken or omitted
to be taken in good faith by it in accordance with the advice of such counsel,
accountants or experts, (d) makes no warranty or representation to any Lender or
Issuer and shall not be responsible to any Lender or Issuer for any statements,
warranties or representations made by or on behalf of the Borrower or any of its
Subsidiaries in, or in connection with, this Agreement or any of the other Loan
Documents, (e) shall not be responsible to any Lender or Issuer for the due
execution, legality, validity, enforceability, genuineness, sufficiency or value
of, or the attachment, perfection or priority of any Lien created or purported
to be created under or in connection with, this Agreement or any other Loan
Document or any other instrument or document furnished pursuant hereto or
thereto and (f) shall incur no liability under or in respect of this Agreement
or any other Loan Document by acting upon any notice, consent, certificate or
other instrument or writing (which writing may be a telecopy or electronic mail)
or any telephone message believed by it to be genuine and signed or sent by the
proper party or parties. In addition and without limiting the foregoing, the
Collateral Monitoring Agent (a) may consult with legal counsel (including
counsel to the Borrower or any other Loan Party), independent public accountants
and other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
counsel, accountants or experts and (b) makes no warranty or representation to
any Lender or Issuer and shall not be responsible to any Lender or Issuer for

                                      -110-



any statements, warranties or representations made by or on behalf of the
Borrower or any of its Subsidiaries in, or in connection with, this Agreement or
any of the other Loan Documents. Furthermore, each of the Administrative Agent
and the Collateral Monitoring Agent shall not have any duty to ascertain or to
inquire either as to (i) the performance or observance of any term, covenant or
condition of this Agreement or any other Loan Document, (ii) the financial
condition of any Loan Party or (iii) the existence or possible existence of any
Default or Event of Default.

          Section 12.3 The Agents as Lenders

          With respect to its Ratable Portion, each Agent shall have and may
exercise the same rights and powers hereunder and is subject to the same
obligations and liabilities as and to the extent set forth herein for any other
Lender. The terms "Lenders," "Requisite Lenders," and any similar term shall,
unless the context clearly otherwise indicates, include, without limitation,
each Agent in its individual capacity as a Lender or, as the case may be, as one
of the Requisite Lenders. Each Agent and each of their respective Affiliates may
accept deposits from, lend money to and generally engage in any kind of banking,
trust or other business with, any Loan Party as if such Agent or such Affiliate
were not acting as Agent.

          Section 12.4 Lender Credit Decision

          Each Lender and each Issuer acknowledges that it shall, independently
and without reliance upon the Agents or any other Lender conduct its own
independent investigation of the financial condition and affairs of the
Borrower, its Material Subsidiaries and each other Loan Party in connection with
the making and continuance of the Loans and with the Issuance of the Letters of
Credit. Each Lender and each Issuer also acknowledges that it shall,
independently and without reliance upon any Agent or any other Lender and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
this Agreement and other Loan Documents.

          Section 12.5 Indemnification

          Each Lender agrees to indemnify the Administrative Agent, the
Collateral Monitoring Agent, each of their respective Affiliates, and each of
their respective directors, officers, employees, agents and advisors (to the
extent not reimbursed by the Borrower), from and against such Lender's aggregate
Ratable Portion of any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses and disbursements
(including fees and disbursements of legal counsel) of any kind or nature
whatsoever that may be imposed on, incurred by, or asserted against, the
Administrative Agent, the Collateral Monitoring Agent, any of their Affiliates
or any of their respective directors, officers, employees, agents and advisors
in any way relating to or arising out of this Agreement or the other Loan
Documents or any action taken or omitted by the Administrative Agent or the
Collateral Monitoring Agent under this Agreement or the other Loan Documents;
provided, however, that no Lender shall be liable to the Administrative Agent,
the Collateral Monitoring Agent, any of their Affiliates or any of their
respective directors, officers, employees, agents and advisors for any portion
of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from the
Administrative Agent's, the Collateral Monitoring Agent's or such Affiliate's
gross negligence or willful misconduct. Without limiting the foregoing, each
Lender agrees to reimburse the Administrative Agent promptly upon demand for its
ratable share of any out-of-pocket expenses (including fees and disbursements of
legal counsel) incurred by the Administrative Agent in connection with the
preparation, execution, delivery, administration,

                                     -111-



modification, amendment or enforcement (whether through negotiations, Legal
Proceedings or otherwise) of, or legal advice in respect of its rights or
responsibilities under, this Agreement or the other Loan Documents, to the
extent that the Administrative Agent is not reimbursed for such expenses by the
Borrower or another Loan Party.

          Section 12.6 Successor Administrative Agent; Successor Collateral
Monitoring Agent

          (a) Successor Administrative Agent. The Administrative Agent may
resign at any time by giving written notice thereof to the Lenders and the
Borrower. Upon any such resignation, the Requisite Lenders shall have the right
to appoint a successor Administrative Agent. If no successor Administrative
Agent shall have been so appointed by the Requisite Lenders, and shall have
accepted such appointment, within thirty (30) days after the retiring
Administrative Agent's giving of notice of resignation, then the retiring
Administrative Agent may, on behalf of the Lenders, appoint a successor
Administrative Agent selected from among the Lenders. In either case, such
appointment shall be subject to the prior written approval of the Borrower
(which approval may not be unreasonably withheld and shall not be required upon
the occurrence and during the continuance of an Event of Default). Upon the
acceptance of any appointment as Administrative Agent by a successor
Administrative Agent, such successor Administrative Agent shall succeed to, and
become vested with, all the rights, powers, privileges and duties of the
retiring Administrative Agent, and the retiring Administrative Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. Prior to any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the retiring Administrative Agent shall take
such action as may be necessary to assign to the successor Administrative Agent
its rights as Administrative Agent under the Loan Documents. After such
resignation, the retiring Administrative Agent shall continue to have the
benefit of this Article XII as to any actions taken, or omitted to be taken, by
it while it was Administrative Agent under this Agreement and the other Loan
Documents.

          (b) Successor Collateral Monitoring Agent. The Collateral Monitoring
Agent may resign at any time by giving written notice thereof to the Lenders and
the Borrower. Upon any such resignation, the Requisite Lenders shall have the
right to appoint a successor Collateral Monitoring Agent. If no successor
Collateral Monitoring Agent shall have been so appointed by the Requisite
Lenders, and shall have accepted such appointment, within thirty (30) days after
the retiring Collateral Monitoring Agent's giving of notice of resignation, then
the Administrative Agent shall act as successor Collateral Monitoring Agent
until such time as the Requisite Lenders appoint a successor Collateral
Monitoring Agent. In either case, such appointment shall be subject to the prior
written approval of the Borrower (which approval may not be unreasonably
withheld and shall not be required upon the occurrence and during the
continuance of an Event of Default). Upon the acceptance of any appointment as
Collateral Monitoring Agent by a successor Collateral Monitoring Agent, such
successor Collateral Monitoring Agent shall succeed to, and become vested with,
all the rights, powers, privileges and duties of the retiring Collateral
Monitoring Agent, and the retiring Collateral Monitoring Agent shall be
discharged from its duties and obligations under this Agreement and the other
Loan Documents. Prior to any retiring Collateral Monitoring Agent's resignation
hereunder as Collateral Monitoring Agent, the retiring Collateral Monitoring
Agent shall take such action as may be necessary to assign to the successor
Collateral Monitoring Agent its rights as Collateral Monitoring Agent under the
Loan Documents. After such resignation, the retiring Collateral Monitoring Agent
shall continue to

                                     -112-



have the benefit of this Article XII as to any actions taken, or omitted to be
taken, by it while it was Collateral Monitoring Agent under this Agreement and
the other Loan Documents.

          Section 12.7 Concerning the Collateral and the Loan Documents

          (a) Authorization to Enter into Loan Documents. Each Lender and each
Issuer agrees that any action taken by the Administrative Agent or the Requisite
Lenders in accordance with the provisions hereof or of the other Loan Documents,
and the exercise by the Administrative Agent or the Requisite Lenders of the
powers set forth herein or therein, together with such other powers as are
reasonably incidental thereto, shall be authorized and binding upon all of the
Lenders, Issuers and other Secured Parties. Without limiting the generality of
the foregoing, the Administrative Agent shall have the sole and exclusive right
and authority to (i) act as the disbursing and collecting agent for the Lenders
and the Issuers with respect to all payments and collections arising in
connection herewith and with the Loan Documents, (ii) execute and deliver each
Loan Document (other than this Agreement) and accept delivery of each such
agreement delivered by the Borrower or any of its Material Subsidiaries, (iii)
act as collateral agent for the Lenders, the Issuers and the other Secured
Parties for purposes of the perfection of all security interests and Liens
created by such agreements and all other purposes stated therein, provided,
however, that the Administrative Agent hereby appoints, authorizes and directs
each Lender and Issuer to act as collateral sub-agent for the Administrative
Agent, the Lenders and the Issuers for purposes of the perfection of all
security interests and Liens with respect to the Borrower's and its Material
Subsidiaries' respective Deposit Accounts maintained with, and cash and Cash
Equivalents held by, such Lender or such Issuer, (iv) manage, supervise and
otherwise deal with the Collateral, (v) take such action as is necessary or
desirable to maintain the perfection and priority of the security interests and
Liens created or purported to be created by the Loan Documents and (vi) except
as otherwise specifically restricted by the terms hereof or of any other Loan
Document, exercise all remedies given to the Administrative Agent, the Lenders,
the Issuers and the other Secured Parties with respect to the Collateral under
the Loan Documents relating thereto, applicable Requirement of Law or otherwise.

          (b) Release of Liens. Each of the Lenders and the Issuers hereby
directs, in accordance with the terms hereof, the Administrative Agent to
release (or, in the case of clause (ii) below, release or subordinate) any Lien
held by the Administrative Agent for the benefit of the Lenders and the Issuers:

               (i) against all of the Collateral, upon termination of the
     Commitments and payment and satisfaction in full of all Loans,
     Reimbursement Obligations and all other Obligations that the Administrative
     Agent has been notified in writing are then due and payable (and, in
     respect of contingent Letter of Credit Obligations, with respect to which
     cash collateral has been deposited or a back-up letter of credit has been
     issued, in either case on terms satisfactory to the Administrative Agent
     and the applicable Issuers);

               (ii) against any part of the Collateral sold or disposed of by a
     Loan Party if such sale or disposition is permitted by this Agreement;

               (iii) against any assets that are subject to a Lien permitted by
     Section 8.2(d) or (e) (Liens, Etc.); and

               (iv) as expressly provided for in any Loan Document.

                                     -113-



Each of the Lenders and the Issuers hereby directs the Administrative Agent to
execute and deliver or file such termination and partial release statements and
do such other things as are necessary to release Liens to be released pursuant
to this Section 12.7 promptly upon the effectiveness of any such release.

          Section 12.8 Collateral Matters Relating to Related Obligations

          The benefit of the Loan Documents and of the provisions of this
Agreement relating to the Collateral shall extend to and be available in respect
of any Secured Obligation arising under any Hedging Contract or that is
otherwise owed to Persons other than the Administrative Agent, the Lenders and
the Issuers (collectively, "Related Obligations") solely on the condition and
understanding, as among the Administrative Agent and all Secured Parties, that
(i) the Related Obligations shall be entitled to the benefit of the Loan
Documents and the Collateral to the extent expressly set forth in this Agreement
and the other Loan Documents and to such extent the Administrative Agent shall
hold, and have the right and power to act with respect to, the Guaranty and the
Collateral on behalf of and as agent for the holders of the Related Obligations,
but the Administrative Agent is otherwise acting solely as agent for the Lenders
and the Issuers and shall have no fiduciary duty, duty of loyalty, duty of care,
duty of disclosure or other obligation whatsoever to any holder of Related
Obligations, (ii) all matters, acts and omissions relating in any manner to the
Guaranty, the Collateral, or the omission, creation, perfection, priority,
abandonment or release of any Lien, shall be governed solely by the provisions
of this Agreement and the other Loan Documents and no separate Lien, right,
power or remedy shall arise or exist in favor of any Secured Party under any
separate instrument or agreement or in respect of any Related Obligation, (iii)
each Secured Party shall be bound by all actions taken or omitted, in accordance
with the provisions of this Agreement and the other Loan Documents, by the
Administrative Agent and the Requisite Lenders, each of whom shall be entitled
to act at its sole discretion and exclusively in its own interest given its own
Commitments and its own interest in the Revolving Loans, the Swing Loans, Letter
of Credit Obligations and other Obligations to it arising under this Agreement
or the other Loan Documents, without any duty or liability to any other Secured
Party or as to any Related Obligation and without regard to whether any Related
Obligation remains outstanding or is deprived of the benefit of the Collateral
or becomes unsecured or is otherwise affected or put in jeopardy thereby, (iv)
no holder of Related Obligations and no other Secured Party (except the
Administrative Agent, the other Agents, the Lenders and the Issuers, to the
extent set forth in this Agreement) shall have any right to be notified of, or
to direct, require or be heard with respect to, any action taken or omitted in
respect of the Collateral or under this Agreement or the Loan Documents and (v)
no holder of any Related Obligation shall exercise any right of setoff, banker's
lien or similar right except as expressly provided in Section 13.6 (Right of
Set-off).

          Section 12.9 Special Provisions Relating to a Borrower's Plan

          Lenders constituting Special Majority Lenders may accept or reject the
treatment of Special Voting Claims in a Borrower's Plan and such acceptance or
rejection shall bind all of the Agents, Lenders and Issuers with respect to such
Special Voting Claims only if (i) the Obligations have not become due and
payable and the Commitments have not been terminated pursuant to the provisions
of Section 9.2 (Remedies), (ii) the Final Order has been issued within
forty-five (45) days of the Petition Date and is in effect and (iii) all
Pre-Petition Credit Agreement Claims have been paid in full. Notwithstanding
anything to the contrary in the Bankruptcy Code or any Loan Document, the
Borrower and each Guarantor agrees that in consideration of the forgoing
agreement of the Agents, Lenders and Issuers, neither Borrower nor any Guarantor
shall

                                     -114-



seek confirmation of any Borrower's Plan unless the same has been accepted by
Lenders constituting Special Majority Lenders. None of the Borrower or any
Guarantor shall propose any plan of reorganization in any of the Cases that
would impair the Special Voting Claims pursuant to Section 1129(b) of the
Bankruptcy Code. For the avoidance of doubt, the Borrower and the Guarantors
shall be beneficiaries of this Section 12.9.

          Section 12.10 Collateral Monitoring Agent

          The Collateral Monitoring Agent shall provide the Administrative Agent
with a confirmation of or objection to each Borrowing Base Certificate received
by the Collateral Monitoring Agent within one (1) Business Day of its receipt
thereof, and such material information obtained by the Collateral Monitoring
Agent as the Administrative Agent and the Collateral Monitoring Agent shall
agree in connection with the execution of its duties hereunder relating to the
value or condition of the Collateral for the purpose of permitting the
Administrative Agent to determine that Outstandings do not at any time exceed
the Maximum Credit. The Borrowing Base reflected in any Borrowing Base
Certificate shall become effective one (1) Business Day after the Collateral
Monitoring Agent confirms such Borrowing Base Certificate to the Administrative
Agent.

                                  ARTICLE XIII

                                  MISCELLANEOUS

          Section 13.1 Amendments, Waivers, Etc.

          (a) Amendments. No amendment or waiver of any provision of this
Agreement or any other Loan Document nor consent to any departure by any Loan
Party therefrom shall in any event be effective unless the same shall be in
writing and signed by the Requisite Lenders (or by the Administrative Agent as
specifically empowered hereunder or with the consent of the Requisite Lenders)
and, in the case of any amendment, by the Borrower, and then any such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that no amendment, waiver or consent
shall, unless in writing and signed:

               (i) by the Super-Majority Lenders, amend the definition of
     "Borrowing Base";

               (ii) by each Lender affected thereby, do any of the following:

                    (A) waive any condition specified in Section 3.1 (Conditions
          Precedent to the Effectiveness of this Agreement) (except as otherwise
          provided therein) or 3.2(b) (Conditions Precedent to Each Loan and
          Letter of Credit), except with respect to a condition based upon
          another provision hereof, the amendment of which requires only the
          consent of the Requisite Lenders, in which case only such consent
          shall be required to waive such condition;

                    (B) increase the Commitments of such Lender or subject such
          Lender to any additional obligation;

                                     -115-



                    (C) extend the scheduled final maturity of any Loan, or
          waive, reduce or postpone any scheduled date fixed for the payment or
          reduction of principal (it being understood that Section 2.10
          (Application of Proceeds) does not provide for scheduled dates fixed
          for payment) or reduce such Lender's Commitments;

                    (D) reduce the principal amount of any Loan or Reimbursement
          Obligation owing to such Lender (other than by the payment or
          prepayment thereof);

                    (E) reduce the rate of interest on any Loan or Reimbursement
          Obligation owing to such Lender or any fee payable hereunder to such
          Lender;

                    (F) postpone any scheduled date fixed for payment of such
          interest or fees to such Lender;

               (iii) by all the Lenders, do any of the following:

                    (A) release all, substantially all, or more than 25% of the
          net book value of the Collateral except as provided in Section 12.7(b)
          (Concerning the Collateral and the Loan Documents), in the Loan
          Documents, or release the Borrower from its obligations under this
          Agreement or the Notes, or release any Guarantor from its obligations
          under the Guaranty, except in connection with any sale or other
          disposition of such Guarantor permitted by this Agreement (or
          permitted pursuant to a waiver or consent of a transaction otherwise
          prohibited by this Agreement); or

                    (B) amend clause (i) of the definition of "Availability
          Reserves" in Section 1.1 (Defined Terms) to reduce the amount of
          "$35,000,000" specified therein or amend the definition of "Maximum
          Credit";

                    (C) amend Section 12.7(b) (Concerning the Collateral and the
          Loan Documents), this proviso, any provision requiring the consent of
          all Lenders or the definition of the term "Ratable Portion";

                    (D) amend Sections 2.14(f) (Application of Payments Prior to
          an Event of Default) or 2.14(g) (Application of Payments of After an
          Event of Default);

               (iv) by all Tranche B Lenders, amend the provision of Section 2.1
     (Tranches; Priority of Funding and Use) as it affects a Tranche B Lender;
     or

               (v) by Lenders holding 66 and 2/3% of the Commitments (or if the
     Commitments have been terminated, by Lenders holding 66 and 2/3% of the
     Outstandings), amend the definition of Special Events of Default, or

               (vi) by the Special Majority Lenders, amend Section 12.9 (Special
     Provision Relating to a Borrower's Plan);

                                     -116-



provided, further, that (A) no amendment, waiver or consent shall affect the
rights or duties of the Administrative Agent under this Agreement or the other
Loan Documents unless such amendment, waiver or consent is in writing and signed
by the Administrative Agent in addition to the Lenders otherwise required under
this Section 13.1 to take such action and (B) no amendment, waiver or consent
shall, unless in writing and signed by any Special Purpose Vehicle that has been
granted an option pursuant to clause (f) of Section 13.2(f) (Assignments and
Participations) affect the grant or nature of such option or the right or duties
of such Special Purpose Vehicle hereunder.

          (b) Execution of Amendments by Administrative Agent. The
Administrative Agent may, but shall have no obligation to, with the written
concurrence of any Lender, execute amendments, modifications, waivers or
consents on behalf of such Lender. Any waiver or consent shall be effective only
in the specific instance and for the specific purpose for which it was given. No
notice to or demand on the Borrower in any case shall entitle the Borrower to
any other or further notice or demand in similar or other circumstances.

          (c) Non-Consenting Lenders. If, in connection with any proposed
amendment, modification, waiver or termination (a "Proposed Change") requiring
the consent of all affected Lenders, the consent of Requisite Lenders is
obtained but the consent of other Lenders whose consent is required is not
obtained (any such Lender whose consent is not obtained as described in this
Section 13.1 being referred to as a "Non-Consenting Lender"), then, so long as
the Lender acting as the Administrative Agent is not a Non-Consenting Lender, at
the Borrower's request, the Administrative Agent or an Eligible Assignee
acceptable to the Administrative Agent shall have the right with the
Administrative Agent's consent and in the Administrative Agent's sole discretion
(but shall have no obligation) to purchase from such Non-Consenting Lender, and
such Non-Consenting Lender agrees that it shall, upon the Administrative Agent's
request, sell and assign to the Lender acting as the Administrative Agent or
such Eligible Assignee (in either case without recourse or warranty, all of the
Commitments, and Outstandings of such Non-Consenting Lender for an amount equal
to the principal balance of all Loans held by the Non-Consenting Lender plus all
accrued interest and fees with respect thereto through the date of sale less
unamortized upfront and closing fees, such purchase and sale to be consummated
pursuant to an executed Assignment and Acceptance.

          Section 13.2 Assignments and Participations

          (a) Right to Assign. Each Tranche A Lender may sell, transfer,
negotiate or assign to one or more Eligible Tranche A Assignees and each Tranche
B Lender may sell, transfer, negotiate or assign to one or more Eligible Tranche
B Assignees all or a portion of its rights and obligations hereunder (including
all of its rights and obligations with respect to the Revolving Loans, the Swing
Loans and the Letters of Credit); provided, however, that (i) if any such
assignment shall be of the assigning Lender's Outstandings and Commitment, such
assignment shall cover the same percentage of such Lender's Outstandings and
Commitment, (ii) the aggregate amount being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event (if less than the Assignor's
entire interest) be less than five million Dollars ($5,000,000) or an integral
multiple of one million Dollars ($1,000,000) in excess thereof; (iii) if such
assignee is not, prior to the date of such assignment, a Lender or an Affiliate
or Approved Fund of a Lender, such assignment shall be subject to (x) in the
case of rights and obligations of Tranche A Lenders and so long as Special
Majority Lenders may accept a Borrower's Plan under Section 12.9 to the prior
written consent of the Administrative Agent in its sole and absolute discretion,
(y) in the case of

                                     -117-



any Tranche A Revolving Loans or Tranche A Commitments held by the
Administrative Agent to the prior written consent of at least two (2) original
Tranche A Lenders (or if there are less than four (4) original Tranche A
Lenders, Tranche A Lenders holding at least fifty percent (50%) of the Tranche A
Commitments) in their sole and absolute discretion, and (z) and in all other
cases to the prior consent of the Administrative Agent and the Borrower (which
consent shall not be unreasonably withheld or delayed); and provided, further,
that, notwithstanding any other provision of this Section 13.2, the consent of
the Borrower shall not be required for any assignment occurring when any Event
of Default shall have occurred and be continuing.

          (b) Effect of Assignment. The parties to each assignment shall execute
and deliver to the Administrative Agent, for its acceptance and recording, an
Assignment and Acceptance, together with any Note (if the assigning Lender's
Loans are evidenced by a Note) subject to such assignment. Upon such execution,
delivery, acceptance and recording and the receipt by the Administrative Agent
from the assignee of an assignment fee in the amount of three thousand five
hundred Dollars ($3,500) from and after the effective date specified in such
Assignment and Acceptance, (i) the assignee thereunder shall become a party
hereto and, to the extent that rights and obligations under the Loan Documents
have been assigned to such assignee pursuant to such Assignment and Acceptance,
have the rights and obligations of a Lender (and shall be bound by Section 12.9)
and, if such Lender were an Issuer, of such Issuer hereunder and thereunder, and
(ii) the assignor thereunder shall, to the extent that rights and obligations
under this Agreement have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights (except those that survive the payment in full
of the Obligations) and be released from its obligations under the Loan
Documents, other than those relating to events or circumstances occurring prior
to such assignment (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and obligations
under the Loan Documents, such Lender shall cease to be a party hereto).

          (c) Maintenance of Records. The Administrative Agent shall maintain at
its address referred to in Section 13.13 (Notices, Etc.) a copy of each
Assignment and Acceptance delivered to and accepted by it and a register for the
recording of the names and addresses of the Lenders and the Commitments of and
principal amount of the Revolving Loans, Swing Loans and Letter of Credit
Obligations owing to each Lender from time to time (the "Register"). Any
assignment pursuant to this Section 13.2 shall not be effective until such
assignment is recorded in the Register. The entries in the Register shall be
conclusive and binding for all purposes, absent manifest error, and the Loan
Parties, the Administrative Agent and the Lenders may treat each Person whose
name is recorded in the Register as a Lender for all purposes of this Agreement.
The Register shall be available for inspection by the Borrower, the
Administrative Agent or any Lender at any reasonable time and from time to time
upon reasonable prior notice.

          (d) Tax Effect. Notwithstanding anything to the contrary contained in
the previous paragraph of this Section 13.2, the Loans (including the Notes
evidencing such Loans) are registered obligations and the right, title, and
interest of the Lenders and their assignees in and to such Loans shall be
transferable only upon notation of such transfer in the Register. A Note shall
only evidence the Lender's or an assignee's right title and interest in and to
the related Loan, and in no event is any such Note to be considered a bearer
instrument or obligation. This Section 13.2 shall be construed so that the Loans
are at all times maintained in "registered form" within the meaning of Sections
163(f), 871(h)(2) and 881(c)(2) of the Internal Revenue Code and any related
regulations (or any successor provisions of the Internal Revenue Code or such
regulations). Solely for purposes of this and for tax purposes only, the
Administrative Agent

                                     -118-



shall act as the Borrower's agent for purposes of maintaining such notations of
transfer in the Register.

          (e) Procedure for Assignment. Upon its receipt of an Assignment and
Acceptance executed by an assigning Lender and an assignee, the Administrative
Agent shall, if such Assignment and Acceptance has been completed, (i) accept
such Assignment and Acceptance, (ii) record the information contained therein in
the Register and (iii) give prompt notice thereof to the Borrower. Within five
(5) Business Days after its receipt of such notice, the Borrower, at its own
expense, shall, if requested by such assignee, execute and deliver to the
Administrative Agent, new Notes to the order of such assignee in an amount equal
to the Commitments assumed by it pursuant to such Assignment and Acceptance and,
if the assigning Lender has surrendered any Note for exchange in connection with
the assignment and has retained Commitments hereunder, new Notes to the order of
the assigning Lender in an amount equal to the Commitments retained by it
hereunder. Such new Notes shall be dated the same date as the surrendered Notes
and be in substantially the form of Exhibit A (Form of Revolving Credit Note).

          (f) Assignment to Special Purpose Vehicles, to the Federal Reserve
Bank or to a Trustee. In addition to the other assignment rights provided in
this Section 13.2, each Lender may (i) grant to a Special Purpose Vehicle the
option to make all or any part of any Loan that such Lender would otherwise be
required to make hereunder and the exercise of such option by any such Special
Purpose Vehicle and the making of Loans pursuant thereto shall satisfy (once and
to the extent that such Loans are made) the obligation of such Lender to make
such Loans thereunder, provided, however, that nothing herein shall constitute a
commitment or an offer to commit by such a Special Purpose Vehicle to make Loans
hereunder and no such Special Purpose Vehicle shall be liable for any indemnity
or other Obligation (other than the making of Loans for which such Special
Purpose Vehicle shall have exercised an option, and then only in accordance with
the relevant option agreement), and (ii) assign, as collateral or otherwise, any
of its rights under this Agreement (including rights to payments of principal or
interest on the Loans) to (x) any Federal Reserve Bank pursuant to Regulation A
of the Federal Reserve Board without notice to or consent of the Borrower or the
Administrative Agent, (y) any trustee for the benefit of the holders of such
Lender's Securities and (z) to any Special Purpose Vehicle to which such Lender
has granted an option pursuant to clause (i) above; and provided, further, that
no such assignment or grant shall release such Lender from any of its
obligations hereunder except as expressly provided in clause (i) above. The
parties hereto acknowledge and agree that, prior to the date that is one year
and one day after the payment in full in cash of all outstanding commercial
paper or other senior debt of any such Special Purpose Vehicle, it will not
institute against, or join any other Person in instituting against, any Special
Purpose Vehicle that has been granted an option pursuant to this clause (f) any
bankruptcy, reorganization, insolvency or liquidation proceeding (such agreement
shall survive payment in full of the Obligations).

          (g) Sale of Participations. Each Lender may sell participations to one
or more banks or other Persons in or to all or a portion of its rights and
obligations under the Loan Documents (including all its rights and obligations
with respect to the Loans and Letters of Credit); provided, however, that such
sale shall be effective only upon receipt by the Administrative Agent of a
notice of such sale in form and substance satisfactory to the Administrative
Agent. The terms of such participation shall not, in any event, require the
participant's consent to any amendments, waivers or other modifications of any
provision of any Loan Documents or the consent to any departure by any Loan
Party therefrom or to the exercising

                                     -119-



or refraining from exercising any powers or rights which such Lender may have
under or in respect of the Loan Documents (including the right to enforce the
obligations of the Loan Parties), except if any such amendment, waiver or other
modification or consent would (i) reduce the amount, or postpone any date fixed
for, any amount (whether of principal, interest or fees) payable to such
participant under the Loan Documents, to which such participant would otherwise
be entitled under such participation or (ii) result in the release of all or
substantially all of the Collateral other than in accordance with the Loan
Documents. In the event of the sale of any participation by any Lender, (A) such
Lender's obligations under the Loan Documents shall remain unchanged, (B) such
Lender shall remain solely responsible to the other parties hereto for the
performance of such obligations, (C) such Lender shall remain the holder of such
Obligations for all purposes of this Agreement, (D) such Lender shall disclose
to the Borrower the identity of each bank or other entity purchasing a
participation within a reasonable time after the sale and purchase of such
participation and (E) the Borrower, the Administrative Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement. Each
participant shall be entitled to the benefits of Sections 2.16 (Capital
Adequacy), 2.17 (Taxes) and 2.15(d) (Special Provisions Governing Eurodollar
Rate Loans) as if it were a Lender; provided, however, that anything herein to
the contrary notwithstanding, the Borrower shall not, at any time, be obligated
to make under Section 2.16 (Capital Adequacy), 2.17 (Taxes) or 2.15(d) (Special
Provisions Governing Eurodollar Rate Loans) to the participants in the rights
and obligations of any Lender (together with such Lender) any payment in excess
of the amount the Borrower would have been obligated to pay to such Lender in
respect of such interest had such participation not been sold.

          (h) Assignments by Issuers. Any Issuer may at any time assign its
rights and obligations hereunder to any Lender or any Affiliate of a Lender by
an instrument in form and substance satisfactory to the Borrower, the
Administrative Agent, such Issuer and such Lender. If any Issuer ceases to be a
Lender hereunder by virtue of any assignment made pursuant to this Section 13.2,
then, as of the effective date of such cessation, such Issuer's obligations to
Issue Letters of Credit pursuant to Section 2.4 (Letters of Credit) shall
terminate and such Issuer shall be an Issuer hereunder only with respect to
outstanding Letters of Credit issued prior to such date.

          Section 13.3 Costs and Expenses

          (a) Administrative Agent and the Collateral Monitoring Agent. The
Borrower agrees upon demand to pay, or reimburse the Administrative Agent for,
all of its reasonable internal and external audit, legal, appraisal, valuation,
filing, document duplication and reproduction and investigation expenses and for
all other reasonable out-of-pocket costs and expenses of every type and nature
(including, without limitation, the reasonable fees, expenses and disbursements
of the Administrative Agent's counsel, Weil, Gotshal & Manges LLP, local legal
counsel, auditors, accountants, appraisers, printers, insurance and
environmental advisers and other consultants and agents) incurred by the
Administrative Agent in connection with (i) the Administrative Agent's audit and
investigation of the Borrower and its Subsidiaries in connection with the
preparation, negotiation and execution of the Loan Documents and the
Administrative Agent's periodic audits of the Borrower and its Subsidiaries, as
the case may be, (ii) the preparation, negotiation, execution and interpretation
of this Agreement (including, without limitation, the satisfaction or attempted
satisfaction of any of the conditions set forth in Article III (Conditions
Precedent to the Effectiveness of this Agreement and to Loans and Letters of
Credit)), the Loan Documents and any proposal letter or commitment letter issued
in connection therewith and the making of the Loans hereunder, (iii) the
creation, perfection or protection of the

                                     -120-



                                                      National Steel Corporation
                                                                Credit Agreement

Liens under the Loan Documents (including, without limitation, any reasonable
fees and expenses for local counsel in various jurisdictions), (iv) the ongoing
administration of this Agreement and the Loans, including consultation with
attorneys in connection therewith and with respect to the Administrative Agent's
rights and responsibilities hereunder and under the other Loan Documents, (v)
the protection, collection or enforcement of any of the Obligations or the
enforcement of any of the Loan Documents, (vi) the commencement, defense or
intervention in any court proceeding relating in any way to the Obligations, any
Loan Party, any of the Borrower's Subsidiaries, the Pre-petition Credit
Agreement, this Agreement or any of the other Loan Documents, (vii) the response
to, and preparation for, any subpoena or request for document production with
which the Administrative Agent is served or deposition or other proceeding in
which the Administrative Agent is called to testify, in each case, relating in
any way to the Obligations, any Loan Party, any of the Borrower's Subsidiaries,
the Pre-petition Credit Agreement, this Agreement or any of the other Loan
Documents and (viii) any amendments, consents, waivers, assignments,
restatements, or supplements to any of the Loan Documents and the preparation,
negotiation, and execution of the same. In addition, the Borrower agrees upon
demand to pay, or reimburse the Collateral Monitoring Agent for, all reasonable
out-of-pocket expenses incurred by the Collateral Monitoring Agent in connection
with the Collateral Monitoring Agent's acting in such capacity hereunder.

          (b) Administrative Agent, Other Agents, Lenders and Issuers. The
Borrower further agrees to pay or reimburse the Administrative Agent and each of
the other Agents, Lenders and Issuers upon demand for all out-of-pocket costs
and expenses incurred during and after the occurrence of an Event of Default,
including, without limitation, reasonable attorneys' fees (including allocated
costs of internal counsel and costs of settlement), incurred by the
Administrative Agent, such Agents, Lenders or Issuers (i) in enforcing any Loan
Document or Obligation or any security therefor or exercising or enforcing any
other right or remedy available by reason of an Event of Default, (ii) in
connection with any refinancing or restructuring of the credit arrangements
provided hereunder in the nature of a "work-out" or in any insolvency or
bankruptcy proceeding, (iii) in commencing, defending or intervening in any
litigation or in filing a petition, complaint, answer, motion or other pleadings
in any legal proceeding relating to the Obligations, any Loan Party, any of the
Borrower's Subsidiaries and related to or arising out of the transactions
contemplated hereby or by any of the other Loan Documents and (iv) in taking any
other action in or with respect to any suit or proceeding (bankruptcy or
otherwise) described in clauses (i) through (iii) above.

          Section 13.4 Indemnities

          (a) Indemnification Against Third-Party Claims. The Borrower agrees to
indemnify and hold harmless the Administrative Agent, the Arranger, each other
Agent, the Co-Arranger, each Lender and each Issuer and each of their respective
Affiliates, and each of the directors, officers, employees, agents,
representative, attorneys, consultants and advisors of or to any of the
foregoing (including those retained in connection with the satisfaction or
attempted satisfaction of any of the conditions set forth in Article III
(Conditions Precedent to the Effectiveness of this Agreement and to Loans and
Letters of Credit)) (each such Person being an "Indemnitee") from and against
any and all claims, damages, liabilities, obligations, losses, penalties,
actions, judgments, suits, costs, disbursements and expenses of any kind or
nature (including fees and disbursements of counsel to any such Indemnitee) that
may be imposed on, incurred by or asserted against any such Indemnitee in
connection with or arising out of any investigation, litigation or proceeding,
whether or not any such Indemnitee is a party thereto,

                                     -121-



                                                      National Steel Corporation
                                                                Credit Agreement

whether direct, indirect, or consequential and whether based on any federal,
state or local law or other statutory regulation, securities or commercial law
or regulation, or under common law or in equity, or on contract, tort or
otherwise, in any manner relating to or arising out of the Pre-petition Credit
Agreement, this Agreement, any other Loan Document, any Obligation, any Letter
of Credit, or any act, event or transaction related or attendant to any thereof,
or the use or intended use of the proceeds of the Revolving Loans, Swing Loans
or Letters of Credit or in connection with any investigation of any potential
matter covered hereby (collectively, the "Indemnified Matters"); provided,
however, that the Borrower shall not have any obligation under this Section 13.4
to an Indemnitee with respect to any Indemnified Matter caused by or resulting
from the gross negligence or willful misconduct of that Indemnitee, as
determined by a court of competent jurisdiction in a final non-appealable
judgment or order. Without limiting the foregoing, Indemnified Matters include
(i) all Environmental Liabilities and Costs arising from or connected with the
past, present or future operations of the Borrower or any of its Subsidiaries
involving any property subject to a Loan Document, or damage to real or personal
property or natural resources or harm or injury alleged to have resulted from
any Release of Contaminants on, upon or into such property or any contiguous
real estate; (ii) any costs or liabilities incurred in connection with any
Remedial Action concerning any Borrower or any of its Subsidiaries; (iii) any
costs or liabilities incurred in connection with any Environmental Lien; (iv)
any costs or liabilities incurred in connection with any other matter under any
Environmental Law, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 49 U.S.C. ss.ss. 9601 et seq. and
applicable state property transfer laws, whether, with respect to any of such
matters, such Indemnitee is a mortgagee pursuant to any leasehold mortgage, a
mortgagee in possession, the successor in interest to the Borrower or any of its
Subsidiaries, or the owner, lessee or operator of any property of the Borrower
or any of its Subsidiaries by virtue of foreclosure, except, with respect to
those matters referred to in clauses (i), (ii), (iii) and (iv) above, to the
extent (A) incurred following foreclosure by the Administrative Agent, any other
Agent, any Lender or any Issuer, or the Administrative Agent, any other Agent,
any Lender or any Issuer having become the successor in interest to the Borrower
or any of its Subsidiaries and (B) attributable solely to acts of the
Administrative Agent, such other Agent, such Lender or such Issuer or any agent
on behalf of the Administrative Agent, such other Agent, such Lender or such
Issuer.

          (b) Reimbursement of Brokerage Fees. The Borrower shall indemnify the
Administrative Agent, the Arranger, each other Agent, the Co-Arranger, each
Lender and each Issuer for, and hold the Administrative Agent, the Arranger,
each other Agent, the Co-Arranger, each Lender and each Issuer harmless from and
against, any and all claims for brokerage commissions, fees and other
compensation made against the Administrative Agent, the Arranger, each other
Agent, the Co-Arranger, any Lender or any Issuer for any broker, finder or
consultant with respect to any agreement, arrangement or understanding made by
or on behalf of any Loan Party or any of its Subsidiaries in connection with the
transactions contemplated by the Pre-petition Credit Agreement or this
Agreement.

          (c) Notification of the Borrower. The Administrative Agent, the
Arranger, each other Agent, the Co-Arranger, each Lender and each Issuer agree
that in the event that any such investigation, litigation or proceeding set
forth in clause (b) above is asserted or threatened in writing or instituted
against it or any other Indemnitee, or any Remedial Action is requested of it or
any of its officers, directors, agents and employees, for which any Indemnitee
may desire indemnity or defense hereunder, such Indemnitee shall promptly notify
the Borrower in writing.

                                     -122-



          (d) Defense of Proceedings. The Borrower, at the request of any
Indemnitee, shall have the obligation to defend against such investigation,
litigation or proceeding or requested Remedial Action and the Borrower, in any
event, may participate in the defense thereof with legal counsel of the
Borrower's choice. In the event that such Indemnitee requests the Borrower to
defend against such investigation, litigation or proceeding or requested
Remedial Action, the Borrower shall promptly do so and such Indemnitee shall
have the right to have legal counsel of its choice participate in such defense.
No action taken by legal counsel chosen by such Indemnitee in defending against
any such investigation, litigation or proceeding or requested Remedial Action,
shall vitiate or in any way impair the Borrower's obligation and duty hereunder
to indemnify and hold harmless such Indemnitee.

          (e) Survival. The Borrower agrees that any indemnification or other
protection provided to any Indemnitee pursuant to this Agreement (including
pursuant to this Section 13.4) or any other Loan Document shall (i) survive
payment in full of the Obligations and (ii) inure to the benefit of any Person
who was at any time an Indemnitee under this Agreement or any other Loan
Document.

          Section 13.5 Limitation of Liability

          The Borrower agrees that no Indemnitee shall have any liability
(whether direct or indirect, in contract, tort or otherwise) to any Loan Party
or any of their respective Subsidiaries or any of their respective equity
holders or creditors for or in connection with the transactions contemplated
hereby and in the other Loan Documents, except for direct damages (as opposed to
special, indirect, consequential or punitive damages (including, without
limitation, any loss of profits, business or anticipated savings)) determined in
a final non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnitee's gross negligence or willful misconduct. The
Borrower hereby waives, releases and agrees (for itself and on behalf of its
Subsidiaries) not to sue upon any such claim for any special, indirect,
consequential or punitive damages, whether or not accrued and whether or not
known or suspected to exist in its favor.

          Section 13.6 Right of Set-off

          Upon the occurrence and during the continuance of any Event of Default
and subject only to any notice requirement provided in the Bankruptcy Orders,
each Lender and each Affiliate thereof is hereby authorized at any time and from
time to time, to the fullest extent permitted by Requirements of Law, to set off
and apply any and all deposits (general or special, time or demand, provisional
or final) at any time held and other indebtedness at any time owing by such
Lender or its Affiliates to or for the credit or the account of the Borrower
against any and all of the Obligations now or hereafter existing whether or not
such Lender shall have made any demand under this Agreement or any other Loan
Document and although such Obligations may be unmatured. Each Lender agrees
promptly to notify the Borrower after any such set-off and application made by
such Lender or its Affiliates; provided, however, that the failure to give such
notice shall not affect the validity of such set-off and application. The rights
of each Lender under this Section 13.6 are in addition to the other rights and
remedies (including other rights of set-off) that such Lender may have.

                                     -123-



                                                      National Steel Corporation
                                                                Credit Agreement

          Section 13.7 Sharing of Payments, Etc.

          (a) Purchase of Participations. If any Lender shall obtain any payment
(whether voluntary, involuntary, through the exercise of any right of set-off or
otherwise) of the Loans owed to it, an interest thereon, fees in respect thereof
or amounts due pursuant to Sections 13.3 (Costs and Expenses) and 13.4
(Indemnities) (other than pursuant to Section 2.15 (Special Provisions Governing
Eurodollar Rate Loans), 2.16 (Capital Adequacy) or 2.17 (Taxes)) in excess of
its Ratable Portion of all payments of such Obligations obtained by all the
Lenders on account of such Obligations, such Lender (a "Purchasing Lender")
shall forthwith purchase from the other Lenders (each, a "Selling Lender") such
participations in their Loans or other Obligations as shall be necessary to
cause such Purchasing Lender to share the excess payment ratably with each of
them.

          (b) Payment Refunded. If all or any portion of any payment received by
a Purchasing Lender is thereafter recovered from such Purchasing Lender, such
purchase from each Selling Lender shall be rescinded and such Selling Lender
shall repay to the Purchasing Lender the purchase price to the extent of such
recovery together with an amount equal to such Selling Lender's ratable share
(according to the proportion of (i) the amount of such Selling Lender's required
repayment to (ii) the total amount so recovered from the Purchasing Lender) of
any interest or other amount paid or payable by the purchasing Lender in respect
of the total amount so recovered.

          (c) Rights of Purchasing Lender. The Borrower agrees that any
Purchasing Lender so purchasing a participation from a Selling Lender pursuant
to this Section 13.7 may, to the fullest extent permitted by Requirements of
Law, exercise all its rights of payment (including the right of set-off) with
respect to such participation as fully as if such Lender were the direct
creditor of the Borrower in the amount of such participation.

          Section 13.8 Updating of Schedules

          The Borrower may from time to time deliver to the Administrative Agent
updates to Schedules 4.7, 4.19 and 4.21, and upon delivery of such updated
schedules such updated schedules shall be deemed to have been delivered on the
Effective Date for all purposes under this Agreement.

          Section 13.9 Independence of Representations and Warranties

          The parties hereto intend that each representation, warranty and
covenant contained herein shall have independent significance. If the Borrower
has breached any representation, warranty or covenant contained herein in any
respect, the fact that there exists another representation, warranty or covenant
relating to the same subject matter (regardless of the relative levels of
specificity) that the Borrower has not breached shall not detract from or
mitigate the fact that such party is in breach of the first representation,
warranty or covenant.

          Section 13.10 Governing Law

          This Agreement and the rights and obligations of the parties hereto
shall be governed by, and construed in accordance with, the law of the State of
New York, except to the extent the application of the Bankruptcy Code is
mandatory.

                                     -124-



                                                      National Steel Corporation
                                                                Credit Agreement

          Section 13.11 Submission to Jurisdiction; Consent to Service of
Process

          (a) Jurisdiction. Any legal action or proceeding with respect to this
Agreement or any other Loan Document may be brought in the courts of the State
of New York or of the United States of America for the Southern District of New
York, and, by execution and delivery of this Agreement, the Borrower hereby
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of the aforesaid courts, except to the extent
the jurisdiction of the Bankruptcy Court is mandatory. The parties hereto hereby
irrevocably waive any objection, including any objection to the laying of venue
or based on the grounds of forum non conveniens, that any of them may now or
hereafter have to the bringing of any such action or proceeding in such
respective jurisdictions.

          (b) Service of Process. The Borrower hereby irrevocably consents to
the service of any and all legal process, summons, notices and documents in any
suit, action or proceeding brought in the United States of America arising out
of or in connection with this Agreement or any of the other Loan Documents by
the mailing (by registered or certified mail, postage prepaid) or delivering of
a copy of such process to the Borrower at its address specified in Section 13.13
(Notices, Etc.). The Borrower agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.

          (c) Not Limiting. Nothing contained in this Section 13.11 shall affect
the right of the Administrative Agent, any other Agent or any Lender or Issuer
to serve process in any other manner permitted by law or commence legal
proceedings or otherwise proceed against the Borrower or any other Loan Party in
any other jurisdiction.

          (d) Foreign Currency. If for the purposes of obtaining judgment in any
court it is necessary to convert a sum due hereunder in Dollars into another
currency, the parties hereto agree, to the fullest extent that they may
effectively do so, that the rate of exchange used shall be that at which in
accordance with normal banking procedures the Administrative Agent could
purchase Dollars with such other currency at the spot rate of exchange quoted by
the Administrative Agent at 11:00 a.m. (New York time) on the Business Day
preceding that on which final judgment is given, for the purchase of Dollars,
for delivery two Business Days thereafter.

          Section 13.12 Waiver of Jury Trial

          Each of the Administrative Agent, the Agents, the Lenders, the Issuers
and the Borrower Irrevocably Waives Trial by Jury in Any Legal Proceeding or
Other Action or Proceeding With Respect to This Agreement or Any Other Loan
Document.

          Section 13.13 Notices, Etc.

          All notices, demands, requests and other communications provided for
in this Agreement shall be given in writing, or by any telecommunication device
capable of creating a written record (including electronic mail), and addressed
to the party to be notified as follows:

                                     -125-



          (a)      if to the Borrower:

                   National Steel Corporation
                   4100 Edison Lakes Parkway
                   Mishawaka, IN 46565-3440
                   Attention: William E. McDonough
                              Ronald J. Werhnyak, Esq.
                   Telecopy no:  (219) 273-7478
                   E-Mail Addresses:wmcdonough@nationalsteel.com
                                    ----------------------------
                                    rwehrnyak@nationalsteel.com
                                    ---------------------------

                   with a copy to:

                   Skadden, Arps, Slate, Meagher & Flom (ILLINOIS)
                   333 West Wacker Drive
                   Chicago, IL  60606
                   Attention:   Seth E. Jacobson, Esq.
                   Telecopy no:     (312) 407-8511
                   E-Mail Address:  sejacobs@skadden.com
                                    --------------------

          (b) if to any Lender, at its Domestic Lending Office specified
opposite its name on Schedule II or on the signature page of any applicable
Assignment and Acceptance;

          (c) if to any Issuer, at the address set forth under its name on
Schedule II; and

          (d) if to the Administrative Agent:

                   Citicorp USA, Inc.
                   388 Greenwich Street, 19th Floor
                   New York, New York 10013
                   Attention:  David Jaffe
                   Telecopy no:  (212) 816-2613
                   E-Mail Address:  david.jaffe@citi.com
                                    --------------------

                   with a copy to:

                   Weil, Gotshal & Manges LLP
                   767 Fifth Avenue
                   New York, New York  10153-0119
                   Attention:  Elaine Stangland, Esq.
                   Telecopy no:     (212) 310-8007
                   E-Mail Address:  elaine.stangland@weil.com
                                    -------------------------

                   if to the Collateral Monitoring Agent:

                   HELLER FINANCIAL, INC.
                   500 West Monroe Street
                   Chicago, IL  60661
                   Attention:  Linda Peddle
                   Telecopy no:     (312) 463-3823

                                     -126-



                                                      National Steel Corporation
                                                                Credit Agreement

                   with a copy to:

                   GOLDBERG, KOHN, BELL, BLACK,
                   ROSENBLOOM & MORITZ, LTD.
                   55 East Monroe Street, Suite 3700
                   Chicago, IL  60603
                   Attention:  James B. Rosenbloom, Esq.
                   Telecopy no:     (312) 332-2196

or at such other address as shall be notified in writing (i) in the case of the
Borrower and the Administrative Agent, to the other parties and (ii) in the case
of all other parties, to the Borrower and the Administrative Agent. All such
notices and communications shall be effective upon personal delivery (if
delivered by hand, including any overnight courier service), when deposited in
the mails (if sent by mail), or when properly transmitted (if sent by a
telecommunications device or through the Internet); provided, however, that
notices and communications to the Administrative Agent pursuant to Article II
(The Facilities) or Article XII (The Administrative Agent; The Agents) shall not
be effective until received by the Administrative Agent.

          Section 13.14 No Waiver; Remedies

          No failure on the part of any Lender, the Administrative Agent to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided under any Requirement of Law.

          Section 13.15 Execution in Counterparts; Effectiveness; Assignments by
the Borrower

          (a) Counterparts. This Agreement may be executed in any number of
counterparts and by different parties in separate counterparts, each of which
when so executed shall be deemed to be an original, and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
signature page of this Agreement by facsimile transmission shall be as effective
as delivery of a manually executed counterpart hereof. A set of the copies of
this Agreement signed by all parties shall be lodged with the Borrower and the
Administrative Agent. Signature pages may be detached from multiple separate
counterparts and attached to a single counterpart so that all signature pages
are attached to the same document.

          (b) Effectiveness. This Agreement shall become effective when it shall
have been executed by the Borrower, the Administrative Agent and the other
Agents, when the Administrative Agent shall have been notified by each Lender
that such Lender has executed it and when each of the conditions set forth in
Section 3.1 (Conditions Precedent to the Effectiveness of this Agreement) shall
have been satisfied (or satisfaction of such conditions shall have been duly
waived), and thereafter this Agreement shall be binding upon and inure to the
benefit of the Borrower, the Administrative Agent each other Agent and each
Lender and their respective successors and permitted assigns. The Borrower shall
not have the right to assign its rights hereunder or any interest herein without
the prior written consent of the Lenders.

                                     -127-



                                                      National Steel Corporation
                                                                Credit Agreement

          Section 13.16 Entire Agreement

          This Agreement, together with all of the other Loan Documents and all
certificates and documents delivered hereunder or thereunder, embodies the
entire agreement of the parties and supersedes all prior Contractual Obligations
relating to the subject matter hereof (and any such prior Contractual
Obligations are hereby terminated and of no further force and effect).

          Section 13.17 Further Assurances

          Each of the parties hereto agrees to execute and deliver such other
documents or agreements and to take such other action as may be reasonably
necessary or desirable for the implementation of this Agreement and the
consummation of the transactions contemplated hereby.

          Section 13.18 Confidentiality

          Each Lender, the Administrative Agent and each other Agent agrees to
keep information obtained by it pursuant hereto and pursuant to the other Loan
Documents confidential in accordance with such Lender's (or, as the case may be,
the Administrative Agent's or such other Agent's), customary practices and
agrees that it shall only use such information in connection with the
transactions contemplated by this Agreement and not disclose any of such
information other than (a) to the Agents and other Lenders and to such Lender's
(or, as the case may be, the Administrative Agent's or such other Agent's)
employees, representatives and agents who are or are expected to be involved in
the evaluation of such information in connection with the transactions
contemplated by this Agreement and who are advised of the confidential nature of
such information, (b) to the extent such information presently is or hereafter
becomes available to such Lender (or, as the case may be, the Administrative
Agent or such other Agent's) on a non-confidential basis from a source other
than the Borrower, (c) to the extent disclosure is required by any Requirement
of Law or Order or requested or required by bank regulators or auditors or
helpful in any Legal Proceeding or (d) to assignees, participants and Special
Purpose Vehicles grantees of any option described in Section 13.2(f)
(Assignments and Participations) (or potential assignees, participants or
grantees) who agree to be bound by the provisions of this Section 13.18.

          Section 13.19 Reservation of Rights to Object; Bankruptcy Orders
Controlling

          (a) Nothing in this Agreement shall impair or limit in any way the
right of the Administrative Agent, each other Agent, each Lender and each Issuer
under the Bankruptcy Code or non-bankruptcy law to object to or contest in any
manner any motion or action of any Person in the Cases.

          (b) In the event of any conflict between the Loan Documents and the
Bankruptcy Orders, the terms of the Bankruptcy Orders shall control (unless
otherwise provided for therein).

                            [Signature Pages Follow]

                                     -128-



          In Witness Whereof, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written. By its execution hereof each Lender acknowledges and
agrees to the provisions of this Agreement, including without limitation,
Section 12.9 (Special Provisions Relating to a Borrower's Plan).

                                      National Steel Corporation,
                                           as Borrower


                                      By:
                                            ------------------------------------
                                            Title:  Vice President and Treasurer


                                      Agents, Issuer, Arrangers:


                                      Citicorp USA, Inc.,
                                           as Administrative Agent


                                      By:
                                            ------------------------------------
                                            Title: Managing Director


                                      Heller Financial, Inc.
                                           as Syndication Agent


                                      By:
                                            ------------------------------------
                                            Title:


                                      Gmac Business Credit, LLC
                                           as Syndication Agent


                                      By:
                                            ------------------------------------
                                            Title:


                                      Fleet Capital Corporation
                                           as Documentation Agent


                                      By:
                                            ------------------------------------
                                            Title:


                                      The Cit Group/ Business Credit, Inc.
                                           as Documentation Agent


                                      By:
                                            ------------------------------------
                                            Title:

      [Signature Page To Credit Agreement For National Steel Corporation]



                                      Citibank, N.A.
                                           as Issuer


                                      By:
                                            ------------------------------------
                                            Title:


                                      Lenders:


                                      Citicorp USA, Inc.


                                      By:
                                            ------------------------------------
                                            Title:


                                      National City Commercial Finance, Inc.


                                      By:
                                            ------------------------------------
                                            Title:


                                      The Fuji Bank, Limited


                                      By:
                                            ------------------------------------
                                            Title:


                                      Heller Financial, Inc.


                                      By:
                                            ------------------------------------
                                            Title:


                                      Fleet Capital Corporation


                                      By:
                                            ------------------------------------
                                            Title:


                                      The Cit Group/Business Credit, Inc.


                                      By:
                                            ------------------------------------
                                            Title:


                                      Gmac Business Credit, LLC


                                      By:
                                            ------------------------------------
                                            Title:

       [Signature Page To Credit Agreement For National Steel Corporation]



                                      STATE OF CALIFORNIA PUBLIC
                                      EMPLOYEES' RETIREMENT SYSTEM
                                      (CALPERS)


                                      By:
                                            ------------------------------------
                                            Title:


                                      FOOTHILL CAPITAL


                                      By:
                                            ------------------------------------
                                            Title:


                                      ORIX FINANCIAL SERVICES


                                      By:
                                            ------------------------------------
                                            Title:

      [Signature Page To Credit Agreement For National Steel Corporation]



                                     Ns Holdings Corporation,
                                     National Steel Pellet Company,
                                     Procoil Corporation,
                                     American Steel Corporation,
                                     D.W. Pipeline Company,
                                     Granite City Steel Company,
                                     Granite Intake Corp.,
                                     Great Lakes Steel Corporation,
                                     The Hanna Furnace Corporation,
                                     Hanna Ore Mining Company,
                                     Ingleside Channel & Dock Co.,
                                     Ingleside Point Corporation,
                                     InglesidE Holdings, L.P.,
                                     Liberty Pipe And Tube, Inc.,
                                     Mid-Coast Minerals Corporation,
                                     Midwest Steel Corporation,
                                     Nsc Realty Corporation,
                                     Ns Land Company,
                                     Ns TECHNOLOGIES, INC.,
                                     NSL, INC.,
                                     NATCOAL, INC.,
                                     National Acquisition Corporation,
                                     National Caster Acquisition Corporation,
                                     National Casting Corporation,
                                     National Coal Mining Company,
                                     National Coating Limited Corporation,
                                     National Coating Line COrporation,
                                     National Materials Procurement Corporation,
                                     National Mines Corporation,
                                     National Ontario Corporation,
                                     National Ontario II, Limited,
                                     National Pickle Line Corporation,
                                     National Steel Corporation (New York),
                                     National Steel Funding Corporation,
                                     Natland Corporation,
                                     Peter White Coal Mining Corp.,
                                     Puritan Mining Company,
                                     Rostraver Corporation,
                                     Skar-Ore Steamship Corporation,
                                     The Teal Lake Iron Mining Company,
                                           as Guarantors


                                      By:
                                               ---------------------------------
                                      Title:       Authorized Signatory

      [Signature Page To Credit Agreement For National Steel Corporation]



                         Exhibits
                         --------

Exhibit A        -       Form of Revolving Credit Note

Exhibit B        -       Form of Notice of Borrowing

Exhibit C        -       Form of Notice of Conversion or Continuation

Exhibit D-1      -       Form of Bailee's Letter

Exhibit D-2      -       Form of Landlord's Waiver

Exhibit D-3      -       Form of Mortgagee's Waiver

Exhibit E        -       Form of Borrowing Base Certificate

Exhibit F        -       Form of Opinion of Counsel for the Loan Parties

Exhibit G        -       Form of Assignment and Acceptance

Exhibit H        -       Form of Letter of Credit Request

Exhibit I        -       Form of Interim Order

Exhibit J        -       Form of Deposit Account Control Agreement

Exhibit K        -       Form of Control Account Agreement

                                     -vii-



                                    Exhibit A

                      Tranche [A][B] Revolving Credit Note

Lender: [               ]                                     New York, New York
         ---------------
Principal Amount: [$]                                         March   , 2002
                                                                    --

          For Value Received, the undersigned, National Steel Corporation, a
Delaware corporation (the "Borrower"), hereby promises to pay to the order of
the Lender set forth above (the "Lender") the Principal Amount set forth above,
or, if less, the aggregate unpaid principal amount of all Tranche [A][B]
Revolving Loans (as defined in the DIP Credit Agreement referred to below) of
the Lender to the Borrower, payable at such times, and in such amounts, as are
specified in the DIP Credit Agreement.

          The Borrower promises to pay interest on the unpaid Principal Amount
of the Tranche [A][B] Revolving Loans from the date made until such Principal
Amount is paid in full, at such interest rates, and payable at such times, as
are specified in the DIP Credit Agreement.

          Both the Principal Amount and interest are payable in Dollars to
Citicorp USA, Inc., as Administrative Agent, at 388 Greenwich Street, 19th
Floor, New York, NY 10013, in immediately available funds.

          This Note is one of the Revolving Credit Notes referred to in, and is
entitled to the benefits of, the Secured Super Priority Debtor in Possession
Credit Agreement, dated as of March 6, 2002 (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "DIP Credit
Agreement"), among the Borrower, the Lenders and Issuers party thereto, Citicorp
USA, Inc. as administrative agent for the Lenders and Issuers, Heller Financial,
Inc. as collateral monitoring agent, Fleet Capital Corporation and The CIT
Group/Business Credit, Inc. as documentation agents, and Heller Financial, Inc.
and GMAC Business Credit, LLC as syndication agents. Capitalized terms used
herein and not defined herein are used herein as defined in the DIP Credit
Agreement.

          The DIP Credit Agreement, among other things, (i) provides for the
making of Tranche [A][B] Revolving Loans by the Lender to the Borrower in an
aggregate amount not to exceed at any time outstanding the Principal Amount set
forth above, the indebtedness of the Borrower resulting from such Revolving
Loans being evidenced by this Note and (ii) contains provisions for acceleration
of the maturity of the unpaid principal amount of this Note upon the happening
of certain stated events and also for prepayments on account of the principal
hereof prior to the maturity hereof upon the terms and conditions therein
specified.

          This Note is entitled to the benefits of the Guaranty and is secured
as provided in the Loan Documents. Demand, diligence, presentment, protest and
notice of non-payment and protest are hereby waived by the Borrower. This Note
shall be governed by, and construed and interpreted in accordance with, the law
of the State of New York.

          In Witness Whereof, the Borrower has caused this Note to be executed
and delivered by its duly authorized officer as of the day and year and at the
place set forth above.

                                                     National Steel Corporation


                                                     By:
                                                            --------------------
                                                            Title:

                                       A-1



                                    Exhibit B

                               Notice of Borrowing

Citicorp USA Inc.,
   as Administrative Agent under the
   DIP Credit Agreement referred to below
388 Greenwich Street, 19th Floor
New York, New York  10013                                                 [Date]

          Reference is made to the Secured Super Priority Debtor in Possession
Credit Agreement, dated as of March   , 2002 (as the same may be amended,
                                    --
restated, supplemented or otherwise modified from time to time, the "DIP Credit
Agreement"), among the Borrower, the Lenders and Issuers party thereto, Citicorp
USA, Inc. as administrative agent for the Lenders and Issuers, Heller Financial,
Inc. as collateral monitoring agent, Fleet Capital Corporation and The CIT
Group/Business Credit, Inc. as documentation agents, and Heller Financial, Inc.
and GMAC Business Credit, LLC as syndication agents. Capitalized terms used
herein and not otherwise defined herein are used herein as defined in the DIP
Credit Agreement.

          The Borrower hereby gives you notice, irrevocably, pursuant to Section
2.2 of the DIP Credit Agreement that the undersigned hereby requests a Borrowing
of Revolving Loans under the DIP Credit Agreement and, in that connection, sets
forth below the information relating to such Borrowing (the "Proposed
Borrowing") as required by Section 2.2 of the DIP Credit Agreement:

          (i) The date of the Proposed Borrowing is          ,        (the
                                                    ---------  ------
     "Funding Date").

          (ii) The aggregate amount of the Proposed Borrowing is $       , of
                                                                  -------
     which amount [$      consists of Base Rate Loans] [and $     consists of
                    -----                                    ----
     Eurodollar Rate Loans having an initial Interest Period of [[one] [two]
     [three] [six] month[s]].

          (iii) The Available Credit after giving effect to the Proposed
     Borrowing is [$       ].
                    -------

          The undersigned hereby certifies that the following statements are
true on the date hereof and shall be true on the Funding Date both before and
after giving effect thereto and to the application of the proceeds therefrom:

          (i) the representations and warranties set forth in Article IV of the
     DIP Credit Agreement and the other Loan Documents are true and correct in
     all material respects on and as of the Funding Date with the same effect as
     though made on and as of such date, except to the extent such
     representations and warranties expressly relate to an earlier date;

          (ii) no borrowing base deficiency exists as of the Issue Date; and



          (iii) no Immediate Default or Event of Default has occurred and is
     continuing on the Funding Date.

                                                     National Steel Corporation


                                                     By:
                                                            --------------------
                                                            Name:
                                                            Title:

                                       B-2



                                    Exhibit C

                      Notice of Conversion or Continuation

Citicorp USA Inc.,
   as Administrative Agent under the
   DIP Credit Agreement referred to below
388 Greenwich  Street, 19h Floor
New York, New York 10013                                                  [Date]

Attention:

          Re:  National Steel Corporation (the "Borrower")
               -------------------------------------------

          Reference is made to the Secured Super Priority Debtor in Possession
Credit Agreement, dated as of March 6, 2002 (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "DIP Credit
Agreement"), among the Borrower, the Lenders and Issuers party thereto, Citicorp
USA, Inc. as administrative agent for the Lenders and Issuers, Heller Financial,
Inc. as collateral monitoring agent, Fleet Capital Corporation and The CIT
Group/Business Credit, Inc. as documentation agents, and Heller Financial, Inc.
and GMAC Business Credit, LLC as syndication agents. Capitalized terms used
herein and not otherwise defined herein are used herein as defined in the DIP
Credit Agreement.

          The Borrower hereby gives you notice, irrevocably, pursuant to Section
2.11 of the DIP Credit Agreement that the undersigned hereby requests a
[conversion] [continuation] on         ,      of $             in principal
                               --------  ----     ------------
amount of presently outstanding Revolving Loans that are [Base Rate Loans]
[Eurodollar Rate Loans] having an Interest Period ending on         ,      [to]
                                                            --------  ----
[as] [Base Rate][Eurodollar Rate] Loans. [The Interest Period for such amount
requested to be converted to or continued as Eurodollar Rate Loans is [[one]
[two] [three] [six] month[s]].

          In connection herewith, the undersigned hereby certifies that no
Immediate Default or Event of Default has occurred and is continuing on the date
hereof.

                                                     National Steel Corporation


                                                     By:
                                                            --------------------
                                                            Name:
                                                            Title:

                                       C-1



                                  Exhibit D-1
                             Form of Bailee Waiver

                             [Letterhead of Company]

                                                                     , 200
                                                     ------------- --     -

By Certified First Class Mail
Return Receipt Requested
[NAME AND ADDRESS OF BAILEE]

          Re:  National Steel Corporation

Ladies and Gentlemen:

          This letter is to confirm that National Steel Corporation, a Delaware
corporation (the "Company"), from time to time, delivers inventory to you for
processing, warehousing or storage (such inventory heretofore or hereafter
delivered to you being referred to as "Bailed Goods") and that title to the
Bailed Goods remains with the Company at all times.

          This letter is also to advise you that the Company has granted to
Citicorp USA, Inc. as administrative agent for certain financial institutions
(the "Agent"), a security interest in, among other things, all of the Company's
now owned and hereafter acquired inventory, including, without limitation, the
Bailed Goods, to secure obligations of the Company under a certain Secured Super
Priority Debtor in Possession Credit Agreement, dated as of March 6, 2002 (as
the same may be amended, restated, supplemented or otherwise modified from time
to time, the "DIP Credit Agreement"), among the Company, the lenders and issuers
(collectively the "Lenders") party thereto and the Agent.

          This letter serves as notice to you pursuant to Sections 9-312(d) and
9-313(c) of the Uniform Commercial Code of the Agent's interest in the Bailed
Goods. In order to protect the Company's ownership interest and the Agent's
security interests in the Bailed Goods, the Company asks that you execute this
letter (i) to acknowledge and confirm that you are holding and will hold the
Bailed Goods on bailment for the benefit of the Agent for processing,
warehousing or storage for the benefit of the Agent; such Bailed Goods are the
Company's property and subject to the Agent's security interest; such security
interest in the Bailed Goods is and shall be senior to all liens, claims and
interests; and you will notify all of your successors and assigns of the
existence of the agreements contained herein and (ii) to evidence your agreement
that if, at any time hereafter, the Agent shall notify you in writing that the
Company has defaulted on its obligations under the DIP Credit Agreement, you
will comply with the Agent's written instructions as to the disposition of the
Bailed Goods. Until the DIP Credit Agreement has been terminated and the Agent
and the Lenders have been paid in full, you shall not deduct from or offset
against any amounts due and owing by the Company to you at any



time hereafter by applying any of the Bailed Goods in payment for processing or
storage services provided by you to the Company.

          The Company agrees that you shall have no liability to the Company if
you comply with the Agent's written directions and the Company agrees to
reimburse you for all reasonable costs and expenses (including processing,
warehousing and storage fees) incurred by you as a direct result of such
compliance.

                                                     Very truly yours,

                                                     NATIONAL STEEL CORPORATION


                                                     By
                                                        ------------------------
                                                        Name:
                                                        Title:


                                                     CITICORP USA, INC.,
                                                     as Agent


                                                     By
                                                        ------------------------
                                                        Name:
                                                        Title:

          Acknowledged and agreed to this       day of           , 200
                                          -----        ----------     -

BAILEE:


By
   --------------------------
     Name:
     Title:

                                       2



                                   Exhibit D-2

                                     FORM OF
                          LANDLORD'S WAIVER AND CONSENT

          THIS LANDLORD'S WAIVER AND CONSENT (this "Consent"), made and entered
as of                    , 200 , by ,                        (the "Landlord")
      ---------------- --     -      ----------------------
in favor of CITICORP USA, INC., (the "Agent") as administrative agent for
certain lenders and the issuers party to the DIP Credit Agreement described
below. Capitalized terms used herein and not otherwise defined herein are used
herein as defined in the DIP Credit Agreement.

                                   BACKGROUND:

          A. National Steel Corporation (the "Lessee") is the lessee under that
certain lease dated                   (the "Lease") between the Landlord and the
                    -----------------
Lessee covering certain premises located at                    (the "Premises").
                                           --------------------

          B. Lessee has entered into the Secured Super Priority Debtor in
Possession Credit Agreement, dated as of March 6, 2002 (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
"DIP Credit Agreement"), among the Lessee, the lenders and issuers (collectively
the "Lenders") party thereto and the Agent.

          C. As a condition to extending such loans and other financial
accommodations, the Lenders have required, among other things, that the Lessee
grant to the Agent, for its own benefit and the ratable benefit of the Lenders,
security interests in and liens upon certain assets of the Lessee, including
without limitation all of the Lessee's accounts, inventory, equipment, general
intangibles, investment property, documents, instruments, chattel paper, deposit
accounts, books and records and all other personal property of Lessee, in each
case whether now or hereafter existing or now owned or hereafter acquired
(collectively, the "Collateral"), a portion of which Collateral is and may
hereafter be located on or about the Premises.

          NOW, THEREFORE, in order to induce the Lenders to extend such loans
and other financial accommodations to the Lessee, which will aid the Lessee in
meeting its obligations to the Landlord, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord hereby agrees with the Agent as follows:

          1. The Agent's security interests and liens in the Collateral shall be
superior to any title or interest which the Landlord may at any time have
therein, and, during the term of this Consent, the Landlord will not assert
against any of the Collateral any title or any statutory, common law,
contractual or possessory lien, including, without limitation, rights of levy or
distraint for rent, all of which the Landlord hereby subordinates in favor of
the Agent and the Lenders.



          2. The Landlord hereby agrees that none of the Collateral located on
the Premises shall be deemed to be fixtures and hereby disclaims any and all
right, title, interest or claim in or to the Collateral and any cash or non-cash
proceeds of the Collateral (except with respect to the subordinated landlord
lien referred to in Section 1 above).
                    ---------

          3. In the event that Lessee defaults in its obligations under the
Lease, Landlord hereby agrees to give the Agent written notice of default under
the Lease, at the same time and in the same manner as such notice is given to
the Lessee and further agrees that the Agent may, but shall not be obligated to,
cure such defaults, at its option, within the applicable notice and cure
periods.

          4. If, for any reason whatsoever, the Landlord either deems itself
entitled to redeem or to take possession of the Premises during the term of the
Lease or intends to sell or otherwise transfer all or any part of its interest
in the Premises, the Landlord agrees to notify the Agent at least fifteen (15)
days before taking such action.

          5. If the Lessee defaults on its obligations to the Agent and the
Lenders, and, as a result, the Agent undertakes to enforce its security interest
in the Collateral, the Landlord (a) will cooperate with the Agent in its efforts
to assemble all of the Collateral located on the Premises; (b) will permit the
Agent to remain on the Premises for forty-five (45) days after the Agent
notifies the Landlord of the default, or, at the Agent's option, to remove the
Collateral from the Premises within a reasonable time, not to exceed forty-five
(45) days after the Agent notifies the Landlord of the default, provided the
                                                                --------
Agent pays the rental payments due under the Lease for the period of time the
Agent uses the Premises; and (c) will not hinder the Agent's actions in
enforcing its liens on the Collateral, it being agreed that use or occupancy of
the Premises by the Agent as set forth herein shall not constitute an assumption
by the Agent of the Lease or of any obligations thereunder other than for rent
due for any such occupancy as stated herein above.

          6. The Landlord states that the Lease is presently in full force and
effect, that all rent payments have been paid up to date, and that the Lease is
not in default.

          7. This Consent shall remain in full force and effect until all
obligations of the Lessee to the Agent and the Lenders have been paid in full
and the Agent and the Lenders have terminated their financing agreements with
the Lessee pursuant to the DIP Credit Agreement.

          8. The provisions of this Consent may not be modified or terminated
orally, and shall be binding upon the successors and assigns of the Landlord,
and upon any successor owner or transferee of the Premises and shall inure to
the benefit of the Agent, the Lenders and each one's respective successors and
assigns.

          9. All notices shall be in writing and shall be mailed by first class
registered or certified mail, postage prepaid, as follows:

                    (a) If to the Agent:

                                        2



                        CITICORP USA, INC.
                        388 Greenwich Street, 19th Floor
                        New York, NY 10013
                        Attention:  Keith R. Karako
                        Telecopy:  (212) 816-2613
                        email:  keith.karako@citi.com

                    (b) If to the Landlord:

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

                        ------------------------------------
                        Attention:
                                    ------------------------
                        Telecopy:
                                   -------------------------
                        email:
                                ----------------------------

          10. This Consent may be executed in any number of counterparts and
shall in all respects be governed by and construed in accordance with the laws
of the State of New York.

                            [Signature page follows]

                                       3



          IN WITNESS WHEREOF, Landlord has executed this Landlord's Waiver and
Consent on the date first above written.


                                                     LANDLORD:
                                                     --------


                                                     By:
                                                            --------------------

                                                     Title:
                                                            --------------------

                                                     [OR]


                                                     [LIMITED PARTNERSHIP]


                                                     By:
                                                            --------------------

                                                     Its: General Partner


                                                     By:
                                                            --------------------

                                                     Title:
                                                            --------------------

                                                     [OR]


                                                     [INDIVIDUAL]


                                                     Landlord:
                                                              ------------------

                                       4



                                    Exhibit E

                                     Form of
                           Borrowing Base Certificate

                           National Steel Corporation
                           Borrowing Base Certificate
                             Period ending   /  /
                                           -- -- --

CITICORP USA, Inc. as
Administrative Agent
388 Greenwich Street, 19th Floor
New York, New York  10013

Pursuant to provisions of the Secured Super Priority Debtor in Possession Credit
Agreement, dated as of March 6, 2002 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "DIP Credit
Agreement"), among the Borrower, the Lenders and Issuers party thereto, Citicorp
USA, Inc. as administrative agent for the Lenders and Issuers, Heller Financial,
Inc. as collateral monitoring agent, Fleet Capital Corporation and The CIT
Group/Business Credit, Inc. as documentation agents, and Heller Financial, Inc.
and GMAC Business Credit, LLC as syndication agents, the undersigned hereby
certifies that the attached information is true, complete and correct as of the
close of business on             .
                     ------------

National Steel Corporation


By:
          --------------------------
Name:
Title:



                           National Steel Corporation
                           Borrowing Base Certificate
                               As of     , 200
                                    -----     --



                                                 Gross                                         Eligible
Summary Eligibility:                             Inventory    Ineligible                       Inventory
                                                                                      
Raw Materials
Finished & Semi-finished
Operating supplies and inventory
     in warehouses
Stores and Rolls
Total Inventory




                                                 Eligible     Calculated        Eligibility    Available
Summary Availability:                            Inventory    Availability %    Reserves       Inventory
                                                                                   
Raw Materials
Finished & Semi-finished
Operating supplies and inventory
     in warehouses
Stores and Rolls

Total Inventory Availability:
Less: Outside Processing Inventory Reserve
Less: Other Availability
Less: Inventory Located Outside of the United
       States
Net Inventory Availability
Net Accounts Receivable Availability
Net Inventory Availability (A)

Commitments (B)
Minimum Availability of (A) & (B)
Borrowings
Letters of Credit

AVAILABLE CREDIT


Note: Please see attached schedule for advance rates for each category.

                                       2



                                   Exhibit D-3
                                     Form of
                         Mortgagee's Waiver and Consent

          THIS MORTGAGEE'S WAIVER AND CONSENT ("Consent"), made and entered into
this            day of        , 200  by [________] "Mortgagee") in
    ----------        -------      -
favor of CITICORP USA, INC. (the "Agent"), as administrative agent for certain
lenders and issuers party to the DIP Credit Agreement described below.

                                  BACKGROUND:

          A. National Steel Corporation ("National Steel') is the owner of
certain real property located in [___________________], being more particularly
described in the Mortgage described below (the "Premises").

          B. National Steel has granted to Mortgagee an interest in the Premises
by a Mortgage dated         ,     (the "Mortgage").
                   ------ -- ----

          C. National Steel has entered into the Secured Super Priority Debtor
in Possession Credit Agreement, dated as of March   , 2002 (as the same may be
                                                 --
amended, restated, supplemented or otherwise modified from time to time, the
"DIP Credit Agreement", among the Lessee, the lenders and issuers (collectively
the "Lenders") party thereto and the Agent. Capitalized terms used herein and
not otherwise defined herein are used herein as defined in the DIP Credit
Agreement.

          D. As a condition to extending such loans and other financial
accommodations, the Lenders have required, among other things, that National
Steel grant to the Agent, for its own benefit and the ratable benefit of the
Lenders, a security interest in certain of National Steel's property, including,
without limitation, accounts, equipment, inventory and books and records related
thereto whether now owned or hereafter acquired (the "Collateral"), a portion of
which Collateral is and may hereafter be located on or about the Premises.

          NOW, THEREFORE, in order to induce the Lenders to extend financial
accommodations to National Steel, which will aid National Steel in meeting its
obligations to Mortgagee, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Mortgagee hereby
agrees with Agent as follows:

          1. Mortgagee acknowledges the Agent's perfected security interest in
the Collateral. Agent's security interests and liens in the Collateral shall be
superior to any title or interest which the Mortgagee may at any time have in
such Collateral, and, during the term of this Consent, Mortgagee will not assert
against any of the Collateral any title or any statutory, common law,
contractual or possessory lien, including, without limitation, rights of levy or
distraint for rent, all of which Mortgagee hereby subordinates in favor of Agent
and Lenders. Mortgagee further agrees that it shall not (and hereby



waives any right to) contest, or support any other Person in contesting, in any
proceeding (including, without limitation, any bankruptcy, insolvency,
liquidation or similar proceeding) the priority, validity or enforceability of
the security interest of the Agent.

          2. Mortgagee hereby disclaims any and all right, title, interest or
claim in or to the Collateral and any cash or non-cash proceeds of the
Collateral (except with respect to the subordinated mortgagee lien referred to
in Section 1 above). The Collateral may be non-permanently affixed to, located
on or used about the Premises, but shall remain National Steel's personal
property, subject to Agent's lien, at all times. Mortgagee agrees not to
impound, remove or prevent access to, any of the Collateral from the Premises as
long as this Consent is in effect, except as set forth herein.

          3. Mortgagee agrees that Agent and its representatives and invitees
may enter upon the Premises at any time or times, during normal business hours,
with reasonable advance notice to National Steel and during such time as the
Mortgagee is in sole possession of the Premises, the Mortgagee, to inspect,
repossess, remove or otherwise deal with the Collateral, in accordance with any
applicable rules and regulations, without any liability of Agent or any Lender
to Mortgagee except for reimbursement for any physical damage (except ordinary
wear and tear) to the Premises caused by such removal; provided, however, that:
(i) in the event Mortgagee has legal possession to the Premises, Mortgagee shall
grant entry to the Premises, and (ii) in the event National Steel has legal
possession of the Premises, National Steel shall grant entry to the Premises.
Mortgagee shall not hinder Agent's actions in enforcing its liens and remedies
with respect to the Collateral. Agent agrees that Agent, or its representatives,
shall not advertise or conduct public sales of the Collateral at the Premises.
      ---
Mortgagee agrees, however, that Agent or its representatives shall be permitted
to conduct private sales of the Collateral on or from the Premises; provided,
however, that no more than five (5) persons shall be permitted on the Premises
for such purpose at any one time and that such private sale activity shall occur
during normal business hours only. Agent or any Lender shall not be liable for
any diminution in value of the Premises caused by the absence of Collateral
removed. Only National Steel and not the Agent nor any Lender shall have any
duty or obligation to remove or dispose of any Collateral or any other property
left on the Premises.

          4. In the event that National Steel defaults in its obligations under
the Mortgage, Mortgagee hereby agrees to give Agent written notice of default
under the Mortgage, at the same time and in the same manner as such notice is
given to National Steel and further agrees that Agent may, but shall not be
obligated to, cure such defaults, at its option, within the applicable notice
and cure periods (the "Agent's Cure Period" ; provided, however, that in the
case of a monetary default, five (5) business days shall be added to the Agent's
Cure Period.

          5. Termination of Mortgage; Termination of National Steel's
             --------------------------------------------------------
Possession. In the event the Mortgage is terminated on an accelerated basis (or
- ----------
otherwise) or National Steel's right of possession is terminated prior to the
expiry date set forth in the Mortgage, Mortgagee shall give Agent written notice
thereof (the

                                       2



"Termination Notice"). Mortgagee agrees that, at Agent's option and upon written
notice (the "Agent's Notice") delivered to Mortgagee within five (5) business
days of Mortgagee's delivery to Agent of the Termination Notice, the Collateral
may remain upon the Premises for a period not to exceed one hundred and twenty
(120) days following Mortgagee's delivery to Agent of the Termination Notice
(the "Carry-Over Period") provided, that Agent: (a) complies with all of the
obligations imposed upon Agent in Section 3 above and (b) Agent pays such
amounts, on a monthly basis, that would otherwise be due and payable under the
terms of the Mortgage had the Mortgage remained in full force and effect. The
first month's mortgage payment shall be due from Agent simultaneously with
Agent's delivery of the Agent's Notice, and on the first day of each successive
month during the Carry Over Period. Mortgagee's agreement to "standstill" during
the Carry-Over Period shall only restrict Mortgagee's remedies with respect to
the Collateral; Mortgagee's right to exercise all available remedies against
National Steel under the Mortgage shall in no way be restricted or impeded by
this Consent.

          6. Mortgagee's Rights After Delivery of Termination Notice. If
             -------------------------------------------------------
Mortgagee delivers a Termination Notice, (a) but Agent fails to either timely
deliver the Agent's Notice or make the payments attributable to the Carry-Over
Period; or (b) Agent timely delivers Agent's Notice and makes the payments
attributable to the Carry-Over Period, but Agent then fails to remove the
Collateral prior to the expiration of the Carry Over Period, then, in either
event, Mortgagee shall thereafter be entitled, on an immediate basis, in
addition to any remedies which Mortgagee may have exercised against National
Steel already, to exercise any and all rights available to Mortgagee with
respect to the Collateral, whether at law or in equity (including, but not
limited to, the right to remove National Steel's possessions and Collateral from
the Premises).

          7. This Consent shall remain in full force and effect until all
obligations of National Steel to Agent and the Lenders have been paid and
satisfied in full and Agent and the Lenders have terminated their financing
agreements with National Steel pursuant to the DIP Credit Agreement or upon the
expiration or earlier termination of the Mortgage (plus any applicable
Carry-Over Period), whichever comes first.

          8. The provisions of this Consent may only be modified or terminated
in a writing signed by all parties hereto, and shall be binding upon the
successors and assigns of the Mortgagee, and upon any successor owner or
transferee of the Premises and shall inure to the benefit of the Agent and its
successors and assigns.

          9. All notices and other communications hereunder shall be in writing
and deemed to be delivered (i) if by means of the United States Postal Service
(certified or registered) on the third business day following delivery thereof
to a United States Postal Service office or official depositary; (ii) if by
commercial overnight delivery service, on the next business day following
delivery to such service; (iii) if by telefacsimile transmission (confirmed by
first class mail), on the date received at the telefacsimile machine of the
recipient; and (iv) if by hand delivery (during regular

                                       3



business hours), on the date delivered. All notices shall be in writing and
shall be mailed by first class registered or certified mail, postage prepaid, as
follows:

If to Agent:
                                                Citicorp USA, Inc.
                                                388 Greenwich Street, 19th floor
                                                New York, New York 10013
                                                Attn: Keith R Karako
                                                Telecopy no.: (212) 816-2613

                                                with a copy to:

                                                Weil, Gotshal & Manges LLP
                                                767 Fifth Avenue
                                                New York, New York 10 153
                                                Attention: Ronald F. Daitz, Esq.
                                                Telecopy no.: (212) 310-8007

If to Mortgagee:
                                                --------------------------------

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

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

                                                with a copy to:

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

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

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

          10. This document shall in all respects be governed by and construed
in accordance with the laws of the State in which the Premises are located.

          IN WITNESS WHEREOF, Mortgagee has executed this Consent on the date
first above written.

                                                MORTGAGEE:
                                                ---------

                                                [_____________], a [__________]
                                                corporation


                                                By:
                                                   -----------------------------

                                                Title:
                                                       -------------------------

                                                                [OR]

                                       4



                                                [LIMITED PARTNERSHIP]


                                                By:
                                                   -----------------------------

                                                Its: General Partner


                                                By:
                                                   -----------------------------

                                                Title:
                                                       -------------------------
                                                [OR]
                                                [INDIVIDUAL]

                                                Mortgagee:
                                                          ----------------------

                                                MORTGAGOR:
                                                ----------

                                                NATIONAL STEEL CORPORATION, a
                                                Delaware corporation


                                                By:
                                                   -----------------------------

                                       5



                           National Steel Corporation
                           Borrowing Base Certificate
                             As of            , 2002
                                   -----------
                                    ($000's)

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



                                                     Eligible              Eligibility
                                 Book   Ineligible   Inventory   ROA (%)    Reserves     Availability
                                 ----   ----------   ---------   -------   -----------   ------------
                                                                       
RAW MATERIAL
- ------------
Coal                             $      $            $                  %  $             $
Coke
Ferroalloys & additives
Flux
NSPC Pellets
Ore & Pellets
Other
Pig Iron
Scrap
Tin
Zinc
                                 ----   ----------   ---------   -------   -----------   ------------
         Total Raw Materials     $       $           $                  %  $             $
                                 ----   ----------   ---------   -------   -----------   ------------
WORK IN PROCESS
- ---------------
Mill
- ----
Slabs                            $      $            $                  %  $             $
Hot Rolled
Cold Rolled
Coated
Tin Mill
Secondary

OP&W
- ----
Hot Rolled
Cold Rolled
Coated
                                 ----   ----------   ---------   -------   -----------   ------------
         Total Work-in-Process   $      $            $                  %  $             $
                                 ----   ----------   ---------   -------   -----------   ------------
Finished Goods
- --------------
Mill
- ----
Hot Rolled                       $      $            $                  %  $             $
Cold Rolled
Coated
Tin Mill
Secondary
OP&W
- ----
Hot Rolled
Cold Rolled
Coated
Tin Mill
Consigned
                                 ----   ----------   ---------   -------   -----------   ------------
         Total Finished Goods    $      $            $                  %  $             $
                                 ----   ----------   ---------   -------   -----------   ------------
Stores
Rolls
                                 ----   ----------   ---------   -------   -----------   ------------
         Total Stores            $      $            $                  %  $             $
                                 ----   ----------   ---------   -------   -----------   ------------
                                 ----   ----------   ---------   -------   -----------   ------------
TOTAL INVENTORY                  $      $            $                  %  $             $
                                 ----   ----------   ---------   -------   -----------   ------------




                                 National Steel
                                A/R Availability
                               As of       , 2002
                                     -----
- --------------------------------------------------------------------------------
($ in thousands)

                                                                    Total
                                                                    -----
Gross Accounts Receivable                                           $
   Less: Reserved (Bankrupt Accounts)
   Less: Miscellaneous
   Less: Intercompany
   Less: Foreign
                                                                    -----
Net Accounts Receivable                                             $

Ineligible A/R:
   Over 60 Days Past Due
   Cross-Aged
   LTV Post-Petition A/R ()
   Accrued Volume Rebate Reserve
   Estimated A/R of Assigned Sales Without Written Agreements (1)
   A/P A/R set-off at 125%
                                                                    -----
   Total Ineligible

Net Eligible A/R Pool                                               $

Advance Rate                                                             %
                                                                    -----

A/R Availability                                                    $
                                                                    =====

Effective Advance Rate on Total A/R                                      %
                                                                    =====

Effective Advance Rate on Net A/R                                        %
                                                                    =====

                                       4



                                                                   March 7, 2002

To Each Addressee
  Listed on Schedule I hereto
            ----------

               Re: National Steel Corporation
                   --------------------------

Ladies and Gentlemen:

               We have acted as special counsel to National Steel Corporation, a
Delaware corporation and a debtor in possession (the "Borrower"), in a pending
                                                      --------
case in the United States Bankruptcy Court for the Northern District of Illinois
(Eastern Division) (the "Bankruptcy Court") under Chapter 11 of the United
                         ----------------
States Bankruptcy Code, 11 U.S.C. Sections 101-1330 (the "Bankruptcy Code"), and
                                                          ---------------
each of the other entities listed on Schedule II, each of which is a direct or
                                     -----------
indirect domestic subsidiary of the Borrower (collectively, the "Guarantors"
                                                                 ----------
and, together with the Borrower, the "Opinion Parties") and each of which is a
                                      ---------------
debtor and debtor in possession in a pending case in the Bankruptcy Court under
Chapter 11 of the Bankruptcy Code (each, individually, a "Case" and,
                                                          ----
collectively, with the Chapter 11 case of the Borrower, the "Cases"), in
                                                             -----
connection with the preparation, execution and delivery of the Secured Super
Priority Debtor in Possession Credit Agreement, dated as of March 6, 2002 (the
"Credit Agreement"), among the Borrower, the Guarantors, Citicorp USA, Inc., as
 ----------------
Administrative Agent, the lenders party thereto, Fleet Capital Corporation and
The CIT Group/Business Credit, Inc., as Documentation Agents, Heller Financial,
Inc. and GMAC Business Credit, LLC, as Syndication Agents, The Fuji Bank,
Limited, as Co-Arranger and Salomon Smith Barney, Inc., as Sole Book Manager and
Sole Lead Arranger, and certain other agreements, instruments and documents
related to the Credit Agreement. This opinion is being delivered pursuant to
Section 3.1(b)(iii) of the Credit Agreement. Capitalized terms used herein and
not otherwise defined herein shall have the same meanings herein as ascribed
thereto in the Credit Agreement.



