-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NHgEzbdoL3/kJ8x5EuutKmDM0NVPi+2ouCnlupnh/Tgbc47r2Yb7kQcSyVAu7gum UN6PrvtD3t6WTnaWuhCOdA== 0000950131-98-006068.txt : 19981116 0000950131-98-006068.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950131-98-006068 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NATIONAL STEEL CORP CENTRAL INDEX KEY: 0000070578 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 250687210 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00983 FILM NUMBER: 98748297 BUSINESS ADDRESS: STREET 1: 4100 EDISON LAKES PARKWAY CITY: MISHAWAKA STATE: IN ZIP: 46545-3440 BUSINESS PHONE: 2192737000 MAIL ADDRESS: STREET 1: 4100 EDISON LAKE PARKWAY CITY: MISHAWAKA STATE: IN ZIP: 46545-3440 10-Q 1 FORM 10-Q 1998 Third Quarter UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 F O R M 1 0 - Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-983 NATIONAL STEEL CORPORATION (Exact name of registrant as specified in its charter) Delaware 25-0687210 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4100 Edison Lakes Parkway, Mishawaka, IN 46545-3440 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area 219-273-7000 code): Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ --- The number of shares outstanding of the Registrant's Common Stock $.01 par value, as of November 6, 1998, was 43,288,240 shares, consisting of 22,100,000 shares of Class A Common Stock and 21,188,240 shares of Class B Common Stock. NATIONAL STEEL CORPORATION AND SUBSIDIARIES TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION PAGE ---------- Consolidated Statements of Income - Three Months Ended September 30, 1998 and 1997 3 Consolidated Statements of Income - Nine Months Ended September 30, 1998 and 1997 4 Consolidated Balance Sheets - September 30, 1998 and December 31, 1997 5 Consolidated Statements of Cash Flows - Nine Months Ended September 30, 1998 and 1997 6 Consolidated Statements of Changes in Stockholders' Equity and Redeemable Preferred Stock-Series B - Nine Months Ended September 30, 1998 and Year Ended December 31, 1997 7 Notes to Consolidated Financial Statements 8 Management's Discussion and Analysis of Financial Condition and Results of Operations 10 PART II. OTHER INFORMATION Legal Proceedings 18 Exhibits and Reports on Form 8-K 18
2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars, Except Per Share Amounts) (Unaudited)
Three Months Ended September 30, 1998 1997 -------- -------- Net Sales $706,361 $788,663 Cost of products sold 615,200 653,715 Selling, general and administrative expense 41,380 37,979 Depreciation 32,383 31,201 Equity (income) of affiliates (757) (301) Unusual (credit) (26,621) -- -------- -------- Income from Operations 44,776 66,069 Other (Income) Expense Interest and other financial income (3,020) (6,245) Interest and other financial expense 7,055 7,436 Net gain on disposal of non-core assets -- (28,804) -------- -------- 4,035 (27,613) -------- -------- Income Before Income Taxes 40,741 93,682 Income tax provision 8,238 15,121 -------- -------- Net Income 32,503 78,561 Less preferred stock dividends -- (2,740) -------- -------- Net Income Applicable to Common Stock $ 32,503 $ 75,821 ======== ======== Basic Earnings Per Share: Net Income Applicable to Common Stock $ 0.75 $ 1.76 ======== ======== Weighted average shares outstanding (in thousands) 43,288 43,288 Diluted Earnings Per Share: Net Income Applicable to Common Stock $ 0.75 $ 1.72 ======== ======== Weighted average shares outstanding (in thousands) 43,288 43,981 Dividends paid per Common Share $ 0.07 $ -- ======== ========
See notes to consolidated financial statements. 3 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In Thousands of Dollars, Except Per Share Amounts) (Unaudited)
Nine Months Ended September 30, 1998 1997 ----------------- ----------------- Net Sales $2,162,636 $2,371,150 Cost of products sold 1,908,047 2,006,970 Selling, general and administrative expense 112,918 107,360 Depreciation 95,907 103,336 Equity income of affiliates (993) (1,067) Unusual credit (26,621) -- ---------- ---------- Income from Operations 73,378 154,551 Other (Income) Expense Interest and other financial income (12,518) (12,672) Interest and other financial expense 20,255 26,715 Net gain on disposal of non-core assets (2,685) (54,189) ---------- ---------- 5,052 (40,146) ---------- ---------- Income Before Income Taxes and Extraordinary Item 68,326 194,697 Income tax provision 3,416 24,546 ---------- ---------- Income Before Extraordinary Item 64,910 170,151 Extraordinary item (net of applicable tax) -- (5,397) ---------- ---------- Net Income 64,910 164,754 Less preferred stock dividends -- (8,218) ---------- ---------- Net Income Applicable to Common Stock $ 64,910 $ 156,536 ========== ========== Basic Earnings Per Share: Income before extraordinary item $ 1.50 $ 3.74 Extraordinary item -- (0.12) ---------- ---------- Net Income Applicable to Common Stock $ 1.50 $ 3.62 ========== ========== Weighted average shares outstanding (in thousands) 43,288 43,288 Diluted Earnings Per Share: Income before extraordinary item $ 1.50 $ 3.71 Extraordinary item -- (0.12) ---------- ---------- Net Income Applicable to Common Stock $ 1.50 $ 3.59 ========== ========== Weighted average shares outstanding (in thousands) 43,340 43,635 Dividends paid per Common Share $ 0.21 $ -- ========== ==========
See notes to consolidated financial statements. 4 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of Dollars, Except Share Amounts) (Unaudited)
September 30, December 31, 1998 1997 --------------- ---------------- Assets Current assets Cash and cash equivalents $ 106,641 $ 312,642 Investments 16,284 25,000 Receivables - net 302,257 284,306 Inventories - net: Finished and semi-finished products 344,710 261,648 Raw materials and supplies 140,591 112,554 ---------- ---------- 485,301 374,202 Deferred tax assets 8,597 8,597 ---------- ---------- Total current assets 919,080 1,004,747 Investments in affiliated companies 18,366 15,709 Property, plant and equipment 3,454,648 3,378,131 Less accumulated depreciation 2,236,983 2,149,107 ---------- ---------- 1,217,665 1,229,024 Other assets 212,721 203,979 ---------- ---------- Total Assets $2,367,832 $2,453,459 ========== ========== Liabilities and Stockholders' Equity Current liabilities Accounts payable $ 236,471 $ 246,085 Accrued liabilities 266,405 359,749 Current portion of long term debt 31,658 31,533 ---------- ---------- Total current liabilities 534,534 637,367 Long-term debt 288,472 310,976 Other long-term liabilities 652,029 668,138 Stockholders' equity Common Stock - par value $.01: Class A - authorized 30,000,000 shares, issued and outstanding 22,100,000 221 221 Class B - authorized 65,000,000 shares; issued and outstanding 21,188,240 212 212 Additional paid-in-capital 491,835 491,835 Retained earnings 401,695 345,876 Accumulated other comprehensive income: Minimum pension liability (1,166) (1,166) ---------- ---------- Total stockholders' equity 892,797 836,978 ---------- ---------- Total Liabilities and Stockholders' Equity $2,367,832 $2,453,459 ========== ==========
See notes to consolidated financial statements. 5 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of Dollars) (Unaudited)
Nine Months Ended September 30, 1998 1997 ------------------ ----------------- Cash Flows from Operating Activities: Net income $ 64,910 $ 164,754 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 95,907 103,336 Carrying charges related to facility sales and plant closings 4,029 15,534 Net gain on disposal of non-core assets (2,685) (54,189) Equity income (993) (1,067) Dividends from affiliates 1,800 6,808 Long-term pension liability (31,189) (40,900) Postretirement benefits 22,586 15,981 Extraordinary item (net) -- 5,397 Deferred income taxes (6,584) (16,200) Changes in working capital items: Investments 8,716 -- Receivables (17,951) (1,621) Inventories (111,099) 37,187 Accounts payable (9,614) 19,232 Accrued liabilities (93,344) 46,517 Other (18,353) (3,820) --------- --------- Net Cash Provided by (Used in) Operating Activities (93,864) 296,949 --------- --------- Cash Flows from Investing Activities: Proceeds from the sale of non-core assets 3,278 317,612 Purchases of plant and equipment (83,945) (101,006) Other -- (362) --------- --------- Net Cash Provided by (Used in) Investing Activities (80,667) 216,244 --------- --------- Cash Flows from Financing Activities: Prepayment of related party debt -- (154,328) Costs associated with prepayment of related party debt -- (4,500) Other debt repayment (30,379) (30,309) Borrowings 8,000 2,729 Dividend payments on Common Stock (9,091) -- Dividend payments on Preferred Stock-Series A -- (3,014) Dividend payments on Preferred Stock-Series B -- (210) Payment of released Weirton benefit liabilities -- (9,878) Payment of unreleased Weirton liabilities and their release in lieu of cash dividends on Preferred Stock-Series B -- (5,818) --------- --------- Net Cash (Used in) Financing Activities (31,470) (205,328) --------- --------- Net Increase (Decrease) in Cash and Cash Equivalents (206,001) 307,865 Cash and cash equivalents at beginning of the period 312,642 109,041 --------- --------- Cash and cash equivalents at end of the period $ 106,641 $ 416,906 ========= =========
See notes to consolidated financial statements. 6 NATIONAL STEEL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK - SERIES B (In Thousands of Dollars) (Unaudited)
Accumulated Common Common Preferred Additional Other Total Redeemable Stock - Stock - Stock - Paid-In Comprehensive Retained Stockholders' Preferred Stock - Class A Class B Series A Capital Income Earnings Equity Series B -------- ------- --------- ---------- ------------- --------- ------------- ----------------- BALANCE AT JANUARY 1, 1997 $ 221 $ 212 $36,650 $465,359 $ (505) $142,625 $644,562 $63,530 Comprehensive Income: Net income 213,503 213,503 Other comprehensive income: Minimum pension liability (661) (661) ------- Comprehensive income 212,842 ------- Amortization of excess of book value over redemption value of Redeemable Preferred Stock-Series B 1,354 1,354 (1,354) Cumulative dividends on Preferred Stock- Series A and B (11,606) (11,606) Redemption of Preferred Stock-Series A (36,650) (36,650) Redemption of Redeemable Preferred Stock-Series B and related settlement with Avatex 26,476 26,476 (62,176) -------- ------- --------- ---------- ------------- --------- ------------- ----------------- BALANCE AT DECEMBER 31, 1997 221 212 ---- 491,835 (1,166) 345,876 836,978 ---- Net income and comprehensive income 64,910 64,910 Dividends paid (9,091) (9,091) -------- ------- --------- ---------- ------------- --------- ------------- ----------------- BALANCE AT SEPTEMBER 30, 1998 $ 221 $ 212 $ ---- $491,835 $ (1,166) $401,695 $892,797 $ ---- ======== ======= ========= ========== ============= ========= ============= =================
See notes to consolidated financial statements. 7 NATIONAL STEEL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 1998 (Unaudited) NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of National Steel Corporation and its majority owned subsidiaries (the "Company") presented herein are unaudited. However, in the opinion of management, such statements include all adjustments necessary for a fair presentation of the results for the periods indicated. All such adjustments made were of a normal recurring nature, except for the item discussed in Note 3. The financial results presented for the three and nine month periods ended September 30, 1998 are not necessarily indicative of results of operations for the full year. The Annual Report of the Company on Form 10-K, as amended, for the year ended December 31, 1997 (the "1997 Form 10-K") contains additional information and should be read in conjunction with this report. The Company has engaged Ernst & Young LLP to conduct a review of the consolidated financial statements presented herein, in accordance with standards established by the American Institute of Certified Public Accountants. Their review report is included as an exhibit to this Form 10-Q. Certain amounts in the 1997 financial statements have been reclassified to conform to current year presentation. NOTE 2 - AUDIT COMMITTEE INQUIRY AND SECURITIES AND EXCHANGE COMMISSION INQUIRY In the third quarter of 1997, the Audit Committee of the Company's Board of Directors was informed of allegations about managed earnings, including excess reserves and the accretion of such reserves to income over multiple periods, as well as allegations about deficiencies in the system of internal controls. The Audit Committee engaged legal counsel who, with the assistance of an accounting firm, inquired into these matters. The Company, based upon the inquiry, restated its financial statements for certain prior periods. On January 29, 1998, the Company filed a Form 10-K/A for 1996 and Forms 10-Q/A for the first, second and third quarters of 1997 reflecting the restatements. See these Forms for information about the restatement, the report of legal counsel to the Audit Committee and the recommendations, approved by the Board of Directors, to improve the Company's system of internal controls contained in the aforementioned report. The Securities and Exchange Commission (the "Commission") has authorized an investigation pursuant to a formal order of investigation relating to the matters described above. The Company has been cooperating with the staff of the Commission and intends to continue to do so. Additionally, a complaint has been filed seeking shareholder class action status and alleging violations of the federal securities laws generally relating to the matters described above. The Company believes that the lawsuit is without merit and intends to defend against it vigorously. NOTE 3 - UNUSUAL CREDIT During the third quarter of 1998, the Company recorded an unusual credit of $26.6 million resulting from the settlement of a lawsuit seeking a reduction in the assessed value of the Company's real and personal property at the Great Lakes Division relating to the 1991 through 1997 tax years. The Company received tax refunds and was granted a lower assessment base that will result in future tax savings. 8 NOTE 4 - ENVIRONMENTAL AND LEGAL PROCEEDINGS The Company's operations are subject to numerous laws and regulations relating to the protection of human health and the environment. Because these environmental laws and regulations are quite stringent and are generally becoming more stringent, the Company has expended, and can be expected to expend in the future, substantial amounts for compliance with these laws and regulations. Due to the possibility of future changes in circumstances or regulatory requirements, the amount and timing of future environmental expenditures could vary from those currently anticipated. It is the Company's policy to expense or capitalize, as appropriate, environmental expenditures that relate to current operating sites. Environmental expenditures that relate to past operations and which do not contribute to future or current revenue generation are expensed. Costs for environmental assessments or remediation activities, or penalties or fines that may be imposed for noncompliance with environmental laws and regulations, are accrued when it is probable that liability for such costs will be incurred and the amount of such costs can be reasonably estimated. The Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), and similar state superfund statutes generally impose joint and several liability on present and former owners and operators, transporters and generators for remediation of contaminated properties, regardless of fault. The Company and certain of its subsidiaries are involved as potentially responsible parties ("PRPs") at a number of off-site CERCLA or state superfund site proceedings. At some of these sites, the Company does not have sufficient information regarding the nature and extent of the contamination, the wastes contributed by other PRPs, or the required remediation activity to estimate its potential liability. The Company has also recorded the reclamation and other costs to restore its coal mines at its shutdown locations to their original and natural state, as required by various federal and state mining statutes. Since the Company has been conducting steel manufacturing and related operations at numerous locations for over sixty years, the Company potentially may be required to remediate or reclaim any contamination that may be present at these sites. The Company does not have sufficient information to estimate its potential liability in connection with any potential future remediation at such sites. Accordingly, the Company has not accrued for such potential liabilities. As these matters progress or the Company becomes aware of additional matters, the Company may be required to accrue charges in excess of those previously accrued. The outcome of any of the matters described, to the extent they exceed any applicable reserves, could have a material adverse effect on the Company's results of operations and liquidity for the applicable period. The Company has recorded an aggregate environmental liability of approximately $18.0 million and $18.7 million at September 30, 1998 and December 31, 1997, respectively. The Company is involved in various non-environmental legal proceedings, most of which occur in the normal course of its business. The Company does not believe that these proceedings will have a material adverse effect, either individually or in the aggregate, on the Company's financial condition. However, with respect to certain of the proceedings, if reserves prove to be inadequate and the Company incurs a charge to earnings, such charge could have a material adverse effect on the Company's results of operations and liquidity for the applicable period. NOTE 5 - EARNINGS PER SHARE Basic earnings per share ("EPS") is computed by dividing net income available to common stockholders by the weighted average number of shares of common stock outstanding during the period. Diluted EPS is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the period plus dilutive stock options which are determined through the application of the treasury stock method. 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This commentary should be read in conjunction with the third quarter and first nine months of 1998 consolidated financial statements and selected notes and the Annual Report of National Steel Corporation on Form 10-K, as amended, for the year ended December 31, 1997 for a full understanding of the Company's financial condition and results of operations. Results of Operations Comparative operating results for the nine and three month periods ending September 30, 1998 and 1997 are as follows:
Nine Months ended September 30, Three Months ended September 30, 1998 1997 1998 1997 ---- ---- ---- ---- (Dollars in millions) (Dollars in millions) Net Sales $2,162.6 $2,371.1 $706.4 $788.7 Gross margin 158.7 260.8 58.8 103.7 Gross margin as a percentage of net sales 7.3% 11.0% 8.3% 13.2% Tons shipped (in thousands) 4,235 4,645 1,366 1,519