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 2

               In our examination we have assumed the genuineness of all
signatures including endorsements, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as facsimile, electronic,
certified or photostatic copies, and the authenticity of the originals of such
copies. As to any facts material to this opinion which we did not independently
establish or verify, we have relied upon statements and representations of the
Opinion Parties and their respective officers and other representatives and of
public officials, including the facts and conclusions set forth therein.

               In rendering the opinions set forth herein, we have examined and
relied on originals or copies of the following:

               (a) the Credit Agreement;

               (b) the Interim Order, dated March 7, 2002 (the "Interim Order"),
                                                                -------------
a copy of which is attached hereto as Exhibit A;
                                      ---------

               (c) the certificate of Ronald J. Werhnyak, Vice President,
General Counsel and Secretary of the Borrower, dated the date hereof, a copy of
which is attached as Exhibit B hereto;
                     ---------

               (d) certified copies of the Certificate of Incorporation and
By-laws of each of the Delaware Opinion Companies;

               (e) copies of the Articles of Incorporation and By-laws of each
of the Illinois Opinion Companies;

               (f) copies of the Certificate of Incorporation and By-laws of
each of the New York Opinion Companies;

               (g) a copy of certain resolutions of the Board of Directors of
each of the Delaware Opinion Companies adopted on March 5, 2002;



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 3

               (h) a copy of certain resolutions of the Board of Directors of
each of the Illinois Opinion Companies adopted on March 5, 2002;

               (i) a copy of certain resolutions of the Board of Directors of
each of the New York Opinion Companies adopted on March 5, 2002;

               (j) certificates, dated February 21, 2002, from the Secretary of
State of the State of Delaware as to each Delaware Opinion Company's existence
and good standing in the State of Delaware;

               (k) certificates, dated February 20, 2002, from the Secretary of
State of the State of Illinois as to each Illinois Opinion Company's good
standing as a domestic corporation in the State of Illinois;

               (l) certificates, dated February 20, 2002, from the Special
Deputy Secretary of State of the State of New York as to each New York Opinion
Company being a subsisting corporation in the State of New York and certificates
of tax title search issued by the Secretary of State of the State of New York on
February 27, 2002 for each New York Opinion Company; and

               (m) such other documents as we have deemed necessary or
appropriate as a basis for the opinions set forth below.

               We express no opinion as to the laws of any jurisdiction other
than (i) the Applicable Laws of the State of New York, (ii) the Applicable Laws
of the United States of America (including, without limitation, Regulations U
and X of the Federal Reserve Board), (iii) the General Corporation Law of the
State of Delaware and (iv) the Illinois Business Corporation Act. We have
relied, with your consent, as to matters of New York law on the opinion of
Skadden, Arps, Slate, Meagher & Flom LLP dated the date hereof and addressed to
us.

               "Applicable Laws" shall mean those laws, rules and regulations
                ---------------
which, in our experience, are normally applicable to transactions of the type
contemplated by the Credit Agreement, without our having made any special
investigation as to the



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 4

applicability of any specific law, rule or regulation, and which are not the
subject of a specific opinion herein referring expressly to a particular law or
laws. "Governmental Approval" means any consent, approval, license,
       ---------------------
authorization or validation of, or filing, recording or registration with, any
governmental authority pursuant to the Applicable Laws of the State of New York
or the Applicable Laws of the United States of America. "Delaware Opinion
                                                         ----------------
Company" means each corporation listed on Schedule III hereto, and such
- -------                                   ------------
corporations are collectively the "Delaware Opinion Companies". "Illinois
                                   --------------------------    --------
Opinion Company" means each corporation listed on Schedule IV hereto, and such
- ---------------                                   -----------
corporations are collectively the "Illinois Opinion Companies". "New York
                                   --------------------------    --------
Opinion Company" means each corporation listed on Schedule V hereto, and such
- ---------------                                   ----------
corporations are collectively the "New York Opinion Companies".
                                   --------------------------

               Based upon the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:

               1. Based solely upon our review of the certificates referred to
in item (j) above, each of the Delaware Opinion Companies is validly existing
and in good standing under the Applicable Laws of the State of Delaware.

               2. Based solely upon our review of the certificates referred to
in item (k) above, each of the Illinois Opinion Companies is in good standing as
a domestic corporation in the State of Illinois under the Applicable Laws of the
State of Illinois.

               3. Based solely upon our review of the certificates referred to
in item (l) above, each of the New York Opinion Companies is a subsisting
corporation in the State of New York under the Applicable Laws of the State of
New York.

               4. Each of the Delaware Opinion Companies has the corporate power
and authority to execute, deliver and perform all of its obligations under the
Credit Agreement under the Applicable Laws of the State of Delaware. The
execution and delivery of the Credit Agreement and the consummation by the each
of the Delaware Opinion Companies of the transactions contemplated thereby have
been duly authorized by all requisite corporate action on the part of each of
the Delaware Opinion



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 5

Companies under the Applicable Laws of the State of Delaware. The Credit
Agreement has been duly executed and delivered by each of the Delaware Opinion
Companies.

               5. Each of the Illinois Opinion Companies has the corporate power
and authority to execute, deliver and perform all of its obligations under the
Credit Agreement under the Applicable Laws of the State of Illinois. The
execution and delivery of the Credit Agreement and the consummation by the each
of the Illinois Opinion Companies of the transactions contemplated thereby have
been duly authorized by all requisite corporate action on the part of each of
the Illinois Opinion Companies under the Applicable Laws of the State of
Illinois. The Credit Agreement has been duly executed and delivered by each of
the Illinois Opinion Companies.

               6. Each of the New York Opinion Companies has the corporate power
and authority to execute, deliver and perform all of its obligations under the
Credit Agreement under the Applicable Laws of the State of New York. The
execution and delivery of the Credit Agreement and the consummation by the each
of the New York Opinion Companies of the transactions contemplated thereby have
been duly authorized by all requisite corporate action on the part of each of
the New York Opinion Companies under the Applicable Laws of the State of New
York. The Credit Agreement has been duly executed and delivered by each of the
New York Opinion Companies.

               7. The execution and delivery of the Credit Agreement by each of
the Delaware Opinion Companies, the Illinois Opinion Companies and the New York
Opinion Companies and the performance by each such Person of its obligations
under the Credit Agreement in accordance with its terms, do not conflict with
the Certificate of Incorporation or Articles of Incorporation (as applicable) or
By-laws of such Person.

               8. Subject to entry of the Bankruptcy Orders and the terms
thereof, the Credit Agreement constitutes the valid and binding obligation of
each Opinion Party enforceable against such Opinion Party in accordance with its
terms under the Applicable Laws of the State of New York.



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 6

               9. The Borrower is not and, solely after giving effect to the
Credit Agreement and the application of the proceeds thereof, will not be
subject to registration and regulation as an "investment company" as such term
is defined in the Investment Company Act of 1940, as amended.

               10. Neither the execution, delivery or performance by the
Borrower of the Credit Agreement nor the compliance by the Borrower with the
terms and provisions thereof will violate any provision of the Public Utility
Holding Company Act of 1935, as amended.

               11. Neither the execution, delivery or performance by each
Opinion Party of the Credit Agreement nor the compliance by such Opinion Party
with the terms and provisions thereof will contravene any provision of any
Applicable Law of the State of New York or any Applicable Law of the United
States of America.

               12. Other than the entry by the Bankruptcy Court of the
Bankruptcy Orders, no Governmental Approval, which has not been obtained or
taken and is not in full force and effect, is required to authorize, or is
required in connection with, the execution or delivery of the Credit Agreement
by the Opinion Parties or the enforceability of the Credit Agreement against the
Opinion Parties.

               13. The Interim Order was entered on the docket of the Clerk of
the Bankruptcy Court for the Cases (the "Docket") on March 7, 2002 (the
"Effective Time"). Based solely upon our review of the Docket as it existed as
of 3:33 p.m. Central time on March 7, 2002, (x) the Interim Order was at such
time in full force and effect and (y) no order amending, staying, vacating or
rescinding the Interim Order has been entered on the Docket. In connection with
the foregoing, please note that there may be a delay between the time when
papers are filed with the Bankruptcy Court and the time when such papers entered
on the Docket. To our knowledge, as of the Effective Time, no order amending,
staying, vacating or rescinding the Interim Order has been entered by the
Bankruptcy Court.



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 7

               Our opinions are subject to the following assumptions and
qualifications:

               (a) enforcement of the Credit Agreement is subject to and may be
limited by the Bankruptcy Court's general powers (including its powers as a
court of equity), applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in equity or
at law);

               (b) we have assumed that the Credit Agreement constitutes the
valid and binding obligation of each party to the Credit Agreement (other than
the Opinion Parties) enforceable against such other party in accordance with its
terms;

               (c) we express no opinion as to the effect on the opinions
expressed herein of (i) the compliance or non-compliance of any party (other
than the Opinion Parties to the extent expressly set forth herein) to the Credit
Agreement with any state, federal or other laws or regulations applicable to
them or (ii) the legal or regulatory status or the nature of the business of any
party (other than the Opinion Parties to the extent expressly set forth herein)
to the Credit Agreement;

               (d) we express no opinion as to the enforceability of any rights
to contribution or indemnification provided for in the Credit Agreement which
are violative of the public policy underlying any law, rule or regulation
(including any federal or state securities law, rule or regulation);

               (e) we express no opinion as to the applicability or effect of
any fraudulent transfer, preference or similar law on the Credit Agreement or
any transactions contemplated thereby;

               (f) we express no opinion on the enforceability of any provision
in the Credit Agreement purporting to prohibit, restrict or condition the
assignment of the Credit Agreement to the extent such restriction on
assignability is governed by sections 9-406 through 9-409 of the Uniform
Commercial Code;



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 8

               (g) in the case of the Guaranty contained in the Credit
Agreement, certain of the remedial provisions, including waivers, with respect
to such Guaranty are or may be unenforceable in whole or in part, but the
inclusion of such provisions does not affect the validity of the Guaranty, taken
as a whole;

               (h) we express no opinion with respect to Section 2.4 of the
Credit Agreement to the extent it excuses the issuer of a letter of credit from
liability to the extent such provision is unenforceable pursuant to Section
5-103 of the Uniform Commercial Code;

               (i) our opinion with respect to the enforceability of the choice
of New York law and choice of New York forum provisions of the Transaction
Agreements is rendered in reliance upon the Act of July 19, 1984, ch. 421, 1984
McKinney's Sess. Laws of N.Y. 1406 (codified at N.Y. Gen. Oblig.
Lawss.ss.5-1401, 5-1402 (McKinney 1989) and N.Y. CPLR 327(b) (McKinney 1990))
(the "Act") and is subject to the qualifications that such enforceability may be
limited by public policy considerations of any jurisdiction, other than the
courts of the State of New York, in which enforcement of such provisions, or of
a judgment upon an agreement containing such provisions, is sought;

               (j) certain of the remedial provisions with respect to the
security including waivers with respect to the exercise of remedies against the
collateral contained in Article 11 of the Credit Agreement may be unenforceable
in whole or in part, but the inclusion of such provisions does not affect the
validity of Article 11 of the Credit Agreement, taken as a whole;

               (k) we express no opinion with respect to the validity,
perfection or priority of any security interest;

               (l) we express no opinion with respect to any provision of the
Credit Agreement to the extent it authorizes or permits any purchaser of a
participation interest to set off or apply any deposit, property or indebtedness
with respect to any participation interest;



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 9

               (m) the enforceability of the Credit Agreement may be limited to
the extent any term or provision of the Credit Agreement conflicts or is found
to conflict with any term or provision of any Bankruptcy Order or any other
order of the Bankruptcy Court;

               (n) we express no opinion as to the enforceability of any
provision of the Credit Agreement to the extent it purports to waive any
objection a person may have that a suit, action or proceeding has been brought
in an inconvenient forum;

               (o) we call to your attention that the execution, delivery and
performance by the Opinion Parties of the Credit Agreement and the consummation
by the Opinion Parties of the transactions contemplated thereby (including,
without limitation, the grant by the Opinion Parties pursuant thereto of
security interests and other liens in respect of their assets) may violate or
constitute defaults under other agreements and instruments to which the Opinion
Parties or their property is subject, and, in giving our opinions herein, we are
relying upon the effectiveness of the Interim Order;

               (p) we have assumed that each interested party, to the extent
entitled thereto, has received or will receive due, sufficient and adequate
notice of the Interim Order and the Bankruptcy Court's hearing on the Interim
Order (the "Hearing");

               (q) we express no opinion herein on the substantive effect of the
Interim Order or the provisions thereof;

               (r) we have assumed that the evidence in the record at the
Hearing was adequate to support the relief requested in the Motion (as defined
in the Interim Order) and the entry of the Interim Order;

               (s) in rendering our opinions herein, we have relied on the terms
of the Interim Order as in effect at the time entered, and we express no opinion
as to whether the Interim Order may be subject to subsequent alteration or
revocation by the Bankruptcy Court or another court of competent jurisdiction or
the effects of any such alteration or revocation on the transactions
contemplated by the Credit Agreement;



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 10

               (t) we have assumed that each party to the Credit Agreement has
acted in good faith in the execution, delivery and performance of the Credit
Agreement and the transactions contemplated thereby; and

               (u) we express no opinion with respect to any provision of the
Credit Agreement to the extent that any such provision establishes a standard of
care for collateral in the possession or control of the Collateral Agent to the
extent such standard of care is unenforceable under Sections 1-102 and 9-207 of
the Uniform Commercial Code.

               In rendering the foregoing opinions, we have assumed, with your
consent, that:

               (a) except to the extent we express our opinion with respect to a
Delaware Opinion Company in paragraph 1 herein, an Illinois Opinion Company in
paragraph 2 herein and a New York Opinion Company in paragraph 3 herein, each
Opinion Party is validly existing and in good standing as a corporation, limited
liability company or limited partnership, as the case may be, under the laws of
the jurisdiction of its formation;

               (b) except to the extent we express our opinion with respect to a
Delaware Opinion Company in paragraph 4 herein, an Illinois Opinion Company in
paragraph 5 herein and a New York Opinion Company in paragraph 6 herein, each
Opinion Party has the power and authority to execute, deliver and perform all of
its obligations under the Credit Agreement and the execution and delivery by
each Opinion Party of the Credit Agreement and the consummation by such Opinion
Party of the transactions contemplated thereby have been duly authorized by all
requisite action on the part of the such Opinion Party, and the Credit Agreement
has been duly authorized, executed and delivered by such Opinion Party;

               (c) except to the extent we express our opinion in paragraph 7
herein with respect to a Delaware Opinion Company, an Illinois Opinion Company
and a New York Opinion Company, the execution and delivery of the Credit
Agreement by each



To Each Addressee
  Listed on Schedule I hereto
March 7, 2002
Page 11

Opinion Party and the performance of any obligations of the Opinion Parties
thereunder does not and will not conflict with, contravene, violate or
constitute a default under (i) the Certificate or Articles of Incorporation or
the By-laws of any Opinion Party which is a corporation, the Certificate or
Articles of Formation or limited liability company or operating agreement of any
Opinion Party which is a limited liability company or the Certificate or
Articles of Limited Partnership or partnership agreement of any Opinion Party
which is a limited partnership, (ii) any lease, indenture, instrument or other
agreement entered into after commencement of the Cases to which any Opinion
Party or any Opinion Party's property is subject, (iii) any rule, law or
regulation to which any Opinion Party is subject (other than Applicable Laws of
the State of New York and Applicable Laws of the United States of America as to
which we express our opinion in paragraph 11 herein) or (iv) any judicial or
administrative order or decree of any governmental authority; and

               (d) no authorization, consent or other approval of, notice to or
filing with any court, governmental authority or regulatory body (other than
Governmental Approvals as to which we express our opinion in paragraph 12
herein) is required to authorize or is required in connection with the
execution, delivery or performance by the Opinion Parties of the Credit
Agreement or the transactions contemplated thereby.

               This opinion is being furnished only to you in connection with
the Credit Agreement and is solely for your benefit and is not to be used,
circulated, quoted or otherwise referred to for any other purpose or relied upon
by any other person or entity for any purpose without our prior written consent.

                                                     Very truly yours,



                                                                     Schedule II

                                   Guarantors
                                   ----------

American Steel Corporation
D. W. Pipeline Company
Granite City Steel Company
Granite Intake Corp.
Great Lakes Steel Corporation
The Hanna Furnace Corporation
Hanna Ore Mining Company
Ingleside Channel & Dock Co.
Ingleside Point Corporation
Ingleside Holdings, L. P.
Liberty Pipe and Tube, Inc.
Mid-Coast Minerals Corporation
Midwest Steel Corporation
NS Holdings Corporation
NSC Realty Corporation
NS Land Company
NS Technologies, Inc.
NSL, Inc.
Natcoal, Inc.
National Acquisition Corporation
National Caster Acquisition Corporation
National Caster Operating Corporation
National Casting Corporation
National Coal Mining Company
National Coating Limited Corporation
National Coating Line Corporation
National Materials Procurement Corporation
National Mines Corporation
National Ontario Corporation
National Ontario II, Limited
National Pickle Line Corporation
National Steel Corporation (New York)



National Steel Funding Corporation
National Steel Pellet Company
Natland Corporation
Peter White Coal Mining Corp.
ProCoil Corporation
Puritan Mining Company
Rostraver Corporation
Skar-Ore Steamship Corporation
The Teal Lake Iron Mining Company



                                                                    Schedule III

                           Delaware Opinion Companies
                           --------------------------

National Steel Corporation, a Delaware corporation
Granite Intake Corp, a Delaware corporation
Great Lakes Steel Corporation, a Delaware corporation
Mid-Coast Minerals Corporation, a Delaware corporation
Natcoal, Inc., a Delaware corporation
National Acquisition Corporation, a Delaware corporation
National Caster Acquisition Corporation, a Delaware corporation
National Caster Operating Corporation, a Delaware corporation
National Casting Corporation, a Delaware corporation
National Coal Mining Company, a Delaware corporation
National Coating Limited Corporation, a Delaware corporation
National Coating Line Corporation, a Delaware corporation
National Ontario Corporation, a Delaware corporation
National Ontario II, Limited, a Delaware corporation
National Pickle Line Corporation, a Delaware corporation
National Steel Funding Corporation, a Delaware corporation
National Steel Pellet Company, a Delaware corporation
Natland Corporation, a Delaware corporation
NS Holdings Corporation, a Delaware corporation
NSC Realty Corporation, a Delaware corporation
NS Technologies, Inc., a Delaware corporation
NSL, Inc., a Delaware corporation
ProCoil Corporation, a Delaware corporation
Rostraver Corporation, a Delaware corporation
Skar-Ore Steamship Corporation, a Delaware corporation



                                                                     Schedule IV

                           Illinois Opinion Companies
                           --------------------------

Granite City Steel Company, an Illinois corporation
National Materials Procurement Corporation, an Illinois corporation



                                                                      Schedule V

                           New York Opinion Companies
                           --------------------------

The Hanna Furnace Corporation, a New York corporation
National Steel Corporation (New York), a New York corporation



Exhibit A

Interim Order
- -------------

See attached.



                                        Certificate to SASM&F (Illinois) Opinion

                                                                       Exhibit B

                              Officer's Certificate
                              ---------------------

          The undersigned, Ronald J. Werhnyak, is the Vice President, General
Counsel and Secretary of National Steel Corporation, a Delaware corporation (the
"Borrower"), and understands that pursuant to the Credit Agreement (as defined
 --------
in the Opinion referred to below), each of Skadden, Arps, Slate, Meagher & Flom
(Illinois) ("SASM&F Illinois") and Skadden, Arps, Slate, Meagher & Flom LLP
             ---------------
("SASM&F LLP"; SASM&F Illinois and SASM&F LLP are collectively, "SASM&F") is
  ----------                                                     ------
rendering an opinion dated the date hereof (the "Opinion") in connection with
                                                 -------
the Credit Agreement. Capitalized terms used herein but not otherwise defined
shall have the meanings set forth in the Opinion. The undersigned further
understands that SASM&F is relying on this certificate and the statements made
herein in rendering such Opinion.

          With regard to the foregoing, on behalf of the Company, the
undersigned certifies that:

          1. I am familiar with the business of the Borrower and its
subsidiaries, and due inquiry has been made of all persons deemed necessary or
appropriate to verify or confirm the statements contained herein.

          2. SASM&F may rely on the respective representations and warranties
that the Opinion Parties have made in the Credit Agreement and each of the
certificates delivered pursuant thereto. I have made a careful review of each of
such representations and warranties and hereby confirm, to the best of my
knowledge and belief, that such representations and warranties are true, correct
and complete on and as of the date of this certificate.

          3. Less than twenty-five percent (25%) of the assets of the Borrower
and its subsidiaries on a consolidated basis and on an unconsolidated basis
consist of Margin Stock.

          4. The Borrower is primarily engaged directly, or indirectly through
Majority-Owned Subsidiaries, in the steel production business; and the Borrower
(i) is not and does not hold itself out as being engaged primarily, nor does it
propose to engage primarily, in the business of investing, reinvesting or
trading in Securities, (ii) has not and is not engaged in, and does not propose
to engage in, the business of issuing



                                        Certificate to SASM&F (Illinois) Opinion

Face-Amount Certificates of the Installment Type and has no such certificate
outstanding and (iii) does not own or propose to acquire Investment Securities
having a Value exceeding forty percent (40%) of the Value of the total assets of
the Borrower (exclusive of Government Securities and cash items) on an
unconsolidated basis.

          5. The Borrower does not own or operate facilities used for the
generation, transmission, or distribution of electric energy for sale ("Electric
                                                                        --------
Utility Facilities").
- ------------------

          6. The Borrower does not own or operate facilities used for the
distribution of natural or manufactured gas for heat, light, or power ("Gas
                                                                        ---
Utility Facilities").
- ------------------

          7. Neither the Borrower nor any of its subsidiaries, directly or
indirectly, or through one or more intermediary Companies, owns, controls, or
holds with power to vote (a) ten percent (10%) or more of the outstanding Voting
Securities of any Company that owns or operates any Electric Utility Facilities
or Gas Utility Facilities, or (b) any other interest, directly or indirectly, or
through one or more intermediary entities, in (i) any Company that owns or
operates any Electric Utility Facilities or Gas Utility Facilities, or (ii) any
of the foregoing types of entities that have received notice of the sort
described in paragraph 10 below.
             ------------

          8. Neither the Borrower nor any of its subsidiaries has received
notice that the Securities and Exchange Commission has determined, or may
determine, that the Borrower or any of its subsidiaries exercises a controlling
influence over the management or direction of the policies of a gas utility
company or an electric utility company as to make it subject to the obligations,
duties and liabilities imposed on holding companies by the Public Utility
Holding Company Act of 1935, as amended ("PUHCA").
                                          -----

          9. To the best of my knowledge, no Company that has registered with
the Securities and Exchange Commission as a public utility holding company under
PUHCA owns, directly or indirectly, through one or more intermediary entities,
ten percent (10%) or more of the outstanding Voting Securities (as defined
below) of the Borrower.

          10. As used in paragraph 3 of this certificate, the following term
shall have the following meaning:



                                        Certificate to SASM&F (Illinois) Opinion

          "Margin Stock" means: (i) any equity security registered or having
           ------------
unlisted trading privileges on a national securities exchange; (ii) any OTC
security designated as qualified for trading in the National Market System under
a designation plan approved by the Securities and Exchange Commission; (iii) any
debt security convertible into a margin stock or carrying a warrant or right to
subscribe to or purchase a margin stock; (iv) any warrant or right to subscribe
to or purchase a margin stock; or (v) any security issued by an investment
company registered under Section 8 of the Investment Company Act of 1940.

          11. As used in paragraphs 4 and 11 of this certificate, the following
terms shall have the following meanings:

          "Control" means the power to exercise a controlling influence over the
           -------
management or policies of a company, unless such power is solely the result of
an official position with such company.

          "Exempt Fund" means a company that is excluded from treatment as an
           -----------
investment company solely by section 3(c)(1) or 3(c)(7) of the Investment
Company Act of 1940 (applicable to certain privately offered investment funds).

          "Face-Amount Certificate of the Installment Type" means any
           -----------------------------------------------
certificate, investment contract, or other Security that represents an
obligation on the part of its issuer to pay a stated or determinable sum or sums
at a fixed or determinable date or dates more than 24 months after the date of
issuance, in consideration of the payment of periodic installments of a stated
or determinable amount.

          "Government Securities" means all Securities issued or guaranteed as
           ---------------------
to principal or interest by the United States, or by a person controlled or
supervised by and acting as an instrumentality of the government of the United
States pursuant to authority granted by the Congress of the United States; or
any certificate of deposit for any of the foregoing.

          "Investment Securities" includes all Securities except (A) Government
           ---------------------
Securities, (B) Securities issued by companies the only shareholders in which
are employees and former employees of a company and its subsidiaries, members of
the families of such persons and the company and its subsidiaries and (C)
Securities issued by Majority-Owned Subsidiaries of the Borrower which are not
engaged and do not propose to be engaged in activities within the scope of
clause (i), (ii) or (iii) of paragraph



                                        Certificate to SASM&F (Illinois) Opinion

6 of this Certificate or which are exempted or excepted from treatment as an
investment company by statute, rule or governmental order (other than Exempt
Funds).

          "Majority-Owned Subsidiary" of a person means a company fifty percent
           -------------------------
(50%) or more of the outstanding Voting Securities of which are owned by such
person, or by a company which, within the meaning of this paragraph, is a
Majority-Owned Subsidiary of such person.

          "Security" means any note, stock, treasury stock, bond, debenture,
           --------
evidence of indebtedness, certificate of interest or participation in any
profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract,
voting-trust certificate, certificate of deposit for a security, fractional
undivided interest in oil, gas, or other mineral rights, any put, call,
straddle, option, or privilege on any security (including a certificate of
deposit) or on any group or index of securities (including any interest therein
or based on the value thereof), or any put, call, straddle, option, or privilege
entered into on a national securities exchange relating to foreign currency, or,
in general, any interest or instrument commonly known as a "security," or any
certificate of interest or participation in, temporary or interim certificate
for, receipt for, guarantee of, or warrant or right to subscribe to or purchase,
any of the foregoing.

          "Value" means (i) with respect to Securities owned at the end of the
           -----
last preceding fiscal quarter for which market quotations are readily available,
the market value at the end of such quarter; (ii) with respect to other
Securities and assets owned at the end of the last preceding fiscal quarter,
fair value at the end of such quarter, as determined in good faith by or under
the direction of the board of directors; and (iii) with respect to securities
and other assets acquired after the end of the last preceding fiscal quarter,
the cost thereof.

          "Voting Security" means any security presently entitling the owner or
           ---------------
holder thereof to vote for the election of directors of a company (or its
equivalent, e.g., general partner or manager of a limited liability company).

          12. As used in paragraphs 7, 9 and 12 of this certificate, the
following terms shall have the following meanings:



                                        Certificate to SASM&F (Illinois) Opinion

          "Company" means a corporation, limited liability company, partnership,
           -------
association, joint-stock company, joint venture, trust, or any receiver,
trustee, or other liquidating agent of any of the foregoing in its capacity as
such.

          "Security" or "Securities" means any note, draft, stock, treasury
           --------      ----------
stock, bond, debenture, limited liability company interest, certificate of
interest or participation in any profit-sharing agreement or in any oil, gas,
other mineral royalty or lease, any collateral-trust certificate,
preorganization certificate or subscription, transferable share, investment
contract, voting-trust certificate, certificate of deposit for a security,
receiver's or trustee's certificate, or, in general, any instrument commonly
known as a "security"; or any certificate of interest or participation in,
temporary or interim certificate for, receipt for, guaranty of, assumption of
liability on, or warrant or right to subscribe to or purchase, any of the
foregoing.

          "Voting Security" or "Voting Securities" means any Security presently
           ---------------      -----------------
entitling the owner or holder thereof to vote in the direction or management of
the affairs of a Company, or any Security issued under or pursuant to any trust,
agreement, or arrangement whereby a trustee or trustees or agent or agents for
the owner or holder of such Security are presently entitled to vote in the
direction or management of the affairs of a Company; and a specified per centum
of the outstanding Voting Securities of a Company means such amount of the
outstanding Voting Securities of such Company as entitles the holder or holders
thereof to cast said specified per centum of the aggregate votes which the
holders of all the outstanding Voting Securities of such Company are entitled to
cast in the direction or management of the affairs of such Company.

                            [signature page follows]



                                        Certificate to SASM&F (Illinois) Opinion

          IN WITNESS WHEREOF, the undersigned has executed this certificate this
    day of March, 2002.
- ---


                                          --------------------------------------
                                          Name:  Ronald J. Werhnyak
                                          Title: Vice President, General Counsel
                                                 and Secretary of National Steel
                                                 Corporation



                                                 March 7, 2002

Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
333 West Wacker Drive
Chicago, Illinois 60606

          Re: National Steel Corporation
              --------------------------

Ladies and Gentlemen:

          You have requested our opinion as to matters of New York law in
connection with your representation of National Steel Corporation, a Delaware
corporation and a debtor in possession (the "Borrower"), in a pending case in
                                             --------
the United States Bankruptcy Court for the Northern District of Illinois
(Eastern Division) (the "Bankruptcy Court") under Chapter 11 of the United
                         ----------------
States Bankruptcy Code, 11 U.S.C. Sections 101-1330 (the "Bankruptcy Code"), and
                                                          ---------------
each of the other entities listed on Schedule II, each of which is a direct or
                                     -----------
indirect domestic subsidiary of the Borrower (collectively, the "Guarantors"
                                                                 ----------
and, together with the Borrower, the "Opinion Parties") and each of which is a
                                      ---------------
debtor and debtor in possession in a pending case in the Bankruptcy Court under
Chapter 11 of the Bankruptcy Code (each, individually, a "Case" and,
                                                          ----
collectively, with the Chapter 11 case of the Borrower, the "Cases"), in
                                                             -----
connection with the preparation, execution and delivery of the Secured Super
Priority Debtor in Possession Credit Agreement, dated as of March 6, 2002 (the
"Credit Agreement"), among the Borrower, the Guarantors, Citicorp USA, Inc., as
 ----------------
Administrative Agent, the lenders party thereto, Fleet Capital Corporation and
The CIT Group/Business Credit, Inc., as Documentation Agents, Heller Financial,
Inc. and GMAC Business Credit, LLC, as Syndication Agents, The Fuji Bank,
Limited, as Co-Arranger and Salomon Smith Barney, Inc., as Sole Book Manager and
Sole Lead Arranger, and certain other agreements, instruments and documents
related to the Credit Agreement. This opinion is being delivered to you in
connection with the delivery by you of an opinion (the "Illinois Opinion")
                                                        ----------------
addressed to the addressees set forth on Schedule 1 hereto delivered



Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
March 7,2002
Page 2

pursuant to Section 3.1(b)(iii) of the Credit Agreement. Capitalized terms used
herein and not otherwise defined herein shall have the same meanings herein as
ascribed thereto in the Credit Agreement.

          In our discussions with you we have assumed the genuineness of all
signatures including endorsements, the legal capacity of natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as facsimile, electronic,
certified or photostatic copies, and the authenticity of the originals of such
copies. As to any facts material to this opinion, we have relied on information
furnished to us by you.

          In rendering the opinions set forth herein, we have relied upon your
examination of originals or copies of the following and discussions with you
with respect thereto:

          (a) the Credit Agreement;

          (b) the Interim Order, dated March 7, 2002 (the "Interim Order"), a
                                                           -------------
copy of which is attached as Exhibit A to the Illinois Opinion;
                             ---------

          (c) the certificate of Ronald J. Werhnyak, Vice President, General
Counsel and Secretary of the Borrower, dated the date hereof, a copy of which is
attached as Exhibit B to the Illinois Opinion;
            ---------

          (d) copies of the Certificate of Incorporation and By-laws of each of
the New York Opinion Companies;

          (e) a copy of certain resolutions of the Board of Directors of each of
the New York Opinion Companies adopted on March 5, 2002;

          (f) certificates, dated February 20, 2002, from the Special Deputy
Secretary of State of the State of New York as to each New York Opinion Company
being a subsisting corporation in the State of New York and certificates of tax
title



Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
March 7,2002
Page 3

search issued by the Secretary of State of the State of New York on February 27,
2002 for each New York Opinion Company; and

          (g) such other documents as we have deemed necessary or appropriate as
a basis for the opinions set forth below.

          We express no opinion as to the laws of any jurisdiction other than
the Applicable Laws of the State of New York.

          "Applicable Laws" shall mean those laws, rules and regulations which,
           ---------------
in our experience, are normally applicable to transactions of the type
contemplated by the Credit Agreement, without our having made any special
investigation as to the applicability of any specific law, rule or regulation,
and which are not the subject of a specific opinion herein referring expressly
to a particular law or laws. "Governmental Approval" means any consent,
                              ---------------------
approval, license, authorization or validation of, or filing, recording or
registration with, any governmental authority pursuant to the Applicable Laws of
the State of New York. "New York Opinion Company" means each corporation listed
                        ------------------------
on Schedule III hereto, and such corporations are collectively the "New York
   ------------                                                     --------
Opinion Companies".
- -----------------

          Based upon the foregoing and subject to the limitations,
qualifications, exceptions and assumptions set forth herein, we are of the
opinion that:

          1. Based solely upon our review of the certificates referred to in
item (f) above, each of the New York Opinion Companies is a subsisting
corporation in the State of New York under the Applicable Laws of the State of
New York.

          2. Each of the New York Opinion Companies has the corporate power and
authority to execute, deliver and perform all of its obligations under the
Credit Agreement under the Applicable Laws of the State of New York. The
execution and delivery of the Credit Agreement and the consummation by the each
of the New York Opinion Companies of the transactions contemplated thereby have
been duly authorized by all requisite corporate action on the part of each of
the New York Opinion Companies under the Applicable Laws of the State of New
York. The Credit



Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
March 7,2002
Page 4

Agreement has been duly executed and delivered by each of the New York Opinion
Companies.

          3. The execution and delivery of the Credit Agreement by each of the
New York Opinion Companies and the performance by each such Person of its
obligations under the Credit Agreement in accordance with its terms, do not
conflict with the Certificate of Incorporation or By-laws of such Person.

          4. Subject to entry of the Bankruptcy Orders and the terms thereof,
the Credit Agreement constitutes the valid and binding obligation of each
Opinion Party enforceable against such Opinion Party in accordance with its
terms under the Applicable Laws of the State of New York.

          5. Neither the execution, delivery or performance by each Opinion
Party of the Credit Agreement nor the compliance by such Opinion Party with the
terms and provisions thereof will contravene any provision of any Applicable Law
of the State of New York.

          6. Other than the entry by the Bankruptcy Court of the Bankruptcy
Orders, no Governmental Approval, which has not been obtained or taken and is
not in full force and effect, is required to authorize, or is required in
connection with, the execution or delivery of the Credit Agreement by the
Opinion Parties or the enforceability of the Credit Agreement against the
Opinion Parties.

          Our opinions are subject to the following assumptions and
qualifications:

          (a) enforcement of the Credit Agreement is subject to and may be
limited by the Bankruptcy Court's general powers (including its powers as a
court of equity), applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally and by general
principles of equity (regardless of whether enforcement is sought in equity or
at law);



Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
March 7,2002
Page 5

          (b) we have assumed that the Credit Agreement constitutes the valid
and binding obligation of each party to the Credit Agreement (other than the
Opinion Parties) enforceable against such other party in accordance with its
terms;

          (c) we express no opinion as to the effect on the opinions expressed
herein of (i) the compliance or non-compliance of any party (other than the
Opinion Parties to the extent expressly set forth herein) to the Credit
Agreement with any state, federal or other laws or regulations applicable to
them or (ii) the legal or regulatory status or the nature of the business of any
party (other than the Opinion Parties to the extent expressly set forth herein)
to the Credit Agreement;

          (d) we express no opinion as to the enforceability of any rights to
contribution or indemnification provided for in the Credit Agreement which are
violative of the public policy underlying any law, rule or regulation (including
any federal or state securities law, rule or regulation);

          (e) we express no opinion as to the applicability or effect of any
fraudulent transfer, preference or similar law on the Credit Agreement or any
transactions contemplated thereby;

          (f) we express no opinion on the enforceability of any provision in
the Credit Agreement purporting to prohibit, restrict or condition the
assignment of the Credit Agreement to the extent such restriction on
assignability is governed by sections 9-406 through 9-409 of the Uniform
Commercial Code;

          (g) in the case of the Guaranty contained in the Credit Agreement,
certain of the remedial provisions, including waivers, with respect to such
Guaranty are or may be unenforceable in whole or in part, but the inclusion of
such provisions does not affect the validity of the Guaranty, taken as a whole;

          (h) we express no opinion with respect to Section 2.4 of the Credit
Agreement to the extent it excuses the issuer of a letter of credit from
liability to the extent such provision is unenforceable pursuant to Section
5-103 of the Uniform Commercial Code;



Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
March 7,2002
Page 6

          (i) our opinion with respect to the enforceability of the choice of
New York law and choice of New York forum provisions of the Transaction
Agreements is rendered in reliance upon the Act of July 19, 1984, ch. 421, 1984
McKinney's Sess. Laws of N.Y. 1406 (codified at N.Y. Gen. Oblig. Law Sections
5-1401, 5-1402 (McKinney 1989) and N.Y. CPLR 327(b) (McKinney 1990)) (the "Act")
and is subject to the qualifications that such enforceability may be limited by
public policy considerations of any jurisdiction, other than the courts of the
State of New York, in which enforcement of such provisions, or of a judgment
upon an agreement containing such provisions, is sought;

          (j) certain of the remedial provisions with respect to the security
including waivers with respect to the exercise of remedies against the
collateral contained in Article 11 of the Credit Agreement may be unenforceable
in whole or in part, but the inclusion of such provisions does not affect the
validity of Article 11 of the Credit Agreement, taken as a whole;

          (k) we express no opinion with respect to the validity, perfection or
priority of any security interest;

          (l) we express no opinion with respect to any provision of the Credit
Agreement to the extent it authorizes or permits any purchaser of a
participation interest to set off or apply any deposit, property or indebtedness
with respect to any participation interest;

          (m) the enforceability of the Credit Agreement may be limited to the
extent any term or provision of the Credit Agreement conflicts or is found to
conflict with any term or provision of any Bankruptcy Order or any other order
of the Bankruptcy Court;

          (n) we express no opinion as to the enforceability of any provision of
the Credit Agreement to the extent it purports to waive any objection a person
may have that a suit, action or proceeding has been brought in an inconvenient
forum;



Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
March 7,2002
Page 7

          (o) we call to your attention that the execution, delivery and
performance by the Opinion Parties of the Credit Agreement and the consummation
by the Opinion Parties of the transactions contemplated thereby (including,
without limitation, the grant by the Opinion Parties pursuant thereto of
security interests and other liens in respect of their assets) may violate or
constitute defaults under other agreements and instruments to which the Opinion
Parties or their property is subject, and, in giving our opinions herein, we are
relying upon the effectiveness of the Interim Order;

          (p) we have assumed that each interested party, to the extent entitled
thereto, has received or will receive due, sufficient and adequate notice of the
Interim Order and the Bankruptcy Court's hearing on the Interim Order (the
"Hearing");
 -------

          (q) we express no opinion herein on the substantive effect of the
Interim Order or the provisions thereof;

          (r) we have assumed that the evidence in the record at the Hearing was
adequate to support the relief requested in the Motion (as defined in the
Interim Order) and the entry of the Interim Order;

          (s) in rendering our opinions herein, we have relied on the terms of
the Interim Order as in effect at the time entered, and we express no opinion as
to whether the Interim Order may be subject to subsequent alteration or
revocation by the Bankruptcy Court or another court of competent jurisdiction or
the effects of any such alteration or revocation on the transactions
contemplated by the Credit Agreement;

          (t) we have assumed that each party to the Credit Agreement has acted
in good faith in the execution, delivery and performance of the Credit Agreement
and the transactions contemplated thereby; and

          (u) we express no opinion with respect to any provision of the Credit
Agreement to the extent that any such provision establishes a standard of care
for collateral in the possession or control of the Collateral Agent to the
extent such standard



Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
March 7,2002
Page 8

of care is unenforceable under Sections 1-102 and 9-207 of the Uniform
Commercial Code.

          In rendering the foregoing opinions, we have assumed, with your
consent, that:

          (a) except to the extent we express our opinion with respect to a New
York Opinion Company in paragraph 1 herein, each Opinion Party is validly
existing and in good standing as a corporation, limited liability company or
limited partnership, as the case may be, under the laws of the jurisdiction of
its formation;

          (b) except to the extent we express our opinion with respect to a New
York Opinion Company in paragraph 2 herein, each Opinion Party has the power and
authority to execute, deliver and perform all of its obligations under the
Credit Agreement and the execution and delivery by each Opinion Party of the
Credit Agreement and the consummation by such Opinion Party of the transactions
contemplated thereby have been duly authorized by all requisite action on the
part of the such Opinion Party, and the Credit Agreement has been duly
authorized, executed and delivered by such Opinion Party;

          (c) except to the extent we express our opinion with respect to a New
York Opinion Company in paragraph 3 herein, the execution and delivery of the
Credit Agreement by each Opinion Party and the performance of any obligations of
the Opinion Parties thereunder does not and will not conflict with, contravene,
violate or constitute a default under (i) the Certificate or Articles of
Incorporation or the By-laws of any Opinion Party which is a corporation, the
Certificate or Articles of Formation or limited liability company or operating
agreement of any Opinion Party which is a limited liability company or the
Certificate or Articles of Limited Partnership or partnership agreement of any
Opinion Party which is a limited partnership, (ii) any lease, indenture,
instrument or other agreement entered into after commencement of the Cases to
which any Opinion Party or any Opinion Party's property is subject, (iii) any
rule, law or regulation to which any Opinion Party is subject (other than
Applicable Laws of the State of New York as to which we express our opinion in
paragraph 5



Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
March 7,2002
Page 9

herein) or (iv) any judicial or administrative order or decree of any
governmental authority; and

          (d) no authorization, consent or other approval of, notice to or
filing with any court, governmental authority or regulatory body (other than
Governmental Approvals as to which we express our opinion in paragraph 6 herein)
is required to authorize or is required in connection with the execution,
delivery or performance by the Opinion Parties of the Credit Agreement or the
transactions contemplated thereby.



Skadden, Arps, Slate, Meagher
 & Flom (Illinois)
March 7,2002
Page 10

          This opinion is being furnished only to you in connection with the
Credit Agreement and is solely for your benefit and is not to be used,
circulated, quoted or otherwise referred to for any other purpose or relied upon
by any other person or entity for any purpose without our prior written consent,
provided that we hereby consent to this opinion being relied upon by you in
connection with the Illinois Opinion, by persons or entities to whom your
opinion is addressed and by persons or entities authorized by you to rely on the
Illinois Opinion.

                                                  Very truly yours,



                                                                      Schedule I

                                   Addressees
                                   ----------

Citicorp USA, Inc., as Administrative Agent,
  Issuer and a Lender

National City Commercial Finance, Inc., as a Lender

The Fuji Bank, Limited, as a Lender

Heller Financial, Inc., as a Lender

Fleet Capital Corporation, as a Lender

The CIT Group/Business Credit, Inc., as a Lender

GMAC Business Credit, LLC, as a Lender

State of California Public Employees' Retirement System (CalPERS), as a Lender

Orix Financial Services, as a Lender



                                                                     Schedule II

                                   Guarantors
                                   ----------

American Steel Corporation
D. W. Pipeline Company
Granite City Steel Company
Granite Intake Corp.
Great Lakes Steel Corporation
The Hanna Furnace Corporation
Hanna Ore Mining Company
Ingleside Channel & Dock Co.
Ingleside Point Corporation
Ingleside Holdings, L. P.
Liberty Pipe and Tube, Inc.
Mid-Coast Minerals Corporation
Midwest Steel Corporation
NS Holdings Corporation
NSC Realty Corporation
NS Land Company
NS Technologies, Inc.
NSL, Inc.
Natcoal, Inc.
National Acquisition Corporation
National Caster Acquisition Corporation
National Caster Operating Corporation
National Casting Corporation
National Coal Mining Company
National Coating Limited Corporation
National Coating Line Corporation
National Materials Procurement Corporation
National Mines Corporation
National Ontario Corporation
National Ontario II, Limited
National Pickle Line Corporation
National Steel Corporation (New York)



National Steel Funding Corporation
National Steel Pellet Company
Natland Corporation
Peter White Coal Mining Corp.
ProCoil Corporation
Puritan Mining Company
Rostraver Corporation
Skar-Ore Steamship Corporation
The Teal Lake Iron Mining Company



                                                                    Schedule III

                           New York Opinion Companies
                           --------------------------

The Hanna Furnace Corporation, a New York corporation
National Steel Corporation (New York), a New York corporation



                                    EXHIBIT G

                            ASSIGNMENT AND ACCEPTANCE

          ASSIGNMENT AND ACCEPTANCE dated as of          ,      between
                                               ----------  -----
               (the "Assignor") and                (the "Assignee").
- ---------------                     --------------

          Reference is made to the Secured Super Priority Debtor in Possession
Credit Agreement, dated as of March 6, 2002 (as the same may be amended,
restated, supplemented or otherwise modified from time to time, the "DIP Credit
Agreement"), among the Borrower, the Lenders and Issuers party thereto, Citicorp
USA, Inc. as administrative agent for the Lenders and Issuers, Heller Financial,
Inc. as collateral monitoring agent, Fleet Capital Corporation and The CIT
Group/Business Credit, Inc. as documentation agents, and Heller Financial, Inc.
and GMAC Business Credit, LLC as syndication agents. Capitalized terms used
herein and not otherwise defined herein are used herein as defined in the DIP
Credit Agreement.

          The Assignor and the Assignee hereby agree as follows:

1.   The Assignor hereby sells and assigns to the Assignee, and the Assignee
     hereby purchases and assumes from the Assignor, [all of] [an interest in]
     the Assignor's rights and obligations under the DIP Credit Agreement equal
     to the Ratable Portion of the Facility specified in Section 1 of Schedule I
     hereto. Without limiting the foregoing, the Assignee expressly acknowledges
     the provisions set forth in Section 12.9 of the DIP Credit Agreement and
     agrees to such provisions. The Commitment and principal amount of the
     Revolving Loans assigned to the Assignee are set forth in Section 1 of such
     Schedule I and the Commitment and principal amount of the Revolving Loans
     retained by the Assignor after giving effect to such sale and assignment
     are set forth in Section 2 of such Schedule I.

2.   The Assignor (i) represents and warrants that it is the legal and
     beneficial owner of the interest being assigned by it hereunder and that
     such interest is free and clear of any adverse claim; (ii) makes no
     representation or warranty and assumes no responsibility with respect to
     any statements, warranties or representations made in or in connection with
     the DIP Credit Agreement or any other Loan Document or any other instrument
     or document furnished pursuant thereto or the execution, legality,
     validity, enforceability, genuineness, sufficiency or value of the DIP
     Credit Agreement or any other Loan Document or any other instrument or
     document furnished pursuant thereto; and (iii) makes no representation or
     warranty and assumes no responsibility with respect to the financial
     condition of the Borrower and any Loan Party or the performance or
     observance by the Borrower and any Loan Party of any of its obligations
     under the DIP Credit Agreement or any other Loan Document or any other
     instrument or document furnished pursuant thereto; [and (iv) attaches the
     Note[s] held by the Assignor and requests that the Administrative Agent
     exchange such Note[s] for [a] new Note[s] in accordance with Section
     13.2(e) of the DIP Credit Agreement.]

3.   The Assignee (i) agrees that it will, independently and without reliance
     upon the Administrative Agent, the Assignor or any other Lender and based
     on such documents and information as it shall deem appropriate at the time,
     continue to make its own credit decisions in taking or not taking action
     under the DIP Credit Agreement; (ii) appoints and authorizes the
     Administrative Agent to take such action as agent on its behalf and to
     exercise such powers under the DIP Credit Agreement and the other Loan
     Documents as are delegated to the Administrative Agent by the terms
     thereof, together with such powers as are reasonably incidental thereto;
     (iii) agrees that it will perform in accordance with their terms all of the

                                       G-1



     obligations which by the terms of the DIP Credit Agreement are required to
     be performed by it as a Lender; (iv) represents and warrants that it is an
     Eligible Assignee; (v) confirms it has received such documents and
     information as it has deemed appropriate to make its own credit analysis
     and decision to enter into this Assignment and Acceptance; (vi) specifies
     as its Domestic Lending Office (and address for notices) and Eurodollar
     Lending Office the offices set forth beneath its name on the signature
     pages hereof; and/1/ (vii) attaches the forms prescribed by the Internal
     Revenue Service of the United States certifying as to the Assignee's status
     for purposes of determining exemption from United States withholding taxes
     with respect to all payments to be made to the Assignee under the DIP
     Credit Agreement or such other documents as are necessary to indicate that
     all such payments are subject to such rates at a rate reduced by an
     applicable tax treaty.

4.   Following the execution of this Assignment and Acceptance by the Assignor
     and the Assignee, it will be delivered to the Administrative Agent
     (together with an assignment fee in the amount of $3,500 payable by the
     Assignee to the Administrative Agent pursuant to Section 13.2(b) of the DIP
     Credit Agreement) for acceptance and recording by the Administrative Agent.
     The effective date of this Assignment and Acceptance shall be the Effective
     Date specified in Section 3 of Schedule I hereto (the "Effective Date").

5.   Upon such acceptance and recording by the Administrative Agent, then, as of
     the Effective Date, (i) the Assignee shall be a party to the DIP Credit
     Agreement and, to the extent provided in this Assignment and Acceptance,
     have the rights and obligations under the DIP Credit Agreement of a Lender
     and, if such Lender were an Issuer, of such Issuer and (ii) the Assignor
     shall, to the extent provided in this Assignment and Acceptance, relinquish
     its rights (except those which survive the payment in full of the
     Obligations) other than those relating to events or circumstances occurring
     prior to the Effective Date and be released from its obligations under the
     Loan Documents.

6.   Upon such acceptance and recording by the Administrative Agent, from and
     after the Effective Date, the Administrative Agent shall make all payments
     under the Loan Documents in respect of the interest assigned hereby (i) to
     the Assignee, in the case of amounts accrued with respect to any period on
     or after the Effective Date, and (ii) to the Assignor , in the case of
     amounts accrued with respect to any period prior to the Effective Date.

7.   This Assignment and Acceptance shall be governed by, and be construed and
     interpreted in accordance with, the law of the State of New York.

8.   This Assignment and Acceptance may be executed in any number of
     counterparts and by different parties on separate counterparts, each of
     which when so executed shall be deemed to be an original and all of which
     taken together shall constitute but one and the same agreement. Delivery of
     an executed counterpart of this Assignment and Acceptance by telecopier
     shall be effective as delivery of a manually executed counterpart of this
     Assignment and Acceptance.

- --------
/1/ Insert if Assignee is a Non-U.S. Lender (as such term is defined in the DIP
Credit Agreement).

                                       G-2



     IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed by their respective officers thereunto duly
authorized, as of the date first above written.

                                                  [ASSIGNOR]


                                                  By:
                                                     ---------------------------
                                                     Name:
                                                     Title:


                                                  [ASSIGNEE]


                                                  By:
                                                     ---------------------------
                                                     Name:
                                                     Title:


                                                  Domestic Lending Office (and
                                                         address for notices):

                                                  [Address]

                                                  Eurodollar Lending Office:

                                                  [Address]

Accepted this               day
              -------------
of                         ,
   ------------------------  ----

CITICORP USA INC.,
as Administrative Agent


By:
   -------------------------------
   Name:
   Title:

                                       G-3



                                   Schedule I
                                       to
                            Assignment and Acceptance

Section 1.

Tranche A Ratable Portion assigned to Assignee:                            %
                                                             --------------

Tranche A Commitment assigned to Assignee:                   $
                                                              -------------

Tranche B Ratable Portion assigned to Assignee:                            %
                                                             --------------

Tranche B Commitment assigned to Assignee:                   $
                                                              -------------

Aggregate Outstanding Principal Amount of
Revolving Loans Assigned to Assignee:                        $
                                                              -------------

Section 2.

Tranche A Ratable Portion retained by Assignee:                             %
                                                             --------------

Tranche A Commitment retained by Assignee:                   $
                                                              -------------

Tranche B Ratable Portion retained by Assignee:                             %
                                                             --------------

Tranche B Commitment retained by Assignee:                   $
                                                              -------------

Aggregate Outstanding Principal Amount of Revolving Loans
retained by Assignor:                                        $
                                                              -------------

Section 3.

Effective Date:                                                       ,
                                                             ---------  ---

                                      G-4



                                    Exhibit H
                            Letter of Credit Request

Citibank, N.A., as an Issuer  under the
    DIP Credit Agreement referred to below

CITICORP USA INC.,
    as Administrative Agent under the
    DIP Credit Agreement referred to below
388 Greenwich Street, 19th Floor
New York, New York 10013                                                  [Date]

Attention:

          Re: National Steel Corporation (the "Borrower")
              -------------------------------------------

          Reference is made to the Secured Super Priority Debtor in Possession
Credit Agreement, dated as of March 6, 2002 (as amended, restated, supplemented
or otherwise modified from time to time, the "DIP Credit Agreement"), among the
Borrower, the Lenders and Issuers party thereto, Citicorp USA, Inc. as
administrative agent for the Lenders and Issuers, Heller Financial, Inc. as
collateral monitoring agent, Heller Financial, Inc. and GMAC Business Credit LLC
as syndication agents, and Fleet Capital Corporation and The CIT Group /
Business Credit, Inc. as documentation agents for the Lenders and Issuers.
Capitalized terms used herein and not otherwise defined in this Notice of
Borrowing are used herein as defined in the DIP Credit Agreement.

          The Borrower hereby gives you notice, irrevocably, pursuant to Section
2.4(c) of the DIP Credit Agreement that the undersigned requests the issuance of
a Letter of Credit by [Issuer] in the form of a [standby] [documentary] letter
of credit for the benefit of [Beneficiary], in the amount of [$________], to be
issued on         ,      (the "Issue Date") and having an expiration date of
          --------  ----
         ,     .
- ---------  ----

          The form of the requested Letter of Credit is attached hereto.

          The undersigned hereby certifies that the following statements are
true on the date hereof and shall be true on the Issue Date both before and
after giving effect thereto:

          (i) the representations and warranties set forth in Article IV of the
     DIP Credit Agreement and the other Loan Documents are true and correct in
     all material respects on and as of the Issue Date with the same effect as
     though made on and as of such date, except to the extent such
     representations and warranties expressly relate to an earlier date;

          (ii) no borrowing base deficiency exists as of the Issue Date; and

          (iii) no Immediate Default or Event of Default has occurred and is
     continuing on the Issue Date.

                                                     National Steel Corporation


                                                     By:
                                                         -----------------------
                                                         Name:
                                                         Title:

                                      H-1



                      IN THE UNITED STATES BANKRUPTCY COURT
                      FOR THE NORTHERN DISTRICT OF ILLINOIS

- -------------------------------------------------x
In re:                                           :
                                                 :    Chapter 11
NATIONAL STEEL CORPORATION, et al.,              :
                            -- --
                                                 :    Case Nos. 02-08697
                                                 :    through 02-08738
                                                 :
                                                 :    Hon. John H. Squires
                                    Debtors.     :    (Jointly Administered)
- -------------------------------------------------x

               INTERIM ORDER (I) AUTHORIZING DEBTORS IN POSSESSION
             TO ENTER INTO POSTPETITION CREDIT AGREEMENT AND OBTAIN
                 POSTPETITION FINANCING PURSUANT TO SECTIONS 363
              AND 364 OF THE BANKRUPTCY CODE, (II) GRANTING LIENS,
              SECURITY INTERESTS AND SUPERPRIORITY CLAIMS AND (III)
          PROVIDING FOR THE PAYMENT OF SECURED PREPETITION INDEBTEDNESS
          -------------------------------------------------------------

          Upon the motion (the "Motion") dated March 6, 2002 of National Steel
Corporation ("National") and its affiliated debtors, as debtors and debtors in
possession (each individually a "Debtor" and, collectively, the "Debtors"), (a)
for the entry of an Order for authorization to (i) obtain postpetition financing
pursuant to sections 363 and 364 of title 11 of the United States Code (the
"Bankruptcy Code") by entering into that certain Secured Super-Priority Debtor
in Possession Credit Agreement, dated as of March 6, 2002 (as the same may be
amended, supplemented or otherwise modified from time to time, the "Postpetition
Credit Agreement"),/1/ a copy of which is annexed hereto as Exhibit A, by and
among National, as Borrower, the other Debtors, as Guarantors, the lenders and
letter of credit issuers from time to time parties thereto (collectively, the
"Postpetition

- ----------
/1/ Unless otherwise defined herein, all capitalized terms used herein have the
meanings ascribed to such terms in the Postpetition Credit Agreement.



Lenders"), Citicorp USA, Inc. ("CUSA"), as Administrative Agent (in such
capacity, the "Postpetition Agent"), Heller Financial, Inc. ("Heller"), as
Collateral Monitoring Agent (in such capacity, the "Postpetition Collateral
Monitoring Agent"), Fleet Capital Corporation ("Fleet") and The CIT
Group/Business Credit, Inc. ("CIT"), as Documentation Agents (in such capacity,
the "Postpetition Documentation Agents"), Heller and GMAC Business Credit, LLC
("GMAC"), as Syndication Agents (in such capacity, the "Postpetition Syndication
Agents"), The Fuji Bank, Limited ("Fuji"), as Co-Arranger (in such capacity, the
"Postpetition Co-Arranger"), and Salomon Smith Barney Inc. ("Salomon"), as Sole
Book Manager and Sole Lead Arranger (in such capacity, the "Postpetition Lead
Arranger" and, together with the Postpetition Agent, the Postpetition Collateral
Monitoring Agent, the Postpetition Documentation Agents, the Postpetition
Syndication Agents and the Postpetition Co-Arranger, the "Postpetition Agents"),
subject to the terms and conditions set forth therein, (ii) grant mortgages,
security interests, liens and superpriority claims to the Postpetition Agent on
behalf of and for the benefit of the Postpetition Agents and the Postpetition
Lenders (including a priority pursuant to section 364(c)(l) of the Bankruptcy
Code, liens pursuant to sections 364(c)(2) and (3) of the Bankruptcy Code and
priming liens pursuant to section 364(d) of the Bankruptcy Code), (iii) provide
for the payment of the secured prepetition indebtedness owed to the Prepetition
Agents and the Prepetition Lenders (each as hereinafter defined) as provided
herein and in the Postpetition Credit Agreement, and (iv) pending a final
hearing on the Motion (the "Final Hearing"), obtain emergency postpetition loans
under the Postpetition Credit Agreement to and including the date on which the
Final Order (as hereinafter defined) is entered (the "Interim Facility"), and
(b) in accordance with Rule 4001(c)(2) of

                                        2



the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), requesting
that this Court schedule the Final Hearing and approve notice with respect
thereto; and the Court having considered the Motion and the Exhibits attached
thereto, including, without limitation, the Postpetition Credit Agreement; and
in accordance with Bankruptcy Rule 4001(c)(2) and (c)(3), due and proper notice
of the Motion having been given; and a hearing to consider approval of the
Interim Facility having been held and concluded on the date hereof (the "Interim
Hearing"); and upon all of the pleadings filed with the Court and all of the
proceedings held before the Court; and after due deliberation and consideration
and good and sufficient cause appearing therefor, THE COURT HEREBY FINDS:

          A. On March 6, 2002 (the "Petition Date") the Debtors each filed with
this Court voluntary petitions for relief under chapter 11 of the Bankruptcy
Code. The Debtors are operating their businesses and managing their properties
as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy
Code. No request has been made for the appointment of a trustee or examiner, and
no official committee has yet been appointed in the Debtors' chapter 11 cases.

          B. This Court has jurisdiction over this matter pursuant to 28
U.S.C.Sections 157 and 1334. This is a core proceeding pursuant to 28
U.S.C.Section 157(b)(2). The statutory predicates for the relief sought herein
are Sections 105, 362, 363 and 364 of the Bankruptcy Code and Bankruptcy Rule
4001(c). Venue of the Debtors' chapter 11 cases and this Motion in this District
is proper pursuant to 28 U.S.C. Sections 1408 and 1409.

                                        3



          C. Pursuant to that certain Credit Agreement, dated as of September
28, 2001 (as amended from time to time, the "Prepetition Credit Agreement", and
together with all agreements, documents, notes, instruments and any other
agreements (including Hedging Contracts) delivered pursuant thereto or in
connection therewith, the "Prepetition Financing Documents"), among National, as
Borrower, CUSA, as Administrative Agent (in such capacity, the "Prepetition
Agent"), Fleet and CIT, as Documentation Agents, Heller and GMAC, as Syndication
Agents, Fuji, as Co-Arranger, and Salomon, as Sole Book Manager and Sole Lead
Arranger (collectively in such capacities, the "Prepetition Agents" and,
together with the Postpetition Agents, the "Agents"), and the lenders and letter
of credit issuers from time to time party thereto (the "Prepetition Lenders"
and, collectively with the Postpetition Lenders, the "Lenders"), the Prepetition
Lenders made loans and advances to, issued letters of credit for and/or provided
other financial accommodations (collectively, the "Prepetition Indebtedness") to
National to, inter alia, fund the operations of National and its affiliates.
Each of Debtors, National Steel Pellet Company, National Steel Funding Company,
NS Holdings Corporation and Pro Coil Corporation (collectively, the "Prepetition
Guarantors") have jointly and severally unconditionally guaranteed all of
National's obligations under the Prepetition Financing Documents (the
"Prepetition Guarantees"). The Debtors admit that as of the Petition Date the
aggregate principal amount of approximately $310,000,000 was outstanding in
respect of loans made and letters of credit issued by the Prepetition Lenders
pursuant to the Prepetition Credit Agreement, plus interest thereon and fees and
expenses incurred in connection therewith as provided in the Prepetition
Financing Documents. For purposes of this Order, each of the terms Postpetition
Indebtedness (as

                                        4



hereinafter defined) and Prepetition Indebtedness shall include the principal
of, and all interest, fees and other charges owing in respect of, such loans or
indebtedness (including any reasonable attorneys', accountants' and financial
advisors' fees that are chargeable or reimbursable under the relevant agreements
relating to such loans or other indebtedness relating to periods prior and
subsequent to the Petition Date).

          D. To secure the Prepetition Indebtedness and the Prepetition
Guarantees, each of National and the Prepetition Guarantors granted to the
Prepetition Agent, on behalf of and for the benefit of the Prepetition Agents
and the Prepetition Lenders liens on and security interests in (collectively,
"Liens") substantially all of their personal property (other than the assets
that secure the Public Bonds and Project Financings, each as defined in the
Motion), wherever located, then owned or thereafter acquired or arising, and the
proceeds, products, rents and profits of all of the foregoing (all of the
foregoing collateral generally described above, together with all of the
proceeds, products, rents and profits thereof shall be referred to herein
collectively as the "Prepetition Collateral" and such Liens shall be referred to
herein as the "Prepetition Liens").

          E. The Debtors acknowledge and agree that the Prepetition Liens
constitute valid, binding, enforceable (other than in respect of the stay of
enforcement arising from Bankruptcy Code section 362) and perfected first
priority Liens on the Prepetition Collateral subject only to prior Liens
expressly permitted by the Prepetition Credit Agreement, and are not subject to
avoidance or subordination pursuant to the Bankruptcy Code or applicable
non-bankruptcy law. The Debtors acknowledge and

                                        5



agree that the Prepetition Indebtedness and the obligations under the
Prepetition Guarantees constitute legal, valid and binding obligations of
National and the Prepetition Guarantors, enforceable in accordance with their
terms (other than in respect of the stay of enforcement arising from Bankruptcy
Code section 362), no offsets, defenses or counterclaims to the Prepetition
Indebtedness or the obligations under the Prepetition Guarantees exist, and no
portion of the Prepetition Indebtedness or the obligations under Prepetition
Guarantees is subject to avoidance or subordination pursuant to the Bankruptcy
Code or applicable non-bankruptcy law.

          F. An immediate and critical need exists for the Debtors to obtain
funds in order to continue the operation of their businesses. Without such
funds, the Debtors will not be able to pay their payroll and other direct
operating expenses and obtain goods and services needed to carry on their
businesses during this sensitive period in a manner that will avoid irreparable
harm to the Debtors' estates. At this time, the ability of the Debtors to
finance their operations and the availability to them of sufficient working
capital and liquidity through the incurrence of new indebtedness for borrowed
money and other financial accommodations are vital to the confidence of the
Debtors' vendors and suppliers of other goods and services, to their customers
and employees and to the preservation and maintenance of the going concern value
of the Debtors' estates. The Debtors are unable to obtain the required funds in
the form of unsecured credit or unsecured debt allowable under section 503(b)(1)
of the Bankruptcy Code as an administrative expense pursuant to section 364(a)
or (b) of the Bankruptcy Code, unsecured debt having the priority afforded by
section 364(c)(l) of the Bankruptcy Code or debt secured only as described in
section 364(c)(2) or (3) of the Bankruptcy Code.

                                        6



          G. The Debtors acknowledge and agree that substantially all of the
personal property of the Debtors (other than the assets that secure the Public
Bonds and Project Financings) is subject to the Prepetition Liens. The
Prepetition Lenders have objected to (i) the use by the Debtors of their
Prepetition Collateral, including their cash collateral, except to the extent
that all cash held or received by the Debtors shall be applied in payment of the
Prepetition Indebtedness, and (ii) the priming of any of their Liens by any
lender.

          H. The Prepetition Agents and the Prepetition Lenders have indicated a
willingness to consent and agree to the Debtors' entering into the financing
arrangements contemplated by this Order and the Postpetition Financing Documents
(as hereinafter defined), and the Postpetition Agents and Postpetition Lenders
are willing to provide the additional financing contemplated herein, all subject
to the terms and conditions set forth herein and in the other Postpetition
Financing Documents and the provisions of this Order assuring that the
Postpetition Indebtedness, the Postpetition Liens and the various other claims,
super-priority claims and other protections granted pursuant to this Order and
the other Postpetition Financing Documents will not be affected by any
subsequent reversal or modification of this Order or any other order, as
provided in section 364(e) of the Bankruptcy Code, which is applicable to the
postpetition financing arrangements contemplated by this Order. Each of the
Postpetition Agents, each of the Postpetition Lenders, each of the Prepetition
Agents and each of the Prepetition Lenders has acted in good faith in consenting
to and in agreeing to provide the postpetition financing contemplated by this
Order and the other Postpetition Financing Documents and the reliance of each of
the Postpetition Agents, each of the

                                        7



Postpetition Lenders, each of the Prepetition Agents and each of the Prepetition
Lenders on the assurances referred to above is in good faith.

          I. The treatment requested by the Debtors for the Lenders and provided
by this Order will minimize disputes and litigation over collateral values,
priming, use of cash collateral, and the need to segregate the Prepetition
Collateral and the proceeds thereof from the Postpetition Collateral (as
hereinafter defined) and the proceeds thereof.

          J. Notice of the Interim Hearing on the Motion and this Order has been
provided (by hand or telecopy) to counsel to the Prepetition Agents, counsel to
the Prepetition Lenders, counsel to NUF LLC, the United States Trustee, and the
holders of the fifty largest unsecured claims against the Debtors. In view of
the urgency of the relief requested, such notice constitutes sufficient notice
under Bankruptcy Rule 4001 and no other notice need be given.

          K. Good cause has been shown for the entry of this Order. Among other
things, entry of this Order will minimize disruption of the Debtors' businesses
and operations and permit them to meet payroll and other operating expenses,
obtain needed supplies and retain customer and supplier confidence by
demonstrating an ability to maintain normal operations. The financing
arrangements authorized hereunder are vital to avoid immediate and irreparable
harm to the Debtors' estates. Consummation of such financing arrangements is
therefore in the best interests of the Debtors' estates.

          L. The financing and other arrangements authorized hereunder have been
negotiated in good faith and at arm's length among the Debtors, the Postpetition

                                       8



Agents, each of the Postpetition Lenders and each of the Prepetition Agents on
behalf of themselves and the Prepetition Lenders, and the terms of such
financing arrangements are fair and reasonable under the circumstances, reflect
the Debtors' exercise of prudent business judgment consistent with their
fiduciary duties and are supported by reasonably equivalent value and fair
consideration.

          M. The Debtors have requested immediate entry of this Order pursuant
to Bankruptcy Rule 4001(c)(2). The permission granted herein to (i) enter into
the Postpetition Financing Documents and obtain funds, incur indebtedness and
other financial accommodations thereunder and (ii) repay the Prepetition
Indebtedness is necessary to avoid immediate and irreparable harm to the
Debtors. This Court concludes that entry of this Order is in the best interests
of the Debtors and their estates and creditors as its implementation will, among
other things, allow for the continued operation and rehabilitation of the
Debtors' existing businesses.

          N. The Debtors (other than National) are jointly and severally
unconditionally guaranteeing the Postpetition Indebtedness and all other
obligations under the Postpetition Financing Documents.

          THEREFORE, IT IS HEREBY ORDERED AND ADJUDGED THAT:

          1. The Debtors be, and hereby are, authorized to enter into the
Postpetition Credit Agreement (the Postpetition Credit Agreement, together with
all agreements (including those related to Letters of Credit and Hedging
Contracts), documents, notes and instruments delivered pursuant hereto or
thereto or in connection herewith or therewith, including the Projections, this
Order and the Final Order (as

                                       9



hereinafter defined), are hereinafter referred to as the "Postpetition Financing
Documents"), and to borrow money, incur indebtedness and perform their
obligations hereunder and thereunder in accordance with, and subject to, the
terms of this Order and the other Postpetition Financing Documents. The Debtors
are authorized to enter into such modifications and amendments to the
Postpetition Financing Documents (including, without limitation, the
Projections), without further order of this Court, as may be agreed upon in
writing by the Debtors, the Postpetition Agents and all of the Postpetition
Lenders (or a majority or supermajority subgroup thereof, as applicable under
the terms of the Postpetition Financing Documents), except for (i) any increase
in the aggregate of the Postpetition Lenders' Commitments, (ii) any increase in
the applicable interest rates on the Revolving Loans, (iii) any modification of
the maturity of the Revolving Loans or (iv) any other modification which imposes
any additional material burden on the Debtors. Upon execution and delivery of
the Postpetition Financing Documents, the Postpetition Financing Documents shall
constitute valid and binding obligations of the Debtors, enforceable against the
Debtors in accordance with their terms; provided, however, that notwithstanding
                                        --------  -------
any other provision of this Order or of the other Postpetition Financing
Documents, the Debtors shall not prior to entry of a final order (the "Final
Order") approving the Postpetition Financing Documents incur Postpetition
Indebtedness in excess of $230,000,000, which amount represents the Debtors'
estimate of the face amount of Letters of Credit issued or deemed issued or
outstanding or deemed outstanding under the Postpetition Financing Documents and
Prepetition Hedging Amounts (as hereinafter defined)), plus amounts of
Prepetition Indebtedness that will be repaid subsequent to the Petition Date and
prior to the final hearing referred to in

                                       10



paragraph 23, plus $25,000,000. Effective immediately on the occurrence of the
Effective Date under the Postpetition Credit Agreement, (i) all letters of
credit outstanding pursuant to the Prepetition Credit Agreement shall be from
and after such date deemed to be and become for all purposes Letters of Credit
issued or outstanding under the Postpetition Financing Documents, and all
obligations thereunder or relating thereto shall be and shall be deemed to be
Postpetition Indebtedness and (ii) all obligations owed, or that become owed, by
the Debtors to the Prepetition Agent or any Prepetition Lenders under or
relating to, or any other claims held by the Prepetition Agent or any
Prepetition Lenders with respect to, Hedging Contracts in effect as of the
Petition Date shall be deemed to be Postpetition Indebtedness (the amounts of
such obligations, the "Prepetition Hedging Amounts").

          2. Except as expressly provided in the Postpetition Credit Agreement,
from and after the Petition Date (as hereinafter defined) until (i) the
indefeasible payment in full in cash of the Postpetition Indebtedness, including
the Revolving Loans, all obligations constituting unreimbursed drawings under
Letters of Credit (and the replacement or the cash collateralization of
outstanding Letters of Credit) and all obligations owing under or relating to
Hedging Contracts as in effect on or after the Petition Date, in accordance with
the Postpetition Credit Agreement, (ii) the indefeasible payment in full of the
Prepetition Indebtedness, and (iii) the termination of any commitments or
obligations on the part of the Postpetition Lenders to make Revolving Loans and
to issue Letters of Credit or with respect to outstanding Hedging Contracts, the
Debtors are hereby authorized and required to remit to the Postpetition Agent
immediately upon the Debtors' receipt thereof or otherwise in accordance with
the

                                       11



Debtors' current practices, all cash in their possession or control or otherwise
arising or collected in connection with their operations or business other than
(a) that portion of the proceeds of the Prepetition Indebtedness that does not
constitute the cash collateral of the Prepetition Agents and the Prepetition
Lenders up to a maximum of $9,000,000, and (b) the proceeds of the Postpetition
Indebtedness. Cash remitted to the Postpetition Agent shall be applied as
provided in the Postpetition Credit Agreement, including to the payment of the
Prepetition Indebtedness as provided therein.

          3. Any and all payments or proceeds remitted to the Postpetition Agent
pursuant to the provisions of paragraph 2 of this Order shall be received by the
Postpetition Agent for the benefit of the relevant Lenders or the other Secured
Parties (as hereinafter defined) free and clear of any claim, charge, assessment
or other liability including, without limitation, any such claim or charge
arising out of or based on, directly or indirectly, sections 506(c) (whether
asserted or assessed by, through or on behalf of the Debtors) or 552(b) of the
Bankruptcy Code.

          4. From and after the Petition Date through the Termination Date and
subject to the terms and conditions of this Order, the Debtors are hereby
authorized to borrow and reborrow funds and incur indebtedness pursuant to the
terms and provisions of this Order and the other Postpetition Financing
Documents.

          5. As security for all loans, advances, letters of credit and any
other indebtedness or obligations, contingent or absolute which may now or from
time to time hereafter be owing by the Debtors to the Postpetition Agents, the
Postpetition Lenders and any other parties as provided for under any of the
other Postpetition Financing

                                       12



Documents (such parties, together with the Postpetition Agents and Postpetition
Lenders, the "Secured Parties;" and all such loans, advances, letters of credit
and other indebtedness or obligations, together with any obligations at any time
incurred by the Debtors on or after the Petition Date to any of the Secured
Parties in connection with Hedging Contracts or the Debtors' cash management
system collectively, the "Postpetition Indebtedness"), the Postpetition Agent is
hereby granted for the sole benefit of the Secured Parties valid, binding,
enforceable and perfected Liens (the "Postpetition Liens") in the Collateral,
including without limitation all currently owned or hereafter acquired property
and assets of the Debtors of any kind or nature, whether real or personal,
tangible or intangible, wherever located, now owned or hereafter acquired or
arising and all proceeds, products, rents and profits thereof, including,
without limitation, all cash (including all cash collateral, wherever held),
goods, accounts receivable, inventory, cash-in-advance deposits, real estate,
machinery, equipment, vehicles, trademarks, trade names, licenses, causes of
action, rights to payment including tax refund claims, insurance proceeds and
tort claims (including, subject to entry of the Final Order, actions for
preferences, fraudulent conveyances, and other avoidance power claims and any
recoveries under sections 506(c), 542, 544, 545, 547, 548, 549, 550, 552(b) and
553 of the Bankruptcy Code) and the proceeds, products, rents and profits of all
of the foregoing (all of the foregoing, the "Postpetition Collateral"), (i)
subject only to the Carveout (as hereinafter defined), the Prepetition Liens and
to any other valid, binding, enforceable, perfected and unavoidable Liens of
record (other than the liens securing the obligations outstanding under the NUF
Credit Agreement (as defined in the Motion)) existing in the Postpetition
Collateral on the Petition Date (collectively, the

                                       13



"Senior Liens"), and (ii) senior and superior pursuant to section 364(d) of the
Bankruptcy Code to the Liens securing the obligations outstanding under the NUF
Credit Agreement (the "Primed Liens").

          6. The Liens granted in this Order shall not be (i) subject to any
Lien which is avoided and preserved for the benefit of the Debtors' estates
under section 551 of the Bankruptcy Code or (ii) subordinated to or made pari
                                                                         ----
passu with any other Lien under section 364(d) of the Bankruptcy Code or
- -----
otherwise. As used in this Order, "Carveout" means (i) the unpaid fees of the
clerk of the Bankruptcy Court and of the United States Trustee pursuant to 28
U.S.C. Section 1930(a) and (b), and (ii) the aggregate allowed unpaid fees and
expenses payable under sections 330 and 331 of the Bankruptcy Code to
professional persons retained pursuant to an order of the Court by the Debtors
or any statutory committee appointed in these chapter 11 cases (other than the
fees and expenses, if any, of any such professional persons incurred, directly
or indirectly, in respect of, arising from or relating to, the initiation or
prosecution of any action for preferences, fraudulent conveyances, other
avoidance power claims or any other claims or causes of action against the
Agents or the Lenders or with respect to the Postpetition Indebtedness or the
Prepetition Indebtedness), paid after the occurrence and during the continuance
of an Event of Default not to exceed $7,000,000 in the aggregate. So long as no
Event of Default shall have occurred and be continuing, the Debtors shall be
permitted to pay compensation and reimbursement of expenses allowed and payable
under sections 330 and 331 of the Bankruptcy Code, as the same may be due and
payable, and the same shall not reduce the Carveout.

                                       14



          7. In addition, the Postpetition Indebtedness shall have priority in
all of these chapter 11 cases in accordance with the provisions of section
364(c)(l) of the Bankruptcy Code over all administrative expenses of the kind
specified in section 503(b) or 507(b) of the Bankruptcy Code ("Superpriority"),
subject only to the Carveout. Except for the Carveout, no costs or
administrative expenses which have been or may be incurred in the Debtors'
chapter 11 cases, in any conversion of the Debtors' chapter 11 cases pursuant to
section 1112 of the Bankruptcy Code, or in any other proceeding related thereto,
and no priority claims, including, without limitation, any other Superpriority
claims, are or will be prior to or on a parity with the (i) claims of the
Agents, the Lenders or the other Secured Parties against the Debtors arising out
of the Postpetition Indebtedness or any provision of this Order or (ii) Liens
granted herein and in the other Postpetition Financing Documents in and to the
Postpetition Collateral. Provided that (i) the Obligations under the
Postpetition Financing Documents have not become due and payable and the
Commitments have not been terminated pursuant to the provisions of Section 9.2
of the Postpetition Credit Agreement, (ii) the Final Order has been issued
within forty-five days of the Petition Date and is in effect and (iii) all
Prepetition Indebtedness has been paid in full, then notwithstanding the
Superpriority claims and Liens granted or afforded pursuant to this Order and
the Postpetition Financing Documents and further notwithstanding any other
provision hereof, in the Postpetition Financing Documents or the Bankruptcy Code
to the contrary, with respect to the amount of the Postpetition Indebtedness
equal to the lesser of the amount of (a) Postpetition Indebtedness outstanding
on the date of determination or (b) Prepetition Indebtedness repaid subsequent
to the Petition Date (such lesser amount of the

                                       15



Postpetition Indebtedness, the "Repaid Prepetition Indebtedness"), all holders
of such claims and Liens shall be bound by the agreement of such holders to the
treatment of the Repaid Prepetition Indebtedness in any plan of reorganization
proposed by the Debtors if (x) more than one-half of the number of holders of
outstanding Prepetition Indebtedness and Repaid Prepetition Indebtedness
actually voting on such plan and (y) holders of at least two-thirds in amount of
Prepetition Indebtedness and Repaid Prepetition Indebtedness actually voting on
such plan accept such plan. Under no circumstances shall any plan of
reorganization in any of these cases be confirmed or become effective unless
such plan is either (i) proposed by the Debtors and the Repaid Indebtedness is
treated in accordance with the foregoing sentence or (ii) provides that the
Repaid Prepetition Indebtedness be paid in cash in full on the effective date of
such plan. To the extent that the provisions of the preceding two sentences of
this paragraph 7 conflict with the terms of the Postpetition Credit Agreement,
the terms of the Postpetition Credit Agreement shall govern.

          8. Interest on the Revolving Loans and other Postpetition Indebtedness
shall accrue at the rates (including any default rates only after an Event of
Default under the Postpetition Financing Documents) and shall be paid at the
times as provided in the Postpetition Financing Documents. Interest on the
Prepetition Indebtedness shall accrue at the rates (including any default rates
only after an Event of Default under the Postpetition Financing Documents) as
provided in the Prepetition Financing Documents.

                                       16



          9. The Debtors shall use the proceeds of the Postpetition
Indebtedness, including of the Letters of Credit, solely as provided in this
Order and in the Postpetition Financing Documents. From and after the Petition
Date, the proceeds of the Postpetition Indebtedness, the issuance of the Letters
of Credit and the Postpetition Collateral shall not, directly or indirectly, be
used to pay expenses of the Debtors or otherwise disbursed except for (i) those
expenses and/or disbursements that are expressly permitted under the
Postpetition Financing Documents, (ii) compensation and reimbursement of
expenses allowed by this Court to attorneys, accountants, investment bankers,
financial advisors or other professional persons retained by the Debtors or any
official committees that may be appointed in these chapter 11 cases and (iii)
amounts due to the Agents, the Lenders and/or the other Secured Parties and
their accountants, attorneys or other professionals hereunder, under the other
Postpetition Financing Documents or under the Prepetition Financing Documents;
provided that all cash (other than the proceeds of the Postpetition
- --------
Indebtedness) shall be used solely as provided for in paragraph 2 of this Order,
and provided, further, that the foregoing shall not be construed as consent to
    --------  -------
the allowance of any of the amounts referred to in the preceding clause (ii) and
shall not affect the right of the Agents or the Lenders to object to the
allowance and payment of any such amounts. Subject to entry of the Final Order,
no administrative claims, including fees and expenses of professionals, shall be
assessed against or attributed to any of the Agents, the Lenders or the other
Secured Parties with respect to their interests in the Prepetition Collateral or
the Postpetition Collateral pursuant to the provisions of section 506(c) of the
Bankruptcy Code or otherwise by, through or on behalf of the Debtors, without
the prior written consent of the Agents and the Lenders,

                                       17



and no such consent shall be implied from any action, inaction or acquiescence
by the Agents or the Lenders or otherwise. Except as set forth in the second
sentence of this paragraph 9, neither the Lenders nor the Agents have consented
or agreed to the use of the proceeds of the Postpetition Indebtedness or the
Postpetition Collateral.

          10. The automatic stay extant under section 362(a) of the Bankruptcy
Code shall be, and it hereby is, modified to the extent necessary to permit the
Agents for the sole benefit of the Lenders and the other Secured Parties to
receive, collect and apply payments and proceeds in respect of the Prepetition
Collateral and the Postpetition Collateral in accordance with the terms and
provisions of this Order, the other Postpetition Financing Documents and the
Prepetition Financing Documents.

          11. Notwithstanding anything herein or in the other Postpetition
Financing Documents, on the Termination Date the Debtors (i) shall no longer,
pursuant to this Order, the other Postpetition Financing Documents, or
otherwise, be authorized to borrow funds or incur indebtedness hereunder or
under the other Postpetition Financing Documents or to use any proceeds of the
Postpetition Indebtedness already received (and any obligations of the Lenders
to make loans or advances or issue Letters of Credit hereunder or under the
other Postpetition Financing Documents shall be terminated) and (ii) shall cash
collateralize all outstanding Letters of Credit.

          12. Notwithstanding anything herein or the occurrence of the
Termination Date, all of the rights, remedies, benefits and protections provided
to the Agents, the Lenders and the other Secured Parties under this Order and
the other Postpetition Financing Documents shall survive the Termination Date.
Upon the

                                       18



Termination Date, the principal of and all accrued interest and fees and all
other amounts owed to the Agents, the Lenders or the other Secured Parties
hereunder or under the other Postpetition Financing Documents shall be
immediately due and payable and the Agents, the Lenders and the other Secured
Parties shall have all other rights and remedies provided in the Postpetition
Financing Documents and the Prepetition Financing Documents. Notwithstanding
anything herein to the contrary, no Postpetition Indebtedness or any proceeds of
Prepetition Collateral or Postpetition Collateral or Letters of Credit
(collectively, "Lender Funds") may be used by any of the Debtors, any statutory
committee or any other person or entity (x) to object to or contest in any
manner, or raise any defenses to, the validity, perfection, priority or
enforceability of the Prepetition Indebtedness or the Prepetition Liens, or to
assert or prosecute any action for preferences, fraudulent conveyances, other
avoidance power claims or any other claims or causes of action against any of
the Prepetition Lenders or any of the Prepetition Agents or (y) to seek
authorization for any party to use the cash collateral of the Agents or the
Lenders without the consent of the Agents and the Lenders or to obtain Liens
that are senior to, or on a parity with the Liens of the Agents, the Lenders or
the other Secured Parties in the Prepetition Collateral, the Postpetition
Collateral or any portion thereof; without limitation of the foregoing, (i) at
no time shall any such committee or other person or entity have the right to use
Lender Funds to prosecute any such claims, causes of action, objections,
contests or defenses (collectively, "Claims and Defenses"), (ii) any such
committee or other person or entity shall have the right to assert Claims and
Defenses only in an action commenced in this Court on or before the 90th day
following the Petition Date, (iii) if no such action is commenced on or before
such date, all Claims

                                       19



and Defenses shall be deemed, immediately and without further action by the
Agents or the Lenders, to have been forever relinquished and waived as to such
committee and other person or entity, (iv) if such an action is commenced on or
before such date, all Claims and Defenses shall be deemed, immediately and
without further action by the Agents or the Lenders, to have been forever
relinquished and waived as to such committee and other person or entity, except
with respect to Claims and Defenses that are expressly asserted in such action
and (v) the terms of this Order pertaining to the repayment of Prepetition
Indebtedness shall be without prejudice to the right of any such committee or
other person or entity to commence and prosecute Claims and Defenses as set
forth above; provided, further, that as to the Debtors, all such Claims and
             --------  -------
Defenses are hereby relinquished and waived as of the Petition Date. If any
Claims and Defenses are asserted in accordance with the provisions above, and if
a final, non-appealable order is entered upholding or granting any such Claims
or Defenses, this Court may enter any order it determines is appropriate to
restore the parties to the status quo as of the Petition Date, notwithstanding
the payment of the Prepetition Indebtedness. In addition to the foregoing, no
Lender Funds may be used by any of the Debtors, any statutory committee or any
other entity to object to or contest in any manner the Postpetition
Indebtedness, the Postpetition Liens or the payments made in respect of the
Prepetition Indebtedness as authorized by this Order, or to assert or prosecute
any actions, claims or causes of action against any of the Agents, the Lenders
or the other Secured Parties.

          13. If it shall be necessary for the Agents, the Lenders or the other
Secured Parties, at any time, to exercise any of their respective rights and
remedies hereunder, under the Postpetition Financing Documents, under the
Prepetition Financing

                                       20



Documents or under applicable law in order to effect repayment of the
Postpetition Indebtedness or to receive any amounts or remittances due
hereunder, including without limitation, foreclosing upon and selling all or a
portion of the Prepetition Collateral or the Postpetition Collateral, the
Agents, the Lenders and the other Secured Parties shall have the right without
any further action or approval of this Court to exercise such rights and
remedies as to all or such part of the Prepetition Collateral and the
Postpetition Collateral as the Agents, the Lenders and the other Secured Parties
shall elect in their sole discretion, subject to the Agents, Lenders or the
other Secured Parties, as applicable, having provided the Debtors and any
official committee of creditors that may be appointed in these chapter 11 cases
with at least five business days' advance written notice. The Agents, the
Lenders and the other Secured Parties shall be entitled to apply the payments or
proceeds of the Prepetition Collateral and the Postpetition Collateral in
accordance with the provisions of this Order and the other Postpetition
Financing Documents, and in no event shall any of the Agents, the Lenders or the
other Secured Parties be subject to the equitable doctrine of "marshaling" or
any other similar doctrine with respect to any of the Prepetition Collateral or
Postpetition Collateral or otherwise.