Net Sales Net sales for the first nine months of 1998 decreased $208.5 million or 8.8% compared to the corresponding 1997 period. A decrease in tons shipped of 410,000 as compared to the same period in 1997 is the primary reason for the decrease in sales. Increased competition from low-priced imports and the Great Lakes Division "A" blast furnace reline early in the year were the primary factors contributing to the decrease in tons shipped. Net sales for the third quarter of 1998 decreased $82.3 million or 10.4% compared to the corresponding 1997 period. Shipments decreased 153,000 tons in the third quarter of 1998 primarily as a result of increased competition from low-priced imports and the work stoppage at General Motors, one of the Company's largest customers. The decrease in tons shipped resulted in a decrease in sales of approximately $77.0 million when compared to the third quarter of 1997. Market and customer mix had approximately a $4.0 million negative impact on third quarter sales as compared to the prior year. The Company anticipates that high levels of low-priced imported steel and the resulting above normal steel inventory levels at service centers will continue to negatively impact shipments as compared to prior year levels through the end of the year. In response, the Company, in October 1998, decided to temporarily idle a blast furnace at its Great Lakes Division and is aggressively seeking to reduce costs. Shipment and pricing levels are likely to continue to be negatively impacted until the amount of low-priced imports is reduced and steel inventories have been brought down to more normal levels. Gross Margin (net sales less cost of products sold and depreciation) Gross margin in the first nine months of 1998 decreased $102.1 million or 39.1% compared to the corresponding 1997 period. Approximately $57.0 million of the reduction in gross margin corresponds to the decrease in tons shipped as discussed above. Lower average selling prices partially offset by an improvement in product mix resulted in a reduction in gross margin of approximately $53.0 million. The Great Lakes Division "A" blast furnace outage along with higher maintenance costs lowered margins by approximately $43.0 million in comparison to the corresponding 1997 period. This was partially offset by improved operating unit yield performances, lower depreciation expense as a result of the second quarter 1997 sale of the Great Lakes Division No. 5 coke battery, reduced outside steel purchases and lower costs as a result of the settlement with Avatex Corporation. These offsetting items amounted to an increase of approximately $50.0 million in gross margin. 10 Gross Margin - (Continued) - -------------------------- Gross margin in the third quarter of 1998 decreased $44.9 million in comparison to the corresponding 1997 period. Approximately $20.0 million of this decrease in gross margin is the result of decreased shipments as described in the net sales discussion above. In addition, lower selling prices and product mix changes resulted in a decrease of approximately $24.0 million. Unusual Credit - Great Lakes Division Property Tax Settlement - ------------------------------------------------------------- On August 31, 1998, the Michigan Tax Tribunal issued Consent Judgments approving property tax refunds relating to the 1991 through 1997 tax years as well as a lower assessment base that will result in future tax savings. Under the Consent Judgments, the Company will receive a net amount of approximately $23.0 million. This amount, along with related interest income and a reduction of certain property tax accruals, was recorded as an unusual credit of $26.6 million. Selling, General and Administrative Expense - ------------------------------------------- Selling, general and administrative expense in the first nine months of 1998 was $112.9 million, or 5.2% of net sales, compared to $107.4 million, or 4.5% of net sales, in the corresponding 1997 period. This $5.5 million increase is primarily the result of higher benefit costs related to certain exiting senior executives, Year 2000 project expenses and professional and legal expenses partially offset by lower mainframe system costs. Selling, general and administrative expense in the third quarter of 1998 was $41.4 million, or 5.9% of net sales, compared to $38.0 million, or 4.8% of net sales, in the corresponding 1997 period. This $3.4 million increase is primarily due to higher benefit costs related to certain exiting senior executives, Year 2000 project expenses and legal expenses when compared to the third quarter of 1997. Net Financing Costs - ------------------- In the nine months ended September 30, 1998, net financing costs decreased $6.3 million compared to the same 1997 period. This decrease resulted mainly from reduced interest expense due to lower average debt balances during 1998 resulting from the repayment of the outstanding debt associated with the Great Lakes Division No. 5 coke battery during 1997. Net financing costs for the three months ended September 30, 1998 increased $2.8 million compared to the same 1997 period. This is primarily attributable to a decrease in interest income as a result of lower cash balances available for investment. Net Gain on Disposal of Non-Core Assets and Other Related Activities - -------------------------------------------------------------------- During the second quarter of 1998, the Company sold certain non-core land and property at its Midwest Division and recorded a net gain of $2.7 million related to the sale. During the third quarter of 1997, the Company sold two coal properties. The Company received proceeds for the property sales of $7.7 million. In conjunction with one of the property sales, the purchaser agreed to assume the potential environmental liabilities of approximately $8.0 million related to the property. Additionally, during the third quarter of 1997, the Company received information concerning other liabilities related to its shutdown of coal properties that resulted in a reduction of the related accrued liabilities. As such, the Company recorded an aggregate net gain related to its shutdown of coal properties of $28.8 million during the third quarter of 1997. In addition, during the second quarter of 1997, the Company disposed of certain non-core business assets that resulted in a net gain of $25.3 million. The assets included the sale of the Company's 21.73% minority equity interest in the Iron Ore Company of Canada, which netted a gain of $37.0 million; the sale of its Great Lakes Division No. 5 coke oven battery and related coal inventories, which netted a loss of $11.1 million; and the sale of a coal mine property, which netted a gain of $3.0 million. Additionally, the Company recorded a $3.6 million charge related to the decision to cease operations of American Steel Corporation, a wholly owned subsidiary, which pickled and slit steel. 11 Income Taxes - ------------ The Company recorded current taxes payable of $10.0 million and $40.7 million in the nine months ending September 30, 1998 and 1997, respectively. The Company also recorded a deferred tax benefit of $6.6 million and $16.2 million in the first nine months of 1998 and 1997, respectively. The Company recorded current taxes payable of $4.0 million and $20.5 million in the third quarter of 1998 and 1997, respectively. The Company also recorded deferred tax expense of $4.2 million in the third quarter of 1998 and a deferred tax benefit of $5.4 million in the third quarter of 1997. The Company's effective tax rate is lower than the combined federal and state statutory rates primarily because of continued utilization of available federal and state net operating loss carryforwards and the recognition of additional deferred tax benefits. 12 Liquidity and Sources of Capital - -------------------------------- The Company's liquidity needs arise primarily from capital investments, working capital requirements, pension funding requirements, principal and interest payments on its indebtedness, common stock dividend payments and stock repurchase programs. The Company has satisfied these liquidity needs with funds provided by long term borrowings and cash provided by operations. Additional sources of liquidity consist of a Receivables Purchase Agreement (the "Receivables Purchase Agreement") with commitments of up to $200.0 million and an expiration date of September 2002 and a $100.0 million and a $50.0 million credit facility, both of which are secured by the Company's inventories (the "Inventory Facilities") and expire in May 2000 and July 1999, respectively. The Company is currently in compliance with all material covenants of, and obligations under, the Receivables Purchase Agreement, the Inventory Facilities and other debt instruments. On September 30, 1998, there were no cash borrowings outstanding under the Receivables Purchase Agreement or the Inventory Facilities, and outstanding letters of credit under the Receivables Purchase Agreement totaled $81.0 million. During the first nine months of 1998, the maximum availability under the Receivables Purchase Agreement, after reduction of letters of credit outstanding, varied from $76.3 million to $119.0 million and was $119.0 million as of September 30, 1998. At September 30, 1998, total debt as a percentage of total capitalization decreased to 26.4% as compared to 29.0% at December 31, 1997. Cash and cash equivalents totaled $106.6 million at September 30, 1998 compared to $312.6 million at December 31, 1997. Cash Flows from Operating Activities - ------------------------------------ For the nine months ended September 30, 1998, cash used in operating activities amounted to $93.9 million, a decrease of $390.8 million in comparison to the same period in 1997. This decrease is primarily attributable to the impact of working capital items and a decrease in net income. The increase in inventories of $111.1 million from December 31, 1997 balances was a significant use of cash during the first nine months of 1998. In October 1998, the Company decided to temporarily idle a blast furnace at its Great Lakes Division in order to stabilize inventory levels through the end of 1998. Other working capital items impacting cash used in operating activities include decreases in accrued liabilities mainly due to pension contributions and bonus payments, partially offset by noncash charges for depreciation and postretirement benefits. Net income of $64.9 million, including an unusual credit of $26.6 million, decreased $99.8 million as compared to the nine months ended September 30, 1997. See "Results of Operations" above for information regarding items that impacted net income. Cash Flows from Investing Activities - ------------------------------------ Capital investments for the nine months ended September 30, 1998 amounted to $83.9 million. The 1998 spending is mainly attributable to the construction of the new coating line at the Midwest Division, the reline of the Great Lakes Division "A" blast furnace, and the Company's new order fulfillment system. Cash Flows from Financing Activities - ------------------------------------ During the first nine months of 1998, the Company utilized $31.5 million of cash for financing activities that included scheduled debt payments, as well as dividend payments on the Company's common stock. 13 Other - ----- Year 2000 Issues - ---------------- The "Year 2000" computer software problem is caused by programming practices that were originally intended to conserve computer memory by allowing only two digits in the date field, with the assumption being that the first two digits would be "19." Thus, there is a risk that systems, products and equipment which use date-sensitive software or computer chips with two digit date fields will recognize a date using "00" as the year 1900, rather than the year 2000. If not corrected, this error could cause such systems, products and equipment to fail or give erroneous results. The Company has established a Year 2000 Project team to coordinate and oversee the Year 2000 remediation project. The team is supervised by an executive steering committee that meets regularly to monitor progress. The project includes the assessment and remediation of business software and other information technology items, as well as non-information technology items, such as process control software and embedded software in hardware devices. The Company has also sent written inquiries to its key vendors and suppliers to determine their Year 2000 compliance. The responses to these inquiries are being used to evaluate the extent to which the Company's operations could be interrupted as a result of the failure of a vendor or supplier to become Year 2000 compliant. Most key suppliers who have replied thus far to the Company's inquiries have indicated that they expect to be Year 2000 compliant on a timely basis. The Company intends to conduct follow up site visits with certain key suppliers to verify the responses to these written inquiries. In order to verify the status of the Company's year 2000 compliance efforts, a major independent accounting and consulting firm was retained to perform a limited review of the Company's project plan and remediation activities and to provide its observations. The project is ongoing and will be completed in the fourth quarter of 1998. Following is a table which shows the current status and expected substantial completion dates for the major components of the Company's Year 2000 project:
- -------------------------------------------------------------------------------------------------------------- Estimated Description Substantial Completion - -------------------------------------------------------------------------------------------------------------- General: - -------------------------------------------------------------------------------------------------------------- Development of a Year 2000 Project plan Complete - -------------------------------------------------------------------------------------------------------------- Limited review of Year 2000 Project plan by a major independent accounting and consulting firm 4th quarter 1998 - -------------------------------------------------------------------------------------------------------------- Mainframe business systems: - -------------------------------------------------------------------------------------------------------------- Transition of data service center to Year 2000 compliant provider 4th quarter 1998 - -------------------------------------------------------------------------------------------------------------- Business critical applications--remediated, tested and implemented 4th quarter 1998 - -------------------------------------------------------------------------------------------------------------- Non-business critical applications--remediated, tested and implemented 2nd quarter 1999 - -------------------------------------------------------------------------------------------------------------- Non mainframe computer equipment and software: - -------------------------------------------------------------------------------------------------------------- Inventory and assessment of all non mainframe computer equipment 4th quarter 1998 - -------------------------------------------------------------------------------------------------------------- Business computers at divisions remediated, tested and implemented 2nd quarter 1999 - -------------------------------------------------------------------------------------------------------------- Process control computers and embedded devices--assessed and remediated 2nd quarter 1999 - -------------------------------------------------------------------------------------------------------------- Vendors, customers and others: - -------------------------------------------------------------------------------------------------------------- Vendor readiness evaluations prepared and mailed Complete - -------------------------------------------------------------------------------------------------------------- Review of responses and assessment of risk Ongoing - -------------------------------------------------------------------------------------------------------------- Contingency plan: - -------------------------------------------------------------------------------------------------------------- Development and review of contingency plan 2nd quarter 1999 - --------------------------------------------------------------------------------------------------------------
The Company's Year 2000 compliance effort is currently progressing according to schedule. The remediation of the coding for the mission critical mainframe based applications has been completed. These programs are currently being tested to confirm that the remediation adequately corrected the problems, and they are scheduled to be returned to production by the end of 1998. Other non-critical mainframe based applications are currently being 14 Year 2000 Issues--(Continued) - ---------------------------- remediated. The inventory, assessment and remediation of all non-mainframe hardware, business computers, process control computers and embedded devices are proceeding according to schedule. The Company has discovered some computer equipment that is not Year 2000 compliant and has made arrangements to replace it. An inventory of all desktop computer equipment, such as personal computers and printers, is being completed in the fourth quarter of 1998. The Company expects to incur total costs of approximately $18.5 million to address all of its Year 2000 issues. This total consists of: (i) approximately $10.0 million to remediate mainframe business systems; (ii) approximately $4.7 million to remediate business computers at the divisions and other non-mainframe desk-top equipment; (iii) approximately $1.9 million to remediate process control computers and embedded devices; (iv) approximately $1.4 million for accelerated replacement of software which is not Year 2000 compliant; and (v) approximately $0.5 million for other related administrative costs. Of this total, the Company spent approximately $1.8 million during 1997 and $4.0 million during the first nine months of 1998. These cost estimates do not include any costs that may be incurred by the Company as a result of the failure of any supplier or customer of the Company, or any other party with whom the Company does business, to become Year 2000 compliant. Year 2000 costs have been paid by the Company as operating expenses from the Company's information technology budget. The Company has not deferred any other information technology projects as a result of its Year 2000 efforts. Thus far, the Company's Year 2000 efforts have focused on (i) the assessment and remediation of information technology and non-information technology items and (ii) the evaluation of the Year 2000 compliance status of key suppliers, customers and other parties with whom the Company does business. The information obtained by the Company from these activities will be used by the Company to determine the most reasonably likely worst case scenarios which could result from a failure by the Company or third parties to become Year 2000 compliant and to develop any necessary contingency plans for handling these worst case scenarios. The Company intends to make these determinations and create any necessary contingency plans by the end of the second quarter of 1999. Based upon the information currently available to it, the Company believes that the implementation of its Year 2000 Project Plan will adequately resolve the Company's Year 2000 issues. However, since it is not possible to anticipate all possible future outcomes, there could be circumstances under which the Company's business operations are disrupted as a result of Year 2000 problems. These disruptions could be caused by (i) the failure of the Company's systems or equipment to operate as a result of Year 2000 problems, (ii) the failure of the Company's suppliers to provide the Company with raw materials, utilities, supplies or other products or services which are necessary to sustain the Company's manufacturing processes or other business operations, or (iii) the failure of the Company's customers to accept delivery of the Company's products as a result of their Year 2000 problems. Any such disruption to the Company's business operations could have a material adverse effect on the financial condition and results of operations of the Company. Statements contained herein regarding the estimated costs and time to complete the Company's Year 2000 projects, and the potential effects of Year 2000 problems, are "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. A variety of factors could cause the actual costs, time for completion and effects to differ from those which are currently expected. These factors include, but are not limited to, the following: (1) the failure of the Company to accurately identify all software and hardware devices which are not Year 2000 compliant; (2) the failure of the remediation actions identified by the Company to adequately correct the Year 2000 problems; (3) the failure of the Company's customers or suppliers and other third parties with whom the Company does business to achieve Year 2000 compliance; (4) the inability of the Company to find sufficient outside resources to assist the Company in its Year 2000 remediation activities; and (5) increases in costs and fees charged by third parties retained by the Company to assist in the Company's Year 2000 remediation activities. Impact of Recently Issued Accounting Standards - ---------------------------------------------- In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 131, Disclosures about Segments of an Enterprise and Related Information. The 15 Impact of Recently Issued Accounting Standards--(Continued) - ---------------------------------------------------------- Statement changes the way public companies are required to report operating segment information in annual financial statements and in interim financial reports to stockholders. Operating segments are determined consistent with the way management organizes and evaluates financial information internally for making decisions and assessing performance. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The Statement is effective for financial statements for fiscal years beginning after December 15, 1997, and the Company will adopt the Statement, as required, effective December 31, 1998. Although the Company continues to evaluate the impact that this Statement will have on its financial reporting, the Company does not expect significant additional reporting requirements. In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits, which is effective for fiscal years beginning after December 15, 1997, and will be adopted by the Company, as required, effective December 31, 1998. The statement will standardize disclosures about pensions and other postretirement benefits in an effort to make the information more understandable. Implementation of this disclosure standard will not affect the financial position or results of operations of the Company. In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which is required to be adopted in years beginning after June 15, 1999. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of derivatives will either be offset against the change in fair value of hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of this Statement will be on earnings and the financial position of the Company. Dividend on Common Stock - ------------------------ On October 27, 1998, the Company's Board of Directors declared a regular quarterly common stock dividend of $0.07 per share, payable on December 9, 1998, to stockholders of record on November 20, 1998. Repurchase of Class B Common Stock - ---------------------------------- The Company's Board of Directors has authorized the repurchase of up to two million shares of its Class B Common Stock. The transactions will be completed from time to time over the next several months, depending on market conditions, through open market or privately negotiated purchases. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 - -------------------------------------------------------------------------------- Statements made by the Company in reports, such as this Form 10-Q, in press releases and in statements made by employees in oral discussions, that are not historical facts constitute "forward looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward looking statements, by their nature, involve risk and uncertainty. A variety of factors could cause business conditions and the Company's actual results and experience to differ materially from those expected by the Company or expressed in the Company's forward looking statements. These factors include, but are not limited to, the following: (1) changes in market prices and market demand for the Company's products; (2) changes in the costs or availability of the raw materials and other supplies used by the Company in the manufacture of its products; (3) equipment failures or outages at the Company's steelmaking and processing facilities; (4) losses of customers; (5) changes in the levels of the Company's operating costs and expenses; (6) collective bargaining agreement negotiations, strikes, labor stoppages or other labor difficulties; (7) actions by the Company's competitors, including domestic integrated steel producers, foreign competitors, mini-mills and manufacturers of steel substitutes, such as 16 Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 -(Continued) - ---------------------------------------------------------------- plastics, aluminum, ceramics, glass, wood and concrete; (8) changes in industry capacity; (9) changes in economic conditions in the United States and other major international economies, including rates of economic growth and inflation; (10) worldwide changes in trade, monetary or fiscal policies including changes in interest rates; (11) changes in the legal and regulatory requirements applicable to the Company; and (12) the effects of extreme weather conditions. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. 17 PART II. OTHER INFORMATION Item 1. Legal Proceedings Environmental Matters Midwest Division - NPDES Permit Violations. On October 1, 1998, the Company received a Notice of Violation ("NOV") from the Indiana Department of Environmental Management ("IDEM") which alleges exceedances of the Company's National Pollutant Discharge Elimination System ("NPDES") permit limitations between September 1995 and August 1998. IDEM has proposed a penalty of $354,250 for these alleged violations. Additionally, under IDEM's proposal, the Company would be required to install certain equipment to help prevent future violations. Settlement negotiations with IDEM are ongoing. Iron River (Dober Mine) Site. This matter involves the Iron River (Dober Mine) site, and was previously reported in the Company's 1997 Form 10-K. On October 28, 1998, the Court approved a Consent Decree which resolved the State of Michigan's claim against the Company. Under the terms of the settlement, the Company will (1) pay $312,000 in satisfaction of the State's natural resource damage claim, (2) pay approximately $559,000 in settlement of the State's claim for past response and litigation costs, (3) assume responsibility for the ongoing operation and maintenance of a remedial system which was previously installed at the site to address the acid mine drainage from the site to the Iron River and (4) become the permittee on the NPDES permit applicable to the discharge from the remedial system to the Iron River. The Company continues to pursue its claims for contribution against certain third parties that it believes contributed to the contamination of the Iron River. Great Lakes Division - Outfall Proceedings. This matter involves alleged exceedances at the hot strip mill located at the Company's Great Lakes Division and was previously reported in the Company's 1997 Form 10-K. The Company, the Michigan Department of Environmental Quality ("MDEQ") and the United States Coast Guard ("USCG") have reached an agreement to settle all claims associated with allegations of oil discharges at the hot strip mill and have established a procedure to determine MDEQ and USCG jurisdiction in the event of future discharge issues. Under the terms of the settlement, the Company will pay MDEQ $216,664 and the USCG $75,000. A Consent Order embodying the settlement with MDEQ has been executed by the Company and forwarded to MDEQ for signature. The Consent Order with USCG has not yet been negotiated. Granite City Division - IEPA NOV - Beaching of Iron. This matter was previously reported in the Company's 1997 Form 10-K and involves the issuance of an NOV by the Illinois Environmental Protection Agency ("IEPA") to the Company's Granite City Division for alleged violations of various state air pollution requirements caused by pouring molten iron into a "beaching pit" on 34 occasions during 1996. On July 20, 1998, the IEPA issued modifications to the Company's blast furnace operating permits that allow beaching of iron in the event of a malfunction or breakdown. Item 6. Exhibits and Reports on Form 8-K (a) See attached Exhibit Index (b) Reports on Form 8-K The Company filed two reports on Form 8-K dated July 29, 1998 reporting on Item 5, Other Events. The Company filed a report on Form 8-K dated September 2, 1998 reporting on Item 5, Other Events. 18 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NATIONAL STEEL CORPORATION BY /s/ John A. Maczuzak --------------------- John A. Maczuzak President and Chief Operating Officer BY /s/ Glenn H. Gage ----------------- Glenn H. Gage Senior Vice President and Chief Financial Officer Date: November 13, 1998 19 NATIONAL STEEL CORPORATION QUARTERLY REPORT ON FORM 10-Q EXHIBIT INDEX For the quarterly period ended September 30, 1998 10-A Employment Contract dated as of August 1, 1998 between National Steel Corporation and Glenn H. Gage 10-B Employment Contract dated as of August 1, 1998 between National Steel Corporation and John F. Kaloski 10-C Employment Contract dated as of September 1, 1998 between National Steel Corporation and Yutaka Tanaka 10-D Amendment dated August 1, 1998 to Employment Contract between National Steel Corporation and David L. Peterson 15-A Independent Accountants' Review Report 15-B Acknowledgment Letter on Unaudited Interim Financial Information 27 Financial Data Schedule EX-10.A 2 EMPLOYMENT AGREEMENT EXHIBIT 10-A EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into on August 1, 1998, by and between National Steel Corporation, a Delaware corporation (the "Company"), with its principal office in Mishawaka, Indiana, and Glenn H. Gage, a resident of Illinois ("Executive"). WHEREAS, both parties desire to enter into an agreement to reflect Executive's executive capacities in the Company's business and to provide for Executive's employment by the Company, upon the terms and conditions set forth herein: NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Employment. The Company hereby agrees to employ Executive, and Executive hereby accepts such employment and agrees to perform Executive's duties and responsibilities, in accordance with the terms, conditions and provisions hereinafter set forth. 1.1. Employment Term. The term of Executive's employment under this Agreement shall commence on August 1, 1998 (the "Effective Date") and shall continue until July 31, 2000, and may be extended for such period or periods thereafter as the Company and Executive may agree, unless sooner terminated in accordance with Section 5 or Section 6 hereof. The period commencing as of the Effective Date and ending on the date on which the term of Executive's employment under the Agreement shall terminate is hereinafter referred to as the "Employment Term." 1.2. Duties and Responsibilities. Executive shall serve as Senior Vice President and Chief Financial Officer for the Company and/or in such other senior positions, if any, to which he may be appointed during the Employment Term and which are consistent with his skills and experience. During the Employment Term, Executive shall perform, on a full time basis, all duties and accept all responsibilities incident to such positions as may be assigned to him by the Company's Chief Executive Officer, or, if the Company's Chief Executive Officer so specifies from time to time, by the Company's President. In performing his duties and responsibilities hereunder, Executive shall have the authority customarily held by others holding similar senior executive level positions within the Company. Executive may serve on the board of directors of not more than one (1) for-profit business corporation which does not compete with the Company. 1.3. Base Salary. For all the services rendered by Executive hereunder, the Company shall pay Executive a base salary ("Base Salary"), commencing on the Effective Date, at the annual rate of $285,000, payable in installments at such times as the Company customarily pays its other senior level executives (but in any event no less often than monthly). Executive's Base Salary shall be reviewed annually for appropriate adjustment (but shall not be reduced below that in effect on during the prior annual period without Executive's prior written consent) by the Company's President, Chief Executive Officer and Board of Directors (the "Board") pursuant to normal performance review policies for senior level executives (but in the sole discretion of such reviewing parties). 1.4. Retirement and Benefit Coverages. During the Employment Term, Executive shall be entitled to participate in all (a) employee pension and retirement plans and programs -2- ("Retirement Plans") and (b) welfare benefit plans and programs ("Benefit Coverages"), in each case made available to the Company's senior level executives as a group or to its employees generally, as such Retirement Plans or Benefit Coverages may be in effect from time to time. 1.5. Reimbursement of Expenses and Dues; Vacation; Perquisites. Executive shall be provided with reimbursement of expenses related to Executive's employment by the Company on a basis no less favorable than that which may be authorized from time to time for senior level executives as a group, and shall be entitled to five (5) weeks of vacation annually and holidays in accordance with the Company's normal personnel policies for senior level executives in effect from time to time. In addition, Executive shall be entitled to (i) such professional tax, financial and estate planning services as the Company provides for its senior level executives, (ii) such indemnification for authorized actions incident to his responsibilities for the Company as is generally provided to senior level executives of the Company from time to time, (iii) relocation benefits at the maximum level provided under the Company's Salaried Exempt Relocation Policy, and (iv) payment for reasonable legal fees and expenses not in excess of $2,000 attendant to the preparation of this Agreement. 1.6. Short-Term Incentive Compensation. Executive shall be entitled to participate in the Company's Key Management Incentive Compensation Plan or any other short-term incentive compensation programs established by the Company for its senior level executives generally, and shall be eligible to receive such short-term incentive compensation, depending upon achievement of certain annual individual or business performance objectives specified and approved by the Board (or a Committee thereof) in its sole discretion and as otherwise determined in accordance -3- with the terms of such plan(s) or program(s); provided, however, that Executive's "target opportunity" under any such plan or program shall be at least 40% of Executive's Base Salary (as determined in accordance with the terms of such plan(s) or program(s)), and Executive shall be entitled to a payment for 1998 under the Company's Key Management Incentive Compensation Plan of not less than $47,500. 1.7. Long-Term Incentive Compensation. Executive shall be entitled to participate in the Company's 1993 Long-Term Incentive Plan or any other long- term incentive compensation programs established by the Company for its senior level executives generally. As of the Effective Date, Executive shall be granted options to purchase 30,000 shares of the Company's Class B Common Stock, which options shall vest and become exercisable in three equal installments on each of the first three anniversaries of the Effective Date. 2. Confidential Information. Executive recognizes and acknowledges that by reason of Executive's employment by and service to the Company during and, if applicable, after the Employment Term, Executive will have access to certain confidential and proprietary information relating to the business of the Company, which may include, but is not limited to, trade secrets, trade "know- how," customer information, supplier information, cost and pricing information, marketing and sales techniques, strategies and programs, manufacturing processes and equipment, computer programs and software and financial information (collectively referred to as "Confidential Information"). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and Executive covenants that Executive will not, -4- unless expressly authorized in writing by the Company's Chief Executive Officer, at any time during the course of Executive's employment use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Executive also covenants that at any time after the termination of such employment, directly or indirectly, Executive will not use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation, unless such information is in the public domain through no fault of Executive or except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order Executive to divulge, disclose or make accessible such information, in which case Executive will inform the Company in writing promptly of such required disclosure, but in any event at least two business days prior to disclosure. All written Confidential Information (including, without limitation, in any computer or other electronic format) which comes into Executive's possession during the course of Executive's employment shall remain the property of the Company. Except as required in the performance of Executive's duties for the Company, or unless expressly authorized in writing by the Company's President or Chief Executive Officer, Executive shall not remove any written Confidential Information from the Company's premises, except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Upon termination of Executive's -5- employment, Executive agrees immediately to return to the Company all written Confidential Information in Executive's possession. 3. Non-Competition; Non-Solicitation; No Unfavorable Publicity; Cooperation. (a) During Executive's employment by the Company and for a period of one year after Executive's termination of employment under Section 5.5 of this Agreement, within the "Geographic Area," as defined below, Executive will not, except with the prior written consent of the Company's Chief Executive Officer, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with, or use or permit Executive's name to be used in connection with, any business or enterprise which is engaged in making, producing, manufacturing or finishing steel products that are in direct competition with steel products made, produced, manufactured or finished by the Company. For the purposes of this Section, "Geographic Area" shall mean the continental United States; provided, however, that if any court of competent jurisdiction determines that the Geographic Area is too extensive to require enforcement of this Subsection 3(a), the Geographic Area shall be the portion of the United States east of the Mississippi River (or the largest other such portion of the United States that such court deems not too extensive to require enforcement of this Subsection 3(a)). (b) The foregoing restrictions shall not be construed to prohibit the ownership by Executive of less than one percent (1%) of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the -6- Securities Exchange Act of 1934, provided that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Executive's rights as a shareholder, or seeks to do any of the foregoing. (c) Executive further covenants and agrees that during Executive's employment by the Company and for the period of one year thereafter, Executive will not, directly or indirectly, (i) solicit, divert, take away, or attempt to solicit, divert or take away, any of the Company's customers, or (ii) encourage any customer to reduce its patronage of the Company. (d) Executive further covenants and agrees that during Executive's employment by the Company and for the period of one year thereafter, Executive will not, except with the prior written consent of the Company's Chief Executive Officer, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of, any person who was an employee of the Company at any time during the term of Executive's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing covenant of Executive shall not apply to any person after 12 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. (e) During the Employment Term and subsequent to Executive's termination of employment with the Company, Executive agrees not to make any negative or unfavorable -7- statements or communications, and not to issue any written communications or release any other written materials which would in any way be (i) derogatory, defamatory or disparaging about the Company or its products, or (ii) damaging to the Company, its officers, directors or affiliates, or its or their reputation or standing, whether in the investor or financial community, the steel industry or otherwise. Also, during the Employment Term and subsequent to Executive's termination of employment with the Company, the Company agrees not to make any negative or unfavorable statements or communications, and not to issue any written communications or release any other written materials which would in any way be (i) derogatory, defamatory or disparaging about the Executive or (ii) damaging to the Executive or his reputation or standing, whether in the investor or financial community, the steel industry or otherwise. (f) Executive agrees to cooperate with the Company for a reasonable period of time after the Employment Term by making himself available to testify on behalf of the Company, in any action, suit or proceeding. In addition, provided that Executive's professional commitments permit, for a reasonable period of time, Executive agrees to be available at reasonable times to meet and consult with the Company on matters reasonably within the scope of his prior duties with the Company so as to facilitate a transition to his successor. Executive shall be reimbursed for all out-of-pocket expenses reasonably incurred in complying with this provision of the Agreement. 