          14. Except as provided in the Postpetition Financing Documents, the
Debtors shall be enjoined and prohibited from at any time during their chapter
11 cases granting claims or Liens in the Prepetition Collateral, the
Postpetition Collateral or any portion thereof to any other parties pursuant to
sections 364(c) and (d), 503(b) or 507(b) of the Bankruptcy Code or otherwise,
which claims or Liens are senior to, or on a parity with, the claims of the
Agents, the Lenders or the other Secured Parties granted herein or the Liens of
the Agents, the Lenders or the other Secured Parties in the Prepetition

                                       21



Collateral, the Postpetition Collateral or any portion thereof. The Debtors
shall be enjoined and prohibited from at any time (i) using the Agents', the
Lenders' or the other Secured Parties' cash collateral, except as provided in
paragraph 2 of this Order, (ii) using the Postpetition Collateral, except on the
terms of this Order and the other Postpetition Financing Documents, and (iii)
applying to any court for an order authorizing the use of the Agents', the
Lenders' or the other Secured Parties' cash collateral (except as provided in
paragraph 2 of this Order) or, except on the terms of this Order and the other
Postpetition Financing Documents, the Postpetition Collateral.

          15. The Debtors shall execute and deliver to the Agents and the
Lenders all such agreements, financing statements, instruments and other
documents as the Agents or any of the Lenders may reasonably request to
evidence, confirm, validate or perfect the Liens granted pursuant hereto.

          16. Without limiting the rights of access and information afforded the
Agents and the Lenders under the Postpetition Financing Documents, the Debtors
shall permit representatives, agents and/or employees of the Agents or the
Lenders to have reasonable access to their premises and their records during
normal business hours (without unreasonable interference with the proper
operation of the Debtors' businesses) and shall cooperate, consult with, and
provide to such persons all such non-privileged information as they may
reasonably request.

          17. All Liens granted herein and in the other Postpetition Financing
Documents to secure repayment of the Postpetition Indebtedness shall pursuant to
this Order be, and they hereby are, deemed perfected effective as of the
Petition Date, and no

                                       22



further notice, filing or other act shall be required to effect such perfection;
provided, however, if the Agents shall, in their sole discretion, choose to file
- --------  -------
such mortgages, financing statements, notices of liens and security interests
and other similar documents, all such mortgages, financing statements or similar
instruments shall be deemed to have been filed or recorded at the time and on
the date of entry of this Order.

          18. The provisions of this Order shall be binding upon and inure to
the benefit of each of the Agents, the Lenders and the other Secured Parties and
the Debtors and their respective successors and assigns (including any trustee
or other fiduciary hereafter appointed as a legal representative of the Debtors
or with respect to the property of the estates of the Debtors).

          19. Based on the findings set forth in this Order and in accordance
with section 364(e) of the Bankruptcy Code, which is applicable to the
postpetition financing arrangements contemplated by this Order, in the event
that any or all of the provisions of this Order or any other Postpetition
Financing Documents are hereafter modified, amended or vacated by a subsequent
order of this or any other Court, no such modification, amendment or vacation
shall affect the validity, enforceability or priority of any Lien or claim
authorized or created hereby or thereby. Notwithstanding any such modification,
amendment or vacation, any claim granted to the Agents, the Lenders or the other
Secured Parties hereunder or under the other Postpetition Financing Documents
arising prior to the effective date of such modification, amendment or vacation
shall be governed in all respects by the original provisions of this Order and
the other Postpetition Financing Documents, and the Agents, the Lenders and the
other Secured Parties, as the

                                       23



case may be, shall be entitled to all of the rights, remedies, privileges and
benefits, including the Liens and priorities granted herein and therein, with
respect to any such claim.

          20. The Debtors are authorized to do and perform all acts, to make,
execute and deliver all instruments and documents (including, without
limitation, the execution of additional security agreements, mortgages and
financing statements), and shall pay fees and expenses which may be required or
necessary for the Debtors' performance under the Postpetition Financing
Documents, including, without limitation: (i) the execution of the Postpetition
Financing Documents, and (ii) the payment of the fees and other expenses
described in the Postpetition Financing Documents as such become due, including,
without limitation, agent fees, commitment fees, letter of credit fees and
facility fees and reasonable attorneys', financial advisers' and accountants'
fees and disbursements as provided for in the Postpetition Financing Documents.
None of such reasonable attorneys', financial advisers' and accountants' fees
and disbursements shall be subject to the approval of this Court, and no
recipient of any such payment shall be required to file with respect thereto any
interim or final fee application with this Court.

          21. The obligations of the Debtors in respect of the Postpetition
Indebtedness, including the Revolving Loans, all obligations in respect of the
Letters of Credit and all obligations owing under or relating to Hedging
Contracts in effect on or after the Petition Date, subject to the last three
sentences of paragraph 7 hereof, and the Liens granted pursuant to this Order
shall not be discharged by the entry of an order confirming a plan of
reorganization in any of the Debtors' chapter 11 cases and, pursuant

                                       24



to section 1141(d)(4) of the Bankruptcy Code, the Debtors having hereby waived
such discharge. Under no circumstances shall any plan of reorganization in this
case be confirmed or become effective unless such plan provides that the
Postpetition Indebtedness (other than that portion thereof which is Repaid
Indebtedness the treatment of which shall be as provided for in paragraph 7 of
this Order) is paid in full in cash on or before the effective date of such plan
or as may otherwise be agreed by the Postpetition Lenders in the manner provided
in the Postpetition Financing Documents.

          22. Until all obligations and indebtedness owing to the Postpetition
Agents, the Postpetition Lenders and the other Secured Parties shall have been
indefeasibly paid in full (and, with respect to outstanding Letters of Credit,
cash collateralized), neither National nor any Prepetition Guarantor shall seek
an order dismissing any of the chapter 11 cases of National or any Prepetition
Guarantor. If an order dismissing any of the Debtors' chapter 11 cases under
section 1112 of the Bankruptcy Code or otherwise is at any time entered, such
order shall provide (in accordance with sections 105 and 349(b) of the
Bankruptcy Code) that (i) the Superpriority claims and Liens granted pursuant to
this Order shall continue in full force and effect and shall maintain their
priorities as provided in this Order until all obligations in respect thereof
shall have been indefeasibly satisfied and paid in full in cash (and that such
Superpriority claims and Liens shall, notwithstanding such dismissal, remain
binding on all parties in interest) and (ii) this Court shall retain
jurisdiction, notwithstanding such dismissal, for the purposes of enforcing the
Superpriority claims and Liens referred to in (i) above.

                                       25



          23. The Debtors shall, on or before March 8, 2002, serve by United
States mail, first class postage prepaid, copies of the Motion, this Order and a
notice of the hearing (the "Final Hearing Notice") to be held on April 2, 2002
at 8:30 a.m. to consider entry of the proposed Final Order on: (a) the entities
set forth on the list of the fifty largest unsecured creditors of the Debtors;
(b) the Office of the United States Trustee; (c) counsel to the Prepetition
Agents; (d) counsel to the Prepetition Lenders; (e) counsel to NUF LLC; and (f)
counsel to the Postpetition Lenders. Copies of the Motion, this Order and the
Final Hearing Notice shall be served upon all persons requesting service of
papers pursuant to Bankruptcy Rule 2002 by United States mail, first class
postage prepaid, within one business day following the receipt of such request.
The Final Hearing Notice shall state that any party in interest objecting to the
entry of the proposed Final Order shall file written objections with the United
States Bankruptcy Court Clerk for the Northern District of Illinois no later
than 4:00 p.m. on March 22, 2002, which objections shall be served so that the
same are received on or before such date and time by: (a) Skadden, Arps Slate,
Meagher and Flom, LLP, 333 West Wacker Drive, Suite 2100, Chicago, Illinois
60606, Attn: Timothy R. Pohl, Esq., counsel to the Debtors, (b) Piper Marbury
Rudnick & Wolfe, 203 North LaSalle Street, Suite 1800, Chicago, Illinois 60601,
Attn: Mark Berkoff, Esq., counsel to the Debtors, (c) Weil, Gotshal & Manges
LLP, 767 Fifth Avenue, New York, New York 10153, Attention: Richard P. Krasnow,
Esq., counsel to the Postpetition Lenders and Prepetition Lenders; (d) Katten
Muchin Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois 60661, Attn:
Mark K. Thomas, Esq., counsel to the Postpetition Lenders and Prepetition
Lenders; and (e) the Office of the United States Trustee.

                                       26



          24. Notwithstanding anything herein, but subject only to the last
three sentences of paragraph 7 hereof, the entry of this Order is without
prejudice to, and does not constitute a waiver of, expressly or implicitly, or
otherwise impair, (x) any of the rights of the Agents, the Lenders or the other
Secured Parties under the Bankruptcy Code or under non-bankruptcy law,
including, without limitation, the right of the Agents, the Lenders or the other
Secured Parties to (i) request adequate protection of their interests in the
Prepetition Collateral or the Postpetition Collateral or relief from or
modification of the automatic stay extant under section 362 of the Bankruptcy
Code, (ii) request conversion of any of the Debtors' chapter 11 cases to cases
under chapter 7 of the Bankruptcy Code, and (iii) propose, subject to the
provisions of section 1121 of the Bankruptcy Code, a chapter 11 plan or plans or
(y) any of the rights, claims or privileges (whether legal, equitable or
otherwise) of the Agents, the Lenders or the other Secured Parties.

          25. Any Debtor's Affiliate that hereafter becomes a debtor in a case
under chapter 11 of the Bankruptcy Code in this Court shall automatically,
immediately upon the filing of a petition for relief for such Affiliate, be
deemed to be one of the "Debtors" hereunder in all respects, and all of the
terms and provisions of this Order, including, without limitation, those
provisions granting Liens and security interests in all assets and properties of
each of the Debtors and Superpriority claims in each of the Debtors' chapter 11
cases, shall immediately be applicable in all respects to such Affiliate and its
chapter 11 estate.

                                       27



          26. This Order shall constitute findings of fact and conclusions of
law and shall take effect immediately upon execution hereof.

          Dated:   March   , 2002
                         --

                                                --------------------------------
                                                United States Bankruptcy Judge

                                       28



                                    Exhibit J

                        Deposit Control Account Agreement

                                                                          [Date]

[Deposit Account Bank]
[Address]

Ladies and Gentlemen:

          Reference is made to account no. [__________] maintained with you (the
"Bank") by [ ] (the "Company") into which funds are deposited from time to time
(the "Account"). The Company has entered into a Secured Super Priority Debtor in
Possession Credit Agreement, dated as of March 6, 2002 (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
"DIP Credit Agreement"), among the Borrower, the Lenders and Issuers party
thereto, Citicorp USA, Inc. as administrative agent for the Lenders and Issuers
(in such capacity the "Administrative Agent"), Heller Financial, Inc. as
collateral monitoring agent, Fleet Capital Corporation and The CIT
Group/Business Credit, Inc. as documentation agents, and Heller Financial, Inc.
and GMAC Business Credit, LLC as syndication agents.

          Pursuant to the DIP Credit Agreement and related documents, the
Company has granted to the Administrative Agent, for the benefit of the Secured
Parties, a security interest in certain property of the Company, including,
among other things, accounts, inventory, equipment, instruments, general
intangibles and all proceeds thereof (the "Collateral"). Payments with respect
to the Collateral are or hereafter may be made to the Account.

          The Company hereby transfers to the Administrative Agent exclusive
ownership and control of, and all of its right, title and interest in and to,
the Account and all funds and other property on deposit therein. By your
execution of this letter agreement, you (i) agree that you will comply with
instructions originated by the Administrative Agent directing disposition of the
funds and other property on deposit in the Account without further consent of
the Company, and (ii) acknowledge that the Administrative Agent now has
exclusive ownership and control of the Account, that all funds in the Account
shall be transferred to the Administrative Agent as provided herein, that the
Account is being maintained by you for the benefit of the Administrative Agent
and that all amounts and other property therein are held by you as custodian for
the Administrative Agent.

          Except as provided in paragraphs B.(iii) and D. below, the Account
shall not be subject to deduction, set-off, banker's lien, counterclaim,
defense, recoupment or any other right in favor of any person or entity other
than the Administrative Agent. By your execution of this letter agreement you
also acknowledge that, as of the date hereof, you have received no notice of any
other pledge or assignment of the Account and have not executed any agreements
with third parties covering the disposition of funds in the Account. You agree
with the Administrative Agent as follows:



A.   Notwithstanding anything to the contrary or any other agreement relating to
     the Account, the Account is and will be maintained for the benefit of the
     Administrative Agent, will be entitled "Citicorp USA, Inc. [name of
     Company] Account" and will be subject to written instructions only from an
     authorized officer of the Administrative Agent.

     [  A post office box (the "Lockbox") has been rented in the name of the
     Company at the [___________] post office and the address to be used for
     such Lockbox is:

                                [Insert address]

     Your authorized representatives will have access to the Lockbox under the
     authority given by the Company to the post office and will make regular
     pick-ups from the Lockbox timed to gain maximum benefit of early
     presentation and availability of funds. You will endorse process all checks
     received in the Lockbox and deposit such checks (to the extent eligible) in
     the Account in accordance with the procedures set forth below.

A    You will follow your usual operating procedures for the handling of any
     [checks received from the Lockbox or other] remittance received in the
     Account that contains restrictive endorsements, irregularities (such as a
     variance between the written and numerical amounts), undated or postdated
     items, missing signatures, incorrect payees and the like.

B    You will endorse and process all eligible checks and other remittance items
     not covered by subparagraph (iii) below and deposit such checks and
     remittance items in the Account.

C    You will mail all checks returned unpaid because of uncollected or
     insufficient funds under appropriate advice to the Company (with a copy of
     the notification of return to the Administrative Agent). You may charge the
     Account for the amounts of any returned check that has been previously
     credited to the Account. To the extent insufficient funds remain in the
     Account to cover any such returned check, the Company shall indemnify you
     for the uncollected amount of such returned check upon your demand in the
     absence of negligence or intentional misconduct on your part. In the case
     where the proceeds of any returned check have been transferred to the
     Administrative Agent pursuant to the terms hereof and the Company has not
     reimbursed you for such returned check, the Administrative Agent agrees to
     reimburse you for the amount of such returned check; provided, however,
     that you have delivered a copy of such returned check to the Administrative
     Agent together with evidence that the proceeds of such check were so
     forwarded to the Administrative Agent.

D    You will maintain a record of all checks and other remittance items
     received in the Account and, in addition to providing the Company with
     photostatic copies thereof, vouchers, enclosures and the like of such
     checks and remittance items on a daily basis, furnish to the Administrative
     Agent a monthly statement of the Account to: Citicorp USA, Inc., as
     Administrative Agent, 388 Greenwich Street, New York, New York 10013,
     Attention: Mr. Keith Karako, with a copy to the Company.

                                       2



E.   You will transfer (by wire transfer or other method of transfer mutually
     acceptable to you and the Administrative Agent) to the Agent, in same day
     funds, on each business day, the entire balance in the Account to the
     following account:

                  ABA Number:
                               ----------------------------------
                  Citibank, N.A.
                  388 Greenwich Street
                  New York, New York 10013

                  Account Name:
                                 --------------------------------
                                        Concentration Account
                  Account Number:
                                  -------------------------------
                  Reference:
                             ------------------------------------
                  Attn:
                         ----------------------------------------

     or to such other account as the Administrative Agent may from time to time
     designate in writing (the "Administrative Agent Concentration Account").

F.   All customary service charges and fees with respect to the Account shall be
     debited to the Account. In the event insufficient funds remain in the
     Account to cover such customary service charges and fees, the Company shall
     pay and indemnify you for the amounts of such customary service charges and
     fees.

          This letter agreement shall be binding upon and shall inure to the
benefit of you, the Company, the Administrative Agent, the Secured Parties
referred to in the DIP Credit Agreement and the respective successors,
transferees and assigns of any of the foregoing. This letter agreement may not
be modified except upon the mutual consent of the Administrative Agent, the
Company and you. You may terminate the letter agreement only upon 30 days' prior
written notice to the Company and the Administrative Agent. The Administrative
Agent may terminate this letter agreement upon 10 days' prior written notice to
you and the Company. The Company may not terminate this letter agreement except
with the written consent of the Administrative Agent. Upon such termination you
shall close the Account and transfer all funds in the Account to the
Administrative Agent Concentration Account or as otherwise directed by the
Administrative Agent in writing. After any such termination, you shall
nonetheless remain obligated promptly to transfer to the Administrative Agent
Concentration Account or as the Administrative Agent may otherwise direct in
writing all funds and other property received in respect of the Account.

          This letter agreement may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed shall be deemed to be an original and all of which when taken together
shall constitute one and the same agreement. Delivery of an executed counterpart
of a signature page to this letter agreement by telecopier shall be effective as
delivery of a manually executed counterpart of this letter agreement.

          This letter agreement supersedes all prior agreements, oral or
written, with respect to the subject matter hereof and may not be amended,
modified or supplemented except by a writing signed by the Administrative Agent,
the Company and you.

                                        3



          This letter agreement shall be governed by, and construed in
accordance with, the law of the State of New York.

Upon acceptance of this letter agreement it will be the valid and binding
obligation of the Company, the Administrative Agent, and you, in accordance with
its terms.

                                            Very truly yours,

                                            [___________________________]


                                            By:
                                                 -------------------------------
                                                   Name:
                                                   Title:

Acknowledged and agreed to as of
the date first above written:

Citicorp Usa, Inc., as Administrative Agent


By:
     ---------------------------------------
     Name:
     Title

                                       4



                                    Exhibit K

                            Control Account Agreement

[Name and Address
of Approved Securities
Intermediary]

                                                     [Date]

Ladies and Gentlemen:

          The undersigned                     (the "Pledgor") together with
                          -------------------
certain of its affiliates are party to a Secured Super Priority Debtor in
Possession Credit Agreement, dated as of March 6, 2002 (as the same may be
amended, restated, supplemented or otherwise modified from time to time, the
"DIP Credit Agreement"), among the Borrower, the Lenders and Issuers party
thereto, Citicorp USA, Inc. (the "Pledgee") as administrative agent for the
Lenders and Issuers, Heller Financial, Inc. as collateral monitoring agent,
Fleet Capital Corporation and The CIT Group/Business Credit, Inc. as
documentation agents, and Heller Financial, Inc. and GMAC Business Credit, LLC
as syndication agents, pursuant to which a security interest is granted by the
Pledgor in all present and future Assets (hereinafter defined) in Account No.
        of the Pledgor (the "Pledge").
- -------

          In connection therewith, the Pledgor hereby instructs you (the
"Approved Securities Intermediary") to:

     1.   maintain the Account, as "         - Citicorp USA Control Account";
                                    --------

     2.   hold in the Account the assets, including all financial assets,
          securities, security entitlements and all other property and rights
          now or hereafter received in such Account (collectively the "Assets"),
          including without limitation those assets listed in Exhibit A attached
          hereto and made a part hereof;

     3.   provide to the Pledgee, with a duplicate copy to the Pledgor, a
          monthly statement of Assets and a confirmation statement of each
          transaction effected in the Account after such transaction is
          effected; and

     4.   honor only the instructions or entitlement orders in regard to or in
          connection with the Account given by an Authorized Officer of the
          Pledgee, except that until such time as the Pledgee gives a written
          notice to the Approved Securities Intermediary that the Pledgor's
          rights under this sentence have been terminated (on which notice the
          Approved Securities Intermediary may rely exclusively), the Pledgor
          acting through an Authorized Officer may (a) exercise any voting
          rights that it may have with respect to any of the Assets, (b) give
          instructions to enter into purchase or sale transactions in the
          Account and (c) withdraw and receive for its own use all regularly
          scheduled interest [and dividends] paid with respect to the



          Assets [and all cash proceeds of any sale of Assets] ("Permitted
          Withdrawals"); provided, however, that unless the Pledgee has
          consented to the specific transaction, the Pledgor shall not instruct
          the Approved Securities Intermediary to deliver and, except as may be
          required by law or by court order, the Approved Securities
          Intermediary shall not deliver, cash and/or securities, or proceeds
          from the sale of, or distributions on, such securities out of the
          Account to the Pledgor or to any other person or entity other than
          Permitted Withdrawals.

          By its signature below, the Approved Securities Intermediary agrees to
comply with the entitlement orders and instructions of an Authorized Officer of
the Pledgee (including without limitation any instructions with respect to
sales, trades, transfers and withdrawals of cash or other of the Assets) without
the consent of the Pledgor or any other person (it being understood and agreed
by the Pledgor that the Approved Securities Intermediary shall have no duty or
obligation whatsoever of any kind or character to have knowledge of the terms of
the DIP Credit Agreement or to determine whether or not an event of default
exists thereunder). The Pledgor hereby agrees to indemnify and hold harmless the
Approved Securities Intermediary, its affiliates, officers and employees from
and against any and all claims, causes of action, liabilities, lawsuits, demands
and/or damages, including any and all court costs and reasonable attorney's
fees, that may result by reason of the Approved Securities Intermediary
complying with such instructions of the Pledgee. In the event that the Approved
Securities Intermediary is sued or becomes involved in litigation as a result of
complying with the above stated written instructions, the Pledgor and the
Pledgee agree that the Approved Securities Intermediary shall be entitled to
charge all costs and fees it incurs in connection with such litigation to the
Assets in the Account and withdraw such sums as the costs and charges accrue.

          The Authorized Officer of the Pledgee who shall give oral instructions
hereunder shall confirm the same in writing to the Approved Securities
Intermediary within five days after such oral instructions are given.

          For the purpose of this Agreement, the term "Authorized Officer of the
Pledgor" shall refer in the singular to                     or
                                        -------------------
                    (each of whom is, on the date hereof, an officer or director
- -------------------
of the Pledgor) and "Authorized Officer of the Pledgee" shall refer in the
singular to any person who is a vice president or managing director of the
Pledgee. In the event that the Pledgor shall find it advisable to designate a
replacement of any of its Authorized Officers, written notice of any such
replacement shall be given to the Approved Securities Intermediary and the
Pledgee.

          Except with respect to the obligations and duties as set forth herein,
this Agreement shall not impose or create any obligations or duties upon the
Approved Securities Intermediary greater than or in addition to the customary
and usual obligations and duties of the Approved Securities Intermediary to the
Pledgor.

          As long as the Assets are pledged to the Pledgee: (i) the Approved
Securities Intermediary will not invade the Assets to cover margin debits or
calls in any other accounts of the Pledgor and (ii) the Approved Securities
Intermediary agrees that, except for liens resulting from customary commissions,
fees, or charges based upon transactions in the Account, it subordinates in
favor of the Pledgee any security interest,

                                        2



lien or right of setoff the Approved Securities Intermediary may have. The
Approved Securities Intermediary acknowledges that it has not received notice of
any other security interest in the Account or the Assets. In the event any such
notice is received, the Approved Securities Intermediary will promptly notify
the Pledgee. The Pledgor herein represents that the Assets are free and clear of
any lien or encumbrances and agrees that, with the exception of the security
interest granted to the Pledgee, no lien or encumbrance will be placed by it on
the Assets without the express written consent of both the Pledgee and the
Approved Securities Intermediary.

          This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and assigns and it and the rights
and obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, and the law of the Approved Securities
Intermediary's jurisdiction for the purposes of Section 8-110 of the Uniform
Commercial Code in effect in the State of New York (the "UCC") shall be, the law
of the State of New York.

          The Approved Securities Intermediary will treat all property at any
time held by the Approved Securities Intermediary in the Account as financial
assets within the meaning of the UCC. The Approved Securities Intermediary
acknowledges that this Agreement constitutes written notification to the
Approved Securities Intermediary, pursuant to the UCC and any applicable federal
regulations for the Federal Reserve Book Entry System, of the Pledgee's security
interest in the Assets. The Pledgor, Pledgee and Approved Securities
Intermediary are entering into this Agreement to provide for the Pledgee's
control of the Assets and to confirm the first priority of the Pledgee's
security interest in the Assets. [The Approved Securities Intermediary agrees to
promptly make and thereafter maintain all necessary entries or notations in its
books and records to reflect the Pledgee's security interest in the Assets.]

          If any term or provision of this Agreement is determined to be invalid
or unenforceable, the remainder of this Agreement shall be construed in all
respects as if the invalid or unenforceable term or provision were omitted. This
Agreement may not be altered or amended in any manner without the express
written consent of the Pledgor, the Pledgee and the Approved Securities
Intermediary. This Agreement may be executed in any number of counterparts, all
of which shall constitute one original agreement.

          This Agreement may be terminated by the Approved Securities
Intermediary upon 30 day's prior written notice to the Pledgor and the Pledgee.
Upon expiration of such 30-day period, the Approved Securities Intermediary
shall be under no further obligation except to hold the Assets in accordance
with the terms of this Agreement, pending receipt of written instructions from
the Pledgor and the Pledgee, jointly, regarding the further disposition of the
pledged Assets.

          The Pledgor acknowledges that this Agreement supplements any existing
agreements of the Pledgor with the Approved Securities Intermediary and, except
as expressly provided herein, is in no way intended to abridge any rights that
the Approved Securities Intermediary might otherwise have.

                                        3



          In Witness Whereof, the Pledgor and the Pledgee have caused this
Agreement to be executed by their duly authorized officers all as of the date
first above written.

                                     [Pledgor]


                                     By:
                                          --------------------------------------
                                           Name:
                                           Title:


                                     Citicorp Usa, Inc., as Administrative Agent


                                     By:
                                          --------------------------------------
                                           Name:
                                           Title:


ACCEPTED AND AGREED:

[Approved Financial Intermediary]


By:
     ----------------------------------
      Name:
      Title:

                                        4



                                    EXHIBIT A
                                    ---------

                       Pledged Collateral Account Number:
                                                         ------------------

                                     ASSETS
                                     ------

                                        5

EX-10.G

                            INDEMNIFICATION AGREEMENT
                            -------------------------

     INDEMNIFICATION AGREEMENT dated as of January 16, 2002, by and between
National Steel Corporation, a Delaware corporation (the "Company"), and
                                                         -------
                                           (the "Indemnified Party").
- ------------------------------------------       -----------------

     The Company's Restated Certificate of Incorporation (the "Certificate of
Incorporation") contains exculpatory provisions with respect to the personal
liability of the Company's directors. The Company's Amended and Restated Bylaws
(the "Bylaws") provide the Company's directors and officers with certain rights
      ------
of indemnification and advancement of expenses. The Bylaws and Section 145(f) of
the Delaware General Corporation Law (as amended from time to time, the
"Delaware Law") also permit agreements between the Company and its directors and
 ------------
officers providing for indemnification and advancement rights, whether or not
such rights are expressly provided for in the Bylaws or the Delaware Law.

     The Indemnified Party is a [director/executive officer] of the Company. In
order to induce the Indemnified Party to continue to serve as a
[director/executive officer], the Company has agreed to enter into this
Agreement granting to the Indemnified Party indemnification and advancement
rights to the fullest extent permitted by the Delaware Law.

     NOW, THEREFORE, in consideration of the Indemnified Party's agreement to
continue to serve as a [director/executive officer] of the Company and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:

     Section 1. Definitions. For purposes of this Agreement:

     "Expense" means any cost or expense, including attorneys' fees and
      -------
expenses, experts' fees and expenses, retainers, court costs, transcript costs,
witness fees, travel expenses, duplicating costs, printing and binding costs,
telephone charges, postage, delivery service fees and all other disbursements or
expenses of the types customarily incurred in connection with prosecuting,
defending, preparing to prosecute or defend, investigating, participating in or
being or preparing to be a witness in a Proceeding.

     "Independent Counsel" means a law firm, or a member of a law firm, that is
      -------------------
experienced in matters of corporation law and neither presently is, nor in the
past three years has been, retained to represent (a) the Company, NKK
Corporation, United States Steel Corporation or any of their respective
affiliates, (b) the Indemnified Party or (c) any other party to the Proceeding
giving rise to a claim for indemnification under this Agreement. Notwithstanding
the foregoing, the term "Independent Counsel" will not include any person who,
                         -------------------
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or the
Indemnified Party in an action to determine the Indemnified Party's rights under
this Agreement.



     "Loss" means any liability, damage, fine, tax, penalty, judgment (including
      ----
pre- and post-judgment interest), amount paid in settlement, obligation or loss.

     "Proceeding" means any threatened, pending or completed action, suit,
      ----------
arbitration, mediation, alternate dispute resolution mechanism, investigation,
inquiry, administrative hearing or any other actual, threatened or completed
proceeding, whether brought by or in the right of the Company or otherwise, and
whether civil, criminal, administrative or investigative, in which the
Indemnified Party was, is or may be involved as a party, a witness or otherwise
by reason of the fact that the Indemnified Party is or was serving as a
director, officer or employee of the Company, or is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, trust or other enterprise (including an employee
benefit plan), in each case whether or not the Indemnified Party continues to
serve in the same capacity at the time any Expense is incurred or Loss is
suffered for which indemnification or advancement of expenses may be sought
under this Agreement, including any such proceeding based on events or
occurrences prior to the date of this Agreement.

     Section 2. Indemnification. The Company agrees to indemnify and hold
harmless the Indemnified Party to the full extent authorized or permitted by the
Delaware Law and the Bylaws. In furtherance of the foregoing, and without
limiting the generality thereof, the Company agrees to indemnify the Indemnified
Party against all Expenses and Losses actually and reasonably incurred by him or
on his behalf in connection with any Proceeding, or any claim, issue or matter
therein, if he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Company and, with respect to any
criminal Proceeding, had no reasonable cause to believe his conduct was
unlawful; provided that in connection with any Proceeding by or in the right of
the Company to procure a judgment in its favor, no indemnification against such
Expenses or Losses will be made in respect of any claim, issue or matter in such
Proceeding as to which the Indemnified Party is adjudged to be liable to the
Company, unless and to the extent that the Court of Chancery of the State of the
Delaware or the court in which such Proceeding has been brought or is pending
determines that such indemnification may be made.

     Section 3. Indemnification for Expenses as Witness. To the extent the
Indemnified Party is, by reason of the fact that the Indemnified Party is or was
serving as a director, officer or employee of the Company or is or was serving
at the request of the Company as a director, officer, employee or agent of
another corporation, partnership, trust or other enterprise (including an
employee benefit plan), a witness in any Proceeding to which the Indemnified
Party is not a party, the Company agrees to indemnify the Indemnified Party
against all Expenses actually and reasonably incurred by him or on his behalf in
connection therewith.

     Section 4. Advancement of Expenses. The Company agrees to advance all
Expenses actually and reasonably incurred by or on behalf of the Indemnified
Party in connection with any Proceeding within 10 days after the receipt by the
Company of a statement or statements from the Indemnified Party requesting such
advance or advances from time to time, whether prior to or after final
disposition of such Proceeding. Any promissory note required under Section 50 of



the Bylaws to be provided by the Indemnified Party to the Company to evidence
his obligation to repay advances of Expenses should the Indemnified Party be
determined not to be entitled to indemnification will be unsecured and interest
free. If, in accordance with the provisions of Section 5(e), a determination is
made that the Indemnified Party is not entitled to indemnification with respect
to a matter in connection with which the Company has previously advanced
Expenses to the Indemnified Party, the Indemnified Party will reimburse such
amounts within 90 days after receipt of written notice from the Company
requesting such reimbursement; provided that if the Indemnified Party has
commenced or thereafter commences legal proceedings in a court of competent
jurisdiction to secure a determination that the Indemnified Party should be
indemnified under applicable law, any determination made pursuant to Section
5(e) that the Indemnified Party would not be permitted to be indemnified under
applicable law will not be binding and the Indemnified Party will not be
required to reimburse the Company for any advancement of Expenses until a final
judicial determination is made with respect thereto (as to which all rights of
appeal therefrom have been exhausted or lapsed).

     Section 5. Indemnification Procedures.

          (a) The Indemnified Party agrees to notify the Company promptly in
     writing upon being served with any summons, citation, subpoena, complaints,
     indictment, information or other document relating to any Proceeding or
     matter which may be subject to indemnification covered hereunder. The
     failure of the Indemnified Party to so notify the Company will not relieve
     the Company of any obligation which it may have to the Indemnified Party
     under this Agreement or otherwise.

          (b) The Indemnified Party will be entitled to control the defense of
     any Proceeding with counsel of his own choosing reasonably acceptable to
     the Company, and the Company will cooperate in the defense of such
     Proceeding. If the Indemnified Party determines not to control the defense
     of any Proceeding with counsel of his own choosing, the Indemnified Party
     will promptly so notify the Company in writing and the Company will be
     required to assume the defense of such Proceeding using counsel reasonably
     acceptable to the Indemnified Party.

          (c) The Company will not be liable for any settlement of any
     Proceeding by the Indemnified Party effected without the Company's written
     consent, which consent will not be unreasonably withheld, delayed or
     conditioned. The Company may not settle or compromise any Proceeding to
     which the Indemnified Party is a party without the Indemnified Party's
     written consent, which consent will not be unreasonably withheld, delayed
     or conditioned; provided that the Company will not be required to obtain
     the consent of the Indemnified Party to the settlement of any Proceeding
     that the Company has undertaken to defend if the Company assumes full and
     sole responsibility for such settlement and the settlement grants the
     Indemnified Party a complete and unqualified release with respect to all
     potential liability.

          (d) To obtain indemnification by the Company under this Agreement, the
     Indemnified Party must submit to the Company a written request, including
     therewith



     such documentation and information as is reasonably available to the
     Indemnified Party and is reasonably necessary to determine whether and to
     what extent the Indemnified Party is entitled to indemnification. The
     Corporate Secretary of the Company will, promptly upon receipt of such a
     request for indemnification, advise the Board of Directors in writing that
     the Indemnified Party has made such request.

          (e) Upon written request by the Indemnified Party for indemnification,
     a determination, if required by the Bylaws or the Delaware Law, with
     respect to the Indemnified Party's entitlement thereto will be made in the
     specific case by Independent Counsel in a written opinion to the Board of
     Directors, a copy of which will be delivered to the Indemnified Party,
     unless the Indemnified Party requests that such determination be made by
     the disinterested members of the Board of Directors or the stockholders of
     the Company, in which case the determination will be made in the manner
     requested by the Indemnified Party. The Indemnified Party will cooperate
     with the person or entity making such determination with respect to the
     Indemnified Party's entitlement to indemnification, including providing to
     such person or entity upon reasonable request with any documentation or
     information that is not privileged or otherwise protected from disclosure
     and that is reasonably available to the Indemnified Party and reasonably
     necessary to such determination. Any Independent Counsel, member of the
     Board of Directors or stockholders of the Company will act reasonably and
     in good faith in making a determination under the Agreement of the
     Indemnified Party's entitlement to indemnification. Any Expenses actually
     and reasonably incurred by the Indemnified Party in so cooperating with the
     person or entity making such determination will be borne by the Company
     (irrespective of the determination as to the Indemnified Party's
     entitlement to indemnification) and the Company hereby agrees to indemnify
     and hold the Indemnified Party harmless therefrom. The Company agrees to
     pay the reasonable fees and expenses of any Independent Counsel making such
     determination and to fully indemnify such counsel against any and all
     Losses suffered by the Independent Counsel arising out of or relating to
     such determination, this Agreement or its engagement pursuant hereto.

          (f) If the determination of entitlement to indemnification is to be
     made by Independent Counsel, the Independent Counsel will be selected by
     the Indemnified Party and the Indemnified Party will give written notice to
     the Company advising it of the identity of the Independent Counsel so
     selected. The Company may, within 10 days after such written notice of
     selection has been given, deliver to the Indemnified Party a written
     objection to such selection; provided that such objection may be asserted
     only on the ground that the Independent Counsel so selected does not meet
     the requirements of "Independent Counsel" as defined in Section 1, and the
     objection will set forth with particularity the factual basis of such
     assertion. Absent a proper and timely objection, the person so selected by
     the Indemnified Party will act as Independent Counsel. If a written
     objection is made and substantiated, the Independent Counsel selected may
     not serve as Independent Counsel unless and until such objection is
     withdrawn or a court has determined that such objection is without merit.
     If, within 20 days after submission by the Indemnified Party of a written
     request for indemnification pursuant to Section 5(d),



     no Independent Counsel has been selected and not objected to, the
     Indemnified Party may petition any court of competent jurisdiction for
     resolution of any objection which may have been made by the Company to the
     Indemnified Party's selection of Independent Counsel or for the appointment
     as Independent Counsel of a person selected by the court or by such other
     person as the court may designate, and the person with respect to whom all
     objections are so resolved or the person so appointed will act as
     Independent Counsel under Section 5(e). The Company will pay all reasonable
     fees and expenses incident to the procedures set forth in this Section
     5(f), regardless of the manner in which such Independent Counsel was
     selected or appointed.

          (g) If it is determined that the Indemnified Party is entitled to
     indemnification, payment to the Indemnified Party will be made within 10
     days after such determination.

     Section 6. Assumptions and Determination of Good Faith.

          (a) In making a determination with respect to entitlement to
     indemnification under this Agreement, the person or entity making such
     determination will presume that the Indemnified Party is entitled to
     indemnification under this Agreement if the Indemnified Party has submitted
     a request for indemnification in accordance with Section 5(d) and the
     Company will have the burden of proof to overcome that presumption in
     connection with any determination contrary to that presumption.

          (b) For purposes of any determination of good faith, the knowledge or
     actions, or failure to act, of any other director, officer, agent or
     employee of the Company will not be imputed to the Indemnified Party for
     purposes of determining the right to indemnification under this Agreement.
     The provisions of this Section 6(b) will not be deemed to be exclusive or
     to limit in any way the other circumstances in which the Indemnified Party
     may be deemed to have met the applicable standards of conduct set forth in
     this Agreement.



     Section 7. Remedies of Indemnified Party.

          (a) In the event that (i) advancement of Expenses is not timely made
     in accordance with Section 4, (ii) a determination is made pursuant to
     Section 5(e) that the Indemnified Party is not entitled to indemnification
     under this Agreement or (iii) a determination is made pursuant to Section
     5(e) that the Indemnified Party is entitled to indemnification under this
     Agreement and payment of indemnification is not made within 10 days after
     such determination has been made, the Indemnified Party will be entitled to
     an adjudication in an appropriate court of the State of Delaware, or in any
     other court of competent jurisdiction, of his entitlement to such
     indemnification. Alternatively, the Indemnified Party, at his option, may
     seek an award in arbitration to be conducted in Wilmington, Delaware by a
     single arbitrator pursuant to the Commercial Arbitration Rules of the
     American Arbitration Association. The Indemnified Party will commence such
     proceeding seeking an adjudication or an award in arbitration within 120
     days following the date on which the Indemnified Party first has the right
     to commence such proceeding pursuant to this Section 7(a). The Company will
     not oppose the Indemnified Party's right to seek any such adjudication or
     award in arbitration.

          (b) In the event that a determination has been made pursuant to
     Section 5(e) that the Indemnified Party is not entitled to indemnification,
     any judicial proceeding or arbitration commenced pursuant to this Section 7
     will be conducted in all respects as a de novo trial or arbitration on the
     merits and the Indemnified Party will not be prejudiced by reason of that
     adverse determination.

          (c) If a determination has been made pursuant to Section 5(e) that the
     Indemnified Party is entitled to indemnification, the Company will be bound
     by such determination in any judicial proceeding or arbitration commenced
     pursuant to this Section 7 absent (i) a misstatement by the Indemnified
     Party of a material fact, or an omission of a material fact necessary to
     make the Indemnified Party's statement not materially misleading, in
     connection with the request for indemnification or (ii) a prohibition of
     such indemnification under applicable law.

          (d) In the event that the Indemnified Party, pursuant to this Section
     7, seeks a judicial adjudication of or an award in arbitration to enforce
     his rights under, or to recover damages for breach of, this Agreement, the
     Indemnified Party will be entitled to recover from the Company, and will be
     indemnified by the Company against, any and all Expenses actually and
     reasonably incurred by him in such judicial adjudication or arbitration,
     but only if he prevails therein. If it is determined in such judicial
     adjudication or arbitration that the Indemnified Party is entitled to
     receive part but not all of the indemnification sought, the Expenses
     incurred by the Indemnified Party in connection with such judicial
     adjudication or arbitration will be appropriately prorated.

          (e) The Company will indemnify the Indemnified Party against any and
     all Expenses and, if requested by the Indemnified Party, will (within 10
     days after receipt by



     the Company of a written request therefor) advance such Expenses to the
     Indemnified Party, which are incurred by the Indemnified Party in
     connection with any action brought by the Indemnified Party to recover
     under any directors' and officers' liability insurance policies maintained
     by the Company, regardless of whether the Indemnified Party ultimately is
     determined to be entitled to such insurance recovery.

          (f) The Company will be precluded from asserting in any judicial
     proceeding or arbitration commenced pursuant to this Section 7 that the
     procedures and presumptions of this Agreement are not valid, binding and
     enforceable and will stipulate in any such court or before any such
     arbitrator that the Company is bound by all the provisions of this
     Agreement.

     Section 8. Agreements Relating to Change in Control.

          (a) For a period of six years after the date of the consummation of
     any transaction involving the Company of a type required to be reported
     pursuant to Item 1 of Form 8-K under the Securities Exchange Act of 1934,
     as amended (a "Change in Control Transaction"), the Company will cause to
     be maintained in effect the policies of directors and officers liability
     insurance and fiduciary liability insurance currently maintained by the
     Company with respect to claims arising from or relating to actions or
     omissions, or alleged actions or omissions, occurring on or prior to the
     date of the consummation of such Change in Control Transaction. The Company
     may at its discretion substitute for such policies currently maintained by
     the Company directors and officers liability insurance and fiduciary
     liability insurance policies with reputable and financially sound carriers
     providing for no less favorable coverage. Notwithstanding the provisions of
     this Section 8(a), the Company will not be obligated to make annual premium
     payments with respect to such policies of insurance to the extent such
     premiums exceed 300 percent of the annual premiums paid by the Company as
     of the date of this Agreement. If the annual premium costs necessary to
     maintain such insurance coverage exceed the foregoing amount, the Company
     will maintain the most advantageous policies of directors and officers
     liability insurance and fiduciary liability insurance obtainable for an
     annual premium equal to the foregoing amount.

          (b) For a period of six years after the date of the consummation of
     any Change in Control Transaction, the Company will maintain in effect such
     provisions in its Certificate of Incorporation and Bylaws providing for
     exculpation of director liability and indemnification of directors,
     officers and employees to the fullest extent permitted from time to time
     under the law of the State of Delaware, which provisions will not be
     amended, except as required by applicable law or except to make changes
     permitted by applicable law that would enlarge the scope of the Indemnified
     Party's indemnification rights thereunder. The foregoing will not be deemed
     to restrict the right of the Company to modify the provisions of its
     Certificate of Incorporation or Bylaws relating to exculpation of director
     liability and indemnification of directors, officers and employees with
     respect to events or occurrences after the date of the consummation of a
     Change in



     Control Transaction so long as such modifications do not adversely affect
     the rights of the Indemnified Party.

          (c) Prior to the consummation of any Change in Control Transaction,
     the Company will require the acquiring party or parties to agree in writing
     to perform and comply with, or to cause and permit the Company to perform
     and comply with, the provisions of this Section 8.

     Section 9. Non-Exclusivity.

          (a) The rights of indemnification as provided by this Agreement will
     not be deemed exclusive of any other rights to which the Indemnified Party
     may at any time be entitled under applicable law, the Certificate of
     Incorporation or Bylaws of the Company, any agreement, any vote of
     stockholders or a resolution of directors, or otherwise. In the event of
     any conflict or inconsistency between provisions of this Agreement and
     those contained in any other agreement relating to indemnification or
     advancement to which the Indemnified Party is or becomes a party (including
     the Indemnification Agreement dated as of                  between the
                                               ----------------
     Indemnified Party and the Company), the provisions providing for
     indemnification and advancement rights that are most favorable to the
     Indemnified Party in the applicable circumstances will govern and control.
     No amendment, alteration or repeal of this Agreement or of any provision
     hereof will limit or restrict any right of the Indemnified Party under this
     Agreement in respect of any action taken or omitted by such the Indemnified
     Party prior to such amendment, alteration or repeal. To the extent that a
     change in the Delaware Law, whether by statute or judicial decision,
     permits greater indemnification than would be afforded currently under the
     Bylaws and this Agreement, it is the intent of the parties hereto that the
     Indemnified Party will enjoy by this Agreement the greater benefits so
     afforded by such change. No right or remedy herein conferred is intended to
     be exclusive of any other right or remedy, and every other right and remedy
     will be cumulative and in addition to every other right and remedy given
     hereunder or now or hereafter existing at law or in equity or otherwise.
     The assertion or employment of any right or remedy hereunder, or otherwise,
     will not prevent the concurrent or subsequent assertion or employment of
     any other right or remedy.

          (b) In the event of any payment under this Agreement, the Company will
     be subrogated to the extent of such payment to all of the rights of
     recovery of the Indemnified Party, who will execute all papers required and
     take all action necessary to secure such rights, including execution of
     such documents as are necessary to enable the Company to bring suit to
     enforce such rights.

          (c) The Company will not be liable under this Agreement to make any
     payment of amounts otherwise indemnifiable hereunder if and to the extent
     that the Indemnified Party has otherwise actually received such payment
     under any insurance policy, contract, agreement or otherwise.



     Section 10. Duration of Agreement. All agreements and obligations of the
Company contained in this Agreement will continue during the period the
Indemnified Party is serving as a director, officer or employee of the Company,
or is serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, trust or other enterprise (including
an employee benefit plan), and will continue thereafter so long as the
Indemnified Party may be subject to any Proceeding (or any proceeding commenced
under Section 7), whether or not he is acting or serving in any such capacity at
the time any Loss or Expense is incurred for which indemnification may be sought
under this Agreement. This Agreement will be binding upon and inure to the
benefit of and be enforceable by the parties hereto and their respective
successors (including any direct or indirect successor by purchase, merger,
consolidation or otherwise to all or substantially all of the business or assets
of the Company), assigns, spouses, heirs, executors and personal and legal
representatives.

     Section 11. Miscellaneous.

          (a) No agreement modifying or amending this Agreement or extending or
     waiving any provision of this Agreement will be valid or binding unless it
     is in writing and is executed and delivered by or on behalf of the party
     against which it is sought to be enforced.

          (b) Whenever possible, each provision of this Agreement will be
     interpreted in such manner as to be effective and valid under applicable
     law, but if any provision of this Agreement is held to be prohibited by or
     invalid under applicable law, such provision will be ineffective only to
     the extent of such prohibition or invalidity, without invalidating the
     remainder of this Agreement.

          (c) This Agreement may be executed simultaneously in two or more
     counterparts, any one of which need not contain the signatures of more than
     one party, but all such counterparts taken together will constitute one and
     the same Agreement.

          (d) The descriptive headings of this Agreement are inserted for
     convenience only and do not constitute a part of this Agreement.

          (e) All notices, demands or other communications to be given or
     delivered under or by reason of the provisions of this Agreement will be in
     writing and will be deemed to have been given when delivered personally to
     the recipient or when sent to the recipient by telecopy (receipt
     confirmed), one business day after the date when sent to the recipient by
     reputable express courier service (charges prepaid) or three business days
     after the date when mailed to the recipient by certified or registered
     mail, return receipt requested and postage prepaid. Such notices, demands
     and other communications will be sent to the Company and the Indemnified
     Party at the addresses indicated below:

          If to the Company:                 National Steel Corporation
                                             4100 Edison Lakes Parkway



                                             Mishawaka, Indiana 46545-3440
                                             Attention:  Corporate Secretary

          If to the Indemnified Party:
                                             -----------------------------------

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

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

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

          or to such other address or to the attention of such other party as
     the recipient party has specified by prior written notice to the sending
     party.

          (f) The language used in this Agreement will be deemed to be the
     language chosen by the parties to express their mutual intent and no rule
     of strict construction will be applied against any party. The use of the
     word "including" in this Agreement means "including without limitation" and
     is intended by the parties to be by way of example rather than limitation.

          (g) ALL QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
     INTERPRETATION OF THIS AGREEMENT WILL BE GOVERNED BY THE INTERNAL LAW, AND
     NOT THE LAW OF CONFLICTS, OF THE STATE OF DELAWARE.



          IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.

                                         NATIONAL STEEL CORPORATION


                                         By
                                           -------------------------------------
                                                Vice President, General Counsel
                                                         and Secretary


                                           -------------------------------------
                                                [Name of Indemnified Party]

EX-10.Q

                              AMENDMENT NO.6 TO THE
                              ----------------------
                     AGREEMENT FOR THE TRANSFER OF EMPLOYEES
                     ---------------------------------------

THIS AMENDMENT, by and between NKK CORPORATION, a Japanese corporation, having
its main office at 1-1-2, Marunouchi, Chiyoda-ku, Tokyo, Japan (herein called
"NKK") and NATIONAL STEEL CORPORATION, a Delaware corporation having its
principal office at 4100 Edison Lakes Parkway, Mishawaka, IN 46545-3440, U.S.A.
(herein called "NSC"), is made effective December 10, 2001.

                                   WITNESSETH:

WHEREAS, NKK and NSC entered into an Agreement for the Transfer of Employees
dated as of May 1, 1995 (the "Agreement"), pursuant to which certain employees
have been transferred from NKK to NSC for the purpose of providing technical
assistance, consulting services and business assistance to NSC;

WHEREAS, NKK and NSC desire to extend the term of the Agreement for an
additional year, through 2002; and

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:

1.   Capitalized terms as used herein and not defined herein shall have the same
     meaning as set forth in the Agreement.

2.   In accordance with Section 15 of the Agreement, the term of the Agreement
     is hereby extended for an additional Contract Year, from January 1, 2002
     through December 31, 2002 (the "2002 Contract Year").

3.   The Reimbursable Expenses Cap for the 2002 Contract Year shall be Six
     Million Dollars ($6,000,000).

4.   Each party represents and warrants to the other that it has the requisite
     power and authority to enter into this Amendment, including, without
     limitation, that all necessary corporate proceedings have been duly taken
     as required under Section 15 of the Agreement.

5.   Except as amended hereby, all of the terms of the Agreement shall remain in
     full force and effect.

IN WITNESS WHEREOF, the parties have executed this Amendment No. 6 as of the
date first set forth above.

NATIONAL STEEL CORPORATION                  NKK CORPORATION


By:                                         By:
   ---------------------------------           ---------------------------------

Title:                                      Title:
      ------------------------------              ------------------------------

Date:                                       Date:
      ------------------------------              ------------------------------

EX-10.V

                                    AGREEMENT
                                    ---------

           This Agreement is made and entered into, effective as of the 27/th/
    day of February, 2002 ("Effective Date"), by and between NKK Steel
    Engineering, Inc. ("Contractor") and National Steel Corporation, Great Lakes
    Division ("National").

                               W I T N E S S E T H

           WHEREAS, Contractor and National are parties to a certain No. 1
    Continuous Galvanizing Line Turnkey Engineering And Construction Contract
    dated as of October 23, 1998, as amended from time to time to date (the
    "Contact"), pursuant to which Contractor and National agreed to certain
    rights and obligations as set forth in the Contract in connection with the
    supply of a continuous galvanizing facility at National's Ecorse, Michigan
    Plant (the "Project");

           WHEREAS, Contractor and National desire to address and resolve, in
    accordance with the terms of this Agreement, various issues and matters as
    part of the close-out of the Project.

           NOW THEREFORE, in consideration of the exchange of the promises
    herein, whose sufficiency as consideration hereby is acknowledged, and with
    the express intent to be legally bound, Contractor and National agree as
    follows:

           1. Contractor shall pay to National the sum of $5,471,000 (U.S.) (the
    "Close-Out Sum"), in accordance with and subject to the following terms and
    conditions:

              (a) Promptly after the Effective Date, Contractor and National
    shall take all actions and sign all documents, including the execution and
    delivery of any documents reasonably requested by Contractor and/or by Bank
    of Tokyo-Mitsubishi, Ltd ("Issuer") as issuer of an Irrevocable Letter of
    Credit No. T-001-9834211R, dated June 20, 2000, in the amount of
    $3,023,700 (U.S.) ("First Letter of Credit") to amend the First Letter of
    Credit to reduce its amount from $3,023,700 to (U.S.) to $1,326,313 (U.S.).
    The First Letter of Credit as so amended to the reduced amount of $1,326,313
    (U.S.) is referred herein as the Amended First Letter of Credit;

              (b) Immediately after the Document Delivery (as defined in
    paragraph 3 below), National shall be entitled to make a draw and demand for
    payment in the amount of $1,326,313 under the Amended First Letter of Credit
    and also shall be entitled to make a draw and demand for payment in the
    amount of $3,944,687 (U.S.) under an Irrevocable Letter of Credit No.
    T-001-9834210R of Issuer, dated June 20, 2000, in the amount of $3,944,687
    (U.S.) ("Second Letter of Credit");

              (c) National also shall be entitled to withhold payment



    ("Contract Balance Withholding") of $200,000 (U.S.) ("Contract Balance")
    alleged by Contract to be due and owing to Contractor pursuant to Paragraph
    5.1 of the Contract. Such Contract Balance is part of a total outstanding
    balance of $201,840.15 (U.S.) referred to on Contractor's invoice Nos.
    010014 and 010025 ("Contract Balance Invoice"). The $1,840.15 (U.S.)
    difference shall be paid by National to Contractor at the time of the
    Document Delivery. For purposes of this Agreement, the Contract Balance
    Withholding shall be deemed to be a payment by Contractor of the Contract
    Balance as part of the Close-Out Sum and, upon completion by National of the
    Document Delivery, National shall be forever released and discharged from
    all liability and obligation to pay the Contract Balance to Contractor.
    Promptly after the time of Document Delivery, Contractor shall cancel the
    Contractor Balance Invoice;

              (d) National shall be entitled, under subparagraphs 1(a), 1(b) and
    1(c) above, to a total payment under the Amended First Letter of Credit, the
    Second Letter of Credit and the Contract Balance Withholding in the amount
    of the Close-Out Sum and Contractor will cooperate fully in National's
    receipt of such total payment of the Close-Out Sum under the Amended First
    Letter of Credit, the Second Letter of Credit and the Contract Balance
    Withholding, and, in the event Issuer refuses to make payment in full under
    the Amended First Letter of Credit and Second Letter of Credit, Contractor
    shall promptly pay to National the unpaid balance of the Close-Out Sum and
    the Amended First Letter of Credit and Second Letter of Credit shall become
    null and void and of no further force or effect immediately upon such
    payment by Contractor; and

              (e) Contractor and National acknowledge and agree that the
    Close-Out Sum includes payment by Contractor of the full amount of
    Liquidated Damages provided under paragraph 6.4 of the Contract.

           2  Contractor shall deliver to National at the time of the Document
    Delivery a properly executed Full Unconditional Waiver of Lien properly
    executed by Contractor, and also every Full Unconditional Waiver of Lien (if
    any) executed by any subcontractor of Contractor which is in Contractor's
    possession on the Effective Date and previously has not been delivered to
    National, pursuant to paragraph 20.3 of the Contract.

          3.  Within two(2) business days after the Effective Date, National
    shall deliver to Contractor:

              (a) an unqualified and unconditional Final Completion Certificate
    pursuant to paragraph 15.1(vi) of the Contract and as properly executed by
    National;

                                        2



          (b) a letter properly signed by National withdrawing its January 3,
    2002 notice of termination of the parties' November 29, 2000 Tolling and
    Forbearance Agreement ("Tolling Agreement"); and

          (c) a letter properly signed by National representing and agreeing
    that no letters of credit provided by or on behalf of Contractor pursuant to
    the Contract or otherwise relating to the Project with National as
    beneficiary presently exist or remain in force and effect, except only the
    Amended First Letter of Credit, Second Letter of Credit, and the letter of
    credit in the amount of $3,125,000 ("Lawsuits Letter of Credit") provided by
    or on behalf of Contractor pursuant to the May 9, 2001 letter agreement
    between National to Contractor ("Lawsuits Letter of Credit Agreement") and
    to the parties' July 17, 2000 Amendment to the Contract ("July 17, 2000
    Contract Amendment").

          The delivery by National to Contractor of all documents as required in
    subparagraphs 3(a)-3(c) above is referred to herein as the "Document
    Delivery".

       4. National hereby acknowledges and agrees that, effective as of and
    after its receipt of the Close-Out Sum:

          (a) the Guaranty is deemed amended so that the term "Guaranteed
    Obligations" is revised to relate only to obligations by Contractor within
    the scope of the National Preserved Claims (as defined in paragraph 5
    below);

          (b) all letters of credit, including the Amended First Letter of
    Credit and Second Letter of Credit which are to be drawn upon pursuant to
    paragraphs l(a)-l(b) above, issued at any time by or on behalf of Contractor
    or NKK with respect to the Contract or the Project are cancelled, void and
    of no further force or effect, and no draw or demand for payment thereunder
    will be made by National, except only the Lawsuits Letter of Credit which
    shall remain in effect in accordance with the terms of the Lawsuits Letter
    of Credit Agreement and shall be subject to possible future draw or demand
    for payment solely with respect to the Claims referred to in the July 17,
    2000 Contract Amendment; and

          (c) the Tolling Agreement shall continue in force and effect in
    accordance with its terms, except that both parties by their execution of
    this Agreement agree that the last sentence of paragraph 1 and also
    paragraphs 6-7 thereof are deleted as moot in light of this Agreement and
    are of no further force and effect.

       5. Effective upon receipt by National of the Close-Out Sum and completion
    by National of the Document Delivery, each of the parties hereto, for itself
    and its successors and assigns, hereby releases and discharges the other,
    and its successors and assigns, of and from any and all claims or causes of
    action

                                        3



existing at any time prior to and including the Effective Date which arise under
the Contract or otherwise relate to the Project ("Released Claims"), except only
that the Released Claims do not include any claim by National: (i) under
paragraph (3), (4) or (5) of the July 17, 2000 Contract Amendment; (ii) under
the Lawsuits Letter of Credit Agreement; (iii) under the Lawsuits Letter of
Credit (as defined in the Lawsuits Letter of Credit Agreement); (iv) arising
after the Effective Date of the type described in paragraph 54 of the Contract
which survives termination of the Contract; and (v) concerning its pending
request for defense/indemnity with respect to Sedoryk, et ux. v, National Steel
                                              ---------------------------------
Corp., et al., Case No. 02-200623 (Cir. Ct., Wayne Cty., Mich.). Such claims by
- -------------
National referred to in subsection (i)-(v) in the previous sentence are referred
to collectively as the "National Preserved Claims." Contractor acknowledges that
the Released Claims include any and all claims by it for payment for its work on
the Project, including for original scope work and for extra work or changes.
National acknowledges and agrees that the Released Claims include any and all
claims by it for liquidated damages for delay and performance under paragraphs
6.4 and 34.12 of the Contract, for punch list or warranty breach items, and/or
otherwise for any alleged failure to properly and fully complete the work.

         6. National, for itself and its successors and assigns, hereby releases
and discharges NKK, and its successors and assigns, of and from any and all
past, present and future claims or causes of action arising under the Guaranty,
except only with respect to the National Preserved Claims.

         7. The parties agree that paragraph 54 of the Contract remains in force
and effect in accordance with its terms.

                                       4



     IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.

                                               NKK Steel Engineering, Inc.


                                               By:
                                                  --------------------------

                                               Its:
                                                   -------------------------

                                               National Steel Corporation,
                                               Great Lakes Division

                                               By:
                                                  --------------------------

                                               Its:
                                                   -------------------------

                                        5

EX-10.Y

                                U.S. $100,000,000

                              AMENDED AND RESTATED
                         SUBORDINATED CREDIT AGREEMENT


                         Dated as of September 28, 2001


                                 by and between


                           National Steel Corporation
                                  as Borrower


                                       and


                                     NUF LLC
                                    as Lender





                               TABLE OF CONTENTS

                                                                            Page
                                                                            ----

                                    Article I
                DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS

Section 1.1     Defined Terms .............................................    2
Section 1.2     Accounting Terms and Principles ...........................   27
Section 1.3     Certain Terms and References ..............................   27
Section 1.4     Computation of Time Periods ...............................   28
Section 1.5     Quantities ................................................   28
Section 1.6     Pronouns ..................................................   29
Section 1.7     Construction ..............................................   29

                                   Article II
                                 THE FACILITIES

Section 2.1     The Commitments ...........................................   29
Section 2.2     Borrowing Procedures ......................................   29
Section 2.3     Reduction and Termination of the Commitments ..............   30
Section 2.4     Repayment of Loans ........................................   30
Section 2.5     Evidence of Indebtedness ..................................   30
Section 2.6     Optional Prepayments ......................................   31
Section 2.7     Mandatory Prepayments .....................................   31
Section 2.8     Interest ..................................................   32
Section 2.9     Conversion and Continuation Options .......................   33
Section 2.10    Fees ......................................................   34
Section 2.11    Payments and Computations; Protective Advances ............   34
Section 2.12    Special Provisions Governing Eurodollar Rate Loans ........   35
Section 2.13    Capital Adequacy ..........................................   37
Section 2.14    Taxes .....................................................   37
Section 2.15    Collateral Audits .........................................   38

                                   Article III
                    CONDITIONS PRECEDENT TO THE EFFECTIVENESS
                         OF THIS AGREEMENT AND TO LOANS

Section 3.1     Conditions Precedent to the Effectiveness of this Agreement   39
Section 3.2     Conditions Precedent to Each Loan .........................   43
Section 3.3     Post Closing Conditions ...................................   44



                                   Article IV
                         REPRESENTATIONS AND WARRANTIES

Section 4.1     Corporate Existence; Compliance with Law ..................   45
Section 4.2     Corporate Power; Authorization; Enforceable Obligations ...   45
Section 4.3     Financial Statements ......................................   47
Section 4.4     Legal Proceedings .........................................   47
Section 4.5     Material Adverse Change ...................................   47
Section 4.6     Solvency ..................................................   48
Section 4.7     Litigation ................................................   48
Section 4.8     Taxes .....................................................   48
Section 4.9     Full Disclosure ...........................................   49
Section 4.10    Margin Regulations ........................................   49
Section 4.11    Ownership of the Material Subsidiaries and Certain Assets .   49
Section 4.12    ERISA .....................................................   50
Section 4.13    Liens and Encumbrances ....................................   51
Section 4.14    Related Documents .........................................   51
Section 4.15    No Burdensome Restrictions; No Defaults ...................   51
Section 4.16    No Other Ventures .........................................   52
Section 4.17    Investment Company Act ....................................   52
Section 4.18    Public Utility Holding Company Act ........................   53
Section 4.19    Insurance .................................................   53
Section 4.20    Labor Matters .............................................   53
Section 4.21    Use of Proceeds ...........................................   53
Section 4.22    Environmental Matters .....................................   53
Section 4.23    Intellectual Property .....................................   54
Section 4.24    Title; Real Estate ........................................   55
Section 4.25    Existing Indebtedness .....................................   56
Section 4.26    Deposit Accounts ..........................................   56

                                    Article V
                               REPORTING COVENANTS

Section 5.1     Financial Statements ......................................   56
Section 5.2     Default Notices ...........................................   59
Section 5.3     Expected Net Cash Proceeds ................................   59
Section 5.4     ERISA Matters .............................................   59
Section 5.5     Litigation ................................................   60
Section 5.6     Notices under Related Documents ...........................   60
Section 5.7     SEC Filings; Press Releases ...............................   60



Section 5.8     Labor Relations ...........................................   60
Section 5.9     Insurance .................................................   60
Section 5.10    Environmental Matters .....................................   61
Section 5.11    Customer Contracts ........................................   62
Section 5.12    Other Information .........................................   62

                                   Article VI
                              AFFIRMATIVE COVENANTS

Section 6.1     Preservation of Corporate Existence, Etc. .................   62
Section 6.2     Compliance with Law, Etc. .................................   62
Section 6.3     Conduct of Business .......................................   63
Section 6.4     Payment of Taxes, Etc. ....................................   63
Section 6.5     Maintenance of Insurance ..................................   63
Section 6.6     Access ....................................................   63
Section 6.7     Keeping of Books ..........................................   64
Section 6.8     Maintenance of Properties, Etc. ...........................   64
Section 6.9     Maintenance of Contractual Obligations, Etc. ..............   64
Section 6.10    Application of Proceeds ...................................   64
Section 6.11    Fiscal Year ...............................................   64
Section 6.12    Environmental .............................................   65
Section 6.13    Inventory .................................................   65
Section 6.14    Additional Collateral and Guaranties ......................   65
Section 6.15    Accounting Changes; Fiscal Year ...........................   66

                                   Article VII
                               NEGATIVE COVENANTS

Section 7.1     Liens, Etc. ...............................................   66
Section 7.2     Indebtedness ..............................................   67
Section 7.3     Restrictions on Subsidiary Distributions; No New Negative
                Pledge ....................................................   69
Section 7.4     Restricted Payments .......................................   69
Section 7.5     Restriction on Fundamental Changes ........................   69
Section 7.6     Sale of Assets ............................................   70
Section 7.7     Investments in Other Persons ..............................   71
Section 7.8     Change in Nature of Business ..............................   72
Section 7.9     Compliance with ERISA .....................................   72
Section 7.10    Modification of Related Documents .........................   73
Section 7.11    Modification of Existing Indebtedness Agreements ..........   73
Section 7.12    Transactions with Affiliates ..............................   73



Section 7.13    Operating Leases; Sale and Leaseback Transactions .........   75
Section 7.14    Cancellation of Indebtedness Owed to It ...................   75
Section 7.15    Material Subsidiaries .....................................   75
Section 7.16    Capital Structure .........................................   75
Section 7.17    No Speculative Transactions ...............................   76
Section 7.18    Margin Regulations ........................................   76
Section 7.19    Control Accounts; Approved Deposit Accounts ...............   76

                                  Article VIII
                                  SUBORDINATION

Section 8.1     Obligations Subordinate to Senior Loan Obligations ........   76

                                   Article IX
                                EVENTS OF DEFAULT

Section 9.1     Events of Default .........................................   82
Section 9.2     Remedies ..................................................   85

                                    Article X
                                  MISCELLANEOUS

Section 10.1    Amendments, Waivers, Etc. .................................   86
Section 10.2    Assignment ................................................   86
Section 10.3    Costs; Expenses; Indemnities ..............................   87
Section 10.4    Right of Set-off ..........................................   91
Section 10.5    Third Party Reliance ......................................   91
Section 10.6    Independent of Representations and Warranties .............   92
Section 10.7    Governing Law .............................................   92
Section 10.8    Submission to Jurisdiction; Consent to Service of Process .   92
Section 10.9    Notices, Etc. .............................................   93
Section 10.10   No Waiver; Remedies .......................................   94
Section 10.11   Execution in Counterparts; Effectiveness; Assignments by
                the Borrower ..............................................   94
Section 10.12   Entire Agreement ..........................................   95
Section 10.13   Further Assurances ........................................   95




            AMENDED AND RESTATED SUBORDINATED CREDIT AGREEMENT, dated as of
September 28, 2001 (this "Agreement"), by and between National Steel
Corporation, a Delaware corporation (the "Borrower"), and NUF LLC, a Delaware
limited liability company (the "Lender").

                              W I T N E S S E T H:

            WHEREAS, the Borrower and the Lender are parties to the Credit
Agreement dated as of February 28, 2001 (as amended to the date hereof, the
"Existing Subordinated Credit Agreement");

            WHEREAS, National Steel Pellet Company, a Delaware corporation
("Pellet"), guaranteed the obligations of the Borrower under the Existing
Subordinated Credit Agreement;

            WHEREAS, the Borrower has agreed, subject and subordinate to the
terms of (i) the Credit Agreement dated as of September 28, 2001, made between
the Borrower, the Lenders and Issuers defined therein, Citicorp USA, Inc., as
administrative agent, Fleet Capital Corporation and The CIT Group/Business
Credit, Inc., as documentation agents, Heller Financial, Inc. and GMAC Business
Credit, LLC, as syndication agents, The Fuji Bank, Limited, as co-arranger, and
Salomon Smith Barney Inc., as sole book manager and sole lead arranger (the
"Senior Credit Agreement"), and (ii) the Pledge and Security Agreement dated as
of September 28, 2001 executed by the Borrower and Guarantors in favor of the
Senior Agent in connection therewith, to secure obligations to the Lender with
security interests in, and liens on, all of the Borrower's receivables,
inventory and other Collateral (as hereinafter defined), as provided for
hereinafter;

            WHEREAS, at the request of the Borrower, the Lender and the Borrower
have agreed to amend and restate the Existing Subordinated Credit Agreement in
order to reflect certain of the terms of the Senior Credit Agreement;

            WHEREAS, the Senior Agent, the Borrower, the Lender and the
Guarantors have entered into the Lien Subordination Agreement dated as of
September 28, 2001 in connection with the subordination of the Secured
Obligations to the Senior Loan Obligations (each as defined herein);

            WHEREAS, the Lender is willing to make available to the Borrower the
revolving credit facility upon the terms and subject to the conditions set forth
herein;



            NOW, THEREFORE, in consideration of the foregoing, the mutual
covenants and obligations herein set forth and other good and valuable
consideration, the adequacy and receipt of which is hereby acknowledged, and in
reliance upon the representations, warranties and covenants herein contained,
the parties hereto, intending to be legally bound, hereby agree as follows:

                                    Article I

                DEFINITIONS, INTERPRETATION AND ACCOUNTING TERMS

            Section 1.1 Defined Terms. As used in this Agreement, the following
terms have the following meanings (such meanings to be equally applicable to
both the singular and plural forms and, unless the context otherwise requires,
to all genders and all other grammatical forms of the terms defined):

            "Account" has the meaning specified in the Subordinated Pledge and
Security Agreement.

            "Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling, controlled by or under common control with,
such Person and each officer, director, general partner or joint-venturer of
such Person. For the purposes of this definition, "control" means the possession
of the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise.

            "Affiliate Transaction" has the meaning specified in Section 7.12(a)
(General Limitation on Affiliate Transactions).

            "Agreement" means this Amended and Restated Subordinated Credit
Agreement, together with all exhibits and schedules hereto, as the same may be
restated, amended, supplemented or otherwise modified from time to time.

            "Applicable Margin" means with respect to the Loans maintained as
Eurodollar Rate Loans, a rate equal to 3.50% per annum, and with respect to
Loans maintained as Base Rate Loans, a rate equal to 2.5% per annum.

            "Approved Deposit Account" has the meaning specified in the
Subordinated Pledge and Security Agreement.


                                       2



            "Asset Sale" has the meaning specified in Section 7.6 (Sale of
Assets).

            "Bailee's Letter" means a letter in form and substance acceptable to
the Lender and executed by any Person (other than the Borrower) that is in
possession of Inventory on behalf of the Borrower pursuant to which such Person
acknowledges, among other things, the Lender's lien with respect thereto or
shall be in the form attached hereto as Exhibit E-1.

            "Bankruptcy Code" shall mean Title 11 of the United States Code (11
U.S.C. 101 et seq.), as amended from time to time and any successor statute.

            "Base Rate" means, with respect to any period, a fluctuating
interest rate per annum as shall be in effect from time to time, which rate per
annum shall be equal at all times to the highest of:

            (a) the rate of interest announced publicly by Citibank in New York,
      New York, from time to time, as Citibank's base rate;

            (b) the rate of interest announced publicly by The Fuji Bank,
      Limited in New York from time to time, as its base rate; and

            (c) the sum of (i) one-half of one percent (0.5%) per annum plus
      (ii) the Federal Funds Rate.

            "Base Rate Loan" means Loans the rate of interest applicable to
which is based upon the Base Rate.

            "Blockage Notice" has the meaning specified in the Deposit Account
Control Agreement, dated December ___, 2001, among the Borrower and the Lender,
acknowledged and agreed to by Mellon Bank, N.A. and Mellon Financial Services
Corporation #1.

            "Borrower" has the meaning specified in the preamble hereto.

            "Borrower's Accountants" means Ernst & Young, LLP or any other
independent nationally-recognized public accountants acquitable to the Lender.

            "Borrowing" means a borrowing consisting of Loan(s) hereunder.


                                       3



            "Borrowing Base Deficiency" means, at any time, the aggregate
principal amount of all Indebtedness under the Credit Facilities (as defined in
the Indenture) at any one time outstanding (less the sum of the aggregate amount
of all required payments of principal applied to reduce the aggregate amount
available to be borrowed under the Credit Facilities including pursuant to
Section 4.10 of the Indenture) exceeding the greater of (i) $350,000,000 and
(ii) the sum of the amounts equal to (x) 60% of the book value of the inventory
of the Borrower and the Restricted Subsidiaries (as defined in the Indenture)
and (y) 85% of the book value of the accounts receivable of the Borrower and the
Restricted Subsidiaries (as defined in the Indenture), in each case as of the
most recently ended quarter of the Borrower prior to the incurrence of any such
Indebtedness for which financial statements of the Borrower have been provided
to the Lender.

            "Business Day" means a day of the year on which banks are not
required or authorized to close in New York City and, if the applicable Business
Day relates to notices, determinations, fundings and payments in connection with
the Eurodollar Rate or any Eurodollar Rate Loans, a day on which dealings in
Dollar deposits are also carried on in the London interbank market.

            "Capital Lease" means, with respect to any Person, any lease of
property by such Person as lessee (or other arrangement conveying the right to
use) that would be accounted for as a capital lease on a balance sheet of such
Person prepared in conformity with GAAP.

            "Capital Lease Obligations" means, with respect to any Person, the
capitalized amount of all obligations of such Person or any of its Subsidiaries
under Capital Leases, as determined to a consolidated basis in conformity with
GAAP.

            "Cash Collateral Account" has the meaning specified in the
Subordinated Pledge and Security Agreement.

            "Cash Equivalents" means (a) securities issued or fully guaranteed
or insured by the United States government or any agency thereof, (b)
certificates of deposit, eurodollar time deposits, overnight bank deposits and
bankers' acceptances of the Lender, any Senior Lender or any commercial bank
organized under the laws of the United States, any state thereof or the District
of Columbia or any foreign bank or its branches or agencies (fully protected
against currency fluctuations), which, at the time of acquisition, are rated at
least "A-1" by Standard & Poor's or "P-1" by Moody's, (c) commercial paper of an
issuer rated at least "A-1" by Standard & Poor's or "P-1" by Moody's and (d)
shares of any money market fund that (i) has at


                                       4



least ninety-five percent (95%) of its assets invested continuously in the types
of investments referred to in clauses (a) through (c) above, (ii) has net assets
of not less than five hundred million Dollars ($500,000,000) and (iii) is rated
at least "A-1" by S&P or "P-1" by Moody's; provided, however, that the
maturities of all obligations of the type specified in clauses (a) through (c)
above shall not exceed one hundred and eighty (180) days.

            "Change of Control" means any of the following. (a) NKK shall cease
to own and control, directly or indirectly, all of the voting rights associated
with a majority of the outstanding Stock and the outstanding Voting Stock of the
Borrower, (b) NKK shall cease to own and control all of the economic rights
associated with twenty five percent (25%) or more of the outstanding Stock of
the Borrower or (c) the Borrower shall cease to own and control, directly or
indirectly, all of the economic and voting rights associated with all of the
outstanding Stock of any of its Material Subsidiaries.

            "Code" means the United States Internal Revenue Code of 1986 (or any
successor legislation thereto).

            "Collateral" means all property and interests in property and
proceeds thereof now owned or hereafter acquired by Borrower or any other Loan
Party in or upon which a Lien is purported to be granted under any Collateral
Document.

            "Collateral Account Control Agreement" has the meaning set forth in
the Subordinated Pledge and Security Agreement.

            "Collateral Documents" means the Subordinated Pledge and Security
Agreement, the Collateral Account Control Agreements and any other document
permitted by the Senior Credit Agreement pursuant to which the Borrower or any
other Loan Party grants a Lien on any of its property to secure payment of the
Secured Obligations.

            "Commitment" means the amount of $100,000,000.

            "Constituent Documents" means, with respect to any Person, (a) the
articles of incorporation, certificate of incorporation or certificate of
formation (or the equivalent organizational documents) of such Person, (b) the
bylaws, operating agreement (or the equivalent governing documents) of such
Person and (c) any document setting forth the manner of election and duties of
the directors or managing


                                       5



members of such Person (if any) and the designation, amount or relative rights,
limitations and preferences of any class or series of such Person's Stock.

            "Contaminant" means any material, substance or waste that is
classified, regulated or otherwise characterized under any Environmental Law as
hazardous, toxic, a contaminant or a pollutant or by other words of similar
meaning or regulatory effect, including any petroleum or petroleum-derived
substance or waste, asbestos and polychlorinated biphenyls.

            "Contractual Obligation" of any Person means any obligation,
promise, agreement (whether written or oral, express or implied and whether or
not legally binding), contract (including settlements and collective bargaining
agreements), undertaking or similar provision of any Security issued by such
Person or of any agreement, undertaking, contract, lease, indenture, mortgage,
deed of trust or other instrument (excluding a Loan Document) to which such
Person is a party or by which it or any of its property is bound or to which
many of its properties is subject.

            "Control Account" has the meaning specified in the Subordinated
Pledge and Security Agreement.

            "Control Account Agreement" has the meaning specified in the Senior
Credit Agreement.

            "Credit Event" has the meaning specified in Section 3.2 (Conditions
Precedent to Each Loan).

            "Customary Permitted Liens" means, with respect to any Person, any
of the following Liens:

            (a) Liens (excluding Environmental Liens) with respect to the
payment of taxes, assessments or governmental charges in all cases that are not
yet due or that are belong contested in good faith by appropriate proceedings
and with respect to which adequate reserves or other appropriate provisions are
being maintained to the extent required by GAAP to the extent that all such
Liens in the aggregate would, if all such contests were adversely determined,
have no Material Adverse Effect;

            (b) Liens of landlords arising by statute and liens of suppliers,
mechanics, carriers, materialmen, warehousemen or workmen and other liens
imposed by law created in the ordinary course of business for amounts not yet
due or


                                       6



that are being contested in good faith by appropriate proceedings and with
respect to which adequate reserves or other appropriate provisions are being
maintained to the extent required by GAAP to the extent that all such Liens in
the aggregate would, if all such contests were adversely determined, have no
Material Adverse Effect;

            (c) deposits made in the ordinary course of business in connection
with workers' compensation, unemployment insurance or other types of social
security benefits or to secure the performance of bids, tenders, sales,
contracts (other than for the repayment of borrowed money) and surety, appeal,
customs or performance bonds;

            (d) encumbrances arising by reason of zoning restrictions,
easements, licenses, reservations, covenants, rights-of-way, utility easements,
building restrictions and other similar encumbrances on the use of real property
not materially detracting from the value of such real property or not materially
interfering with the ordinary conduct of the business conducted and proposed to
be conducted at such real property;

            (e) encumbrances arising under leases or subleases of real property
that do not, in the aggregate, materially detract from the value of such real
property or interfere with the ordinary conduct of the business conducted and
proposed to be conducted at such real property; and

            (f) financing statements with respect to a lessor's rights in and to
personal property leased to such Person in the ordinary course of such Person's
business.

            "Default" means any event that, with the passing of time or the
giving of notice or both, would become an Event of Default.

            "Deposit Account" has the meaning specified in the Subordinated
Pledge and Security Agreement.

            "Deposit Account Bank" has the meaning specified in the Subordinated
Pledge and Security Agreement.

            "Deposit Account Control Agreement" has the meaning specified in the
Senior Credit Agreement.


                                       7



            "Dollars" and the sign "$" each mean the lawful money of the United
States of America.

            "Effective Date" has the meaning specified in Section 3.1
(Conditions Precedent to the Effectiveness of this Agreement).

            "Eleventh Supplemental Indenture" means the Eleventh Supplemental
Indenture by and among National Steel Corporation, the Chase Manhattan Bank and
Frank J. Grippo, as Trustees, dated as of March 31, 1999, to the Original
Indenture.

            "Eligible Assignee" means (a) any Affiliate of the Lender or NKK
which the Lender confirms in writing to the Senior Agent and the Senior Lenders
is financially capable of performing the obligations of the Lender hereunder;
(b) any financial institution which has been pre-approved to be a Lender in
writing by the Borrower; (c) a commercial bank having total assets in excess of
five billion Dollars ($5,000,000,000) acceptable to the Borrower (which
acceptance may not be unreasonably withheld); or (d) a finance company,
insurance company, other financial institution or fund, reasonably acceptable to
the Senior Agent and the Borrower, that regularly is engaged in making,
purchasing or investing in loans; provided, however, that, the consent of the
Borrower required in clauses (c) and (d) above shall not be required during the
continuance of an Event of Default.

            "Encumbrances" means, with respect to property, all Liens, leases,
options, preferences, priorities, rights of first refusal, easements,
servitudes, rights-of-way, licenses, securities purchase option, call or similar
right, restrictions under any shareholder agreement or any other Contractual
Obligation, encumbrance or any other restriction or limitation whatsoever on any
right incident to the ownership in fee of such property (including rights to
transfer, use or possess such property), whether contingent or non-contingent,
matured or unmatured, known or unknown.

            "Environmental Laws" means all applicable Requirements of Law now or
hereafter in effect and as amended or supplemented from time to time, relating
to pollution or the regulation and protection of human health, safety, the
environment or natural resources, including the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended (42 U.S.C. ss.9601
et seq.); the Hazardous Material Transportation Act, as amended (49 U.S.C.
ss.1801 et seq.); the Federal Insecticide, Fungicide, and Rodenticide Act, as
amended (7 U.S.C. ss.136 et seq.); the Resource Conservation and Recovery Act,
as amended (42 U.S.C. ss.6901 et seq.); the Toxic Substance Control Act, as
amended (42 U.S.C. ss.7401 et seq.); the Clean Air Act, as amended (42 U.S.C.
ss.740 et seq.); the Federal


                                       8



Water Pollution Control Act, as amended (33 U.S.C. ss.1251 et seq.); the
Occupational Safety and Health Act, as amended (29 U.S.C. ss.651 et seq.); the
Safe Drinking Water Act, as amended (42 U.S.C. ss.300f et seq.); and each of
their state and local counterparts or equivalents and any transfer of ownership
notification or approval statute, including the Industrial Site Recovery Act
(N.J. Stat. Ann. ss.13:1K-6 et seq.).

            "Environmental Liabilities and Costs" means, with respect to any
Person, all liabilities, obligations, responsibilities, Renedial Actions,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including all fees, disbursements and expenses of counsel, experts
and consultants and costs of investigation and feasibility studies), fines,
penalties, sanctions and interest incurred as a result of any claim or demand by
any other Person, whether based in contract, tort, implied or express warranty,
strict liability, criminal or civil statute, including any thereof arising under
any Environmental Law, Permit, Order or Contractual Obligation with any
Governmental Authority or other Person, relating to any environmental, health or
safety condition or a Release or threatened Release and result from the past,
present or future operations of, or ownership of property by, such Person or any
of its Subsidiaries.

            "Environmental Lien" means any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.

            "Equipment" has the meaning specified in the Subordinated Pledge and
Security Agreement.

            "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time.

            "ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control or treated as a single employer with the
Borrower or any of its Subsidiaries within the meaning of Section 414 (b), (c),
(m) or (o) of the Code.

            "ERISA Event" means (a) a reportable event described in Section
4043(b) or 4043(c)(1), (2), (3), (5), (6), (8) or (9) of ERISA with respect to a
Title IV Plan or a Multiemployer Plan; (b) the withdrawal of the Borrower, any
of its Subsidiaries or any ERISA Affiliate from a Title IV Plan subject to
Section 4063 of ERISA during a plan year in which it was a substantial employer,
as defined in Section


                                       9



4001(a)(2) of ERISA; (c) the complete or partial withdrawal of the Borrower,
any of its Subsidiaries or any ERISA Affiliate from any Multiemployer Plan; (d)
notice of reorganization or insolvency of a Multiemployer Plan; (e) the filing
of a notice of intent to terminate a Title IV Plan or the treatment of a plan
amendment as a termination under Section 4041 of ERISA; (f) the institution of
proceedings to terminate a Title IV Plan or Multiemployer Plan by the PBGC; (g)
the failure to make any required contribution to a Title IV Plan or
Multiemployer Plan; (h) the imposition of a lien under Section 412 of the Code
or Section 302 of ERISA on the Borrower or any of its Subsidiaries or any ERISA
Affiliate; or (i) any other event or condition that might reasonably be expected
to constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, any Title IV Plan or Multiemployer Plan
or the imposition of any liability under Title IV of ERISA, other than for PBGC
premiums due but not delinquent under Section 4007 of ERISA.

            "Eurocurrency Liabilities" has the meaning assigned to that term in
Regulation D of the Federal Reserve Board.

            "Eurodollar Base Rate" means (a) with respect to an Interest Period,
the rate per annum (rounded to the nearest 1/100 of 1%) equal to the rate
determined by Lender to be the offered rate which appears on the page of the
Telerate Screen which displays an average British Bankers Association Interest
Settlement Rate (such page currently being page number 3740 or 3750, as
applicable) for deposits (for delivery on the first day of such period) with a
term equivalent to such period in Dollars, determined as of approximately 11:00
a.m. (London, England time) on the day two (2) Business Days prior to the first
day of such Interest Period, or, at the option of the Lender, with notice to the
Borrower, (b) the rate of interest determined by the Lender to be the average
(rounded upward to the nearest whole multiple of one sixteenth of one percent
(0.0625%) per annum, if such average is not such a multiple) of the rates per
annum at which deposits in Dollars are offered by the principal office of the
Fuji Bank, Limited (or such other bank as the Lender may, with notice to the
Borrower, reasonably nominate) in London, England, to major banks in the London
interbank market at 11:00 A.M. (London time) two (2) Business Days before the
first day of such Interest Period in an amount substantially equal to the
Eurodollar Rate Loan for a period equal to such Interest Period.

            "Eurodollar Borrowing Unit" means five million Dollars ($5,000,000).

            "Eurodollar Rate" means, with respect to any Interest Period for any
Eurodollar Rate Loan, an interest rate per annum equal to the rate per annum


                                       10



obtained by dividing (a) the Eurodollar Base Rate by (b) (i) a percentage equal
to one hundred percent (100%) minus (ii) the Eurodollar Rate Reserve Percentage.

            "Eurodollar Rate Loan" means any Loan that, for an Interest Period,
bears interest based on the Eurodollar Rate.

            "Eurodollar Rate Reserve Percentage" means with respect to any
Interest Period the reserve percentage applicable two Business Days before the
first day of such Interest Period under regulations issued from time to time by
the Federal Reserve Board for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal reserve requirement)
for a member bank of the United States Federal Reserve System in New York City
with respect to liabilities or assets consisting of or including Eurocurrency
Liabilities (or with respect to any other category of liabilities which includes
deposits by reference to which the Eurodollar Base Rate is determined) having a
term equal to such Interest Period.

            "Event of Default" has the meaning specified in Section 9.1 (Events
of Default).

            "Existing Indebtedness" has the meaning specified in Section 7.2
(Indebtedness).

            "Existing Subordinated Credit Agreement" has the meaning specified
in the recitals hereto.

            "Existing Obligations" means all "Obligations" outstanding under and
as defined in the Existing Subordinated Credit Agreement.

            "Fair Market Value" means (a) with respect to any asset or group of
assets (other than a marketable Security) at any date, the value of the
consideration obtainable in a sale of such asset at such date assuming a sale by
a willing seller to a willing purchaser dealing at arm's length and arranged in
an orderly manner over a reasonable period of time having regard to the nature
and characteristics of such asset; provided, however, that, if such asset shall
have been the subject of a relatively contemporaneous appraisal by an
independent third-party appraiser for which the basic underlying assumptions
have not materially changed since its date, the "Fair Market Value" of such
asset shall be the value set forth in such appraisal and (b) with respect to any
marketable Security at any date, the closing sale price of such Security on the
Business Day next preceding such date, as appearing in any published list of


                                       11



any national securities exchange or the NASDAQ Stock Market or, if there is no
such closing sale price of such Security, the final price for the purchase of
such Security at face value quoted on such Business Day by a financial
institution of recognized standing regularly dealing in securities of such type
selected by the Lender.

            "Federal Funds Rate" means, 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 United
States 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 that is a Business Day, the average of the quotations
for such day on such transactions received by the Lender from three Federal
funds brokers of recognized standing selected by it.

            "Federal Reserve Board" means the Board of Governors of the United
States Federal Reserve System, or any successor thereto.

            "Financial Covenant Debt" means, with respect to any Person at any
time, all Indebtedness that would be required to be reflected on a consolidated
balance sheet at such date of such Person and its Subsidiaries prepared in
conformity with GAAP.

            "Financial Statements" means the financial statements of the
Borrower and its Subsidiaries delivered in accordance with Section 4.3
(Financial Statements) and Section 5.1 (Financial Statements).

            "Fiscal Quarter" means each of the three month periods ending on
March 31, June 30, September 30 and December 31.

            "Fiscal Year" means the twelve month period ending on December 31.

            "GAAP" means generally accepted accounting principles in the United
States of America as in effect from time to time set forth in the opinions and
pronouncements of the Accounting Principles Board and the American Institute of
Certified Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board, or in such other statements by such other
entity as


                                       12



may be in general use by significant segments of the accounting profession,
which are applicable to the circumstances as of the date of determination.

            "Governmental Authority" means any nation or government, any state
or other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of, or generally
pertaining to, a government, nation, state or other political subdivision
thereof, including any central bank, the PBGC or arbitrator.

            "Guarantor" means, individually, Pellet, NSFC, ProCoil and NSH, and,
such entities collectively, the "Guarantors".

            "Guaranty Obligation" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of such Person with respect to any
Indebtedness of another Person, if the purpose or intent of such Person in
incurring the Guaranty Obligation is to provide assurance to the obligee of such
Indebtedness that such Indebtedness will be paid or discharged, that any
agreement relating thereto will be complied with or that any holder of such
Indebtedness will be protected (in whole or in part) against loss in respect
thereof including (a) the direct or indirect guaranty, endorsement (other than
for collection or deposit in the ordinary course of business), co-making,
discounting with recourse or sale with recourse by such Person of Indebtedness
of another Person and (b) any liability of such Person for Indebtedness of
another Person through any agreement (contingent or otherwise) (i) to purchase,
repurchase or otherwise acquire such Indebtedness or any Security therefor or to
provide funds for the payment or discharge of such Indebtedness (whether in the
form of a loan, advance, stock purchase, capital contribution or otherwise),
(ii) to maintain the solvency or any balance sheet item, level of income or
financial condition of another Person, (iii) to make take-or-pay or similar
payments, if required, regardless of non-performance by any other party or
parties to an agreement, (iv) to purchase, sell or lease (as lessor or lessee)
property, or to purchase or sell services, primarily for the purpose of enabling
the debtor to make payment of such Indebtedness or to assure the holder of such
Indebtedness against loss or (v) to supply funds to or in any other manner
invest in such other Person (including to pay for property or services
irrespective of whether such property is received or such services are
rendered), if, in the case of any agreement described under clause (b)(i), (ii),
(iii), (iv) or (v) above, the primary purpose or intent thereof is as described
in the preceding sentence. The amount of any Guaranty Obligation shall be equal
to the amount of the Indebtedness so guaranteed or otherwise supported.


                                       13



            "Hedging Contracts" means all Interest Rate Contracts, foreign
exchange contracts, currency swap or option agreements, forward contracts,
commodity swap, purchase or option agreements, other commodity price hedging
arrangements and all other similar agreements or arrangements designed to alter
the risks of any Person arising from fluctuations in interest rates, currency
values or commodity prices.

            "Indebtedness" of any Person means without duplication (a) all
indebtedness of such Person for borrowed money, (b) all obligations of such
Person evidenced by notes, bonds, debentures or similar instruments or that bear
interest, (c) all reimbursement and all obligations with respect to letters of
credit, bankers' acceptances, surety bonds and performance bonds, whether or not
matured, (d) all indebtedness for the deferred purchase price of property or
services, other than trade payables incurred in the ordinary course of business
that are not overdue, (e) indebtedness of such Person created or arising under
any conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (f) all Capital Lease Obligations of such Person and
the present value of future rental payments under all synthetic leases, (g) all
Guaranty Obligations of such Person, (h) all obligations of such Person to
purchase, redeem, retire, decease or otherwise acquire for value any Stock or
Stock Equivalents of such Person, valued, in these of redeemable preferred
stock, at the greater of its voluntary or involuntary liquidation preference
plus accrued and unpaid dividends, (i) all payments that such Person would have
to make in the event of an early termination on the date Indebtedness of such
Person is being determined in respect of Hedging Contracts of such Person and
(j) all Indebtedness of the type referred to above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien upon or in property (including Accounts and general
intangibles) owned by such Person, even though such Person has not assumed or
become liable for the payment of such Indebtedness.

            "Indemnitee" has the meaning specified in Section 10.3 (Costs;
Expenses; Indemnities).

            "Indemnified Matter" has the meaning specified in Section 10.3
(Costs; Expenses; Indemnities).

            "Indenture" means the Original Indenture, as supplemented by all
instruments supplemental thereto, through and including the Eleventh
Supplemental


                                       14



Indenture, dated as of March 31, 1999, to the Original Indenture, attached
hereto as Exhibit I (Indenture).

            "Interest Period" means, in the case of any Eurodollar Rate Loan,
(x) initially, the period commencing on the date such Eurodollar Rate Loan is
made or on the date of conversion of a Base Rate Loan to such Eurodollar Rate
Loan and ending one (1), two (2), or three (3) months thereafter, as selected by
the Borrower in its Notice of Borrowing or Notice of Conversion or Continuation
given to the Lender pursuant to Section 2.2 (Borrowing Procedures) or Section
2.9 (Conversion and Continuation Options) and (y) thereafter, if such Eurodollar
Rate Loan is continued, in whole or in part, as a Eurodollar Rate Loan pursuant
to Section 2.9 (Conversion and Continuation Options), a period commencing on the
last day of the immediately preceding Interest Period therefor and ending one
(1), two (2) or three (3) months thereafter, as selected by the Borrower in its
Notice of Conversion or Continuation given to the Lender pursuant to Section 2.9
(Conversion and Continuation Options); provided, however, that all of the
foregoing provisions relating to Interest Periods in respect of Eurodollar Rate
Loans are subject to the following:

                  (a) if any Interest Period would otherwise end on a day that
is not a Business Day, such Interest Period shall be extended to the next
succeeding Business Day, unless, the result of such extension would be to extend
such Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day;

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

                  (c) the Borrower may not select any Interest Period that ends
after the Scheduled Termination Date;

                  (d) the Borrower may not select any Interest Period in respect
of Loans having an aggregate principal amount of less than five million Dollars
($5,000,000); and

                  (e) there shall be outstanding at any one time no more than
six (6) Interest Periods in the aggregate.


                                       15



            "Interest Rate Contracts" means all interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements and interest rate
insurance.

            "Investment" means, with respect to any Person, (a) any purchase or
other acquisition by that Person of (i) any Security issued by, (ii) a
beneficial interest in any Security issued by, or (iii) any other equity
ownership interest in, any other Person, (b) any purchase by that Person of all
or a significant part of the assets of a business conducted by another Person,
(c) any loan, advance (other than deposits with financial institutions available
for withdrawal on demand, prepare expenses, accounts receivable and similar
items made or incurred in the ordinary course of business as presently
conducted), or capital contribution by that Person to any other Person,
including all Indebtedness of any other Person to that Person arising from a
sale of property by that Person other than in the ordinary course of its
business and (d) any Guaranty Obligation incurred by that Person in respect of
Indebtedness of any other Person.

            "Inventory" has the meaning specified in the Subordinated Pledge and
Security Agreement.

            "IRS" means the Internal Revenue Service of the United States or any
successor thereto.

            "Legal Proceeding" means any judicial, administrative,
investigative, informal or arbitral action, arbitration, suit, claim, demand,
audit, investigation, litigation, hearing (public or private), including
proceedings of a Governmental Authority.

            "Lender" means NUF LLC, a Delaware limited liability company and its
successors and permitted assignees in accordance with Section 10.2 (Assignment).

            "Lien" means any lien (statutory or other), mortgage, deed of trust,
charge, pledge, hypothecation, assignment, deposit arrangement, encumbrance,
security interest or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever intended to assure
payment of any Indebtedness or other obligation, including any conditional sale
or other title retention agreement, the interest of a lessor under a Capital
Lease and any financing lease having substantially the same economic effect as
any of the foregoing, and the filing of any financing statement under the
Uniform Commercial Code or comparable


                                       16



Requirement of Law naming the owner of the asset to which such Lien relates as
debtor.

            "Lien Subordination Agreement" means the Lien Subordination
Agreement, dated as of September 28, 2001, and attached hereto as Exhibit D
among the Lender, Senior Agent, Borrower, each Guarantor and each other entity
that becomes a party thereto in accordance with the provisions thereof.

            "Loan" means any loan made by the Lender pursuant hereto.

            "Loan Documents" means, collectively, this Agreement, the
Subordinated Notes (if any), the Lien Subordination Agreement, the Subordinated
Guaranty, the Collateral Documents, and each agreement or document permitted by
the Senior Loan Documents, executed by the Borrower and delivered in connection
with or pursuant to any of the foregoing.

            "Loan Party" means each of the Borrower, each Guarantor and each
other Subsidiary of Borrower that executes and delivers a Loan Document.

            "Material Adverse Change" means a material adverse change in any of
(a) the condition (financial or otherwise), business, performance, prospects,
operations or properties of the Borrower or the Borrower and its Subsidiaries
taken as a whole, (b) the legality, validity or enforceability of any Loan
Document, (c) the perfection or priority of the Liens granted pursuant to the
Collateral Documents, (d) the ability of the Borrower to repay the Obligations
or of the Loan Parties to perform their obligations under the Loan Documents or
(e) the rights and remedies of the Lender under the Loan Documents.

            "Material Adverse Effect" means an effect that results in or causes,
or could reasonably be expected to result in or cause, a Material Adverse
Change.

            "Material Subsidiary" means (a) Pellet, ProCoil, NSFC and NSH and
(b) any other Subsidiary of the Borrower that (x) has assets with a book value
equal to or in excess of ten million Dollars ($10,000,000) that are not subject
to any Liens permitted under Section 7.1 or (y) the Borrower has designated to
the Lender and the Senior Agent as such.

            "Mortgagee's Waiver" means a mortgagee's waiver in the form attached
hereto as Exhibit E-3.


                                       17



            "Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, to which the Borrower, any of its Subsidiaries or
any ERISA Affiliate has any obligation or liability, contingent or otherwise.

            "NKK" means NKK Corporation, a company organized and existing under
the laws of Japan, and each and every successor thereto.

            "Notice of Borrowing" has the meaning specified in Section 2.2(a)
(Form of Notice of Borrowing).

            "Notice of Conversion or Continuation" has the meaning specified in
Section 2.9(a) (Delivery of Notice of Conversion or Continuation).

            "NSFC" means National Steel Funding Corporation, a Delaware
corporation.

            "NSH" means NS Holdings Corporation, a Delaware corporation.

            "Obligations" means (a) the Loans, (b) all other amounts, advances,
debts, liabilities, obligations, covenants and duties owing by the Borrower to
the Lender, or any Indemnitee, of every type and description, present or future,
arising under this Agreement or the Subordinated Notes and (c) all other
amounts, obligations, covenants and duties owing by the Borrower to the Lender
under any other Loan Document, in each case whether or not for the payment of
money, whether by reason of an extension of credit, or any loan, guaranty,
indemnification, or in any other manner, whether direct or indirect (including
those acquired by assignment), absolute or contingent, due or to become due, now
existing or hereafter arising and however acquired and whether or not evidenced
by any note, guaranty or other instrument, including fees, interest, charges,
expenses, attorneys' fees and disbursements and other sums chargeable to the
Borrower under this Agreement or any other Loan Document.

            "Order" means any order, award, injunction, judgment, decree,
settlement, process, ruling, subpoena, writ, assessment, arbitration award,
verdict (whether temporary, preliminary or permanent) or any determination or
pronouncement (whether or not such determination or pronouncement can be
appealed or otherwise modified) of any Governmental Authority reached as a
result of a Legal Proceeding.


                                       18



            "Original indenture" means the Indenture of Mortgage and Deed of
Trust, dated May 1, 1952, between the Borrower, Great Lakes Steel Corporation (a
predecessor-in-interest of the Borrower), and City Bank Farmers Trust Company
and Ralph E. Morton, as Trustees.

            "Other Taxes" has the meaning specified in Section 2.14(b) (Stamp or
Documentary Taxes).

            "Outstanding Amount" means, at any particular time, the sum of the
principal amount of the Loans outstanding at such time.

            "paid in full" and "payment in full" shall have the meanings, with
respect to any and all Senior Loan Obligations, ascribed to such terms in the
Lien Subordination Agreement.

            "PBGC" means the Pension Benefit Guaranty Corporation or any
successor thereto.

            "Pellet" has the meaning specified in the recitals hereto.

            "Permit" means any certificate, permit, franchise, approval,
authorization, license, variance, exemption, privilege, immunity, waiver, or
permission required from, or otherwise granted by, a Governmental Authority
under an applicable Requirement of Law or in connection with any Contractual
Obligation with a Governmental Authority.

            "Person" means an individual, partnership, corporation (including a
business trust), joint stock company, estate, trust, labor union, limited
liability company, unincorporated association, joint venture or other entity or
a Governmental Authority.

            "Post-Commencement Interest" means all interest accrued or accruing
after the commencement of any Proceeding (and interest that would accrue but for
the commencement of any Proceeding) in accordance with and at the contract rate
(including, without limitation, any rate applicable upon default) specified in
the agreement or instrument creating, evidencing or governing any Senior Loan
Obligations, whether or not, pursuant to applicable law or otherwise, the claim
for such interest is allowed as a claim in such Proceeding.

            "Proceeding" has the meaning specified in Section 8.1(a)(i).


                                       19



            "ProCoil" means ProCoil Corporation, a Delaware corporation.

            "Property Loss Event" means any loss of or damage to property of the
Borrower or any of its Material Subsidiaries that results in the receipt by such
Person of proceeds of insurance in excess of twenty-five million Dollars
($25,000,000) or any taking of property of the Borrower or any of its Material
Subsidiaries that results in the receipt by such Person of a compensation
payment in respect thereof in excess of twenty-five million Dollars
($25,000,000).

            "Real Estate" means all estate, right, title and interest of a Loan
Party in, to and under any of the following described property, whether now held
or hereafter acquired: (i) all real property owned in fee by such Loan Party, as
well as all of the easements, rights, privileges and appurtenances (including
air rights) thereunto belonging or in any way appertaining, and all of the
estate, right, title, interest, claim or demand whatsoever of such Loan Party
therein and in the streets and ways adjacent thereto, either at law or equity,
in possession or expectancy, now or hereafter acquired, and as used herein and
in any mortgages shall, unless the context otherwise requires, be deemed to
include improvements, fixtures and equipment of every kind and nature located in
or on, or attached to or usable in connection with, such real property; (ii) all
of such Loan Party's interests, if any, in and to all rents, royalties, issues,
profits, revenue, income and other benefits of the real property and all leases
of the real property or portions thereof, including, without limitation, cash or
securities deposited thereunder to secure performance by the lessees of their
obligations thereunder, including any guaranties of such leases; (iii) all of
such Loan Party's interests, if any, in and to all proceeds of the conversion,
voluntary or involuntary, of any of the foregoing into cash or liquidated
claims, including, without limitation, proceeds of insurance and condemnation
awards, and all rights of the Borrower to refunds of real estate taxes and
assessments; and (iv) the real property leased by such Loan Party.

            "Receivables Purchase Agreement" means the Receivables Purchase
Agreement, dated as of May 16, 1994, among NSFC, the Borrower, as servicer, the
financial institutions listed therein, as buyers, Morgan Guaranty Trust Company
of New York, the Fuji Bank and Trust Company, The Mitsubishi Bank, Ltd. and
Comerica Bank, as letter of credit issuing banks, J.P. Morgan Delaware, as
reserve letter of credit bank, Morgan Guaranty Trust Company of New York, as
Lender and J.P. Morgan Delaware, as structuring and collateral agent.


                                       20



            "Receivables Purchase Facility" means the Receivables Purchase
Agreement, the Receivables Sale Agreement, and each other document and
instrument executed in respect thereof.

            "Receivables Sale Agreement" means the Purchase and Sale Agreement,
dated as of May 16, 1994, between the Borrower, as seller, and NSFC, as
purchaser.

            "Refinancing" means (i) the termination of, and the repurchase of
all Accounts remaining outstanding and sold under, the Receivables Purchase
Facility together with a termination of all Liens (if any) granted thereunder,
in each case in form and substance satisfactory to the Lender and (ii) the
refinancing of all Senior Existing Obligations; provided, however, that in the
case of those Senior Existing Obligations which relate to outstanding letters of
credit, Refinancing shall mean the cash collateralization or replacement thereof
or the acceptance by the issuer thereof of back-to-back Letters of Credit (as
defined in the Senior Credit Agreement).

            "Related Documents" means the Indenture, the Senior Loan Documents
and each other document and instrument executed in respect thereof.

            "Release" means, with respect to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration, in each case, of any Contaminant into the indoor or
outdoor environment or into or out of any property owned by such Person,
including the movement of Contaminants through or in the air, soil, surface
water, ground water or property.

            "Remedial Action" means all actions required to (a) clean up,
remove, treat or in any other way address any Contaminant in the indoor or
outdoor environment, (b) prevent the Release or threat of Release or minimize
the further Release so that a Contaminant dues not migrate or endanger or
threaten to endanger public health or welfare or the indoor or outdoor
environment or (c) perform pre-remedial studies and investigations and
post-remedial monitoring and care.

            "Requirement of Law" means, with respect to any Person, the common
law and all federal, state, local and foreign or international laws, treaties,
constitutions, equity principles, rules and regulations, Orders, judgments,
decrees and other determinations of any Governmental Authority or arbitrator,
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.


                                       21



            "Responsible Officer" means, with respect to any Person, any
principal executive officer, managing member or general partner of such Person
but, in any event, with respect to financial matters (including matters relating
to the solvency of such Person or Financial Statements), the chief financial
officer, treasurer or controller of such Person.

            "Restricted Payment" means (a) any dividend or other distribution,
direct or indirect, on account of any Stock or Stock Equivalents of the Borrower
or any of its Subsidiaries now or hereafter outstanding, except a dividend
payable solely in Stock or Stock Equivalents or a dividend or distribution
payable solely to the Borrower or Pellet, (b) any redemption, retirement,
sinking fund or similar payment, purchase or other acquisition for value, direct
or indirect, of any Stock or Stock Equivalents of the Borrower or any of its
Subsidiaries now or hereafter outstanding other than one payable solely to the
Borrower and/or Pellet and (c) any payment or prepayment of principal, premium
(if any), interest, fees (including fees to obtain any waiver or consent in
connection with any Security) or other charges on, or redemption, purchase,
retirement, defeasance, sinking fund or similar payment with respect to, any
Indebtedness of the Borrower or any of its Subsidiaries or any other Loan Party
(other than the Senior Loan Obligations), other than any required payment,
prepayment, redemption, retirement, purchases or other payments, in each case to
the extent permitted to be made by the terms of such Indebtedness after giving
effect to any applicable subordination provisions; provided, however, that
payments or prepayments of fees in clause (c) above shall be permitted to the
extent that the Borrower represents and warrants to the Lender immediately prior
to the making thereof that such fee to be paid or prepaid is reasonable and
reflects market pricing under the conditions and circumstances existing at the
time of the payment or prepayment, as the case may be, of such fee.

            "Sale and Leaseback Transaction" means any arrangement, directly or
indirectly, whereby a Person or its Subsidiary shall sell or transfer any
property, real or personal, and used or useful in its business, whether or not
owned or hereafter acquired, and thereafter rent or lease such property or other
property that such Person or its Subsidiary intends to use for substantially the
same purpose as the property being sold or transferred.

            "Scheduled Termination Date" means February 25, 2002.

            "Secured Obligations" means, in the case of the Borrower, the
Obligations and in the case of any other Loan Party, the obligations of such
Loan


                                       22



Party under the Subordinated Guaranty and the other Loan Documents to which it
is a party.

            "Secured Party" means the Lender and any other holder of any
Obligation.

            "Security" means any Stock, Stock Equivalent, voting trust
certificate, bond, debenture, note, other evidence of Indebtedness, whether
secured, unsecured, convertible or subordinated, or any certificate of interest,
share or participation in, or any temporary or interim certificate in the
purchase or acquisition of, or any right to subscribe to, purchase or acquire,
any of the foregoing, but shall not include any evidence of the Obligations.

            "Senior Agent" shall have the meaning ascribed to such term in the
Lien Subordination Agreement.

            "Senior Collateral Documents" shall mean "Collateral Documents", as
defined in the Senior Credit Agreement.

            "Senior Credit Agreement" has the meaning specified in the recitals
hereto.

            "Senior Existing Credit Agreement" means the Credit Agreement, dated
as of November 19, 1999, among Citicorp USA, Inc., The Fuji Bank, Limited,
certain other financial institutions party thereto and the Borrower.

            "Senior Existing Obligations" means all "Obligations" outstanding
under and as defined in the Senior Existing Credit Agreement.

            "Senior Issuer" means an Issuer as defined in the Senior Credit
Agreement.

            "Senior Lender" means a Lender as defined in the Senior Credit
Agreement.

            "Senior Loan Documents" has the meaning ascribed to such term in the
Lien Subordination Agreement.

            "Senior Loan Obligations" shall have the meaning ascribed to such
term in the Lien Subordination Agreement.


                                       23



            "Senior Loan Obligations Default" means any Default or Event of
Default under and as defined in any Senior Loan Document.

            "Senior Secured Parties" shall mean the Senior Lenders, the Senior
Issuers, the Senior Agent and any other holder of any Senior Loan Obligation.

            "Solvent" means, with respect to any Person, that the value of the
assets of such Person (both at fair value and present fair saleable value) is,
on the date of determination, greater than the total amount of liabilities
(including contingent and unliquidated liabilities) of such Person as of such
date and that, as of such date, such Person is able to pay all liabilities of
such Person as such liabilities mature and does not have unreasonably small
capital. In computing the amount of contingent or unliquidated liabilities at
any time, such liabilities shall be computed at the amount that, in light of all
the facts and circumstances existing at such time, represents the amount that
can reasonably be expected to become an actual or matured liability.

            "Standard & Poor's" means Standard & Poor's Rating Corp., a division
of The McGraw-Hill Companies.

            "Stock" means shares of capital stock (whether denominated as common
stock or preferred stock), beneficial, partnership or membership interests,
participations or other equivalents (regardless of how designated) of or in a
corporation, partnership, limited liability company or equivalent entity,
whether voting or non-voting.

            "Stock Equivalents" means all securities convertible into or
exchangeable for Stock and all warrants, options or other rights to purchase or
subscribe for any Stock, whether or not presently convertible, exchangeable or
exercisable.

            "Subordinated Guaranty" means a Guaranty, in substantially the form
of Exhibit F (Form of Subordinated Guaranty), executed by the Guarantors and
each other Material Subsidiary.

            "Subordinated Indebtedness" shall have the meaning ascribed to such
term in Section 8.1 (Obligations Subordinate to Senior Loan Obligations).

            "Subordinated Note" means a promissory note of the Borrower payable
to the order of the Lender in a principal amount equal to the amount of the


                                       24



Lender's Commitment evidencing the aggregate Indebtedness of the Borrower to the
Lender resulting from the Loans owing to the Lender.

            "Subordinated Pledge and Security Agreement" means the Subordinated
Pledge and Security Agreement, in substantially the form of Exhibit G (Form of
Subordinated Pledge and Security Agreement), executed by the Borrower and the
Guarantors.

            "Subsidiary" means, with respect to any Person, any corporation,
partnership, limited liability company or other business entity of which an
aggregate of fifty percent (50%) or more of the outstanding Voting Stock is, at
the time, directly or indirectly, owned or controlled by such Person and/or one
or more Subsidiaries of such Person.

            "Tax Affiliate" means, with respect to any Person, (a) any
Subsidiary of such Person and (b) any Affiliate of such Person with which such
Person files or is eligible to file consolidated, combined or unitary tax
returns.

            "Tax Return" has the meaning specified in Section 4.8(a) (Timely
Filing of Tax Returns and Payment of Taxes).

            "Taxes" has the meaning specified in Section 2.14(a) (Deduction of
Taxes).

            "Termination Date" means the earliest of (a) the Scheduled
Termination Date, (b) the date of termination of the Commitment pursuant to the
terms hereof and (c) the date on which the Obligations become due and payable
pursuant to Section 9.2 (Remedies).

            "Title IV Plan" means a pension plan, other than a Multiemployer
Plan, that is covered by Title IV of ERISA to which the Borrower, any of its
Subsidiaries or any ERISA Affiliate has any obligation or liability (contingent
or otherwise).

            "Unencumbered Real Estate" means any and all Real Estate that is not
subject to an enforceable negative pledge provision that prohibits the pledge
and mortgaging of such Real Estate to a lender and is not subject to the Liens
set forth on Schedule 7.1.

            "Uniform Commercial Code" means the Uniform Commercial Code as the
same may, from time to time, be in effect in the State of New York; provided,


                                       25



however, that in the event that, by reason of any mandatory Requirement of Law,
any or all of the attachment, perfection or priority of any security interest
granted under the Subordinated Pledge and Security Agreement in any Collateral
is governed by the Uniform Commercial Code as in effect in a jurisdiction other
than the State of New York, the term "Uniform Commercial Code" shall mean the
Uniform Commercial Code as in effect in such other jurisdiction for purposes of
the provisions hereof relating to such attachment, perfection or priority and
for purpose of definitions related to such provisions.

            "United States" or "U.S." means the United States of America or any
political subdivision thereof.

            "Unused Commitment Fee" has the meaning specified in Section 2.10
(Fees).

            "Unused Commitment Fee Rate" means as of any date of determination,
a per annum rate equal to 0.5% per annum.

            "Voting Stock" means Stock of any Person having ordinary power to
vote in the election of members of the board of directors, managers, trustees or
other controlling Persons, of such Person (irrespective of whether, at the time,
Stock of any other class or classes of such entity shall have or might have
voting power by reason of the happening of any contingency).

            "Wholly-Owned Subsidiary" of any Person, means any other Person all
of the Stock of which (other than director's qualifying shares, as may be
required by law) is owned by such Person directly or by other Wholly-Owned
Subsidiaries of such Person.

            "Withdrawal Liability" means, with respect to the Borrower at any
time, the aggregate liability incurred (whether or not assessed) with respect to
all Multiemployer Plans pursuant to Section 4201 of ERISA or for increases in
contributions required to be made pursuant to Section 4243 of ERISA.

            "Year" means the calendar year.


                                       26



            Section 1.2 Accounting Terms and Principles.

            (a) Except as set forth below, all accounting terms not specifically
defined herein shall be construed in conformity with GAAP and all accounting
determinations required to be made pursuant hereto shall, unless expressly
otherwise provided herein, be made in conformity with GAAP.

            (b) If any change in the accounting principles used in the
preparation of the most recent Financial Statements referred to in Section 5.1
(Financial Statements) is hereafter required or permitted by the rules,
regulations, pronouncements and opinions of the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or any
successors thereto) and such change is adopted by the Borrower with the
agreement of the Borrower's Accountants and results in a difference in any
calculation required by Article VII (Negative Covenants) or Article IX (Events
of Default) from that which would be obtained had such accounting change not
occurred, the parties hereto agree to enter into negotiations in order to amend
such provisions so as to equitably reflect such change with the desired result
that the criteria for evaluating compliance with such provisions by the Borrower
shall be the same after such change as if such change had not been made;
provided, however, that no change in GAAP that would affect a calculation that
measures compliance with any covenant contained in Article VII (Negative
Covenants) shall be given effect until such provisions are amended to reflect
such changes in GAAP.

            Section 1.3 Certain Terms and References.

            (a) The term "including" when used in any Loan Document means
"including without limitation" except when used in the computation of time
periods. When used in any Loan Document, the words "either" and "or" do not
refer to an exclusive choice.

            (b) The words "herein," "hereof" and "hereunder" and similar words
used in any Loan Document refer to such Loan Document as a whole and not to any
particular Article, Section, subsection or clause in such Loan Document.

            (c) Unless otherwise expressly indicated herein, (i) references in
any Loan Document to an Exhibit, Schedule, Article, Section, clause or
sub-clause refer to the appropriate Exhibit or Schedule to, or Article, Section,
clause or sub-clause in such Loan Document and (ii) the words "above" and
"below", when


                                       27



following a reference to a clause or sub-clause of any Loan Document, refer to a
clause or sub-clause within, respectively, the same Section or clause.

            (d) Table of Contents and Headings. The table of contents and
section titles of any Loan Document are and shall be without substantive meaning
or content of any kind whatsoever and are not a part of the agreement between
the parties hereto.

            (e) The terms "Lender" and "Borrower," include, without limitation,
their respective successors and permitted assigns.

            (f) References to Agreements. References to each agreement defined
in this Article I shall include, without limitation, all appendices, exhibits
and schedules thereto and, unless specifically stated otherwise, shall include,
without limitation, amendments, restatements supplements or other modifications
thereto and as the same may be in effect at any and all times such reference
becomes operative.

            (g) References in this Agreement to any statute shall be to such
statute as amended or modified and in effect at the time any such reference is
operative.

            (h) Reference to Indenture. Any reference herein to any numbered
section of the Indenture (but not any other reference to the Indenture) shall be
a reference to a section of the Eleventh Supplemental Indenture, as in effect on
the Effective Date.

            Section 1.4 Computation of Time Periods. In this Agreement and any
other Loan Document, in the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including" and the
words "to" and "until" each mean "to but excluding" and the word "through" means
"to and including."

            Section 1.5 Quantities. In any Loan Document, in all instances where
the same Dollar amount, time period, percentage or other quantity is expressed
both using numerals and fully written out, the latter expression shall prevail
over the expression using numerals in case of direct conflicts.


                                       28



            Section 1.6 Pronouns. All pronouns contained in any Loan Document
and any variations thereof shall be deemed to refer to the masculine, feminine
or neuter, singular or plural, as the identity of the parties may require.

            Section 1.7 Construction. The parties hereto acknowledge and agree
that they have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
hereto and no presumption or burden of proof shall arise favoring or disfavoring
any party by virtue of the authorship of any of the provisions of this
Agreement.

                                   Article II

                                 THE FACILITIES

            Section 2.1 The Commitments. On the terms and subject to the
conditions contained in this Agreement, the Lender agrees to make loans (each a
"Loan") to the Borrower from time to time on any Business Day until the
Termination Date in an aggregate principal amount at any time outstanding (for
all such loans by Lender) not to exceed the Commitment; provided, however, that
at no time shall Lender be obligated to make a Loan in excess of the Commitment.
Within the limits of Lender's Commitment, amounts of Loans repaid may be
reborrowed under this Section 2.1 on the terms and subject to the conditions
contained in this Section 2.1 and the remainder of this Agreement.

            Section 2.2 Borrowing Procedures.

            (a) Form of Notice of Borrowing. Each Borrowing shall be made on
notice given by the Borrower to the Lender not later than 1:00 P.M. (New York
City time) four (4) Business Days prior to the date of the proposed Borrowing.
Each such notice shall be in substantially the form of Exhibit B (Form of Notice
of Borrowing) (a "Notice of Borrowing"), specifying therein (A) the date of such
proposed Borrowing, (B) the aggregate amount of such proposed Borrowing and (C)
the initial Interest Period or Periods. The Loans shall be made as Eurodollar
Rate Loans unless the Scheduled Termination Date is within one month of the date
of the proposed Borrowing, in which case the Borrower shall request the proposed
Borrowing to be of Base Rate Loans. Each Borrowing of Eurodollar Rate Loans
shall be in an aggregate amount of two Eurodollar Borrowing Units or an integral
multiple of Eurodollar Borrowing Units in excess thereof; provided, however,
that the aggregate


                                       29



amount of the Eurodollar Rate Loans for each Interest Period must be in an
amount of two Eurodollar Borrowing Units or an integral multiple of Eurodollar
Borrowing Units in excess thereof. The Borrower may not request more than five
(5) Borrowings per month without the consent of the Lender.

            Section 2.3 Reduction and Termination if the Commitments. (a) To the
extent permitted by Section 8.5(b) of the Senior Credit Agreement, the Borrower
may, with the consent of the Lender, terminate in whole or reduce in part
ratably the unused portion of the Commitment of the Lender upon payment of a
corresponding amount of outstanding Loans in accordance with Section 2.6
(Optional Prepayments); provided, however, that each partial reduction shall,
unless otherwise agreed by the Lender, be in the aggregate amount of not less
than five million Dollars ($5,000,000) or an integral multiple of five million
Dollars ($5,000,000) in excess thereof.

            (b) The Commitment of the Lender shall automatically reduce by the
amount of any equitable contribution made in cash to the Borrower or any
Guarantor by the Lender, NKK or any of their Affiliates (other than the Borrower
or any of its Subsidiaries).

            Section 2.4 Repayment of Loans. The Borrower promises to repay the
entire unpaid amount of the Obligations on the Scheduled Termination Letter (it
being understood that other provisions of this Agreement may require all or part
of such Obligations to be repaid earlier).

            Section 2.5 Evidence of Indebtedness.

            (a) Maintenance of Accounts by Lender. The Lender shall maintain in
accordance with its usual practice an account or accounts evidencing
Indebtedness of the Borrower resulting from each Loan from time to time,
including the amounts of principal and interest payable and paid from time to
time under this Agreement.

            (b) Accounts as Prima Facie Evidence. The entries made in the
accounts maintained pursuant to clause (a) above shall, to the extent permitted
by applicable law, be prima facie evidence of the existence and amounts of the
Obligations recorded therein; provided, however, that the failure of Lender to
maintain such accounts or any error therein shall not in any manner affect the
obligations of the Borrower to repay the Loans in accordance with their terms.


                                       30



            (c) Prompt Execution of Subordinated Notes. Notwithstanding any
other provision of the Agreement, in the event that Lender requests that the
Borrower execute and deliver a promissory note or notes payable to Lender in
order to evidence the Indebtedness owing to Lender by the Borrower hereunder,
the Borrower shall promptly execute and deliver a Subordinated Note or
Subordinated Notes to Lender evidencing any Loans of Lender, substantially in
the form of Exhibit A (Form of Subordinated Credit Note), and the interests
evidenced by such note or notes shall at all times (including after assignment
of all or part of such interests) be evidenced by one or more Subordinated Notes
payable to the payee named therein.

            Section 2.6 Optional Prepayments. Subject to the provisions of
Section 8.5 of the Senior Credit Agreement and Article VIII (Subordination)
hereof, the Borrower may, upon at least three (3) Business Days' prior notice to
the Lender and the Senior Agent, stating the proposed date and aggregate
principal amount of the prepayment, prepay the outstanding principal amount of
the Loans in whole or ratably in part at any time, together with accrued
interest to the date of such prepayment on the principal amount prepaid (but
shall have no right to prepay the principal amount of any Loan other than as
provided in this Section 2.6); provided, however, that if any prepayment of any
Eurodollar Rate Loan is made by the Borrower other than on the last day of an
Interest Period for such Loan, the Borrower shall also pay any amounts owing
pursuant to Section 10.3(c) (Eurodollar Loans); and, provided, further, unless
otherwise agreed by the Lender, that each partial prepayment shall be in an
aggregate principal amount not less than five million Dollars (S5,000,000) or
integral multiples of one million Dollars ($1,000,000) in excess thereof. Upon
the giving of such notice of prepayment, the principal amount of the Loans
specified to be prepaid shall become due and payable on the date specified for
such prepayment, unless the Borrower will not be in compliance with Section 8.5
of the Senior Credit Agreement on such date, in which case such notice shall be
null and void and of no further effect (in such circumstances, the
indemnification provisions, inter alia, of Section 2.12(e) (Breakage Costs)
shall apply).

            Section 2.7 Mandatory Prepayments.

            (a) Payment of Obligations. Upon the payment in full in cash and
discharge of all Senior Loan Obligations (as defined in the Senior Credit
Agreement), and the termination of the commitments of the Senior Lenders, the
Borrower shall forthwith prepay all Loans.


                                       31



            (b) Excess Borrowing. To the extent permitted by the Senior Credit
Agreement and subject to Article VIII (Subordination) hereof, if at any time,
the aggregate principal amount of Loans exceed the Commitment the Borrower shall
forthwith (but after first making any payment required pursuant to Section 2.9
of the Senior Credit Agreement, and subject to Section 8.5 thereof), pay the
full amount of such excess or deficiency, as the case maybe, together with
accrued interest.

            Section 2.8 Interest.

            (a) Rate. All Loans and the outstanding principal balance of all
other Obligations shall bear interest on the unpaid principal amount thereof
from the date such Loans are made and such other Obligations are due and payable
until the date they are paid in full, except as otherwise provided in Section
2.8(c) (Default Rate), as follows:

                        (i) if a Base Rate Loan or such other Obligation, at a
      rate per annum equal to the sum of (A) the Base Rate as in effect from
      time to time as interest accrues, plus (B) the Applicable Margin; and

                        (ii) if a Eurodollar Rate Loan, at a rate per annum
      equal to the sum of (A) the Eurodollar Rate determined for the applicable
      Interest Period, plus (B) the Applicable Margin in effect from time to
      time during such Eurodollar Interest Period.

                  (b) Interest Payments. (i) Interest accrued on each Eurodollar
Rate Loan shall be due and payable (A) on the last day of each Interest Period
applicable to such Loan, (B) won the payment or prepayment thereof in full or in
part and (C) if not previously paid in full, at maturity (whether by
acceleration or otherwise) of such Eurodollar Rate Loan; and (ii) interest
accrued on the principal balance of all other Obligations shall be due and
payable (A) on the first Business Day of each calendar month, commencing on the
first such Business Day following the incurrence of such Obligation, (B) upon
repayment thereof in full or in part and (C) if not theretofore paid in full, at
the time such other Obligation becomes due and payable (whether by acceleration
or otherwise).

                  (c) Default Interest Notwithstanding the rates of interest
specified in Section 2.8(a) (Rate) or elsewhere herein, effective immediately
upon the occurrence of an Event of Default and for as long thereafter as such
Event of Default shall be continuing, the principal balance of all Loans and the
amount of all other Obligations then due and payable shall bear interest at a
rate that is two percent (2%)


                                       32



per annum in excess of the rate of interest applicable to such Obligations from
time to time, or if no rate is theretofore applicable, at the rate which is two
percent (2%) per annum above Base Rate, as in effect from time to time.

            Section 2.9 Conversion and Continuation Options.

            (a) Delivery of Notice of Conversion or Continuation. The Borrower
may elect at the end of any applicable Interest Period (i) which is within one
month of the Scheduled Termination Date to convert Eurodollar Rate Loans into
Base Rate Loans or (ii) to continue such Eurodollar Rate Loans or any portion
thereof for additional Interest Period; provided, however, that the aggregate
amount of the Eurodollar Rate Loans for each Interest Period must be in the
amount of two Eurodollar Borrowing Units or an integral multiple of Eurodollar
Borrowing Units in excess thereof. Each such election shall be made by giving
the Lender at least five (5) Business Days' prior written notice (a "Notice of
Conversion or Continuation"), which shall be substantially in the form of
Exhibit C (Form of Notice of Conversion or Continuation) hereto and shall
specify (A) the amount of the Eurodollar Rate Loan being converted or continued,
(B) in the case of a continuation of Eurodollar Rate Loans, the applicable
Interest Period and (C) in the case of a conversion, the date of conversion
(which date shall be a Business Day and, if a conversion from Eurodollar Rate
Loans, shall also be the last day of the applicable Interest Period). Each
Notice of Conversion or Continuation shall be irrevocable and binding upon the
Borrower. The election of the Borrower made in accordance with this Section
2.9(a) shall be effective on the Relevant Date (as defined in the applicable
Notice of Conversion or Continuation), subject to Section 2.9(b) (Event of
Default; Failure to Give Appropriate Notice).

            (b) Event of Default; Failure to Give Appropriate Notice.
Notwithstanding the foregoing, no continuation in whole or in part of Eurodollar
Rate Loans upon the expiration of any applicable Interest Period, shall be
permitted at any time at which (A) a Default or an Event of Default shall have
occurred and be continuing or (B) the continuation of, or conversion into, a
Eurodollar Rate Loan would violate any provision of Section 2.12 (Special
Provisions Governing Eurodollar Rate Loans). If, within the time period required
under the term of this Section 2.9, the Lender does not receive a Notice of
Conversion or Continuation from the Borrower containing a permitted election to
continue any Eurodollar Rate Loans for an additional Interest Period or to
convert any such Loans, then, upon the expiration of the applicable Interest
Period, such Loans shall be automatically continued with an Interest Period of
one month. Each Notice of Conversion or Continuation shall be irrevocable.


                                       33



            Section 2.10 Fees.

            Unused Commitment Fee. The Borrower agrees to pay to Lender a
commitment fee (the "Unused Commitment Fee") on the actual daily unused amount
of Lender's Commitment from the date hereof until the Termination Date at the
Unused Commitment Fee Rate, payable in arrears (i) on the first Business Day of
each calendar month, commencing on the first such Business Day following the
Effective Date and (ii) on the Termination Date.

            Section 2.11 Payments and Computations; Protective Advances.

            (a) Payment Procedures. The Borrower shall make each payment
hereunder (including interest, fees and expenses) not later than 11:00 A.M. (New
York City time) on the day when due and payable, in Dollars, to the account of
Lender (Account Number 001-008615) at The Fuji Bank and Trust Company (ABA
Number 026008905) in immediately available funds without set-off or
counterclaim, together with a notice thereof to Lender at its address referred
to in Section 10.9 (Notices. Etc.). Payments received by the Lender after 11:00
A.M. (New York City time) shall be deemed to be received on the next Business
Day.

            (b) Computations of Interest. All computations of interest and of
fees shall be made by the Lender on the basis of a year of three hundred and
sixty (360) days, in each case for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest and fees are payable. Each determination by the Lender of an interest
rate hereunder shall be conclusive and binding for all purposes, absent manifest
error.

            (c) Payments on Business Days; Order. Whenever any payment hereunder
shall be stated to be due on a day other than a Business Day, such payment shall
be made on the next succeeding Business Day, and such extension of time shall in
such case be included in the computation of payment of interest or fees, as the
case may be; provided, however, that if such extension would cause payment of
interest on or principal of any Eurodollar Rate Loan to be made in the next
calendar month, such payment shall be made on the immediately preceding Business
Day. All repayments of any Loans shall be applied as follows: first, to repay
such Loans outstanding as Base Rate Loans and then to repay such Loans
outstanding as Eurodollar Rate Loans, with those Eurodollar Rate Loans having
earlier expiring Interest Periods being paid prior to those having later
expiring Interest Periods.


                                       34



            (d) Collateral Proceeds. After repayment in full in cash of all
Senior Loan Obligations and the termination of the commitments of the Senior
Lenders, the Borrower hereby irrevocably waives the right to direct, after the
occurrence and during the continuance of an Event of Default, the application of
any and all payments in respect of the Obligations and any proceeds of
Collateral, and agrees that the Lender may (i) deliver a Blockage Notice, a
Notice of Sole Control (as defined in Annex 1 to the Subordinated Pledge and
Security Agreement) or other similar notice, as applicable, to each Deposit
Account Bank and (ii) apply all payments in respect of any Obligations and all
funds on deposit in any Cash Collateral Account and all other proceeds of
Collateral to the payment in whole or in part of the Obligations in accordance
with provisions of this Agreement and the other Loan Documents.

            Section 2.12 Special Provisions Governing Eurodollar Rate Loans.

            (a) Determination of Interest Rate. The Eurodollar Rate for each
Interest Period for Eurodollar Rate Loans shall be determined by the Lender
pursuant to the procedures set forth in the definition of "Eurodollar Rate." The
Lender's determination shall be presumed to be correct, absent manifest error,
and shall be binding on the Borrower.

            (b) Interest Rate Unascertainable, Inadequate or Unfair. In the
event that (i) the Lender determines that adequate and fair means do not exist
for ascertaining the applicable interest rates by reference to which the
Eurodollar Rate then being determined is to be fixed and (ii) the Lender
forthwith so notifies the Borrower, each Eurodollar Loan shall automatically, on
the last day of the current Interest Period for such Loan, convert into a Base
Rate Loan and the obligations of the Lender to make Eurodollar Rate Loans or to
convert Base Rate Loans into Eurodollar Rate Loans shall be suspended until the
Lender shall notify the Borrower that it has determined that the circumstances
causing such suspension no longer exist.

            (c) Increased Costs. If at any time Lender shall determine that the
introduction of, or any change in or in the interpretation of, any law, treaty
or governmental rule, regulation or order (other than any change by way of
imposition or increase of reserve requirements included in determining the
Eurodollar Rate) or the compliance by Lender with any guideline, request or
directive promulgated or given on behalf of any central bank or other
Governmental Authority (whether or not having the force of law), there shall be
any increase in the cost to Lender of agreeing to make or making, funding or
maintaining any Eurodollar Rate Loans, then the


                                       35



Borrower shall from time to time, upon demand by Lender pay to the Lender
additional amounts sufficient to compensate Lender for such increased cost. A
certificate as to the amount of such increased cost, submitted to the Borrower
by Lender, shall be conclusive and binding for all purposes, absent manifest
error.

            (d) Illegality. Notwithstanding any other provision of this
Agreement, if the Lender determines that the introduction of, or any change in
or in the interpretation of, any Requirement of Law shall make it unlawful, or
any central bank or other Governmental Authority shall assert that it is
unlawful, for the Lender to make Eurodollar Rate Loans or to continue to fund as
maintain Eurodollar Rate Loans, then, co notice thereof and demand therefor by
the Lender to the Borrower, (i) the obligation of the Lender to make or to
continue Eurodollar Rate Loans and to convert Base Rate Loans into Eurodollar
Rate Loans shall be suspended, and the Lender shall make a Base Rate Loan as
part of any requested Borrowing of Eurodollar Rate Loans and (ii) if the
affected Eurodollar Rate Loans are then outstanding, the Borrower shall
immediately convert each such Loan into a Base Rate Loan. If, at any time after
the Lender gives notice under this clause (d), the Lender determines that it may
lawfully make Eurodollar Rate Loans, the Lender shall promptly give notice of
that determination to the Borrower. The Borrower's right to request, and the
Lender's obligation, if any, to make Eurodollar Rate Loans, shall thereupon be
restored.

            (e) Breakage Costs. In addition to all amounts otherwise required to
be paid by the Borrower pursuant to this Agreement, the Borrower shall
compensate Lender, upon demand, for all losses, expense and liabilities
(including any loss or expense incurred by reason of the borrowing, liquidation
or reemployment of deposits or other funds acquired by Lender to fund or
maintain Lender's Eurodollar Rate Loans to the Borrower but excluding any loss
of the Applicable Margin on the relevant Loans) that the Lender may sustain (i)
if for any reason a proposed Borrowing or continuation of Eurodollar Rate Loans
does not occur on a date specified therefor in a Notice of Borrowing or a Notice
of Conversion or Continuation given by Borrower or in a telephonic request by it
for borrowing or continuation or a successive Interest Period does not commence
after notice therefor is given pursuant to Section 2.9(a) (Delivery of Notice of
Conversion or Continuation), (ii) if for any reason any Eurodollar Rate Loan is
prepaid (including mandatorily pursuant to Section 2.7 (Mandatory Prepayments))
on a date that is not the last day of the applicable Interest Period, (iii) as a
consequence of a required conversion of a Eurodollar Rate Loan to a Base Rate
Loan as a result of any of the events indicated in clause (b) above or (iv) as a
consequence of any failure by a Borrower to repay or prepay Eurodollar Rate
Loans when required by the terms hereof, including, without


                                       36



limitation following delivery of a prepayment notice pursuant to Section 2.6
(Optional Prepayments) in respect of which the notified prepayment is not in
fact made due to the prohibition in the final sentence of such Section 2.6
(Optional Prepayments). Lender shall deliver to the Borrower concurrently with
such demand a written statement as to such losses, expenses and liabilities, and
this statement shall be conclusive as to the amount of compensation due to
Lender, absent manifest error.

            Section 2.13 Capital Adequacy. If at any time Lender determines that
(a) the adoption of, or any change in, or in the interpretation of, any
Requirement of Law regarding capital adequacy, (b) compliance with any such
Requirement of Law or (c) compliance with any guideline or request or directive
from any central bank or other Governmental Authority (whether or not having the
force of law) (and in each case whether in respect of the Lender itself or the
Lender's source of finds) shall have the effect of reducing the rate of return
on Lender's capital as a consequence of its obligations hereunder, to a level
below the level that the Lender could have achieved but for such adoption,
change, compliance or interpretation, then, upon demand from time to time by
Lender the Borrower shall, subject to Section 8.1(b)(i) hereof and Section
8.5(b) of the Senior Credit Agreement, pay to the Lender, from time to time as
specified by Lender, additional amounts sufficient to compensate Lender for such
reduction. A certificate as to such amounts submitted to the Borrower by Lender
shall be conclusive and binding for all purposes absent manifest error.

            Section 2.14 Taxes.

            (a) Deduction of Taxes. Any and all payments by the Borrower under
each Loan Document shall be made free and clear of and without deduction for any
and all present or future taxes, levies, imposts, deductions, charges or
withholdings and all liabilities with respect thereto, excluding, in the case of
Lender (i) taxes measured by its net income and franchise taxes imposed on it,
by the jurisdiction (or any political subdivision thereof) under the laws of
which Lender is organized, (ii) any United States withholding taxes payable with
respect to payments under the Loan Documents under Requirement of Laws in effect
on the date hereof (or, in the case of an Eligible Assignee, the date of the
Assignment and Acceptance) applicable to the Lender, but not excluding any
United States withholding taxes payable as a result of any change in such
Requirement of Laws occurring after the date hereof (or the date of such
Assignment and Acceptance) and (iii) taxes measured by its net income and
franchise taxes imposed on it, by the jurisdiction in which Lender's principal
place of business is located (all such non-excluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities being hereinafter referred to
as "Taxes"). If any Taxes


                                       37



shall be required by any Requirement of Law to be deducted from, or in respect
of, any sum payable under any Loan Document to Lender (w) the sum payable shall
be increased as may be necessary so that after making all required deductions
(including deductions applicable to additional sums payable under this Section
2.14) the Lender receives an amount equal to the sum it would have received had
no such deductions been made, (x) the Borrower shall make such deductions, (y)
the Borrower shall pay the full amount deducted to the relevant taxing authority
or other authority in accordance with applicable Requirements of Law and (z) the
Borrower shall deliver to the Lender evidence of such payment.

            (b) Stamp or Documentary Taxes. In addition, the Borrower agrees to
pay any present or future stamp or documentary taxes or any other excise or
property taxes, charges or similar levies of the United States or any applicable
foreign jurisdiction and all liabilities with respect thereto, arising from any
payment made under any Loan Document or from the execution, delivery or
registration of, or otherwise with respect to, any Loan Document (collectively,
"Other Taxes").

            (c) Indemnification. The Borrower shall indemnify Lender for the
full amount of Taxes and Other Taxes (including any Taxes and Other Taxes
imposed by any jurisdiction on amounts payable under this Section 2.14) paid by
Lender and any liability (including for penalties, interest and expenses)
arising therefrom or with respect thereto, whether or not such Taxes or Other
Taxes were correctly or legally asserted. This indemnification shall be made
within thirty (30) days from the date Lender makes written demand therefor.

            (d) Survival. Without prejudice to the survival of any other
agreement of the Borrower hereunder, the agreements and obligations of the
Borrower contained in this Section 2.14 shall survive the payment in full of the
Obligations.

            Section 2.15 Collateral Audits. On and after the date hereof, the
Borrower shall promptly provide the Lender with copies of all collateral audits
conducted by the Senior Agent of which the Borrower has been provided a copy.
The Borrower shall notify the Lender promptly after the Borrower receives notice
of any collateral audit to be conducted by the Senior Agent.


                                       38



                                   Article III

                    CONDITIONS PRECEDENT TO THE EFFECTIVENESS
                         OF THIS AGREEMENT AND TO LOANS

            Section 3.1 Conditions Precedent to the Effectiveness of this
Agreement. This Agreement shall become effective on the date (the "Effective
Date") on which the Lender shall have received each of the following, unless
otherwise indicated or agreed to by the Lender, each in form and substance
satisfactory to the Lender:

            (a) (i) this Agreement, duly executed and delivered by the Borrower
and, for the account of Lender requesting the same, (ii) a Subordinated Note or
Subordinated Notes of the Borrower conforming to the requirements set forth
herein, and (iii) evidence satisfactory to the Lender that, as of the Effective
Date, the Senior Credit Agreement has been duly executed and delivered by the
Borrower;

            (b) the Subordinated Pledge and Security Agreement, duly executed by
the Borrower, Pellet, NSFC and ProCoil and NSH, together with:

                  (i) evidence satisfactory to the Lender that, upon the filing
      and recording of instruments delivered on or before the Effective Date,
      the Lender shall have a valid and perfected security interest in the
      Collateral, senior to all security interests in the Collateral except that
      of the Senior Agent (for the benefit of the Senior Secured Parties)
      including (A) such documents duly executed by each Loan Party as the
      Lender may request with respect to the perfection of its security
      interests in the Collateral (including evidence satisfactory to the Lender
      that financing statements under the UCC, patent, trademark and copyright
      security agreements suitable for filing with the Patent and Trademark
      Office or the Copyright Office, as the case may be, and other applicable
      documents under the laws of any jurisdiction have been appropriately filed
      with respect to the perfection of Liens created by the Subordinated Pledge
      and Security Agreement) and (B) copies of search reports pursuant to the
      UCC as of a recent date listing all effective financing statements naming
      any Loan Party as debtor, together with copies of such financing
      statements, none of which shall cover the Collateral, except for those
      that shall be terminated on the Effective Date;

                  (ii) evidence satisfactory to the Lender that share
      certificates representing all certificated Stock being pledged pursuant to
      such


                                       39



      Subordinated Pledge and Security Agreement and stock powers for such share
      certificates duly executed in blank have been delivered to the Senior
      Agent;

                  (iii) evidence satisfactory to the Lender that all instruments
      representing notes being pledged pursuant to such Subordinated Pledge and
      Security Agreement, duly endorsed in favor of the Senior Agent or in
      blank, including without limitation Intercompany Notes (as defined in the
      Subordinated Pledge and Security Agreement) between the Guarantors and the
      Borrower, have been delivered to the Senior Agent;

                  (iv) evidence satisfactory to the Lender that duly executed
      Deposit Account Control Agreements from all Deposit Account Banks have
      been entered into with the Senior Agent;

                  (v) evidence satisfactory to the Lender that the Senior Agent
      has received duly executed control account agreements from (A) all
      securities intermediaries with respect to all securities accounts and
      securities entitlements of the Borrower and Pellet and (B) all futures
      commission agents and clearing houses with respect to all commodities
      contracts and commodities accounts held by the Borrower and Pellet; and

                  (vi) (A) duly executed Collateral Account Control Agreements
      from (x) all Deposit Account Banks and (y) all securities intermediaries
      with respect to all securities accounts and securities entitlements of the
      Borrower and Guarantors and (B) control account agreements, in form and
      substance satisfactory to the Lender, from all futures commission agents
      and clearing houses with respect to all commodities contracts and
      commodities accounts held by the Borrower and the Guarantors.

            (c) the Lien Subordination Agreement, duly executed by Senior Agent,
Lender, Borrower and each Guarantor.

            (d) a favorable opinion of Yukevich, Marchetti, Liekar & Zangrilli,
P.C., counsel to the Loan Parties, in substantially the form of Exhibit F (Form
of Opinion of Counsel for the Loan Parties), addressed to the Lender and
addressing such matters as Lender may reasonably request and a favorable opinion
of Klehr, Harrison, Harvey, Branzburg & Ellers as to issues of perfection under
Delaware law;


                                       40



            (e) the Subordinated Guaranty duly executed by Pellet, NSFC,
ProCoil, NSH and any other Material Subsidiary.

            (f) a copy of each Related Document as in effect on the Effective
Date certified as being complete and correct by a Responsible Officer of the
Borrower;

            (g) a copy of the articles or certificate of incorporation (or
equivalent Constituent Document) of each Loan Party, certified as of a recent
date by the Secretary of State of the state of organization of such Loan Party,
together with certificates of such official attesting to the good standing of
each such Loan Party;

            (h) a certificate of the Secretary or an Assistant Secretary of each
Loan Party certifying (i) the names and true signatures of each officer who has
been authorized to execute and deliver any Loan Document or other document
required hereunder to be executed and delivered by or on behalf of such Loan
Party, (ii) the by-laws (or equivalent Constituent Document) of such Loan Party
as in effect on the date of such certification, (iii) the resolutions of such
Loan Party's Board of Directors (or equivalent governing body) approving and
authorizing the execution, delivery and performance of the Agreement and the
other Loan Documents to which it is a party and (iv) that there have been no
changes in the certificate of incorporation (or equivalent Constituent Document)
of such Loan Party from the certificate of incorporation (or equivalent
Constituent Document) delivered pursuant to clause (g) above;

            (i) a certificate of a Responsible Officer of the Borrower and the
Guarantors, stating that the Borrower and each Guarantor are Solvent as of the
Effective Date after giving effect to the payment of all estimated legal,
accounting and other fees related hereto;

            (j) a copy of the latest Borrowing Base Certificate (as defined in
the Senior Credit Agreement) delivered to the Senior Agent;

            (k) a certificate of a Responsible Officer of the Borrower to the
effect that (i) the conditions set forth in Section 3.2(b) (Representations and
Warranties; No Defaults) have been satisfied and (ii) no Legal Proceedings shall
have been initiated against Borrower or any of its Material Subsidiaries which,
if adversely determined, would have a Material Adverse Effect;

            (l) evidence satisfactory to the Lender that the insurance policies
required by Section 6.5 (Maintenance of Insurance) and each Collateral Document


                                       41



are in full force and effect, together with endorsements naming the Lender, on
behalf of the Secured Parties, as an additional insured or loss payee under all
insurance policies to be maintained with respect to the Collateral;

            (m) a letter from the Borrower to its independent certified public
accountants authorizing such independent certified public accountants to
communicate with the Lender in accordance with Section 6.6 (Access);

            (n) evidence satisfactory to the Lender that, as of the Effective
Date, the procedures with respect to cash management required by the Collateral
Documents and the Senior Collateral Documents have been established and are
currently being maintained by each Loan Party, together with copies of all
executed lockbox agreements and Deposit Account Control Agreements and
Collateral Account Control Agreements executed by such Loan Party in connection
therewith;

            (o) evidence satisfactory to the Lender that, as of the Effective
Date, all costs accrued and unpaid fees and expenses due and payable on or
before the Effective Date required to be paid to the Lender on or before the
Effective Date have been paid;

            (p) (i) evidence satisfactory to the Lender that, as of the
Effective Date, each of the Borrower and its Material Subsidiaries shall have
received all consents and authorizations required pursuant to any material
Contractual Obligation with any other Person and shall have obtained all Permits
of, and effected all notices to and filings with any Governmental Authority, in
each case, as may be necessary to allow each of the Borrower and its Material
Subsidiaries lawfully (A) to execute, deliver and perform, in all material
respects, their respective obligations hereunder, the Loan Documents to which
each of them, respectively, is, or shall be, a party and each other agreement or
instrument to be executed and delivered by each of them, respectively, pursuant
thereto or in connection therewith and (B) to create and perfect the Liens on
the Collateral to be owned by each of them in the manner and for the purpose
contemplated by the Loan Documents;

            (ii) without prejudice to the generality of Subsection 3. 1(p)(i,),
approval of the Board of Directors of the Borrower and approval of the
independent directors of the Borrower acting as a special committee;

            (q) evidence satisfactory to the Lender that, as of the Effective
Date, the Refinancing shall have occurred in form and substance reasonably
satisfactory to the Lender;


                                       42



            (r) a copy of the Borrower's Form l0-Q for the period ended
September 30, 2001, as filed with the Securities and Exchange Commission; and

            (s) such other certificates, documents, agreements and information
with respect to Borrower and the Guarantors as the Lender may, in its sole
discretion, request.

            Section 3.2 Conditions Precedent to Each Loan. The obligation of
Lender on any date (including the Effective Date) to make any Loan is subject to
the satisfaction of all of the following conditions precedent:

            (a) Request for Borrowing. With respect to any Loan, the Lender
shall have received a duly executed Notice of Borrowing.

            (b) Representations and Warranties; No Defaults. The following
statements shall be true on the date of such Loan, both before and after giving
effect thereto and, in the case of such Loan, to the application of the proceeds
therefrom:

                  (i) The representations and warranties set forth in Article IV
      (Representations and Warranties) and in the other Loan Documents shall be
      true and correct on and as of the Effective Date and shall be true and
      correct in all material respects on and as of any such date after the
      Effective Date with the same effect as though made on and as of such date,
      except to the extent such representations and warranties expressly relate
      to an earlier date;

                  (ii) no Borrowing Base Deficiency shall exist; and

                  (iii) no Event of Default shall have occurred and be
      continuing.

            (c) Borrowing Base. The Borrower shall have delivered to the Lender
a copy of all Borrowing Base Certificates (as defined in the Senior Credit
Agreement) required to be delivered by it to the Senior Agent pursuant to
Section 3.2(c) of the Senior Credit Agreement through the date of such Loan.

            (d) No Legal Impediments. The making of such Loan on such date does
not violate any Requirement of Law on the date of or immediately following such
Loan and is not enjoined, temporarily, preliminarily or permanently.


                                       43



            (e) Indenture Provisions. The Lender shall have received evidence
and calculation reasonably satisfactory to it demonstrating that the making of
such Loan on such date does not violate any provision of the Indenture,
including without limitation, Section 4.05, and without limitation, that such
Loan will constitute "Permitted Debt" as defined in the Indenture.

            (f) Additional Matters. The Lender shall have received such
additional documents, information and materials as Lender may reasonably
request.

Each submission by the Borrower to the Lender of a Notice of Borrowing and the
acceptance by the Borrower of the proceeds of each Loan requested therein (each
such event being a "Credit Event"), shall be deemed to constitute a
representation and warranty by the Borrower as to the matters specified in
clause (b) above on the date of the making of such Loan.

            Section 3.3 Post Closing Conditions. Within the number of days set
forth below after the occurrence of the Effective Date or such other period of
time as determined by the Lender, acting reasonably, the Borrower shall deliver
to the Lender the following, each in form and substance satisfactory to the
Lender:

            (a) within thirty (30) days, a Mortgagee's Waiver covering the Real
Estate mortgaged pursuant to the Indenture;

            (b) within thirty (30) days, the Collateral Account Control
Agreement among the Borrower, the Lender, Mellon Bank, N.A. and Mellon Financial
Services Corporation #1; and

            (c) within seventy-five (75) days, such duly executed Bailee's
Letters with respect to Inventory representing 50% (or such lesser percentage as
is satisfactory to the Lender) of the aggregate value of the Inventory of the
Borrower (valued at cost on a first-in, first-out basis) that, on the last
Business Day of the calendar month immediately preceding the Effective Date, was
located, stored, used or otherwise held at the premises of any third party.


                                       44



                                   Article IV

                         REPRESENTATIONS AND WARRANTIES

            To induce the Lender to enter into this Agreement, the Borrower
represents and warrants to the Lender that, on and as of the Effective Date
(after giving effect to the making of any Loan or other financial accommodations
to be made on the Effective Date) and on and as of each date as required by
Section 3.2(b)(i):

            Section 4.1 Corporate Existence; Compliance with Law. Each of the
Borrower and its Material Subsidiaries, (a) is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation or
formation, as applicable, (b) is duly qualified as a foreign corporation and in
good standing under the laws of each jurisdiction where such qualification is
necessary, except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect, (c) has all requisite power and authority
and the legal right to own, pledge, mortgage and operate its properties, to
lease the property it operates under lease and to conduct its business as is or
currently proposed to be conducted, (d) is in compliance with its Constituent
Documents, (e) is in compliance with all applicable Requirements of Law except
where the failure to be in compliance would not in the aggregate have a Material
Adverse Effect and (f) has obtained all Permits from or by, has made all
necessary filings with, and has given all necessary notices to, each
Governmental Authority having jurisdiction, to the extent required for such
ownership, operation and conduct, except for Permits which can be obtained or
made by the taking of ministerial action to secure the grant or transfer thereof
or the failure to obtain or make would not in the aggregate have a Material
Adverse Effect.

            Section 4.2 Corporate Power; Authorization; Enforceable Obligations.

            (a) Noncontravention. The execution, delivery and performance by
Borrower of the Loan Documents to which it is a party and the consummation of
the transactions contemplated thereby:

                  (i) are within Borrower's corporate, limited liability
      company, partnership or other powers;

                  (ii) have been, or at the time of delivery thereof pursuant to
      Article III (Conditions Precedent to the Effectiveness of this Agreement
      and


                                       45



      to Loans) will have been duly authorized by all necessary corporate
      action, including the consent of shareholders where required;

                  (iii) do not and will not (A) contravene any Loan Party's or
      any of the Borrower's Material Subsidiaries' respective Constituent
      Documents, (B) violate any other Requirement of Law applicable to Borrower
      (including under its Constituent Documents or Regulations T, U and X of
      the Federal Reserve Board, as the same are from time to time in effect,
      and all official rulings and interpretations thereunder) or any Order of
      any Governmental Authority applicable to Borrower, (C) conflict with or
      result in the breach of, or constitute or result in a default under, or
      result in or permit the termination or acceleration of, any Contractual
      Obligation of Borrower or any of its Material Subsidiaries (including,
      without limitation, any provision in the Indenture) or (D) result in the
      creation or imposition of any Lien or Encumbrance upon any property of
      Borrower or any of its Material Subsidiaries, other than those in favor of
      the Secured Parties pursuant to the Collateral Documents;

                  (iv) do not require obtaining any Permit from or filing or
      registration with, any Governmental Authority or any other Person, other
      than those listed on Schedule 4.2 (Permits) and which have been obtained
      or made, copies of which have been or will be delivered to the Lender
      pursuant to Section 3.1(p) and each of which on the Effective Date will be
      in full force and effect and, with respect to the Collateral, filings
      required to perfect the Liens created by the Collateral Documents; and

            (b) Due Execution. This Agreement has been, and each of the other
Loan Documents will have been upon delivery thereof pursuant to the terms of
this Agreement, duly executed and delivered by Borrower. This Agreement is, and
the other Loan Documents will be, when delivered hereunder, the legal, valid and
binding obligation of each Loan Party party thereto, enforceable against such
Loan Party in accordance with its terms.

            (c) Indenture. Without limiting any other representation or warranty
made by any Loan Party in any Loan Document, the obtaining of any Loan hereunder
will not result in any default under, and the provisions of Sections 7.4
(Restricted Payments) and 7.3 (Restrictions on Subsidiary Distributions; No New
Negative Pledge) do not conflict with, any provision of the Indenture as in
effect on the Effective Date, including, without limitation, Section 4.05 and
Section 4.11 of the Eleventh Supplemental Indenture as in effect on the
Effective Date.


                                       46



            Section 4.3 Financial Statements.

            (a) Accuracy of Financial Statements. The consolidated balance sheet
of the Borrower and its Subsidiaries as at December 31, 2000 and December 31,
1999, and the related consolidated statements of income, retained earnings and
cash flows of the Borrower and its Subsidiaries for the Fiscal Years then ended,
certified by Ernst & Young, LLP, and the consolidated balance sheets of the
Borrower and its Subsidiaries as at September 30, 2001, and the related
consolidated statements of income, retained earnings and cash flows of the
Borrower and its Subsidiaries for the six (6) months then ended, certified by a
Responsible Officer of the Borrower, copies of which have been furnished to
Lender, fairly present, subject, in the case of said balance sheets as at
September 30, 2001, and said statements of income, retained earnings and cash
flows for the six (6) months then ended, to the absence of footnote disclosure
and normal recurring year-end audit adjustments, the consolidated financial
condition of the Borrower and its Subsidiaries as at such dates and the
consolidated results of the operations of the Borrower and its Subsidiaries for
the period ended on such dates, all in conformity with GAAP.

            (b) No Additional Liability. Neither the Borrower nor any of its
Material Subsidiaries has any material obligation, contingent liability or
liability for taxes, long-term leases or unusual forward or long-term commitment
that is not reflected in the Financial Statements referred to in Section 4.3(a)
(Accuracy of Financial Statements) or in the notes thereto or otherwise
permitted by this Agreement.

            Section 4.4 Legal Proceedings. There are no pending, or, to the
knowledge of the Borrower, threatened, Legal Proceedings that may affect the
Borrower or any of its Material Subsidiaries or their respective properties
before any Governmental Authority other than those that, if determined adversely
to Borrower, would not have a Material Adverse Effect. The performance of any
action by Borrower required or contemplated by any Loan Document is not
restrained or enjoined (either temporarily, preliminarily or permanently).

            Section 4.5 Material Adverse Change. Since December 31, 2000, there
has been no Material Adverse Change and there have been no events or
developments that, in the aggregate, have had a Material Adverse Effect other
than as has been disclosed in the Borrower's Form l0-Q for the period ended
September 30, 2001.


                                       47



            Section 4.6 Solvency. Both before and after giving effect to (a) the
Loans to be made or extended on the Effective Date or such other date as Loans
requested hereunder are made or extended, (b) the disbursement of the proceeds
of such Loans pursuant to the instructions of the Borrower, (c) the consummation
of the other financing transactions contemplated hereby and (d) the payment and
accrual of all transaction costs in connection with the foregoing, each Loan
Party is Solvent.

            Section 4.7 Litigation. There are no pending or, to the knowledge of
the Borrower, threatened actions, investigations or proceedings affecting the
Borrower, or any of its Material Subsidiaries before any court, Governmental
Authority or arbitrator other than those that, in the aggregate, are not
reasonably likely to be determined adversely to any Loan Party and, if so
determined, would not have a Material Adverse Effect. The performance of any
action by any Loan Party required or contemplated by any Loan Document is not
restrained or enjoined (either temporarily, preliminarily or permanently).
Schedule 4.7 (Litigation) lists all litigation pending against any Loan Party at
the Effective Date that, if adversely determined, would have a Material Adverse
Effect.

            Section 4.8 Taxes.

            (a) Timely Filing of Tax Returns and Payment of Taxes. All federal,
state, local and foreign income and franchise and other material tax returns,
reports and statements (collectively, the "Tax Returns") required to be filed by
the Borrower or any of its Tax Affiliates have been filed with the appropriate
governmental agencies in all jurisdictions in which such Tax Returns are
required to be filed, all such Tax Returns are true and correct in all material
respects, and all taxes, charges and other impositions reflected therein or
otherwise due and payable have been paid prior to the date on which any fine,
penalty, interest, late charge or loss may be added thereto for non-payment
thereof, except when contested in good faith and by appropriate proceedings if
adequate reserves therefor have been established on the books of the Borrower or
such Tax Affiliate in conformity with GAAP. Except as disclosed to the Lender in
writing, no Tax Return is under audit or examination by any Governmental
Authority and no notice of such an audit or examination or any assertion of any
claim for Taxes has been given or made by any Governmental Authority. Proper and
accurate amounts have been withheld by the Borrower and each of its Tax
Affiliates from their respective employees for all periods in full and complete
compliance with the tax, social security and unemployment withholding provisions
of applicable Requirements of Law and such withholdings have been timely paid to
the respective Governmental Authorities.


                                       48



            (b) Tax-Sharing Agreements. None of the Borrower or any of its Tax
Affiliates has (i) executed or filed with the IRS or any other Governmental
Authority any agreement or other document extending, or having the effect of
extending, the period for filing of any Tax Return or the assessment or
collection of any charges, or (ii) any obligation under any tax sharing
agreement, arrangement or other Contractual Obligation other than those of which
the Lender has received a copy prior to the Effective Date, or (iii) been a
member of an affiliated, combined or unitary group other than the group of which
the Borrower (or its Tax Affiliate) is the common parent.

            Section 4.9 Full Disclosure. The information prepared or furnished
by or on behalf of the Borrower in connection with this Agreement or the
consummation of the financing hereunder taken as a whole does not contain any
untrue statement of a material fact and does not omit to state a material fact
necessary to make the statements contained therein or herein not misleading. All
facts known to the Borrower that are material to an understanding of the
financial condition, business, properties or prospects of the Borrower and its
Material Subsidiaries taken as one enterprise have been disclosed to the Lender.

            Section 4.10 Margin Regulations. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U of the Federal Reserve Board, as the
same is from time to time in effect, and all official rulings and
interpretations thereunder), and no proceeds of any Borrowing will be used to
purchase or carry any margin stock or to extend credit to others for the purpose
of purchasing or carrying any margin stock in contravention of Regulation T, U
or X of the Federal Reserve Board, as the same are from time to time in effect,
and all official rulings and interpretations thereunder.

            Section 4.11 Ownership of the Material Subsidiaries and Certain
Assets. Set forth on Schedule 4.11 (Material Subsidiaries) is a true, complete
and accurate list showing, as of the Effective Date, all Material Subsidiaries
of the Borrower and, as to each such Material Subsidiary, the jurisdiction of
its incorporation, the number of shares of each class of Stock authorized (if
applicable), the number outstanding on the Effective Date and the percentage of
the outstanding shares of each such class owned (directly or indirectly) by the
Borrower and any other Stock and Stock Equivalents of such Material Subsidiary.
All of the outstanding Stock of each Material Subsidiary of the Borrower has
been validly issued, is fully paid and non-assessable and is owned by the
Borrower or a Material Subsidiary of the Borrower free and clear of all Liens
and Encumbrances (other than the Liens


                                       49



created pursuant to the Senior Loan Documents and the Subordinated Pledge and
Security Agreement). Neither the Borrower nor any such Material Subsidiary is a
party to, or has knowledge of, any Contractual Obligation restricting the
transfer or hypothecation of any Stock or Stock Equivalent of any such Material
Subsidiary, other than the Loan Documents and the Senior Loan Documents. The
Borrower does not own or hold, directly or indirectly, any Securities of any
Person other than such Subsidiaries and Investments permitted by Section 7.7
(Investments in Other Persons). There are no Material Subsidiaries other than
Pellet, NSFC, ProCoil, and NSH on the Effective Date and thereafter no other
Material Subsidiaries that have not executed and delivered to the Lender a
Subordinated Guaranty, a Subordinated Pledge and Security Agreement and any
other Collateral Documents in connection therewith, and all documents and items
necessary to achieve a valid, second priority (behind only the Senior Secured
Parties) perfected security interest in the Collateral of such Material
Subsidiary as contemplated thereby. No Subsidiary of the Borrower other than
Pellet and NSFC owns any material amount of Accounts or Inventory.

            Section 4.12 ERISA.

            (a) List of Employee Benefit Plans. Schedule 4.12 (Employee Benefit
Plans) separately identifies, as of the Effective Date, all Title IV Plans, all
Multiemployer Plans and all of the employee benefit plans within the meaning of
Section 3(3) of ERISA to which the Borrower or any of its Material Subsidiaries
has any obligation or liability, contingent or otherwise.

            (b) Tax Qualification. Each employee benefit plan of the Borrower or
any of its Material Subsidiaries which is intended to qualify under Section 401
of the Code does so qualify, and any trust created thereunder is exempt from tax
under the provisions of Section 501 of the Code, except where all such failures
have no Material Adverse Effect.

            (c) Compliance with Requirements of Law. Each Title IV Plan is in
compliance in all material respects with applicable provisions of ERISA, the
Code and other Requirements of Law except for non-compliances that in the
aggregate would have no Material Adverse Effect.

            (d) No Material Adverse Effect. There has been no, nor is there
reasonably expected to occur any, ERISA Event which will have a Material Adverse
Effect.


                                       50



            (e) No Withdrawal Liability. Except to the extent set forth on
Schedule 4.12 (Employee Benefit Plans), none of the Borrower or any Subsidiary
or any ERISA Affiliate thereof would have any Withdrawal Liability as a result
of a complete withdrawal as of the Effective Date from any Multiemployer Plan.

            Section 4.13 Liens and Encumbrances. There are no Liens or
Encumbrances of any nature whatsoever on any properties of any Loan Party or any
of its Material Subsidiaries other than those permitted by Section 7.1 (Liens,
Etc.). The Liens granted by the Borrower to the Lender pursuant to the
Collateral Documents are fully perfected Liens in and to the Collateral, subject
only to timely filing with Governmental Authorities of the appropriate UCC-l and
UCC-3 financing statements. Schedules 7.1 (Existing Liens) and 7.3 (Existing
Negative Pledges) together encompass all Liens and Encumbrances of all Loan
Parties as of the Effective Date other than Permitted Customary Liens. On and
after September 28, 2001, there have been no Liens or Encumbrances granted by
the Borrower on any properties of any Loan Party or any of its Material
Subsidiaries other than the Liens granted under the Senior Loan Documents.

            Section 4.14 Related Documents. Except as set forth on Schedule 4.14
(Amendments to Related Documents) and as permitted under Section 7.10
(Modification of Related Documents), none of the Related Documents has been
amended or modified in any respect and no provision therein has been waived.
Each of the representations and warranties in each of the Related Documents are
true and correct in all material respects, and no default or material breach (or
event which with the giving of notice or lapse of time or both would be a
default or a material breach) has occurred thereunder, except as duly waived, to
the extent such waiver is permitted under Section 7.10 (Modification of Related
Documents) and a copy of such waiver has been delivered to the Lender.

            Section 4.15 No Burdensome Restrictions; No Defaults.

            (a) Material Contracts. None of the Borrower or any of its Material
Subsidiaries (i) is a party to any Contractual Obligation the compliance with
which would have a Material Adverse Effect or the performance of which by any
thereof, either unconditionally or upon the happening of an event, would result
in the creation of a Lien or other Encumbrance (other than a Lien or Encumbrance
granted pursuant to a Loan Document or a Senior Loan Document or otherwise
permitted hereby) on the property or assets of any thereof or (ii) is subject to
any restriction under its Constituent Documents that would have a Material
Adverse Effect.


                                       51



            (b) No Default. None of the Borrower or any of its Material
Subsidiaries is in default under or with respect to any Contractual Obligation
owed by it and, to the knowledge of the Borrower, no other party is in default
under or with respect to any Contractual Obligation owed to Borrower or to any
Material Subsidiary of the Borrower, other than, in either case, those defaults
which in the aggregate would not have a Material Adverse Effect.

            (c) No Default or Event of Default. No Default or Event of Default
has occurred and is continuing.

            (d) Requirements of Law. To the best knowledge of the Borrower,
there is no Requirement of Law applicable to Borrower the compliance with which
by Borrower would have a Material Adverse Effect.

            (e) Restrictions on Stock. No Material Subsidiary of the Borrower is
subject to any Contractual Obligation restricting or limiting its ability to
declare or make any dividend payment or other distribution on account of any
shares of any class of its Stock or its ability to purchase, redeem, or
otherwise acquire for value or make any payment in respect of, any such shares
or any shareholder rights, except pursuant to a Loan Document or any Senior Loan
Document.

            Section 4.16 No Other Ventures. Except as set forth on Schedule 4.16
(Joint Ventures and Partnerships), none of the Borrower or any of its Material
Subsidiaries is engaged in any joint venture or partnership with any other
Person.

            Section 4.17 Investment Company Act. None of the Borrower or any of
its Material Subsidiaries is an "investment company", or an "affiliated person"
of, or "promoter" or "principal underwriter" for, an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended. None
of the making of the Loans by the Lender, the application of the proceeds and
repayment thereof by the Borrower and the consummation of the transactions
contemplated by the Loan Documents will result in a violation by the Borrower or
any of its Material Subsidiaries of any provision of such act or any Requirement
of Law created by the Securities and Exchange Commission thereunder.


                                       52



            Section 4.18 Public Utility Holding Company Act. None of the
Borrower or any of its Material Subsidiaries is a "holding company," or an
"affiliate" or a "holding company" or a "subsidiary company" of a "holding
company," as each such term is defined and used in the Public Utility Holding
Act of 1935, as amended.

            Section 4.19 Insurance. All policies of insurance of any kind or
nature of the Borrower and its Material Subsidiaries, including policies of
life, fire, theft, product liability, public liability, property damage, other
casualty, employee fidelity, workers' compensation and employee health and
welfare insurance, are in full force and effect and are of a nature and provide
such coverage (a) as is sufficient and as is customarily carried by businesses
of the size and character of such Person and (b) as is required under any of the
Related Documents or Loan Documents. Since June 30, 2001, none of the Borrower
or any of its Material Subsidiaries has had any material policy on insurance
terminated (other than at its request).

            Section 4.20 Labor Matters.

            (a) No Strikes. There are no strikes, work stoppages, slowdowns or
lockouts pending, threatened against or involving, the Borrower or any of its
Material Subsidiaries, other than those that in the aggregate would not have a
Material Adverse Effect.

            (b) No Claims or Complaints. There are no unfair labor practices,
grievances or complaints pending, or, to the best of the Borrower's knowledge
after due inquiry, threatened, against or involving the Borrower or any of its
Material Subsidiaries, nor are there any arbitrations or grievances threatened
involving the Borrower or any of its Material Subsidiaries, other than those
that, in the aggregate, if resolved adversely to the Borrower or such Material
Subsidiary, would not have a Material Adverse Effect.

            Section 4.21 Use of Proceeds. The proceeds of the Loans are being
used by the Borrower solely for general working capital and corporate purposes
and to repay or prepay any principal amount owing under any note issued under
the Indenture as long as permitted under the Senior Credit Agreement.

            Section 4.22 Environmental Matters.

            (a) Environmental Laws. The operations of the Borrower and each of
its Material Subsidiaries and their respective tenants have been and are in
compliance with all Environmental Laws, including obtaining and complying with
all


                                       53



required environmental, health and safety Permits, other than non-compliances
that in the aggregate have no Material Adverse Effect or have been disclosed in
the Financial Statements delivered pursuant to Section 4.3(a) (Accuracy of
Financial Statements).

            (b) No Threatened Legal Proceeding. None of the Borrower or any of
its Material Subsidiaries or any Real Estate currently (or, to the best of the
knowledge of the Borrower after due inquiry, previously) owned, operated or
leased by or for the Borrower or any of its Material Subsidiaries is subject to
any pending or, to the knowledge of the Borrower, threatened claim, Order,
Contractual Obligation, notice of violation or potential liability or is subject
to any pending, or, to the Borrower's knowledge, threatened, Legal Proceeding
with respect to (i) any Environmental Law, (ii) a Remedial Action or (iii)
Environmental Liabilities and Costs arising from a Release or threatened
Release, other than those that in the aggregate have no Material Adverse Effect.

            (c) Disposal Facilities. Except as set forth on Schedule 4.22
(Disposal Facilities), none of the Borrower or any of its Material Subsidiaries
maintains a treatment, storage or disposal facility requiring a Permit under the
Resource Conservation and Recovery Act, 42 U.S.C.ss.6901 et seq., as amended,
the regulations thereunder or similar Requirement of Law.

            (d) No Undisclosed Information. There are no facts, circumstances or
conditions arising out of or relating to the operations or ownership of real
property owned, operated or leased by the Borrower or any of its Material
Subsidiaries that are not specifically included in the financial information
furnished to the Lender other than those that in the aggregate have no Material
Adverse Affect.

            (e) No Environmental Lien. As of the Effective Date, no
Environmental Lien has attached to any property of the Borrower or any of its
Material Subsidiaries.

            Section 4.23 Intellectual Property. The Borrower and its Material
Subsidiaries own or license or otherwise have the right to use all license,
permits, patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, copyright applications, franchises,
authorizations and other intellectual property rights (including all
Intellectual Property as defined in the Subordinated Pledge and Security
Agreement) that are necessary for the operations of their respective businesses,
without infringement upon or conflict with the rights of any other Person with
respect thereto, including all trade names associated with any


                                       54



private label brands of the Borrower or any of its Material Subsidiaries. To the
Borrower's knowledge, no slogan or other advertising device, product, process
method, substance, part or component, or other material now employed, or now
contemplated to be employed, by the Borrower or any of its Material Subsidiaries
infringes upon or conflicts with any rights owned by any other Person, and no
claim or litigation regarding any of the foregoing is pending or threatened. No
Subsidiary of the Borrower other than a Material Subsidiary owns any
Intellectual Property (as defined in the Subordinated Pledge and Security
Agreement) that is material to its business or that of the Borrower.

            Section 4.24 Title; Real Estate.

            (a) Title. Each of the Borrower and its Material Subsidiaries has
good and marketable title to, or valid leasehold interests in, all Real Estate
and good title to all personal property purported to be owned by it, including
those reflected on the most recent Financial Statements delivered by the
Borrower, and none of such properties and assets is subject to any Lien or other
Encumbrance, except Liens permitted under Section 7.1 (Liens, Etc.). The
Borrower and its Material Subsidiaries have received all deeds, assignments,
waivers, consents, non-disturbance and recognition or similar agreements, bills
of sale and other documents and have duly effected all recordings, filings and
other actions necessary to establish, protect and perfect the Borrower's and its
Material Subsidiaries' right, title and interest in and to all such property.

            (b) Permits. All Permits required to have been issued or appropriate
to enable all real property owned or leased by the Borrower and its Material
Subsidiaries to be lawfully occupied and used for all of the purposes for which
they are currently occupied and used have been lawfully issued and are in full
force and effect, other than those that, in the aggregate, would not have a
Material Adverse Effect.

            (c) No Condemnation Proceeding. None of the Borrower or any of its
Material Subsidiaries has received any notice, or has any knowledge, of any
pending, threatened or contemplated condemnation proceeding or other Legal
Proceeding affecting any Real Estate owned or leased by the Borrower or any of
its Material Subsidiaries or any part thereof, except those which, in the
aggregate, would not have a Material Adverse Effect.

            (d) No Damage. No portion of any real property owned or leased by
the Borrower or any of its Material Subsidiaries has suffered any material
damage


                                       55



by fire or other casualty loss which has not heretofore been completely repaired
and restored to its original condition.

            Section 4.25 Existing Indebtedness. Schedule 4.25 (Existing
Indebtedness) separately identifies all Indebtedness as of the Effective Date of
the Borrower and its Subsidiaries which is to remain outstanding after the
Effective Date and is (a) for borrowed money, (b) incurred outside of the
ordinary course of the business and in a manner and to the extent consistent
with past practice or (c) material to the financial condition, business,
operations or prospects of the Borrower and its Subsidiaries, taken as a whole
(or will be material to the financial condition, business, operations or
prospects of the Borrower and its Subsidiaries, taken as a whole). For purposes
of clause (c) above, Indebtedness equal to or in excess of ten million Dollars
($10,000,000) shall be deemed material.

            Section 4.26 Deposit Accounts. Schedule 4.26 (Deposit Accounts)
contains a complete and accurate list, as of the Effective Date, of each Deposit
Account of the Borrower and its Material Subsidiaries, specifying the nature of
such account and whether any proceeds of Collateral are deposited therein.

                                    Article V

                               REPORTING COVENANTS

            As long as any Obligation or the Commitment remains outstanding,
unless the Lender otherwise consents in writing, the Borrower agrees with the
Lender that:

            Section 5.1 Financial Statements. The Borrower shall furnish to the
Lender the following Financial Statements and information:

            (a) Monthly Reports. As soon as available and in any event within
thirty (30) days after the end of each fiscal month in each Fiscal Year (other
than any fiscal month ending on the last day of any Fiscal Quarter),
consolidated and consolidating unaudited balance sheets of the Borrower and its
Subsidiaries as of the close of such month and consolidated and consolidating
statements of income, retained earnings and cash flow of the Borrower and its
Subsidiaries for such month and that portion of the current Fiscal Year ending
as of the close of such month, in each case prepared in accordance with GAAP
(subject to the absence of footnote disclosure and normal recurring year-end
audit adjustments) together with (i) a


                                       56



schedule of all monies advanced or loaned by the Borrower to any Guarantor, (ii)
a statement by a Responsible Officer of the Borrower that such financial
information presents fairly in accordance with GAAP (subject to the absence of
footnote disclosure and normal recurring year-end adjustments) the financial
position, results of operations and statements of cash flow of the Borrower and
its Subsidiaries, on both a consolidated and consolidating basis, as at the end
of such month and for the period then ended and (iii) a certificate of such
Responsible Officer stating that no Default or Event of Default has occurred and
is continuing or, if a Default or an Event of Default has occurred and is
continuing, a statement as to the nature thereof and the action which the
Borrower proposes to take with respect thereto;

            (b) Quarterly Financial Statements and Compliance Certificates. As
soon as available and in any event within fifty (50) days after the end of each
Fiscal Quarter of each Fiscal Year, consolidated and consolidating balance
sheets of the Borrower and its Subsidiaries as of the end of such quarter and
consolidated and consolidating statements of income, retained earnings and cash
flow of the Borrower and its Subsidiaries for the period commencing at the end
of the previous Fiscal Year and ending with the end of such Fiscal Quarter, all
prepared in conformity with GAAP and certified by the Responsible Officer of the
Borrower and a certificate of such Responsible Officer stating that no Default
or Event of Default has occurred and is continuing or, if a Default or an Event
of Default has occurred and is continuing, a statement as to the nature thereof
and the action which the Borrower proposes to take with respect thereto;

            (c) Annual Audited Financial Statements. As soon as available and in
any event within ninety-five (95) days after the end of each Fiscal Year,
consolidated and consolidating balance sheets of the Borrower and its
Subsidiaries as of the end of such year and consolidated and consolidating
statements of income, retained earnings and cash flows of the Borrower and its
Subsidiaries for such Fiscal Year, all prepared in conformity with GAAP and
certified, in the case of such consolidated financial statements, without
qualification as to the scope of the audit or as to the Borrower being a going
concern by the Borrower's Accountants, together with a certificate of such
accounting firm stating that in the course of the regular audit of the business
of the Borrower and its Subsidiaries, which audit was conducted by such
accounting firm in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge that a Default or Event of Default has
occurred and is continuing or, if in the opinion of such accounting firm a
Default or Event of Default has occurred and is continuing, a statement as to
the nature thereof;


                                       57



            (d) Compliance Certificate. Promptly after delivery to the Senior
Agent, a copy of each Compliance Certificate (as defined in the Senior Credit
Agreement) delivered to the Senior Agent;

            (e) Borrowing Base Certificate. Promptly after delivery to the
Senior Agent, a copy of each Borrowing Base Certificate (as defined in the
Senior Credit Agreement) delivered to the Senior Agent;

            (f) Annual Operating Plans. Not later than thirty (30) days after
the end of each Fiscal Year beginning with the Fiscal Year ending December 31,
2001, an annual operating plan of the Borrower and its Subsidiaries for the
following Fiscal Year, approved by the Board of Directors of the Borrower, which
shall include, without limitation, a statement of all of the material
assumptions on which such plan is based, monthly balance sheets and a monthly
budget for the following year and which shall integrate sales, gross profits,
operating expenses, operating profit and cash flow projections all prepared on
the same basis and in similar detail as that on which operating results are
reported (and in the case of cash flow projections, representing management's
good faith estimates of future financial performance through the Fiscal Year
ending after the third (3rd) anniversary of the "Effective Date" (as defined in
the Senior Credit Agreement) based on historical performance);

            (g) Changes in Bank Accounts. Prior written notice of any closing or
other change in the existing bank accounts of the Borrower or Pellet (or the
establishment of any new bank account by the Borrower or Pellet) or any
agreement relating thereto;

            (h) Landlord's Waiver. Promptly after delivery to the Senior Agent,
a copy of each Landlord's Waiver (as defined in the Senior Credit Agreement)
delivered to the Senior Agent, and, if requested by the Lender, a corresponding
landlord's waiver in favor of the Lender; and

            (i) Additional Information. Promptly, from time to time, such other
information regarding the operations, including information regarding specific
product categories and lines of business of the Borrower and its Subsidiaries,
the business affairs and financial condition (including financial controls and
accounting practices) of the Borrower or any of its Subsidiaries or compliance
by any Loan Party and its Subsidiaries with the terms of any Loan Document, as
the Lender may reasonably request.