4. Equitable Relief and Damages. (a) The parties acknowledge and agree that the restrictions contained in Sections 2 and 3 are reasonable and necessary to protect and preserve the legitimate interests, -8- properties, goodwill and business of the Company, and legitimate interests and reputation of the Executive, and that the parties would not have entered into this Agreement in the absence of such restrictions and that irreparable injury will be suffered by the Company and the Executive should either party breach any of the provisions of those Sections. Executive represents and acknowledges that (i) Executive has been advised by the Company to consult Executive's own legal counsel in respect of this Agreement, and (ii) that Executive has had full opportunity, prior to execution of this Agreement, to review thoroughly this Agreement with Executive's counsel. (b) The parties further acknowledge and agree that a breach of any of the restrictions in Sections 2 and 3 cannot be adequately compensated by monetary damages. The Company and the Executive agree that the other party shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of Sections 2 or 3 hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company and the Executive may be entitled. In the event that any of the provisions of Sections 2 or 3 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, it is the intention of the parties that the provision shall be amended to the extent of the maximum time, geographic, service, or other limitations permitted by applicable law, that such amendment shall apply only within the jurisdiction of the court that made such adjudication and that the provision otherwise be enforced to the maximum extent permitted by law. -9- (c) If Executive breaches any of Executive's obligations under Sections 2 or 3 hereof, and such breach constitutes "Cause," as defined in Section 5.3 hereof, or would constitute Cause if it had occurred during the Employment Term, the Company shall thereafter remain obligated only for such compensation and other benefits, if any, as may otherwise be required by any plans, policies or practices then applicable to Executive in accordance with the terms thereof, and not for any compensation or other benefits under this Agreement. (d) The parties irrevocably and unconditionally (i) agree that any suit, action or other legal proceeding arising out of Sections 2 or 3 hereof, including without limitation, any action commenced by the Company or the Executive for preliminary and permanent injunctive relief and other equitable relief, may be brought in the United States District Court for the Northern District of Indiana, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Indiana, (ii) consent to the non-exclusive jurisdiction of any such court in any such suit, action or proceeding, and (iii) waive any objection which the parties may have to the laying of venue of any such suit, action or proceeding in any such court. 5. Termination. The Employment Term shall terminate upon the occurrence of any one of the following events: 5.1. Disability. The Company may terminate the Employment Term if Executive is unable substantially to perform Executive's material duties and responsibilities hereunder to the full extent required by the Company's President or Chief Executive Officer by reason of illness, injury or incapacity for six consecutive months, or for more than six months in the aggregate -10- during any period of twelve calendar months; provided, however, that the Company shall continue to pay Executive's Base Salary and Executive shall continue to maintain full participation in the Retirement Plans, Benefit Coverages, perquisites and compensation provided in Sections 1.4-1.7 herein until the effective date of termination of the Employment Term. If the Company terminates the Employment Term, Executive shall be entitled to receive (i) any amounts earned, accrued or owing but not yet paid under Section 1 above, and (ii) any other benefits, if any, otherwise required by any applicable plans and programs (or related agreements) of the Company referred to in Section 1 above. Otherwise, the Company shall have no further liability or obligation to Executive for compensation or benefits under this Agreement. Executive agrees, in the event of a dispute under this Section 5.1 as to whether Executive is disabled, the determination of disability shall be made by a board certified physician agreed upon by the Company and the Executive or, if the parties cannot agree within a reasonable period of time, by a board certified physician appointed by the Chief of Medicine of Memorial Hospital in South Bend, Indiana. 5.2. Death. The Employment Term shall terminate in the event of Executive's death. In such event, the Company shall pay to Executive's executors, legal representatives or administrators, as applicable, an amount equal to the installment of Executive's Base Salary set forth in Section 1.3 hereof for the month in which Executive dies. In addition, Executive's estate or other appropriate beneficiary (as designated by Executive in accordance with the terms of any applicable benefit plans or programs of the Company) shall be entitled to receive (i) any other amounts earned, accrued or owing but not yet paid under Section 1 above and (ii) any other -11- benefits, all in accordance with the terms of any applicable plans and programs (or related agreements) of the Company referred to in Section 1 above. Otherwise, the Company shall have no further liability or obligation under this Agreement to Executive's executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through Executive. 5.3. Cause. The Company may terminate the Employment Term, at any time, for "Cause" upon written notice, in which event all payments under this Agreement shall cease, except for Base Salary to the extent already earned by reason of services actually performed, but Executive shall remain entitled to any other benefits, if any, otherwise required by any applicable plans and programs (or related agreements) of the Company referred to in Section 1 above. For purposes of this Agreement, Executive's employment may be terminated for "Cause" if (i) Executive is convicted of a felony, (ii) in the reasonable determination of the Board, Executive has (x) committed an act of fraud, embezzlement, or theft in connection with Executive's duties in the course of Executive's employment with the Company, (y) caused intentional damage or harm to the property, business or reputation of the Company, or intentionally disclosed Confidential Information in breach of this Agreement, or (z) engaged in gross misconduct or gross negligence in the course of Executive's employment with the Company, or (iii) Executive has otherwise materially breached Executive's obligations under this Agreement and shall not have remedied such breach within 15 days after receiving written notice from the Board specifying the details thereof. For purposes of this Agreement, an act or omission on the part of Executive shall be deemed "intentional" only if it was not due primarily to an error in judgment -12- or negligence and was done by Executive not in good faith and without reasonable belief that the act or omission was in the best interest of the Company. 5.4. Termination Without Cause and Constructive Discharge. (a) The Company may remove Executive at any time, without Cause, from the position in which Executive is employed hereunder, or Executive may terminate employment with the Company at any time under circumstances comprising Constructive Discharge, as defined in this Section 5.4, and in either such case the Employment Term shall be deemed to have ended, by written notice to the other party. If such notice is given by the Company to Executive before June 1, 2000, the Employment Term shall end no earlier than the 60th day following the date such notice is given. If such notice is given by Executive, the Employment Term shall end on the date such notice is given. In the event that such notice is given, Executive shall be under no obligation to render any additional services to the Company and, subject to the provisions of Section 3 hereof, shall be allowed to seek other employment. Upon any such termination by the Company or Executive, or if this Agreement terminates on July 31, 2000, or at the end of any subsequent period for which this Agreement has been extended, solely because of the Company's refusal to extend this Agreement, Executive shall be entitled to receive, as liquidated damages for the failure of the Company to continue to employ Executive, (i) a single sum payment in cash, within 30 days after the end of the Employment Term, in the amount of Executive's annual Base Salary as of the last day of the Employment Term; (ii) executive level outplacement services for a period not to exceed 12 months rendered by a career transition assistance firm selected by the Executive and acceptable to the Company; and (iii) continued -13- participation for Executive and Executive's eligible dependents in the Company sponsored health care plan in which Executive participated on the last day of the Employment Term, for a period of 12 months or, if earlier, until Executive becomes covered under a group health care plan sponsored by another employer, under equivalent terms and at substantially the same cost that would have applied to Executive if the Employment Term had not ended. Such continued health care coverage shall not reduce the period of health care continuation coverage to which Executive would otherwise be entitled under applicable federal law. If such Company sponsored health care plan does not by its terms allow Executive's participation or continued participation, the Company shall obtain and pay all premiums for insurance coverage on behalf of Executive and/or Executive's eligible dependents that provides equivalent benefits as provided under such Company sponsored health care plan or, at the Company's election, shall provide such benefits from its own assets. Notwithstanding anything in this Agreement to the contrary, on or after the date Executive attains age 65, no action by the Company shall be treated as a removal from employment, refusal to extend this Agreement, or Constructive Discharge if on the effective date of such action Executive satisfies all of the requirements for the executive or high policy- making exception to applicable provisions of state and federal age discrimination legislation. (b) Notwithstanding the provisions of Section 5.4(a) (other than the last sentence), in the event that Executive executes a written release upon such removal, refusal to extend this Agreement, or Constructive Discharge, substantially in the form attached hereto as Exhibit A (the "Release"), of any and all claims against the Company and all related parties with respect to all matters arising out of Executive's employment by the Company (other than any entitlements under the terms of this Agreement or under any other plans or programs of the -14- Company in which Executive participated and under which Executive has accrued a benefit), or the termination thereof, Executive shall be entitled to receive, in lieu of the payment described in Section 5.4(a)(i), which Executive agrees to waive, a single sum payment in cash, within 30 days after the end of the Employment Term, equal to twice the amount of Executive's annual Base Salary as of the last day of the Employment Term. (c) The term "Constructive Discharge" means a termination of the Executive's employment by the Executive due to (i) a failure of the Company or its successors without the prior written consent of the Executive to fulfill the obligations under this Agreement in any material respect, including any non- payment or reduction in the Base Salary or "target opportunity" (as described in Section 1.6) then in effect, or removal from eligibility to participate in the Company's long term incentive compensation program (as described in Section 1.7) then in effect; provided, however, that the Company shall have had written notice of such failure and a 15 day opportunity to remedy same, (ii) a material change in Executive's duties, responsibilities or authority, without Executive's prior written consent, that is inconsistent with Executor's skills and experience, (iii) relocation of Executive's principal worksite, without Executive's prior written consent, other than in connection with relocation of the Company's corporate headquarters or executive offices, or (iv) failure or refusal by any successor to all or substantially all of the business or assets of the Company to expressly assume this Agreement in form and substance reasonably satisfactory to Executive.. 5.5. Voluntary Termination. Executive may voluntarily terminate the Employment Term under circumstances that do not comprise Constructive Discharge, upon written notice for any reason, and the Employment Term shall end on the date such notice is given. In such event, -15- no further payments shall be due under this Agreement, except for Base Salary to the extent already earned by reason of services actually performed, and benefits, if any, otherwise required by any applicable plans and programs (or related agreements) of the Company referred to in Section 1 above. 6. Payments Upon a Change of Control. 6.1. Definitions. For all purposes of this Section 6, the following terms shall have the meanings specified in this Section 6.1 unless the context otherwise clearly requires: (a) "Change of Control." For purposes of this Agreement, a "Change of Control" shall mean: (i) (A) If any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") acquires (by purchase, tender offer or otherwise) or becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange Act) of thirty percent (30%) or more of the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities") and (B) NKK Corporation ceases to be the beneficial owner, directly or indirectly, of more than fifty percent (50%) of the total voting power of all the then Outstanding Company Voting Securities; provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, or (2) any acquisition by any entity pursuant to a transaction which complies with each of clauses (A), (B) and (C) of paragraph (iii) of this Subsection (a). -16- (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. (iii) Consummation of a reorganization, recapitalization, merger, acquisition of securities or assets by the Company or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock (in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock) and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, the Company or a corporation which as a result of such transaction owns the -17- Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), and (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least two-thirds of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (b) "Termination upon a Change of Control" shall mean a termination of Executive's employment under Section 5.4 of this Agreement upon or within two years after a Change of Control. 6.2. Notice of Termination. Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 9 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for a termination of employment and the applicable provision hereof, and (iii) if the termination date is other than the -18- date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice). 6.3. Compensation and Benefits. In no event following a Change of Control shall the Company provide Executive with compensation or benefits, in each case, less favorable than the most favorable of those provided under Sections 1.3-1.7 of this Agreement at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to Executive, those provided generally at any time after the Change of Control to other peer executives of the Company. 6.4. Payments and Benefits upon Termination. Subject to the provisions of Section 6.5 hereof, in the event of Executive's Termination upon a Change of Control, Executive shall be entitled to receive (a) payments and benefits in accordance with Section 5.4 of this Agreement, provided that such payments shall include an additional amount equal to (i) in the case of payments otherwise due under Subsection 5.4(a), the greater of (A) the average annual amount paid to Executive under Section 1.6 of this Agreement for years prior to the year in which Executive's Termination upon a Change of Control occurs or (B) Executive's most recent "Target Bonus Percentage" (as determined under the Key Management Incentive Compensation Plan) multiplied by his Base Salary as of the date of his Termination upon a Change of Control, or (ii) in the case of payments otherwise due under Subsection 5.4(b), two times the amount determined under the preceding clause (i); and (b) within 30 days after Executive's Termination upon a Change of Control, a single sum payment in cash in the amount of the actuarially equivalent value (based on the 1994 Group Annuitants Mortality Table and the annual rate of interest on 30-year Treasury securities for the second calendar month preceding the Executive's Termination -19- upon a Change of Control) of any nonqualified unfunded retirement benefits to which Executive is entitled under any plan, program or arrangement of the Company, acceptance of which single sum payment shall constitute Executive's waiver of any claim or entitlement to benefits under any such plan, program or arrangement. 6.5. Certain Increase in Payments. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), Executive shall be paid an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive from the Payment and the Gross-Up Payment, after deduction of any excise tax imposed under Section 4999 of the Code and any federal, state and local income and employment tax and excise tax imposed upon the Gross-Up Payment, shall be equal to the Payment. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income tax and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the date of Executive's Termination upon a Change of Control, net of the maximum reduction in federal income taxes that may be obtained from the deduction of such state and local taxes. -20- (b) All determinations to be made under this Section 6.5 shall be made by the Company's independent public accountant immediately prior to the Change of Control (the "Accounting Firm"), which firm shall provide its determinations and any supporting calculations both to the Company and Executive within 10 days of the date of Executive's Termination upon a Change of Control. Within five days after the Accounting Firm's determination, the Company shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of Executive such amounts, if any, as are then due to Executive under this Agreement. (c) In the event that upon any audit by the Internal Revenue Service, or by a state or local taxing authority, of the Payment or Gross-Up Payment, a change is finally determined to be required in the amount of taxes paid by Executive, appropriate adjustments shall be made under this Agreement such that the net amount which is payable to Executive after taking into account the provisions of Section 4999 of the Code shall reflect the intent of the parties as expressed in subsection (a) above, in the manner determined by the Accounting Firm. (d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in subsections (b) and (c) above shall be borne solely by the Company. 7. Survivorship. The respective rights and obligations of the parties under this Agreement shall survive any termination of Executive's employment to the extent necessary to the intended preservation of such rights and obligations. 8. Arbitration; Expenses. In the event of any dispute under the provisions of this Agreement other than a dispute in which the primary relief sought is an equitable remedy such as an injunction, the parties shall be required to have the dispute, controversy or claim settled by arbitration in Mishawaka, Indiana, in accordance with National Rules for the Resolution of -21- Employment Disputes then in effect of the American Arbitration Association, before a panel of three arbitrators, two of whom shall be selected by the Company and Executive, respectively, and the third of whom shall be selected by the other two arbitrators. Any award entered by the arbitrators shall be final, binding and nonappealable, and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This arbitration provision shall be specifically enforceable. The arbitrators shall have no authority to modify any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement. If Executive prevails on any material issue which is the subject of such arbitration or lawsuit, the Company shall be responsible for the pro-rated portion of all of the fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration as may be related to such issue (including the Company's and Executive's reasonable attorneys' fees and expenses). Otherwise, each party shall be responsible for its own expenses relating to the conduct of the arbitration (including reasonable attorneys' fees and expenses) and shall share the fees of the American Arbitration Association. 