                                       58



            Section 5.2 Default Notices. Promptly, and in any event within five
(5) Business Days after any Responsible Officer of the Borrower becomes aware of
any occurrence which it knows to constitute any Default or Event of Default, the
Borrower shall deliver to the Lender a certificate of a Responsible Officer
setting forth the details of such occurrence and the action which the Borrower
is taking or proposes to take with respect thereto.

            Section 5.3 Expected Net Cash Proceeds. The Borrower shall promptly
furnish the Lender with a copy of each notice delivered to the Senior Agent
pursuant to Section 6.3 (Expected Net Cash Proceeds) of the Senior Credit
Agreement.

            Section 5.4 ERISA Matters. The Borrower shall furnish the Lender:

            (a) ERISA Event. Promptly and in any event within thirty (30) days
after the Borrower, any of its Subsidiaries or any ERISA Affiliate knows or has
reason to know that any ERISA Event has occurred, a written statement of a
Responsible Officer of the Borrower describing such ERISA Event and the action,
if any, that the Borrower, its Subsidiaries or its ERISA Affiliates propose to
take with respect thereto and a copy of any notice filed with any Governmental
Authority pertaining thereto;

            (b) Request for Minimum Funding Waiver. Promptly and in any event
within ten (10) days after the Borrower, any of its Subsidiaries or any ERISA
Affiliate knows or has reason to know that a request for a minimum funding
waiver under Section 412 of the Code has been filed with respect to any Title IV
Plan or Multiemployer Plan, a written statement of a Responsible Officer of the
Borrower describing such waiver request and the action, if any, which the
Borrower, its Subsidiaries and ERISA Affiliates propose to take with respect
thereto and a copy of any notice filed with any Governmental Authority
pertaining thereto;

            (c) Notice of Intent to Terminate. Simultaneously with the date that
the Borrower, any of its Subsidiaries or any ERISA Affiliate files a notice of
intent to terminate any Title IV Plan, if such termination would require
material additional contributions in order to be considered a standard
termination within the meaning of Section 4041(b) of ERISA, a copy of each
notice.


                                       59



            Section 5.5 Litigation. Promptly after the commencement thereof, the
Borrower shall give the Lender written notice of the commencement of any Legal
Proceeding that, if adversely determined, would have a Material Adverse Effect.
Not later than fifty (50) days after the end of each Fiscal Quarter, the
Borrower shall deliver to the Lender a written report describing any Legal
Proceeding that may affect the Borrower or any of its Subsidiaries and that, in
the reasonable judgment of the Borrower, exposes the Borrower or such Subsidiary
to liability in an amount aggregating two million Dollars ($2,000,000) or more.

            Section 5.6 Notices under Related Documents. Promptly after the
sending or filing thereof, the Borrower shall send the Lender copies of all
material notices, certificates or reports delivered pursuant to or in connection
with any Related Document

            Section 5.7 SEC Filings; Press Releases. Promptly after the sending
or filing thereof, the Borrower shall serve the Lender copies of (a) all reports
which the Borrower sends to its security holders generally or to the holders of
Securities issued under the Indenture, (b) all reports and registration
statements which the Borrower or any of its Subsidiaries files with the
Securities and Exchange Commission or any national or foreign securities
exchange or the National Association of Securities Dealers, Inc., (c) all press
releases and (d) all other statements concerning material changes or
developments in the business of Borrower made available by Borrower to the
public.

            Section 5.8 Labor Relations. Promptly after becoming aware of the
same, the Borrower shall give the Lender written notice of (a) any material
labor dispute to which the Borrower or any of its Material Subsidiaries is or
may become a party, including any strikes, lockouts or other disputes relating
to any of such Person's plants and other facilities and (b) any Worker
Adjustment and Retraining Notification Act or related liability incurred with
respect to the closing of any plant or other facility of any such Person.

            Section 5.9 Insurance. As soon as is practicable and in any event
within thirty (30) days prior to the expiration or termination of any insurance
coverage for which the Borrower is required to name the Lender as additional
insured or loss payee hereunder or under any Loan Document, the Borrower shall
furnish the Lender a confirmation executed by the insurance company or the
Borrower's insurance broker and in form and substance satisfactory to the Lender
that such coverage has been continued.


                                       60



            Section 5.10 Environmental Matters. The Borrower shall provide the
Lender promptly and in any event within ten (10) days of the Borrower or any of
its Material Subsidiaries learning of any of the following, written notice of
each of the following:

            (a) Environmental Lien. The receipt by Borrower of notification that
any real or personal property of Borrower is or is reasonably likely to be
subject to any Environmental Lien;

            (b) Notice of Violation of an Environmental Law. The receipt by
Borrower of any notice of violation of or potential liability under, or
knowledge by such Borrower that there exists a condition that could reasonably
be expected to result in a violation of or liability under, any Environmental
Law, except for violations and liabilities the consequence of which, in the
aggregate, would not be reasonably likely to subject the Borrower and its
Subsidiaries collectively to Environmental Liabilities and Costs that have a
Material Adverse Effect;

            (c) Commencement of a Legal Proceeding. The commencement of any
Legal Proceeding alleging a violation of or liability under any Environmental
Law, other than those the consequences of which in the aggregate would have no
reasonable likelihood of subjecting the Borrower and its Subsidiaries
collectively to Environmental Liabilities and Costs that have a Material Adverse
Effect;

            (d) Property Acquisition. Any proposed acquisition of Securities,
assets or real estate, any proposed leasing of property or any other action of
the Borrower or any of its Material Subsidiaries, other than those the
consequences of which in the aggregate would have no reasonable likelihood of
subjecting the Borrower and its Subsidiaries collectively to Environmental
Liabilities and Costs that have a Material Adverse Effect; and

            (e) Additional Permits; Additional Capital Improvements. Any
proposed action by the Borrower or any of its Material Subsidiaries or any
change in Environmental Laws that, in the aggregate, have a reasonable
likelihood of requiring the Borrower to obtain additional environmental, health
or safety Permits or make additional capital improvements to obtain compliance
with Environmental Laws that in the aggregate subject the Borrower to
Environmental Liabilities and Costs that have a Material Adverse Effect; and

            (f) Status Report. Upon written request by Lender, a report
providing an update of the status of any environmental, health or safety
compliance,


                                       61



hazard or liability issue identified in any notice or report delivered pursuant
to this Agreement.

            Section 5.11 Customer Contracts. Promptly after becoming aware of
the same, the Borrower and each of its Subsidiaries shall give the Lender
written notice of any cancellation, termination or loss of any material
Contractual Obligation or other customer arrangement of the Borrower or any of
its Material Subsidiaries prior to the earlier of (i) the date of termination of
the Commitment pursuant to the terms of this Agreement and (ii) the date on
which the Obligations become due and payable pursuant to Section 9.2 (Remedies).

            Section 5.12 Other Information. The Borrower shall provide the
Lender with such other information respecting the business, properties,
condition (financial or otherwise) or operations of the Borrower or any of its
Subsidiaries as Lender may from time to time reasonably request.

                                   Article VI

                              AFFIRMATIVE COVENANTS

            As long as any Obligation or the Commitment remains outstanding,
unless the Lender otherwise consents in writing, the Borrower agrees with the
Lender that:

            Section 6.1 Preservation of Corporate Existence, Etc. The Borrower
shall, and shall cause each of its Material Subsidiaries to, preserve and
maintain, its corporate existence, rights (charter and statutory) and
franchises, except as permitted by Section 7.5 (Restriction on Fundamental
                                   -----------
Changes).

            Section 6.2 Compliance with Law, Etc. The Borrower shall, and shall
cause each of its Material Subsidiaries to, comply in all material respects with
all applicable Requirements of Law, Contractual Obligations and Permits, except
where the failure so to comply would not, in the aggregate, have a Material
Adverse Effect.


                                       62



            Section 6.3 Conduct of Business. The Borrower shall, and shall cause
each of its Material Subsidiaries to conduct its business in the ordinary course
consistent with past practice and use its reasonable efforts, in the ordinary
course and consistent with past practice, to preserve its business and the
goodwill and business of the customers, advertisers, suppliers and others having
business relations with the Borrower or any of its Material Subsidiaries;
provided, however, that the Borrower shall not be deemed in default of this
Section 6.3 if all such failures to comply in the aggregate would have no
Material Adverse Effect.

            Section 6.4 Payment of Taxes, Etc. The Borrower shall, and shall
cause each of its Material Subsidiaries to, pay and discharge before the same
shall become delinquent, all lawful claims, taxes, assessments, charges and
levies of a Governmental Authority, except where contested in good faith, by
proper proceedings and adequate reserves therefor have been established on the
books of the Borrower or the appropriate Subsidiary in conformity with GAAP.

            Section 6.5 Maintenance of Insurance. The Borrower shall maintain,
and cause to be maintained for each of its Material Subsidiaries, insurance with
responsible and reputable insurance companies or associations in such amounts
and covering such risks as is usually carried by companies engaged in similar
businesses and owning similar properties in the same general areas in which the
Borrower or such Material Subsidiary operates and, in any event, all insurance
required by any Collateral Documents.

            Section 6.6 Access. The Borrower shall from time to time, permit the
Lender, and any of its agents or representatives, within five (5) Business Days
after written notification of the same (except that during the continuance of an
Event of Default, no such notice shall be required), on any Business Day, to (a)
examine and make copies of and abstracts from the records and books of account
of the Borrower and each of its Subsidiaries, (b) visit the properties of the
Borrower and each of its Subsidiaries, (c) discuss the affairs, finances and
accounts of the Borrower and each of its Subsidiaries with any of their
respective officers or directors and (d) communicate directly with the
Borrower's Accountants and any other certified public accountants. The Borrower
shall authorize its certified public accountants (including the Borrower's
Accountants) to disclose to the Lender any and all financial statements and
other information of any kind, as the Lender reasonably requests from the
Borrower and that such accountants may have with respect to the business,
financial condition, results of operations or other affairs of the Borrower or
any of its Subsidiaries.


                                       63



            Section 6.7 Keeping of Books. The Borrower shall, and shall cause
each of its Material Subsidiaries to, keep proper books of record and account,
in which full and correct entries shall be made in conformity with GAAP of all
financial transactions and the assets and business of the Borrower and each such
Material Subsidiary.

            Section 6.8 Maintenance of Properties, Etc. The Borrower shall, and
shall cause each of its Material Subsidiaries to, maintain and preserve (a) in
good working order and condition all of its properties that are necessary in the
conduct of its business, (b) all rights, permits, licenses, approvals and
privileges (including all Permits) used or useful or necessary in the conduct of
its business and (c) all registered patents, trademarks, trade names, copyrights
and service marks with respect to its business except where failure to so
maintain and preserve the items set forth in clauses (a) through (c) above would
not, in the aggregate, have a Material Adverse Effect.

            Section 6.9 Maintenance of Contractual Obligations, Etc. The
Borrower shall, and shall cause each of its Material Subsidiaries to, perform,
observe and comply with each of the covenants, conditions and agreements set
forth in the Related Documents (which in the case of the Senior Loan Documents,
shall be as such covenants, conditions and agreements are from time to time
waived or amended in accordance with the provisions thereof) and under each
other Contractual Obligation under which it or any of its Material Subsidiaries
may be bound (including to pay all rent and other charges payable under any
lease and all Indebtedness and other obligations as the same become due) and do
all things necessary to preserve and to keep unimpaired any rights the Borrower
or any of its Material Subsidiaries may have under any Contractual Obligation;
provided, however, that the Borrower shall not be deemed in default of this
Section 6.9 if all such failures in the aggregate would have no Material Adverse
Effect.

            Section 6.10 Application of Proceeds. The Borrower shall use the
entire amount of the proceeds of the Loans as provided in Section 4.21 (Use of
Proceeds).

            Section 6.11 Fiscal Year. The Borrower shall, and shall cause each
of its Material Subsidiaries to, maintain as its fiscal year the twelve month
period ending on the thirty-first (31st) of December of each year.


                                       64



            Section 6.12 Environmental. The Borrower shall, and shall cause each
Material Subsidiary to, comply in all material respects with Environmental Laws
and, without limiting the foregoing, the Borrower shall, at its sole cost and
expense, upon receipt of any notification or otherwise obtaining knowledge of
any Release or other event that has any reasonable likelihood of the Borrower
and its Material Subsidiaries incurring Environmental Liabilities and Costs that
have a Material Adverse Effect, promptly advise the Lender thereof and (a) if
requested by the Lender, conduct or pay for consultants to conduct, tests or
assessments of environmental conditions at such operations or properties,
including the investigation and testing of subsurface conditions and (b) take
such Remedial Action, make such investigation or take such other action as
required by Environmental Laws or other Requirements of Law or as any
Governmental Authority requires or as is appropriate and consistent with good
business practice to address the Release or event.

            Section 6.13 Inventory.

            (a) Appraisals and Investigations. The Borrower shall promptly
furnish to the Lender any information which Borrower furnishes to the Senior
Agent regarding the Collateral and its value, including without limitation all
information provided by the Borrower to the Senior Agent pursuant to Section
7.13 of the Senior Credit Agreement, and correct and complete copies of any
invoices, underlying agreements, instruments or other documents.

            (b) Verifications. The Lender may, at the Borrower's sole cost and
expense, make physical or other forms of verifications of the Collateral at any
time and in any manner and through any medium that the Lender considers
advisable, and the Borrower and the Guarantors shall furnish, or shall cause to
be furnished, all such assistance and information as the Lender may require in
connection therewith.

            Section 6.14 Additional Collateral and Guaranties. To the extent not
delivered to the Lender on or before the Effective Date, the Borrower agrees
promptly to (i) execute and deliver to the Lender such amendments and
supplements to the Collateral Documents and such additional Collateral Documents
as the Lender deems necessary or advisable in order to grant to the Lender a
perfected security interest, prior to all other security interests except that
of the Senior Agent, in the Stock and Stock Equivalents and debt Securities of
any Material Subsidiary that are owned by the Borrower or any of its
Subsidiaries and requested to be pledged by the Lender; provided, however, that
in no event shall the Borrower or any of its Subsidiaries be required to pledge
in excess of 65% of the outstanding Stock of any Material Subsidiary that is not
a Domestic Subsidiary or any of the stock of any


                                       65



Subsidiary of such Material Subsidiary, (ii) in the case of any such Material
Subsidiary that is a Domestic Subsidiary cause such new Material Subsidiary (A)
to become a party to the Guaranty and the applicable Collateral Documents and
(B) to take such actions necessary or advisable to grant to the Lender a
perfected security interest in the Collateral described in the Collateral
Documents with respect to such new Material Subsidiary, including the filing of
UCC financing statements in such jurisdictions as may be required by the
Collateral Documents or by law or as may be reasonably requested by the Lender
and the execution and delivery of appropriate Intercompany Notes (as defined in
the Subordinated Pledge and Security Agreement) if not delivered to the Senior
Agent, (iii) execute, record and deliver to the Lender such mortgages on any now
or hereafter Unencumbered Real Estate owned by the Borrower, the Guarantors, or
any Subsidiary, as requested by the Lender in its sole discretion, in order to
grant to the Lender a perfected security interest, prior to all other security
interests except that of the Senior Agent, in such Unencumbered Real Estate, and
(iv) if requested by the Lender, deliver to the Lender legal opinions relating
to the matters described above, which opinions shall be in form and substance,
and from counsel, reasonably satisfactory to the Lender.

            Section 6.15 Accounting Changes; Fiscal Year. The Borrower shall
disclose in writing to the Lender promptly after such change, any change in (a)
the accounting treatment, reporting practices or tax reporting treatment of the
Borrower or any of its Material Subsidiaries and (b) the fiscal year of the
Borrower or any of its Material Subsidiaries.

                                   Article VII

                               NEGATIVE COVENANTS

            As long as any Obligation or the Commitment remains outstanding and
unless the Lender otherwise consents in writing, the Borrower agrees with the
Lender that:

            Section 7.1 Liens, Etc. The Borrower shall not, and shall not permit
any of its Subsidiaries to, create or suffer to exist, any Lien or other
Encumbrance upon, or with respect to, any of its properties or assets, whether
now owned or hereafter acquired, or assign, or permit any of its Subsidiaries to
assign, any right to receive income, except for:


                                       66



            (a) Liens created pursuant to the Loan Documents or the Senior Loan
Documents;

            (b) Liens existing on the date of this Agreement and disclosed on
Schedule 7.1 (Existing Liens);

            (c) Customary Permitted Liens of the Borrower and its Subsidiaries;

            (d) purchase money Liens or purchase money security interests
granted by the Borrower or any Subsidiary of the Borrower (including the
interest of a lessor under a Capital Lease and Liens to which any property is
subject at the time of the Borrower's or such Subsidiary's acquisition thereof)
securing Indebtedness permitted under Section 7.2 (b) and (d) and limited in any
case to the property purchased with the proceeds of such purchase money
Indebtedness or subject to such Capital Lease;

            (e) Liens securing the renewal, extension, refinancing or refunding
of any Indebtedness secured by any Lien permitted by clause (b) or (d) above
without any change in the assets subject to such Lien;

            (f) Liens in favor of lessors securing operating leases; and

            (g) pledges or deposits of cash or Cash Equivalents securing
judgment liens; provided, however, that all such Liens in the aggregate have no
Material Adverse Effect.

            Section 7.2 Indebtedness. The Borrower shall not, and shall not
permit any of its Subsidiaries to, directly or indirectly create, incur, assume,
maintain or otherwise become or remain directly or indirectly liable with
respect to any Indebtedness except:

            (a) the Obligations and the Senior Loan Obligations;

            (b) Indebtedness existing on the date of this Agreement and
disclosed on Schedule 4.25 (Existing Indebtedness) ("Existing Indebtedness");

            (c) Guaranty Obligations incurred by the Borrower or a Guarantor in
respect of Indebtedness of the Borrower or a Guarantor otherwise permitted by
this Section 7.2;


                                       67



            (d) Capital Lease Obligations and purchase money Indebtedness
incurred by the Borrower or a Subsidiary of the Borrower to finance the
acquisition of fixed assets in an aggregate outstanding principal amount not to
exceed at any time the Fair Market Value of such fixed assets and, in the
aggregate for all such Capital Lease Obligations and Indebtedness, fifty million
Dollars ($50,000,000); provided, however, that, in the case of Capital Lease
Obligations, the Capital Expenditure related thereto is otherwise permitted by
Section 5.1 (Capital Expenditures) of the Senior Credit Agreement; and provided,
further, that, if the corresponding Capital Lease is the result of the
conversion of an operating lease of the Borrower existing as of the Effective
Date, then the present value of all payments due under such Capital Lease shall
not be more than one hundred and five percent (105%) of the present value of all
payments due or that will become due under such operating lease;

            (e) Renewals, extensions, refinancing and refundings of Indebtedness
permitted by clause (b) or (d) above; provided, however, that any such renewal,
extension, refinancing or refunding is in an aggregate principal amount not
greater than the principal amount of, and is on terms no less favorable to the
Borrower or such Subsidiary, including as to weighted average maturity, than,
the Indebtedness being renewed, extended, refinanced or refunded;

            (f) Indebtedness arising from intercompany loans (i) from the
Borrower to a Guarantor or from any Guarantor to the Borrower and (ii) from the
Borrower or any Guarantor to any Subsidiary of the Borrower other than a
Guarantor; provided, however, that the Investment in the intercompany loan to
such Subsidiary is permitted under Section 7.7 (Investments in Other Persons);

            (g) Indebtedness arising under any performance or surety bond
entered into in the ordinary course of business;

            (h) Indebtedness evidenced by bonds issued pursuant to the Indenture
as in effect on the Effective Date, together with any supplements, amendments,
restatements or other modifications as may be approved by the Lender; and

            (i) Indebtedness incurred after the Effective Date if otherwise
permitted to be incurred by Section 4.05 (Limitation on Debt and Restricted
Subsidiary Preferred Stock) of the Indenture; provided, however, that (x) no
Capital Lease Obligation or purchase money Indebtedness shall be permitted under
this clause (i) unless it is otherwise permitted under clause (d) or (e) above
and (y) no Indebtedness


                                       68



arising from intercompany loans shall be permitted under this clause (i) unless
it is otherwise permitted under clause (f) above.

            Section 7.3 Restrictions on Subsidiary Distributions; No New
Negative Pledge. Other than pursuant to the Loan Documents and any agreements
governing any purchase money Indebtedness or Capital Lease Obligations permitted
by Section 7.2(b), (d) or (e) (Indebtedness) above (in which latter case, any
prohibition or limitation shall only be effective against the assets financed
thereby) and except for restrictions set forth in the Indenture and in the
Senior Loan Documents as of the Effective Date, the Borrower shall not, and
shall not permit any of its Material Subsidiaries to, (a) agree to enter into or
suffer to exist or become effective any consensual encumbrance or restriction of
any kind on the ability of such Material Subsidiary to pay dividends or make any
other distribution or transfer of funds or assets or make loans or advances to
or other Investments in, or pay any Indebtedness owed to, the Borrower or any
other Material Subsidiary or (b) enter into or, other than pursuant to
agreements in effect on the date hereof, suffer to exist or become effective any
agreement prohibiting or limiting the ability of the Borrower or any Material
Subsidiary to create, incur, assume or suffer to exist any Lien or Encumbrance
upon any of its property, assets or revenues, whether now owned or hereafter
acquired, to secure the Obligations, including any agreement requiring other
Indebtedness or Contractual Obligation to be equally and ratably secured with
the Obligations.

            Section 7.4 Restricted Payments. The Borrower shall not, and shall
not permit any of its Material Subsidiaries to, directly or indirectly, declare,
order, pay, make or set apart any sum for any Restricted Payment; provided,
however, that any Material Subsidiary may make Restricted Payments to the
Borrower or Pellet; provided, further, that, the Borrower and its Material
Subsidiaries may make any Restricted Payment permitted under Section 4.06
(Limitation on Restricted Payments) of the Indenture and under Section 8.5
(Restricted Payments) of the Senior Credit Agreement.

            Section 7.5 Restriction on Fundamental Changes. The Borrower shall
not, and shall not permit any of its Material Subsidiaries to, (a) merge with
any Person other than a Wholly-Owned Subsidiary of the Borrower that is a
Material Subsidiary, provided, however, that none of Pellet, NSFC, ProCoil and
NSH shall merge with any other Person, (b) consolidate with any Person other
than a Wholly-Owned Subsidiary of the Borrower that is a Material Subsidiary,
(c) acquire all or substantially all of the Stock or Stock Equivalents of any
Person, (d) acquire all or substantially all of the assets of any Person or all
or substantially all of the assets


                                       69



constituting the business of a division, branch or other unit operation of any
Person, (e) enter into any joint venture or partnership with any Person or (f)
acquire or create any Subsidiary, unless, in the case of clauses (e) and (f)
above, the Borrower is in compliance with Section 6.14 (Additional Collateral
and Guaranties) and the Investment in such Subsidiary or joint venture is
permitted under Sections 7.7 (e) or (h) (Investments in Other Persons));
provided, however, that the Borrower shall be authorized to consummate any
transaction described in clauses (a) through (d) above and Pellet shall be
authorized to consummate any transaction described in clauses (b) through (e)
above, in each ease to the extent the Stock, Stock Equivalents and assets that
are acquired do not have in the aggregate a Fair Market Value of more than fifty
million Dollars ($50,000,000) per Fiscal Year and, in the case of any
transaction described in clause (a) above and involving the Borrower, the
surviving corporation is the Borrower.

            Section 7.6 Sale of Assets. The Borrower shall not, and shall not
permit any of its Subsidiaries to, sell, convey, transfer, lease or otherwise
dispose of, any of its assets or any interest therein (including the sale or
factoring at maturity or collection of any accounts) to any Person, or permit or
suffer any other Person to acquire any interest in any of its assets or, in the
case of any Subsidiary, issue or sell any shares of such Subsidiary's Stock or
Stock Equivalent (any such disposition being an "Asset Sale"), except:

            (a) the sale or disposition of Inventory in the ordinary course of
business;

            (b) the sale or disposition of Inventory in connection with the sale
of all of the fixed assets at the location where such Inventory is maintained;
provided, however, that the aggregate Fair Market Value of all such Inventory
disposed of in any Fiscal Year shall not exceed ten million Dollars
($10,000,000);

            (c) the sale or disposition of Equipment that has become obsolete or
is replaced in the ordinary course of business; provided, however, that the
aggregate Fair Market Value of all such Equipment disposed of in any Fiscal Year
shall not exceed thirty million Dollars ($30,000,000);

            (d) assignments and licenses of intellectual property of the
Borrower and its Subsidiaries in the ordinary course of business;

            (e) any Asset Sale to the Borrower or Pellet;


                                       70



            (f) subject to the consent of the Lender, which shall not be
unreasonably withheld, the sale of all of the assets or the Stock of Pellet,
ProCoil and Ingleside Holdings, L.P.;

            (g) as long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any other Asset Sale for Fair Market
Value, payable upon such sale; provided, however, that with respect to any such
sale pursuant to this clause (g), (i) the aggregate consideration received for
the sale of all assets sold during any Fiscal Year shall not exceed forty
million Dollars ($40,000,000) for non-real property assets and ten million
Dollars ($10,000,000) for real property assets and (ii) all proceeds received by
the Borrower or any of its Material Subsidiaries in cash or Cash Equivalents
from such Asset Sale under this clause (g), net of (x) the reasonable cash costs
of sale, assignment or other disposition, (y) taxes paid or payable as a result
thereof and (z) any amount required to be paid or prepaid on Indebtedness (other
than the Obligations) secured by the assets subject to such Asset Sale
(provided, however, that evidence of each of sub-clauses (x), (y) and (z) above
is provided to the Lender in form and substance satisfactory to it) are applied
to the prepayment of the Obligations to the extent required by Section 2.7
(Mandatory Prepayments); and

            (h) as long as no Default or Event of Default has occurred and is
continuing or would result therefrom, any Asset Sale permitted under Section
4.08 (Limitation on Sale of Mortgaged Property) or (other than an Asset Sale
involving any Collateral) Section 4.10 (Limitation on Sale of Assets other Than
Mortgaged Property) of the Indenture.

            Section 7.7 Investments in Other Persons. The Borrower shall not,
and shall not permit any of its Subsidiaries to, directly or indirectly make or
maintain any Investment, except:

            (a) Investments existing on the date of this Agreement and disclosed
on Schedule 7.7 (Existing Investments);

            (b) Investments in cash and Cash Equivalents held in a Cash
Collateral Account or a Control Account with respect to which the Lender has a
perfected Lien or in the accounts permitted to be maintained pursuant to the
Subordinated Pledge and Security Agreement;

            (c) Investments in accounts, contract rights and chattel paper (each
as defined in the UCC), notes receivable and similar items arising or acquired


                                       71



from the sale of Inventory in the ordinary course of business consistent with
the past practice of the Borrower and its Subsidiaries or a new practice
approved in writing by the Lender;

            (d) Investments received in settlement of amounts due to the
Borrower or any Subsidiary of the Borrower effected in the ordinary course of
business;

            (e) Investments by (i) the Borrower in Pellet, (ii) a Subsidiary of
the Borrower in the Borrower or any other Subsidiary of the Borrower, and (iii)
the Borrower or Pellet in any other Subsidiary of the Borrower that is not a
Material Subsidiary; provided, however, that the aggregate outstanding amount of
Investments permitted under clause (iii) above shall not exceed one million
Dollars ($1,000,000) at any time;

            (f) Loans or advances to employees of the Borrower or any of its
Subsidiaries in the ordinary course of business, which loans and advances shall
not in the aggregate exceed the aggregate outstanding principal amount of one
million Dollars ($1,000,000) at any time;

            (g) Investments constituting Guaranty Obligations permitted by
Section 7.2 (indebtedness); and

            (h) Investments in joint ventures to the extent permitted under
clause (g) or (h) of the definition of "Permitted Investments" in Section 1.01
(Definitions) of the Indenture.

            Section 7.8 Change in Nature of Business. The Borrower shall not,
and shall not permit any of its Material Subsidiaries to, make any material
change in the nature or conduct of its business as carried on at the date
hereof.

            Section 7.9 Compliance with ERISA. The Borrower shall not, and
shall not permit any of its Subsidiaries to, or cause or permit any ERISA
Affiliate to, cause or permit to occur (a) an event that could result in the
imposition of a Lien under Section 412 of the IRC or Section 302 or 4068 of
ERISA or (b) an ERISA Event that could have a Material Adverse Effect.


                                       72



            Section 7.10 Modification of Related Documents. The Borrower shall
not, and shall not permit any of its Subsidiaries to, without the prior written
consent of the Lender, alter, rescind, terminate, amend, supplement, refinance,
refund, waive or otherwise modify any provision of any Related Document (other
than the Senior Loan Documents).

            Section 7.11 Modification of Existing Indebtedness Agreements. Other
than the Senior Loan Documents and the Senior Loan Obligations, the Borrower
shall not, and shall not permit any of its Subsidiaries to, change or amend the
terms of any Existing Indebtedness if the effect of such amendment is to (a)
increase the interest rate on such Existing Indebtedness; (b) change the dates
upon which payments of principal or interest are due on such Existing
Indebtedness other than to extend such dates; (c) change any default or event
of default other than to delete or make less restrictive any default provision
therein or add any covenant with respect to such Existing Indebtedness; (d)
change the redemption or prepayment provisions of such Existing Indebtedness
other than to extend the dates therefor or to reduce the premiums payable in
connection therewith; (e) grant any security or collateral to secure payment of
such Existing Indebtedness; or (f) change or amend any other term if such change
or amendment would materially increase the obligations of the obligor or confer
additional material rights to the holder of such Existing Indebtedness in a
manner adverse to the Borrower, any of its Subsidiaries, or the Lender.

            Section 7.12 Transactions with Affiliates.

            (a) General Limitation on Affiliate Transactions. The Borrower shall
not, and shall not permit any of its Subsidiaries to, except as otherwise
expressly permitted herein, directly or indirectly, conduct any business or
enter into or suffer to exist any transaction or series of transactions
(including the purchase, sale, transfer, assignment, lease, conveyance or
exchange or the rendering of any service) (an "Affiliate Transaction") with, or
for the benefit of, any Affiliate of the Borrower unless (i) the terms of such
Affiliate Transaction are (A) set forth in writing and (B) not less favorable to
the Borrower or such Subsidiary, as the case may be, than those that could be
obtained in a comparable arm's-length transaction with a Person that is not an
Affiliate of the Borrower, (ii) if such Affiliate Transaction involves aggregate
payments or value in excess of ten million Dollars ($10,000,000), the board of
directors of the Borrower (including a majority of the disinterested members of
the board of directors of the Borrower) approves such Affiliate Transaction and,
in its good faith judgment, believes that such Affiliate Transaction complies
with clause (i) above as evidenced by a board resolution promptly delivered to
the Senior Agent and the Lender and (iii) if such Affiliate Transaction involves
aggregate payments or


                                       73



value in excess of twenty million Dollars ($20,000,000), the Borrower obtains a
written opinion from an independent financial advisor to the effect that such
Affiliate Transaction is fair, from a financial point of view, to the Borrower
or such Subsidiary, as the case may be.

            (b) Approval of Specific Affiliate Transactions. Notwithstanding
clause (a) above the following Affiliate Transactions shall not be prohibited
under this Section 7.12:

                  (i) any Affiliate Transaction between the Borrower and any
      Guarantor;

                  (ii) any Restricted Payment permitted to be made pursuant to
      Section 7.4 (Restricted Payments);

                  (iii) any issuance of securities, or other payments, awards or
      grants in securities or otherwise pursuant to, or the funding of,
      employment arrangements, pension or other benefit plans, stock option and
      stock ownership plans and other compensatory arrangements approved by the
      board of directors of the Borrower;

                  (iv) the payment of reasonable fees to directors of the
      Borrower or such Subsidiary who are not employees of the Borrower or any
      of its Subsidiaries;

                  (v) loans and advances to employees made in the ordinary
      course of business and consistent with the past practices of the Borrower
      or such Subsidiary, as the case may be, provided, however, that such loans
      and advances do not exceed five million Dollars ($5,000,000) in the
      aggregate at any time outstanding;

                  (vi) any Affiliate Transaction between the Borrower or any
      Subsidiary, on the one hand, and one or more joint ventures that are
      Affiliates of the Borrower or any Subsidiary, on the other hand, that (A)
      are on terms no less favorable to the Borrower or such Subsidiary, as the
      case may be, than those that could be obtained in a comparable arm's
      length transaction with a person that is not an Affiliate of the Borrower
      and (B) if such Affiliate Transactions involve aggregate payments or value
      in excess of ten million Dollars ($10,000,000), the board of directors of
      the Borrower (including a majority of the disinterested members thereof)
      approves such Affiliate


                                       74



      Transaction and, in its good faith judgment, believes that such Affiliate
      Transaction complies with clause (A) above; and

                  (vii) the execution, delivery and performance of obligations
      under the Loan Documents.

            Section 7.13 Operating Leases; Sale and Leaseback Transactions.

            (a) The Borrower shall not, and shall not permit any of its
Subsidiaries to, become or remain liable as lessee or guarantor or other surety
with respect to any operating lease, unless that aggregate amount of all rents
paid or accrued under all such operating leases shall not exceed one hundred
million Dollars ($100,000,000) in any Fiscal Year.

            (b) The Borrower shall not, and shall not permit any of its
Subsidiaries to, enter into any Sale and Leaseback Transaction covering any
property with a Fair Market Value in excess of ninety million Dollars
($90,000,000) in the aggregate.

            Section 7.14 Cancellation of Indebtedness Owed to It. The Borrower
shall not, and shall not permit any of its Subsidiaries to, cancel any claim or
Indebtedness owed to it except for reasonable consideration and in the ordinary
course of business consistent with the past practice.

            Section 7.15 Material Subsidiaries. The Borrower shall not have any
Subsidiary other than Pellet, NSFC, ProCoil and NSH that is a Material
Subsidiary unless such Subsidiary has executed and delivered a Subordinated
Guaranty, a Subordinated Pledge and Security Agreement and any other Collateral
Documents and Collateral in connection therewith satisfactory to the Lender.

            Section 7.16 Capital Structure. The Borrower will not, and will not
permit any of its Material Subsidiaries to, change its capital structure
(including in the terms of its outstanding Stock) or amend its Constituent
Documents other than for changes and amendments which in the aggregate have no
Material Adverse Effect and of which the Borrower has delivered advance notice
thereof to the Lender.


                                       75



            Section 7.17 No Speculative Transactions. The Borrower shall not,
and shall not permit any of its Subsidiaries to, engage in any speculative
transaction or in any transaction involving Hedging Contracts except for the
sole purpose of hedging in the normal course of business and consistent with
industry practices.

            Section 7.18 Margin Regulations. The Borrower shall not, and shall
not permit any of its Subsidiaries to, use all or any portion of the proceeds of
any credit extended hereunder to purchase or carry margin stock (within the
meaning of Regulation U of the Federal Reserve Board) in contravention of
Regulation U of the Federal Reserve Board.

            Section 7.19 Control Accounts; Approved Deposit Accounts. The
Borrower shall not, and shall not permit any of its Subsidiaries to, (i) deposit
or cause to be deposited in any Deposit Account other than an Approved Deposit
Account any cash received by the Borrower or any of its Subsidiaries, except
that the Borrower and its Subsidiaries may establish and maintain one or more
Deposit Accounts with one or more financial institutions other than a Deposit
Account Bank, a Senior Lender or an Affiliate of a Senior Lender if the
aggregate balance in all such accounts does not exceed one million Dollars
($1,000,000) at any time or (ii) establish or maintain any securities account
that is not a Control Account.

                                  Article VIII

                                  SUBORDINATION

            Section 8.1 Obligations Subordinate to Senior Loan Obligations. The
Borrower and the Lender, by the Lender's execution hereof, covenant and agree
that, to the extent and in the manner hereinafter set forth in this Section 8.1,
the Obligations (collectively, the "Subordinated Indebtedness") are hereby
expressly made subordinate and subject in right of payment to the prior payment
in full in cash of all Senior Loan Obligations. This Section 8.1 constitutes a
continuing offer to all Persons who become holders of, or continue to hold,
Subordinated Indebtedness, each of whom is an obligee hereunder and is entitled
to enforce such holder's rights hereunder, subject to the provisions hereof,
without any act or notice of acceptance hereof or reliance hereon.


                                       76



            (a) Payment Over of Proceeds Upon Bankruptcy, Etc.

                  (i) In the event of (A) any insolvency or bankruptcy case or
      proceeding, or any receivership, liquidation, reorganization or other
      similar case or proceeding in connection therewith, relative to the
      Borrower or any Loan Party or its assets, (B) any liquidation, dissolution
      or other winding up of the Borrower or any Loan Party, whether voluntary
      or involuntary or whether or not involving insolvency or bankruptcy or (C)
      any assignment for the benefit of creditors or any other marshalling of
      assets or liabilities of the Borrower or any Loan Party (each such event,
      if any, herein sometimes referred to as a "Proceeding'), then and in any
      such event the holders of all Senior Loan Obligations shall first be paid
      in full (including, without limitation, all Post-Commencement Interest) or
      provision for such payment shall be made and agreed to in writing by the
      holders of Senior Loan Obligations before the Lender is entitled to
      receive any direct or indirect payment or distribution of any cash,
      property or securities on account of or with respect to Subordinated
      Indebtedness and to that end the holders of Senior Loan Obligations shall
      be entitled to receive (pro rata on the basis of the respective amounts of
      such Senior Loan Obligations held by them) directly, for application to
      the payment thereof (to the extent necessary to pay all such Senior Loan
      Obligations in full in cash, whether or not due, including specifically,
      without limitation, all Post-Commencement Interest after giving effect to
      any substantially concurrent payment or distribution to the holders of
      such Senior Loan Obligations and any provision for such payment made and
      agreed to in writing by the holders of Senior Loan Obligations), any and
      all payments or distributions of any kind or character, whether in cash,
      property or securities, which may be payable or deliverable in respect of
      the Subordinated Indebtedness in any such Proceeding (including any
      payment or distribution which may be payable or deliverable by reason of
      the payment of any other Indebtedness of the Borrower being subordinated
      to the payment of Subordinated Indebtedness). To the extent any payment of
      Senior Loan Obligations (whether by or on behalf of the Borrower as
      proceeds of security of enforcement of any right of setoff or otherwise)
      is declared to be fraudulent or preferential, set aside or required to be
      paid to a trustee, receiver or other similar party under any bankruptcy,
      insolvency, receivership or similar law, then if such payment is recovered
      by, or paid over to, such trustee, receiver or other similar party, the
      Senior Loan Obligations or part thereof originally intended to be
      satisfied shall be deemed to be reinstated and outstanding as if such
      payment had not occurred.


                                       77



                  (ii) Notwithstanding the foregoing provisions of paragraph (i)
      of this Section 8.1(a), if in the event of any Proceeding the Lender shall
      have received any payment from or distribution of assets of the Borrower
      or the estate created by the commencement of any such Proceeding of any
      kind or character in respect of the Subordinated Indebtedness, whether in
      cash, property or securities (including any payment or distribution which
      may be payable or deliverable by reason of the payment of any other
      indebtedness of the Borrower being subordinated to the payment of the
      Subordinated Indebtedness) before all Senior Loan Obligations, whether or
      not due and including specifically, without limitation, all
      Post-Commencement Interest thereon, are paid in full or provision therefor
      is made and agreed to in writing by the holders of Senior Loan
      Obligations, then in such event, such payment or distribution shall be
      received and held in trust for the benefit of and shall be paid over to
      the holders of Senior Loan Obligations (pro rata, on the basis of the
      respective amounts of such Senior Loan Obligations held by them) remaining
      unpaid, to the extent necessary to pay all such Senior Loan Obligations in
      full in cash including, without limitation, all Post-Commencement Interest
      thereon, after giving effect to any substantially concurrent payment or
      distribution to or for the holders of such Senior Loan Obligations, if
      made in cash for application to (and if made other than in cash to be held
      as collateral security for) the payment in full of the Senior Loan
      Obligations.

            (b) Default on Senior Loan Obligations.

                  (i) If any Senior Loan Obligations Default shall at any time
      occur or exist, then at all times thereafter until such Senior Loan
      Obligations Default shall have been cured or otherwise ceases to exist
      pursuant to the terms of such Senior Loan Obligations, or the benefits of
      this sentence shall have been waived in writing by or on behalf of, and at
      the sole option of, the holders of a majority of the principal amount of
      such Senior Loan Obligations, then and in such event (A) the Borrower may
      not and shall not make any payment on account of or with respect to the
      Subordinated Indebtedness which a holder of Subordinated Indebtedness
      would be entitled to receive but for the provisions of this Section
      8.1(b)(i) and (B) the Lender shall not be entitled, nor shall the Lender
      have the right to, declare to be due and payable, demand prepayment of, or
      take any action to collect, any principal outstanding hereunder, any
      interest accrued thereon, or any other amount payable hereunder, and any
      purported such declaration, demand or other action shall have no force or
      effect.


                                       78



                  (ii) In the event that, notwithstanding the foregoing
      provisions of this Section 8.1(b), any payment or distribution shall be
      made by or on behalf of the Borrower from any of its assets and received
      by the Lender at a time when such payment was prohibited by the provisions
      of Section 8.1 (b)(i), then such payment or distribution shall be held in
      trust for the benefit of, and shall be immediately paid over to, the
      holders of Senior Loan Obligations (pro rata, on the basis of the
      respective amount of such Senior Loan Obligations held by them) remaining
      unpaid, if made in cash for application to (and if made other than in cash
      to be held as collateral security for) the payment in full of all Senior
      Loan Obligations in accordance with its terms (after giving effect to any
      prior or substantially concurrent payment to the holders of such Senior
      Loan Obligations).

                  (iii) The provisions of this Section 8.1(b) shall not modify
      or limit in any way the application of Section 8.1(a).

            (c) Subrogation to Rights of Lenders of Senior Loan Obligations.
After all amounts payable under or in respect of Senior Loan Obligations are
paid in full in cash, whether or not due, the Lender shall be subrogated to the
extent of the payments or distributions made to the holders of, or otherwise
applied to payment of, such Senior Loan Obligations pursuant to the provisions
of this Section 8.1 (equally and ratably with the holders of all Indebtedness of
the Borrower which by its express terms is subordinate and subject in right of
payment to Senior Loan Obligations to substantially the same extent as the
Subordinated Indebtedness is so subordinate and subject in right of payment and
which is entitled to like rights of subrogation), and to the rights of the
holders of such Senior Loan Obligations to receive payments and distributions of
cash, property and securities applicable to the Senior Loan Obligations until
the Subordinated Indebtedness shall be paid in full. For purposes of such
subrogation, no payments or distributions to the holders of the Senior Loan
Obligations of any cash, property or securities to which the Lender would be
entitled except for the provisions of this Section 8.1, and no payments over
pursuant to the provisions of this Section 8.1 to the holders of Senior Loan
Obligations by the Lender shall, as among the Borrower and its creditors (other
than holders of Senior Loan Obligations and the Lender), be deemed to be a
payment or distribution by the Borrower to or on account of the Senior Loan
Obligations, it being understood that the provisions of this are solely for the
purpose of defining the relative rights of the holders of Senior Loan
Obligations on the one hand and the Lender on the other hand.


                                       79



            (d) No Waiver of Subordination Provisions. No right of any holder of
any Senior Loan Obligations to enforce subordination as herein provided shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of the Borrower or by any act or failure to act by such holder or any
agent of such holder, or by any noncompliance by the Borrower with such terms,
provisions and covenants of this Agreement, regardless of any knowledge thereof
which any such holder may have or be otherwise charged with.

            Without in any way limiting the generality of the foregoing
paragraph, the holders of the Senior Loan Obligations may, at any time and from
time to time, without the consent of or notice to the Lender, incurring any
liabilities to the Lender and without impairing or releasing the subordination
and other benefits provided in this Section 8.1 or the obligations hereunder of
the Lender to the holders of the Senior Loan Obligations, even if any right of
reimbursement or subrogation or other right or remedy of the Lender is affected,
impaired or extinguished thereby, do any one or more of the following:

                  (i) change the manner, place or terms of payment or change or
      extend the time of payment of, or renew, exchange, amend, increase or
      alter, the terms of any Senior Loan Obligations, any security therefor or
      guaranty thereof or any liability of the Borrower or any guarantor to any
      holder of Senior Loan Obligations, or any liability incurred directly or
      indirectly in respect thereof, or otherwise amend, renew, exchange,
      extend, modify, increase or supplement in any manner Senior Loan
      Obligations or any instrument evidencing or guaranteeing or securing the
      same or any agreement under which Senior Loan Obligations are outstanding;

                  (ii) sell, exchange, release, surrender, realize upon, enforce
      or otherwise deal with in any manner and in any order any property
      pledged, mortgaged or otherwise securing Senior Loan Obligations or any
      liability of the Borrower or any guarantor to such holder, or any
      liability incurred directly or indirectly in respect thereof;

                  (iii) settle or compromise any Senior Loan Obligations or any
      security therefor or any liability incurred directly or indirectly in
      respect thereof and apply any sums by whomsoever paid and however realized
      to the Senior Loan Obligations in any manner or order; and

                  (iv) fail to take or to record or otherwise perfect, for any
      reason or for no reason, any lien or security interest securing Senior
      Loan


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      Obligations by whomsoever granted, exercise or delay in or refrain from
      exercising any right or remedy against the Borrower or any security or any
      guarantor or any other Person, elect any remedy and otherwise deal freely
      with the Borrower and any security and any guarantor of the Senior Loan
      Obligations or any liability of the Borrower or any guarantor to any
      holder of Senior Loan Obligations or any liability incurred directly or
      indirectly in respect thereof.

            (e) Additional Documentation.

                  (i) The Lender by its acceptance and execution hereof agrees
      that it takes this Agreement as an obligation subordinated to the Senior
      Loan Obligations and agrees to execute any additional documentation that
      may be necessary, in the reasonable opinion of the Senior Agent, to
      evidence the subordination of the Lender to the holders of the Senior Loan
      Obligations as provided in this Section 8.1.

                  (ii) The Senior Agent is hereby authorized, and shall have the
      right (without any duty) to take such action as may be necessary or
      appropriate to effectuate the sobordination provided for in this Section
      8.1 including, without limitation, the timely filing of a claim or proof
      of debt for the unpaid balance of the Subordinated Indebtedness in the
      form required in any Proceeding.

            (f) Agreements of Lender. So long as any Senior Loan Obligation is
outstanding, the Lender for itself and its successors and assigns, agrees that
it will not, except as permitted under the Senior Credit Agreement or the Lien
Subordination Agreement, without the prior written consent of a majority of the
holders of the Senior Loan Obligations, (i) modify or amend this Agreement, (ii)
cancel, waive, forgive, transfer or assign or subordinate the Subordinated
Indebtedness to any other Indebtedness of the Borrower or (iii) (A) initiate any
Proceeding involving the Borrower or any other Loan Party pursuant to which it
is sought to adjudicate the Borrower or any other Loan Party bankrupt or
insolvent or (B) exercise or assert any right or remedy, by suit or otherwise,
against the Borrower or any other Loan Party in respect of the Subordinated
Indebtedness (provided that nothing herein shall prevent the Lender from filing
a claim, proof of debt or statement of interest with respect to the Obligations
in any Proceeding).


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                                   Article IX

                                EVENTS OF DEFAULT

            Section 9.1 Events of Default. Each of the following events shall be
an Event of Default:

            (a) Failure to Repay Principal. The Borrower shall fail to pay any
principal of any Loan when the same becomes due and payable; or

            (b) Failure to Pay Interest. The Borrower shall fail to pay any
interest on any Loan, any fee under any Loan Document or any other Obligation
(other than those subject to Section 9.1(a) (Failure to Repay Principal)) and
such non-payment continues for a period of five (5) Business Days after the due
date therefor; or

            (c) Borrowing Base Deficiency. A Borrowing Base Deficiency shall
exist and be continuing for a period of more than 30 days (or such other longer
grace period as is provided for such failure in the Indenture), after a
Responsible Officer of the Borrower first becomes aware of such Borrowing Base
Deficiency; or

            (d) Representation and Warranties. Any representation or warranty
made or deemed made by any Loan Party in any Loan Document or by any Loan Party
(or any of its officers) in connection with any Loan Document shall prove to
have been incorrect in any material respect when made or deemed made; or

            (e) Covenants. Any Loan Party shall fail to perform or observe (i)
any term, covenant or agreement contained in Section 5.1 (Financial Statements)
or Article VII (Negative Covenants), or (ii) any other term, covenant or
agreement contained in this Agreement or in any other Loan Document if such
failure under this clause (ii) shall remain unremedied for ten (10) days after
the earlier of the date on which (A) a Responsible Officer of the Borrower
becomes aware of such failure or (B) written notice thereof shall have been
given to the Borrower by the Lender; or

            (f) Unenforceability of Collateral Documents. Any material provision
of any Collateral Document or any Subordinated Guaranty after delivery thereof
pursuant to this Agreement or any other Loan Document shall for any reason cease
to be valid and binding on, or enforceable against, any Loan Party party
thereto, or any Loan Party shall so state in writing; or


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            (g) Unenforceability of Liens. Any Lien purported to be created
pursuant to any Loan Document shall for any reason fail or cease to be created
thereby or, except as permitted by any Loan Document, such a Lien shall fail or
cease to be a perfected Lien or Borrower shall state in writing any of the
foregoing; or

            (h) Default Under Other Indebtedness. (i) The Borrower or any of its
Material Subsidiaries shall fail to make any payment on any Indebtedness of the
Borrower or any such Material Subsidiary (other than the Obligations) or any
Guaranty Obligation in respect of Indebtedness of any other Person, and, in each
case, such failure relates to Indebtedness having a principal amount not less
than ten million Dollars ($10,000,000) (individually or in the aggregate with
other Indebtedness to which this clause (h) would otherwise apply), when the
same becomes due and payable (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise); or (ii) any other event shall
occur or condition shall exist under any agreement or instrument relating to any
such Indebtedness, if the effect of such event or condition is to accelerate, or
to permit the acceleration of, the maturity of such Indebtedness; or (iii) any
such Indebtedness shall become or be declared to be due and payable, or required
to be prepaid or repurchased (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; or (iv) there shall have been
a failure of any of the Obligations or the Senior Loan Obligations to be
permitted under the Indenture (without regard to any grace period provided for
such failure by the Indenture);

            (i) Bankruptcy, Etc. (i) The Borrower or any of its Material
Subsidiaries shall generally not pay its debts as such debts become due, or
shall admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or (ii) any proceeding shall be
instituted by or against the Borrower or any of its Material Subsidiaries
seeking to adjudicate it bankrupt or insolvent or seeking liquidation, winding
up, reorganization, arrangement, adjustment, protection, relief or composition
of it or its debts under any Requirement of Law relating to bankruptcy,
insolvency or reorganization or relief of debtors or seeking the entry of an
order for relief or the appointment of a custodian, receiver, trustee or other
similar official for it or for any substantial part of its property; provided,
however, that, in the case of any such proceeding instituted against the
Borrower or any of its Material Subsidiaries (but not instituted by the Borrower
or such Material Subsidiary), either such proceeding shall remain undismissed or
unstayed for a period of thirty (30) days or more or any of the actions sought
in such proceedings shall occur; or (iii) the Borrower or any of its Material
Subsidiaries shall take any corporate action to authorize any of the actions set
forth above in this subsection (i); or


                                       83



            (j) Orders. One or more judgments or Orders (or other similar
process) involving, in any single case or in the aggregate, an amount in excess
of ten million Dollars ($10,000,000) in the case of a money judgment, if not
fully covered by insurance, shall be rendered against the Borrower or any of its
Material Subsidiaries and either (i) enforcement proceedings shall have been
commenced by any creditor upon such judgment or Order or (ii) there shall be any
period of thirty (30) consecutive days during which a stay of enforcement of
such judgment or Order, by reason of a pending appeal or otherwise, shall not be
in effect; or

            (k) Event of Default. The Senior Agent shall declare an "Event of
Default" within the meaning specified in Article IX of the Senior Credit
Agreement and such "Event of Default" shall be continuing; or

            (1) Material Adverse Change. There shall occur a Material Adverse
Change or any event or circumstances which could have a Material Adverse Effect;
or

            (m) Change of Control. There shall occur any Change of Control; or

            (n) ERISA Event. An ERISA Event shall occur and the amount of all
liabilities and deficiencies resulting therefrom, whether or not assessed, and
all waiver requests resulting therefrom, exceeds ten million Dollars
($10,000,000) in the aggregate; or

            (o) Environmental Law Violation. The Borrower or any of its Material
Subsidiaries shall have entered into one or more consent or settlement decrees
or any Contractual Obligation, agreement or similar arrangement with a
Governmental Authority or any judgment, Order, decree or similar actions shall
have been entered against one or more of the Borrower or any of its Material
Subsidiaries, in either case based on or arising from the violation of or
pursuant to, any Environmental Law or the generation, storage, transportation,
treatment, disposal or Release of any Contaminant and, in correction with all of
the foregoing, the Borrower and its Material Subsidiaries are likely to incur
Environmental Liabilities and Costs in excess of twenty-five million Dollars
($25,000,000) in the aggregate in any Fiscal Year.


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            Section 9.2 Remedies. Subject to the provisions of the Lien
Subordination Agreement and Article VIII (Subordination) hereof, during the
continuance of any Event of Default, the Lender (a) may, by notice to the
Borrower, declare that all or any portion of the Commitment be terminated,
whereupon the obligation of Lender to make any Loan shall immediately terminate
and (b) may, by notice to the Borrower, declare the Loans, all interest thereon
and all other amounts and Obligations payable under this Agreement to be
forthwith due and payable, whereupon the Loans, all such interest and all such
amounts and Obligations shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Borrower; provided, however, that upon the
occurrence of any Event of Default specified in Section 9.1(i) (Bankruptcy,
Etc.), (x) the Commitment of Lender to make Loans shall automatically be
terminated and (y) the Loans, all interest thereon and all other amounts and
Obligations payable under this Agreement shall automatically become and be due
and payable, without presentment, demand, protest or any notice of any kind, all
of which are hereby expressly waived by the Borrower. In addition to the
remedies set forth above, but still subject to the provisions of the Lien
Subordination Agreement and Article VIII (Subordination) hereof, the Lender may
exercise any remedies provided for by the Collateral Documents in accordance
with the terms thereof or any other remedies provided by applicable Requirements
of Law.

            Notwithstanding anything to the contrary in this Article IX, to the
extent the Borrower is prohibited pursuant to Section 8.5(b) of the Senior
Credit Agreement or Section 8.1(b)(i) hereof from paying any amount (other than
on the Scheduled Termination Date) otherwise due and payable under any Loan
Document, such failure to pay shall not constitute an Event of Default hereunder
until the earlier to occur of (i) three Business Days following the day such
prohibition ceases to exist and (ii) the Scheduled Termination Date. Interest
shall accrue on any such amounts, the payment of which is so prohibited, from
the date such amounts are otherwise due and payable hereunder to the date of
payment at the rate which is two percent (2%) per annum in excess of the rate of
interest otherwise applicable to such Obligations from time to time, or if no
rate is theretofore applicable, at the rate which is two percent (2%) per annum
above Base Rate.


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                                    Article X

                                  MISCELLANEOUS

            Section 10.1 Amendments, Waivers, Etc. No amendment, restatement or
waiver of any provision of this Agreement or any other Loan Document nor consent
to any departure by Borrower therefrom shall in any event be effective unless
the same shall be in writing and signed by the Lender and, in the case of any
amendment, by the Borrower, and then any such waiver, restatement or consent
shall be effective only in the specific instance and for the specific purpose
for which given. Following notification by the Senior Agent that a waiver,
restatement or amendment is intended to be made to any of the definitions,
conditions precedent, conditions, representations and warranties, covenants or
events of defaults in the Senior Credit Agreement, the Lender and Borrower
shall, as appropriate, enter into a waiver or, as applicable, an amendment to or
restatement of this Agreement to effect such waiver, restatement or amendment to
the corresponding definitions, conditions precedent, conditions, representations
and warranties, covenants or events of defaults of this Agreement. Such waiver,
restatement or amendment shall become effective contemporaneously with the
waiver under, restatement or amendment of the Senior Credit Agreement. As
consideration for any such waiver, restatement or amendment, the Lender shall be
entitled to receive from the Borrower, prior to the effectiveness of any such
waiver, restatement or amendment, an amount equal to that portion of the
aggregate consideration paid or to be paid to the lenders and agents under the
Senior Credit Agreement in respect of such waiver, restatement or amendment
thereunder, which at such time is equal to the proportion that the Commitment
hereunder bears to the aggregate commitments under the Senior Credit Agreement.
In the event that the Lender fails to enter into any such waiver, restatement or
amendment which it is obligated to execute pursuant to this Section 10.1, the
Lender shall not be entitled to rely upon any provisions of this Agreement which
should have been so amended as giving rise to a Default or Event of Default
hereunder.

            Section 10.2 Assignment.

            Notwithstanding anything to the contrary herein, the Lender may
sell, transfer, negotiate or assign to one or more Eligible Assignees (of which
it has given prior written notice to the Borrower and Senior Agent) all or a
portion of its rights and obligations hereunder (including all of its rights and
obligations with respect to the Loans). Upon the assignment by Lender to an
Eligible Assignee, such Eligible Assignee shall thereupon succeed to, and become
vested with, all of the rights, powers, privileges and duties of the Lender
under this Agreement and the other Loan


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Documents and expressly subject to the subordination provisions therein. After
any such assignment hereunder, the provisions of Article X shall inure to the
benefit of such assigning Lender, its Affiliates, and their respective
directors, officers, employees, agents and advisors as to any action taken, or
omitted to be taken, by such assigning Lender while such retiring assigning
Lender was Lender under this Agreement and the other Loan Documents. Any such
assignment to an Eligible Assignee, shall only become effective immediately
following such Eligible Assignee's agreement in writing delivered to the Senior
Agent to be bound by the terms of this Agreement, including, without limitation,
Article VIII hereof, and the Lien Subordination Agreement. Upon an assignment by
the Lender of all its rights and obligations hereunder, the Lender may transfer
all items of Collateral held under the Collateral Documents and execute and
deliver to such Eligible Assignee such amendments to financing statements, and
take such other actions as may be necessary or appropriate in connection with
the assignment to such Eligible Assignee of the security interests created under
the Collateral Documents.

            Section 10.3 Costs; Expenses; Indemnities.

            (a) Reimbursement of Costs and Expenses. The Borrower agrees upon
demand to pay, or reimburse the Lender for, all of its reasonable internal and
external audit, legal, appraisal, valuation, filing, document duplication and
reproduction and investigation expenses and for all other reasonable
out-of-pocket costs and expenses of every type and nature (including, without
limitation, the reasonable fees, expenses and disbursements of the Lender's
counsel, Skadden, Arps, Slate, Meagher & Flom LLP, local legal counsel,
auditors, accountants, appraisers, printers, insurance and environmental
advisers and other consultants and agents) incurred by the Lender in connection
with (i) the Lender's audit and investigation of the Borrower and its
Subsidiaries in connection with the preparation, negotiation and execution of
the Loan Documents and the Lender's periodic audits of the Borrower and its
Subsidiaries, as the case may be, (ii) the preparation, negotiation, execution
and interpretation of this Agreement (including, without limitation, the
satisfaction or attempted satisfaction of any of the conditions set forth in
Article III (Conditions Precedent to the Effectiveness of this Agreement and to
Loans)), the Loan Documents and any proposal letter or commitment letter issued
in connection therewith and the making of the Loans hereunder, (iii) the
creation, perfection or protection of the Liens under the Loan Documents
(including without limitation, any reasonable fees and expenses for local
counsel in various jurisdictions), (iv) the ongoing administration of this
Agreement and the Loans, including consultation with attorneys in connection
therewith and with respect to the Lender's rights and responsibilities hereunder
and under the other Loan Documents, (v) the repayment, financing or


                                       87



refinancing of any Borrowing hereunder (including, without limitation, any fees
or breakage costs in connection therewith), (vi) the protection, collection or
enforcement of any of the Obligations or the enforcement of any of the Loan
Documents, (vii) the commencement, defense or intervention in any court
proceeding relating in any way to the Obligations, any Loan Party, any of the
Borrower's Subsidiaries, the Related Documents, the Existing Subordinated Credit
Agreement, this Agreement or any of the other Loan Documents, (viii) the
response to, and preparation for, any subpoena or request for document
production with which the Lender is served or deposition or other proceeding in
which the Lender is called to testify, in each case, relating in any way to the
Obligations, any Loan Party, any of the Borrowers' Subsidiaries, the Related
Documents, the Existing Subordinated Credit Agreement, this Agreement or any of
the other Loan Documents and (ix) any amendments, consents, waivers,
assignments, restatements, or supplements to any of the Loan Documents and the
preparation, negotiation, and execution of the same. The Borrower further agrees
to pay or reimburse the Lender upon demand for all out-of-pocket costs and
expenses, including, without limitation, reasonable attorneys' fees (including,
without limitation, allocated costs of internal counsel and costs of
settlement), incurred by the Lender (A) in enforcing any Loan Document or
Obligation or any security therefor or exercising or enforcing any other right
or remedy available by reason of an Event of Default, (B) in connection with any
refinancing or restructuring of the credit arrangements provided hereunder in
the nature of a "work-out" or in any insolvency or bankruptcy proceeding, (C) in
commencing, defending or intervening in any litigation or in filing a petition,
complaint, answer, motion or other pleadings in any legal proceeding relating to
the Obligations, any Loan Party, any of the Borrowers' Subsidiaries and related
to or arising out of the transactions contemplated hereby or by any of the other
Loan Documents or Related Documents and (D) in taking any other action in or
with respect to any suit or proceeding (bankruptcy or otherwise) described in
clauses (A) through (C) above.

            (b) Indemnification Against Third-Party Claims. The Borrower agrees
to indemnify and hold harmless the Lender and its Affiliates, and each of the
directors, officers, employees, agents, representatives, attorneys, consultants
and advisors of or to any of the foregoing (including those retained in
connection with the satisfaction or attempted satisfaction of any of the
conditions set forth in Article III (Conditions Precedent to the Effectiveness
of this Agreement and to Loans) (each such Person being an "Indemnitee") from
and against any and all claims, damages, liabilities, obligations, losses,
penalties, actions, judgments, suits, costs, disbursements and expenses of any
kind or nature (including fees and disbursements of counsel to any such
Indemnitee) that may be imposed on, incurred by or asserted against any such
Indemnitee in connection with or arising out of any investigation,


                                       88



litigation or proceeding, whether or not any such Indemnitee is a party thereto,
whether direct, indirect, or consequential and whether based on any federal,
state or local law or other statutory regulation, securities or commercial law
or regulation, or under common law or in equity, or on contract, tort or
otherwise, in any manner relating to or arising out of the Existing Subordinated
Credit Agreement, this Agreement, any other Loan Document, any Obligation, any
Related Document, or any act, event or transaction related or attendant to any
thereof, or the financing or refinancing by the Lender of Borrowings hereunder,
the use or intended use of the proceeds of the Loans or in connection with any
investigation of any potential matter covered hereby, but not otherwise
                                                      -----------------
(collectively, the "Indemnified Matters"); provided, however, that the Borrower
shall not have any obligation under this Section 10.3(b) to an Indemnitee with
respect to any Indemnified Matter caused by or resulting from (i) the gross
negligence or willful misconduct of that Indemnitee, as determined by a court of
competent jurisdiction in a final non-appealable judgment or order or (ii) such
Indemnitee being an Affiliate of the Borrower. Without limiting the foregoing,
Indemnified Matters include (i) all Environmental Liabilities and Costs arising
from or connected with the past, present or future operations of the Borrower or
any of its Subsidiaries involving any property subject to a Collateral Document,
or damage to real or personal property or natural resources or harm or injury
alleged to have resulted from any Release of Contaminants on, upon or into such
property or any contiguous real estate; (ii) any costs or liabilities incurred
in connection with any Remedial Action concerning the Borrower or any of its
Subsidiaries; (iii) any costs or liabilities incurred in connection with any
Environmental Lien; (iv) any costs or liabilities incurred in connection with
any other matter under any Environmental Law, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 49 U.S.C. ss.
ss. 9601 et seq. and applicable state property transfer laws, whether, with
respect to any such matters, such Indemnitee is a mortgagee pursuant to any
leasehold mortgage, a mortgagee in possession, the successor in interest to the
Borrower or any of its Subsidiaries or the owner, lessee or operator of any
property of the Borrower or any of its Subsidiaries by virtue of foreclosure,
except, with respect to those matters referred to in clauses (i), (ii), (iii)
and (iv) above, to the extent (A) incurred following foreclosure by the Lender,
the Lender having become the successor in interest to the Borrower or any of its
Subsidiaries and (B) attributable solely to acts of the Lender, or any agent on
behalf of the Lender.

            (c) Eurodollar Loans. If Lender receives any payment of principal of
any Eurodollar Rate Loan other than on the last day of an Interest Period
relating to such Loan, whether as a result of any payment made by the Borrower
or acceleration of the maturity of the Loans pursuant to Section 9.2 (Remedies)
or for


                                       89



any other reason, the Borrower shall, upon demand by the Lender, pay to the
Lender all amounts required to compensate Lender for any additional losses,
costs or expenses which it may reasonably incur as a result of such payment or
conversion, including any loss, cost or expense incurred by reason of the
liquidation or reemployment of deposits or other funds acquired by Lender to
fund or maintain such Loan.

            (d) Reimbursement of Brokerage Fees. The Borrower shall indemnify
the Lender for, and hold the Lender harmless from and against, any and all
claims for brokerage commissions, fees and other compensation made against the
Lender for any broker, finder or consultant with respect to any agreement,
arrangement or understanding made by or on behalf of Borrower or any of its
Material Subsidiaries in connection with the transactions contemplated by the
Existing Subordinated Credit Agreement and this Agreement.

            (e) Notification of the Borrower. The Lender agrees that, in the
event that any such investigation, litigation or proceeding set forth in clause
(b) above is asserted or threatened in writing or instituted against it or any
other Indemnitee, or any Remedial Action is requested of it or any of its
officers, directors, employees and agents, for which any Indemnitee may desire
indemnity or defense hereunder, such Indemnitee shall promptly notify the
Borrower in writing.

            (f) Defense of Proceedings. The Borrower, at the request of any
Indemnitee, shall have the obligation to defend against such investigation,
litigation or proceeding or requested Remedial Action and the Borrower, in any
event, may participate in the defense thereof with legal counsel of the
Borrower's choice. In the event that such Indemnitee requests the Borrower to
defend against such investigation, litigation or proceeding or requested
Remedial Action, the Borrower shall promptly do so and such Indemnitee shall
have the right to have legal counsel of its choice participate in such defense.
No action taken by legal counsel chosen by such Indemnitee in defending against
any such investigation, litigation or proceeding or requested Remedial Action,
shall vitiate or in any way impair the Borrower's obligation and duty hereunder
to indemnify and hold harmless such Indemnitee.

            (g) Survival. The Borrower agrees that any indemnification or other
protection provided to any Indemnitee pursuant to this Agreement (including
pursuant to this Section 10.3) or any other Loan Document shall (i) survive
payment in full of the Obligations and (ii) inure to the benefit of any Person
who was at any time an Indemnitee under this Agreement or any other Loan
Document.


                                       90



            (h) Limitation of Liability. The Borrower agrees that no Indemnitee
shall have any liability (whether direct or indirect, in contract, tort or
otherwise) to Borrower or any of its respective Subsidiaries or any of their
respective equity holders or creditors for, or in connection with the
transactions contemplated hereby and in the other Loan Documents and Related
Documents, except for direct damages (as opposed to special, indirect,
consequential or punitive damages, including, without limitation, any loss of
profits, business or anticipated savings) determined in a final non-appealable
judgment by a court of competent jurisdiction to have resulted from such
Indemnitee's gross negligence or willful misconduct. The Borrower hereby waives,
releases and agrees (for itself and on behalf of its Subsidiaries) not to sue
upon any such claim for any special, indirect, consequential or punitive
damages, whether or not accrued and whether or not known or suspected to exist
in its favor.

            Section 10.4 Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Lender and each Affiliate thereof is
hereby authorized at any time and from time to time, to the fullest extent
permitted by Requirements of Law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other Indebtedness at any time owing by the Lender or its Affiliates to or for
the credit or the account of the Borrower against any and all of the Obligations
now or hereafter existing whether or not the Lender shall have made any demand
under this Agreement or any other Loan Document and although such Obligations
may be unmatured. The Lender agrees promptly to notify the Borrower after any
such set-off and application made by the Lender or its Affiliates; provided,
however, that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of the Lender under this Section 10.4
are in addition to the other rights and remedies (including other rights of
set-off) that the Lender may have; provided, however, that the terms of this
Section 10.4 are subject to the provisions of Article VIII hereof and of the
Lien Subordination Agreement.

            Section 10.5 Third Party Reliance. The parties hereto understand and
agree that the provisions of Article VIII (Subordination) and Sections 10.2
(Assignment) and 10.9 (Notices, Etc.) are for the benefit of the Senior Agent,
Senior Lenders and Senior Issuers from time to time party to the Senior Credit
Agreement (in addition to the parties hereto), create independent rights thereof
and may be enforced independently thereby.


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            Section 10.6 Independence of Representations and Warranties. The
parties hereto intend that each representation, warranty and covenant contained
herein shall have independent significance. If the Borrower has breached any
representation, warranty or covenant contained herein in any respect, the fact
that there exists another representation, warranty or covenant relating to the
same subject matter (regardless of the relative levels of specificity) that the
Borrower has not breached shall not detract from or mitigate the fact that such
party is in breach of the first representation, warranty or covenant.

            Section 10.7 Governing Law. This Agreement and the rights and
obligations of the parties hereto shall be governed by, and construed in
accordance with, the laws of the State of New York without regard to the
conflict of law rules thereof other than Section 5-1401 of the New York General
Obligations Law.

            Section 10.8 Submission to Jurisdiction; Consent to Service of
Process.

            (a) Any legal action or proceeding arising out of, or in connection
with, this Agreement or any other Loan Document may be brought in the courts of
the State of New York (located in the Borough of Manhattan in the City of New
York) or of the United States of America for the Southern District of New York,
and, by execution and delivery of this Agreement, the Borrower hereby excepts
for itself and in respect of its property, generally and unconditionally, the
jurisdiction of the aforesaid courts. The parties hereto hereby irrevocably
waive any objection, including any objection to the laying of venue or based on
the grounds of forum non conveniens, that any of them may now or hereafter have
to the bringing of any such action or proceeding in such respective
jurisdictions.

            (b) The Borrower hereby irrevocably consents to the service of any
and all legal process, summons, notices and documents in any suit, action or
proceeding brought in the United States of America arising out of or in
connection with this Agreement or any of the other Loan Documents by the mailing
(by registered or certified mail, postage prepaid) or delivering of a copy of
such process to the Borrower at its address specified in Section 10.9 (Notices,
Etc.). The Borrower agrees that a final judgment in any such suit, action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.

            (c) Nothing contained in this Section 10.8 shall affect the right of
the Lender to serve process in any other manner permitted by law or commence
legal


                                       92



proceedings or otherwise proceed against the Borrower or any other Loan Party in
any other jurisdiction.

            (d) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder in Dollars into another currency, the
parties hereto agree, to the fullest extent that they may effectively do so,
spot the rate of exchange used shall be that at which in accordance with normal
banking procedures the Lender could purchase Dollars with such other currency at
the spot rate of exchange quoted by the Lender at 11:00 a.m. (New York time) on
the Business Day preceding that on which final judgment is given, for the
purchase of Dollars, for delivery two Business Days thereafter.

            (e) Waiver of Jury Trial. EACH OF THE LENDER AND THE BORROWER HEREBY
IRREVOCABLY WAIVES TRIAL BY JURY IN ANY LEGAL PROCEEDING OR OTHER ACTION OR
PROCEEDING WITH RESPECT TO, ARISING OUT OF, OR IN CONNECTION WITH THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT.

            Section 10.9 Notices, Etc. All notices, demands, requests and other
communications provided for in this Agreement shall be given in writing, or by
any telecommunication device capable of creating a written record (including
electronic mail), and addressed to the party to be notified as follows:

            (a)    if to the Borrower:

                   NATIONAL STEEL CORPORATION
                   4100 Edison Lakes Parkway
                   Mishawaka, IN 46565-3440
                   Attention: William E. McDonough
                   Ronald J. Werhnyak, Esq.
                   Telecopy no: (219) 273-7478
                   E-Mail Addresses: wmcdonough@nationalsteel.com
                                     ----------------------------
                                     rwehrnyak@nationalsteel.com
                                     ---------------------------


                                       93



            (b)    if to the Lender:

                   NUF LLC
                   450 Park Avenue
                   25th Floor
                   New York, New York 10022
                   Attention: Mr. Hideki Matsumoto
                   Telecopy No.: (212) 826-6345
                   E-Mail Address: Hideki_Matsumoto-e@ntsgw.tokyo.nkk.co.jp

                   with a copy to:

                   SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
                   Four Times Square
                   New York, NY 10036
                   Attention: Edmund Duffy, Esq.
                   Telecopy No.: (917) 777-3950
                   E-Mail Address: eduffy@skadden.com

or at such other address as shall be notified in writing (i) in the case of the
Borrower, to the Lender and (ii) in the case of the Lender, to the Borrower. All
such notices and communications shall be effective upon personal delivery (if
delivered by hand, including any overnight courier service), when deposited in
the mails (if sent by mail), or when properly transmitted (if sent by a
telecommunications device or through the Internet); provided, however, that
notices and communications to the Lender shall not be effective until received
by the Lender.

            Section 10.10 No Waiver; Remedies. No failure on the part of Lender
to exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided under any Requirement of Law.

            Section 10.11 Execution in Counterpart; Effectiveness; Assignments
by the Borrower.

            (a) This Agreement may be executed in any number of counterparts and
by different parties in separate counterparts, each of which when so executed
shall be deemed to be an original, and all of which taken together shall


                                       94



constitute one and the same agreement. Delivery of an executed signature page of
this Agreement by facsimile transmission shall be as effective as delivery of a
manually executed counterpart hereof. A set of the copies of this Agreement
signed by both parties shall be lodged with the Lender. Signature pages may be
detached from multiple separate counterparts and attached to a single
counterpart so that all signature pages are attached to the same document.

            (b) This Agreement shall become effective when it shall have been
executed by the Borrower and Lender aid when each of the conditions set forth in
Section 3.1 (Conditions Precedent to the Effectiveness of this Agreement) shall
have been satisfied (or satisfaction of such conditions shall have been duly
waived), and thereafter this Agreement shall be binding upon and inure to the
benefit of the Borrower, the Lender and their respective successors and
permitted assigns. The Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of Lender.

            Section 10.12 Entire Agreement. This Agreement, together with all of
the other Loan Documents and all certificates and documents delivered hereunder
and thereunder, embodies the entire agreement of the parties and supersedes all
prior Contractual Obligations relating to the subject matter hereof (and any
such prior Contractual Obligations are hereby terminated and of no further force
and effect).

            Section 10.13 Further Assurances. The Borrower and the Lender each
agrees to execute and deliver such other documents or agreements and to take
such other action as may be reasonably necessary or desirable for the
implementation of this Agreement and the consummation of the transactions
contemplated hereby.

                            [Signature Page Follows]


                                       95



            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, on this
___th of December 2001.


                                   NATIONAL STEEL CORPORATION,
                                   as Borrower

                                   By:_______________________________
                                      Title:


                                   NUF LLC,
                                   as Lender

                                   By:_______________________________
                                      Title:



SCHEDULES
- ---------

Schedule 1.1      -      Non-Material Subsidiaries
Schedule 4.2      -      Permits
Schedule 4.7      -      Litigation
Schedule 4.11     -      Material Subsidiaries
Schedule 4.12     -      Employee Benefit Plans
Schedule 4.14     -      Amendments to Related Documents
Schedule 4.16     -      Joint Ventures and Partnerships
Schedule 4.22     -      Disposal Facilities
Schedule 4.25     -      Existing Indebtedness
Schedule 4.26     -      Deposit Accounts
Schedule 7.1      -      Existing Liens
Schedule 7.3      -      Existing Negative Pledges
Schedule 7.7      -      Existing Investments
Schedule 7.10     -      Modification of Related Documents

EXHIBITS
- --------

Exhibit A         -      Form of Subordinated Credit Note
Exhibit B         -      Form of Notice of Borrowing
Exhibit C         -      Form of Notice of Conversion or Continuation
Exhibit D         -      Lien Subordination Agreement
Exhibit E-1       -      Form of Bailee's Letter
Exhibit E-2       -      Form of Landlord's Waiver
Exhibit E-3       -      Form of Mortgagee's Waiver
Exhibit F         -      Form of Opinion of Counsel for the Loan Parties
Exhibit G         -      Form of Subordinated Pledge and Security Agreement
Exhibit H         -      Form of Subordinated Guaranty
Exhibit I         -      Indenture



                                    EXHIBIT A

                                     FORM OF
                       SUBORDINATED REVOLVING CREDIT NOTE

THIS NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY IS SUBJECT TO A CERTAIN LIEN
SUBORDINATION AGREEMENT, DATED AS OF SEPTEMBER 28, 2001 BY AND AMONG CITICORP
USA, INC., NUF LLC, NATIONAL STEEL CORPORATION, NATIONAL STEEL PELLET COMPANY,
NS HOLDINGS CORPORATION, NATIONAL STEEL FUNDING CORPORATION, PROCOIL CORPORATION
AND EACH OTHER ENTITY WHICH BECOMES A PARTY THERETO PURSUANT TO THE TERMS
THEREOF ("SUBORDINATION AGREEMENT").

U.S. $100,000,000                                      Dated: September 28, 2001

      FOR VALUE RECEIVED, the undersigned, NATIONAL STEEL CORPORATION, a
Delaware corporation (the "Borrower"), HEREBY PROMISES TO PAY to the order of
                           --------
NUF LLC, a Delaware limited liability company (the "Lender") the principal sum
                                                    ------
of one hundred million United States Dollars ($100,000,000), or, if less, the
aggregate unpaid principal amount of all Revolving Loans (as defined in the
Subordinated Credit Agreement referred to below) of the Lender to the Borrower,
payable at such times, and in such amounts, as are specified in the Subordinated
Credit Agreement.

            The Borrower promises to pay interest on the unpaid principal amount
of the Revolving Loans from the date made until such principal amount is paid in
full, at such interest rates, and payable at such times, as are specified in the
Subordinated Credit Agreement.

            Both principal and interest are payable in lawful money of the
United States of America to NUF LLC at Account Number 001-008615 at The Fuji
Bank and Trust Company (ABA Number 026008905), in immediately available funds.
The Revolving Loans made by the Lender to the Borrower, and all payments made on
account of the principal thereof, shall be recorded by the Lender and, prior to
any transfer hereof, endorsed on this Subordinated Note.

            This Subordinated Note is one of the Subordinated Revolving Credit
Notes referred to in, and is entitled to the benefits of, the Amended and
Restated Subordinated Credit Agreement, dated as of September 28, 2001, with the
Lender (said Amended and Restated Subordinated Credit Agreement, as it may be
amended or otherwise modified from time to time, being the "Subordinated Credit
                                                            -------------------
Agreement and capitalized terms used
- ---------


                                      A-1



                                                   SUBORDINATED CREDIT AGREEMENT
                                                      NATIONAL STEEL CORPORATION
                                                                         NUF LLC
                                                                       EXHIBIT A

herein but not defined herein being used herein as defined in the Subordinated
Credit Agreement). The Subordinated Credit Agreement, among other things, (i)
provides for the making of Revolving Loans by the Lender to the Borrower in an
aggregate amount not to exceed at any time outstanding the United States dollar
amount first above mentioned, the indebtedness of the Borrower resulting from
such Revolving Loans being evidenced by this Subordinated Note and (ii) contains
provisions for acceleration of the maturity of the unpaid principal amount of
this Subordinated Note upon the happening of certain stated events and also for
prepayments on account of the principal hereof prior to the maturity hereof upon
the terms and conditions therein specified.

            This Subordinated Note is entitled to the benefits of certain
guaranties and is secured as provided in the Loan Documents (as defined in the
Subordinated Credit Agreement), subject to the terms of the Subordination
Agreement.

            Demand, presentment, protest and notice of nonpayment and protest
are hereby waived by the Borrower.

            The Indebtedness evidenced by this Note is expressly subordinate and
subject in right of payment, on terms more specifically set out in the
Subordinated Credit Agreement and subject to the terms of the Subordination
Agreement, to the prior payment in full in cash of all Senior Indebtedness.

            This Subordinated Note shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York, without regard
to any choice or conflict of law provision or rule thereof that would result in
the application of the law of any other jurisdiction.

                                                NATIONAL STEEL CORPORATION


                                                By: __________________________
                                                    Name:
                                                    Title:


                                      A-2



                                                   SUBORDINATED CREDIT AGREEMENT
                                                      NATIONAL STEEL CORPORATION
                                                                         NUF LLC
                                                                       EXHIBIT A

                         LOANS AND PAYMENTS OF PRINCIPAL

                Amount          Amount of Principal             Notation
Date           of Loan            Paid or Prepaid                Made by
- ----           -------            ---------------                -------


                                      A-3



                                    EXHIBIT B
                                    ---------

                                     FORM OF
                               NOTICE OF BORROWING

NUF LLC
450 Park Avenue
25th Floor
New York, NY 10022

                                                                          [Date]

Attention: Mr. Hideki Matsumoto

           RE: NATIONAL STEEL CORPORATION
               --------------------------

Gentlemen:

            The undersigned, National Steel Corporation, refers to the Amended
and Restated Subordinated Credit Agreement, dated as of September 28, 2001,
between NATIONAL STEEL CORPORATION, a Delaware corporation (the "Borrower") and
                                                                 --------
NUF LLC (the "Lender") (said Amended and Restated Subordinated Credit Agreement,
as it may be amended or otherwise modified from time to time, being the
"Subordinated Credit Agreement" and capitalized terms used herein but not
 -----------------------------
defined herein being used herein as defined in the Subordinated Credit
Agreement) and hereby gives you notice, irrevocably, pursuant to Section 2.2
(Borrowing Procedures) of the Subordinated Credit Agreement that the undersigned
hereby requests a Borrowing under the Subordinated Credit Agreement and, in that
connection, sets forth below the information relating to such Borrowing (the
"Proposed Borrowing") as required by Section 2.2 of the Subordinated Credit
Agreement:

            (i) The Business Day of the Proposed Borrowing is ________, __.

            (ii) The aggregate amount of the Proposed Borrowing is $_____,
      consisting of Eurodollar Rate Loans having an initial Interest Period
      of [l] [2] [3] months] [or] [consisting of Base Rate Loans]/1/.

- ----------

/1/   Only if Scheduled Termination Date is within I month of date of Proposed
      Borrowing.


                                      B-1



                                                   SUBORDINATED CREDIT AGREEMENT
                                                      NATIONAL STEEL CORPORATION
                                                                         NUF LLC
                                                                       EXHIBIT B

            The undersigned hereby certifies that as of the close of the
business on the Business Day immediately preceding the date hereof:

                  (a) the aggregate of outstanding loans under the Senior Credit
            Agreement is $ _____; and

                  (c) the Available Credit (as defined in the Senior Credit
            Agreement) is ______.

            The following statements are true on the date hereof, and will be
      true on the date of the Proposed Borrowing, before and after giving effect
      thereto and to the application of the proceeds therefrom:

                  (A) the representations and warranties contained in Article IV
            (Representations and Warranties) of the Subordinated Credit
            Agreement and in each of the other Loan Documents are true and
            correct as though made on and as of such date;

                  (B) no Borrowing Base Deficiency exists or will result from
            the Proposed Borrowing;

                  (C) no Default or Event of Default exists or will result from
            the Proposed Borrowing;

                  (D) in respect of the Senior Credit Agreement:

                        (1)   a Cash Dominion Period is [not] continuing;

                        (2)   a Reduced Availability Period is [not] continuing;
                              and

                        (3)   no Default or Event of Default (as defined in the
                              Senior Credit Agreement) exists or will result
                              from the Proposed Borrowing;

                  (E) the Proposed Borrowing does not violate any Requirement of
            Law;


                                      B-2



                                                   SUBORDINATED CREDIT AGREEMENT
                                                      NATIONAL STEEL CORPORATION
                                                                         NUF LLC
                                                                       EXHIBIT B

                  (F) the Proposed Borrowing does not violate any provision of
            the Indenture, including without limitation, Section 4.05 thereof
            and the Proposed Borrowing will constitute "Permitted Debt" as
            defined in the Indenture; and

                  (G) the proceeds of the Loans requested hereby are to be used
            for general working capital and corporate purposes of the Borrower
            and not to refinance existing Indebtedness of the Borrower or any of
                ---
            its Subsidiaries nor for the payment of transaction costs, fees and
            expenses related to any such refinancing.

                                                Very truly yours,

                                                NATIONAL STEEL CORPORATION


                                                By:__________________________
                                                   Name:
                                                   Title:

copy to: Citicorp USA Inc., as Senior Agent
         388 Greenwich Street, 19th Floor
         New York, New York 10013
         Attention: Mr. Keith R. Karako


                                      B-3



                              AMENDED AND RESTATED SUBORDINATED CREDIT AGREEMENT
                                                      NATIONAL STEEL CORPORATION
                                                                         NUF LLC
                                                                       EXHIBIT C

                                    EXHIBIT C
                                    ---------

                                     FORM OF
                      NOTICE OF CONVERSION OR CONTINUATION

NUF LLC
450 Park Avenue
25th Floor
New York, New York 10022

Attention: Mr. Hideki Matsumoto                                          [Date]

            Re: NATIONAL STEEL CORPORATION
                --------------------------

Gentlemen:

            The undersigned, National Steel Corporation (the "Borrower"), refers
                                                              --------
to the Amended and Restated Subordinated Credit Agreement, dated as of September
28, 2001, with NUF LLC, a Delaware limited liability company, Lender (said
Amended and Restated Subordinated Credit Agreement, as it may be amended or
otherwise modified from time to time, being the "Subordinated Credit Agreement"
                                                 -----------------------------
and capitalized terms used herein but not defined herein being used herein as
defined in the Subordinated Credit Agreement) and hereby gives you notice
pursuant to Section 2.9 (Conversion/Continuation Option) of the Subordinated
Credit Agreement that the undersigned hereby requests a [conversion]/1/
[continuation] on _________ __, ____ (the "Relevant Date") of $__________ in
principal amount of presently outstanding Loans that are Eurodollar Rate Loans
having an Interest Period ending on __________ __, 200_ [to] [as] [Base Rate]
[Eurodollar Rate] Loans. The Interest Period for such amount requested to be
continued as Eurodollar Rate Loans is [1] [2] [3] months.

- ----------
/1/   Only applicable if Schedule Termination Date is within 1 month of proposed
      conversion.



                              AMENDED AND RESTATED SUBORDINATED CREDIT AGREEMENT
                                                      NATIONAL STEEL CORPORATION
                                                                         NUF LLC
                                                                       EXHIBIT C

            The undersigned hereby certifies that as of the close of the
business on the Business Day immediately preceding the date hereof:

                  (a) the aggregate of outstanding loans under the Senior Credit
            Agreement is $ _______; and

                  (b) the Available Credit (as defined in the Senior Credit
            Agreement) is $ _________.

            The following statements are true on the date hereof, and will be
true on the Relevant Date (save as disclosed on the attached Schedule), before
and after giving effect to the continuation or conversion:

                  (A) the representations and warranties contained in Article IV
            (Representations and Warranties) of the Subordinated Credit
            Agreement and in each of the other Loan Documents are true and
            correct as though made on and as of such date;

                  (B) no Borrowing Base Deficiency exists or will result from
            the continuation or conversion;

                  (C) no Default or Event of Default exists or will result from
            the continuation or conversion;

                  (D) no Material Adverse Change has occurred since the
            Effective Date;

                  (E) in respect of the Senior Credit Agreement:

                        (1) a Cash Dominion Period is [not] continuing

                        (2) a Reduced Availability Period is [not] continuing


                                       2



                              AMENDED AND RESTATED SUBORDINATED CREDIT AGREEMENT
                                                      NATIONAL STEEL CORPORATION
                                                                         NUF LLC
                                                                       EXHIBIT C

                        (3) no Default or Event of Default (as defined in the
                  Senior Credit Agreement) exists or will result from the
                  continuation or conversion.

                  (F) the proposed conversion or continuation would not violate:
            (i) any Requirement of Law; (ii) any provision of the Indenture,
            including without limitation, Section 4.05 thereof, and the Loans so
            converted or continued would constitute "Permitted Debt" as defined
            in the Indenture; and (iii) any of the provisions of Section 2.12
            (Special Provisions Governing Eurodollar Rate Loans) of the
            Subordinated Credit Agreement.

                                                Very truly yours,

                                                NATIONAL STEEL CORPORATION


                                                By:__________________________
                                                   Name:
                                                   Title:

copy to: Citicorp USA Inc., as Senior Agent
         388 Greenwich Street, 19th Floor
         New York, New York 10013
         Attention: Mr. Keith R. Karako.


                                       3







                       EXHIBIT E-1 FORM OF BAILLE'S LETTER

                             [Letterhead of Company]

                                                  , 200
                                         ---------     -

[NAME AND ADDRESS OF BAILEE]

          Re: National Steel Corporation

Ladies and Gentlemen:

          This letter is to confirm that National Steel Corporation (the
"Company"), from time to time, delivers merchandise to you for processing or
warehousing storage (such merchandise heretofore or hereafter delivered to you
being referred to as "Bailed Goods") and that title to the Bailed Goods remains
with the Company at all times.

          This letter is also to advise you that, pursuant to a certain
Subordinated Pledge and Security Agreement (the "Subordinated Pledge and
Security Agreement") executed by the Company, the Company has granted to NUF LLC
(the "Lender"), a security interest in, among other things, all of the Company's
inventory, including, without limitation, the Bailed Goods, to secure
obligations of the Company under a certain Amended and Restated Subordinated
Credit Agreement dated as of September 28, 2001 (the "Subordinated Credit
Agreement") between the Company and the Lender.

          This letter serves as notice to you pursuant to Section 9-312(d) of
the Uniform Commercial Code of the Lender's interest in the Bailed Goods. In
order to protect the Company's ownership interest and the Lender's security
interests in the Bailed Goods, the Company asks that you execute this letter (i)
to acknowledge and confirm that you are holding the Bailed Goods on bailment for
processing or warehousing, that such Bailed Goods are the Company's property and
subject to the Lender's security interest, that such security interest in the
Bailed Goods shall be senior to all liens, claims and interests, including fees
charged by you for the actual processing or storage of the Bailed Goods and that
you will notify all of your successors and assigns of the existence of the
agreements contained herein and (ii) to evidence your agreement that if, at any
time hereafter, the Lender shall notify you in writing that the Company has
defaulted on its obligations under the Subordinated Credit Agreement, you will
comply with the Lender's written instructions as to the disposition of the
Bailed Goods. Until the Subordinated Credit Agreement has been terminated and
the Lender has been paid in full, you shall not deduct from or offset against
any amounts due and owing by the Company to you at any time hereafter by
applying any of the Bailed Goods in payment for processing or storage services
provided by you to the Company. We agree that you shall




have no liability to the Company if you comply with the Lender's written
directions and the Company agrees to reimburse you for all reasonable costs and
expenses incurred by you as a direct result of such compliance.

                                            Very truly yours,

                                            NATIONAL STEEL CORPORATION


                                            By
                                               ---------------------------------
                                               Name:
                                               Title:


                                            NUF LLC


                                            By
                                               ---------------------------------
                                               Name:
                                               Title:

          Acknowledged and agreed to this     day of          , 200
                                         -----      ----------     -

BAILEE:


By
   ----------------------------------
   Name:
   Title:

                                       2



                                   EXHIBIT E-2

                                     FORM OF
                          LANDLORD'S WAIVER AND CONSENT

          THIS LANDLORD'S WAIVER AND CONSENT (this "Consent"), made and entered
as of        , 200 , by                     , (the "Landlord") in favor of NUF
      -------     -     --------------------
LLC (the "Lender").

                                   BACKGROUND:

          A. National Steel Corporation (the "Lessee") is the lessee under that
certain lease dated          (the "Lease") between the Landlord and the Lessee
                    ---------
covering certain premises located at         (the "Premises").
                                    ---------

          B. Lessee has entered into an Amended and Restated Subordinated Credit
Agreement, dated as of September 28, 2001, with the Lender (the "Subordinated
Credit Agreement").

          C. As a condition to extending such loans and other financial
accommodations, the Lender has required, among other things, that the Lessee
grant to the Lender security interests in and liens upon certain assets of the
Lessee, including without limitation all of the Lessee's accounts, inventory,
equipment, general intangibles, investment property, documents, instruments,
chattel paper, cash collateral accounts, blocked accounts, vehicles, book and
records and all other personal property of Lessee, in each case whether now or
hereafter existing or now owned or hereafter acquired (collectively, the
"Collateral"), a portion of which Collateral is and may hereafter be located on
or about the Premises.

          NOW, THEREFORE, in order to induce the Lender to extend such loans and
other financial accommodations to the Lessee, which will aid the Lessee in
meeting its obligations to the Landlord, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Landlord hereby agrees with the Lender as follows:

          1. The Lender's security interests and liens in the Collateral shall
be superior to any title or interest which the Landlord may at any time have
therein, and, during the term of this Agreement, the Landlord will not assert
against any of the Collateral any title or any statutory, common law,
contractual or possessory lien, including, without limitation, rights of levy or
distraint for rent, all of which the Landlord hereby subordinates in favor of
the Lender.

          2. The Landlord hereby agrees that none of the Collateral located on
the Premises shall be deemed to be fixtures and hereby disclaims any and all
right, title, interest or claim in or to the Collateral and any cash or non-cash
proceeds of the Collateral (except with respect to the subordinated landlord
lien referred to in Section 2 above).
                    ---------



          3. In the event that Lessee defaults in its obligations under the
Lease, Landlord hereby agrees to give the Lender written notice of default under
the Lease, at the same time and in the same manner as such notice is given to
the Lessee and further agrees that the Lender may, but shall not be obligated
to, cure such defaults, at its option, within the applicable notice and cure
periods.

          4. If, for any reason whatsoever, the Landlord either deems itself
entitled to redeem or to take possession of the Premises during the term of the
Lease or intends to sell or otherwise transfer all or any part of its interest
in the Premises, the undersigned will notify the Lender thirty (30) days before
taking such action.

          5. If the Lessee defaults on its obligations to the Lender, and, as a
result, the Lender undertakes to enforce its security interest in the
Collateral, the Landlord (a) will cooperate with the Lender in its efforts to
assemble all of the Collateral located on the Premises; (b) will permit the
Lender to remain on the Premises for forty-five (45) days after the Lender
notifies the undersigned of the default, or, at the Lender's option, to remove
the Collateral from the Premises within a reasonable time, not to exceed
forty-five (45) days after the Lender notifies the Landlord of the default,
provided the Lender pays the rental payments due under the Lease for the period
of time the Lender uses the Premises; and (c) will not hinder the Lender's
actions in enforcing its liens on the Collateral, it being agreed that use or
occupancy of the Premises by the Lender as set forth herein shall not constitute
an assumption by the Lender of the Lease or of any obligations thereunder.

          6. The Landlord states that the Lease is presently in full force and
effect, that all rentals have been paid up to date, and that the Lease is not in
default.

          7. This Consent shall remain in full force and effect until all
obligations of the Lessee to the Lender have been paid and satisfied in full and
the Lender has terminated its financing agreements with the Lessee pursuant to
the Subordinated Credit Agreement.

          8. The provisions of this Consent may not be modified or terminated
orally, and shall be binding upon the successors and assigns of the Landlord,
and upon any successor owner or transferee of the Premises and shall inure to
the benefit of the Lender and its respective successors and assigns.

          9. All notices shall be in writing and shall be mailed by first class
registered or certified mail, postage prepaid, as follows:

                         (a)  If to the Lender:

                              NUF LLC
                              450 Park Avenue
                              25th Floor
                              New York, NY 10022
                              Attention: Mr. Hideki Matsumoto
                              Telecopy: (212) 826-6345

                                    2



                              email: Hideki_Matsumoto-e@ntsgw.tokyo.nkk.co.jp

                              with a copy to:

                              Skadden, Arps, Slate, Meagher & Flom LLP
                              Four Times Square
                              New York, NY 10036
                              Attention: Edmund Duffy, Esq.
                              Telecopy: (917) 777-3950
                              email: eduffy@skadden.com

                         (b)  If to the Landlord:

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

                              -----------------------------
                              Attention:
                                         ------------------

          10. This Consent may be executed in any number of counterparts and
shall in all respects be governed by and construed in accordance with the laws
of the State of New York.

                            [Signature page follows]

                                        3



          IN WITNESS WHEREOF, Landlord has executed this Landlord's Waiver and
Consent on the date first above written.

                                            LANDLORD:
                                            --------


                                            By:
                                                   -----------------------------

                                            Title:
                                                   -----------------------------

                                                           [OR]

                                            [LIMITED PARTNERSHIP]


                                            By:
                                                   -----------------------------


                                            Its: General Partner


                                            By:
                                                   -----------------------------

                                            Title:
                                                   -----------------------------

                                            [OR]

                                            [INDIVIDUAL]


                                            Landlord:
                                                      --------------------------

                                        4



                                   EXHBIT E-3

                     FORM OF Mortgagee's Waiver and Consent

          THIS MORTGAGEE'S WAIVER AND CONSENT ("Consent"), made and entered into
this         day of         , 200 , by JPMorgan Chase Bank, successor to The
     --------      ---------     -
Chase Manhattan Bank, N.A., as Trustee ("Mortgagee") under that certain
Indenture of Mortgage and Deed of Trust, dated as of May 1, 1952 and as
supplemented through and including the Eleventh Supplemental Indenture dated as
of March 31, 1999 (the "Indenture"), in favor of NUF LLC, a Delaware limited
liability company ("NUF").

                                   BACKGROUND:

          A. National Steel Corporation ("National Steel") is the owner of
certain real property as described on Schedule A attached hereto, being more
particularly described in the Mortgage ((as defined below) such properties and
all works, plants, factories and structures thereon, collectively, the
"Premises").

          B. National Steel has granted to the Mortgagee an interest in the
Premises by the Mortgages set forth on Schedule A attached hereto (collectively,
the "Mortgage"). National Steel also granted to the Mortgagee a security
interest in certain properties and securities as described on Schedule B
attached hereto (the "Mortgagee's Collateral").

          C. National Steel has entered into a certain Amended and Restated
Subordinated Credit Agreement, dated as of September 28, 2001 (the "Credit
Agreement"), among National Steel, as Borrower, and NUF, as Lender.

          D. As a condition to extending such loans and other financial
accommodations, NUF has required, among other things, that National Steel grant
to NUF a security interest in certain of National Steel's property, including,
without limitation, accounts, certain movable machinery and equipment,
inventory, and books and records related thereto, whether now owned or hereafter
acquired, as described on Schedule C attached hereto (the "NUF Collateral"), a
portion of which NUF Collateral is and may hereafter be located on or about the
Premises. Pursuant to a Lien Subordination Agreement, dated as of September 28,
2001, among Citicorp USA, Inc. ("CUSA"), NUF, National Steel, National Steel
Pellet Company, National Steel Funding Corporation, ProCoil Corporation and NS
Holdings Corporation (the "Lien Subordination Agreement"), NUF's security
interest in the NUF Collateral is subordinated to the security interest in such
collateral of CUSA, as administrative agent for certain lenders and issuers
party to the Credit Agreement, dated as of September 28, 2001, among CUSA,
National Steel and certain lenders and issuers and other parties party thereto.
All rights of NUF in the NUF Collateral are subject to the provisions of the
Lien Subordination Agreement and Article VIII of the Credit Agreement.



          NOW, THEREFORE, in order to induce NUF to extend financial
accommodations to National Steel, which will aid National Steel in meeting its
obligations to Mortgagee, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Mortgagee hereby
agrees with NUF as follows:

          1. (a) Mortgagee acknowledges NUF's second priority, perfected
security interest in the NUF Collateral. NUF's security interests and liens in
the NUF Collateral shall be superior to any title or interest which the
Mortgagee may at any time have in such NUF Collateral, and, during the term of
this Consent, Mortgagee will not assert against any of the NUF Collateral any
title or any statutory, common law, contractual or possessory lien, including,
without limitation, rights of levy or distraint, all of which (the "Subordinated
Mortgagee Lien") Mortgagee hereby subordinates in favor of NUF. Mortgagee
further agrees that it shall not (and hereby waives any right to) contest, or
support any other Person in contesting, in any proceeding (including, without
limitation, any bankruptcy, insolvency, liquidation or similar proceeding) the
priority, validity or enforceability of the security interest of NUF.

          (b) NUF acknowledges the Mortgagee's first priority perfected security
interest in the Mortgagee's Collateral. Mortgagee's security interests and liens
in the Mortgagee's Collateral shall be superior to any title or interest which
NUF may at any time have in such Mortgagee's Collateral, and during the term of
this Consent, NUF further agrees that it shall not (and hereby waives any right
to) contest, or support any other Person in contesting, in any proceeding
(including, without limitation, any bankruptcy, insolvency, liquidation or
similar proceeding) the priority, validity or enforceability of the security
interest of the Mortgagee.

          (c) NUF agrees that if and to the extent that NUF has a lien on
collateral that is also collateral secured by the Mortgagee's lien under the
Indenture, the Mortgagee's lien shall be prior and, pursuant to Section 9-611 of
the Uniform Commercial Code as in effect in New York State (the "UCC"), NUF
agrees to give the Mortgagee prior notice of any disposition of the NUF
Collateral effected by NUF. Both NUF and the Mortgagee hereto agree that to the
extent either party receives cash proceeds of disposition with respect to the
other's collateral under Section 9-610 of the UCC, upon notice and an
authenticated demand therefor, the receiving party shall deliver such proceeds
to the demanding party less all reasonable expenses under Section 9-615(a)(1) of
                       ----
the UCC.

          2. Mortgagee hereby disclaims any and all right, title, interest or
claim in or to the NUF Collateral and any cash or non-cash proceeds of the NUF
Collateral (except with respect to the Subordinated Mortgagee Lien referred to
in Section 1 above). The NUF Collateral may be non-permanently affixed to,
located on or used about the Premises, but shall remain National Steel's
personal property, subject to NUF's lien, at all times. Mortgagee agrees not to
impound, remove or prevent access to, any of the NUF Collateral from the
Premises as long as this Consent is in effect, except as set forth herein.

                                        2



          3. Mortgagee agrees that NUF and its representatives and invitees may
enter upon the Premises at any time or times, during normal business hours, with
reasonable advance notice to and granting of entry by: (i) National Steel and
(ii) during such time as the Mortgagee is in sole legal possession of the
Premises, the Mortgagee, to inspect, repossess, remove or otherwise deal with
the NUF Collateral, in accordance with any applicable rules and regulations,
without any liability of NUF to Mortgagee except for reimbursement for any
physical damage (except ordinary wear and tear) to the Premises caused by such
removal. Mortgagee shall not hinder NUF's actions in enforcing its liens and
remedies with respect to the NUF Collateral. NUF agrees that NUF, or its
representatives, shall not advertise or conduct public sales of the NUF
                       ---
Collateral at the Premises. Mortgagee agrees, however, that NUF or its
representatives shall be permitted to conduct private sales of the NUF
Collateral on or from the Premises; provided, however, that no more than five
(5) persons shall be permitted on the Premises for such purpose at any one time
and that such private sale activity shall occur during normal business hours
only. NUF shall not be liable for any diminution in value of the Premises caused
by the absence of the NUF Collateral removed. Only National Steel and not NUF
shall have any duty or obligation to remove or dispose of any of the NUF
Collateral or any other property left on the Premises.

          4. In the event that National Steel defaults in its obligations under
the Mortgage, Mortgagee hereby agrees it will endeavor to give NUF written
notice of default under the Mortgage, at the same time and in the same manner as
such notice is given to National Steel and further agrees that NUF may, but
shall not be obligated to, cure such default(s), at its option, within the
applicable notice and cure periods (the "NUF Cure Period"); provided, however,
that in the case of a monetary default, five (5) business days shall be added to
the NUF Cure Period.

          5. Termination of Mortgage; Termination of National Steel's
             --------------------------------------------------------
Possession. In the event the Mortgagee either (x) terminates the Mortgage on an
- ----------
accelerated basis (or otherwise) or (y) terminates National Steel's right of
possession prior to the expiry date set forth in the Mortgage, Mortgagee shall
endeavor to give NUF written notice thereof (the "Termination Notice").
Mortgagee agrees that, at NUF's option and upon written notice (the "NUF
Notice") delivered to Mortgagee within five (5) business days of Mortgagee's
delivery to NUF of the Termination Notice, the NUF Collateral may remain upon
the Premises for a period not to exceed one hundred and twenty (120) days
following Mortgagee's delivery to NUF of the Termination Notice (the "Carry-Over
Period") provided, that NUF: (a) complies with all of the obligations imposed
upon NUF in Section 3 above and (b) NUF pays such amounts, on a monthly basis,
that would otherwise be due and payable under the terms of the Mortgage had the
Mortgage remained in full force and effect. The first month's mortgage payment
shall be due from NUF simultaneously with NUF's delivery of the NUF Notice, and
on the first day of each successive month during the Carry-Over Period.
Mortgagee's agreement to "standstill" during the Carry-Over Period shall only
restrict Mortgagee's remedies with respect to the NUF Collateral; Mortgagee's
right to exercise all available remedies

                                       3



against National Steel under the Mortgage and with respect to the Mortgagee's
Collateral, shall in no way be restricted or impeded by this Consent.

          6. Mortgagee's Rights After Delivery of Termination Notice. If
             -------------------------------------------------------
Mortgagee delivers a Termination Notice, (a) but NUF fails to either timely
deliver the NUF Notice or make the payments attributable to the Carry-Over
Period; or (b) NUF timely delivers the NUF Notice and makes the payments
attributable to the Carry-Over Period, but NUF then fails to remove the NUF
Collateral prior to the expiration of the Carry-Over Period, then, in either
event, Mortgagee shall thereafter be entitled, on an immediate basis, in
addition to any remedies which Mortgagee may have exercised against National
Steel already, to exercise any and all rights available to Mortgagee with
respect to the NUF Collateral, whether at law or in equity (including, but not
limited to, the right to remove National Steel's possessions and any NUF
Collateral from the Premises).

          7. This Consent shall remain in full force and effect until all
obligations of National Steel to NUF have been paid and satisfied in full and
NUF has terminated its financing agreements with National Steel pursuant to the
Credit Agreement or upon the expiration or earlier termination of the Mortgage
(plus any applicable Carry-Over Period), whichever comes first.

          8. The provisions of this Consent may only be modified or terminated
in a writing signed by all parties hereto, and shall be binding upon the
successors and assigns of the Mortgagee, and upon any successor owner or
transferee of the Premises and shall inure to the benefit of NUF and its
successors and assigns.

          9. All notices and other communications hereunder shall be in writing
and deemed to be delivered (i) if by means of the United States Postal Service
(certified or registered) on the third business day following delivery thereof
to a United States Postal Service office or official depositary; (ii) if by
commercial overnight delivery service, on the next business day following
delivery to such service; (iii) if by telefacsimile transmission (confirmed by
first class mail), on the date received at the telefacsimile machine of the
recipient; and (iv) if by hand delivery (during regular business hours), on the
date delivered. All notices shall be in writing and shall be mailed by first
class registered or certified mail, postage prepaid, as follows:

If to NUF:                  NUF, LLC
                            450 Park Avenue
                            New York, New York 10022
                            Attn: Mr. Hideki Matsumoto
                            Telecopy no.: (212) 826-6345

                            with a copy to:

                            Skadden, Arps, Slate, Meagher & Flom LLP
                            Four Times Square

                                       4



                            New York, New York 10036
                            Attention: Edmund Duffy, Esq.
                            Telecopy no.: (917) 777-3950

If to Mortgagee:            JPMorgan Chase Bank

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

                            ------------------------------
                            Attn: James P. Freeman
                            Telecopy no.: (212) 946-8158

                            with a copy to:

                            Kelley Drye & Warren LLP
                            101 Park Avenue
                            New York, New York 10178
                            Attention: David Retter, Esq.
                            Telecopy no: (212) 808-7897

          10. This Consent shall in all respects be governed by and construed in
accordance with the laws of the State in which the Premises and the applicable
NUF Collateral are located.

                                       5



          IN WITNESS WHEREOF, the parties hereto have executed this Consent on
the date first above written.

                                             MORTGAGEE:
                                             ----------

                                             JPMORGAN CHASE BANK, a New York
                                             State banking corporation


                                             By:
                                                --------------------------------

                                             Title:
                                                   -----------------------------


                                             MORTGAGOR:
                                             ----------

                                             NATIONAL STEEL CORPORATION, a
                                             Delaware corporation


                                             By:
                                                --------------------------------


                                             NUF, LLC, a
                                             Delaware limited liability company


                                             By:
                                                --------------------------------

                                       6



                                   SCHEDULE A

                  Description of Premises and Mortgages Thereon

                                       7



                                   SCHEDULE B

                      Description of Mortgagee's Collateral

                            [See the granting clauses

                       on pages 18 to 27 of the Indenture

                               as attached hereto]

                                       8



                                   SCHEDULE C
                                   ----------

                          Description of NUF Collateral

For the purposes of this Consent, the NUF Collateral shall constitute all of
National Steel's right, title and interest in and to the following, whether now
owned or at any time hereafter acquired by or arising, wherever located
(collectively, the "NUF Collateral"):

          (i)  all Accounts;

          (ii) all Chattel Paper;

          (iii) all Deposit Accounts;

          (iv) all Documents;

          (v)  all Equipment which is not now or hereafter subject to the
                                      ---
               perfected security interest of the Trustee and (1) affixed,
               actually or constructively, to, or erected in or upon, the
               Premises encumbered by the Indenture; (2) a physically integrated
               part of the Premises; or (3) essential to the operation of the
               plants on such Premises;

          (vi) all General Intangibles except as excluded herein;

          (vii) all Instruments;

          (viii) all Inventory;

          (ix) all Investment Property except as excluded herein;

          (x)  all Letter of Credit Rights;

          (xi) all Commercial Tort Claims arising from damage to National
               Steel's personal or real property, including inventory, in excess
               of $2,000,000;

          (xii) all other goods and personal property of National Steel whether
               tangible or intangible wherever located;

          (xiii) all property of National Steel held by the Senior Agent, any
               other Senior Secured Party or NUF, including all property of
               every description, in the possession or custody of or in transit
               to the Senior Agent, any other Senior Secured Party or NUF for
               any purpose, including safekeeping, collection or pledge, for the
               account of National Steel or as to which National Steel may have
               any right or power;

          (xiv) to the extent not otherwise included, all Proceeds; and

          (xv) all books and records pertaining to the foregoing;

                                        9



provided, however, that the foregoing NUF Collateral shall not include Excluded
Property; and provided, further, that if and when any prohibition which prevents
the granting by National Steel to NUF of a security interest in such Excluded
Property is removed or otherwise terminated, the NUF Collateral shall be deemed
to include, and at all times from and after the date hereof to have included,
such Excluded Property, as the case may be, and that, notwithstanding anything
set forth herein to the contrary, NUF will be deemed to have, and at all times
from and after the date hereof to have had, included in this Schedule C a
description of such Excluded Property.

Definitions:

As used in this Schedule C, terms used herein that are defined in the UCC have
the meanings given to them in the UCC, including the following which are
capitalized herein:

          "Accounts"
          "Chattel Paper"
          "Commercial Tort Claim"
          "Commodity Account"
          "Deposit Account"
          "Documents"
          "Equipment"
          "General Intangibles"
          "Instruments"
          "Inventory"
          "Investment Property"
          "Letter of Credit Right"
          "Proceeds"

          The following capitalized terms have the meanings specified below
(such meanings being equally applicable to both the singular and plural forms of
the terms defined):

          "Credit Agreement" means the Amended and Restated Subordinated Credit
Agreement, dated as of September 28, 2001, between National Steel and NUF, LLC
(as the same may be amended, restated, supplemented or otherwise modified from
time to time).

          "Excluded Property" means Special Property other than the following:

          (a) the right to receive any payment of money (including, without
     limitation, general intangibles for money due or to become due); and

          (b) any proceeds, products, offspring, accessions, rents, profits,
     income, benefits, substitutions or replacements of any Special Property
     (unless such proceeds, products, offspring, accessions, rents, profits,
     income, benefits, substitutions or replacements itself would constitute
     Special Property).

          "Indenture" means the Original Indenture, as supplemented by all
instruments supplemental thereto, through and including the Eleventh
Supplemental Indenture, dated as of March 31, 1999, to the Original Indenture.

          "National Steel" means National Steel Corporation, a Delaware
corporation.

                                       10



          "Original Indenture" means that certain Indenture of Mortgage and Deed
of Trust, dated May 1, 1952, between National Steel, Great Lakes Steel
Corporation (a predecessor-in-interest of the National Steel Corporation), and
City Bank Farmers Trust Company and Ralph E. Morton, as Trustees.

          "Senior Agent" means Citicorp USA, Inc., as administrative agent for
certain lenders and issuers party to the Senior Credit Agreement.

          "Senior Credit Agreement" means the Credit Agreement, dated as of
September 28, 2001, among the Senior Agent, the Debtor and certain lenders and
issuers and other parties party thereto.

          "Senior Secured Parties" means the lenders, issuers, administrative
agent and any other holder of an obligation in connection with the Senior Credit
Agreement.

          "Special Property" means:

          (a) any permit, lease or license held by National Steel that validly
     prohibits the creation by National Steel of a security interest therein;

          (b) any permit, lease or license held by National Steel (in each case
     permitted by the Credit Agreement) to the extent that any law applicable
     thereto prohibits the creation of a security interest therein; and

          (c) Equipment owned by National Steel that is subject to a purchase
     money lien or a capital lease obligation (in each case permitted by the
     Credit Agreement) if the contract or other agreement in which such lien is
     granted (or in the documentation providing for such capital lease
     obligation) validly prohibits the creation of any other lien on such
     Equipment;

          (d) Investment Property and General Intangibles owned by National
     Steel that are (i) subject to a negative pledge if the agreement in which
     such negative pledge is contained validly prohibits the pledge of such
     Investment Property or General Intangible, as the case may be, or (ii)
     shares of capital stock and demand mortgage bonds subject to the perfected
     lien of the Trustee;

in each case only to the extent, and for so long as, such permit, lease,
license, contract or other agreement, or law applicable thereto, validly
prohibits the creation of a lien in such property in favor of NUF (and upon the
termination of such prohibition (however occurring)) such permit, lease, license
or equipment shall cease to be "Special Property".

          "Trustee" means JPMorgan Chase Bank, successor to The Chase Manhattan
Bank, N.A., as trustee under the Indenture, and any duly appointed successor
trustees.

          "UCC" means the Uniform Commercial Code as from time to time in effect
in the State of New York; provided, however, that in the event that, by reason
of mandatory provisions of law, any or all of the attachment, perfection or
priority of NUF's security interest in any NUF Collateral is governed by the
Uniform Commercial Code as in effect in a jurisdiction other than the State of
New York, the term "UCC" shall mean the Uniform Commercial Code as

                                       11



in effect in such other jurisdiction for purposes of the provisions hereof
relating to such attachment, perfection or priority and for purposes of
definitions related to such provisions.

                                       12



                                December 21, 2001

NUF LLC
450 Park Avenue
New York, NY 10022

          Re: National Steel Corporation, et al.
              ----------------------------------

Ladies and Gentlemen:

          We have acted as counsel to National Steel Corporation (the
"Borrower"), National Steel Pellet Company, National Steel Funding Corporation,
NS Holdings Corporation, and ProCoil Corporation (together with the Borrower,
the "Loan Parties") in connection with the preparation, execution and delivery
of, and the consummation of the transactions contemplated by, the Subordinated
Credit Agreement, dated as of September 28, 2001 (the "Subordinated Credit
Agreement"), by and among the Borrower, and NUF LLC. This opinion is rendered to
you pursuant to Section 3.1(f) of the Subordinated Credit Agreement. Capitalized
terms defined in the Subordinated Credit Agreement, used herein, and not
otherwise defined herein, shall have the meanings given them in the Subordinated
Credit Agreement.

          In so acting, we have examined originals or copies (certified or
otherwise identified to our satisfaction) of the following documents:

1. the Subordinated Credit Agreement;

2. the Subordinated Note to be issued by the Borrower on the date hereof;

3. the Subordinated Pledge and Security Agreement executed by each of the Loan
Parties;

4. the Subordinated Guaranty executed by [each of the Loan Parties] (other than
the Borrower);

5. the Lien Subordination Agreement;

6. the financing statements on Form UCC-1, each naming a Loan Party as debtor
and NUF, LLC, the Lender as secured party (the "Financing Statements") to be
filed in the Uniform



Commercial Code Filing Offices in the jurisdictions listed on Schedule I hereto
(each a "Relevant Jurisdiction").

The agreements specified in clauses (1) through (6) above are collectively
referred to as the "Agreements".

          In addition, we have examined such corporate records, agreements,
documents and other instruments, and such certificates or comparable documents
of public officials and of officers and representative of the Loan Parties, and
have made such inquiries of such officers and representatives, as we have deemed
relevant and necessary as a basis for the opinions hereinafter set forth.

          In such examination, we have assumed the genuineness of all
signatures, (other than the signatures of officers of the Loan Parties on
documents signed at closing) the legal capacity of all natural persons, the
authenticity of all documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such latter
documents. As to all questions of fact material to these opinions that have not
been independently established, we have relied upon certificates or comparable
documents of officers and representatives of the Loan Parties and upon the
representations and warranties of the Loan Parties contained in the Agreements.

          Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:

          (1) Each Loan Party is a corporation validly existing and in good
standing under the law of the State of Delaware and has all requisite corporate
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted.

          (2) Each Loan Party is duly qualified to transact business and is in
good standing as a foreign corporation in each jurisdiction set forth under its
name on Schedule II hereto.

          (3) Each Loan Party has all requisite corporate power and authority to
execute, deliver and perform the Agreements to which it is a party. The
execution, delivery and performance by each Loan Party of the Agreements to
which it is a party have been duly authorized by all necessary corporate action
on the part of such Loan Party. Each Loan Party has duly executed and delivered
the Agreements to which it is a party and such Agreements constitute the legal,
valid and binding obligations of such Loan Party, enforceable against such Loan
Party in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally, and subject, as
to enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).

          (4) The execution, delivery and performance by each Loan Party of the
Agreements to which it is a party will not conflict with, constitute a default
under or violate (i)

                                                                               2



any of the terms, conditions or provisions of the Constituent Documents of such
Loan Party, (ii) any of the terms, conditions or provisions of any material
Contractual Obligation of such Loan Party of which we are aware, (iii) any New
York, Delaware corporate or federal Requirement of Law or (iv) any judgment,
writ, injunction, decree, order or ruling of any court or Governmental Authority
of which we are aware binding on such Loan Party.

          (5) No consent, approval, waiver, license or authorization or other
action by or filing with any New York, Delaware or federal Governmental
Authority is required in connection with the execution, delivery or performance
by any Loan Party of the Agreements to which it is a party except for the filing
of financing statements referred to below.

          (6) The borrowings by and other financial accommodations provided to
the Borrower under the Agreements and the application of proceeds thereof as
provided in the Subordinated Credit Agreement will not violate Regulation T, U
or X of the Federal Reserve Board.

          (7) Neither the Borrower nor any other Loan Party is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
or a "holding company" or a "subsidiary company" of a "holding company" within
the meaning of the Public Utility Holding Company Act of 1935, as amended.

          (8) To our knowledge, there is no action, suit, proceeding,
governmental investigation or arbitration, at law or in equity or before any
Governmental Authority, pending or overtly threatened against any Loan Party (i)
with respect to any Agreement or challenging any of NUF LLC's rights or remedies
thereunder or (ii) which, if adversely determined, could materially adversely
affect the ability of any Loan Party to perform its obligations under the
Agreements to which it is a party.

          (9) All of the outstanding shares of the Pledged Stock (as defined in
the Subordinated Pledge and Security Agreement) of each Subsidiary of the
Borrower (each an "Issuing Subsidiary") is (i) owned of record and, to our
knowledge, beneficially by the Borrower or another Loan Party, free and clear of
all adverse claims except the security interest of the Administrative Agent
pursuant to the Pledge and Security Agreement dated September 28, 2001 between
the Grantors as defined therein and the Administrative Agent as defined therein
(ii) are duly authorized, validly issued, fully paid and nonassessable, and
(iii) have not been issued in violation of any preemptive rights granted by law
or the Constituent Documents of such Issuing Subsidiary. Upon filing of the
UCC-1 financing statements in the appropriate jurisdictions, the Lender shall
have a valid and perfected lien in said Stock which except for the lien of the
Administrative Agent is free of adverse claims.

          (10) We have reviewed UCC lien Searches performed by Lexis Document
Searches ordered by Weil, Gotschal & Manges LLP and furnished to us by it
("Searches") for the Borrower for the following jurisdictions bearing the dates
indicated below:

                                                                               3



Jurisdiction                                Date of Search
- ------------                                --------------

Pennsylvania                                Aug. 3 and July 16, 2001
Michigan                                    August 9, 2001
Illinois                                    Aug. 2 and Aug. 14, 2001
Delaware                                    August 8, 2001
Indiana                                     Aug. 6 and Aug. 15, 2001

We have also reviewed UCC lien Searches for National Steel Pellet Company for
the state of Minnesota dated August 7 and August 8, 2001.

               Other than review of the above UCC lien Searches, we have made no
investigation of title to or encumbrances affecting the title to the Loan
Parties in their Accounts and Inventory (each as defined in the UCC) or for any
other Collateral of the Loan Parties.

               We note from our review of the Searches that UCC filings have
been made in Illinois, Delaware, Michigan, Indiana and Minnesota by Citicorp
USA, Inc., as Administrative Agent and NUF LLC covering Collateral of the
Borrower and National Steel Pellet Company (Minnesota). Such Searches do not
disclose that termination statements have been filed terminating such UCC
filings.

               Subject to the foregoing qualifications and limitations and the
priority of possessory liens arising by operation of law, we are of the opinion
that the Subordinated Pledge and Security Agreement creates in favor of NUF LLC,
as security for each Loan Party's Secured Obligations, a valid security interest
in all of the right, title and interest of such Loan Party in the Collateral its
Accounts and Inventory (each as defined in the UCC), as defined in the
Subordinated Pledge and Security Agreement which security interest, assuming the
filing of the applicable Financing Statements in the filing offices of the
Secretary of State of Delaware, will be duly perfected to the extent perfection
of a security interest in such Collateral, Accounts and Inventory may be
perfected by the filing of a financing statement under the Uniform Commercial
Code in effect in the State of Delaware.

          The opinion in subparagraph 10 is subject to the following exceptions:

          (i) to the extent that perfection of a lien or security interest in
any Collateral is governed by the law of any jurisdiction other than the States
of New York and Delaware, we express no opinion;

          (ii) that with respect to any Collateral which is or may become
fixtures (within the meaning of Section 9-313 of the Uniform Commercial Code in
effect in the State of New York (the "UCC")) we express no opinion; and

          (iii) that with respect to transactions excluded from Article 9 of the
UCC by Section 9-104 thereof, we express no opinion.

                                                                               4



          In addition, the opinion in subparagraph 10 is subject to Section 552
of Title 11 of the United States Code (the "Bankruptcy Code") with respect to
any Collateral acquired by any Loan Party subsequent to the commencement of a
case against or by such Loan Party under the Bankruptcy Code.

          We are licensed to practice law only in the Commonwealth of
Pennsylvania. For purposes of rendering the opinions set forth herein we have
assumed that the laws of the State of New York are similar to the laws of the
Commonwealth of Pennsylvania. Our opinions expressed above are limited to the
laws of the Commonwealth of Pennsylvania, the General Corporation Law of the
State of Delaware and the federal laws of the United States. With respect to
other laws of the State of Delaware we are relying on the opinion of Klehr,
Harrison, Harvey, Branzburg & Ellers LLP delivered to you on December 21, 2001.

          The opinions expressed herein are rendered solely for your benefit in
connection with the transactions described herein. This opinion may not be used
or relied upon by any other person (except any Person who in the future becomes
a Lender), nor may this letter or any copies thereof be furnished to a third
party, filed with a governmental agency, quoted, cited or otherwise referred to
without our prior written consent, other than to bank regulatory authorities or
permitted assigns of any Lender or to any prospective Lender, and except as
required by any Governmental Authority or pursuant to legal process.

                                   Very truly yours,

                                   Yukevich, Marchetti, Liekar & Zangrilli, P.C.


                                   By:
                                        ----------------------------------------

                                                                               5



                          PLEDGE AND SECURITY AGREEMENT

                         Dated as of September 28, 2001

                                      among

                           National Steel Corporation
                             and Each Other Grantor

                         From Time to Time Party Hereto

                                       and

                                     NUF LLC
                                as Secured Party



                                TABLE OF CONTENTS



                                                                                                      Page
                                                                                                      ----
                                                                                                    
ARTICLE I. Defined Terms................................................................................1

         Section 1.1       Definitions..................................................................1

         Section 1.2       Certain Other Terms..........................................................7

ARTICLE II. Grant of Security Interest..................................................................7

         Section 2.1       Collateral...................................................................7

         Section 2.2       Grant of Security Interest in Collateral.....................................8

         Section 2.3       Cash Collateral Accounts.....................................................9

ARTICLE III. Representations And Warranties.............................................................9

         Section 3.1       Title; No Other Liens........................................................9

         Section 3.2       Perfection and Priority.....................................................10

         Section 3.3       State of Incorporation; Chief Executive Office..............................10

         Section 3.4       Inventory and Equipment.....................................................10

         Section 3.5       Pledged Collateral..........................................................10

         Section 3.6       Accounts....................................................................11

         Section 3.7       No Other Names..............................................................11

         Section 3.8       Intellectual Property.......................................................11

         Section 3.9       Deposit Accounts; Control Accounts..........................................12

ARTICLE IV. Covenants..................................................................................12

         Section 4.1       Generally...................................................................12

         Section 4.2       Maintenance of Perfected Security Interest; Further Documentation...........12

         Section 4.3       Changes in Locations, Name, Etc.............................................13

         Section 4.4       Pledged Collateral..........................................................13

         Section 4.5       Control Accounts; Approved Deposit Accounts.................................15

         Section 4.6       Accounts....................................................................15

         Section 4.7       Delivery of Instruments and Chattel Paper...................................16

         Section 4.8       Intellectual Property.......................................................16

         Section 4.9       Payment of Obligations......................................................18

         Section 4.10      Special Property............................................................18

         Section 4.11      Commercial Tort Claims......................................................18


                                       i



                                                                                                    
ARTICLE V. Remedial Provisions.........................................................................19

         Section 5.1       Code and Other Remedies.....................................................19

         Section 5.2       Accounts and Payments in Respect of General Intangibles.....................20

         Section 5.3       Pledged Collateral..........................................................21

         Section 5.4       Proceeds to be Turned Over To Secured Party.................................23

         Section 5.5       Registration Rights.........................................................24

         Section 5.6       Waiver; Deficiency..........................................................23

ARTICLE VI. The secured party..........................................................................24

         Section 6.1       Secured Party's Appointment as Attorney-in-Fact.............................24

         Section 6.2       Duty of Secured Party.......................................................26

         Section 6.3       Authorization of Financing Statements.......................................26

ARTICLE VII. Miscellaneous.............................................................................27

         Section 7.1       Amendments in Writing.......................................................27

         Section 7.2       Notices.....................................................................27

         Section 7.3       No Waiver by Course of Conduct; Cumulative Remedies.........................27

         Section 7.4       Successors and Assigns......................................................27

         Section 7.5       Counterparts................................................................27

         Section 7.6       Severability................................................................27

         Section 7.7       Section Headings............................................................28

         Section 7.8       Entire Agreement............................................................28

         Section 7.9       Governing Law...............................................................28

         Section 7.10      Additional Grantors.........................................................28

         Section 7.11      Release of Collateral.......................................................28

         Section 7.12      Reinstatement...............................................................29



                                       ii



Annexes and Schedules

         Annex 1        Collateral Account Control Agreement
         Annex 2        Pledge Amendment
         Annex 3        Joinder Agreement
         Annex 4        Form of Copyright Security Agreement
         Annex 5        Form of Patent Security Agreement
         Annex 6        Form of Trademark Security Agreement

         Schedule 1     State of Incorporation; Principal Executive Office
         Schedule 2     Pledged Collateral
         Schedule 3     Filings
         Schedule 4     Location of Inventory and Equipment
         Schedule 5     Intellectual Property
         Schedule 6     Bank Accounts; Control Accounts

                                      iii



                          PLEDGE AND SECURITY AGREEMENT

          Pledge And Security Agreement, dated as of September 28, 2001 (this
"Security Agreement"), by National Steel Corporation, a Delaware corporation
(the "Borrower") and each of the other entities listed on the signature pages
hereof or which becomes a party hereto pursuant to Section 7.10 (each a
"Grantor" and, collectively, the "Grantors"), in favor of NUF LLC ("Secured
Party").

                              W i t n e s s e t h:

          Whereas, pursuant to the Amended and Restated Subordinated Credit
Agreement, dated as of September 28, 2001 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Subordinated Credit
Agreement") between the Borrower and the Secured Party, the Secured Party has
agreed to make extensions of credit to the Borrower upon the terms and subject
to the conditions set forth therein; and

          Whereas, the Grantors other than the Borrower are party to the
Subordinated Guaranty pursuant to which they have guaranteed the Obligations;
and

          Whereas, it is a condition precedent to the obligation of the Secured
Party to make extensions of credit to the Borrower under the Subordinated Credit
Agreement that the Grantors shall have executed and delivered this Security
Agreement to the Secured Party;

          Now, therefore, in consideration of the premises and to induce the
Secured Party to enter into the Subordinated Credit Agreement and to induce the
Secured Party to make extensions of credit to the Borrower thereunder, each
Grantor hereby agrees with the Secured Party as follows:

          ARTICLE I. Defined Terms

          Section 1.1 Definitions.
                      -----------

          (a) Unless otherwise defined herein, terms defined in the Subordinated
Credit Agreement and used herein have the meanings given to them in the
Subordinated Credit Agreement.

          (b) Terms used herein that are defined in the UCC have the meanings
given to them in the UCC, including the following which are capitalized herein:

          "Account Debtor"
          "Accounts"
          "Chattel Paper"
          "Commercial Tort Claim"
          "Commodity Account"



          "Commodity Intermediary"
          "Deposit Account"
          "Documents"
          "Entitlement Holder"
          "Entitlement Order"
          "Equipment"
          "Financial Asset"
          "General Intangibles"
          "Instruments"
          "Inventory"
          "Investment Property"
          "Letter of Credit Right"
          "Payment Intangible"
          "Proceeds"
          "Security"
          "Securities Account"
          "Securities Intermediary"
          "Security Entitlement"

          (c) The following terms shall have the following meanings:

          "Additional Pledged Collateral" means all shares of, limited and/or
general partnership interests in, and limited liability company interests in,
and all securities convertible into, and warrants, options and other rights to
purchase or otherwise acquire, stock of, either (i) any Person that, after the
Execution Date of this Security Agreement, as a result of any occurrence,
becomes a direct Subsidiary of any Grantor or (ii) any issuer of Pledged Stock,
any Partnership or any LLC that are acquired by any Grantor after the Execution
Date; all certificates or other instruments representing any of the foregoing;
all Security Entitlements of any Grantor in respect of any of the foregoing; all
additional indebtedness from time to time owed to any Grantor by any obligor on
the Pledged Notes and the instruments evidencing such indebtedness; and all
interest, cash, instruments and other property or Proceeds from time to time
received, receivable or otherwise distributed in respect of or in exchange for
any or all of the foregoing. Additional Pledged Collateral may be General
Intangibles or Investment Property.

          "Approved Deposit Account" means a Deposit Account maintained by any
Grantor with a Deposit Account Bank which account is the subject of an effective
Collateral Account Control Agreement, and includes all monies on deposit therein
and all certificates and instruments, if any, representing or evidencing such
Approved Deposit Account.

          "Approved Securities Intermediary" means a Securities Intermediary or
Commodity Intermediary selected or approved by the Senior Agent or, following
the payment in full of the Senior Loan Obligations and termination of the
commitments under the Senior Credit Agreement, the Secured Party, and with
respect to which a

                                       2



Grantor has delivered to the Secured Party, an executed Collateral Account
Control Agreement.

          "Bankruptcy Code" shall mean Title 11 of the United States Code
entitled "Bankruptcy", as now and hereafter in effect, or any successor statute.

          "Cash Collateral Account" means any Deposit Account or Securities
Account established by the Senior Agent or the Secured Party as provided in
Section 2.3 of this Security Agreement in which cash and Cash Equivalents may
from time to time be on deposit or held therein as provided in Section 5.2 or
5.4 of this Security Agreement, in the Senior Credit Agreement or in the
Subordinated Credit Agreement.

          "Collateral" has the meaning specified in Section 2.1.

          "Control Account" means a Securities Account or Commodity Account
maintained by any Grantor with an Approved Securities Intermediary which account
is the subject of an effective Collateral Account Control Agreement, and
includes all Financial Assets held therein and all certificates and instruments,
if any, representing or evidencing the Financial Assets contained therein.

          "Collateral Account Control Agreement" means a letter agreement,
substantially in the form of Annex 1 hereto (with such changes as may be agreed
to by Secured Party), executed by the relevant Grantor, the Secured Party, and
the relevant Approved Securities Intermediary.

          "Copyrights" means (a) all copyrights arising under the laws of the
United States, any other country or any political subdivision thereof, whether
registered or unregistered and whether published or unpublished, all
registrations and recordings thereof, and all applications in connection
therewith, including all registrations, recordings and applications in the
United States Copyright Office or in any foreign counterparts thereof and (b)
the right to obtain all renewals thereof.

          "Copyright Licenses" means any written agreement naming any Grantor as
licensor or licensee granting any right under any Copyright, including the grant
of rights to copy, publicly perform, create derivative works, manufacture,
distribute, exploit and sell materials derived from any Copyright.

          "Deposit Account Bank" means a financial institution, which shall be a
"Bank" as defined in section 9-102 of the UCC, selected or approved by the
Senior Agent or, following the payment in full of the Senior Loan Obligations
and termination of the commitments under the Senior Credit Agreement, the
Secured Party and with respect to which a Grantor has delivered to the Secured
Party, an executed Collateral Account Control Agreement.

          "Excluded Property" means Special Property other than the following:

                                       3



          (a) the right to receive any payment of money (including, without
     limitation, general intangibles for money due or to become due); and

          (b) any proceeds, products, offspring, accessions, rents, profits,
     income, benefits, substitutions or replacements of any Special Property
     (unless such proceeds, products, offspring, accessions, rents, profits,
     income, benefits, substitutions or replacements itself would constitute
     Special Property).

          "Execution Date" means the date of execution and delivery of this
Security Agreement, as set forth on the signature page hereto.

          "Intellectual Property" means, collectively, all rights, priorities
and privileges of any Grantor relating to intellectual property, whether arising
under federal, state, multinational or foreign laws or otherwise, including
Copyrights, Copyright Licenses, Patents, Patent Licenses, Trademarks, Trademark
Licenses and trade secrets, and all rights to sue at law or in equity for any
infringement or other impairment thereof, including the right to receive all
proceeds and damages therefrom.

          "Intercompany Note" means any promissory note evidencing loans made by
any Grantor to any of its Subsidiaries or another Grantor.

          "LLC" means each limited liability company in which a Grantor has an
interest, including those set forth on Schedule 2.

          "LLC Agreement" means each operating agreement or similar constitutive
organizational document with respect to an LLC, as each agreement has heretofore
been and may hereafter be amended, restated, supplemented or otherwise modified
from time to time.

          "Material Intellectual Property" means Intellectual Property owned by
or licensed to a Grantor which is material to its business.

          "Partnership" means each partnership in which a Grantor has an
interest, including those set forth on Schedule 2.

          "Partnership Agreement" means each partnership agreement governing a
Partnership, as each such agreement has heretofore been and may hereafter be
amended, restated, supplemented or otherwise modified.

          "Patents" means (a) all letters patent of the United States, any other
country or any political subdivision thereof and all reissues and extensions
thereof, (b) all applications for letters patent of the United States or any
other country and all divisions, continuations and continuations-in-part
thereof, and (c) all rights to obtain any reissues or extensions of the
foregoing.

                                       4



          "Patent License" means all agreements, whether written or oral,
providing for the grant by or to any Grantor of any right to manufacture, use,
import, sell or offer for sale any invention covered in whole or in part by a
Patent.

          "Pledged Collateral" means, collectively, the Pledged Notes, the
Pledged Stock, the Pledged Partnership Interests, the Pledged LLC Interests, any
other Investment Property of any Grantor in excess of $1,000,000, all
certificates or other instruments representing any of the foregoing and all
Security Entitlements of any Grantor in respect of any of the foregoing. Pledged
Collateral may be General Intangibles or Investment Property.

          "Pledged LLC Interests" means all right, title and interest of any
Grantor as a member of any LLC and all right, title and interest of any Grantor
in, to and under any LLC Agreement to which it is a party; provided, however,
the interests in any LLC owned on the Effective Date as set forth on Schedule
4.16 of the Subordinated Credit Agreement are excluded so long as such LLC is
not a Material Subsidiary.

          "Pledged Notes" means all right, title and interest of any Grantor in
the Instruments evidencing all Indebtedness owed to such Grantor, including all
Intercompany Notes and including all Indebtedness described on Schedule 2,
issued by the obligors named therein.

          "Pledged Partnership Interests" means all right, title and interest of
any Grantor as a limited and/or general partner in all Partnerships and all
right, title and interest of any Grantor in, to and under any Partnership
Agreements to which it is a party; provided, however, the interests in
Partnerships owned on the Effective Date as set forth on Schedule 4.16 of the
Subordinated Credit Agreement are excluded so long as such Partnership is not a
Material Subsidiary.

          "Pledged Stock" means the shares of capital stock owned by each
Grantor, including all shares of capital stock listed on Schedule 2; provided,
however, that only the outstanding capital stock of a subsidiary that is not a
Domestic Subsidiary possessing up to but not exceeding 65% of the voting power
of all classes of capital stock of such controlled foreign corporation entitled
to vote shall be deemed to be pledged hereunder; and, provided, further, that
the capital stock of the Subsidiaries listed on Schedule 1.1 of the Subordinated
Credit Agreement as non-Material Subsidiaries shall not be deemed to be pledged
hereunder for so long as such Subsidiaries are not Material Subsidiaries.

          "Related Contract" means each security agreement, lease and other
contract securing or otherwise relating to any Account.

          "Securities Act" means the Securities Act of 1933, as amended.

          "Senior Pledge and Security Agreement" means the Pledge and Security
Agreement, dated as of September 28, 2001, by the Borrower and each of the other

                                       5



entities listed on the signature pages thereof or which becomes a party thereto,
in favor of the Senior Agent, for the Secured Parties (as defined therein).

          "Special Property" means:

          (a) any permit, lease or license held by any Grantor that validly
     prohibits the creation by such Grantor of a security interest therein;

          (b) any permit, lease or license held by any Grantor to the extent
     that any Requirement of Law applicable thereto prohibits the creation of a
     security interest therein;

          (c) Equipment owned by any Grantor on the Execution Date that is
     subject to a purchase money Lien or a Capital Lease Obligation if the
     contract or other agreement in which such Lien is granted (or in the
     documentation providing for such Capital Lease Obligation) validly
     prohibits the creation of any other Lien on such Equipment; and

          (d) Investment Property and General Intangibles owned by any Grantor
     on the Execution Date that is subject to a negative pledge if the agreement
     in which such negative pledge is contained validly prohibits the pledge of
     such Investment Property or General Intangible, as the case may be;

in each case, (i) other than to the extent that any such term would be rendered
ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any
successor provision or provisions) of any relevant jurisdiction, any other
applicable law (including the Bankruptcy Code) or principles of equity and (ii)
only to the extent, and for so long as, such permit, lease, license, contract or
other agreement, or Requirement of Law applicable thereto, validly prohibits the
creation of a Lien in such property in favor of the Secured Party (and upon the
termination of such prohibition (howsoever occurring)) such permit, lease,
license or equipment shall cease to be "Special Property".

          "Subordinated Credit Agreement" has the meaning specified in the
recitals hereto.

          "Trademarks" means (a) all trademarks, trade names, corporate names,
company names, business names, fictitious business names, trade styles, service
marks, logos and other source or business identifiers, and all goodwill
associated therewith, now existing or hereafter adopted or acquired, all
registrations and recordings thereof, and all applications in connection
therewith, whether in the United States Patent and Trademark Office or in any
similar office or agency of the United States, any State thereof or any other
country or any political subdivision thereof, or otherwise, and all common-law
rights related thereto, and (b) the right to obtain all renewals thereof.

          "Trademark License" means any agreement, whether written or oral,
providing for the grant by or to any Grantor of any right to use any Trademark.

                                       6



          "UCC" means the Uniform Commercial Code as from time to time in effect
in the State of New York; provided, however, that in the event that, by reason
of mandatory provisions of law, any or all of the attachment, perfection or
priority of the Secured Party's security interest in any Collateral is governed
by the Uniform Commercial Code as in effect in a jurisdiction other than the
State of New York, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such attachment, perfection or priority and for purposes of definitions
related to such provisions.

          Section 1.2 Certain Other Terms.
                      -------------------

          (a) The words "herein," "hereof" and "hereunder" and similar words
refer to this Security Agreement as a whole and not to any particular Article,
Section, clause or sub-clause in this Security Agreement.

          (b) References herein to an Annex, Schedule, Article, Section,
subsection or clause refer to the appropriate Annex or Schedule to, or Article,
Section, subsection or clause in this Security Agreement.

          (c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.

          (d) Where the context requires, provisions relating to the Collateral
or any part thereof, when used in relation to a Grantor, shall refer to such
Grantor's Collateral or the relevant part thereof.

          (e) Any reference in this Security Agreement to a Loan Document shall
include all appendices, exhibits and schedules thereto, and, unless specifically
stated otherwise all amendments, restatements, supplements or other
modifications thereto, and as the same may be in effect at any and all times
such reference becomes operative.

          (f) The term "including" means "including without limitation" except
when used in the computation of time periods.

          (g) The term "Secured Party" includes its respective successors.

          (h) References in this Security Agreement to any statute shall be to
such statute as amended or modified and in effect from time to time.

          ARTICLE II. Grant of Security Interest

          Section 2.1 Collateral. For the purposes of this Security Agreement,
                      ----------
all of the following property now owned or at any time hereafter acquired by a
Grantor or in which a Grantor now has or at any time in the future may acquire
any right, title or interests is collectively referred to as the "Collateral":

                                       7



          (a) all Accounts;

          (b) all Chattel Paper;

          (c) all Deposit Accounts;

          (d) all Documents;

          (e) all Equipment which is not now or hereafter affixed, actually or
constructively, to, or erected in or upon, real property and plants encumbered
by the Indenture;

          (f) all General Intangibles, except as excluded herein;

          (g) all Instruments;

          (h) all Inventory;

          (i) all Investment Property, except as excluded herein;

          (j) all Letter of Credit Rights;

          (k) all Commercial Tort Claims arising from damage to such Grantor's
personal or real property, including inventory, in excess of $2,000,000;

          (l) all other goods and personal property of such Grantor whether
tangible or intangible wherever located;

          (m) all property of any Grantor held by the Senior Agent, any Senior
Secured Party or the Secured Party, including all property of every description,
in the possession or custody of or in transit to the Senior Agent, any Senior
Secured Party or the Secured Party for any purpose, including safekeeping,
collection or pledge, for the account of such Grantor or as to which such
Grantor may have any right or power;

          (n) to the extent not otherwise included, all Proceeds; and

          (o) all books and records pertaining to the foregoing.

          Section 2.2 Grant of Security Interest in Collateral. Each Grantor, as
                      ----------------------------------------
collateral security for the full, prompt and complete payment and performance
when due (whether at stated maturity, by acceleration or otherwise) of the
Secured Obligations of such Grantor, hereby collaterally assigns, mortgages,
pledges and hypothecates to the Secured Party, and grants to the Secured Party a
lien on and security interest in, all of its right, title and interest in, to
and under the Collateral of such Grantor; provided, however, that the foregoing
grant of a security interest shall not include a security interest in Excluded
Property and provided, further, that if and when the prohibition which prevents
the granting by such Grantor to the Secured Party of a security interest in such
Excluded

                                       8



Property is removed or otherwise terminated, the Secured Party will be deemed to
have, and at all times from and after the date hereof to have had, a security
interest in such Excluded Property, as the case may be.

          Section 2.3 Cash Collateral Accounts. The Senior Agent has established
                      ------------------------
a Deposit Account at Citibank, designated as "Citicorp USA, Inc. - National
Steel Corporation Concentration Account". The Borrower agrees to promptly
provide notice to the Secured Party of any other Deposit Accounts established by
the Senior Agent. Following the payment in full of the Senior Loan Obligations
and termination of the commitments under the Senior Credit Agreement, the
Borrower agrees as follows: (i) the Secured Party may establish one or more
Deposit Accounts and one or more Securities Accounts with such depositaries and
Securities Intermediaries as it in its sole discretion shall determine; (ii)
each such account shall be in the name of the Secured Party (but may also have
words referring to the Borrower and the account's purpose); (iii) each such
account shall be under the sole dominion and control of the Secured Party; (iv)
the Secured Party shall be the entitlement holder with respect to each such
Securities Account and the only Person authorized to give entitlement orders
with respect thereto; and (v) without limiting the foregoing, funds on deposit
in any Cash Collateral Account may be invested in Cash Equivalents at the
direction of the Secured Party and, except during the continuance of an Event of
Default, the Secured Party agrees with the Borrower to issue entitlement orders
for such investments in Cash Equivalents as requested by the Borrower; provided,
however, that the Secured Party shall not have any responsibility for, or bear
any risk of loss of, any such investment or income thereon. Neither the Borrower
nor any other Loan Party or Person claiming on behalf of or through the Borrower
or any other Loan Party shall have any right to demand payment of any of the
funds held in any Cash Collateral Account at any time prior to the payment in
full of all then outstanding monetary Obligations then due and payable. The
Secured Party shall apply all funds on deposit in any Cash Collateral Account as
provided in the Subordinated Credit Agreement and except during the continuance
of an Event of Default agrees to cause any funds remaining on deposit therein
after all Obligations then due and payable have been satisfied to be paid at the
written direction of the Borrower.

          ARTICLE III. REPRESENTATIONS AND WARRANTIES

          To induce the Secured Party to enter into the Subordinated Credit
Agreement, each Grantor hereby represents and warrants to the Secured Party
that:

          Section 3.1 Title; No Other Liens. Except for the Lien granted to the
                      ---------------------
Senior Agent pursuant to the Senior Pledge and Security Agreement, the Liens
granted to the Secured Party under this Security Agreement and the other Liens
permitted to exist on the Collateral under the Subordinated Credit Agreement,
such Grantor is the record and beneficial owner of the Pledged Collateral
pledged by it hereunder constituting Instruments or certificated securities, is
the entitlement holder of all such Pledged Collateral constituting Investment
Property held in a Securities Account and has rights in

                                       9



or the power to transfer each other item of Collateral in which a Lien is
granted by it hereunder, free and clear of any and all Liens.

          Section 3.2 Perfection and Priority. The security interest granted
                      -----------------------
pursuant to this Security Agreement will constitute a valid and continuing
perfected security interest in favor of the Secured Party in the Collateral for
which perfection is governed by the UCC or filing with the United States
Copyright Office upon (i) the completion of the filings and other actions
specified on Schedule 3 (which, in the case of all filings and other documents
referred to on such schedule, have been delivered to the Secured Party in
completed and duly executed form), (ii) the delivery to the Senior Agent of all
Collateral consisting of Instruments and certificated securities, in each case
properly endorsed for transfer to the Senior Agent or in blank, (iii) the
execution of Collateral Account Control Agreements with respect to Investment
Property not in certificated form, (iv) the execution of Collateral Account
Control Agreements with respect to all Deposit Accounts (other than the Cash
Collateral Account), and (v) all appropriate filings having been made with the
United States Copyright Office. Such security interest will be prior to all
other Liens on the Collateral except for (x) the Liens of the Senior Agent
securing the Senior Loan Obligations and (y) Customary Permitted Liens which
have priority over the Secured Party's Lien by operation of law or otherwise as
permitted under the Subordinated Credit Agreement.

          Section 3.3 State of Incorporation; Chief Executive Office. On the
                      ----------------------------------------------
Execution Date such Grantor's jurisdiction of organization, organizational
identification number, if any, and the location of such Grantor's chief
executive office or sole place of business is specified on Schedule 1.

          Section 3.4 Inventory and Equipment. On the Execution Date, such
                      -----------------------
Grantor's Inventory and Equipment (other than mobile goods and Inventory or
Equipment in transit) are kept at the locations listed on Schedule 4.

          Section 3.5 Pledged Collateral.
                      ------------------

          (a) The Pledged Stock, Pledged Partnership Interests and Pledged LLC
Interests pledged hereunder by such Grantor are listed on Schedule 2 and
constitute that percentage of the issued and outstanding equity of all classes
of each issuer thereof as set forth on Schedule 2.

          (b) All of the Pledged Stock, Pledged Partnership Interests and
Pledged LLC Interests have been duly and validly issued and are fully paid and
nonassessable.

          (c) Each of the Pledged Notes constitutes the legal, valid and binding
obligation of the obligor with respect thereto, enforceable in accordance with
its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and other similar laws relating to or
affecting creditors' rights generally, and general equitable principles (whether
considered in a proceeding in equity or at law).

                                       10



          (d) All Pledged Collateral and, if applicable, any Additional Pledged
Collateral, consisting of certificated securities or Instruments has been
delivered to the Senior Agent in accordance with Section 4.4(a) of the Senior
Pledge and Security Agreement.

          (e) All Pledged Collateral held by a Securities Intermediary in a
Securities Account is in a Control Account.

          (f) Other than the Pledged Partnership Interests and the Pledged LLC
Interests that constitute General Intangibles, there is no Pledged Collateral
other than that represented by certificated securities or Instruments in the
possession of the Senior Agent or that consisting of Financial Assets held in a
Control Account.

          Section 3.6 Accounts. No amount payable to such Grantor under or in
                      --------
connection with any Account is evidenced by any Instrument or Chattel Paper
which has not been delivered to the Senior Agent, properly endorsed for
transfer, to the extent delivery is required by Section 4.4 of the Senior Pledge
and Security Agreement.

          Section 3.7 No Other Names. Except as set forth on Schedule 1, within
                      --------------
the five (5)-year period preceding the Execution Date such Grantor has not had,
or operated in any jurisdiction, under any trade name, fictitious name or other
name other than its legal name.

          Section 3.8 Intellectual Property.
                      ---------------------

          (a) Schedule 5 lists all Material Intellectual Property of such
Grantor on the Execution Date, separately identifying that owned by such Grantor
and that licensed to such Grantor. The Material Intellectual Property set forth
on Schedule 5 for such Grantor constitutes all of the intellectual property
rights necessary to conduct its business.

          (b) On the Execution Date, all Material Intellectual Property owned by
such Grantor is valid, subsisting, unexpired and enforceable, has not been
adjudged invalid and has not been abandoned and the use thereof in the business
of such Grantor does not infringe the intellectual property rights of any other
Person.

          (c) Except as set forth in Schedule 5, on the Execution Date, none of
the Material Intellectual Property owned by such Grantor is the subject of any
licensing or franchise agreement pursuant to which such Grantor is the licensor
or franchisor.

          (d) No holding, decision or judgment has been rendered by any
Governmental Authority that would limit, cancel or question the validity of, or
such Grantor's rights in, any Material Intellectual Property.

          (e) No action or proceeding seeking to limit, cancel or question the
validity of any Material Intellectual Property owned by such Grantor or such
Grantor's ownership interest therein is on the Execution Date pending or, to the
knowledge of such

                                       11



Grantor, threatened. There are no claims, judgments or settlements to be paid by
such Grantor relating to the Material Intellectual Property.

          Section 3.9 Deposit Accounts; Control Accounts. The only Deposit
                      ----------------------------------
Accounts or Securities Accounts maintained by any Grantor on the Execution Date
are those listed on Schedule 6, which sets forth such information separately for
each Grantor.

          ARTICLE IV. COVENANTS

          As long as any of the Obligations or the Commitments remain
outstanding, unless the Secured Party otherwise consents in writing, each
Grantor agrees with the Secured Party that:

          Section 4.1 Generally. Such Grantor shall (a) except for the security
                      ---------
interest created by this Security Agreement, not create or suffer to exist any
Lien upon or with respect to any of the Collateral, except Liens permitted under
Section 7.1 of the Subordinated Credit Agreement; (b) not use or permit any
Collateral to be used unlawfully or in violation of any provision of this
Security Agreement, any other Loan Document, any Requirement of Law or any
policy of insurance covering the Collateral; (c) not sell, transfer or assign
(by operation of law or otherwise) any Collateral except as permitted under the
Senior Credit Agreement and the Subordinated Credit Agreement; (d) not enter
into any agreement or undertaking restricting the right or ability of such
Grantor or the Secured Party to sell, assign or transfer any of the Collateral
if such restriction would have a Material Adverse Effect; and (e) promptly
notify the Secured Party of its entry into any agreement or assumption of
undertaking that restricts the ability to sell, assign or transfer any of the
Collateral regardless of whether or not it has a Material Adverse Effect.

          Section 4.2 Maintenance of Perfected Security Interest; Further
                      ---------------------------------------------------
Documentation.
- -------------

          (a) Such Grantor will maintain the security interest created by this
Security Agreement as a perfected security interest having at least the priority
described in Section 3.2 and shall defend such security interest against the
claims and demands of all Persons.

          (b) Such Grantor will furnish to the Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as the Secured Party may
reasonably request, all in reasonable detail.

          (c) At any time and from time to time, upon the written request of the
Secured Party, and at the sole expense of such Grantor, such Grantor will
promptly and duly execute and deliver, and have recorded, such further
instruments and documents and take such further action as the Secured Party may
reasonably request for the purpose of obtaining or preserving the full benefits
of this Security Agreement and of the rights and

                                       12



powers herein granted, including (i) the filing of any financing or continuation
statement under the UCC (or other similar laws) in effect in any jurisdiction
with respect to the security interest created hereby, (ii) the execution and
delivery of Collateral Account Control Agreements, and (iii) all additional
documentation and filings with respect to hereafter arising Commercial Tort
Claims arising from damage to such Grantor's personal or real property,
including inventory, in excess of $2,000,000.

          Section 4.3 Changes in Locations, Name, Etc.
                      -------------------------------

          (a) Except upon fifteen (15) days' prior written notice to the Secured
Party and delivery to the Secured Party of (x) all additional authorized
financing statements and other documents reasonably requested by the Secured
Party to maintain the validity, perfection and priority of the security
interests provided for herein and (y) if applicable, a written supplement to
Schedule 4 showing any additional location at which Inventory or Equipment shall
be kept, such Grantor will not:

          (i) permit any of the Inventory or Equipment to be kept at a location
     other than those listed on Schedule 4;

          (ii) change (x) its state of incorporation or organization or (y) the
     location of its chief executive office or sole place of business from that
     referred to in Section 3.3; or

          (iii) change its name, identity or corporate structure to such an
     extent that any financing statement filed in connection with this Security
     Agreement would become misleading.

          (b) Such Grantor will keep and maintain at its own cost and expense
complete records of the Collateral, including a record of all payments received
and all credits granted with respect to the Collateral and all other dealings
with the Collateral all in form and detail reasonably satisfactory to the
Secured Party.

          Section 4.4 Pledged Collateral.
                      ------------------

          (a) Such Grantor will (i) deliver to the Secured Party notice of all
certificates and Instruments representing or evidencing any Pledged Collateral
(including Additional Pledged Collateral) delivered to the Senior Agent,
together, in respect of any Additional Pledged Collateral, with a Pledge
Amendment, duly executed by the Grantor, in substantially the form of Annex 2 (a
"Pledge Amendment"), and authorizes the Secured Party to attach each Pledge
Amendment to this Security Agreement, (ii) following the payment in full of the
Senior Loan Obligations and termination of the Commitments under the Senior
Credit Agreement, deliver to the Secured Party all certificates and Instruments
representing or evidencing any Pledged Collateral (including Additional Pledged
Collateral), whether now existing or hereafter acquired, in suitable form for
transfer by delivery or, as applicable, accompanied by such Grantor's
endorsement, where necessary, or duly executed instruments of transfer or
assignment in blank, all in

                                       13



form and substance satisfactory to the Secured Party, together, in respect of
any Additional Pledged Collateral, with a Pledge Amendment, duly executed by the
Grantor, or such other documentation acceptable to the Secured Party and (iii)
maintain all other Pledged Collateral constituting Investment Property in a
Control Account. Following the payment in full of the Senior Loan Obligations
and termination of the commitments under the Senior Credit Agreement, the
Secured Party shall have the right (i) at any time in its discretion and without
notice to the Grantor, to transfer to or to register in its name or in the name
of its nominees any or all of the Pledged Collateral and (ii) at any time to
exchange certificates or instruments representing or evidencing any of the
Pledged Collateral for certificates or instruments of smaller or larger
denominations.

          (b) Except as provided in Article V, such Grantor shall be entitled to
receive all cash dividends paid in respect of the Pledged Collateral (other than
liquidating or distributing dividends) with respect to the Pledged Collateral.
Subject to the provisions of the Lien Subordination Agreement, any sums paid
upon or in respect of any of the Pledged Collateral upon the liquidation or
dissolution of any issuer of any of the Pledged Collateral, any distribution of
capital made on or in respect of any of the Pledged Collateral or any property
distributed upon or with respect to any of the Pledged Collateral pursuant to
the recapitalization or reclassification of the capital of any issuer of Pledged
Collateral or pursuant to the reorganization thereof shall unless otherwise
subject to a perfected security interest in favor of the Secured Party, be
delivered to the Secured Party to be held by it hereunder as additional
collateral security for the Secured Obligations. If any sums of money or
property so paid or distributed in respect of any of the Pledged Collateral
shall be received by such Grantor, such Grantor shall, until such money or
property is paid or delivered to the Secured Party, hold such money or property
in trust for the Secured Party, segregated from other funds of such Grantor, as
additional security for the Secured Obligations.

          (c) Except as provided in Article V, and subject to the provisions of
the Lien Subordination Agreement, such Grantor will be entitled to exercise all
voting, consent and corporate rights with respect to the Pledged Collateral;
provided, however, that no vote shall be cast, consent given or right exercised
or other action taken by such Grantor which would impair the Collateral or which
would be inconsistent with or result in any violation of any provision of the
Subordinated Credit Agreement, this Security Agreement or any other Subordinated
Loan Document or, without prior notice to the Secured Party, to enable or take
any other action to permit any issuer of Pledged Collateral to issue any stock
or other equity securities of any nature or to issue any other securities
convertible into or granting the right to purchase or exchange for any stock or
other equity securities of any nature of any issuer of Pledged Collateral.

          (d) Such Grantor shall not grant control over any Investment Property
to any Person other than the Secured Party, other than (so long as the Senior
Loan Obligations remain outstanding) control granted in favor of the Senior
Agent in accordance with the Senior Pledge and Security Agreement.

                                       14



          (e) In the case of each Grantor which is an issuer of Pledged
Collateral, such Grantor agrees to be bound by the terms of this Agreement
relating to the Pledged Collateral issued by it and will comply with such terms
insofar as such terms are applicable to it. In the case of each Grantor which is
a partner in a Partnership, such Grantor hereby consents to the extent required
by the applicable Partnership Agreement to the pledge by each other Grantor,
pursuant to the terms hereof, of the Pledged Partnership Interests in such
Partnership and to the transfer of such Pledged Partnership Interests to the
Secured Party or its nominee and to the substitution of the Secured Party or its
nominee as a substituted partner in such Partnership with all the rights, powers
and duties of a general partner or a limited partner, as the case may be. In the
case of each Grantor which is a member of an LLC, such Grantor hereby consents
to the extent required by the applicable LLC Agreement to the pledge by each
other Grantor, pursuant to the terms hereof, of the Pledged LLC Interests in
such LLC and to the transfer of such Pledged LLC Interests to the Secured Party
or its nominee and to the substitution of the Secured Party or its nominee as a
substituted member of the LLC with all the rights, powers and duties of a member
of the LLC in question; provided, however, that the terms of this Section 4.4(e)
are subject to the provisions of the Lien Subordination Agreement.

          (f) Such Grantor will not agree to any amendment of an LLC Agreement
or Partnership Agreement that in any way adversely affects the perfection of the
security interest of the Secured Party in the Pledged Partnership Interests or
Pledged LLC Interests pledged by such Grantor hereunder, including any amendment
electing to treat the membership interest or partnership interest of such
Grantor as a security under Section 8-103 of the UCC.

          Section 4.5 Control Accounts; Approved Deposit Accounts. Subject to
                      -------------------------------------------
the provisions of the Lien Subordination Agreement, in the event (i) such
Grantor or any Approved Securities Intermediary or Deposit Account Bank shall,
after the Execution Date, terminate an agreement with respect to the maintenance
of a Control Account or Approved Deposit Account for any reason, (ii) the
Secured Party shall demand such termination as a result of the failure of an
Approved Securities Intermediary or Deposit Account Bank to comply with the
terms of the applicable Collateral Account Control Agreement, or (iii) the
Secured Party determines in its sole discretion that the financial condition of
an Approved Securities Intermediary or Deposit Account Bank, as the case may be,
has materially deteriorated, such Grantor agrees to notify all of its obligors
that were making payments to such terminated Control Account or Approved Deposit
Account, as the case may be, to make all future payments to another Control
Account or Approved Deposit Account, as the case may be.

          Section 4.6 Accounts.
                      --------

          (a) Such Grantor will not, other than in the ordinary course of
business consistent with its past practice, (i) grant any extension of the time
of payment of any Account, (ii) compromise or settle any Account for less than
the full amount thereof, (iii) release, wholly or partially, any Person liable
for the payment of any Account, (iv) allow

                                       15



any credit or discount on any Account, or (v) amend, supplement or modify any
Account in any manner that could adversely affect the value thereof.

          (b) At the sole cost and expense of the relevant Grantor, such Grantor
shall furnish to the Secured Party copies of each report provided to the Senior
Agent pursuant to Section 4.6 of the Senior Pledge and Security Agreement. The
Secured Party shall have the right (and, after the payment in full of the Senior
Obligations and termination of the commitments under the Senior Credit
Agreement, at the sole cost and expense of the relevant Grantor) to make test
verifications of the Accounts in any manner and through any medium that it
reasonably considers advisable, and such Grantor shall furnish all such
assistance and information as the Secured Party may reasonably require in
connection therewith. At any time and from time to time, upon the Secured
Party's request and at the expense of the relevant Grantor, such Grantor shall
cause independent public accountants or others satisfactory to the Secured Party
to furnish to the Secured Party reports showing reconciliations, aging and test
verifications of, and trial balances for, the Accounts; provided, however, that
unless a Default or Event of Default shall be continuing, the Secured Party
shall request no more than four such reports during any calendar year.

          Section 4.7 Delivery of Instruments and Chattel Paper. Following the
                      -----------------------------------------
payment in full of the Senior Loan Obligations and termination of the
commitments under the Senior Credit Agreement, if any amount in excess of
$100,000 payable under or in connection with any of the Collateral owned by such
Grantor shall be or become evidenced by an Instrument or Chattel Paper, such
Grantor shall immediately deliver such Instrument or Chattel Paper to the
Secured Party, duly indorsed in a manner satisfactory to the Secured Party, or,
if consented to by the Secured Party, shall mark all such Instruments and
Chattel Paper with the following legend: "This writing and the obligations
evidenced or secured hereby are subject to the security interest of NUF LLC".

          Section 4.8 Intellectual Property.
                      ---------------------

          (a) Such Grantor (either itself or through licensees) will (i)
continue to use each Trademark that is Material Intellectual Property in order
to maintain such Trademark in full force and effect with respect to each class
of goods for which such Trademark is currently used, free from any claim of
abandonment for non-use, (ii) maintain as in the past the quality of products
and services offered under such Trademark, (iii) use such Trademark with the
appropriate notice of registration and all other notices and legends required by
applicable Requirements of Law, (iv) not adopt or use any mark which is
confusingly similar or a colorable imitation of such Trademark unless the
Secured Party shall obtain a perfected security interest in such mark pursuant
to this Security Agreement and (v) not (and not permit any licensee or
sublicensee thereof to) do any act or knowingly omit to do any act whereby such
Trademark may become invalidated or impaired in any way.

                                       16



          (b) Such Grantor (either itself or through licensees) will not do any
act, or omit to do any act, whereby any Patent which is Material Intellectual
Property may become forfeited, abandoned or dedicated to the public.

          (c) Such Grantor (either itself or through licensees) (i) will not
(and will not permit any licensee or sublicensee thereof to) do any act or omit
to do any act whereby any portion of the Copyrights which is Material
Intellectual Property may become invalidated or otherwise impaired and (ii) will
not (either itself or through licensees) do any act whereby any portion of the
Copyrights which is Material Intellectual Property may fall into the public
domain.

          (d) Such Grantor (either itself or through licensees) will not do any
act, or omit to do any act, whereby any trade secret which is Material
Intellectual Property may become publicly available or otherwise unprotectable.

          (e) Such Grantor (either itself or through licensees) will not do any
act that knowingly uses any Material Intellectual Property to infringe the
intellectual property rights of any other Person.

          (f) Such Grantor will notify the Secured Party immediately if it
knows, or has reason to know, that any application or registration relating to
any Material Intellectual Property may become forfeited, abandoned or dedicated
to the public, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, the United States Copyright
Office or any court or tribunal in any country) regarding such Grantor's
ownership of, right to use, interest in, or the validity of, any Material
Intellectual Property or such Grantor's right to register the same or to own and
maintain the same.

          (g) Whenever such Grantor, either by itself or through any agent,
licensee or designee, shall file an application for the registration of any
Intellectual Property with the United States Patent and Trademark Office, the
United States Copyright Office or any similar office or agency within or outside
the United States, such Grantor shall report such filing to the Secured Party
within five Business Days after the last day of the fiscal quarter in which such
filing occurs. Upon request of the Secured Party, such Grantor shall execute and
deliver, and have recorded, any and all agreements, instruments, documents, and
papers as the Secured Party may request to evidence the Secured Party's security
interest in any Copyright, Patent or Trademark and the goodwill and general
intangibles of such Grantor relating thereto or represented thereby.

          (h) Such Grantor will take all reasonable actions necessary or
requested by the Secured Party, including in any proceeding before the United
States Patent and Trademark Office, the United States Copyright Office or any
similar office or agency, to maintain and pursue each application (and to obtain
the relevant registration) and to maintain each registration of any Copyright,
Trademark or Patent that is Material Intellectual Property, including filing of
applications for renewal, affidavits of use,

                                       17



affidavits of incontestability and opposition and interference and cancellation
proceedings.

          (i) In the event that any Material Intellectual Property is infringed
upon or misappropriated or diluted by a third party, such Grantor shall notify
the Secured Party promptly after such Grantor learns thereof. Such Grantor shall
take appropriate action in response to such infringement, misappropriation of
dilution, including promptly bringing suit for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation of dilution, and shall take such other actions may be
appropriate in its reasonable judgment under the circumstances to protect such
Material Intellectual Property.

          (j) Unless otherwise agreed to by the Secured Party, such Grantor will
execute and deliver to the Secured Party for filing in (i) the United States
Copyright Office a short-form copyright security agreement in the form attached
hereto as Annex 4, (ii) in the United States Patent and Trademark Office a
short-form patent security agreement in the form attached hereto as Annex 5 and
(iii) the United States Patent and Trademark Office a short-form trademark
security agreement in form attached hereto as Annex 6.

          Section 4.9 Payment of Obligations. Such Grantor will pay and
                      ----------------------
discharge or otherwise satisfy at or before maturity or before they become
delinquent, as the case may be, all taxes, assessments and governmental charges
or levies imposed upon the Collateral or in respect of income or profits
therefrom, as well as all claims of any kind (including claims for labor,
materials and supplies) against or with respect to the Collateral, except that
no such charge need be paid if the amount or validity thereof is currently being
contested in good faith by appropriate proceedings, reserves in conformity with
GAAP with respect thereto have been provided on the books of such Grantor and
such proceedings could not reasonably be expected to result in the sale,
forfeiture or loss of any material portion of the Collateral or any interest
therein.

          Section 4.10 Special Property. Each Grantor shall from time to time at
                       ----------------
the request of the Secured Party give written notice to the Secured Party
identifying in reasonable detail the Special Property (and stating in such
notice that such Special Property constitutes "Excluded Property") and shall
provide to the Secured Party such other information regarding the Special
Property as the Secured Party may reasonably request and, from and after the
Closing Date, no Grantor shall permit to become effective in any document a
provision that would prohibit the creation of a Lien on any permit, lease,
license or equipment in favor of the Secured Party.

          Section 4.11 Commercial Tort Claims. Each Grantor shall upon knowledge
                       ----------------------
of the existence of any hereafter arising Commercial Tort Claims arising from
damage to such Grantor's personal or real property, including inventory, in
excess of $2,000,000 give written notice to the Secured Party identifying in
reasonable detail such

                                       18



Commercial Tort Claim and shall provide to the Secured Party such other
information regarding the Commercial Tort Claim as the Secured Party may
reasonably request.

          ARTICLE V. REMEDIAL PROVISIONS

          Section 5.1 Code and Other Remedies. During the continuance of an
                      -----------------------
Event of Default (and, if prior to the payment in full of the Senior Loan
Obligations and termination of the commitments under the Senior Credit
Agreement, only to the extent not expressly prohibited by the provisions of the
Senior Credit Agreement or Article VIII of the Subordinated Credit Agreement),
the Secured Party may exercise, in addition to all other rights and remedies
granted to them in this Security Agreement and in any other instrument or
agreement securing, evidencing or relating to the Secured Obligations, all
rights and remedies of a secured party under the UCC or any other applicable
law. Without limiting the generality of the foregoing, the Secured Party (and,
if prior to the payment in full of the Senior Loan Obligations and termination
of the commitments under the Senior Credit Agreement, only to the extent not
expressly prohibited by the provisions of the Senior Credit Agreement or Article
VIII of the Subordinated Credit Agreement), without demand of performance or
other demand, presentment, protest, advertisement or notice of any kind (except
any notice required by law referred to below) to or upon any Grantor or any
other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, grant options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Secured Party or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Secured Party shall have the right (and, if
prior to the payment in full of the Senior Loan Obligations and termination of
the commitments under the Senior Credit Agreement, only to the extent not
expressly prohibited by the provisions of the Senior Credit Agreement or Article
VIII of the Subordinated Credit Agreement) upon any such public sale or sales,
and, to the extent permitted by law, upon any such private sale or sales, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption in any Grantor, which right or equity is hereby waived and
released. Each Grantor further agrees (and, if prior to the payment in full of
the Senior Loan Obligations and termination of the commitments under the Senior
Credit Agreement, only to the extent not expressly prohibited by the provisions
of the Senior Credit Agreement or Article VIII of the Subordinated Credit
Agreement), at the Secured Party's request, to assemble the Collateral and make
it available to the Secured Party at places which the Secured Party shall
reasonably select, whether at such Grantor's premises or elsewhere. The Secured
Party shall apply the net proceeds of any action taken by it pursuant to this
Section 5.1, after deducting all reasonable costs and expenses of every kind
incurred in connection therewith or incidental to the care or safekeeping of any
of the Collateral or in any way relating to the Collateral or the rights of the
Secured Party hereunder, including

                                       19



reasonable attorneys' fees and disbursements, to the payment in whole or in part
of the Secured Obligations, in such order as the Subordinated Credit Agreement
shall prescribe, and only after such application and after the payment by the
Secured Party of any other amount required by any provision of law, need the
Secured Party account for the surplus, if any, to any Grantor. Each Grantor
shall, subject to the Lien Subordination Agreement and the subordination
provisions of Article VIII of the Subordinated Credit Agreement, remain liable
for any deficiency if the proceeds of any sale or disposition of the Collateral
are insufficient to pay all amounts to which the Secured Party is entitled, such
Grantor also being liable for the fees and expenses of any attorneys employed by
the Secured Party to collect such deficiency. To the extent permitted by
applicable law, each Grantor waives all claims, damages and demands it may
acquire against the Secured Party arising out of the exercise by them of any
rights hereunder. If any notice of a proposed sale or other disposition of
Collateral shall be required by law, such notice shall be deemed reasonable and
proper if given at least ten (10) days before such sale or other disposition.

          Section 5.2 Accounts and Payments in Respect of General Intangibles.
                      -------------------------------------------------------

          (a) If required by the Secured Party at any time during the
continuance of an Event of Default (and, if prior to the payment in full of the
Senior Loan Obligations and termination of the commitments under the Senior
Credit Agreement, only to the extent not expressly prohibited by the provisions
of the Senior Credit Agreement or Article VIII of the Subordinated Credit
Agreement), any payments of Accounts or payments in respect of General
Intangibles, when collected by any Grantor, shall be forthwith (and, in any
event, within two (2) Business Days) deposited by such Grantor in the exact form
received, duly indorsed by such Grantor to the Secured Party if required, in a
Cash Collateral Account, subject to withdrawal by the Secured Party as provided
in Section 5.4. Until so turned over, such payments shall be held by such
Grantor in trust for the Secured Party, segregated from other funds of such
Grantor. Each such deposit of Proceeds of Accounts and payments in respect of
General Intangibles shall be accompanied by a report identifying in reasonable
detail the nature and source of the payments included in the deposit.

          (b) Subject to the Lien Subordination Agreement, at the Secured
Party's request, during the continuance of an Event of Default, each Grantor
shall deliver to the Secured Party all original and other documents evidencing,
and relating to, the agreements and transactions which gave rise to the Accounts
or payments in respect of General Intangibles, including all original orders,
invoices and shipping receipts.

          (c) Subject to the provisions of the Lien Subordination Agreement, the
Secured Party may, without notice, at any time during the continuance of an
Event of Default, limit or terminate the authority of a Grantor to collect its
Accounts or amounts due under General Intangibles or any thereof.

          (d) The Secured Party in its own name or in the name of others may at
any time during the continuance of an Event of Default communicate with Account
Debtors

                                       20



to verify with them to the Secured Party's satisfaction the existence, amount
and terms of any Accounts or amounts due under any General Intangibles.

          (e) Upon the request of the Secured Party at any time during the
continuance of an Event of Default (and, if prior to the payment in full of the
Senior Loan Obligations and termination of the commitments under the Senior
Credit Agreement, only to the extent not expressly prohibited by the provisions
of the Senior Credit Agreement or Article VIII of the Subordinated Credit
Agreement), each Grantor shall notify Account Debtors that the Accounts or
General Intangibles have been collaterally assigned to the Secured Party and
that payments in respect thereof shall be made directly to the Secured Party. In
addition, subject to the provisions of the Lien Subordination Agreement, the
Secured Party may at any time during the continuance of an Event of Default
enforce such Grantor's rights against such Account Debtors and obligors of
General Intangibles.