9. Notices. All notices and other communications required or permitted under this Agreement or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company, to: Senior Vice President - Administration National Steel Corporation 4100 Edison Lakes Parkway -22- Mishawaka, Indiana 46545-3440 If to Executive, to: Glenn H. Gage 11 Stoneridge Drive South Barrington, IL 60010 or to such other names or addresses as the Company or Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section. 10. Contents of Agreement; Amendment and Assignment. (a) This Agreement sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the Board and executed on its behalf by a duly authorized officer and by Executive. (b) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Executive under this Agreement are of a personal nature and shall not be assignable or delegatable in whole or in part by Executive. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this -23- Agreement in the same manner and to the extent the Company would be required to perform if no such succession had taken place. 11. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. 12. Remedies Cumulative; No Waiver. No remedy conferred upon a party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission by a party in exercising any right, remedy or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. 13. Beneficiaries/References. Executive shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable under this Agreement following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of -24- Executive's incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to Executive's beneficiary, estate or other legal representative. 14. Miscellaneous. All section headings used in this Agreement are for convenience only. This Agreement may be executed in counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. 15. Withholding. The Company may withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation. Executive shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement. 16. Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Indiana without giving effect to any conflict of laws provisions. 17. Construction The Company and the Executive acknowledge that this Agreement was the result of arm's-length negotiations between sophisticated parties represented by legal counsel. Each and every portion of this Agreement shall be construed as though both parties participated equally in the drafting of same, and any rule of construction that a document shall be construed against the drafting party shall not be applicable to this Agreement. -25- IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. NATIONAL STEEL CORPORATION _______________________ By:_________________________ GLENN H. GAGE Name: David A. Pryzbylski Title: Senior Vice President - Administration -26- EXHIBIT A RELEASE ------- This Release, dated ___________________________________, is by ____________ __________ ("Executive"). 1. Executive does hereby knowingly and voluntarily release, acquit and forever discharge National Steel Corporation (the "Company"), its present and former officers, directors, subsidiaries, divisions, parents, affiliates, employees, agents, servants, associates, attorneys, accountants, auditors, consultants, counselors, partners, representatives, predecessors, successors, heirs, executors, administrators, transferees, trustees, assigns, shareholders (including without limitation NKK Corporation, NKK U.S.A. Corporation and their respective directors, officers, employees, trustees and shareholders), and any and all persons in privity with such persons or entities ("Releasees"), from and against any and all charges, complaints, claims, cross-claims, third-party claims, counterclaims, contribution claims, contracts, liabilities, obligations, promises, agreements, controversies, damages, actions, causes of action, suits, rights, demands, costs, losses, debts and expenses of any nature whatsoever, known or unknown, suspected or unsuspected, foreseen or unforeseen, matured or unmatured, which exist, have existed, or may arise from any matter whatsoever occurring at any time up to and including the date hereof, including, but not limited to, any claims arising out of or in any way related to Executive's employment with the Company. Executive acknowledges that, in exchange for this Release, the Company is providing Executive with consideration, financial and otherwise, which exceeds what Executive would have received had Executive not given this release. By executing this Release, Executive waives all claims against the Releasees arising under federal, state and local labor and anti- discrimination laws -1- and any other restrictions on the right to terminate employment, including, without limitation, Title VII of the Civil Rights Act of 1964, as amended, the Americans with Disabilities Act of 1990, as amended, and claims for breach of contract, promissory estoppel, defamation, tortious interference, intentional infliction of emotional distress, tortious injury to reputation, misrepresentation and fraud. 2. EXECUTIVE SPECIFICALLY WAIVES AND RELEASES THE RELEASEES FROM ALL CLAIMS EXECUTIVE MAY HAVE AS OF THE DATE EXECUTIVE SIGNS THIS RELEASE REGARDING CLAIMS OR RIGHTS ARISING UNDER THE AGE DISCRIMINATION IN EMPLOYMENT ACT OF 1967, AS AMENDED, 29 U.S.C. (S) 621 et seq. ("ADEA"). EXECUTIVE FURTHER AGREES: (a) THAT EXECUTIVE'S WAIVER OF RIGHTS UNDER THIS RELEASE IS KNOWING AND VOLUNTARY AND IN COMPLIANCE WITH THE OLDER WORKERS' BENEFIT PROTECTION ACT OF 1990; (b) THAT EXECUTIVE UNDERSTANDS THE TERMS OF THIS RELEASE; (c) THAT PAYMENTS AND OTHER BENEFITS PROVIDED BY THE COMPANY TO THE EXECUTIVE WOULD NOT HAVE BEEN PROVIDED HAD EXECUTIVE NOT SIGNED THIS RELEASE, AND THAT THE PAYMENTS AND BENEFITS ARE IN EXCHANGE FOR THE SIGNING OF THIS RELEASE; (d) THAT EXECUTIVE HAS BEEN ADVISED IN WRITING BY THE COMPANY TO CONSULT WITH AN ATTORNEY PRIOR TO EXECUTING THIS RELEASE; (e) THAT THE COMPANY HAS GIVEN EXECUTIVE A PERIOD OF AT LEAST TWENTY-ONE (21) DAYS WITHIN WHICH TO CONSIDER THIS RELEASE; (f) THAT EXECUTIVE REALIZES THAT FOLLOWING EXECUTIVE'S EXECUTION OF THIS RELEASE, EXECUTIVE HAS SEVEN (7) DAYS IN WHICH TO REVOKE THIS RELEASE BY WRITTEN NOTICE -2- TO_______________________________________________; AND (g) IF EXECUTIVE CHOOSES TO REVOKE THIS RELEASE, THE COMPANY SHALL HAVE NO OBLIGATION TO PROVIDE EXECUTIVE THE BENEFITS SET FORTH IN THE SETTLEMENT AGREEMENT. 3. Executive agrees that he will not commence any action or proceeding of any nature whatsoever against any Releasee, and that he will not seek or be entitled to any award of equitable or monetary relief in any action or proceeding brought on his behalf, arising out of the matters released by Executive under this Release. _____________________________ -3- EX-10.B 3 EMPLOYMENT AGREEMENT EXHIBIT 10-B EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT (the "Agreement") entered into as of August 1, 1998, by and between National Steel Corporation, a Delaware corporation (the "Company"), with its principal office in Mishawaka, Indiana, and John F. Kaloski, a resident of Indiana ("Executive"). WHEREAS, both parties desire to enter into an agreement to reflect Executive's executive capacities in the Company's business and to provide for Executive's employment by the Company, upon the terms and conditions set forth herein: NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Employment. The Company hereby agrees to employ Executive, and Executive hereby accepts such employment and agrees to perform Executive's duties and responsibilities, in accordance with the terms, conditions and provisions hereinafter set forth. 1.1. Employment Term. The term of Executive's employment under this Agreement shall commence as of the date hereof (the "Effective Date") and shall continue until July 31, 2002, unless sooner terminated in accordance with Section 5 or Section 6 hereof. The period commencing as of the Effective Date and ending on the date on which the term of Executive's employment under the Agreement shall terminate is hereinafter referred to as the "Employment Term." 1.2. Duties and Responsibilities. Executive shall serve as Senior Vice President of Regional Operations for the Company and/or in such other senior positions, if any, to which he may be appointed during the Employment Term. During the Employment Term, Executive shall perform, on a full time basis, all duties and accept all responsibilities incident to such positions as may be assigned to him by the Company's Chief Executive Officer, or, if the Company's Chief Executive Officer so specifies from time to time, by the Company's President. 1.3. Base Salary. For all the services rendered by Executive hereunder, the Company shall pay Executive a base salary ("Base Salary"), commencing on the Effective Date, at the annual rate of $250,000, payable in installments at such times as the Company customarily pays its other senior level executives (but in any event no less often than monthly). Executive's Base Salary shall be reviewed annually for appropriate adjustment (but shall not be reduced below that in effect on the Effective Date without Executive's written consent) by the Company's President, Chief Executive Officer and Board of Directors (the "Board") pursuant to normal performance review policies for senior level executives. 1.4. Retirement and Benefit Coverages. During the Employment Term, Executive shall be entitled to participate in all (a) employee pension and retirement plans and programs ("Retirement Plans") and (b) welfare benefit plans and programs ("Benefit Coverages"), in each case made available to the Company's senior level executives as a group or to its employees generally, as such Retirement Plans or Benefit Coverages may be in effect from time to time. -2- 1.5. Reimbursement of Expenses and Dues; Vacation; Perquisites. Executive shall be provided with reimbursement of expenses related to Executive's employment by the Company on a basis no less favorable than that which may be authorized from time to time for senior level -3- executives as a group, and shall be entitled to five (5) weeks of vacation annually and holidays in accordance with the Company's normal personnel policies for senior level executives in effect from time to time. In addition, Executive shall be entitled to (i) the use of an automobile, including all operating and maintenance expenses, (ii) reimbursement by the Company for reasonable residential accommodations in the vicinity of the Great Lakes Division, including reimbursement for any federal, state or local income taxes attributable thereto, (iii) such professional tax, financial and estate planning services as the Company provides for its senior level executives, and (iv) such indemnification for authorized actions incident to his responsibilities for the Company as is generally provided to senior executives of the Company. 1.6. Short-Term Incentive Compensation. Executive shall be entitled to participate in the Company's Key Management Incentive Compensation Plan or any other short-term incentive compensation programs established by the Company for its senior level executives generally, and shall be eligible to receive such short-term incentive compensation, depending upon achievement of certain annual individual or business performance objectives specified and approved by the Board (or a Committee thereof) in its sole discretion and as otherwise determined in accordance with the terms of such plan(s) or program(s); provided, however, that Executive's "target opportunity" under any such plan or program shall be at least 40% of Executive's Base Salary (as determined in accordance with the terms of such plan(s) or program(s)), and Executive shall be treated as if he had performed services as the Company's Senior Vice President of Regional Operations for the entire calendar year 1998. 1.7. Long-Term Incentive Compensation. Executive shall be entitled to participate in the Company's 1993 Long-Term Incentive Plan or any other long- term incentive compensation -4- programs established by the Company for its senior level executives generally. As of the Effective Date, Executive shall be granted options to purchase 30,000 shares of the Company's Class B Common Stock, which options shall vest and become exercisable in three equal installments on each of the first three anniversaries of the Effective Date. 2. Confidential Information. Executive recognizes and acknowledges that by reason of Executive's employment by and service to the Company during and, if applicable, after the Employment Term, Executive will continue to have access to certain confidential and proprietary information relating to the business of the Company, which may include, but is not limited to, trade secrets, trade "know- how," customer information, supplier information, cost and pricing information, marketing and sales techniques, strategies and programs, manufacturing processes and equipment, computer programs and software and financial information (collectively referred to as "Confidential Information"). Executive acknowledges that such Confidential Information is a valuable and unique asset of the Company and Executive covenants that Executive will not, unless expressly authorized in writing by the Company's Chief Executive Officer, at any time during the course of Executive's employment use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Executive also covenants that at any time after the termination of such employment, directly or indirectly, Executive will not use any Confidential Information or divulge or disclose any Confidential Information to any person, firm or corporation, unless such information is in the public domain through no fault of Executive or -5- except when required to do so by a court of law, by any governmental agency having supervisory authority over the business of the Company or by any administrative or legislative body (including a committee thereof) with apparent jurisdiction to order Executive to divulge, disclose or make accessible such information, in which case Executive will inform the Company in writing promptly of such required disclosure, but in any event at least two business days prior to disclosure. All written Confidential Information (including, without limitation, in any computer or other electronic format) which comes into Executive's possession during the course of Executive's employment shall remain the property of the Company. Except as required in the performance of Executive's duties for the Company, or unless expressly authorized in writing by the Company's President or Chief Executive Officer, Executive shall not remove any written Confidential Information from the Company's premises, except in connection with the performance of Executive's duties for the Company and in a manner consistent with the Company's policies regarding Confidential Information. Upon termination of Executive's employment, Executive agrees immediately to return to the Company all written Confidential Information in Executive's possession. 3. Non-Competition; Non-Solicitation; No Unfavorable Publicity; Cooperation. (a) During Executive's employment by the Company and for a period of one year after Executive's termination of employment under Section 5.5 of this Agreement, within the "Geographic Area," as defined below, Executive will not, except with the prior written consent of the Company's Chief Executive Officer, directly or indirectly, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or -6- financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, consultant or otherwise with, or use or permit Executive's name to be used in connection with, any business or enterprise which is engaged in making, producing, manufacturing or finishing steel products that are in direct competition with steel products made, produced, manufactured or finished by the Company. For the purposes of this Section, "Geographic Area" shall mean the continental United States; provided, however, that if any court of competent jurisdiction determines that the Geographic Area is too extensive to require enforcement of this Subsection 3(a), the Geographic Area shall be the portion of the United States east of the Mississippi River (or the largest other such portion of the United States that such court deems not too extensive to require enforcement of this Subsection 3(a)). (b) The foregoing restrictions shall not be construed to prohibit the ownership by Executive of less than one percent (1%) of any class of securities of any corporation which is engaged in any of the foregoing businesses having a class of securities registered pursuant to the Securities Exchange Act of 1934, provided that such ownership represents a passive investment and that neither Executive nor any group of persons including Executive in any way, either directly or indirectly, manages or exercises control of any such corporation, guarantees any of its financial obligations, otherwise takes any part in its business, other than exercising Executive's rights as a shareholder, or seeks to do any of the foregoing. (c) Executive further covenants and agrees that during Executive's employment by the Company and for the period of one year thereafter, Executive will not, directly or indirectly, (i) solicit, divert, take away, or attempt to solicit, divert or take away, any -7- of the Company's customers, or (ii) encourage any customer to reduce its patronage of the Company. (d) Executive further covenants and agrees that during Executive's employment by the Company and for the period of one year thereafter, Executive will not, except with the prior written consent of the Company's Chief Executive Officer, directly or indirectly, solicit or hire, or encourage the solicitation or hiring of, any person who was a managerial or higher level employee of the Company at any time during the term of Executive's employment by the Company by any employer other than the Company for any position as an employee, independent contractor, consultant or otherwise. The foregoing covenant of Executive shall not apply to any person after 12 months have elapsed subsequent to the date on which such person's employment by the Company has terminated. (e) During the Term and subsequent to Executive's termination of employment with the Company, Executive agrees not to make any negative or unfavorable statements or communications, and not to issue any written communications or release any other written materials which would be materially damaging to the Company, its officers, directors or affiliates, or its or their reputation or standing, whether in the investor or financial community, the steel industry or otherwise. (f) Executive agrees to cooperate with the Company for a reasonable period of time after the Employment Term by making himself available to testify on behalf of the Company, in any action, suit or proceeding. In addition, for a reasonable period of time, Executive agrees to be available at reasonable times to meet and consult with the Company on -8- matters reasonably within the scope of his prior duties with the Company so as to facilitate a transition to his successor. The Company agrees to compensate Executive at the highest rate of Base Salary applicable under Section 1.3 of this Agreement during the Employment Term and to reimburse Executive for all expenses actually incurred in connection with his provision of testimony or consulting assistance. 