          (f) Anything herein to the contrary notwithstanding, each Grantor
shall remain liable under each of the Accounts and payments in respect of
General Intangibles to observe and perform all the conditions and obligations to
be observed and performed by it thereunder, all in accordance with the terms of
any agreement giving rise thereto. The Secured Party shall not have any
obligation or liability under any agreement giving rise to an Account or a
payment in respect of a General Intangible by reason of or arising out of this
Security Agreement or the receipt by the Secured Party of any payment relating
thereto, nor shall the Secured Party be obligated in any manner to perform any
of the obligations of any Grantor under or pursuant to any agreement giving rise
to an Account or a payment in respect of a General Intangible, to make any
payment, to make any inquiry as to the nature or the sufficiency of any payment
received by it or as to the sufficiency of any performance by any party
thereunder, to present or file any claim, to take any action to enforce any
performance or to collect the payment of any amounts which may have been
assigned to it or to which it may be entitled at any time or times.

          Section 5.3 Pledged Collateral.
                      ------------------

          (a) Subject to the provisions of the Lien Subordination Agreement,
during the continuance of an Event of Default, upon notice by the Secured Party
to the relevant Grantor or Grantors, (i) the Secured Party shall have the right
to receive any and all Proceeds of the Pledged Collateral and make application
thereof to the Obligations in the order set forth in the Subordinated Credit
Agreement, and (ii) the Secured Party or its nominee may exercise (A) all
voting, consent, corporate and other rights pertaining to the Pledged Collateral
at any meeting of shareholders, partners or members, as the case may be, of the
relevant issuer or issuers of Pledged Collateral or otherwise and (B) any and
all rights of conversion, exchange and subscription and any other rights,
privileges or options pertaining to the Pledged Collateral as if it were the
absolute owner thereof (including the right to exchange at its discretion any
and all of the Pledged Collateral upon the merger, consolidation,
reorganization, recapitalization or other fundamental change in the corporate
structure of any issuer of Pledged Securities, the right to deposit and deliver
any and all of the Pledged Collateral with any committee, depositary, transfer

                                       21



agent, registrar or other designated agency upon such terms and conditions as
the Secured Party may determine), all without liability except to account for
property actually received by it, but the Secured Party shall have no duty to
any Grantor to exercise any such right, privilege or option and shall not be
responsible for any failure to do so or delay in so doing.

          (b) Subject to the provisions of the Lien Subordination Agreement, in
order to permit the Secured Party to exercise the voting and other consensual
rights which it may be entitled to exercise pursuant hereto and to receive all
dividends and other distributions which it may be entitled to receive hereunder,
(i) each Grantor shall promptly execute and deliver (or cause to be executed and
delivered) to the Secured Party all such proxies, dividend payment orders and
other instruments as the Secured Party may from time to time reasonably request
and (ii) without limiting the effect of clause (i) above, such Grantor hereby
grants to the Secured Party an irrevocable proxy to vote all or any part of the
Pledged Collateral and to exercise all other rights, powers, privileges and
remedies to which a holder of the Pledged Collateral would be entitled
(including giving or withholding written consents of shareholders, partners or
members, as the case may be, calling special meetings of shareholders, partners
or members, as the case may be, and voting at such meetings), which proxy shall
be effective, automatically and without the necessity of any action (including
any transfer of any Pledged Collateral on the record books of the issuer
thereof) by any other person (including the issuer of such Pledged Collateral or
any officer or agent thereof) during the continuance of an Event of Default and
which proxy shall only terminate upon the payment in full of the Secured
Obligations.

          (c) Subject to the provisions of the Lien Subordination Agreement,
each Grantor hereby expressly authorizes and instructs each issuer of any
Pledged Collateral pledged hereunder by such Grantor to (i) comply with any
instruction received by it from the Secured Party in writing that (A) states
that an Event of Default has occurred and is continuing and (B) is otherwise in
accordance with the terms of this Security Agreement, without any other or
further instructions from such Grantor, and each Grantor agrees that such issuer
shall be fully protected in so complying and (ii) unless otherwise expressly
permitted hereby, pay any dividends or other payments with respect to the
Pledged Collateral directly to the Secured Party.

          Section 5.4 Proceeds to be Turned Over To Secured Party. Subject to
                      -------------------------------------------
the Lien Subordination Agreement, all Proceeds received by the Secured Party
hereunder shall be held by the Secured Party in a Cash Collateral Account. All
Proceeds while held by the Secured Party in a Cash Collateral Account (or by
such Grantor in trust for the Secured Party) shall continue to be held as
collateral security for the Secured Obligations and shall not constitute payment
thereof until applied as provided in the Subordinated Credit Agreement.

                                       22



          Section 5.5 Registration Rights.
                      -------------------

          (a) If the Secured Party shall determine to exercise its right to sell
any or all of the Pledged Collateral pursuant to Section 5.1, and if in the
opinion of the Secured Party it is necessary or advisable to have the Pledged
Collateral, or any portion thereof to be registered under the provisions of the
Securities Act, the relevant Grantor will cause the issuer thereof to (i)
execute and deliver, and cause the directors and officers of such issuer to
execute and deliver, all such instruments and documents, and do or cause to be
done all such other acts as may be, in the opinion of the Secured Party,
necessary or advisable to register the Pledged Collateral, or that portion
thereof to be sold, under the provisions of the Securities Act, (ii) use its
best efforts to cause the registration statement relating thereto to become
effective and to remain effective for a period of one year from the date of the
first public offering of the Pledged Collateral, or that portion thereof to be
sold and (iii) make all amendments thereto and/or to the related prospectus
which, in the opinion of the Secured Party, are necessary or advisable, all in
conformity with the requirements of the Securities Act and the rules and
regulations of the Securities and Exchange Commission applicable thereto. Each
Grantor agrees to cause such issuer to comply with the provisions of the
securities or "Blue Sky" laws of any and all jurisdictions which the Secured
Party shall designate and to make available to its security holders, as soon as
practicable, an earnings statement (which need not be audited) which will
satisfy the provisions of Section 11(a) of the Securities Act.

          (b) Each Grantor recognizes that the Secured Party may be unable to
effect a public sale of any or all the Pledged Collateral by reason of certain
prohibitions contained in the Securities Act and applicable state securities
laws or otherwise or may determine that a public sale is impracticable or not
commercially reasonable and, accordingly, may resort to one or more private
sales thereof to a restricted group of purchasers which will be obliged to
agree, among other things, to acquire such securities for their own account for
investment and not with a view to the distribution or resale thereof. Each
Grantor acknowledges and agrees that any such private sale may result in prices
and other terms less favorable than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall be
deemed to have been made in a commercially reasonable manner. The Secured Party
shall be under no obligation to delay a sale of any of the Pledged Collateral
for the period of time necessary to permit the issuer thereof to register such
securities for public sale under the Securities Act, or under applicable state
securities laws, even if such issuer would agree to do so.

          (c) Each Grantor agrees to use its best efforts to do or cause to be
done all such other acts as may be necessary to make such sale or sales of all
or any portion of the Pledged Collateral pursuant to this Section 5.5 valid and
binding and in compliance with any and all other applicable Requirements of Law.
Each Grantor further agrees that a breach of any of the covenants contained in
this Section

                                       23



5.5 will cause irreparable injury to the Secured Party, that the Secured Party
has no adequate remedy at law in respect of such breach and, as a consequence,
that each and every covenant contained in this Section 5.5 shall be specifically
enforceable against such Grantor, and such Grantor hereby waives and agrees not
to assert any defenses against an action for specific performance of such
covenants except for a defense that no Event of Default has occurred under the
Subordinated Credit Agreement.

          Section 5.6 Waiver; Deficiency. Each Grantor shall remain liable for
                      ------------------
any deficiency if the proceeds of any sale or other disposition of the
Collateral are insufficient to pay the Secured Obligations and the fees and
disbursements of any attorneys employed by the Secured Party to collect such
deficiency.

          ARTICLE VI. The secured party

          Section 6.1 Secured Party's Appointment as Attorney-in-Fact.
                      -----------------------------------------------

          (a) Subject to the provisions of the Lien Subordination Agreement,
each Grantor hereby irrevocably constitutes and appoints the Secured Party and
any officer or agent thereof, with full power of substitution, as its true and
lawful attorney-in-fact with full irrevocable power and authority in the place
and stead of such Grantor and in the name of such Grantor or in its own name,
for the purpose of carrying out the terms of this Security Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Security Agreement, and, without limiting the generality of the foregoing,
each Grantor hereby gives the Secured Party the power and right, on behalf of
such Grantor, without notice to or assent by such Grantor, to do any or all of
the following:

          (i) in the name of such Grantor or its own name, or otherwise, take
     possession of and indorse and collect any checks, drafts, notes,
     acceptances or other instruments for the payment of moneys due under any
     Account or General Intangible or with respect to any other Collateral and
     file any claim or take any other action or proceeding in any court of law
     or equity or otherwise deemed appropriate by the Secured Party for the
     purpose of collecting any and all such moneys due under any Account or
     General Intangible or with respect to any other Collateral whenever
     payable;

          (ii) in the case of any Intellectual Property, execute and deliver,
     and have recorded, any and all agreements, instruments, documents and
     papers as the Secured Party may request to evidence the Secured Party's
     security interest in such Intellectual Property and the goodwill and
     General Intangibles of such Grantor relating thereto or represented
     thereby;

          (iii) pay or discharge taxes and Liens levied or placed on or
     threatened against the Collateral, effect any repairs or any insurance
     called for by the terms of this Security Agreement and pay all or any part
     of the costs thereof and the premiums therefor;

                                       24



          (iv) execute, in connection with any sale provided for in Section 5.1
     or 5.5, any endorsements, assignments or other instruments of conveyance or
     transfer with respect to the Collateral; and

          (v) (A) direct any party liable for any payment under any of the
     Collateral to make payment of any and all moneys due or to become due
     thereunder directly to the Secured Party or as the Secured Party shall
     direct; (B) ask or demand for, collect, and receive payment of and receipt
     for, any and all moneys, claims and other amounts due or to become due at
     any time in respect of or arising out of any Collateral; (C) sign and
     indorse any invoices, freight or express bills, bills of lading, storage or
     warehouse receipts, drafts against debtors, assignments, verifications,
     notices and other documents in connection with any of the Collateral; (D)
     commence and prosecute any suits, actions or proceedings at law or in
     equity in any court of competent jurisdiction to collect the Collateral or
     any portion thereof and to enforce any other right in respect of any
     Collateral; (E) defend any suit, action or proceeding brought against such
     Grantor with respect to any Collateral; (F) settle, compromise or adjust
     any such suit, action or proceeding and, in connection therewith, give such
     discharges or releases as the Secured Party may deem appropriate; (G)
     assign any Copyright, Patent or Trademark (along with the goodwill of the
     business to which any such Trademark pertains), throughout the world for
     such term or terms, on such conditions, and in such manner, as the Secured
     Party shall in its sole discretion determine, including without limitation
     the execution and filing of any documents necessary to effectuate and/or
     record such assignment; and (H) generally, sell, transfer, pledge and make
     any agreement with respect to or otherwise deal with any of the Collateral
     as fully and completely as though the Secured Party were the absolute owner
     thereof for all purposes, and do, at the Secured Party's option and such
     Grantor's expense, at any time, or from time to time, all acts and things
     which the Secured Party deems necessary to protect, preserve or realize
     upon the Collateral and the Secured Party's security interests therein and
     to effect the intent of this Security Agreement, all as fully and
     effectively as such Grantor might do.

Anything in this Section 6.1(a) to the contrary notwithstanding, the Secured
Party agrees that it will not exercise any rights under the power of attorney
provided for in this Section 6.1(a) unless an Event of Default shall be
continuing.

          (b) If any Grantor fails to perform or comply with any of its
agreements contained herein, the Secured Party, at its option, but without any
obligation so to do, may perform or comply, or otherwise cause performance or
compliance, with such agreement.

          (c) The expenses of the Secured Party incurred in connection with
actions undertaken as provided in this Section 6.1, together with interest
thereon at a rate per annum equal to the default rate per annum above the
highest interest rate which would then be payable on Revolving Loans that are
Base Rate Loans under the Subordinated Credit Agreement, from the date of
payment by the Secured Party to the date reimbursed

                                       25



by the relevant Grantor, shall be payable by such Grantor to the Secured Party
on demand.

          (d) Each Grantor hereby ratifies all acts that the Secured Party shall
lawfully do or cause to be done by virtue of the powers, authorizations and
agencies contained herein. All powers, authorizations and agencies contained in
this Security Agreement are coupled with an interest and are irrevocable until
this Security Agreement is terminated and the security interests created hereby
are released.

          Section 6.2 Duty of Secured Party. The Secured Party's sole duty with
                      ---------------------
respect to the custody, safekeeping and physical preservation of the Collateral
in its possession shall be to deal with it in the same manner as the Secured
Party deals with similar property for its own account. Neither the Secured Party
nor any of its officers, directors, employees or agents shall be liable for
failure to demand, collect or realize upon any of the Collateral or for any
delay in doing so or shall be under any obligation to sell or otherwise dispose
of any Collateral upon the request of any Grantor or any other Person or to take
any other action whatsoever with regard to the Collateral or any part thereof.
The powers conferred on the Secured Party hereunder are solely to protect the
Secured Party's interest in the Collateral and shall not impose any duty upon
the Secured Party to exercise any such powers. The Secured Party shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to any Grantor for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct in
dealing with the Collateral in their possession.

          Section 6.3 Authorization of Financing Statements. Each Grantor
                      -------------------------------------
authorizes the Secured Party at any time and from time to time to file or record
financing statements and other filing or recording documents or instruments with
respect to the Collateral without the signature of such Grantor in such form and
in such offices as the Secured Party reasonably determines appropriate to
perfect the security interests granted to the Secured Party under this Security
Agreement. A photographic or other reproduction of this Security Agreement shall
be sufficient as a financing statement or other filing or recording document or
instrument for filing or recording in any jurisdiction. The Grantor hereby
authorizes the Secured Party to file a Record or Records (as defined in the
UCC), including, without limitation, financing or continuation statements, and
amendments thereto, in all jurisdictions and with all filing offices as the
Secured Party may determine, in its sole discretion, are necessary or advisable
to perfect the security interest granted to the Secured Party herein. Such
financing statements may describe the Collateral in the same manner as described
herein or may contain an indication or description of collateral that describes
such property in any other manner as the Secured Party may determine, in its
sole discretion, is necessary, advisable or prudent to ensure the perfection of
the security interest in the Collateral granted to the Secured Party herein,
including, without limitation, describing such property as "all assets" or "all
personal property." The Grantor shall furnish to the Secured Party from time to
time statements and schedules further identifying and describing the Collateral
and such other

                                       26



reports in connection with the Collateral as the Secured Party may reasonably
request, all in reasonable detail.

          ARTICLE VII. Miscellaneous

          Section 7.1 Amendments in Writing. None of the terms or provisions of
                      ---------------------
this Security Agreement may be waived, amended, supplemented or otherwise
modified except in accordance with Section 10.1 of the Subordinated Credit
Agreement.

          Section 7.2 Notices. All notices, requests and demands to or upon the
                      -------
Secured Party or any Grantor hereunder shall be effected in the manner provided
for in Section 10.9 of the Subordinated Credit Agreement; provided, however,
that any such notice, request or demand to or upon any Grantor shall be
addressed in care of the Borrower at the Borrower's notice address set forth in
such Section 10.9.

          Section 7.3 No Waiver by Course of Conduct; Cumulative Remedies. The
                      ---------------------------------------------------
Secured Party shall not by any act (except by a written instrument pursuant to
Section 7.1), delay, indulgence, omission or otherwise, be deemed to have waived
any right or remedy hereunder or to have acquiesced in any Default or Event of
Default. No failure to exercise, nor any delay in exercising, on the part of the
Secured Party, any right, power or privilege hereunder shall operate as a waiver
thereof. No single or partial exercise of any right, power or privilege
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. A waiver by the Secured Party of any
right or remedy hereunder on any one occasion shall not be construed as a bar to
any right or remedy which the Secured Party would otherwise have on any future
occasion. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.

          Section 7.4 Successors and Assigns. This Security Agreement shall be
                      ----------------------
binding upon the successors and assigns of each Grantor and shall inure to the
benefit of the Secured Party and its successors and assigns; provided, however,
that no Grantor may assign, transfer or delegate any of its rights or
obligations under this Security Agreement without the prior written consent of
the Secured Party.

          Section 7.5 Counterparts. This Security Agreement may be executed by
                      ------------
one or more of the parties to this Security Agreement on any number of separate
counterparts (including by telecopy), and all of said counterparts taken
together shall be deemed to constitute one and the same agreement.

          Section 7.6 Severability. Any provision of this Security Agreement
                      ------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforceability in any

                                       27



jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.

          Section 7.7 Section Headings. The Article and Section titles contained
                      ----------------
in this Security Agreement are and shall be without substantive meaning or
content of any kind whatsoever and are not part of the agreement of the parties
hereto.

          Section 7.8 Entire Agreement. This Security Agreement together with
                      ----------------
the other Loan Documents represents the entire agreement of the parties and
supersedes all prior agreements and understandings relating to the subject
matter hereof.

          Section 7.9 Governing Law. This Security Agreement and the rights and
                      -------------
obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.

          Section 7.10 Additional Grantors. If, pursuant to Section 6.14(ii) of
                       -------------------
the Subordinated Credit Agreement, the Borrower shall be required to cause any
Subsidiary that is not a Grantor to become a Grantor hereunder, such Subsidiary
shall execute and deliver to the Secured Party a Joinder Agreement in the form
of Annex 3 and shall thereafter for all purposes be a party hereto and have the
same rights, benefits and obligations as a Grantor party hereto on the Closing
Date.

          Section 7.11 Release of Collateral.
                       ---------------------

          (a) Upon the termination of the Commitments and the indefeasible
payment and satisfaction in full of all Loans and all other Obligations, the
Collateral shall be released from the Lien created hereby and this Security
Agreement and all obligations (other than those expressly stated to survive such
termination) of the Secured Party and each Grantor hereunder shall terminate,
all without delivery of any instrument or performance of any act by any party,
and all rights to the Collateral shall revert to the Grantors. At the request
and sole expense of any Grantor following any such termination, the Secured
Party shall deliver to such Grantor any Collateral of such Grantor held by the
Secured Party hereunder and execute and deliver to such Grantor such documents
as such Grantor shall reasonably request to evidence such termination.

          (b) If any of the Collateral shall be sold or disposed of by any
Grantor in a transaction permitted by the Subordinated Credit Agreement, the
Collateral so sold or disposed of shall be released from the Lien created hereby
to the extent sold or disposed of, and, in connection therewith, the Secured
Party, at the request and sole expense of the Borrower, shall execute and
deliver to the Borrower all releases or other documents reasonably necessary or
desirable for the release of the Lien created hereby on such Collateral. At the
request and sole expense of the Borrower, a Grantor shall be released from its
obligations hereunder in the event that all the capital stock of such Grantor
shall be so sold or disposed; provided, however, that the Borrower shall have
delivered to the Secured Party, at least ten Business Days prior to the date of
the proposed release, a written request for release identifying the relevant
Grantor and the terms of the sale or

                                       28



other disposition in reasonable detail, including the price thereof and any
expenses in connection therewith, together with a certification by the Borrower
stating that such transaction is in compliance with the Credit Agreement and the
other Loan Documents.

          (c) If any of the Collateral shall be subject to a Lien permitted by
Section 7.1(d) or 7.1(e) of the Subordinated Credit Agreement, the Collateral so
subject to such a Lien shall be released from the Lien created hereby to the
extent subject to the Lien, and, in connection therewith, the Secured Party, at
the request and sole expense of the Borrower, shall execute and deliver to the
Borrower all releases or other documents reasonably necessary or desirable for
the release of the Lien created hereby on such Collateral.

          Section 7.12 Reinstatement. Each Grantor further agrees that, if any
                       -------------
payment made by any Loan Party or other Person and applied to the Obligations is
at any time annulled, avoided, set aside, rescinded, invalidated, declared to be
fraudulent or preferential or otherwise required to be refunded or repaid, or
the proceeds of Collateral are required to be returned by any Secured Party to
such Loan Party, its estate, trustee, receiver or any other party, including any
Grantor, under any bankruptcy law, state or federal law, common law or equitable
cause, then, to the extent of such payment or repayment, any Lien or other
Collateral securing such liability shall be and remain in full force and effect,
as fully as if such payment had never been made or, if prior thereto the Lien
granted hereby or other Collateral securing such liability hereunder shall have
been released or terminated by virtue of such cancellation or surrender), such
Lien or other Collateral shall be reinstated in full force and effect, and such
prior cancellation or surrender shall not diminish, release, discharge, impair
or otherwise affect any Lien or other Collateral securing the obligations of any
Grantor in respect of the amount of such payment.

                                       29



          In WITNESS WHEREOF, each of the undersigned has caused this Pledge and
Security Agreement to be duly executed and delivered on this    th of December
                                                             ---
2001.

                                     National Steel Corporation,
                                     a Delaware corporation


                                     By:
                                        ----------------------------------------
                                     Name:
                                     Title:


                                     National Steel Pellet Company,
                                     a Delaware corporation


                                     By:
                                        ----------------------------------------
                                     Name:
                                     Title:


                                     National Steel Funding Corporation,
                                     a Delaware corporation


                                     By:
                                        ----------------------------------------
                                     Name:
                                     Title:


                                     NS Holdings Corporation,
                                     a Delaware corporation


                                     By:
                                        ----------------------------------------
                                     Name:
                                     Title:


                                     Procoil Corporation,
                                     a Delaware corporation


                                     By:
                                        ----------------------------------------
                                     Name:
                                     Title:

                                       30



ACCEPTED AND AGREED:

NUF LLC, as Secured Party


By:
   -------------------------------
   Name:
   Title:

                                       31



                                                                         Annex 1
                                                                         -------

                      COLLATERAL ACCOUNT CONTROL AGREEMENT
                      ------------------------------------

          This Collateral Account Control Agreement, dated as of       , 200
                                                                 ------     -
among National Steel Corporation (the "Debtor"), NUF LLC, (the "Secured Party")
                                       ------                   -------------
and              in its capacity as a "securities intermediary" (as defined in
    ------------
Section 8-102 of the UCC and a "bank" as defined in Section 9-102 of the UCC (in
such capacities, the "Financial Institution"). Capitalized terms used but not
                      ---------------------
defined herein shall have the meaning assigned in the Amended and Restated
Pledge and Security Agreement dated as of September 28, 2001 between the Debtor
and the Secured Party (the "Security Agreement"). All references herein to the
                            ------------------
"UCC" shall mean the Uniform Commercial Code as in effect in the State of New
 ---
York.

          Section 1. Establishment of Collateral Accounts. The Financial
                     ------------------------------------
     Institution hereby confirms and agrees that:

          (a) The Financial Institution has established the following accounts:

          i) the "[identify exact title of account]" with account number [     ]
                                                                          -----
     in the name "[         ]" in the name of "National Steel Corporation" (the
                   ---------
     "        Account");
      -------

          ii) the "[identify exact title of account]" with account number
     [     ] in the name "[identify exact title of account]" in the name of
      -----
     "National Steel Corporation" (the "      Account"); and
                                        -----

          iii) the "[identify exact title of account]" with account number
     [     ] in the name "[identify exact title of account]" in the name of
      -----
     "National Steel Corporation" (the "      Account").
                                        -----

Each such account and any successor account, being referred to herein
individually as a "Pledged Account" and collectively as the "Pledged Accounts."
The Financial Institution shall not change the name or account number of any
Pledged Account without the prior written consent of the Secured Party;

          (b) Each of the Pledged Accounts are either a Securities Account (as
defined in Section 8-501 of the UCC) or a "Deposit Account" as defined in
Section 9-102(a)(29) of the UCC). The Financial Intermediary acknowledges and
agrees that the      Accounts are intended to be deposit accounts and the
                ----
          Accounts are intended to be securities accounts.
- ---------

          (c) All securities or other property underlying any financial assets
credited to the Securities Account shall be registered in the name of the
Financial Institution, indorsed to the Financial Institution or in blank or
credited to another securities account



maintained in the name of the Financial Institution and in no case will any
financial asset credited to the Securities Account be registered in the name of
the Debtor, payable to the order of the Debtor or specially indorsed to the
Debtor except to the extent the foregoing have been specially indorsed to the
Financial Institution or in blank;

          (d) All property delivered to the Financial Institution pursuant to
the Subordinated Pledge and Security Agreement will be promptly credited to one
of the Pledged Accounts.

          Section 2. "Financial Assets" Election. The Financial Institution
                      ----------------
     hereby agrees that each item of property (whether investment property,
     financial asset, security, instrument or cash) credited to any Pledged
     Account that is a Securities Account shall be treated as a "financial
     asset" within the meaning of Section 8-102(a)(9) of the UCC.

          Section 3. Control of the Pledged Accounts. If at any time the
                     -------------------------------
     Financial Institution shall receive any order from the Secured Party
     directing transfer or redemption of any financial asset relating to a
     Pledged Account or any instruction originated by the Secured Party
     directing the disposition of funds in a Pledged Account, the Financial
     Institution shall comply with such entitlement order or instruction without
     further consent by the Debtor or any other person.

          Section 4. Subordination of Lien; Waiver of Set-Off. In the event that
                     ----------------------------------------
     the Financial Institution has or subsequently obtains by agreement, by
     operation of law or otherwise a security interest in any Pledged Account or
     any security entitlement or cash credited thereto, the Financial
     Institution hereby agrees that such security interest shall be subordinate
     to the security interest of the Secured Party. The financial assets, money
     and other items credited to either Account will not be subject to
     deduction, set-off, banker's lien, or any other right in favor of any
     person other than the Secured Party (except that the Financial Institution
     may set off (i) all amounts due to the Financial Institution in respect of
     customary fees and expenses for the routine maintenance and operation of
     the respective Account and (ii) the face amount of any checks which have
     been credited to such Account but are subsequently returned unpaid because
     of uncollected or insufficient funds).

          Section 5. Choice of Law. This Agreement shall each be governed by the
                     -------------
     laws of the State of New York. Regardless of any provision in any other
     agreement, for purposes of the UCC, New York shall be deemed to be the
     Financial Institution's jurisdiction (within the meaning of Section 9-304
     of the UCC and Section 8-110 of the UCC). The Pledged Accounts shall be
     governed by the laws of the State of New York.

                                      A1-2



          Section 6. Conflict with Other Agreements.
                     ------------------------------

          (a) In the event of any conflict between this Agreement (or any
portion thereof) and any other agreement now existing or hereafter entered into,
the terms of this Agreement shall prevail;

          (b) No amendment or modification of this Agreement or waiver of any
right hereunder shall be binding on any party hereto unless it is in writing and
is signed by all of the parties hereto;

          (c) The Financial Institution hereby confirms and agrees that:

          (i) There are no other agreements entered into between the Financial
          Institution and the Debtor with respect to the Account [except for
          [identify other agreements] (the "Account Agreements")];

          (ii) It has not entered into, and until the termination of the this
          agreement will not enter into, any agreement with any other person
          relating the Pledged Accounts and/or any financial assets credited
          thereto pursuant to which it has agreed to comply with entitlement
          orders (as defined in Section 8-102(a)(8) of the UCC) or instructions
          (within the meaning of Section 9-104 of the UCC) of such other person;

          and

          (iii) It has not entered into, and until the termination of this
          agreement will not enter into, any agreement with the Debtor or the
          Secured Party purporting to limit or condition the obligation of the
          Financial Institution to comply with entitlement orders or
          instructions.

          Section 7. Adverse Claims. Except for the claims and interest of the
                     --------------
     Secured Party and of the Debtor in the Pledged Accounts, the Financial
     Institution does not know of any lien on or claim to, or interest in, the
     Pledged Account or in any "financial asset" (as defined in Section 8-102(a)
     of the UCC) credited thereto. If any person asserts any lien, encumbrance
     or adverse claim (including any writ, garnishment, judgment, warrant of
     attachment, execution or similar process) against the Pledged Accounts or
     in any financial asset carried therein, the Financial Institution will
     promptly notify the Secured Party and the Debtor thereof.

                                      A1-3



          Section 8. Maintenance of Accounts. In addition to, and not in lieu
                     -----------------------
     of, the obligation of the Financial Institution to honor entitlement orders
     and instructions as set forth in Section 3 hereof, the Financial
                                      ---------
     Institution agrees to maintain the Securities Account and the Deposit
     Account as follows:

          (a) Notice of Sole Control. If at any time the Secured Party delivers
              ----------------------
     to the Financial Institution a Notice of Sole Control in substantially the
     form set forth in Exhibit A hereto, the Financial Institution agrees that
     after receipt of such notice, it will take all instruction with respect to
     the Pledged Accounts solely from the Secured Party.

          (b) Statements and Confirmations. The Financial Institution will
              ----------------------------
     promptly send copies of all statements, confirmations and other
     correspondence concerning (i) the Securities Account and/or any financial
     assets credited thereto and (ii) the Deposit Account, simultaneously to
     each of the Debtor and the Secured Party at the address for each set forth
     in Section 12 of this Agreement.
        ----------

          (c) Tax Reporting. All items of income, gain, expense and loss
              -------------
     recognized in the Securities Account and all interest, if any, relating to
     the Deposit Account, shall be reported to the Internal Revenue Service and
     all state and local taxing authorities under the name and taxpayer
     identification number of the Debtor.

          (d) Voting Rights. Until such time as the Financial Institution
              -------------
     receives a Notice of Sole Control pursuant to subsection (a) of this
     Section 8, the Debtor shall direct the Financial Institution with respect
     ---------
     to the voting of any financial assets credited to the Pledged Accounts.

          (e) Permitted Investments. Until such time as the Financial
              ---------------------
     Institution receives a Notice of Sole Control signed by the Secured Party,
     the Debtor shall direct the Financial Institution with respect to the
     selection of investments to be made for any Pledged Account that is a
     securities account; provided, however, that the Financial Institution shall
     not honor any instruction to purchase any investments other than
     investments of a type describe on Exhibit B hereto.
                                       ---------

          Section 9. Representations, Warranties and Covenants of the Financial
                     ----------------------------------------------------------
     Institution. The Financial Institution hereby makes the following
     -----------
     representations, warranties and covenants:

          (a) The Pledged Accounts have each been established as set forth in
     Section 1 and such Accounts will be maintained in the manner set forth
     ---------
     herein until termination of this Agreement; and

          (b) This Collateral Account Control Agreement is the valid and legally
     binding obligations of the Financial Institution.

                                      A1-4



          Section 10. Indemnification of Financial Institution. The Debtor and
                      ----------------------------------------
the Secured Party hereby agree that (a) the Financial Institution is released
from any and all liabilities to the Debtor and the Secured Party arising from
the terms of this agreement and the compliance of the Financial Institution with
the terms hereof, except to the extent that such liabilities arise from the
Financial Institution's negligence and (b) the Debtor, its successors and
assigns shall at all times indemnify and save harmless the Financial Institution
from and against any and all claims, actions and suits of others arising out of
the terms of this agreement or the compliance of the Financial Institution with
the terms hereof, except to the extent that such arises from the Financial
Institution's negligence, and from and against any and all liabilities, losses,
damages, costs, charges, counsel fees and other expenses of every nature and
character arising by reason of the same, until the termination of this
agreement.

          Section 11. Successors; Assignment. The terms of this Agreement shall
                      ----------------------
be binding upon, and shall inure to the benefit of, the parties hereto and their
respective corporate successors or heirs and personal representatives who obtain
such rights solely by operation of law. The Secured Party may assign its rights
hereunder only with the express written consent of the Financial Institution and
by sending written notice of such assignment to the Debtor.

          Section 12. Notices. Any notice, request or other communication
                      -------
required or permitted to be given under this Agreement shall be in writing and
deemed to have been properly given when delivered in person, or when sent by
telecopy or other electronic means and electronic confirmation of error free
receipt is received or two days after being sent by certified or registered
United States mail, return receipt requested, postage prepaid, addressed to the
party at the address set forth below.

     Debtor:           National Steel Corporation
                       4100 Edison Lakes Parkway
                       Mishawaka, IN 46565-3440
                       Attention:  William E. McDonough
                                   Ronald J. Werhnyak, Esq.
                       Telecopy No.: (219) 273-7478
                       E-Mail Addresses:  wmcdonough@nationalsteel.com
                                          ----------------------------
                                          rwehrnyak@nationalsteel.com
                                          ---------------------------

     Secured Party:    NUF LLC
                       450 Park Avenue
                       25th Floor
                       New York, NY 10022
                       Attention: Mr. Hideki Matsumoto
                       Telecopy No.: (212) 826-6345
                       E-Mail Address:  Hideki_Matsumoto-e@ntsgw.tokyo.nkk.co.jp
                                        ----------------------------------------

                                      A1-5



                       with a copy to:

                       Skadden, Arps, Slate, Meagher & Flom LLP
                       Four Times Square
                       New York, NY 10036
                       Attention: Edmund Duffy, Esq.
                       Telecopy No.: (917) 777-3950
                       E-Mail Address: eduffy@skadden.com
                                       ------------------

     Financial Institution: [contact information]

          Any party may change his address for notices in the manner set forth
above.

          Section 13. Termination. The obligations of the Financial Institution
                      -----------
to the Secured Party pursuant to this Control Agreement shall continue in effect
until the security interests of the Secured Party in each of the Pledged
Accounts have been terminated pursuant to the terms of the Subordinated Pledge
and Security Agreement and the Secured Party has notified the Financial
Institution of such termination in writing. The Secured Party agrees to provide
Notice of Termination in substantially the form of Exhibit C hereto to the
                                                   ---------
Financial Institution upon the request of the Debtor on or after the termination
of the Secured Party's security interest in the Pledged Accounts pursuant to the
terms of the Subordinated Pledge and Security Agreement. The termination of this
Control Agreement shall not terminate the Pledged Accounts or alter the
obligations of the Financial Institution to the Debtor pursuant to any other
agreement with respect to the Pledged Accounts.

          Section 14. Counterparts. This Agreement may be executed in any number
                      ------------
of counterparts, all of which shall constitute one and the same instrument, and
any party hereto may execute this Agreement by signing and delivering one or
more counterparts.

                                     NATIONAL STEEL CORPORATION


                                     By:
                                        ----------------------------------------
                                         Name:
                                         Title:

                                      A1-6



                                     NATIONAL STEEL FUNDING CORPORATION


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:


                                     NS HOLDINGS CORPORATION


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:


                                     NATIONAL STEEL PELLET CORPORATION


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:


                                     PROCOIL CORPORATION


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:


                                     NUF LLC


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:

                                      A1-7



                                     [NAME OF INSTITUTION SERVING AS
                                     FINANCIAL INSTITUTION]


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:

                                      A1-8



                                                            Exhibit A to Annex 1
                                                            --------------------

                             [Letterhead of NUF LLC]

                                                    [Date]

[Name and Address of Financial Institution]

Attention:
           ------------------

                           Re: Notice of Sole Control
                               ----------------------

Ladies and Gentlemen:

          As referenced in the Collateral Account Control Agreement, dated
      , 200 , among National Steel Corporation, you and the undersigned (a copy
- ------     -
of which is attached) we hereby give you notice of our sole control over each of
the Pledged Accounts and all financial assets or funds credited thereto. You are
hereby instructed not to accept any direction, instructions or entitlement
orders or instructions with respect to the Pledged Accounts or the financial
assets or funds credited thereto from any person other than the undersigned,
unless otherwise ordered by a court of competent jurisdiction.

          You are instructed to deliver a copy of this notice by facsimile
transmission to National Steel Corporation.

                                     Very truly yours,

                                     NUF LLC


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:

cc: National Steel Corporation

                                      A1-9



                                                            Exhibit B to Annex 1
                                                            --------------------

                              Permitted Investments
                              ---------------------

                                     A1-10



                                                            Exhibit C to Annex 1
                                                            --------------------

                             [Letterhead of NUF LLC]

                                                    [Date]

[Name and Address of Financial Institution]

Attention:
           ---------------

                      Re: Termination of Collateral Account
                                Control Agreement
                                -----------------

          You are hereby notified that the Collateral Account Control Agreement
between you, National Steel Corporation and the undersigned (a copy of which is
attached) is terminated and you have no further obligations to the undersigned
pursuant to such Agreement. Notwithstanding any previous instructions to you,
you are hereby instructed to accept all future directions with respect to
account number(s)            from National Steel Corporation. This notice
                 -----------
terminates any obligations you may have to the undersigned with respect to such
account, however nothing contained in this notice shall alter any obligations
which you may otherwise owe to National Steel Corporation pursuant to any other
agreement.

          You are instructed to deliver a copy of this notice by facsimile
transmission to National Steel Corporation.

                                     Very truly yours,

                                     NUF LLC


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:

                                     A1-11



                                   Annex 2 to
                          Pledge and Security Agreement

                                PLEDGE AMENDMENT

          This Pledge Amendment, dated as of           , 200 , is delivered
                                             ----------     -
pursuant to Section 4.4(a) of the Pledge and Security Agreement dated September
28, 2001, by            (the "Borrower"), the undersigned Grantor and the other
             ----------
Subsidiaries of the Borrower from time to time party thereto as Grantors in
favor of NUF LLC (the "Pledge and Security Agreement") and the undersigned
hereby agrees that this Pledge Amendment may be attached to the Pledge and
Security Agreement and that the Pledged Collateral listed on this Pledge
Amendment shall be and become part of the Collateral referred to in the Pledge
and Security Agreement and shall secure all Secured Obligations of the
undersigned. Capitalized terms used herein but not defined herein are used
herein with the meaning given them in the Pledge and Security Agreement.

                                     [Grantor]


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:

                                  Pledged Stock
                                  -------------
                                                                Number of
                                                                Shares, Units or
Issuer   Class            Certificate No(s).   Par Value        Interests
- ------   --------------   ------------------   --------------   ----------------




                                 Pledged Debt
                                 ------------

         Description of                                         Principal
Issuer   Debt             Certificate No(s).   Final Maturity   Amount
- ------   --------------   ------------------   --------------   ----------------

ACKNOWLEDGED AND AGREED
as of the date first above written

NUF LLC


By:
   -------------------------------
   Name:
   Title:

                                      A2-1



                                   Annex 3 to
                          Pledge and Security Agreement

                                JOINDER AGREEMENT

          This Joinder Agreement, dated as of        , 200 , is delivered
                                              -------     -
pursuant to Section 7.10 of the Pledge and Security Agreement dated as of
September 28, 2001 (the "Pledge and Security Agreement") by National Steel
Corporation (the "Borrower") and the Subsidiaries of the Borrower listed on the
signature pages thereof in favor of NUF LLC (the "Secured Party"). Capitalized
terms used herein but not defined herein are used with the meanings given them
in the Pledge and Security Agreement.

          By executing and delivering this Joinder Agreement, the undersigned,
as provided in Section 7.10 of the Pledge and Security Agreement, hereby becomes
a party to the Pledge and Security Agreement as a Grantor thereunder with the
same force and effect as if originally named as a Grantor therein and, without
limiting the generality of the foregoing, hereby grants to the Secured Party, as
collateral security for the full, prompt and complete payment and performance
when due (whether at stated maturity, by acceleration or otherwise) of the
Secured Obligations of the undersigned, hereby collaterally assigns, conveys,
mortgages, pledges, hypothecates and transfers to the Secured Party and grants
to the Secured Party a Lien on and security interest in, all of its right, title
and interest in, to and under the Collateral and expressly assumes all
obligations and liabilities of a Grantor thereunder.

          The information set forth in Annex 1-A is hereby added to the
information set forth in Schedules 1 through 6 to the Pledge and Security
Agreement.

          The undersigned hereby represents and warrants that each of the
representations and warranties contained in Article 3 of the Pledge and Security
Agreement applicable to it is true and correct on and as the date hereof as if
made on and as of such date.

          In WITNESS WHEREOF, the undersigned has caused this Joinder Agreement
to be duly executed and delivered as of the date first above written.

                                     [Additional Grantor]


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:

ACKNOWLEDGED AND AGREED
as of the date first above written

NUF LLC


By:
   ----------------------------------------
   Name:
   Title:

                                      A3-1



                                   Annex 4 to
                          Pledge and Security Agreement

                                     FORM OF
                          COPYRIGHT SECURITY AGREEMENT

          Copyright Security Agreement, dated as of             , 200 , by
                                                    --------- --     -
National Steel Corporation (the "Borrower") and each of the other entities
listed on the signature pages hereof or which becomes a party hereto pursuant to
Section 7.10 of the Security Agreement referred to below (each a "Grantor" and,
collectively, the "Grantors"), in favor of NUF LLC (the "Secured Party").

                              W i t n e s s e t h:

          Whereas, pursuant to the Amended and Restated Subordinated Credit
Agreement, dated as of September 28, 2001 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement")
among the Borrower and Secured Party, the Secured Party has severally agreed to
make extensions of credit to the Borrower upon the terms and subject to the
conditions set forth therein; and

          Whereas, the Grantors other than the Borrower are party to the
Subordinated Guaranty pursuant to which they have guaranteed the Obligations;
and

          Whereas, all the Grantors are party to a Subordinated Pledge and
Security Agreement of even date herewith in favor of the Secured Party (the
"Security Agreement") pursuant to which the Grantors are required to execute and
deliver this Copyright Security Agreement;

          Now, Therefore, in consideration of the premises and to induce the
Secured Party to enter into the Credit Agreement and to induce the Secured Party
to make extensions of credit to the Borrower thereunder, each Grantor hereby
agrees with the Secured Party as follows:

          SECTION 1. Defined Terms. Unless otherwise defined herein, terms
                     -------------
defined in the Credit Agreement or in the Security Agreement and used herein
have the meaning given to them in the Credit Agreement or the Security
Agreement.

          SECTION 2. Grant of Security Interest in Copyright Collateral. Each
                     --------------------------------------------------
Grantor, as collateral security for the full, prompt and complete payment and
performance when due (whether at stated maturity, by acceleration or otherwise)
of the Secured Obligations of such Grantor, hereby collaterally assigns,
conveys, mortgages, pledges, hypothecates and transfers to the Secured Party,
and grants to the Secured Party a lien on and security interest in, all of its
right, title and interest in, to and under the following Collateral of such
Grantor (the "Copyright Collateral"):

          (a) all of its Copyrights and Copyright Licenses to which it is a
party, including those referred to on Schedule I hereto;

          (b) all reissues, continuations or extensions of the foregoing; and

          (c) all Proceeds of the foregoing, including any claim by Grantor
against third parties for past, present, future infringement or dilution of any
Copyright or Copyright licensed under any Copyright License.

                                      A4-1



          SECTION 3. Security Agreement. The security interest granted pursuant
                     ------------------
to this Copyright Security Agreement is granted in conjunction with the security
interest granted to the Secured Party pursuant to the Security Agreement and
each Grantor hereby acknowledges and affirms that the rights and remedies of the
Secured Party with respect to the security interest in the Copyright Collateral
made and granted hereby are more fully set forth in the Security Agreement, the
terms and provisions of which are incorporated by reference herein as if fully
set forth herein.

                            [signature page follows]

                                      A4-2



          In WITNESS WHEREOF, each Grantor has caused this Copyright Security
Agreement to be executed and delivered by its duly authorized officer as of the
date first set forth above.

                                     Very truly yours,

                                     [GRANTORS]


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:

Accepted and Agreed:

NUF LLC, as Secured Party


By:
   ----------------------------------------
   Name:
   Title:

                                      A4-3



                           Acknowledgement of Grantor
                           --------------------------

State of                 )
         ----------------
                         )    ss.
County of                )
          ---------------

          On this     day of         ,      before me personally appeared
                  ---        --------  ----
                      , proved to me on the basis of satisfactory evidence to be
- ----------------------
the person who executed the foregoing instrument on behalf of                 ,
                                                              ----------------
who being by me duly sworn did depose and say that he is a duly authorized
officer of said corporation, that the said instrument was signed on behalf of
said corporation as duly authorized by its Board of Directors and that he
acknowledged said instrument to be the free act and deed of said corporation.


                          ----------------------------
                                  Notary Public

                                      A4-4



                                   SCHEDULE I
                                       to
                          COPYRIGHT SECURITY AGREEMENT
                             COPYRIGHT REGISTRATIONS
                             -----------------------

A.   REGISTERED COPYRIGHTS
     Including Copyright Reg. No. and Date

B.   COPYRIGHT APPLICATIONS

C.   COPYRIGHT LICENSES

     Including Name of Agreement, Parties and Date of Agreement

                                      A4-5



                                   Annex 5 to
                          Pledge and Security Agreement

                        Form of Patent Security Agreement

          Patent Security Agreement, dated as of             , 2000 , by
                                                 --------- --      -
National Steel Corporation, a Delaware corporation (the "Borrower") and each of
the other entities listed on the signature pages hereof or which becomes a party
hereto pursuant to Section 7.10 of the Security Agreement referred to below
(each a "Grantor" and, collectively, the "Grantors"), in favor of NUF LLC (the
"Secured Party").

                              W i t n e s s e t h:

          Whereas, pursuant to the Amended and Restated Subordinated Credit
Agreement, dated as of September 28, 2001 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement")
among the Borrower and the Secured Party, the Secured Party has agreed to make
extensions of credit to the Borrower upon the terms and subject to the
conditions set forth therein; and

          Whereas, the Grantors other than the Borrower are party to the
Subordinated Guaranty pursuant to which they have guaranteed the Obligations;
and

          Whereas, all the Grantors are party to a Subordinated Pledge and
Security Agreement of even date herewith in favor of the Secured Party (the
"Security Agreement") pursuant to which the Grantors are required to execute and
deliver this Patent Security Agreement;

          Now, Therefore, in consideration of the premises and to induce the
Secured Party to enter into the Credit Agreement and to induce the Secured Party
to make extensions of credit to the Borrower thereunder, each Grantor hereby
agrees with the Secured Party as follows:

          SECTION 1. Defined Terms. Unless otherwise defined herein, terms
                     -------------
defined in the Credit Agreement or in the Security Agreement and used herein
have the meaning given to them in the Credit Agreement or the Security
Agreement.

          SECTION 2. Grant of Security Interest in Patent Collateral. Each
                     -----------------------------------------------
Grantor, as collateral security for the full, prompt and complete payment and
performance when due (whether at stated maturity, by acceleration or otherwise)
of the Secured Obligations of such Grantor, hereby collaterally assigns,
conveys, mortgages, pledges, hypothecates and transfers to the Secured Party,
and grants to the Secured Party a lien on and security interest in, all of its
right, title and interest in, to and under the following Collateral of such
Grantor (the "Patent Collateral"):

          (a) all of its Patents and Patent Licenses to which it is a party,
including those referred to on Schedule I hereto;

          (b) all reissues, continuations or extensions of the foregoing; and

          (c) all Proceeds of the foregoing, including any claim by Grantor
against third parties for past, present or future infringement or dilution of
any Patent or any Patent licensed under any Patent License.

          SECTION 3. Security Agreement. The security interest granted pursuant
                     ------------------
to this Patent Security Agreement is granted in conjunction with the security
interest granted to the Secured Party pursuant to the Security Agreement and
each Grantor hereby acknowledges and

                                      A5-1



affirms that the rights and remedies of the Secured Party with respect to the
security interest in the Patent Collateral made and granted hereby are more
fully set forth in the Security Agreement, the terms and provisions of which are
incorporated by reference herein as if fully set forth herein.

                                        [signature page follows]

                                      A5-2



          In WITNESS WHEREOF, each Grantor has caused this Patent Security
Agreement to be executed and delivered by its duly authorized officer as of the
date first set forth above.

                                     Very truly yours,

                                     NATIONAL STEEL CORPORATION


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:

Accepted and Agreed:

NUF LLC, as Secured Party


By:
   ----------------------------------------
   Name:
   Title:

                                      A5-3



     Acknowledgement of Grantor
     --------------------------

State of                 )
         ----------------
                         )  ss.
County of                )
          ---------------

          On this     day of         ,      before me personally appeared
                  ---        --------  ----
                      , proved to me on the basis of satisfactory evidence to be
- ----------------------
the person who executed the foregoing instrument on behalf of National Steel
Corporation, who being by me duly sworn did depose and say that he is a duly
authorized officer of said corporation, that the said instrument was signed on
behalf of said corporation as duly authorized by its Board of Directors and that
he acknowledged said instrument to be the free act and deed of said corporation.


                                         -------------------------
                                         Notary Public

                                      A5-4



                                   SCHEDULE I
                                       to
                            PATENT SECURITY AGREEMENT
                              PATENT REGISTRATIONS
                              --------------------

A.   REGISTERED PATENTS

     National Steel Corporation:
     --------------------------

     Registration Number       Date
     -------------------       ----

     6,143,100                 November 7, 2000

     6,066,699                 May 23, 2000

     6,007,642                 December 28, 1999

     5,672,637                 September 30, 1997

     5,645,121                 July 8, 1997

     5,600,564                 February 4, 1997

     5,571,328                 November 5, 1996

     5,544,868                 August 13, 1996

     5,494,943                 February 27, 1996

     5,485,387                 January 16, 1996

B.   PATENT APPLICATIONS

C.   PATENT LICENSES

     Including Name of Agreement, Parties and Date of Agreement

                                      A5-5



                                   Annex 6 to
                          Pledge and Security Agreement

                                     FORM OF
                          TRADEMARK SECURITY AGREEMENT

          Trademark Security Agreement, dated as of             , 200 , by
                                                    --------- --     -
National Steel Corporation, a Delaware corporation (the "Borrower") and each of
the other entities listed on the signature pages hereof or which becomes a party
hereto pursuant to Section 7.10 of the Security Agreement referred to below
(each a "Grantor" and, collectively, the "Grantors"), in favor of NUF LLC (the
"Secured Party").

                              W i t n e s s e t h:

          Whereas, pursuant to the Amended and Restated Subordinated Credit
Agreement, dated as of September 28, 2001 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Credit Agreement")
among the Borrower and the Secured Party, the Secured Party has agreed to make
extensions of credit to the Borrower upon the terms and subject to the
conditions set forth therein; and

          Whereas, the Grantors other than the Borrower are party to the
Subordinated Guaranty pursuant to which they have guaranteed the Obligations;
and

          Whereas, all the Grantors are party to a Subordinated Pledge and
Security Agreement of even date herewith in favor of the Secured Party (the
"Security Agreement") pursuant to which the Grantors are required to execute and
deliver this Trademark Security Agreement;

          Now, Therefore, in consideration of the premises and to induce the
Secured Party to enter into the Credit Agreement and to induce the Secured Party
to make extensions of credit to the Borrower thereunder, each Grantor hereby
agrees with the Secured Party as follows:

          SECTION 1. Defined Terms. Unless otherwise defined herein, terms
                     -------------
defined in the Credit Agreement or in the Security Agreement and used herein
have the meaning given to them in the Credit Agreement or the Security
Agreement.

          SECTION 2. Grant of Security Interest in Trademark Collateral. Each
                     --------------------------------------------------
Grantor, as collateral security for the full, prompt and complete payment and
performance when due (whether at stated maturity, by acceleration or otherwise)
of the Secured Obligations of such Grantor, hereby collaterally assigns,
conveys, mortgages, pledges, hypothecates and transfers to the Secured Party,
and grants to the Secured Party a lien on and security interest in, all of its
right, title and interest in, to and under the following Collateral of such
Grantor (the "Trademark Collateral"):

          (a) all of its Trademarks and Trademark Licenses to which it is a
party, including those referred to on Schedule I hereto;

          (b) all reissues, continuations or extensions of the foregoing;

          (c) all goodwill of the business connected with the use of, and
symbolized by, each Trademark and each Trademark License; and

                                      A6-1



          (d) all Proceeds of the foregoing, including any claim by Grantor
against third parties for past, present, future (i) infringement or dilution of
any Trademark or Trademark licensed under any Trademark License or (ii) injury
to the goodwill associated with any Trademark or any Trademark licensed under
any Trademark License.

          SECTION 3. Security Agreement. The security interest granted pursuant
                     ------------------
to this Trademark Security Agreement is granted in conjunction with the security
interest granted to the Secured Party pursuant to the Security Agreement and
each Grantor hereby acknowledges and affirms that the rights and remedies of the
Secured Party with respect to the security interest in the Trademark Collateral
made and granted hereby are more fully set forth in the Security Agreement, the
terms and provisions of which are incorporated by reference herein as if fully
set forth herein.

                                            [signature page follows]

                                      A6-2



          In WITNESS WHEREOF, each Grantor has caused this Trademark Security
Agreement to be executed and delivered by its duly authorized officer as of the
date first set forth above.

                                     Very truly yours,

                                     NATIONAL STEEL CORPORATION


                                     By:
                                        ----------------------------------------
                                        Name:
                                        Title:

Accepted and Agreed:

NUF LLC


By:
   -------------------------------
   Name:
   Title:

                                      A6-3



                           Acknowledgement of Grantor
                           --------------------------

State of                 )
         ----------------
                         )  ss.
County of                )
          ---------------

          On this     day of         ,      before me personally appeared
                  ---        --------  ----
                      , proved to me on the basis of satisfactory evidence to be
- ----------------------
the person who executed the foregoing instrument on behalf of National Steel
Corporation, who being by me duly sworn did depose and say that he is a duly
authorized officer of said corporation, that the said instrument was signed on
behalf of said corporation as duly authorized by its Board of Directors and that
he acknowledged said instrument to be the free act and deed of said corporation.


                                         -------------------------
                                         Notary Public

                                      A6-4



                                   SCHEDULE I
                                       to
                          TRADEMARK SECURITY AGREEMENT
                             TRADEMARK REGISTRATIONS
                             -----------------------

A.   REGISTERED TRADEMARKS

     National Steel Corporation:

     Serial Number    Registration Number     Mark
     -------------    -------------------     ----

     7611891                                  N

     76298749                                 NAX

     76267862                                 NAAMS GLOBAL STANDARD
                                              COMPONENTS

     74549401         1921935                 ACRGS ASSEMBLY COST
                                              REDUCTION GROUP
                                              STANDARDS

     74547636         1931045                 NORTH AMERICAN
                                              AUTOMOTIVE METRIC
                                              STANDARDS NAAMS

     74086416         1676549                 NAPAC-F

     74086407         1672364                 NSQ

     74086406         1728868                 NSQ K

     74086391         1672363                 NAPAC

     73761689         1541216                 NATEN

     73759121         1543241                 N NATIONAL STEEL

     73697192         1500964                 POWERPANEL

     73414131         1304681                 STRONGPANEL

                                      A6-5



     73362939         1268862                 NATIONAL ALUMINUM

     73250886         1246827                 STRONGDRAIN

     73104858         1066079                 STRONGTRIM

     73026816         1023121                 NACOR

     72331929         0912309                 GCX

     72273520         0876250                 SUPER STRONG

     72260875         0844863                 WEIRCHROME

     72240464         0827767                 WEIRNAMEL

     72233189         0818546                 WEIRALLOY

     72215434         0800903                 NATIONAL STEEL

     72215434         0797043                 WEIRTON

     72197706         0788378                 HERCULES

     72193032         0787426                 WSX

     72131308         0740445                 SNO-MAN

     72121287         0728430                 GLX

B.   TRADEMARK APPLICATIONS

C.   TRADEMARK LICENSES

     Including Name of Agreement, Parties and Date of Agreement

                                      A6-6



                           NATIONAL STEEL CORPORATION

                    Subordinated Pledge & Security Agreement

          Sch.1 - State of Incorporation and Principal Executive Office

Corporation                                          State of Incorporation
- -----------                                          ----------------------

NATIONAL STEEL CORPORATION                           Delaware
4100 Edison Lakes Parkway
Mishawaka, IN 46545-3440

NATIONAL STEEL PELLET COMPANY                        Delaware
One Mine Road
Keewatin, MN 55753

NATIONAL STEEL FUNDING CORPORATION                   Delaware
1105 N.Market Street
Suite 1312
Wilmington, DE 19801

NS HOLDINGS CORPORATION                              Delaware
1105 N. Market Street
Suite 1206
Wilmington, DE 19801


ProCOIL CORPORATION                                  Delaware
5260 Haggerty Road
Canton, MI 48188



                           NATIONAL STEEL CORPORATION
                    Subordinated Pledge & Security Agreement

                         Schedule 2: Pledged Collateral



                              Class of        Stock Certificate                          Number of
Stock Issuer                   Stock               Number            Par Value            Shares
- ------------                  --------        -----------------      ---------           ---------
                                                                             
NS Holdings

Corporation                   Common               #    2              $  .0 1              500

ProCoil

Corporation                                        #   16              $  1.00              300

National Steel

Pellet Company                Common               #    4              $100.00            1,000


National Steel

Funding Corporation           Capital              #    1              $  1.00            1,000





                           National Steel Corporation
                Schedule 4 - Location of Inventory and Equipment

- --------------------------------------------------------------------------------
                                     10/31/2001
                                     ----------



          FACILITY                                  ADDRESS                              COUNTY        TYPE            TONS     DIV
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 
 A.O. SMITH - AOJZ                 401 FREDERICK RD, EL PASO, TX 79905                EL PASO      CONSIGNMENT       1,681      GC
 AMERICAN BUILDINGS CO.            7001 VALLEY RD., FAIRFIELD, AL. 35064              JEFFERSON    CONSIGNMENT          89      GL
 AMERICAN BUILDINGS CO.            7001 VALLEY RD., FAIRFIELD, AL. 35064              JEFFERSON    CONSIGNMENT          16      MW
 ANCON TRANS                       1151 PALMRITA AVENUE, RIVERSIDE, CA 92507          RIVERSIDE    WAREHOUSE            40      GC
 ANCON TRANSPORTATION              1151 PALMRITA AVE., RIVERSIDE, CA 92507-1703       RIVERSIDE    PROCESSOR           304      MW
 ANDES METAL                       202 Railroad St, Lewisviile, TX 75057              DENTON       PROCESSOR         1,595      GL
 ANDES METAL                       202 N RAILROAD ST., LEWISVILLE, TX 75067-4060      Denton       PROCESSOR         1,570      MW
 ANDES METAL PROCESS               202 RAILROAD ST., LEWISVILLE, TX 75067             DENTON       WAREHOUSE            34      GC
 ARLINGTON METALS                  11355 FRANKLIN AVENUE, FRANKLIN PARK, IL
                                   60131-1168                                         COOK         PROCESS/SLIT         43      GC
 ARLINGTON METALS CORP.- SAWYER    13100 ARLINGTON DRIVE, SAWYER, MI. 49125           BERRIEN      SLIT                701      GL
 ARLINGTON METALS  CORP.- SAWYER   13100 ARLINGTON DRIVE, SAWYER, MI. 49125           BERRIEN      PROCESSOR           689      MW
 AUTO BLANKERS                     1301 ALABAMA, FLINT, MI 48505                      GENESEE      PROCESSOR           446      GL
 AUTO BLANKERS - KASLE             1301 ALABAMA, FLINT, MI. 48505                     WAYNE        PROCESSOR           125      MW
 BALDWIN STEEL                     9302 LEY RD., HOUSTON, TX 77078-4414                            PROCESSOR           693      MW
 BALDWIN STEEL                     9302 LEY ROAD, HOUSTON, TX 77078-4414              HARRIS       PROCESS/INSPECTION   51      GC
 BALDWIN STEEL CO                  9302 LEY ROAD, HOUSTON, TX 7707-4414               HARRIS       PROCESSOR            13      GL
 BEELMAN RIVER TERMINAL            #1 NORTH MARKET ST., ST. LOUIS, MO 63102           ST. LOUIS    WAREHOUSE           458      GC
 BEELMAN RIVER TERMINAL INC.       1 N MARKET ST., ST. LOUIS, MO 63102-1489           ST. LOUIS    PROCESSOR           104      MW
 BROCKWAY STANDARD                 3400 N POWELL AVE., FRANKLIN PARK IL60131-         COOK         STORAGE             715      MW
                                   1313
 BUDWAY RAIL                       BNSF/KISER YARD/SIDING 9101-9105, KISER, CA
                                   92335                                              MERCED       WAREHOUSE           872      GC
 BUTLER - GALESBURG                1020 S. HENDERSON, GALESBURG, IL 61401-5749        KNOX         CONSIGNMENT       5,382      GC
 BUTLER - GALESBURG                1021 S. HENDERSON, GALESBURG, IL 61402             KNOX         CONSIGNMENT       1,576      MW
 BUTLER - SAN MARCO                2301 N I-35, SAN MARCOS, TX 78666                  HAYS         CONSIGNMENT         657      MW
 BUTLER - SAN MARCO                2301 N. l-35, SAN MARCOS, TX 78666-6740            HAYS         CONSIGNMENT         524      GC
 BUTLER - VISALIA                  74400 DOE AVE, VISALIA, CA 93291                   TULARE       CONSIGNMENT         479      MW
 BUTLER - VISALIA                  7440 DOE AVE, VISALIA, CA 93291-9220               TULARE       CONSIGNMENT       1,340      GC
 CAINE STEEL CO.                   8103 LYNCH ROAD, DETROIT, MI. 48234                WAYNE        SLIT              5,120      GL
 CAINE STEEL CO.                   8103 LYNCH ROAD, DETROIT, MI. 48234                WAYNE        PROCESSOR           408      MW
 CENTRAL CAN CO.-CONSIGNMENT       3200 S. KILBORN AVE., CHICAGO, IL 60623            COOK         CONSIGNMENT         939      MW
 CHEMCOATERS                                                                                       PROCESSOR           136
 CHICAGO COLD ROLLING              1000 E. BOUNDARY DRIVE                             PORTER       PROCESSOR            77      MW
 CHICAGO STEEL & TINPLATE          700 CHASE ST, GARY, IN 46404                       LAKE         WAREHOUSE            54      GC
 CHICAGO STEEL & TINPLATE WAREHOUS 700 CHASE ST., GARY, IN 46401                      LAKE         STORAGE              19      GL
 CHICAGO STEEL-AL                  174 S 26TH ST, GADSDEN, AL 35904-1935              ETOWAH       PROCESS/LEVEL        37      GC
 CHICAGO STEEL-PA                  #1 FAIRLESS WORKS, FAIRLESS HILLS PA 19030-        BUCKS        WAREHOUSE             7      GC
                                   5001
 CHICAGO TIN & STORAGE-STORAGE     700 CHASE STREET, GARY, IN. 46404                  LAKE         STORAGE             130      MW
 COLORSTRIP/PREFINISH - RICHMOND   5200 Gaint Rd, RICHMOND, CA 94804                  CONTRA COSTA PROCESSOR             4      MW
 CONSOLIDATED METAL PRODUCTS       1085 MENDELL DAVIS DRIVE, JACKSON, MISSISSIPPI
                                   39212-4196                                         HINDS        STORAGE              84      GL
 CONSOLIDATED METALS               1085 Mendell Davis Dr, Jackson, MS 39212           HINDS        PROCESSOR           410      MW
 CONSOLIDATED METALS               1085 MENDELL DAVIS DR, JACKSON, MS 39212           HINDS        WAREHOUSE           161      GC
 DEARBORN STEEL CENTER             6837 WYOMING, DEARBORN, MI. 48126                  WAYNE        STORAGE          17,694      GL
 DEARBORN STEEL CENTER             6837 WYOMING, DEARBORN, MI. 48126                  WAYNE        PROCESSOR           207      MW
 DELACO STEEL CORP                 8111 TIREMAN, DEARBORN, MI 48126                   WAYNE        PROCESSOR         1,300      MW
 DEMMER CORPORATION                3525 CAPITAL CITY BLVD., LANSING, MI. 48901        INGHAM       BLANKING            306      GL




                           National Steel Corporation
                Schedule 4 - Location of Inventory and Equipment
- --------------------------------------------------------------------------------
                                   10/31/2001
                                   ----------



      FACILITY                                    ADDRESS                           COUNTY                 TYPE           TONS   DIV
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  
DEMMER CORPORATION              3525 CAPITAL CITY BLVD., LANSING, MI. 48901         INGHAM       BLANKING                    255  MW
DENNEN STEEL CORPORATION        3033 FRUITRIDGE, AVE. NW, GRAND RAPIDS, MI 49501    KENT         BLANK, SLIT                 548  MW
DENNEN STEEL CORPORATION        3033 FRUITRIDGE, AVE. NW, GRAND RAPIDS, MI 49501    KENT         BLANK, SLIT STORAGE          59  GL
DNN GALVANIZING CORP.           300 SPRUCEWOOD AVE., WINDSOR, CANADA N9C3Y6         ONTARIO      GALVANIZE, SLIT          16,608  GL
DOUBLE G COATING                1096 MENDELL DAVIS DR, JACKSON, MS 39212            HINDS        PROCESS/GALVANIZE         8,519  GC
DOUBLE G COATINGS INC.          1095 MENDALL DAVIS DR., JACKSON, MS 39212           HINDS        PROCESSOR                 4,681  MW
DOUBLE G COATINGS INC.          1096 MENDALL DAVIS DR., JACKSON, MS 39212           HINDS        GALVANIZE                   113  GL
DOUBLECOTE                      951 PRISOCK ROAD, JACKSON, MS 39282                 HINDS        PROCESSOR                 6,196  MW
DOUBLECOTE                      951 PRISOCK RD, JACKSON, MS 39292                   HINDS        PROCESS/PAINT             4,459  GC
DOUBLECOTE                      951 PRISOCK ROAD, JACKSON, MS. 39282                HINDS        STORAGE                   2,155  GL
DSC Ltd.                        1491 W. Jefferson Ave, Wayne, MI 48183-1299         Trenton      PROCESSOR                   158  GL
EAGLE STEEL PRODUCTS            3420 COLLINS LANE, LOUISVILLE, KY 40245-l632        JEFFERSON     PROCESSOR                  977  GL
EAGLE STEEL PRODUCTS            3420 COLLINS LANE, LOUISVILLE, KY 40245                          PROCESSOR                     6  MW
FERALLOY                        2500 CENTURY DRIVE, GRANITE CITY, 62040 IL          MADISON      PROCESSOR                 1,007  MW
FERALLOY CALIFORNIA             936 PERFORMANCE DR, STOCKTON, CA 95206-4925         SAN JOANQUIN PROCESS/SLIT                124  GC
FERALLOY CORP. - NORTH AMERICAN 18030 RIULTO, MELVINDALE, MI. 48122                 WAYNE        SLIT, LEVEL               1,780  GL
FERALLOY GC                     2500 NAMEOKI DR, GRANITE CITY, IL 62040             MADISON      WAREHOUSE                 1,051  GC
FERALLOY NORTH AMERICAN STEEL   18030 RIALTO ST., MELVINDALE, MI 48122-1993         WAYNE        PROCESSOR                    47  MW
FERALLOY PORTAGE                6755 WATERWAY DR, PORTAGE, IN 46368-1383            PORTER       PROCESS/LEVEL               116  GC
FERROLUX METALS                 36263 MICHIGAN AVE, WAYNE, MI 48184                 WAYNE        PROCESSOR                   391  GL
FERROUS METAL PROC              11103 MEMPHIS AVE, CLEVELAND, OH  44144             CUYAHOGA     CONSIGNMENT               3,538  GC
FLAT ROCK METALS                26601 W. HURON RIVER DR., FLAT ROCK MI. 48134       WAYNE        PROCESSOR                   923  MW
FLAT ROCK METALS                725 GEORGE NELSON DR, PORTAGE, IN 46368             PORTER       PROCESSOR                   353  MW
FLAT ROCK METALS INC.           26601 W. HURON RIVER DR., FLAT ROCK, MI. 48134      WAYNE        POLISH, CTL,SLEAR,BLANK   5,496  GL
FLAT ROCK METALS INC.- PORTAGE  725 GEORGE NELSON DRIVE, PORTAGE, IN 46368          PORTER       POLISH, CTL,SLEAR,BLANK     157  GL
FORD MOTOR COMPANY              PO BOX 1520, DEARBORN, MI 48121-1520                WAYNE        PROCESSOR                   330  GL
G.C. STEEL-MIDWEST DIVISION     6300 US HIGHWAY 12, PORTAGE, IN 46368               PORTER       PROCESSOR                    65  GC
GENERAL STEVEDORES              5807 NAVIGATION BLVD, HOUSTON, TX 77261             HARRIS       WAREHOUSE                 3,237  GC
GENERAL STEVEDORES              5807 NAVIGATION BLVD., HOUSTON, TX 77261            HARRIS       STORAGE                     114  GL
GENERAL STEVEDORES INC.         7100 CLINTON DRIVE, HOUSTON, TX. 77261              HARRIS       STORAGE                  10,168  MW
GENERAL STEVEDORES INC.         7100  CLINTON DRIVE, HOUSTON, TX. 77261             HARRIS       SLIT, CTL                 1,073  MW
GLOBAL MATERIAL                 1701 DOCK ST., MEMPHIS, TN 38113                                 PROCESSOR                    74  MW
GRANITE CITY PICKLING           P.O. BOX 499, GRANITE CITY, IL 62040                MADISON      PROCESS/PICKLE            7,374  GC
GREAT LAKES PROCESS             6600 US HIGHWAY 12, PORTAGE, IN 46368               PORTER       PROCESS/CHEM TREAT           34  GC
GREAT LAKES PROCESSING          PORTAGE, IN 46383                                                PROCESSOR                 2,369  MW
GREAT LAKES STEEL               ECORSE, MI                                                       STORAGE                     104  MW
HANDY WAREHOUSE                 8815 MISSISSIPPI AVE, HOUSTON, TX 77029             HARRIS       PROCESS/SLIT                 23  GC
HANNA - PEKIN                   220 HANNA DR, PEKIN, IL 61554-8793                  TAZEWELL     PROCESS/PAINT             5,645  GC
HANNA STEEL                     3812 COMMERCE AVE, PO BOX 558, FAIRFIELD, AL 35064  JEFFERSON    PROCESS/PAINT                10  GC
HAYES WHEEL INTERNATIONAL       3610 W. MAIN STREET, SEDALIA, MS 65301              PETTIS       PROCESSOR                    18  GL
HEARTLAND STEEL                 455 W INDUSTRIAL, TERRE HAUTE, IN 47802-9673        VIGO         PROCESS/PICKLE                6  GC
HEIDTMAN STEEL - BALTIMORE      6400 BECKLEY ST, BALTIMORE, MD 21224                BALTOMORE    PROCESSOR                   426  GL
HEIDTMAN STEEL - GC             10 NORTHGATE INDUSTRIAL DR. GRANITE CITY, IL 62040  MADISON      PROCESSOR                    78  GL




                           National Steel Corporation
                Schedule 4 - Location of Inventory and Equipment
- --------------------------------------------------------------------------------
                                   10/31/2001
                                   ----------



        FACILITY                                    ADDRESS                            COUNTY          TYPE               TONS   DIV
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  
HEIDTMAN STEEL-BUTLER           4400 COUNTY ROAD 59, BUTLER, IN 46721-9746           DEKALB      PROCESS/PCKL, SLIT, SLIDE   76
                                                                                                                                  GC
HEIDTMAN STEEL-CRAW             RURAL RT 2, CRAWFORDSVILLE, IN 47933                 MONTGOMERY  PROCESS/PCKL, SLIT, SLIDE   88
                                                                                                                                  GC
HEIDTMAN STEEL-GC               10 NORTHGATE INDUSTRIAL DR, GRANITE CITY, IL 62040   MADISON     PROCESS/PICKLE, SLIT,   14,905   GC
HOKIN-KATZ                      251 S. MISSION RD. LOS ANGELES, CA 90033             LOS ANGELES PROCESS/SLIT, C-T-L        110
                                                                                                                                  GC
HS PROCESSING LP                4400 COUNTY ROAD 59, BUTLER, IN 46721-9746           DEKALB      PROCESSOR                   44   GL
HS PROCESSING, L.P. (NATL.GALV) 1500 TELB, MONROE, MI. 48161                         MONROE      PICKLE, SLIT, GALVANIZE    528   GL
HUNTCO STEEL INC                #l HUNTCO DR, MADISON, IL, 62060                     MADISON     PROCESS/SLIT               973   GC
HUNTCO STEEL INC                1 HUNTCO DR., MADISON, IL 62060                      MADISON     PROCESSOR                  171   MW
HUNTCO STEEL INC-AR             5027 N. COUNTY RD 1015, BLYTHEVILLE, AR 72315-6951   MISSISSIPPI PROCESS/PICKLE, LEVEL      432   GC
INDIANA PICKLING & PROCESSING   6650 NAUTICAL DRIVE, PORTAGE, IN 46368               PORTER      PROCESSOR                  324   GL
INTEGRATED TERMINALS            25325 HALL ROSS, WOODHAVEN, MI. 48183                ERIE        STORAGE                     83   MW
INTEGRATED TERMINALS-LACK       1951 HAMBURG TURNPIKE, LACKAWANNA, NY 19218          ERIE        WAREHOUSE                  341   GL
INTEGRATED TERMINALS-WOOD       25325 HALL ROAD, WOODHAVEN, MI. 48183                WAYNE       STORAGE                  1,916   GL
INTERNATIONAL DIST. SERVICES    8055 HIGHLAND PTE. PARKWAY, MACEDONIA, OH. 44056     SUMMIT      STORAGE                  3,214   GL
INTL DIST SERVICES              8055 HIGHLAND POINTE, MACEDONIA, OH                  SUMMIT      STORAGE                    431   MW
JIT TERMINAL                    P.O. BOX 4836, CHATTANOOGA, TN. 37405                HAMILTON    STORAGE                    624   MW
JIT TERMINAL                    530 MANUFACTURES RD, CHATTANOOGA, TN 37405           CHATTANOOG  WAREHOUSE                   70
                                                                                     A                                            GC
KASLE STEEL CORP.               4343 WYOMING, DEARBORN, MI. 48121                    WAYNE       PICKLE                   6,274   GL
KLAUER MFG CO                   1185 ROOSEVELT ST., DUBUQUE, IA 52001-8335           DUBUQUE     PROCESSOR                    5   MW
LAFAYETTE STEEL                 3600 N. MILITARY, DETROIT, MI 48210                  WAYNE       PROCESSOR                1,340   MW
LAFAYETTE STEEL CO.             3600 N. MILITARY, DETROIT, MI. 48234                 WAYNE       PROCESSOR                2,143   GL
LANTZ, W.S. (VOSS LANTZ)        19451 SHERWOOD, DETROIT, MI. 48234                   WAYNE       PICKLE, SLIT             1,472   GL
LILLEY WAREHOUSE                1101 16TH STREET, GRANITE CITY, IL 62040             MADISON     WAREHOUSE                   27   GC
LILLEY WAREHOUSING              1101 16TH STREET, P.O. BOX 249, GRANITE CITY,
                                IL. 62040                                            MADISON     STORAGE                  1,187   MW
LIVERPOOL COIL PROCESSING       880 STEEL DRIVE, VALLEY CITY, OH. 44280              MEDINA      SLIT, CTL, STORAGE       2,966   GL
LIVERPOOL COIL PROCESSING       880 STEEL DRIVE, VALLEY CITY, OH. 44280              MEDINA      PROCESSOR                1,619   MW
MAIN STEEL POLISHING CORP.      802 E. DEVON, BARLETT, IL. 60103                     COOK        POLISH                     232   GL
MAKSTEEL                        1510 BIRCHMONT ROAD, ONTARIO, CANADA  M1P 2G6        SCARBOROUGH PROCESSOR                  575   GL
MARUBENI STEEL                                                                                   PROCESSOR                   20
MATERIAL WORKS                  10351 RIVER VIEW LANE, RED BUD, IL 62278-4758        RANDOLPH    PROCESSOR                1,766   MW
MATERIAL WORKS                  300 B & E INDUSTRIAL PARK, RED BUD, IL 62278         RANDOLPH    PROCESS/CUT TO LENGTH    1,098   GC
MCELROY METALS                  17031 KOALA RD, ADELANTO, CA 92301-2246              SAN         CONSIGNMENT                 11
                                                                                     BERNARDINO                                   GC
MEDINA BLANKING                 P.O. BOX 360513, VALLEY CITY, OH. 44136              MEDINA      BLANK                    1,289   GL
MEDINA BLANKING                 5580 WEGMAN DR., VALLEY CITY, OH. 44280              CUYAHOGA    PROCESSOR                1,218   MW
METAL BUILDING COMP - ARIZ      660 S. 91ST AVE., TOLLESON, AZ 46545-3440            MARICOPA    CONSIGNMENT                163   GC
METAL BUILDING COMP-UTAH        1155 W. 2300 NORTH, SALT LAKE CITY, UT               SALT LAKE   CONSIGNMENT                258   GC
METAL COATERS OF CA             9133 CENTER AVE, CUCAMONGA, CA 91730-5312            CUCAMONGA   PROCESS/PAINT            2,505   GC
METAL COATERS OF CALIFORNIA     9133 CENTER AVE, CUCAMONGA, CA 91730-5312            CUCAMONGA   PROCESSOR                1,436   MW
METAL COATERS OF CALIFORNIA     9133 CENTER AVE, CUCAMONGA, CA 91730-5312            CUCAMONGA   PROCESSOR                  310   GL
METAL COATERS OF GA             1150 MARIETTA IND. DR NE, MARIETTA, GA 30062         COBB        PROCESS/PAINT            1,288   GC




                           National Steel Corporation
                Schedule 4 - Location of Inventory and Equipment
- --------------------------------------------------------------------------------
                                   10/31/2001
                                   ----------



   FACILITY                           ADDRESS                                                   COUNTY            TYPE    TONS  DIV
- -----------------------------------------------------------------------------------------------------------------------------------
                                                                                                                 
   METAL COATERS OF GEORGIA          1150 MARIETTA IND. DR., NE, MARIETTA, GA. 30062-2488    COBB       PAINTER           114   GL
   METAL COATERS OF GEORGIA          1150 MARIETTA IND. DR., NE, MARIETTA, GA. 30062-2488    COBB       PAINTER         4,536   MW
   METAL COATERS OF GEORGIA #2       880 INDUSTRIAL PARK DR., MARIETTA, GA 30062-2453        COBB       PAINTER           433   MW
   METAL PREP - HOUSTON              P.O. BOX 9329, HOUSTON, TX 77011                        HARRIS     WAREHOUSE      12,487   GC
   METAL PREP - MEMPHIS              1838 DOCK ST, MEMPHIS, TN 38113                         SHELBY     PROCESS/PAINT  14,787   GC
   METAL PREP - MEMPHIS              1838 DOCK ST. MEMPHIS, TN 38113                         SHELBY     PROCESSOR          86   GL
   METAL PROCESSORS INC              WEST HIGHWAY, SEDALIA, MO 65301                         PETTIS     PROCESS/SLIT    5,058   GC
   METALS USA - FLAT ROLL            8815 MISSISSIPPI ST., HOUSTON, TX 77029-4401            HARRIS     PROCESSOR         205   MW
   METRO METALS CORP                 345 SALMON DRIVE, PORTAGE, IN 46368                     PORTER     PROCESSOR         114   GL
   MICHIGAN STEEL PROCESSING         36211 S. HURON RD., NEW BOSTON, MI. 48164               WAYNE      SLIT, BLANK     2,420   GL
   MICHIGAN STEEL PROCESSING         36211 S. HURON RD., NEW BOSTON, MI. 48164               WAYNE      PROCESSING        871   MW
   MIDSOUTH TERMINAL                 PO BOX 13286, 1073 CHANNEL AV, MEMPHIS, TN 38113-0286   SHELBY     WAREHOUSE          51   GC
   MIDWEST METAL COATING             #9 KONZEN CT, GRANITE CITY, IL 62040                    MADISON    PROCESS/PAINT  13,224   GC
   MIDWEST METAL COATINGS            9 KOZEN CT., GRANITE CITY, IL 62040-6855                MADISON    PROCESSOR         251   MW
   MILTON CAN                        8200 BROADWELL RD, CINCINNATI, OH 45244-1698            HAMILTON   CONSIGNMENT       478   MW
   MITSUI                            16 CHERRY BLOSSOM RD, CAMBRIDGE, ON                     WATERLOO   STORAGE           201   MW
   MITSUI AUTO STEEL CANADA INC.     16 CHERRY BLOSSOM RD, CAMBRIDGE, ON                     ONTARIO    PROCESSOR       3,347   GL
   MSC LAMINATES & COMPOSITS - Wood  30610 E BROADWAY ST, WALBRIDGE, OH 43465                WOOD       PROCESSOR       2,129   GL
   NAMASCO LTD BLANKING CENTRE       30360 EDISON DRIVE, BRANTFORD, ONTARIO N3T 5T6          CANADA     PROCESSOR          82   GL
   NATIONAL COMP. INC.               NCI COMPONENTS, C/O NCI BLDG SYSTEM, ATWATER, CA        MERCED     CONSIGNMENT       830   GC
   NATIONAL MATERIAL COMPANY         101 CAIRNS ROAD, MANSFIELD, OH. 44901                   RICHlAND   CONSIGNMENT       419   GL
   NATIONAL PROCESSING               4506 W. CLINE AVE., PLANT 2, E CHICAGO, IN 46312-3181   LAKE       WAREHOUSE         171   GC
   NCI BUILDING-CONSIGNMENT          550 INDUSTRY WAY, JACKSON, MS                           HINDS      CONSIGNMENT       325   MW
   NOBLE METAL                       NORTH VERNON, IN                                        WAYNE      PROCESSOR          10   MW
   NOBLE METAL PROCESSING            20101 HOOVER ROAD, DETROIT, MI 48205                    WAYNE      PROCESSOR          88   GL
   NOBLE METAL PROCESSING CANADA     46 PLANT FARM BLVD., BRANTFORD, ONT. N3S 7W3            ONTARIO                    1,529   GL
   NOBLE METAL/UTILASE               20530 HOOVER RD., DETROIT, MI 48205                     WAYNE      PROCESSOR       2,717   MW
   NOVA STEEL                        LEXINGTON, KY                                                      PROCESSOR          29   MW
   OBORN TRANSFER                    FREEPORT CENTER BLDG, #A15, CLEARFILED, UT 84016                   STORAGE         1,101   MW
   OBORN TRANSFER                    FREEPORT CENTER BLDG, #A15, CLEARFIELD, UT 84016        CLEARFIELD PROCESSOR         312   GL
   OBORN TRANSFER                    FREEPORT CTR. BLDG. #Al5 ZTS 715 SPOT D YARD 7,
                                     CLEARFIELD, UT 8                                        DAVIS      WAREHOUSE          42   GC
   OHIO PICKLING & PROCESSING        1149 CAMPBELL STREET, TOLEDO, OH 43607-4400             LUCAS      PROCESSOR       1,574   GL
   OHIO STAMPING & MAINCNE, INC      1305 INNISFALLEN AVENUE, SPRINGFIELD, OH 45506-1899     CLARK      PROCESSOR          28   GL
   OHIO-KENTUCKY STEEL               2001 COMMERCE CENTER DR., FRANKLIN, OH 45005-1478       WARREN     STORAGE            82   MW
   POLYMER COATERS                   7001 VALLEY RD, PO BOX 440, FAIRFIELD, AL 35064         JEFFERSON  WAREHOUSE       4,185   GC
   POLYMER COIL COATER INC           7001 VALLEY RD., FAIRFIELD, AL 35064-2666               JEFFERSON  CONSIGNMENT       951   MW
   PRECISION STRIP                   446 N. HARDISON ROAD, S.UNION, KY 42283                 LOGAN      PROCESSOR         138   GL
   PRECISION STRIP                   56 SOUTH OHIO ST, MINSTER, OH 45865                     AUGLAIZE   WAREHOUSE          23   GC
   PRECISION STRIP - CONSIGNMENT     86 S. OHIO ST., MINSTER, OH. 45865                      AUGLAIZE   CONSIGNMENT       757   MW
   PRECOAT METALS - CHICAGO          4800 KILBOURN, CHICAGO, IL 60632                        COOK       PROCESSOR         400   MW
   PRECOAT METALS - GRANITE          25 NORTHGATE INDUSTRIAL PARK, ROUTE 3,
                                     GRANITE CITY, IL 62040                                  MADISON    PROCESSOR       3,664   MW
   PRECOAT METALS - GRANITE          25 NORTHGATE INDUSTRIAL PARK, ROUTE 3,
                                     GRANITE CITY, IL 62040                                  MADISON    PAINTER         2,206   GL
   PRECOAT METALS - HOUSTON          16402 JACINTO PORT BLVD., HOUSTON, TX 77015             HARRIS     PAINTER         2,003   GL
   PRECOAT METALS - HOUSTON          16402 JACINTO PORT BLVD., HOUSTON, TX 77015             HARRIS     PROCESSOR       1,534   MW




                           National Steel Corporation
                Schedule 4 - Location of Inventory and Equipment
- --------------------------------------------------------------------------------
                                   10/31/2001
                                   ----------




         FACILITY                                   ADDRESS                                COUNTY        TYPE              TONS  DIV
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  
PRECOAT METALS - JACKSON       1095 MENDELL DAVIS DR., JACKSON, MS 39219                 HINDS       PROCESSOR             5,917 MW
PRECOAT METALS - JACKSON       1095 MENDELL DAVIS DRIVE, JACKSON, MS. 39212-9788         HINDS       PAINTER                 220 GL
PRECOAT METALS - MADISON       1001 COLLEGE ST., MADISON, IL 62060-1012                  MADISON     PROCESSOR             3,207 MW
PRECOAT METALS - MCKEESPORT    MCKEESPORT, PA                                            ALLEGHENY   PROCESSOR               704 MW
PRECOAT METALS - PORTAGE       U.S. HIGHWAY 12 @ STATE ROAD 249, PORTAGE, IN. 46368-1281 PORTER      PROCESSOR             5,319 MW
PRECOAT METALS - PORTAGE       U.S. HIGHWAY 12 @ STATE ROAD 249, PORTAGE, IN. 46368-1281 PORTER      PAINTER                  11 GL
PRECOAT METALS-C               4800 SOUTH KILBOURN, CHICAGO, IL 60632                    COOK        PROCESS/PAINT           611 GC
PRECOAT METALS-G               NORTHGATE INDUSTRIAL PK, RTE 3, GRANITE CITY, IL 62040    MADISON     PROCESS/PAINT        30,788 GC
PRECOAT METALS-H               16402 JACINTO PORT BLVD, HOUSTON, TX 77015                HARRIS      PROCESS/PAINT         3,452 GC
PRECOAT METALS-J               1095 MENDELL DAVIS DR, JACKSON, MS 39212                  HINDS       PROCESS/PAINT         4,590 GC
PRECOAT METALS-MADISON         1001 COLLEGE ST, PO BOX 152, MADISON, IL 62060            MADISON     WAREHOUSE             5,399 GC
PRECOAT METALS-MCK             3500 WALNUT ST, MCKEESPORT, PA 15132-7299                 ALLEGHENY   PROCESS/PAINT         1,976 GC
PRECOAT METALS-P               U.S. HIGHWAY 12, STATE RD 249, PORTAGE, IN 46368          PORTER      PROCESS/PAINT         7,578 GC
PREFINISH-MIDDLETOWN           2400 YANKEE RD, MIDDLETOWN, OH 45044                      BUTLER      PROCESSOR                16 GL
PROCESSING TECHNOLOGY -
PERRYSBU                       7401 PONDEROSA ROAD, WOOD, OHIO 43551-4858                PERRYSBURG  PROCESSOR               545 GL
PROCESSING TECHNOLOGY-P        1126 N SR 149, BURNS HARBOR, IN 46368                     PORTER      STORAGE               7,654 MW
PROCESSING TECHNOLOGY-W        7401 PONDEROSA RD., PERRYSBURG, OH 43661                  WOOD        PROCESSOR               271 MW
PROCESSOR TECH                 1126 N. STATE ROAD 149, BURNS HARBOR, IN 46304-9429       PORTER      WAREHOUSE               246 GC
PROCESSOR TECHNOLOGY - BURNS   1126 N. STATE RD. 149, BURNS HARBOR, IN 46304-9429        PORTER      PROCESSOR                 6 GL
PROCOIL DISTRIBUTION CENTER    5260 S. HAGGERTY RD., CANTON, MI. 48188                   WAYNE       STORAGE              12,829 GL
PROCOIL DISTRIBUTION CENTER    5100 S. HAGGERTY RD., CANTON, MI. 48188                   WAYNE       STORAGE              10,238 MW
PROCOIL LASER WELDING CENTER   5100 S. HAGGERTY RD, CANTON, MI 48188-2794                WAYNE       PROCESSOR             1,160 MW
PROCOIL PROCESSING             5260 S. HAGGERTY RD., CANTON, MI. 48188                   WAYNE       SLIT, CTL, SLEAR     11,577 GL
PROCOIL PROCESSING             5260 S. HAGGERTY RD., CANTON, MI. 48188                   WAYNE       PROCESSOR             3,057 MW
PURDIE METALS                  525 MAXTON RD., WESTERVILLE, OH 43082-8757                DELAWARE    SLIT, LEVEL             625 GL
QUALITY COIL PROCESSING INC.   25225 HALL RD., WOODHAVEN, MI. 48182                      WAYNE       BLANK, SLIT, STORAGE    231 GL
QUALITY STEEL STORAGE          1769 E. BROADWAY, NORTHWOOD, OH. 43605                    WOOD        STORAGE                 508 MW
ROLL & HOLD - CHARLOTTE        9925 BROOKFORD ST, CHARLOTTE, NC 28273-6431               MECKLENBURG PROCESSOR               145 MW
ROLL & HOLD - ELDRIDGE         951 TRAILS ROAD, ELDRIDGE, IA 52748-9339                  SCOTT       PROCESSOR             1,610 MW
ROLL & HOLD - ELDRIDGE         ELDRIDGE, IO 52748-9399                                   SCOTT       PROCESSOR                63 GL
ROLL & HOLD - HAMMOND          1745 165TH, HAMMOND, IN 46320-2822                        LAKE        STORAGE                 685 MW
ROLL & HOLD - HAMMOND          1745 165TH STREET, HAMMOND, IN 46320                      LAKE        STORAGE                  49 GL
ROLL & HOLD - INDY             25115 S. HOLT AVE., INDIANAPOLIS, IN                      MARION      STORAGE                 435 GL
ROLL & HOLD - INDY             2515 S. HOLT AVENUE, INDIANAPOLIS, IN. 46241              MARION      STORAGE                  25 MW
ROLL & HOLD - LOUISVILLE       7200 RIVERPORT DRIVE, LOUISVILLE, KY 40258                LOUISVILLE  WAREHOUSE               404 GL
ROLL & HOLD - MACEDONIA        755 HIGHLAND ROAD, MACEDONIA, OH 44056                    SUMMIT      STORAGE               1,542 GL
ROLL & HOLD - MACEDONIA        8190 ROLL & HOLD PARKWAY, MACEDONIA, OH 44056             SUMMIT      STORAGE               1,304 MW
ROLL & HOLD - PORTAGE          725 GEO NELSON DR, PORTAGE, IN 46368                      PORTAGE     STORAGE               1,952 MW
ROLL & HOLD - PORTAGE          725 GEORGE NELSON DRIVE, PORTAGE, IN 46368-1276           PORTER      PAINTER, STORAGE         13 GL
ROLL & HOLD-CHAR               9925 BROOKFORD ST, CHARLOTTE, NC 28273-6431               MECKLENBURG WAREHOUSE               463 GC
ROLL & HOLD-DAV/ELD            303 EAST 90TH ST, DAVENPORT, IA 52804                     SCOTT       WAREHOUSE             3,194 GC
ROLL & HOLD-MACEDONIA          8190 ROLL & HOLD PARKWAY, MACEDONIA, OH 44056             SUMMIT      WAREHOUSE               273 GC
ROLL & HOLD-PORTAGE            6600 US HIGHWAY 12, PORTAGE, IN 46368                     PORTER      WAREHOUSE                90 GC