4. Equitable Relief and Damages. (a) Executive acknowledges and agrees that the restrictions contained in Sections 2 and 3 are reasonable and necessary to protect and preserve the legitimate interests, properties, goodwill and business of the Company, that the Company would not have entered into this Agreement in the absence of such restrictions and that irreparable injury will be suffered by the Company should Executive breach any of the provisions of those Sections. Executive represents and acknowledges that (i) Executive has been advised by the Company to consult Executive's own legal counsel in respect of this Agreement, and (ii) that Executive has had full opportunity, prior to execution of this Agreement, to review thoroughly this Agreement with Executive's counsel. (b) Executive further acknowledges and agrees that a breach of any of the restrictions in Sections 2 and 3 cannot be adequately compensated by monetary damages. Executive agrees that the Company shall be entitled to preliminary and permanent injunctive relief, without the necessity of proving actual damages, as well as an equitable accounting of all earnings, profits and other benefits arising from any violation of Sections 2 or 3 hereof, which rights shall be cumulative and in addition to any other rights or remedies to which the Company -9- may be entitled. In the event that any of the provisions of Sections 2 or 3 hereof should ever be adjudicated to exceed the time, geographic, service, or other limitations permitted by applicable law in any jurisdiction, it is the intention of the parties that the provision shall be amended to the extent of the maximum time, geographic, service, or other limitations permitted by applicable law, that such amendment shall apply only within the jurisdiction of the court that made such adjudication and that the provision otherwise be enforced to the maximum extent permitted by law. (c) Damages. If Executive breaches any of Executive's obligations under Sections 2 or 3 hereof, and such breach constitutes "Cause," as defined in Section 5.3 hereof, or would constitute Cause if it had occurred during the Employment Term, the Company shall thereafter remain obligated only for such compensation and other benefits, if any, as may otherwise be required in any plans, policies or practices then applicable to Executive in accordance with the terms thereof, and not for any compensation or other benefits under this Agreement. (d) Executive irrevocably and unconditionally (i) agrees that any suit, action or other legal proceeding arising out of Sections 2 or 3 hereof, including without limitation, any action commenced by the Company for preliminary and permanent injunctive relief and other equitable relief, may be brought in the United States District Court for the Northern District of Indiana, or if such court does not have jurisdiction or will not accept jurisdiction, in any court of general jurisdiction in Indiana, (ii) consents to the non-exclusive jurisdiction of any such court in -10- any such suit, action or proceeding, and (iii) waives any objection which Executive may have to the laying of venue of any such suit, action or proceeding in any such court. 5. Termination. The Employment Term shall terminate upon the occurrence of any one of the following events: 5.1. Disability. The Company may terminate the Employment Term if Executive is unable substantially to perform Executive's duties and responsibilities hereunder to the full extent required by the Company's President or Chief Executive Officer by reason of illness, injury or incapacity for six consecutive months, or for more than six months in the aggregate during any period of twelve calendar months; provided, however, that the Company shall continue to pay Executive's Base Salary until the Company acts to terminate the Employment Term. If the Company terminates the Employment Term, Executive shall be entitled to receive (i) any amounts earned, accrued or owing but not yet paid under Section 1 above, and (ii) any other benefits, all in accordance with the terms of any applicable plans and programs (or related agreements) of the Company referred to in Section 1 above. Otherwise, the Company shall have no further liability or obligation to Executive for compensation or benefits under this Agreement. Executive agrees, in the event of a dispute under this Section 5.1, to submit to a physical examination by a licensed physician selected by the Company's President or Chief Executive Officer. 5.2. Death. The Employment Term shall terminate in the event of Executive's death. In such event, the Company shall pay to Executive's executors, legal representatives or administrators, as applicable, an amount equal to the installment of Executive's Base Salary set -11- forth in Section 1.4 hereof for the month in which Executive dies. In addition, Executive's estate or other appropriate beneficiary (as designated by Executive in accordance with the terms of any applicable benefit plans or programs of the Company) shall be entitled to receive (i) any other amounts earned, accrued or owing but not yet paid under Section 1 above and (ii) any other benefits, all in accordance with the terms of any applicable plans and programs (or related agreements) of the Company referred to in Section 1 above. Otherwise, the Company shall have no further liability or obligation under this Agreement to Executive's executors, legal representatives, administrators, heirs or assigns or any other person claiming under or through Executive. 5.3. Cause. The Company may terminate the Employment Term, at any time, for "Cause" upon written notice, in which event all payments under this Agreement shall cease, except for Base Salary to the extent already earned by reason of services actually performed, but Executive shall remain entitled to any other benefits in accordance with the terms of any applicable plans and programs of the Company. For purposes of this Agreement, Executive's employment may be terminated for "Cause" if (i) Executive is convicted of a felony, (ii) in the reasonable determination of the Board, Executive has (x) committed an act of fraud, embezzlement, or theft in connection with Executive's duties in the course of Executive's employment with the Company, (y) caused intentional damage or harm to the property, business or reputation of the Company, or intentionally disclosed Confidential Information in breach of this Agreement, or (z) engaged in gross misconduct or gross negligence in the course of Executive's employment with the Company, or (iii) Executive has otherwise materially breached -12- Executive's obligations under this Agreement and shall not have remedied such breach within 15 days after receiving written notice from the Board specifying the details thereof. For purposes of this Agreement, an act or omission on the part of Executive shall be deemed "intentional" only if it was not due primarily to an error in judgment or negligence and was done by Executive not in good faith and without reasonable belief that the act or omission was in the best interest of the Company. 5.4. Termination Without Cause and Constructive Discharge. (a) The Company may remove Executive at any time, without Cause, from the position in which Executive is employed hereunder, or Executive may terminate employment with the Company at any time under circumstances comprising Constructive Discharge, as defined in this Section 5.4, and in either such case the Employment Term shall be deemed to have ended, by written notice to the other party. If such notice is given by the Company to Executive before June 1, 2002, the Employment Term shall end no earlier than the 60th day following the date such notice is given. If such notice is given by Executive, the Employment Term shall end on the date such notice is given. In the event that such notice is given, Executive shall be under no obligation to render any additional services to the Company and, subject to the provisions of Section 3 hereof, shall be allowed to seek other employment. Upon any such termination by the Company or Executive, Executive shall be entitled to receive, as liquidated damages for the failure of the Company to continue to employ Executive, (i) a single sum payment in cash, within 30 days after the end of the Employment Term, in the amount of Executive's annual Base Salary as of the last day of the Employment Term; (ii) outplacement -13- services for a period not to exceed 12 months; and (iii) continued participation for Executive and Executive's eligible dependents in the Company sponsored health care plan in which Executive participated on the last day of the Employment Term, for a period of 12 months or, if earlier, until Executive becomes covered under a group health care plan sponsored by another employer, under equivalent terms and at substantially the same cost that would have applied to Executive if the Employment Term had not ended. Such continued health care coverage shall not reduce the period of health care continuation coverage to which Executive would otherwise be entitled under applicable federal law. If such Company sponsored health care plan does not by its terms allow Executive's participation or continued participation, the Company shall obtain and pay all premiums for insurance coverage on behalf of Executive and/or Executive's eligible dependents that provides equivalent benefits as provided under such Company sponsored health care plan or, at the Company's election, shall provide such benefits from its own assets. Notwithstanding anything in this Agreement to the contrary, on or after the date Executive attains age 65, no action by the Company shall be treated as a removal from employment or Constructive Discharge if on the effective date of such action Executive satisfies all of the requirements for the executive or high policy-making exception to applicable provisions of state and federal age discrimination legislation. (b) Notwithstanding the provisions of Section 5.4(a) (other than the last sentence), in the event that Executive executes a written release upon such removal or Constructive Discharge, substantially in the form attached hereto as Annex 1, (the "Release"), of any and all claims against the Company and all related parties with respect to all matters arising -14- out of Executive's employment by the Company (other than any entitlements under the terms of this Agreement or under any other plans or programs of the Company in which Executive participated and under which Executive has accrued a benefit), or the termination thereof, Executive shall be entitled to receive, in lieu of the payment described in Section 5.4(a)(i), which Executive agrees to waive, a single sum payment in cash, within 30 days after the end of the Employment Term, equal to twice the amount of Executive's annual Base Salary as of the last day of the Employment Term. (c) The term "Constructive Discharge" means a termination of the Executive's employment by the Executive due to a failure of the Company or its successors without the prior consent of the Executive to fulfill the obligations under this Agreement in any material respect, including any non-payment or reduction in the Base Salary or "target opportunity" (as described in Section 1.6) then in effect. 5.5. Voluntary Termination. Executive may voluntarily terminate the Employment Term under circumstances that do not comprise Constructive Discharge, upon written notice for any reason, and the Employment Term shall end on the date such notice is given. In such event, no further payments shall be due under this Agreement, except that Executive shall be entitled to any benefits due in accordance with the terms of any applicable plan and programs of the Company. 6. Payments Upon a Change of Control. 6.1. Definitions. For all purposes of this Section 6, the following terms shall have the meanings specified in this Section 6.1 unless the context otherwise clearly requires: -15- (a) "Change of Control." For purposes of this Agreement, a "Change of Control" shall mean: (i) (A) If any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") acquires (by purchase, tender offer or otherwise) or becomes the "beneficial owner" (as defined in rule 13d-3 under the Exchange Act) of thirty percent (30%) or more of the combined voting power of the then-outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities") and (B) NKK Corporation ceases to be the beneficial owner, directly or indirectly, of more than fifty percent (50%) of the total voting power of all the then Outstanding Company Voting Securities; provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (1) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, or (2) any acquisition by any entity pursuant to a transaction which complies with each of clauses (A), (B) and (C) of paragraph (iii) of this Subsection (a). (ii) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened -16- election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board. (iii) Consummation of a reorganization, recapitalization, merger, acquisition of securities or assets by the Company or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) the individuals and entities who were the beneficial owners, respectively, of the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than fifty percent (50%) of, respectively, the then outstanding shares of common stock (in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock) and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, the Company or a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries), and (B) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, thirty percent (30%) or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination, or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed -17- prior to the Business Combination and (C) at least two-thirds of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (b) "Termination upon a Change of Control" shall mean a termination of Executive's employment under Section 5.4 of this Agreement upon or within two years after a Change of Control. 6.2. Notice of Termination. Any Termination upon a Change of Control shall be communicated by a Notice of Termination to the other party hereto given in accordance with Section 9 hereof. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) briefly summarizes the facts and circumstances deemed to provide a basis for a termination of employment and the applicable provision hereof, and (iii) if the termination date is other than the date of receipt of such notice, specifies the termination date (which date shall not be more than 15 days after the giving of such notice). 6.3. Compensation and Benefits. In no event following a Change of Control shall the Company provide Executive with compensation or benefits, in each case, less favorable than the most favorable of those provided under Sections 1.3-1.7 of this Agreement at any time during the 120-day period immediately preceding the Change of Control or, if more favorable to Executive, -18- those provided generally at any time after the Change of Control to other peer executives of the Company. 6.4. Payments and Benefits upon Termination. Subject to the provisions of Section 6.5 hereof, in the event of Executive's Termination upon a Change of Control, Executive shall be entitled to receive (a) payments and benefits in accordance with Section 5.4 of this Agreement, provided that such payments shall include an additional amount equal to (i) in the case of payments otherwise due under Subsection 5.4(a), the greater of (A) the average annual amount paid to Executive under Section 1.6 of this Agreement for years prior to the year in which Executive's Termination upon a Change of Control occurs or (B) Executive's most recent "Target Bonus Percentage" (as determined under the Key Management Incentive Compensation Plan) multiplied by his Base Salary as of the date of his Termination upon a Change of Control, or (ii) in the case of payments otherwise due under Subsection 5.4(b), two times the amount determined under the preceding clause (i); and (b) within 30 days after Executive's Termination upon a Change of Control, a single sum payment in cash in the amount of the actuarially equivalent value (based on the 1994 Group Annuitants Mortality Table and the annual rate of interest on 30-year Treasury securities for the second calendar month preceding the Executive's Termination upon a Change of Control) of any nonqualified unfunded retirement benefits to which Executive is entitled under any plan, program or arrangement of the Company, acceptance of which single sum payment shall constitute Executive's waiver of any claim or entitlement to benefits under any such plan, program or arrangement. -19- 6.5. Certain Increase in Payments. (a) Anything in this Agreement to the contrary notwithstanding, in the event that it shall be determined that any payment or distribution by the Company to or for the benefit of Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (the "Payment"), would constitute an "excess parachute payment" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended (the "Code"), Executive shall be paid an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive from the Payment and the Gross-Up Payment, after deduction of any excise tax imposed under Section 4999 of the Code and any federal, state and local income and employment tax and excise tax imposed upon the Gross-Up Payment, shall be equal to the Payment. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income tax and employment taxes at the highest marginal rate of federal income and employment taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive's residence on the date of Executive's Termination upon a Change of Control, net of the maximum reduction in federal income taxes that may be obtained from the deduction of such state and local taxes. (b) All determinations to be made under this Section 6.5 shall be made by the Company's independent public accountant immediately prior to the Change of Control (the "Accounting Firm"), which firm shall provide its determinations and any supporting calculations both to the Company and Executive within 10 days of the date of Executive's Termination upon a Change of Control. Within five days after the Accounting Firm's determination, the Company -20- shall pay (or cause to be paid) or distribute (or cause to be distributed) to or for the benefit of Executive such amounts as are then due to Executive under this Agreement. (c) In the event that upon any audit by the Internal Revenue Service, or by a state or local taxing authority, of the Payment or Gross-Up Payment, a change is finally determined to be required in the amount of taxes paid by Executive, appropriate adjustments shall be made under this Agreement such that the net amount which is payable to Executive after taking into account the provisions of Section 4999 of the Code shall reflect the intent of the parties as expressed in subsection (a) above, in the manner determined by the Accounting Firm. (d) All of the fees and expenses of the Accounting Firm in performing the determinations referred to in subsections (b) and (c) above shall be borne solely by the Company. 7. Survivorship. The respective rights and obligations of the parties under this Agreement shall survive any termination of Executive's employment to the extent necessary to the intended preservation of such rights and obligations. 8. Arbitration; Expenses. In the event of any dispute under the provisions of this Agreement other than a dispute in which the primary relief sought is an equitable remedy such as an injunction, the parties shall be required to have the dispute, controversy or claim settled by arbitration in Mishawaka, Indiana, in accordance with National Rules for the Resolution of Employment Disputes then in effect of the American Arbitration Association, before a panel of three arbitrators, two of whom shall be selected by the Company and Executive, respectively, and the third of whom shall be selected by the other two arbitrators. Any award entered by the arbitrators shall be final, binding and nonappealable, and judgment may be entered thereon by either party in accordance with applicable law in any court of competent jurisdiction. This -21- arbitration provision shall be specifically enforceable. The arbitrators shall have no authority to modify any provision of this Agreement or to award a remedy for a dispute involving this Agreement other than a benefit specifically provided under or by virtue of the Agreement. If Executive prevails on any material issue which is the subject of such arbitration or lawsuit, the Company shall be responsible for all of the fees of the American Arbitration Association and the arbitrators and any expenses relating to the conduct of the arbitration (including the Company's and Executive's reasonable attorneys' fees and expenses). Otherwise, each party shall be responsible for its own expenses relating to the conduct of the arbitration (including reasonable attorneys' fees and expenses) and shall share the fees of the American Arbitration Association. 9. Notices. All notices and other communications required or permitted under this Agreement or necessary or convenient in connection herewith shall be in writing and shall be deemed to have been given when hand delivered or mailed by registered or certified mail, as follows (provided that notice of change of address shall be deemed given only when received): If to the Company, to: Senior Vice President - Administration National Steel Corporation 4100 Edison Lakes Parkway Mishawaka, Indiana 46545-3440 If to Executive, to: John F. Kaloski -22- or to such other names or addresses as the Company or Executive, as the case may be, shall designate by notice to each other person entitled to receive notices in the manner specified in this Section. 10. Contents of Agreement; Amendment and Assignment. (a) This Agreement sets forth the entire understanding between the parties hereto with respect to the subject matter hereof and cannot be changed, modified, extended or terminated except upon written amendment approved by the Board and executed on its behalf by a duly authorized officer and by Executive. (b) All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, executors, administrators, legal representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of Executive under this Agreement are of a personal nature and shall not be assignable or delegatable in whole or in part by Executive. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation, reorganization or otherwise) to all or substantially all of the business or assets of the Company, by agreement in form and substance satisfactory to Executive, expressly to assume and agree to perform this Agreement in the same manner and to the extent the Company would be required to perform if no such succession had taken place. 11. Severability. If any provision of this Agreement or application thereof to anyone or under any circumstances is adjudicated to be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect any other provision or application of this Agreement which can be given effect without the invalid or unenforceable provision or -23- application and shall not invalidate or render unenforceable such provision or application in any other jurisdiction. If any provision is held void, invalid or unenforceable with respect to particular circumstances, it shall nevertheless remain in full force and effect in all other circumstances. 12. Remedies Cumulative; No Waiver. No remedy conferred upon a party by this Agreement is intended to be exclusive of any other remedy, and each and every such remedy shall be cumulative and shall be in addition to any other remedy given under this Agreement or now or hereafter existing at law or in equity. No delay or omission by a party in exercising any right, remedy or power under this Agreement or existing at law or in equity shall be construed as a waiver thereof, and any such right, remedy or power may be exercised by such party from time to time and as often as may be deemed expedient or necessary by such party in its sole discretion. 13. Beneficiaries/References. Executive shall be entitled, to the extent permitted under any applicable law, to select and change a beneficiary or beneficiaries to receive any compensation or benefit payable under this Agreement following Executive's death by giving the Company written notice thereof. In the event of Executive's death or a judicial determination of Executive's incompetence, reference in this Agreement to Executive shall be deemed, where appropriate, to refer to Executive's beneficiary, estate or other legal representative. 14. Miscellaneous. All section headings used in this Agreement are for convenience only. This Agreement may be executed in counterparts, each of which is an original. It shall not be necessary in making proof of this Agreement or any counterpart hereof to produce or account for any of the other counterparts. -24- 15. Withholding. The Company may withhold from any payments under this Agreement all federal, state and local taxes as the Company is required to withhold pursuant to any law or governmental rule or regulation. Executive shall bear all expense of, and be solely responsible for, all federal, state and local taxes due with respect to any payment received under this Agreement. 16. Governing Law. This Agreement shall be governed by and interpreted under the laws of the State of Indiana without giving effect to any conflict of laws provisions. IN WITNESS WHEREOF, the undersigned, intending to be legally bound, have executed this Agreement as of the date first above written. NATIONAL STEEL CORPORATION _______________________ By:________________________________ JOHN F. KALOSKI Name: David A. Pryzbylski Title: Senior Vice President - Administration -25- EX-10.C 4 EMPLOYMENT AGREEMENT EXHIBIT 10-C EMPLOYMENT AGREEMENT -------------------- THIS EMPLOYMENT AGREEMENT is dated and effective as of the 1st day of September, 1998 ("Effective Date"), and is by and between National Steel Corporation, a Delaware corporation (the "Company"), and Yutaka Tanaka ("Executive"). In consideration of the mutual covenants contained herein, and other good and valuable consideration (including the Termination Benefits and the Special Termination Benefits) the receipt and adequacy of which the Company and Executive each hereby acknowledges, the Company and Executive hereby agree as follows: 1. Employment and Term The Company hereby agrees to employ Executive as the Chief Executive Officer of the Company and Executive hereby agrees to accept such employment and serve in such capacity on a full-time basis during the Term and upon the terms and conditions set forth in this Employment Agreement (this "Agreement"). Executive shall report solely to the Company's Board of Directors, and will have such responsibilities, duties and authorities as are customary for such positions in a publicly held company of the size, type and nature of the Company as they may exist from time to time. The term of employment of Executive under this Agreement shall be the period commencing on the Effective Date and terminating on August 31, 2001 (the "Term"). The respective rights and obligations of the parties hereunder shall survive any termination of employment to the extent necessary to achieve the intended preservation of rights and obligations. 2. Salary and Annual Incentive Compensation. Executive's annual base salary as in effect on the Effective Date shall be the Executive's annual base salary hereunder as of the Effective Date, payable in consecutive equal monthly installments. The term "base salary" as utilized in this Agreement shall refer to the then current base salary as adjusted from time to time. Executive's annual base salary shall be reviewed periodically in accordance with the Company's compensation policies and practices for senior executives, and may be increased from time to time in accordance with such policies and practices, but shall not be decreased. Executive shall also be eligible to receive annual incentive compensation pursuant to the Company's Management Incentive Compensation Program or any successor plan (the "MICP") during the Term and as determined in accordance with the terms and conditions of the MICP. Executive's MICP target annual incentive compensation for 1998 shall be 50% of base salary, multiplied by a fraction, the numerator of which shall be the number of days employed by the Company in 1998, and the denominator of which shall be 365. The Company will maintain in effect, for each year during the Term, the MICP or an equivalent plan under which Executive will be eligible for an award not less than the prior year opportunity level available to Executive. Any such annual incentive compensation payable to Executive shall be paid in accordance with the Company's usual practices with respect to payment of incentive compensation of senior executives. 3. Benefit and Compensation Plans. (a) Executive shall be entitled during the Term to participate in all executive compensation plans, and other employee and executive benefits, practices, policies and programs of the Company, as presently in effect or as they may be modified or added to by the Company from time to time ("Benefit Plans"). (b) During the Term, the Company will provide Executive with coverage by Company-paid group or individual life insurance or a combination thereof, all in accordance with the plans, policies, programs and arrangements as presently in effect or as they may be modified or added to by the Company from time to time. (c) During the Term, Executive will participate in the Company's Executive Deferred Compensation Plan, and any supplemental retirement plans, benefits, practices, programs, or policies of the Company, as in effect on the Effective Date or as they may be modified or added to by the Company from time to time ("Compensation Plans"). 4. Non-Compete Agreement. Executive hereby agrees that if Executive terminates his employment with the Company without Good Reason, then for a period of two (2) years after the Date of Termination, but in any event only as long as the Company satisfies its obligations under this Agreement, (the "Restricted Period"), Executive will not engage (either as owner, investor, partner, stockholder, employer, employee, consultant, advisor or director) in any "Competitive Business" in the continental United States (the "Territory"). The term "Competitive Business" means the making, producing, manufacturing or finishing of steel products which products are in direct competition with steel products that are made, produced, manufactured or finished by the Company on the Date of Termination. It is agreed that the ownership of not more than one percent of the equity securities of any company having securities listed on an exchange or regularly traded in the over-the-counter market shall not be deemed inconsistent with this Section 4. If any court of competent jurisdiction shall deem any obligation of this Section 4 too lengthy or the Territory too extensive, the other provisions of this Section shall nevertheless stand, the Restricted Period shall be deemed to be the longest period such court deems not to be too lengthy and the Territory shall be deemed to comprise the portion of the United States east of the Mississippi River (or such other portion of the United States that such court deems not to be too extensive). 5. Non-Inducement. Executive hereby agrees that for a period commencing with the Date of Termination and ending on the second anniversary of the Date of Termination, Executive shall not induce, or attempt to influence, any employee of the Company who reports either directly to the Company's Chief Executive Officer, President, Chief Operating Officer or Acting Chief Operating Officer or to another employee who reports directly to the Company's Chief Executive Officer, President, Chief -2- Operating Officer or Acting Chief Operating Officer to terminate his employment with the Company. 6. Non-Disclosure. For a period commencing on the Date of Termination and ending on the fifth anniversary of the Date of Termination, Executive shall keep secret and retain in strictest confidence, and shall not furnish, make available or disclose to any third party or use for the benefit of himself or any third party, any Confidential Information. As used in this Section, "Confidential Information" shall mean any information relating to the business or affairs of the Company, including but not limited to information relating to financial statements, customer identities, customer needs, potential customers, employees, suppliers, servicing methods, equipment, programs, strategies and information, analyses, profit margins or other proprietary information used by the Company in connection with its business; provided, however, that Confidential Information shall not include any information which is in the public domain or becomes known in the industry through no wrongful act on the part of Executive. Executive acknowledges that the Confidential Information is vital, sensitive, confidential and proprietary to the Company. 7. No Unfavorable Publicity. Subsequent to Executive's Date of Termination, Executive agrees not to make statements or communications and not to issue any written communications or release any other written materials which would likely be materially damaging to the Company's reputation or standing, whether in the investor or financial community, the steel industry or otherwise. 8. Cooperation With the Company. Executive agrees to cooperate with the Company for a reasonable period of time after the Term of this Agreement by making himself available to testify on behalf of the Company, in any action, suit, or proceeding. In addition, for a reasonable period of time, Executive agrees to be available at reasonable times to meet and consult with the Company on matters reasonably within the scope of his prior duties with the Company so as to facilitate a transition to his successor. The Company agrees to reimburse Executive, on an after-tax basis, for all expenses actually incurred in connection with his provision of testimony or consulting assistance. 9. Release of Employment Claims. Executive and the Company agree that in the event Executive receives Special Termination Benefits (as defined in Section 11(e)), he and the Company will execute a mutual release agreement releasing any and all claims which either of them have or may have against the other arising out of Executive's employment (other than enforcement of this Agreement). The Executive agrees that in the event the Executive's employment with the Company terminates or is terminated, the Executive's sole and exclusive remedy shall be, and the Company's liability shall be limited to, -3- damages equal to the payments and benefits to be provided by the Company hereunder and to payment or reimbursement of Executive's costs and expenses in accordance with Section 12(b). 10. Remedies. Executive acknowledges and agrees that the covenants set forth in Sections 4 through 8 are reasonable and necessary for the protection of the Company's business interests, that irreparable injury will result to the Company if Executive breaches any of the terms of such covenants, and that in the event of Executive's actual or threatened breach of any such covenants, the Company will have no adequate remedy at law. Executive accordingly agrees that in the event of any actual or threatened breach by him of any of such covenants, the Company shall be entitled to immediate temporary injunctive and other equitable relief, without the necessity of showing actual monetary damages, subject to hearing as soon thereafter as possible. Nothing contained herein shall be construed as prohibiting the Company from pursuing any other remedies available to it for such breach or threatened breach, including the recovery of any damages which it is able to prove. 11. Termination of Employment. (a) Termination Due to Death or Disability. Upon an Executive's Date of Termination during the Term due to death or Disability, the Company will pay Executive (or his beneficiaries, dependents or estate), and Executive (or his beneficiaries, dependents or estate) will be entitled to receive, the Termination Benefits (as defined in Section 11(d)). (b) Termination by the Company for Cause and Termination by Executive without Good Reason. Upon Executive's Date of Termination during the Term by the Company for Cause or by Executive without Good Reason the Company shall pay Executive (or his beneficiaries, dependents or estate), and Executive (or his beneficiaries, dependents or estate) shall be entitled to receive, the Termination Benefits (as defined in Section 11(d)), except that no amount shall be paid and no right accrued in respect of Executive under Section 11(d) (i) (B). (c) Termination by the Company Without Cause and Termination by Executive for Good Reason. Upon Executive's Date of Termination during the Term by the Company without Cause or by Executive for Good Reason the Company shall pay Executive (or his beneficiaries, dependents or estate), and Executive (or his beneficiaries, dependents or estate) shall be entitled to receive, the Termination Benefits (as defined in Section 11(d)) and the Special Termination Benefits (as defined in Section 11(e)). (cc) Termination Following Expiration of the Term. Upon termination of employment following expiration of the Term, whether by the Executive with or without Good Reason, or by the Company, without Cause, the Company shall pay Executive (or his beneficiaries, dependents, or estate), and Executive (or his beneficiaries, dependents, or estate) shall be entitled to receive, the Termination Benefits (as defined in Section 11(d)) and the Special Termination Benefits (as defined in Section 11(e)). -4- (d) "Termination Benefits". "Termination Benefits" means the aggregate of all of the following: (i) a single sum cash payment by the Company to Executive within thirty (30) days after the Date of Termination of (A) Executive's then current annual base salary pro rata through the Date of Termination to the extent not theretofore paid; (B) the product of (y) the greater of (aa) the average annual incentive compensation paid to Executive in the three fiscal years immediately preceding the fiscal year of the Date of Termination (or all fiscal years Executive was employed if less than three, and annualized in the event Executive was not employed by the Company for the whole of any such fiscal year), and (bb) Executive's target incentive compensation percentage payable under the MICP multiplied by Executive's then current base salary and (z) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365; and (C) any accrued vacation pay to the extent not theretofore paid. (ii) All vested amounts owing or accrued at the Date of Termination under any compensation and benefit plans, programs, and arrangements set forth or referred to in this Agreement, including, but not limited to, Sections 2 and 3 hereof; and if the Date of Termination is due to death, Executive's estate or other beneficiaries shall receive the death benefits described in Section 3(b). (iii) Reasonable business expenses and disbursements incurred by Executive prior to such Date of Termination will be fully reimbursed within ten (10) days after the Date of Termination. (e) "Special Termination Benefits". "Special Termination Benefits" means the aggregate of all of the following: (i) The Company shall pay to Executive, in a single sum in cash within thirty (30) days after the Date of Termination, an amount equal to fifty percent of Executive's annual base salary (immediately preceding the Date of Termination). (ii) For two years after Executive's Date of Termination, if Executive is less than age 69 on his Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, arrangement, practice or policy, the Company shall continue benefits to Executive and/or Executive's dependents at least equal to those which would have been provided to them in accordance with the Benefits Plans or this Agreement if Executive's employment had not been terminated or, if more favorable to Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and their dependents; provided, however, that notwithstanding anything in this Agreement to the contrary, if Executive is eligible to receive health benefits or other benefits under an NKK Corporation sponsored plan or arrangement, or any Japanese government plan or arrangement, or under any other plan or arrangement, the health benefits and other benefits described herein shall be secondary to those provided under such other -5- plan or arrangement during such applicable period of eligibility; and provided, further, that if Executive shall later become ineligible for health benefits or other benefits under such other plans and arrangements, the health benefits or other benefits provided by the Company shall be primary. If Executive is age 69 or older on his Date of Termination, the period of "two years" in the first line of this Section 11(e) (ii) shall be reduced to the period set forth below:
Age Period --- ------ 69 One Year 70 or older Zero