                           National Steel Corporation
                Schedule 4 - Location of Inventory and Equipment
- --------------------------------------------------------------------------------
                                   10/31/2001
                                   ----------



             FACILITY                                  ADDRESS                         COUNTY                  TYPE       TONS   DIV
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  
ROLL COATERS INC. - GP              3398 E. NATIONAL RD. HIGHWAY 40, GREENFIELD,     HANCOCK       PROCESSOR                 290 MW
                                    IN 46140
ROLL COATERS INC. - GREENFIELD      GREENFIELD, IN 46140                             HANCOCK       PAINTER, STORAGE           18 GL
ROLL COATERS INC. - K               2ND & HUPP RD., KINGSBURY INDUSTRIAL PARK,       LA PORTE      PROCESSOR               1,570 MW
                                    KINGSBURY, IN 46345
ROLL COATERS INC. - KINGSBURY       2ND & HUPP RD., KINGSBURY INDUSTRIAL PARK,       LA PORTE      PAINTER, STORAGE          252 GL
                                    KINGSBURY, IN 46345
ROLL COATERS INC. - W               4502 FREEDOM WAY, WEIRTON, WV 26062              HANCOCK       PROCESSOR                  82 MW
ROLL COATERS INC-H                  2604 RIVER RD., HAWESVILLE, KY 42348-6806        HANCOCK       PROCESSOR                 175 MW
ROLLCOATER - WEIR                   4502 FREEDOM WAY, WEIRTON, VW 26062-5269         HANCOCK       PROCESS/PAINT           1,015 GC
ROLLCOATER-GRN                      PO BOX 787, GREENFIELD, IN 46140                 HANCOCK       PROCESS/PAINT           2,443 GC
ROLLCOATER-KING                     KINGSBURY INDUSTRIAL PK, KINGSBURY, IN 46345     LA PORTE      PROCESS/PAINT           1,750 GC
RSDC OF MICHIGAN LLC                1775 HOLLOWAY DRIVE, HOLT, MI 48842-9795         INGHAM        PROCESSOR               9,220 GL
RSDC OF MICHIGAN LLC                1775 HOLLOWAY DRIVE, HOLT, MI 48842-9795         INGHAM        PROCESSOR                 318 MW
SHILOH CORPORATION                  402 9TH AVE., MANSFIELD, OH. 44905               RICHLAND      BLANKING                  303 GL
SHILOH OF MICHIGAN                  9800 INKSTER ROAD, ROMULUS, MI                   WAYNE         PROCESSOR                 207 MW
SHILOH OF MICHIGAN LLC              9800 INKSTER ROAD, ROMULUS, MI 48174-2616        WAYNE         PROCESSOR                 273 GL
SKELTON MOTOR CO INC                200B PORTER AVE., SPRINGDALE, AR 72764-6370      WASHINGTON    PROCESSOR                 347 MW
STAUB METALS                        10415 S ALAMADA ST. LYNWOOD, CA 90262-1758       LOS ANGELES   PROCESS/SLIT               23 GC

STEEL WHSE                          PO BOX 1377, 2722 W TUCKER DR, SO BEND,          ST. JOSEPH    PROCESS/SLIT, SHEAR       371 GC
                                    IN 46624
STEEL WORKS CORP.                   PO BOX 366, 1020 NIEDRINGHOUSE, GRANITE CITY,    MADISON       PROCESS/SLIT, RECOIL,   3,759 GC
                                    IL 62040
STEELOX SYSTEMS                     1629 OLD U.S. ROUTE 35 SE, WASHINGTON            FAYETTE       STORAGE                   251 MW
                                    COURTHOUSE, OH 43160
STORAGE SVCS                        9670 HWY 69 NO, RTE 5 BOX 15A, TYLER, TX 75706   SMITH         WAREHOUSE                  11 GC
SUN STEEL                           2500 EUCLID AVE, CHICAGO HEIGHTS, IL 60411       COOK          PROCESSOR                 299 MW
TAYLOR COIL PROCESS (36)            STONEY CREEK, OH                                               PROCESSOR                  99 MW
TAYLOR COIL PROCESS (3H)            2260 INDUSTRIAL TERR, LORDSTOWN, OH              TRUMBULL      PROCESSOR                  10 MW
TAYLOR COIL PROCESSING              2260 INDUSTRIAL TRACE S.W., LORDSTOWN,           TRUMBULL      PROCESSOR                 315 GL
                                    OH 44481-9264
TAYLOR STEEL INC.-GREEN             395 GREEN ROAD, STONEY CREEK, CANADA L8E 3Y5     ONTARIO       WAREHOUSE                 610 MW
TAYLOR STEEL INC.-GREEN             395 GREEN ROAD, STONEY CREEK, CANADA L8E 3Y5     ONTARIO       WAREHOUSE                 296 GL
TIN PLATE PARTNERS                  700 CHASE ST., GARY, IN 46401                    LAKE          CONSIGNMENT             1,887 MW
TOLEDO BLANK INC.                   P.O. BOX 3416, STA. C, TOLEDO, OH. 43607         LUCAS         BLANKING                  718 GL
TOLEDO BLANK, INC                   PO BOX 3416 STA. C., TOLEDO, OH 43607            OTTOWA        PROCESS/BLANKER            49 GC
TOYOTA TSUSHO AMERICA INC.          1125 CHERRY BLOSSOM, GEORGETOWN, KY. 40324       SCOTT         STORAGE                 7,680 GL
TOYOTA TSUSHO AMERICA INC. - PRINCE COUNTRY ROAD 350 S., PRINCETON, IN 47670         GIBSON        WAREHOUSE                 171 GL
TOYOTA TSUSHO AMERICA INC.-STORAGE  1125 CHERRY BLOSSOM, GEORGETOWN, KY. 40324       SCOTT         STORAGE                 3,956 MW
TRENTON STEEL PROCESSING & STORAGE  1717 FORT STREET, TRENTON, MI. 48183             WAYNE         STORAGE                   383 GL
US COATERS LLC                      #9 KONZEN CT, GRANITE CITY, IL 62040             MADISON       PROCESS/COATER, SEALER     57 GC

VALLEY CITY STEEL                   804 STEEL DRIVE, VALLEY CITY, OH                 MEDINA        PROCESSOR                  75 GL
VALMONT IND-NE                      HIGHWAY 64, VALLEY, NE 68064-358                 DOUGLAS       CONSIGNMENT             8,310 GC
VALMONT IND-TX                      330 FALEM RD, BRENHAM, TX 77833                  WASHINGTON    CONSIGNMENT             1,402 GC

VALMONT INDUSTRIES                                                                                 CONSIGNMENT               182 MW
VERSATUBE CORP                      4755 ROCHESTER RD, TROY, MI 48098-4999           OAKLAND       PROCESSOR                  61 GL
VERSITUBE CORP                      4755 ROCHESTER RD, TROYM MI 48098-4999           OAKLAND       PROCESSOR                  46 NW
VOSS CLARK                          701 LOOP RD., JEFFORNSVILLE, IN 47130            CLARK         PROCESS/PICKLE, SLIT      484 GC
VOSS CLARK                          701 LOOP ROAD JEFFERSONVILLE, IN. 47130-8428     CLARK         PICKLE, SLIT              185 GL




                           National Steel Corporation
                Schedule 4 - Location of Inventory and Equipment
- --------------------------------------------------------------------------------
                                   10/31/2001
                                   ----------




        FACILITY                                 ADDRESS                            COUNTRY           TYPE                TONS   DIV
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                  
VOSS STEEL CO. - TAYLOR           7925 BEECH DALY RD., TAYLOR, MI. 48180          WAYNE        PICKLE, SLIT              10,684  GL
WALBRIDGE CTG                                                                                  CONSIGNMENT                   49  MW
WAYNE INDUSTRIES-PROCESSOR        36253 MICHIGAN AVE., WAYNE, MI. 48184           WAYNE        PROCESSOR                  1,138  MW
WAYNE STEEL DISTRIBUTION CENTER   21901 COTTAGE GROVE AVE, SAUK VILLAGE, IL 60411 COOK         STORAGE                       23  GL
WESTERN INTERMODAL                2801 GIANT ROAD, RICHMOND, CA 94806             CONTRA COSTA STORAGE                      702  MW
WESTERN INTERMODAL SERVICES       2801 GRANT RD, RICHMOND, CA 94806-2246          CONTRA COSTA STORAGE                        4  GL
WESTERN INTMDL SVC                2801 GRANT RD, RICHMOND, CA 94806-2246          CONTRA       WAREHOUSE                    242
                                                                                  COSTA                                          GC
WORTHINGTON SPECIALITY PROCESSING 4905 S. MERIDAN RD, JACKSON, MI 49201           JACKSON      PROCESSOR                  1,333  GL
WORTHINGTON STEEL                 100 WORTHINGTON DR, PORTER, IN 46304-8812       PORTER       PROCESS/TEMP PICKL SPLIT     814
                                                                                                                                 GC
WORTHINGTON STEEL - PORTER        100 WORTHINGTON DRIVE, PORTER, IN. 46304        PORTER       PICKLE, SLIT, CTL            422  GL
WORTHINGTON STEEL - TAYLOR        11700 WORTHINGTON DRIVE, TAYLOR, MI. 48180      WAYNE        SLIT, CTL, LEVEL           1,835  GL
WORTHINGTON STEEL - WSDA          1400 RED HAT ROAD N W, DECATUR, AL 35601-7587   MORGAN       PROCESS/PICKLE                81
- ------------------------------------------------------------------------------------------------------------------------------------
Total OP&W Tons                                                                                                        $476,941
- ------------------------------------------------------------------------------------------------------------------------------------




                           NATIONAL STEEL CORPORATION

                         Sch. 5 - Intellectual Property
                   Subordinated Pledge and Security Agreement

I.   Registered Trademarks:
     ---------------------

Serial Number       Registration Number      Mark
- -------------       -------------------      ----

7611891                                      N

76298749                                     NAX

76267862                                     NAAMS GLOBAL STANDARD
                                             COMPONENTS

74549401            1921935                  ACRGS ASSEMBLY COST
                                             REDUCTION GROUP
                                             STANDARDS

74547636            1931045                  NORTH AMERICAN AUTOMOTIVE
                                             METRIC STANDARDS NAAMS

74086416            1676549                  NAPAC-F

74086407            1672364                  NSQ

74086406            1728868                  NSQ K

74086391            1672363                  NAPAC

73761689            1541216                  NATEN

73759121            1543241                  N NATIONAL STEEL

73697192            1500964                  POWERPANEL

73414131            1304681                  STRONGPANEL

73362939            1268862                  NATIONAL ALUMINUM

73250886            1246827                  STRONGDRAIN

73104858            1066079                  STRONGTRIM

73026816            1023121                  NACOR

72331929            0912309                  GCX

72273520            0876250                  SUPER STRONG



72260875           0844863                 WEIRCHROME

72240464           0827767                 WEIRNAMEL

72233189           0818546                 WEIRALLOY

72215434           0800903                 NATIONAL STEEL

72215434           0797043                 WEIRTON

72197706           0788378                 HERCULES

72193032           0787426                 WSX

72131308           0740445                 SNO-MAN

72121287           0728430                 GLX


II.    Registered  Copyrights:
       ----------------------

Registration Number               Date
- -------------------               ----

6,143,l00                         November 7, 2000

6,066,699                         May 23, 2000

6,007,642                         December 28, 1999

5,672,637                         September 30, 1997

5,645,121                         July 8, 1997

5,600,564                         February 4, 1997

5,571,328                         November 5, 1996

5,544,868                         August 13, 1996

5,494,943                         February 27, 1996

5,485,387                         January 16, 1996

                                      -2-





                           NATIONAL STEEL CORPORATION
                  Schedule 6 - Bank Accounts; Control Accounts
- --------------------------------------------------------------------------------


                         DDA           Box
       Bank            Number        Number        Location        Description

   Mellon Bank        021-7461        14048         Chicago          Lockbox

   Mellon Bank        021-7461       890957         Dallas           Lockbox

   Mellon Bank        021-7461       360964       Pittsburgh         Lockbox




As of 12-21-01



                               TABLE OF CONTENTS

Section 1.   Subordinated Guaranty.............................................1

Section 2.   Limitation of Guaranty............................................2

Section 3.   Contribution......................................................2

Section 4.   Authorization; Other Agreements...................................2

Section 5.   Guaranty Absolute and Unconditional...............................4

Section 6.   Waivers...........................................................5

Section 7.   Reliance..........................................................5

Section 8.   Waiver of Subrogation and Contribution Rights.....................5

Section 9.   Subordination.....................................................5

Section 10.  Default; Remedies.................................................6

Section 11.  Obligations Subordinate to Senior Loan Obligations................6

Section 12.  Irrevocability...................................................10

Section 13.  Setoff...........................................................10

Section 14.  No Marshalling...................................................10

Section 15.  Enforcement; Amendments; Waivers.................................10

Section 16.  Successors and Assigns...........................................11

Section 17.  Representations and Warranties; Covenants........................11

Section 18.  Governing Law....................................................11

Section 19.  Submission to Jurisdiction; Service of Process...................11

Section 20.  Waiver of Jury Trial.............................................12

Section 21.  Notices..........................................................12

Section 22.  Severability.....................................................12

Section 23.  Additional Guarantors............................................12

Section 24.  Collateral.......................................................12

Section 25.  Costs and Expenses...............................................12

Section 26.  Waiver...........................................................12

Section 27.  Entire Agreement.................................................13



                              Subordinated Guaranty

          SUBORDINATED GUARANTY dated as of September 28, 2001 by National Steel
Pellet Company, a Delaware corporation ("Pellet"), National Steel Funding
Company, a Delaware corporation ("NSFC"), NS Holdings Corporation, a Delaware
corporation ("NS Holdings"), ProCoil Corporation, a Delaware corporation
("ProCoil"), and each of the other entities which becomes a party hereto
pursuant to Section 23 hereof (collectively, together with Pellet, NSFC, NS
Holdings and ProCoil, the "Guarantors" and, each individually, a "Guarantor"),
in favor of NUF LLC, a Delaware limited liability company (the "Lender") and
each other holder of an Obligation (as each such term is defined in the
Subordinated Credit Agreement referred to below) (each, a "Guaranteed Party"
and, collectively the "Guaranteed Parties").

                              W i t n e s s e t h:

          Whereas, pursuant to the Amended and Restated Subordinated Credit
Agreement dated as of September 28, 2001 (as the same may be amended, restated,
supplemented or otherwise modified from time to time, the "Subordinated Credit
Agreement"; capitalized terms defined therein and used herein having the
meanings given to them in the Subordinated Credit Agreement) between National
Steel Corporation, a Delaware corporation (the "Borrower") and the Lender, the
Lender has agreed to make extensions of credit to the Borrower upon the terms
and subject to the conditions set forth therein; and

          Whereas, each Guarantor will receive substantial direct and indirect
benefits from the making of the Loans and the granting of the other financial
accommodations to the Borrower under the Subordinated Credit Agreement; and

          Whereas, it is a condition to the making of the Loans that each
Guarantor execute and deliver this Subordinated Guaranty for the benefit of the
Guaranteed Parties;

          Now, Therefore, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:

          Section 1. Subordinated Guaranty.
                     ---------------------

          (a) Subject to the provisions of the Lien Subordination Agreement, to
induce the Lender to make the Loans, each Guarantor hereby absolutely,
unconditionally and irrevocably guarantees, as primary obligor and not merely as
surety, the full and punctual payment when due, whether at stated maturity or
earlier, by reason of acceleration, mandatory prepayment or otherwise in
accordance herewith or any other Loan Document, of all the Obligations, whether
or not from time to time reduced or extinguished or hereafter increased or
incurred, whether or not recovery may be or hereafter may become barred by any
statute of limitations, and whether enforceable or unenforceable as against the
Borrower, now or hereafter existing, or due or to become due, including
principal, interest (including interest at the contract rate applicable upon
default accrued or accruing after the commencement of any proceeding under the
Bankruptcy Code, whether or not such interest is an allowed claim in such
proceeding), fees and costs of collection. This Subordinated Guaranty
constitutes an absolute guaranty of payment and performance and not of
collection.



          (b) Each Guarantor further agrees that, if any payment made by
Borrower or any other person and applied to the Obligations is at any time
annulled, avoided, set aside, rescinded, invalidated, declared to be fraudulent
or preferential or otherwise required to be refunded or repaid, or the proceeds
of Collateral are required to be returned by any Guaranteed Party to the
Borrower, its estate, trustee, receiver or any other party, including any
Guarantor, under any bankruptcy law, state or federal law, common law or
equitable cause, then, to the extent of such payment or repayment, any such
Guarantor's liability hereunder (and any Lien or other Collateral securing such
liability) shall be and remain in full force and effect, as fully as if such
payment had never been made or, if prior thereto this Subordinated Guaranty
shall have been cancelled or surrendered (and if any Lien or other Collateral
securing such Guarantor's liability hereunder shall have been released or
terminated by virtue of such cancellation or surrender), this Subordinated
Guaranty (and such Lien or other Collateral) shall be reinstated in full force
and effect, and such prior cancellation or surrender shall not diminish,
release, discharge, impair or otherwise affect the obligations of any such
Guarantor in respect of the amount of such payment (or any Lien or other
Collateral securing such obligation).

          Section 2. Limitation of Guaranty. Any term or provision of this
                     ----------------------
Subordinated Guaranty or any other Loan Document to the contrary
notwithstanding, the maximum aggregate amount of the Obligations for which any
Guarantor shall be liable shall not exceed the maximum amount for which such
Guarantor can be liable without rendering this Subordinated Guaranty or any
other Loan Document, as it relates to such Guarantor, subject to avoidance under
applicable law relating to fraudulent conveyance or fraudulent transfer
(including section 548 of the Bankruptcy Code or any applicable provisions of
comparable state law) (collectively, "Fraudulent Transfer Laws"), in each case
after giving effect (a) to all other liabilities of such Guarantor, contingent
or otherwise, that are relevant under such Fraudulent Transfer Laws
(specifically excluding, however, any liabilities of such Guarantor in respect
of intercompany Indebtedness to the Borrower to the extent that such
Indebtedness would be discharged in an amount equal to the amount paid by such
Guarantor hereunder) and (b) to the value as assets of such Guarantor (as
determined under the applicable provisions of such Fraudulent Transfer Laws) of
any rights to subrogation, contribution, reimbursement, indemnity or similar
rights held by such Guarantor pursuant to (i) applicable law, (ii) Section 3 of
this Subordinated Guaranty or (iii) any other agreement providing for an
equitable allocation among such Guarantor and other Subsidiaries or Affiliates
of the Borrower of obligations arising under this Subordinated Guaranty or other
guaranties of the Obligations by such parties.

          Section 3. Contribution. To the extent that any Guarantor shall be
                     ------------
required hereunder to pay a portion of the Obligations which shall exceed the
greater of (i) the amount of the economic benefit actually received by such
Guarantor from the Loans and (ii) the amount which such Guarantor would
otherwise have paid if such Guarantor had paid the aggregate amount of the
Obligations (excluding the amount thereof repaid by the Borrower) in the same
proportion as such Guarantor's net worth at the date enforcement hereunder is
sought bears to the aggregate net worth of all the Guarantors at the date
enforcement hereunder is sought, then such Guarantor shall be reimbursed by such
other Guarantors for the amount of such excess, pro rata, based on the
respective net worths of such other Guarantors at the date enforcement hereunder
is sought.

          Section 4. Authorization; Other Agreements. Subject to the provisions
                     -------------------------------
of the Lien Subordination Agreement, the Guaranteed Parties are hereby
authorized, without notice to or demand upon any Guarantor, which notice or
demand is expressly waived hereby,

                                       2



and without discharging or otherwise affecting the obligations of any Guarantor
hereunder (which shall remain absolute and unconditional notwithstanding any
such action or omission to act), from time to time, to:

          (a) supplement, renew, extend, accelerate or otherwise change the time
for payment of, or other terms relating to, the Obligations, or any part of
them, or otherwise modify, amend or change the terms of any promissory note or
other agreement, document or instrument (including, without limitation, the
other Loan Documents) now or hereafter executed by the Borrower and delivered to
the Guaranteed Parties or any of them, including, without limitation, any
increase or decrease of principal or the rate of interest thereon;

          (b) waive or otherwise consent to noncompliance with any provision of
any instrument evidencing the Obligations, or any part thereof, or any other
instrument or agreement in respect of the Obligations (including the other Loan
Documents) now or hereafter executed by the Borrower and delivered to the
Guaranteed Parties or any of them;

          (c) accept partial payments on the Obligations;

          (d) receive, take and hold additional security or collateral for the
payment of the Obligations or any part of them and exchange, enforce, waive,
substitute, liquidate, terminate, abandon, fail to perfect, subordinate,
transfer, otherwise alter and release any such additional security or
collateral;

          (e) settle, release, compromise, collect or otherwise liquidate the
Obligations or accept, substitute, release, exchange or otherwise alter, affect
or impair any security or collateral for the Obligations or any part of them or
any other guaranty therefor, in any manner;

          (f) add, release or substitute any one or more other guarantors,
makers or endorsers of the Obligations or any part of them and otherwise deal
with the Borrower or any other guarantor, maker or endorser;

          (g) apply to the Obligations any and all payments or recoveries from
the Borrower, from any other guarantor, maker or endorser of the Obligations or
any part of them or from any Guarantor to the Obligations in such order as
provided herein whether such Obligations are secured or unsecured or guaranteed
or not guaranteed by others;

          (h) apply any and all payments or recoveries from any Guarantor of the
Obligations or sums realized from security furnished by such Guarantor upon its
indebtedness or obligations to the Guaranteed Parties, or any of them, whether
or not such indebtedness or obligations relate to the Obligations; and

          (i) refund at any time any payment received by any Guaranteed Party in
respect of any of the Obligations, and payment to such Guaranteed Party of the
amount so refunded shall be fully guaranteed hereby even though prior thereto
this Subordinated Guaranty shall have been cancelled or surrendered (or any
release or termination of any Collateral by virtue thereof), and such prior
cancellation or surrender shall not diminish, release, discharge, impair or
otherwise affect the obligations of any Guarantor hereunder in respect of the
amount so refunded (and any Collateral so released or terminated shall be
reinstated with respect to such obligations);

                                       3



even if any right of reimbursement or subrogation or other right or remedy of
any Guarantor is extinguished, affected or impaired by any of the foregoing
(including, without limitation, any election of remedies by reason of any
judicial, non-judicial or other proceeding in respect of the Obligations which
impairs any subrogation, reimbursement or other right of such Guarantor).

          Section 5. Guaranty Absolute and Unconditional. Each Guarantor hereby
                     -----------------------------------
waives any defense of a surety or guarantor or any other obligor on any
obligations arising in connection with or in respect of any of the following and
hereby agrees, subject to the provisions of the Lien Subordination Agreement,
that its obligations under this Subordinated Guaranty are absolute and
unconditional and shall not be discharged or otherwise affected as a result of:

          (a) the invalidity or unenforceability of any of the Borrower's
obligations under the Subordinated Credit Agreement or any other Loan Document
or any other agreement or instrument relating thereto, or any security for, or
other guaranty of the Obligations or any part of them, or the lack of perfection
or continuing perfection or failure of priority of any security for the
Obligations or any part of them;

          (b) the absence of any attempt to collect the Obligations or any part
of them from the Borrower or other action to enforce the same;

          (c) failure by any Guaranteed Party to take any steps to perfect and
maintain any Lien on, or to preserve any rights to, any Collateral;

          (d) any Guaranteed Party's election, in any proceeding instituted
under chapter 11 of the Bankruptcy Code, of the application of Section
1111(b)(2) of the Bankruptcy Code;

          (e) any borrowing or grant of a Lien by the Borrower, as
debtor-in-possession, or extension of credit, under Section 364 of the
Bankruptcy Code;

          (f) the disallowance, under Section 502 of the Bankruptcy Code, of all
or any portion of any Guaranteed Party's claim (or claims) for repayment of the
Obligations;

          (g) any use of cash collateral under Section 363 of the Bankruptcy
Code;

          (h) any agreement or stipulation as to the provision of adequate
protection in any bankruptcy proceeding;

          (i) the avoidance of any Lien in favor of the Guaranteed Parties or
any of them for any reason;

          (j) any bankruptcy, insolvency, reorganization, arrangement,
readjustment of debt, liquidation or dissolution proceeding commenced by or
against the Borrower, any Guarantor or any of the Borrower's other Subsidiaries,
including without limitation, any discharge of, or bar or stay against
collecting, all or any of the Obligations (or any part of them or interest
thereon) in or as a result of any such proceeding;

          (k) failure by any Guaranteed Party to file or enforce a claim against
the Borrower or its estate in any bankruptcy or insolvency case or proceeding;

                                       4



          (l) any action taken by any Guaranteed Party that is authorized
hereby;

          (m) any election following the occurrence of an Event of Default by
any Guaranteed Party to proceed separately against the personal property
Collateral in accordance with such Guaranteed Party's rights under the UCC or,
if the Collateral consists of both personal and real property, to proceed
against such personal and real property in accordance with such Guaranteed
Party's rights with respect to such real property; or

          (n) any other circumstance which might otherwise constitute a legal or
equitable discharge or defense of a surety or guarantor or any other obligor on
any obligations, other than the payment in full of the Obligations.

          Section 6. Waivers. Each Guarantor hereby waives diligence,
                     -------
promptness, presentment, demand for payment or performance and protest and
notice of protest, notice of acceptance and any other notice in respect of the
Obligations or any part of them, and any defense arising by reason of any
disability or other defense of the Borrower. Each Guarantor shall not, until the
Obligations are irrevocably paid in full and the Commitment has been terminated,
assert any claim or counterclaim it may have against the Borrower or set off any
of its obligations to the Borrower against any obligations of the Borrower to
it. In connection with the foregoing, each Guarantor covenants that its
obligations hereunder shall not be discharged, except by complete performance.

          Section 7. Reliance. Each Guarantor hereby assumes responsibility for
                     --------
keeping itself informed of the financial condition of the Borrower and any and
all endorsers and/or other guarantors of all or any part of the Obligations, and
of all other circumstances bearing upon the risk of nonpayment of the
Obligations, or any part thereof, that diligent inquiry would reveal, and each
Guarantor hereby agrees that no Guaranteed Party shall have any duty to advise
any Guarantor of information known to it regarding such condition or any such
circumstances. In the event any Guaranteed Party, in its sole discretion,
undertakes at any time or from time to time to provide any such information to
any Guarantor, such Guaranteed Party shall be under no obligation (i) to
undertake any investigation not a part of its regular business routine, (ii) to
disclose any information which such Guaranteed Party, pursuant to accepted or
reasonable commercial finance or banking practices, wishes to maintain
confidential or (iii) to make any other or future disclosures of such
information or any other information to any Guarantor.

          Section 8. Waiver of Subrogation and Contribution Rights. Until the
                     ---------------------------------------------
Obligations have been irrevocably paid in full and the Commitment has been
terminated, the Guarantors shall not enforce or otherwise exercise any right of
subrogation to any of the rights of the Guaranteed Parties or any part of them
against the Borrower or any right of reimbursement or contribution or similar
right against the Borrower by reason of this Agreement or by any payment made by
any Guarantor in respect of the Obligations.

          Section 9. Subordination. Each Guarantor hereby agrees that any
                     -------------
Indebtedness of the Borrower now or hereafter owing to any Guarantor, whether
heretofore, now or hereafter created (the "Guarantor Subordinated Debt"), is
hereby subordinated to all of the Obligations, and that, except as permitted
under Section 7.4 of the Subordinated Credit Agreement, the Guarantor
Subordinated Debt shall not be paid in whole or in part until the Obligations
have been paid in full and this Subordinated Guaranty is terminated and of no
further force or effect. No Guarantor shall accept any payment of or on account
of any Guarantor

                                       5



Subordinated Debt at any time in contravention of the foregoing. Subject to the
Lien Subordination Agreement, upon the occurrence and during the continuance of
an Event of Default, the Borrower shall pay to the Lender any payment of all or
any part of the Guarantor Subordinated Debt and any amount so paid to the Lender
shall be applied to payment of the Obligations as provided in the Subordinated
Credit Agreement. Each payment on the Guarantor Subordinated Debt received in
violation of any of the provisions hereof shall be deemed to have been received
by such Guarantor as trustee for the Guaranteed Parties and, subject to the Lien
Subordination Agreement, shall be paid over to the Lender immediately on account
of the Obligations, but without otherwise affecting in any manner such
Guarantor's liability hereof. Each Guarantor agrees to file all claims against
the Borrower in any bankruptcy or other proceeding in which the filing of claims
is required by law in respect of any Guarantor Subordinated Debt, and, subject
to the Lien Subordination Agreement, the Lender shall be entitled to all of such
Guarantor's rights thereunder. If for any reason a Guarantor fails to file such
claim at least ten Business Days prior to the last date on which such claim
should be filed, such Guarantor hereby irrevocably appoints the Lender as its
true and lawful attorney-in-fact and is hereby authorized to act as
attorney-in-fact in such Guarantor's name to file such claim or, in the Lender's
discretion, to assign such claim to and cause proof of claim to be filed in the
name of the Lender or its nominee. In all such cases, whether in administration,
bankruptcy or otherwise, the person or persons authorized to pay such claim
shall, subject to the Lien Subordination Agreement, pay to the Lender the full
amount payable on the claim in the proceeding, and, to the full extent necessary
for that purpose, each Guarantor hereby assigns to the Lender all of such
Guarantor's rights to any payments or distributions to which such Guarantor
otherwise would be entitled. If the amount so paid is greater than such
Guarantor's liability hereunder, the Lender shall pay the excess amount to the
party entitled thereto. In addition, each Guarantor hereby irrevocably appoints
the Lender as its attorney-in-fact to exercise all of such Guarantor's voting
rights in connection with any bankruptcy proceeding or any plan for the
reorganization of the Borrower.

          Section 10. Default; Remedies. The obligations of each Guarantor
                      -----------------
hereunder are independent of and separate from the Obligations. Subject to the
provisions of the Lien Subordination Agreement, if any of the Obligations is not
paid when due, or upon any default of a Guarantor hereunder, or upon any Event
of Default under the Subordinated Credit Agreement or upon any default by the
Borrower as provided in any other instrument or document evidencing all or any
part of the Obligations, the Lender may, at its sole election, proceed directly
and at once, without notice, against any Guarantor to collect and recover the
full amount or any portion of the Obligations then due, without first proceeding
against the Borrower or any other guarantor of the Obligations, or against any
Collateral under the Loan Documents or joining the Borrower or any other
guarantor in any proceeding against such Guarantor. Subject to the provisions of
the Lien Subordination Agreement, at any time after maturity of the Obligations,
the Lender may (unless the Obligations have been irrevocably paid in full),
without notice to any Guarantor and regardless of the acceptance of any
Collateral for the payment hereof, appropriate and apply toward the payment of
the Obligations (i) any indebtedness due or to become due from any Guaranteed
Party to such Guarantor and (ii) any moneys, credits or other property belonging
to such Guarantor at any time held by or coming into the possession of any
Guaranteed Party or any of its respective Affiliates.

          Section 11. Obligations Subordinate to Senior Loan Obligations. Each
                      --------------------------------------------------
Guarantor and the Guaranteed Parties, by the Guaranteed Parties' acceptance
hereof, covenant and agree that, to the extent and in the manner hereinafter set
forth in this Section 11, each

                                       6



Guarantor's obligations hereunder with respect to Indebtedness under the
Subordinated Credit Agreement (the "Subordinated Indebtedness") are hereby
expressly made subordinate and subject in right of payment to the prior payment
in full in cash of all Senior Loan Obligations. This Section 11 constitutes a
continuing offer to all Persons who become holders of, or continue to hold,
Subordinated Indebtedness, each of whom is an obligee hereunder and is entitled
to enforce such holder's rights hereunder, subject to the provisions hereof,
without any act or notice of acceptance hereof or reliance hereon.

          (a) Payment Over of Proceeds Upon Bankruptcy, Etc.

               (i) In the event of (A) any insolvency or bankruptcy case or
proceeding, or any receivership, liquidation, reorganization or other similar
case or proceeding in connection therewith, relative to any Guarantor or any
Loan Party or its assets, (B) any liquidation, dissolution or other winding up
of any Guarantor or any Loan Party, whether voluntary or involuntary or whether
or not involving insolvency or bankruptcy or (C) any assignment for the benefit
of creditors or any other marshalling of assets or liabilities of any Guarantor
or any Loan Party (each such event, if any, herein sometimes referred to as a
"Proceeding"), then and in any such event the holders of all Senior Loan
Obligations shall first be paid in full (including, without limitation, all
Post-Commencement Interest) or provision for such payment shall be made and
agreed to in writing by the holders of Senior Loan Obligations before any
Guaranteed Party is entitled to receive any direct or indirect payment or
distribution of any cash, property or securities on account of or with respect
to Subordinated Indebtedness and to that end the holders of Senior Loan
Obligations shall be entitled to receive (pro rata on the basis of the
respective amounts of such Senior Loan Obligations held by them) directly, for
application to the payment thereof (to the extent necessary to pay all such
Senior Loan Obligations in full in cash, whether or not due, including
specifically, without limitation, all Post-Commencement Interest after giving
effect to any substantially concurrent payment or distribution to the holders of
such Senior Loan Obligations and any provision for such payment made and agreed
to in writing by the holders of Senior Loan Obligations), any and all payments
or distributions of any kind or character, whether in cash, property or
securities, which may be payable or deliverable in respect of the Subordinated
Indebtedness in any such Proceeding (including any payment or distribution which
may be payable or deliverable by reason of the payment of any other Indebtedness
of any Guarantor being subordinated to the payment of Subordinated
Indebtedness). To the extent any payment of Senior Loan Obligations (whether by
or on behalf of any Guarantor as proceeds of security of enforcement of any
right of setoff or otherwise) is declared to be fraudulent or preferential, set
aside or required to be paid to a trustee, receiver or other similar party under
any bankruptcy, insolvency, receivership or similar law, then if such payment is
recovered by, or paid over to, such trustee, receiver or other similar party,
the Senior Loan Obligations or part thereof originally intended to be satisfied
shall be deemed to be reinstated and outstanding as if such payment had not
occurred.

               (ii) Notwithstanding the foregoing provisions of paragraph (i) of
this Section 11, if in the event of any Proceeding any Guaranteed Party shall
have received any payment from or distribution of assets of any Guarantor or the
estate created by the commencement of any such Proceeding of any kind or
character in respect of the Subordinated Indebtedness, whether in cash, property
or securities (including any payment or distribution which may be payable or
deliverable by reason of the payment of any other Indebtedness of any Guarantor
being subordinated to the payment of the Subordinated Indebtedness) before all
Senior Loan Obligations, whether or not due and including specifically, without
limitation, all Post-

                                       7



Commencement Interest thereon, is paid in full or provision therefor is made and
agreed to in writing by the holders of Senior Loan Obligations, then in such
event, such payment or distribution shall be received and held in trust for the
benefit of and shall be paid over to the holders of Senior Loan Obligations (pro
rata, on the basis of the respective amounts of such Senior Loan Obligations
held by them) remaining unpaid, to the extent necessary to pay all such Senior
Loan Obligations in full in cash including, without limitation, all
Post-Commencement Interest thereon, after giving effect to any substantially
concurrent payment or distribution to or for the holders of such Senior Loan
Obligations, if made in cash for application to (and if made other than in cash
to be held as collateral security for) the payment in full of the Senior Loan
Obligations.

          (b) Default on Senior Loan Obligations.

               (i) If any Senior Loan Obligations Default shall at any time
occur or exist, then at all times thereafter until such Senior Loan Obligations
Default shall have been cured or otherwise ceases to exist pursuant to the terms
of such Senior Loan Obligations, or the benefits of this sentence shall have
been waived in writing by or on behalf of, and at the sole option of, the
holders of a majority of the principal amount of such Senior Loan Obligations,
then and in such event (A) no Guarantor may or shall make any payment on account
of or with respect to the Subordinated Indebtedness which a holder of
Subordinated Indebtedness would be entitled to receive but for the provisions of
this Section 11(b)(i) and (B) no Guaranteed Party shall be entitled, nor shall
any Guaranteed Party have the right to, declare to be due and payable, demand
prepayment of, or take any action to collect, any principal outstanding
hereunder, any interest accrued thereon, or any other amount payable hereunder,
and any purported such declaration, demand or other action shall have no force
or effect.

               (ii) In the event that, notwithstanding the foregoing provisions
of this Section 11(b), any payment or distribution shall be made by or on behalf
of any Guarantor from any of its assets and received by any Guaranteed Party at
a time when such payment was prohibited by the provisions of Section 11(b)(i),
then such payment or distribution shall be held in trust for the benefit of, and
shall be immediately paid over to, the holders of Senior Loan Obligations (pro
rata, on the basis of the respective amount of such Senior Loan Obligations held
by them) remaining unpaid, if made in cash for application to (and if made other
than in cash to be held as collateral security for) the payment in full of all
Senior Loan Obligations in accordance with their terms (after giving effect to
any prior or substantially concurrent payment to the holders of such Senior Loan
Obligations).

               (iii) The provisions of this Section 11(b) shall not modify or
limit in any way the application of Section 11(a).

          (c) Subrogation to Rights of Guaranteed Parties of Senior Loan
Obligations. After all amounts payable under or in respect of Senior Loan
Obligations are paid in full in cash, whether or not due, each Guaranteed Party
shall be subrogated to the extent of the payments or distributions made to the
holders of, or otherwise applied to payment of, such Senior Loan Obligations
pursuant to the provisions of this Section 11 (equally and ratably with the
holders of all Indebtedness of any Guarantor which by its express terms is
subordinate and subject in right of payment to Senior Loan Obligations to
substantially the same extent as the Subordinated Indebtedness is so subordinate
and subject in right of payment and which is entitled to like rights of
subrogation), and to the rights of the holders of such Senior Loan Obligations
to receive

                                       8



payments and distributions of cash, property and securities applicable to the
Senior Loan Obligations until the Subordinated Indebtedness shall be paid in
full. For purposes of such subrogation, no payments or distributions to the
holders of the Senior Loan Obligations of any cash, property or securities to
which any Guaranteed Party would be entitled except for the provisions of this
Section 11, and no payments over pursuant to the provisions of this Section 11
to the holders of Senior Loan Obligations by the Guaranteed Parties shall, as
among any Guarantor and its creditors (other than holders of Senior Loan
Obligations and the Guaranteed Parties), be deemed to be a payment or
distribution by any Guarantor to or on account of the Senior Loan Obligations,
it being understood that the provisions of this are solely for the purpose of
defining the relative rights of the holders of Senior Loan Obligations on the
one hand and the Guaranteed Parties on the other hand.

          (d) No Waiver of Subordination Provisions. No right of any holder of
any Senior Loan Obligations to enforce subordination as herein provided shall at
any time in any way be prejudiced or impaired by any act or failure to act on
the part of any Guarantor or by any act or failure to act by such holder or any
agent of such holder, or by any noncompliance by any Guarantor with such terms,
provisions and covenants of this Subordinated Guaranty, regardless of any
knowledge thereof which any such holder may have or be otherwise charged with.

          (e) Additional Documentation.

               (i) Each Guaranteed Party by its acceptance hereof agrees that it
takes this Subordinated Guaranty as an obligation subordinated to Senior Loan
Obligations and agrees to execute any additional documentation that may be
necessary, in the reasonable opinion of the holder of any Senior Loan
Obligations, to evidence the subordination between the Guaranteed Parties and
the holders of Senior Loan Obligations as provided in this Section 11.

               (ii) The Senior Agent is hereby authorized, and shall have the
right (without any duty) to take such action as may be necessary or appropriate
to effectuate the subordination provided for in this Section 11 including,
without limitation, the timely filing of a claim or proof of debt for the unpaid
balance of the Subordinated Indebtedness in the form required in any Proceeding.

          (f) Agreements of Guaranteed Parties. Each Guaranteed Party for itself
and its successors and assigns, agrees that it will not, except as permitted
under the Senior Credit Agreement, without the prior written consent of a
majority of the holders of the Senior Loan Obligations, (i) modify or amend this
Subordinated Guaranty except to the extent not prohibited by the Senior Credit
Agreement or the Lien Subordination Agreement, (ii) cancel, waive, forgive,
transfer or assign or subordinate the Subordinated Indebtedness to any other
Indebtedness of any Guarantor or (iii) so long as any Senior Loan Obligations
are outstanding, (A) initiate any Proceeding involving any Guarantor or any
other Loan Party pursuant to which it is sought to adjudicate any Guarantor or
any other Loan Party bankrupt or insolvent or (B) exercise or assert any right
or remedy, by suit or otherwise, against any Guarantor or any other Loan Party
in respect of the Subordinated Indebtedness except as permitted under the Senior
Credit Agreement (provided that nothing herein shall prevent any Guaranteed
Party from filing a claim or statement of interest with respect to the
Obligations in any Proceeding).

          (g) Third Party Reliance. The parties hereto understand and agree that
the provisions of this Section 11 are for the benefit of the Senior Agent and
the Lenders and Issuers (as defined therein) from time to time party to the
Senior Credit Agreement (in addition to the

                                       9



parties hereto), create independent rights thereof and may be enforced
independently thereby.

          Section 12. Irrevocability. This Subordinated Guaranty shall be
                      --------------
irrevocable as to any and all of the Obligations until the Commitment has been
terminated and all monetary Obligations then outstanding have been irrevocably
repaid in cash, at which time this Subordinated Guaranty shall automatically be
cancelled. Upon such cancellation and at the written request of any Guarantor or
its successors or assigns, and at the cost and expense of such Guarantor or its
successors or assigns, the Lender shall execute in a timely manner a
satisfaction of this Subordinated Guaranty and such instruments, documents or
agreements as are necessary or desirable to evidence the termination of this
Subordinated Guaranty.

          Section 13. Setoff. Subject to the provisions of the Lien
                      ------
Subordination Agreement, upon the occurrence and during the continuance of an
Event of Default, each Guaranteed Party and each Affiliate of a Guaranteed Party
may, without notice to any Guarantor and regardless of the acceptance of any
security or collateral for the payment hereof, appropriate and apply toward the
payment of all or any part of the Obligations (i) any indebtedness due or to
become due from such Guaranteed Party or Affiliate to such Guarantor, and (ii)
any moneys, credits or other property belonging to such Guarantor, at any time
held by or coming into the possession of such Guaranteed Party or Affiliate.

          Section 14. No Marshalling. Each Guarantor consents and agrees that no
                      --------------
Guaranteed Party or Person acting for or on behalf of any Guaranteed Party shall
be under any obligation to marshal any assets in favor of any Guarantor or
against or in payment of any or all of the Obligations.

          Section 15. Enforcement; Amendments; Waivers. No delay on the part of
                      --------------------------------
any Guaranteed Party in the exercise of any right or remedy arising under this
Subordinated Guaranty, the Subordinated Credit Agreement, any of the other Loan
Documents or otherwise with respect to all or any part of the Obligations, the
Collateral or any other guaranty of or security for all or any part of the
Obligations shall operate as a waiver thereof, and no single or partial exercise
by any such Person of any such right or remedy shall preclude any further
exercise thereof. No modification or waiver of any of the provisions of this
Subordinated Guaranty shall be binding upon any Guaranteed Party, except as
expressly set forth in a writing duly signed and delivered by the party making
such modification or waiver. Failure by any Guaranteed Party at any time or
times hereafter to require strict performance by the Borrower, any Guarantor,
any other guarantor of all or any part of the Obligations or any other Person of
any of the provisions, warranties, terms and conditions contained in any of the
Loan Documents now or at any time or times hereafter executed by such Persons
and delivered to any Guaranteed Party shall not waive, affect or diminish any
right of any Guaranteed Party at any time or times hereafter to demand strict
performance thereof and such right shall not be deemed to have been waived by
any act or knowledge of any Guaranteed Party, or its respective agents, officers
or employees, unless such waiver is contained in an instrument in writing,
directed and delivered to the Borrower or such Guarantor, as applicable,
specifying such waiver, and is signed by the party or parties necessary to give
such waiver under the Subordinated Credit Agreement. No waiver of any Event of
Default by any Guaranteed Party shall operate as a waiver of any other Event of
Default or the same Event of Default on a future occasion, and no action by any
Guaranteed Party permitted hereunder shall in any way affect or impair any
Guaranteed Party's rights and remedies or the obligations of any Guarantor under
this Subordinated Guaranty. Any determination by a court of competent
jurisdiction of the amount of any principal and/or interest owing by the

                                       10



Borrower to a Guaranteed Party shall be conclusive and binding on each Guarantor
irrespective of whether such Guarantor was a party to the suit or action in
which such determination was made.

          Section 16. Successors and Assigns. This Subordinated Guaranty shall
                      ----------------------
be binding upon each Guarantor and upon the successors and assigns of such
Guarantors and shall inure to the benefit of the Guaranteed Parties and their
respective successors and assigns; all references herein to the Borrower and to
the Guarantors shall be deemed to include their respective successors and
assigns. The successors and assigns of the Guarantors and the Borrower shall
include, without limitation, their respective receivers, trustees and
debtors-in-possession. All references to the singular shall be deemed to include
the plural where the context so requires.

          Section 17. Representations and Warranties; Covenants. Each Guarantor
                      -----------------------------------------
hereby (a) represents and warrants that the representations and warranties as to
it made by the Borrower in Article IV of the Subordinated Credit Agreement are
true and correct on each date as required by Section 3.2(b)(i) of the
Subordinated Credit Agreement and (b) agrees to take, or refrain from taking, as
the case may be, each action that is necessary to be taken or not taken, as the
case may be, so that no Default or Event of Default is caused by the failure to
take such action or to refrain from taking such action by such Guarantor.

          Section 18. Governing Law. This Subordinated Guaranty and the rights
                      -------------
and obligations of the parties hereto shall be governed by, and construed and
interpreted in accordance with, the law of the State of New York.

          Section 19. Submission to Jurisdiction; Service of Process.
                      ----------------------------------------------

          (a) Any legal action or proceeding with respect to this Subordinated
Guaranty, and any of the other Loan Documents, may be brought in the courts of
the State of New York or of the United States of America for the Southern
District of New York, and, by execution and delivery of this Agreement, each
Guarantor hereby accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. The parties
hereto hereby irrevocably waive any objection, including any objection to the
laying of venue or based on the grounds of forum non conveniens, which any of
them may now or hereafter have to the bringing of any such action or proceeding
in such respective jurisdictions.

          (b) Each Guarantor hereby irrevocably consents to the service of any
and all legal process, summons, notices and documents in any suit, action or
proceeding brought in the United States of America arising out of or in
connection with this Subordinated Guaranty or any of the other Loan Documents by
the mailing (by registered or certified mail, postage prepaid) or delivering of
a copy of such process to such Guarantor in care of the Borrower at the
Borrower's address specified in Section 10.9 of the Subordinated Credit
Agreement. Each Guarantor agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law.

          (c) Nothing contained in this Section 19 shall affect the right of the
Lender or any other Guaranteed Party to serve process in any other manner
permitted by law or commence legal proceedings or otherwise proceed against a
Guarantor in any other jurisdiction.

                                       11



          (d) If for the purposes of obtaining judgment in any court it is
necessary to convert a sum due hereunder in Dollars into another currency, the
parties hereto agree, to the fullest extent that they may effectively do so,
that the rate of exchange used shall be that at which in accordance with normal
banking procedures the Lender could purchase Dollars with such other currency at
the spot rate of exchange quoted by the Lender at 11:00 a.m. (New York time) on
the Business Day preceding that on which final judgment is given, for the
purchase of Dollars, for delivery two Business Days thereafter.

          Section 20. Waiver of Jury Trial. Each of the Lender, the other
                      --------------------
Guaranteed Parties and each Guarantor irrevocably waives trial by jury in any
action or proceeding with respect to this Subordinated Guaranty and any of the
other Loan Documents.

          Section 21. Notices. Any notice or other communication herein required
                      -------
or permitted shall be given as provided in Section 10.9 of the Subordinated
Credit Agreement and, in the case of any Guarantor, to such Guarantor in care of
the Borrower.

          Section 22. Severability. Wherever possible, each provision of this
                      ------------
Subordinated Guaranty shall be interpreted in such manner as to be effective and
valid under applicable law, but if any provision of this Subordinated Guaranty
shall be prohibited by or invalid under such law, such provision shall be
ineffective to the extent of such prohibition or invalidity without invalidating
the remainder of such provision or the remaining provisions of this Subordinated
Guaranty.

          Section 23. Additional Guarantors. Each of the Guarantors agrees that,
                      ---------------------
if pursuant to Section 6.14 of the Subordinated Credit Agreement the Borrower
shall be required to cause any Subsidiary that is not a Guarantor to become a
Guarantor hereunder, or if for any reason the Borrower desires any such
Subsidiary to become a Guarantor hereunder, such Subsidiary shall execute and
deliver to the Lender a Guaranty Supplement in substantially the form of Exhibit
A attached hereto and shall thereafter for all purposes be a party hereto and
have the same rights, benefits and obligations as a Guarantor party hereto on
the Effective Date.

          Section 24. Collateral. Each Guarantor hereby acknowledges and agrees
                      ----------
that its obligations under this Subordinated Guaranty are secured pursuant to
the terms and provisions of the Collateral Documents executed by it in favor of
the Guaranteed Parties, and covenants that it shall not grant any Lien with
respect to its Property in favor, or for the benefit, of any Person other than
the Guaranteed Parties.

          Section 25. Costs and Expenses. Each Guarantor agrees to pay or
                      ------------------
reimburse each of the Guaranteed Parties upon demand for all out-of-pocket costs
and expenses, including, without limitation, reasonable attorneys' fees
(including allocated costs of internal counsel and costs of settlement),
incurred by the Guaranteed Parties in enforcing this Subordinated Guaranty or
any security therefor or exercising or enforcing any other right or remedy
available in connection herewith or therewith.

          Section 26. Waiver. Each Guarantor hereby irrevocably and
                      ------
unconditionally waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover any special, exemplary, punitive or
consequential damage in any legal action or proceeding in respect of this
Subordinated Guaranty or any of the other Loan Documents.

                                       12



          Section 27. Entire Agreement. This Subordinated Guaranty, taken
                      ----------------
together with all of the other Loan Documents executed and delivered by the
Guarantors, represents the entire agreement and understanding of the parties
hereto and supersedes all prior understandings, written and oral, relating to
the subject matter hereof.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.]

                                       13



          In WITNESS WHEREOF, this Subordinated Guaranty has been duly executed
by the Guarantors on this    th of December 2001.
                          ---

                                         National Steel Pellet Company,
                                          a Delaware corporation


                                         By:
                                            ------------------------------------
                                             Name:
                                             Title:


                                         National Steel Funding Corporation,
                                          a Delaware corporation


                                         By:
                                            ------------------------------------
                                             Name:
                                             Title:


                                         Ns Holdings Corporation,
                                          a Delaware corporation


                                         By:
                                            ------------------------------------
                                             Name:
                                             Title:


                                         Procoil Corporation,
                                           a Delaware corporation


                                         By:
                                            ------------------------------------
                                             Name:
                                             Title:

                          [Signature Page to Guaranty]



Acknowledged and agreed to:

NUF LLC


By:
   ----------------------------------
    Name:
    Title:




                                                                       Exhibit A

                               Guaranty Supplement

          The undersigned hereby agrees to be bound as a Guarantor for purposes
of the Subordinated Guaranty dated as of September 28, 2001 (the "Subordinated
Guaranty"), among National Steel Pellet Company, National Steel Funding
Corporation, NS Holdings Corporation, ProCoil Corporation and certain Material
Subsidiaries of National Steel Corporation listed on the signature pages thereof
and acknowledged by NUF LLC, and the undersigned hereby acknowledges receipt of
a copy of the Subordinated Guaranty. Capitalized terms used herein but not
defined herein are used with the meanings given them in the Subordinated
Guaranty.

          Agreed to this    day of             , 200
                         --        ------------     -


                                         [NAME OF GUARANTOR]


                                         By:
                                            ------------------------------------
                                             Name:
                                             Title:

Acknowledged and agreed to:


NUF LLC


By:
   ----------------------------------
    Name:
    Title:

                               Guaranty Supplement

EX-10.Z

                         TECHNICAL ASSISTANCE AGREEMENT

            TECHNICAL ASSISTANCE AGREEMENT by and between NKK NUK CORPORATION, a
Japanese corporation, having its main office at 1-1-2, Marunouchi, Chiyoda-ku,
Tokyo, Japan (hereinafter called "NKK), and NATIONAL STEEL CORPORATION, a
Delaware corporation having its principal office at 20 Stanwix Street,
Pittsburgh, Pennsylvania 15222, U.S.A. (hereinafter called "NSC"), WITNESSETH:

            WHEREAS, NKK has a long experience in operating an integrated
steelworks and has a vast store of accumulated technology and know-how in the
field; and

            WHEREAS, NSC is currently receiving from NKK certain technical
assistance and consulting services regarding the operation of steelworks
pursuant to certain separate agreements and other arrangements arising from or
related to the Technical Assistance Agreement dated August 22, 1984, between NKK
and NSC (the "1984 Agreement"); and

            WHEREAS, NII Capital Corporation and NKK U.S.A. Corporation, as the
sole stockholders of NSC, acknowledge



and agree that the technical assistance and consulting services, to be provided
under the terms and conditions of this Agreement (which terms and conditions are
substantially similar to those provided under the 1984 Agreement, which were
negotiated on an arms-length basis), will be beneficial and fair to NSC and
have, therefore, unanimously approved this Agreement; and

            WHEREAS, the parties contemplate that, if and when both parties
agree, such assistance and services shall be provided by NKK under the general
terms and conditions of this Agreement pursuant to Separate Agreements (as
defined in Section 1.1 below).

            NOW, THEREFORE, in consideration of the mutual covenants and
premises herein contained the parties hereto agree as follows:

ARTICLE 1. DEFINITIONS
           -----------

            For the purposes of this Agreement, the following terms shall have
the following meaning:

            1.1 "Technical Assistance" means consultation, advice, guidance,
                 --------------------
recommendation and training given to NSC personnel by NKK personnel (as defined
in Section 2.3 below) in the Plant and/or the Works for the purpose of


                                       2



improving operation and maintenance as well as equipment and facilities of NSC
as set forth in the Scope of Work attached to agreements to be agreed to
separately as the case may be (the "Separate Agreements").

            1.2 "Technical Information" means any and all information regarding
                 ---------------------
inventions, developments, processes, equipment, technology, trade secrets and
know-how, whether written or oral, patentable or not patentable, developed or
owned by NKK, or which NKK otherwise has the right to disclose and use,
necessary to provide Technical Assistance including background information and
data therefor.

            1.3 "Confidential Information" means such Technical Information
                 ------------------------
submitted by NKK to NSC in writing and stamped "Confidential" and any oral
conversations relating to such written Technical Information stamped
"Confidential".

            1.4 "Proprietary Technology" means all inventions, developments and
                 ----------------------
trade secrets (including, without limitation, all method, process and apparatus
inventions and developments, whether or not patented or patentable) and other
technology and ancillary know-how which NKK


                                       3



owns, controls or otherwise has the right to disclose and license.

            1.5 "Plant(s)" means Great Lakes Division (GLS), Granite City
                 --------
Division (GCS) and Midwest Division (MWS) of NSC, collectively or individually,
as the case may be.

            1.6 "Works" means Fukuyama Works and/or Keihin Works of NKK.
                 -----

ARTICLE 2. SCOPE & MANNER OF WORK
           ----------------------

            2.1 Scope and manner of work to be performed by NKK under this
Agreement is to be specifically provided for in written Separate Agreements to
be agreed upon by the parties in each case.

            2.2 Each Separate Agreement shall include a section or exhibit which
will describe expected achievements after proper implementation of the
recommendations and other matters provided by the Technical Assistance.

            2.3 NKK shall provide Technical Assistance by dispatching its
personnel to the Plant, to NSC's headquarters, or by accepting NSC personnel at
the Works in the numbers to be agreed to separately as the case may be.


                                       4



            2.4 NSC shall implement the purpose of the Technical Assistance by
providing competent personnel to receive the Technical Assistance provided by
NKK. NSC shall have the sole responsibility for making timely decisions and
implementing the results of the Technical Assistance in its steel making
operations.

ARTICLE 3. CONDITIONS OF DISPATCH AND ACCEPTANCE
           -------------------------------------

            Conditions for the dispatch of NKK personnel to NSC and acceptance
of NSC personnel by NKK are specifically provided for in Appendix I attached
hereto.

ARTICLE 4. COMPENSATION AND PAYMENT TERMS
           ------------------------------

            4.1 In consideration of NKK's performance under this Agreement, NSC
shall pay to NKK the compensation and expenses consisting of Absence Fee,
Acceptance Fee, Transportation Expenses, Living Expenses and Other Expenses and
Fees of which amount are provided in Appendix II attached hereto.

            4.2 Payments of the compensation and expenses stipulated in 4.1
above shall be made in accordance with the following: Absence Fee, Acceptance
Fee, Transportation Expenses, Living Expenses and Other Expenses and Fees:
within forty-five (45) days from the date of rele-


                                       5



vant invoice which shall be submitted by NKK after completion of the Technical
Assistance and furnishing of final reports to NSC by NKK.

            4.3 All payment to be made hereunder by NSC to NKK shall be in
United States Dollars by telegraphic transfer, and remitted into NKK's account
at the bank in Japan designated by NKK.

            4.4 NSC shall deduct from the amount of payment to NKK, including
the Absence Fee, Acceptance Fee and Other Expenses and Fees, any withholding tax
required after application of the Convention between Japan and the United States
of America for the Avoidance of Double Taxation and the Prevention of Fiscal
Evasion with respect to Taxes and Income, and NSC shall send to NKK, within
thirty (30) days of each payment, a tax certificate showing the payment of such
tax, as NKK may reasonably request to obtain a credit for such tax.

            4.5 Due to anticipated changes in various expenses, the compensation
and expense charges as stipulated in Paragraph 4.1 and Appendix II shall be
amended by written agreement between NKK and NSC no later than December of each
year (the first year such an amendment will be entered into will be 1990), to
provide for an


                                       6



increase or decrease of such compensation and expense charges from the aggregate
amount so charged by NKK to NSC immediately preceding the date of such
amendment.

ARTICLE 5. LICENSE OF TECHNOLOGY
           ---------------------

            During the course of providing the Technical Assistance, if it is
determined by the parties to be necessary or useful for the operation of the
Plants, NKK will grant to NSC licenses with respect to any Proprietary
Technology in separate license agreements. Each such license shall be for such
term, shall contain such provisions, and shall provide for payment of such
royalty by NSC as agreed separately by both parties, but in no event shall the
royalties and provisions be less favorable to NSC than those provided in
licenses granted to any other party with respect to such Proprietary Technology,
unless such other license was granted (i) in connection with a sale, lease or
transfer of substantial equipment as a combined transaction or (ii) at a
different time and under substantially different circumstances than to such
other party.


                                       7



ARTICLE 6. TRAINING OF NSC EMPLOYEES
           -------------------------

            If, in the course of providing Technical Assistance, the parties
agree that it is necessary to train NSC operators or other employees in the
Works or in other facilities in Japan, NKK shall furnish training for fees and
expenses to be agreed upon in a Separate Agreement.

ARTICLE 7. RESPONSIBILITIES
           ----------------

            7.1 NKK shall use its best efforts to advise NSC of and to provide
all Technical Assistance and Technical Information which is available to NKK and
which is requested by NSC in a form which will be accurate and complete,
utilizing, to NKK's knowledge, the best and most up-to-date information and
experience available to NKK, which is appropriate under the circumstances, at
the time of disclosure.

            7.2 NSC shall be responsible for making the final decision as to
whether or not to adopt the contents of the Technical Assistance and Technical
Information and NKK shall not be held responsible for any loss or damage that
NSC may incur in connection with the Technical Assistance and Technical
Information.

            7.3 During the course of providing Technical


                                       8



Assistance, NKK shall use its best efforts to disclose and offer to license to
NSC Proprietary Technology which may be useful in the operation of NSC's
business, including Proprietary Technology which NKK acquires from time to time
in the normal course of its business.

ARTICLE 8. SECRECY
           -------

            8.1 NSC shall be free to use Technical Information supplied to it by
NKK pursuant to this Agreement subject to Paragraphs 8.2 and 8.3 hereof.

            8.2 NSC and all NSC employees and agents shall not use Technical
Information supplied by NKK under this Agreement for purposes other than for
operation of the Plants of NSC and for related purposes such as engineering and
construction at the Plants.

            8.3 NSC and all NSC employees and agents shall keep all Technical
Information confidential and shall not disclose or transfer the Technical
Information supplied by NKK to any third party except as may be necessary for
this Agreement to be carried out and with the prior written consent of NKK.


                                       9



            8.4 NSCs obligation specified in Paragraphs 8.2 and 8.3 herein shall
run for a period of five (5) years from the effective date of each Separate
Agreement with respect to Technical Information disclosed by NKK to NSC in each
such Separate Agreement, unless otherwise agreed in such Separate Agreement. The
restrictions contained in Paragraphs 8.2 and 8.3 herein shall not extend to any
such information (1) which is already in the possession of NSC at the date of
its disclosure by NKK to NSC; (2) which at the time of disclosure is, or after
disclosure becomes, generally known to the public or in the industry through no
fault of NSC; (3) which may thereafter become available to NSC from a third
party who has no existing obligation of secrecy with NKK; or (4) which is not
Confidential Information.

ARTICLE 9. GENERAL CONDITIONS
           ------------------

            9.1 All communications and transfer of information under this
Agreement shall be accomplished in the English language.

            9.2 Upon request of NKK, NSC shall furnish NKK with technical data,
drawings or any other information as deemed necessary in order for this
Agreement to be effec-


                                       10



tively carried out. NSC shall also, from time to time, furnish to NKK any
additional data or other information reasonably requested by NKK in connection
with the Technical Assistance, Technical Information, Proprietary Technology, or
any other matter which is the subject of this Agreement. With respect to such
information furnished by NSC, NKK shall be subject to the same secrecy and
other obligations that NSC has assumed under this Agreement relative to
Technical Information received from NKK.

            9.3 Nothing in this Agreement shall be construed to prevent or
inhibit the acquisition of technical assistance or technology by NSC from any
third party.

ARTICLE 10. FORCE MAJEURE
            -------------

            Neither parties hereto shall be liable for delay or failure in
performing any of its duties or obligations under this Agreement caused in whole
or in part by force majeure conditions, such as acts of God, wars, riots, fires,
explosions, compliance with governmental rules, regulations or other
governmental requirements; any other like cause or any other unlike causes
beyond


                                       11



the reasonable control of the party whose performance is affected thereby.

ARTICLE 11. EFFECTIVE DATE AND TERMINATION OF AGREEMENT
            -------------------------------------------

            11.1 The effectiveness of this Agreement shall commence on June 26,
1990 and shall expire at the close of business on December 31, 1993 (the
"Termination Date") and thereafter shall be automatically renewed for successive
terms of one (1) year, unless either party shall give notice to the other party
within thirty (30) days prior to (i) the Termination Date, in the case of the
initial term, or (ii) the last day of any renewal period, as the case may be, of
the intent not to renew.

            11.2 Notwithstanding the provisions of Paragraph 11.1 herein, in the
event of failure or neglect of either party hereto to fulfill any of the
covenants or provisions hereof to be performed by it in any material respect,
and if such default is not cured within sixty (60) days after the giving of such
notice, then the party giving such notice shall have the right to terminate this
Agreement at any time thereafter, provided that the default is still in
existence, by giving written notice of such termination to the defaulting party.
Such termina-


                                       12



tion shall not prejudice nor eliminate rights or remedies of any of the parties
having accrued before the date of effective termination nor shall it relieve
either of the parties from its liability under the provisions of this Agreement.

ARTICLE 12. ASSIGNMENT
            ----------

            The rights and obligations of either party hereto shall not be
assignable without the written consent of the other party; provided, however,
that NKK shall have the right to assign this Agreement to any wholly-owned
subsidiary of NKK, however, in such event NKK shall remain liable to NSC
hereunder for any breach of the Agreement and shall cause such assignee to
perform this Agreement as fully and effectively as if it were performed by NKK
and NKK shall guarantee such performance.

ARTICLE 13. GOVERNING LAW

            This Agreement and all performance hereunder shall be construed by
and in accordance with the laws of the State of Delaware.


                                       13



ARTICLE 14. RESOLUTION OF DISPUTES
            ----------------------

            14.1 The parties agree to work in good faith to resolve all
questions, disputes or differences which may arise out of or in connection with
this Agreement.

            14.2 If both parties are unable to resolve such questions, disputes
or differences, they shall be finally settled by arbitration in accordance with
the rules of conciliation and arbitration set out by the American Arbitration
Association, without recourse to judicial decision, and both parties shall be
bound by the decision so reached.

ARTICLE 15. NOTICE
            ------

            All notices, requests and other communications which shall or may be
given hereunder shall be made by registered airmail or telecopy and shall be
addressed as follows:

                         NKK        NKK Corporation
                                    1-1-2 Marunouchi
                                    Chiyoda-ku, Tokyo 100
                                    Japan
                                    Attention: General Manager
                                    International Business Center
                                    Steel Division
                                    Fax: 011-81-3-214-8413


                                       14



                         NSC        National Steel Corporation
                                    20 Stanwix Street
                                    Pittsburgh, Pennsylvania 15222
                                    U.S.A.
                                    Attention: Vice president,
                                    General Counsel and Secretary;
                                    and Vice president - Technology
                                    Fax: (412) 394-4689 and
                                    (412) 394-6821

or to such other address as either- party may from time to time designate. Such
notice shall take effect upon receipt thereof provided that such notice shall be
deemed to have been received upon expiration of ten (10) days from the date of
sending in the case of mail, and twenty-four (24) hours from the hour of
sending in the case of telecopy or telegram.

            IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives this 25th day of June,
1990.

NATIONAL STEEL CORPORATION                      NKK CORPORATION


By /s/ Larry L. Symons                          By /s/ Sachio Hatori
   -------------------------------                 --------------------------
   Larry L. Symons                                 Sachio Hatori
   Vice President - Finance                        Executive Vice President
    and Treasurer


                                       15



                                                               Appendix I to the
                                                 Technology Assistance Agreement
                                                 -------------------------------

                 CONDITIONS FOR DISPATCH OF NKK PERSONNEL TO NSC
                     AND ACCEPTANCE OF NSC PERSONNEL TO NKK
                     --------------------------------------

            (The "receiving party, as used herein, shall be, in each case, the
party whose plants or works are visited by the personnel of the other party.)

1.    Transportation

      a.    Transportation between the work place and the accommodation shall be
            provided by the receiving party at its own cost for the entire
            period of stay of the visitors.

2.    Accommodations

      a.    Appropriate living quarters shall be arranged by the receiving party
            for visiting personnel, if so requested.

      b.    Receiving party shall provide visiting personnel with office
            equipment and supplies and means of communication (telephone, telex,
            telegraph, etc.) necessary for the performance of duties hereunder.

      c.    Receiving party shall provide visiting personnel


                                       16



      .     with privileges to use welfare facilities such as cafeteria.

3.    Working Conditions

      a.    Visiting personnel shall observe the general rules and conditions of
            the respective companies and, in principle, the visitors shall not
            be required to be on duty more than five (5) days a week, more than
            eight (8) hours a day including lunch recess of three-quarters of an
            hour, Saturdays, Sundays and holidays observed by the receiving
            company.

4.    Protection and Liability

      a.    NKK and NSC visitors shall be subject to and obey all governmental
            security and other laws and regulations, if any, of the place in
            which facilities of NKK and NSC are located and all regulations
            pertaining to safety, taking of pictures and such other special
            regulations as may be deemed necessary by the party operating the
            facilities visited by personnel of the other party in order to avoid
            interference with the normal operation and administration of such
            facilities.

      b.    Neither party shall be under any responsibility


                                       17



      .     or liability for the death of or injury or accident which may occur
            to any of the personnel of the other party or their property during
            any such visit or otherwise; and each party shall, and hereby does,
            undertake to indemnify the other and save it harmless from and
            against any and all loss, cost, damages, liability, claims or
            demands on account of personal injuries (including death) to such
            personnel arising out of or in any manner connected with such
            visits.

      c.    In the event personnel of NKK or NSC suffers from accident, injury
            or illness while outside the country where they are employed for
            purposes of performing services under this Agreement, NKK and NSC
            shall immediately take every appropriate measure to assist such
            injured personnel, provided, that expenses incurred in such cases
                               --------  ----
            shall be refunded by the employer of such personnel upon receipt of
            invoices from the party which provided such injured personnel with
            assistance.


                                       18



                                                              Appendix II to the
                                                  Technical Assistance Agreement
                                                  ------------------------------

                         COMPENSATION AND PAYMENT TERMS
                         ------------------------------

            In consideration of NKK's performance under this Agreement involving
the transfer of valuable Technical Information by NKK and the receipt of benefit
by NSC, unless otherwise agreed in the Separate Agreement, NSC shall pay to NKK
the compensation and expenses consisting of the following:

            1. Absence Fee: Six Hundred Dollars (U.S. $600.00) per person per
day actually worked by NKK Personnel in the U.S.A. Plants, NSC headquarters or
other facilities; provided, however, that in the case of supervisors, the amount
of absence fees shall be Four Hundred Dollars (U.S. $400.00) per person per day
actually worked in the U.S.A. Plants, NSC headquarters or other facilities.

            2. Acceptance Fee: Four Hundred Dollars (U.S. $400.00) per person
per day for each day actually spent by NSC personnel in the Works, NKK
headquarters or other facilities.

            3. Transportation Expenses: Actual cost in-


                                       19



curred by NXK for the international air fares, other international
transportation costs, and any domestic U.S. transportation costs, including, but
not limited to, all U.S. domestic air, train, bus, automobile, and taxi costs,
for the visit by NKK personnel to the U.S.A.

            4. Living Expenses of NKK Personnel: One Hundred Thirty-Five
Dollars (U.S. $135.00) per person per day for the Period of Stay by NKK
personnel in the U.S.A. required to enable such personnel to provide Technical
Assistance plus four (4) days required for travel.

            5. Other Expenses and Fees: To be agreed to separately in each
Separate Agreement, as the case may be. Typical fees will be for providing
information for, or preparation of, drawings, performance of tests and other
work in Japan. Such work may be performed in connection with a Technical
Assistance project or separately as the parties may agree on a case-by-case
basis for fees based on actual costs as reasonably determined by NKK.

            6. Notwithstanding any other provision of this Appendix B, the
amount to be charged by NKK to NSC from time to time for fees and expenses shall
be no more than the amounts then being charged by NKK to third parties for
similar services.


                                       20

EX-10.AA

                            AMENDMENT NO. 1 TO THE
                             ----------------------
                         TECHNICAL ASSISTANCE AGREEMENT
                         ------------------------------

THIS AGREEMENT, by and between NKK CORPORATION, a Japanese corporation, having
its main office at 1-1-2, Marunouchi, Chiyoda-ku, Tokyo, Japan (herein called
"NKK") and NATIONAL STEEL CORPORATION, a Delaware corporation having its
principal office at 4100 Edison Lakes Parkway, Mishawaka, IN 46545-3440, U.S.A.
(herein called "NSC"), is made effective July 29, 1998.

                                   WITNESSETH:

WHEREAS, NKK and NSC entered into a Technical Assistance Agreement dated as of
June 25, 1990 (the "Agreement"), pursuant to which valuable technical
information is transferred from NKK to NSC; and

WHEREAS, NKK and NSC desire to amend the Agreement by (i) amending Appendix II
thereof relating to the payments to be made by NSC to NKK and (ii) amending the
third "WHEREAS" clause in the preamble to reflect the fact that NII Capital
Corporation and NKK U.S.A. Corporation were the sole stockholders as of the date
of execution of the Agreement, but no longer are the sole stockholders.

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:

1.    Capitalized terms as used herein and not defined herein shall have the
      same meaning as set forth in the Agreement.

2.    Paragraphs 1 and 2 of Appendix II of the Agreement are hereby amended to
      read as follows:

      1.    Absence Fee: One Thousand One Hundred Dollars (U.S. $1,100.00) per
            person per day actually worked by NKK Personnel in the U.S.A.
            Plants, NSC headquarters or other facilities; provided, however,
            that in the case of supervisors, the amount of absence fees shall be
            Seven Hundred Fifty Dollars (U.S. $750.00) per person per day
            actually worked in the U.S.A. Plants, NSC headquarters or other
            facilities.

      2.    Acceptance Fee: Seven Hundred Fifty Dollars (U.S. $750.00) per
            person per day for each day actually spent by NSC personnel in the
            Works, NKK headquarters or other facilities.



      3.    The third "WHEREAS" clause in the preamble of the Agreement is
            hereby amended to read as follows:

                  WHEREAS, NII Capital Corporation and NKK U.S.A. Corporation,
            as the sole stockholders of NSC as of the execution date of this
            Agreement, acknowledged and agreed that the technical assistance and
            consulting services, to be provided under the terms and conditions
            of this Agreement (which terms and conditions are substantially
            similar to those provided under the 1984 Agreement, which were
            negotiated on an arms-length basis) would be beneficial and fair to
            NSC and had, therefore, unanimously approved this Agreement;

      4.    Except as amended hereby, all of the terms of the Agreement shall
            remain in force and effect.

NATIONAL STEEL CORPORATION                   NKK CORPORATION


By /s/ [ILLEGIBLE]                           By
   -------------------------------              -------------------------------

Title: S.V.P                                 Title:
       ---------------------------                  ---------------------------

Date: Sept. 21, 1998                         Date:
      ----------------------------                 ----------------------------

EX-10.BB

                             AMENDMENT NO. 2 TO THE
                             ----------------------
                         TECHNICAL ASSISTANCE AGREEMENT
                         ------------------------------

THIS AMENDMENT by and between NKK CORPORATION, a Japanese corporation, having
its main office at 1-1-2, Marunouchi, Chiyoda-ku, Tokyo, Japan (herein called
"NKK") and NATIONAL STEEL CORPORATION, a Delaware corporation having its
principal office at 4100 Edison Lakes Parkway, Mishawaka, IN 46545-3440, U.S.A.
(herein called "NSC"), is made effective December 11, 2000.

                                   WITNESSETH:

WHEREAS, NKK and NSC entered into a Technical Assistance Agreement dated as of
June 25, 1990 (the "Agreement"), pursuant to which NKK provides Technical
Assistance to NSC; and

WHEREAS, NKK and NSC desire to amend the Agreement to provide for
indemnification of NKK under certain circumstances;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein
contained, the parties hereto, intending to be legally bound, hereby agree as
follows:

1.   Capitalized terms as used herein and not defined herein shall have the same
     meaning as set forth in the Agreement.

2.   The following shall be added as a new Section 16 of the Agreement:

          "16. INDEMNIFICATION

          16.1 Subject to the terms and conditions set forth in this Section 16,
          NSC hereby agrees to indemnify, defend and hold harmless NKK and its
          subsidiaries (including without limitation NKK U.S.A. Corporation),
          directors, officers and employees (together, the "Indemnitees") from
          and against any claims, actions, suits, proceedings and expenses,
          including reasonable attorneys fees, which result from the fact that
          Technical Assistance has been provided to NSC by NKK (together, the
          "Claims"); provided however that NSC shall have no obligation with
          respect to any Claim which results from the negligence or misconduct
          of an Indemnitee. It is understood and agreed that the indemnification
          provided in this Section 16 shall also apply to any Claim that was
          commenced prior to the date of this Amendment No. 2 to the Agreement.

          16.2 In the event that an Indemnitee receives notice of a Claim, it
          shall immediately (i) notify NSC in writing, specifying the nature of
          the Claim and the total monetary amount or other relief which is
          sought, and (ii) provide to NSC a copy of any lawsuit, complaint or
          other pleading which is filed; provided, however, that the failure of
          the Indemnitee to provide such notice will not relieve NSC of its
          obligations hereunder, except to the extent that NSC's ability to
          defend the Claim is prejudiced thereby.



          16.3 NSC shall have the right to assume and control, at NSC's expense,
          the defense and settlement of the Claim with counsel of its choice.
          NSC shall notify the Indemnitee of its election to assume the defense
          of the Claim within 15 days after receiving the notice and other
          documents required pursuant to Section 16.2 above.

          16.4 If NSC elects to assume the defense of a Claim, it may settle
          such Claim in its sole discretion so long as either (a) such
          settlement is a monetary settlement which provides an unconditional
          release of the Indemnitee with respect to the Claim, or (b) Indemnitee
          consents to such settlement, which consent shall not be unreasonably
          withheld.

          16.5 If NSC shall not have assumed the defense of the Claim within the
          15 day period set forth in Section 16.3 above, the Indemnitee may
          assume the defense with counsel selected by it and may make any
          compromise or settlement thereof or otherwise defend the Claim, and
          NSC shall pay to the Indemnitee all amounts paid by the Indemnitee in
          the defense and settlement of the Claim.

          16.6 In the event that NSC elects to assume the defense of the Claim,
          the Indemnitee agrees to cooperate with NSC and its counsel in the
          defense of the Claim. Such cooperation shall include, but not be
          limited to, making available its employees and all relevant files and
          records.

          16.7 In the event that NSC elects to assume the defense of the Claim,
          the Indemnitee shall nevertheless have the right to employ separate
          counsel and participate in the defense of the Claim at its own
          expense; provided that NSC shall, at all times, have the right to
          control the defense of the Claim.

          16.8 In the event that NSC provides any indemnification or makes any
          payment to Indemnitee in respect of any matter as to which
          indemnification is provided for herein, NSC shall be subrogated to the
          extent of such indemnification or other payment to all of the related
          rights of recovery of Indemnitee against other persons or entities.
          Indemnitee shall execute all documents reasonably required and shall
          do everything that may be reasonably necessary to secure such rights
          and enable NSC effectively to bring suit to enforce such rights.

          16.9 The indemnification provided for in this Section 16 shall not be
          deemed exclusive of any other rights to which Indemnitee may be
          entitled under the Agreement, any other agreement or applicable law."

3.   Each party represents and warrants to the other that it has the requisite
     power and authority to enter into this Amendment.

4.   Except as amended hereby, all of the terms of the Agreement shall remain in
     full force and effect.

                                       2



IN WITNESS WHEREOF, the parties have executed this Amendment No. 5 as of the
date first set forth above.

NATIONAL STEEL CORPORATION               NKK CORPORATION


By:                                      By:
   -------------------------------          ------------------------------------

Title:                                   Title:
      ----------------------------             ---------------------------------

Date:                                    Date:
     -----------------------------            ----------------------------------

                                       3

EX-10.TT

February 22, 2002

Ronald J. Werhnyak
15831 South Lakeshore Dr.
Granger, IN 46530

Dear Mr. Werhnyak:

This letter will confirm our mutual agreement that the Employment Agreement
dated as of March 1, 2001 ("Employment Agreement") between you and National
Steel Corporation is hereby amended as follows, effective as of March 1, 2002:

1.   In the first line of Section 1.2, the words "Vice President, General
     Counsel and Secretary" shall be deleted and replaced with the words "Senior
     Vice President, General Counsel and Secretary."

2.   In Section 5.4(a), each reference to the words "1.75 times" shall be
     deleted and replaced with the words "2.00 times."

3.   In Section 5.4(a)(ii)(B), the words "35%" shall be deleted and replaced
     with the words "45%".

Except as herein specifically modified, the terms and conditions of the
Employment Agreement shall remain unchanged and in full force and effect.

If the terms of this letter are acceptable to you, please so signify by signing
in the space provided below.

Sincerely,

NATIONAL STEEL CORPORATION


By:
    -------------------------------------------------
         Hisashi Tanaka
         Chairman and Chief Executive Officer

Accepted and Agreed To:


- -----------------------------------------------------
         Ronald J. Werhnyak

EX-10.WW

November 7, 2001

William E. McDonough
51452 Fallen Leaves Dr.
Granger, IN 46530

Dear Mr. McDonough:

This letter will confirm our mutual agreement that the Employment Agreement
dated as of March 1, 2001 ("Employment Agreement") between you and National
Steel Corporation is hereby amended as follows:

1.   In the first line of Section 1.2, the word "Treasurer" shall be deleted and
     replaced with the words "Vice President and Treasurer."

2.   In Section 5.4(a), each reference to the words "1.5 times" shall be deleted
     and replaced with the words "1.75 times."

Except as herein specifically modified, the terms and conditions of the
Employment Agreement shall remain unchanged and in full force and effect.

If the terms of this letter are acceptable to you, please so signify by signing
in the space provided below.

Sincerely,

NATIONAL STEEL CORPORATION


By:
    -------------------------------------------------
         Ronald J. Werhnyak
         Vice President, General Counsel & Secretary

Accepted and Agreed To:


- -----------------------------------------------------
         William E. McDonough

EX-10.YY

November 7, 2001

Kirk A. Sobecki
14441 Farmgate Dr.
Granger, IN 46530

Dear Mr. Sobecki:

This letter will confirm our mutual agreement that the Employment Agreement
dated as of March 1, 2001 ("Employment Agreement") between you and National
Steel Corporation is hereby amended as follows:

1.   In the first line of Section 1.2, the words "Corporate Controller" shall be
     deleted and replaced with the words "Vice President and Corporate
     Controller."

2.   In Section 5.4(a), each reference to the words "1.5 times" shall be deleted
     and replaced with the words "1.75 times."

Except as herein specifically modified, the terms and conditions of the
Employment Agreement shall remain unchanged and in full force and effect.

If the terms of this letter are acceptable to you, please so signify by signing
in the space provided below.

Sincerely,

NATIONAL STEEL CORPORATION


By:
    -------------------------------------------------
         Ronald J. Werhnyak
         Vice President, General Counsel & Secretary

Accepted and Agreed To:


- -----------------------------------------------------
         Kirk A. Sobecki

EX-10.ZZ

February 22, 2002

Kirk A. Sobecki
14441 Farmgate Dr.
Granger, IN 46530

Dear Mr. Sobecki:

This letter will confirm our mutual agreement that the Employment Agreement
dated as of March 1, 2001 ("Employment Agreement") between you and National
Steel Corporation is hereby amended as follows, effective as of March 1, 2002:

1.   In the first line of Section 1.2, the words "Corporate Controller" shall be
     deleted and replaced with the words "Senior Vice President and Chief
     Financial Officer."

2.   In Section 5.4(a), each reference to the words "1.5 times" shall be deleted
     and replaced with the words "2.00 times."

3.   In Section 5.4(a)(ii)(B), the words "35%" shall be deleted and replaced
     with the words "45%".

Except as herein specifically modified, the terms and conditions of the
Employment Agreement shall remain unchanged and in full force and effect. This
letter will supersede and replace the letter dated November 7, 2001.

If the terms of this letter are acceptable to you, please so signify by signing
in the space provided below.

Sincerely,

NATIONAL STEEL CORPORATION


By:
    -------------------------------------------------
         Hisashi Tanaka
         Chairman and Chief Executive Officer

Accepted and Agreed To:


- -----------------------------------------------------
         Kirk A. Sobecki

EX-21

                                                                      EXHIBIT 21

                     NATIONAL STEEL CORPORATION SUBSIDIARIES

                                               Jurisdiction       Percentage
                                                    of           Outstanding
          Name                                 Incorporation     Stock Owned
          ----                                 -------------     ------------

American Steel Corporation                     Michigan               100%
D. W. Pipeline Company                         Michigan               100%
Delray Connecting Railroad Company             Michigan               100%
Granite City Steel Company                     Illinois               100%
Granite Intake Corporation                     Delaware               100%
Great Lakes Steel Corporation                  Delaware               100%
The Hanna Furnace Corporation                  New York               100%
Hanna Ore Mining Company                       Minnesota              100%
Ingleside Channel & Dock Co.                   Texas                  100%
Ingleside Point Corporation                    Texas                  100%
Ingleside Holdings L. P.                       Texas                  100%
Liberty Pipe and Tube, Inc.                    Texas                  100%
Mathies Coal Company                           Pennsylvania         86.67%
Mid-Coast Minerals Corporation                 Delaware               100%
Midwest Steel Corporation                      Pennsylvania           100%
N Squared Aviation LLC                         Delaware             66.67%
NS Holdings Corporation                        Delaware               100%
NS Land Company                                New Jersey             100%
NS Technologies, Inc.                          Delaware               100%
NSC Realty Corporation                         Delaware               100%
NSL, Inc.                                      Delaware               100%
Natcoal, Inc.                                  Delaware               100%
National Acquisition Corporation               Delaware               100%
National Caster Acquisition Corporation        Delaware               100%
National Caster Operating Corporation          Delaware               100%
National Casting Corporation                   Delaware               100%
National Coal Mining Company                   Delaware               100%
National Coating Limited Corporation           Delaware               100%
National Coating Line Corporation              Delaware               100%
National Materials Procurement Corporation     Illinois               100%
National Mines Corporation                     Pennsylvania           100%
National Ontario Corporation                   Delaware               100%
National Ontario II, Limited                   Delaware               100%
National Pickle Line Corporation               Delaware               100%
National Steel Corporation (New York)          New York               100%
National Steel Funding Corporation             Delaware               100%
National Steel Pellet Company                  Delaware               100%
Natland Corporation                            Delaware               100%
Peter White Coal Mining Corp.                  West Virginia          100%
ProCoil Corporation                            Delaware               100%
Puritan Mining Company                         Michigan               100%
Rostraver Corporation                          Delaware               100%
Skar-Ore Steamship Corporation                 Delaware               100%
The Teal Lake Iron Mining Company              Michigan               100%

EX-23

                                                                      Exhibit 23

                         CONSENT OF INDEPENDENT AUDITORS

We consent to the incorporation by reference in the following Registration
Statements:

 .    Form S-8 No. 33-51991 pertaining to the 1994 and 1995 Stock Grants to Union
     Employees,

 .    Form S-8 No. 33-51081 pertaining to the 1993 National Steel Corporation
     Long Term Incentive Plan,

 .    Form S-8 No. 33-51083 pertaining to the 1993 National Steel Corporation
     Non-Employee Director's Stock Option Plan, and

 .    Form S-8 No. 33-61087 pertaining to the National Steel Retirement Savings
     Plan and National Steel Represented Employee Retirement Savings Plan;

of our report dated January 30, 2002, except for Notes 1 and 5, as to which the
date is March 11, 2002, with respect to the consolidated financial statements of
National Steel Corporation and subsidiaries included in the Annual Report (Form
10-K) for the year ended December 31, 2001.

Indianapolis, Indiana
March 27, 2002