(iii) Stock options held by Executive as of the date of this Agreement were granted pursuant to the 1993 National Steel Corporation Non-Employee Directors' Stock Option Plan and shall continue to be governed by the terms and conditions of said Non-Employee Directors' Stock Option Plan. Stock options granted to Executive after the date of this Agreement shall be issued pursuant to the 1993 National Steel Corporation Long Term Incentive Plan and shall continue to vest as if Executive had remained an employee of the Company and shall remain fully exercisable for the lesser of (a) the entire period that would have been available for exercise had Executive continued in the employ of the Company through the original option term or (b) five years; such stock options shall otherwise be governed by the terms and conditions of said Long Term Incentive Plan (and the agreements and other documents thereunder) pursuant to which such stock options were granted. 12. Governing Law; Disputes; Arbitration. (a) Governing Law. This Agreement is governed by and is to be construed, administered, and enforced in accordance with the laws of the State of Indiana, without regard to Indiana conflicts of law principles, except insofar as the Delaware General Corporation Law and federal laws and regulations may be applicable. If under the governing law, any portion of this Agreement is at any time deemed to be in conflict with any applicable statute, rule, regulation, ordinance, or other principle of law, such portion shall be deemed to be modified or altered to the extent necessary to conform thereto or, if that is not possible, to be omitted from this Agreement. The invalidity of any such portion shall not affect the force, effect, and validity of the remaining portion hereof. (b) Reimbursement of Expenses in Enforcing Rights. All costs and expenses (including, without limitation, fees and disbursements of actuaries, accountants and counsel) incurred by Executive in seeking in good faith to enforce rights pursuant to this Agreement shall be paid on behalf of or reimbursed to Executive promptly by the Company, whether or not Executive is successful in asserting such rights. If there shall be any dispute between the Company and Executive, the Company shall pay or provide, as applicable, all undisputed amounts or benefits as are then payable to Executive or Executive's beneficiaries or dependents pursuant to this Agreement. Any amounts that have become payable pursuant to the terms of this Agreement or any decision by -6- arbitrators or judgment by a court of law, but which are not timely paid shall bear interest, payable by the Company, at the lower of (A) the highest lawful rate or (B) the prime rate in effect at the time such payment first becomes payable, as quoted by The Wall Street Journal. (c) Arbitration. Any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in Chicago, Illinois, in accordance with the rules of the American Arbitration Association in effect at the time of submission to arbitration, by three (3) arbitrators, one of which shall be chosen by the Company, one of which shall be chosen by Executive, and one of which shall be chosen by the arbitrators chosen by Company and Executive. Judgment may be entered on the arbitrators' award in any court having jurisdiction. For purposes of entering any judgment upon an award rendered by the arbitrators, the Company and Executive hereby consent to the jurisdiction of any or all of the following courts: (i) the United States District Court for the Northern District of Indiana; (ii) any of the courts of the State of Indiana, or (iii) any other court having jurisdiction. The Company and Executive further agree that any service of process or notice requirements in any such proceeding shall be satisfied if the rules of such court relating thereto have been substantially satisfied. The Company and Executive hereby waive, to the fullest extent permitted by applicable law, any objection which it may now or hereafter have to such jurisdiction and any defense of inconvenient forum. The Company and Executive hereby agree that a judgment upon an award rendered by the arbitrators may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The Company shall bear all costs and expenses arising in connection with any arbitration proceeding. Notwithstanding any provision in this Section 12(c), Executive shall be entitled to seek specific performance of Executive's right to be paid during the pendency of any dispute or controversy arising under or in connection with this Agreement. 13. Definitions. Certain terms in this Agreement are defined the first time they appear; other terms which are capitalized are not defined the first time they appear, but unless the context indicates otherwise, have the meanings set forth below: (a) "Cause". For purposes of this Agreement, "Cause" shall mean Executive's gross misconduct (as defined herein) or willful and material breach of this Agreement. For purposes of this definition, "gross misconduct" shall mean (A) a felony conviction or a plea of nolo contendere to a felony charge in a court of law under applicable federal or state laws which results in material damage to the Company, or (B) willfully engaging in one or more acts which is demonstrably and materially damaging to the Company. Notwithstanding the foregoing, Executive may not be terminated for Cause unless and until there shall have been delivered to him, within six months after the Board (A) had knowledge of conduct or an event allegedly constituting Cause and (B) had reason to believe that such conduct or event could be grounds for Cause, a copy of a resolution duly adopted by a majority affirmative vote of the entire membership of the Company's Board of Directors (excluding Executive if a member of Company's Board of Directors), at a meeting of the Board called and held for such purpose (after giving Executive reasonable notice specifying the nature of -7- the grounds for such termination and not less than 30 days to correct the acts or omissions complained of, if correctable, and affording Executive the opportunity, together with his counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, Executive was guilty of conduct set forth above in this Section 13 (a). (b) "Date of Termination". "Date of Termination" means (i) if Executive's employment is terminated by the Company for Cause or by Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; (ii) if Executive's employment is terminated by the Company without Cause, the Date of Termination shall be the date on which the Company notifies Executive of such Date of Termination, and (iii) if Executive's employment is terminated by reason of death or Disability, or is terminated by Executive without Good Reason, the Date of Termination shall be the date of death of Executive, the Disability Effective Date, or the date Executive notifies the Company that Executive's employment will terminate, as the case may be. If the Company determines in good faith that the Disability of Executive has occurred during the Term of the Agreement (pursuant to the definition of Disability set forth in Section 13 (c)), it may give to Executive written notice in accordance with Section 13(e) of this Agreement of its intention to terminate Executive's employment. In such event, Executive's Date of Termination is effective on the date that is six months after receipt of such notice by Executive (the "Disability Effective Date"), provided that, within such six month period, Executive shall not have returned to full-time performance of Executive's duties. Any termination by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 13 (e) of this Agreement. (c) "Disability". "Disability" means the failure of Executive to render and perform the services required of him under this Agreement, for a total of 180 days or more during any consecutive 12 month period, because of any physical or mental incapacity or disability as determined by a physician or physicians selected by the Company and reasonably acceptable to Executive, unless, within six (6) months after Executive has received written notice from the Company of a proposed Date of Termination due to such absence, Executive shall have returned to the full performance of his duties hereunder and shall have presented to the Company a written certificate of Executive's good health prepared by a physician selected by Executive and reasonably acceptable to the Company. (d) "Good Reason". For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events set forth in paragraphs (i) through (vii) below, without Executive's prior written consent. (i) the diminution of Executive's status, titles, positions, duties, offices, authorities, responsibilities, assignments or reporting relationships, or removal from Executive of any status, titles, positions, duties, offices, authorities, responsibilities, assignments or reporting relationships, which is inconsistent in any respect with Executive's status, titles, positions, duties, offices, authorities, responsibilities, assignments or reporting relationships, as contemplated by Section 1 of this Agreement, excluding for this purpose (a) any removal of the title "Chairman of the Board," the -8- removal of Executive from the Board, or any failure to elect or re-elect, or nominate Executive to the Board, (b) any search for a new Chief Executive Officer or other transition or succession planning for a new Chief Executive Officer, (c) any announcement of an appointment of a new Chief Executive Officer, with an effective date after the Term hereof, or (d) an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive; (ii) any reduction in Executive's then current base salary or in Executive's then current target incentive compensation opportunity under the MICP; (iii) any failure by the Company to comply with any of the provisions of this Agreement, including but not limited to Sections 2 and 3 of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by Executive; (iv) any failure by the Company to perform any obligation under, or breach by the Company of any provision of, this Agreement; (v) any purported termination by the Company of Executive's employment otherwise than as expressly permitted by this Agreement; or (vi) any failure by the Company to comply with and satisfy Section 14(c) of this Agreement. (vii) voluntary termination of employment by Executive with the prior approval of a simple majority of the Board. (e) "Notice of Termination". "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and (iii) if the Date of Termination is other than the date of receipt of such notice, specifies the Date of Termination. The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder. (f) "Board" or "Board of Directors". "Board" or "Board of Directors" means the full board of directors of the Company as it may be constituted in accordance with applicable law from time to time, and any committee of the board shall not be deemed to be the Board or Board of Directors for purposes of this Agreement. -9- 14. Miscellaneous. (a) Integration. This Agreement modifies and supersedes any and all prior employment agreements. This Agreement constitutes the entire agreement among the parties with respect to the matters herein provided, and no modification or waiver of any provision hereof shall be effective unless in writing and signed by the parties hereto. (b) Nonexclusivity of Rights. Nothing in this Agreement shall prevent or limit Executive's continuing or future participation in any plan, program, policy or practice provided by the Company during the Term of this Agreement and for which Executive may qualify, nor shall anything herein limit or otherwise affect such rights as Executive may have under any contract or agreement with the Company. Amounts which are vested benefits or which Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. In the event of any conflict between the terms and provisions of this Agreement and any of the Company's plans, policies, practices, programs, contracts or agreements, the terms and provisions of whichever is more favorable to the Executive shall prevail. (c) Non-Transferability. Neither this Agreement nor the rights or obligations hereunder of the parties hereto shall be transferable or assignable by Executive, except in accordance with the laws of descent and distribution or as specified in Section 14(d). The Company may, but only with the consent of Executive, assign this Agreement and the Company's rights and obligations hereunder, and the Company shall, as a condition of the succession, require such Successor to assume (jointly and severally with the Company) the Company's obligations and be bound by this Agreement. Any such assignment shall not release the Company of any of its obligations under this Agreement. For purposes of this Agreement, "Successor" shall mean any person that succeeds to, or has the practical ability to control (either immediately or with the passage of time), the Company's business directly, by merger or consolidation, or indirectly, by purchase of the Company's voting securities or all or substantially all of its assets, or otherwise. (d) Beneficiaries. Executive shall be entitled to designate (and change, to the extent permitted under applicable law) a beneficiary or beneficiaries to receive any compensation or benefits payable hereunder following Executive's death. If Executive should die while any amount would still be payable to him hereunder had Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to his devisee, legatee or other designee or, if there is no such designee, to his estate. (e) Notices. Whenever under this Agreement it becomes necessary to give notice, such notice shall be in writing, signed by the party or parties giving or making the same, and shall be served on the person or persons for whom it is intended or who should be advised or notified, by overnight courier service or by certified or registered mail, return receipt requested, postage prepaid -10- and addressed to such party at the address set forth below or at such other address as may be designated by such party by like notice: If to the Company: General Counsel National Steel Corporation 4100 Edison Lakes Parkway Mishawaka, Indiana 46545-3440 If to the Executive at his then current address reflected in the Company's records. If the parties by mutual agreement supply each other with telecopier numbers for the purposes of providing notice by facsimile, such notice shall also be proper notice under this Agreement when sent. In the case of overnight courier service, such notice or advice shall be effective when sent, and, in the cases of certified or registered mail, shall be effective 2 days after deposit into the mails by delivery to the U.S. Post Office. (f) Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement. (g) No General Waivers. The failure of any party at any time to require performance by any other party of any provision hereof or to resort to any remedy provided herein or at law or in equity shall in no way affect the right of such party to require such performance or to resort to such remedy at any time thereafter, nor shall the waiver by any party of a breach of any of the provisions hereof be deemed to be a waiver of any subsequent breach of such provisions. No such waiver shall be effective unless in writing and signed by the party against whom such waiver is sought to be enforced. (h) No Obligation To Mitigate. Executive shall not be required to seek other employment or otherwise to mitigate Executive's damages on or after Executive's Date of Termination, and the amount of any payment or benefit provided for in this Agreement shall not be reduced by any compensation or benefits earned by Executive as the result of employment by another employer or by retirement benefits; provided, however, that, the health benefits or other benefits that Executive is entitled to receive after the Date of Termination may be reduced in accordance with the terms of Section 11 (e) (ii). (i) Offsets; Withholding. The amounts required to be paid by the Company to Executive pursuant to this Agreement shall not be subject to offset. The foregoing and other provisions of this Agreement notwithstanding, all payments to be made to Executive under this Agreement, including -11- under Section 11, or otherwise by the Company, will be subject to required withholding taxes and other required deductions. (j) Successors and Assigns. This Agreement shall be binding upon and shall inure to the benefit of Executive, his heirs, executors, administrators and beneficiaries, and shall be binding upon and inure to the benefit of the Company and its permitted successors and assigns as provided in Section 14(c). This Agreement is a personal contract and the rights and interests of Executive hereunder may not be sold, transferred, assigned, pledged, encumbered, or hypothecated by him, except as otherwise expressly permitted by the provisions of this Agreement. This Agreement shall inure to the benefit of and be enforceable by Executive and his personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. (k) Actuarially Equivalent Value Calculation. For the purpose of determining an actuarially equivalent value under the terms of this Agreement, the interest rate specified in Section 417(e) (3) of the Internal Revenue Code of 1986, or any successor section thereto, as of the date of such determination, and the 1994 Group Annuitants Mortality Table, shall be used and for purposes of determining present value under the terms of this Agreement, the interest rate specified immediately above shall be used. All calculations shall be made at the expense of the Company, by the independent auditors of the Company. As soon as practicable after the need for such calculation arises, the Company shall provide to its auditors all information needed to perform such calculations. IN WITNESS WHEREOF, Executive has hereunto set his hand and the Company has caused this instrument to be duly executed as of the day and year first above written. NATIONAL STEEL CORPORATION By:_________________________________ Name: Title: ____________________________________ Yutaka Tanaka -12- EX-10.D 5 AMENDMENT DTD. 8/1/98 EXHIBIT 10-D August 1, 1998 Mr. David L. Peterson 906 Coldspring Northville, MI 48167 Dear Mr. Peterson: This is to confirm that you have agreed to assume the position of Sr. Vice President Business Development, Production Planning and Technical Services at the Mishawaka, Indiana Headquarters of National Steel Corporation ("NSC" or the "Company"). In this position, you will receive the same annual salary and benefits as you are currently receiving. We understand that you believe that this change in your title provides you "Good Reason" to terminate your employment with NSC under your Agreement, but that you nevertheless are willing to assume the Headquarters job on a trial basis for up to six months. As we have discussed, it is the Company's position that the change in your job title does not provide you "Good Reason" to terminate within the meaning of your Agreement. The Company and you have agreed to put off the resolution of any dispute over this matter and preserve the respective arguments concerning "Good Reason" during the trial period so as to permit you to evaluate the new assignment. Accordingly, the Company and you agree as follows: 1. You will assume the position of Sr. Vice President Business Development, Production Planning and Technical Services for a trial period beginning on August 1, 1998 and ending on or before January 31, 1999. Your employment will be pursuant to the terms of your Employment Agreement except as provided in this letter. 2. If any time prior to February 1, 1999 you do not wish to continue your employment, you will provide the Company with a Notice of Termination ("Notice") as defined in your Agreement and terminate employment within 10 days of such Notice. If you do not provide such Notice prior to February 1, 1999, you will remain employed in your new Mr. David L. Peterson August 1, 1998 Page 2 position pursuant to the terms of your current Agreement or, if mutually acceptable, pursuant to the terms of a new employment agreement to be negotiated in good faith between you and the Company. 3. Effective August 3, 1998, you will be granted 10,000 stock options (the "stock option") under the Company's Long Term Incentive Plan (the "Plan"). The stock option will be granted at an exercise price that is equal to the average of NSC's high and low market price reported by the NYSE on August 3, 1998. Should you terminate your employment with NSC for "Good Reason" as defined in your Agreement on or before February 1, 1999, you will forfeit these stock options. In all other respects, these stock options shall be subject to the terms of the Plan. 4. If you so provide the Notice described in paragraph 2 above, the Company will not contend in any arbitration or other proceeding between you and the Company that your agreement to accept the position on a trial basis prevents you from arguing that you have "Good Reason" to terminate your employment based on your reassignment. 5. You will not contend in any arbitration or other proceeding that the Company's agreement to offer you the new position on a trial basis (a) is an admission that the reassignment provides you "Good Reason" to terminate employment or (b) prevents the Company from contending in any such proceeding that you do not have "Good Reason" to terminate employment. Please countersign below to confirm that you have consulted with personal counsel and that this letter accurately reflects our agreement. Sincerely, _______________________________ David A. Pryzbylski Senior Vice President - Administration and Corporate Secretary Accepted and Agreed to: ______________________ David L. Peterson EX-15.A 6 INDEPENDENT ACCOUNTANTS REVIEW REPORT Exhibit 15-A Independent Accountants' Review Report Board of Directors National Steel Corporation We have reviewed the accompanying consolidated balance sheet of National Steel Corporation and subsidiaries (the Company) as of September 30, 1998, and the related consolidated statements of income for the three-month and nine-month periods ended September 30, 1998 and 1997, of cash flows for the nine-month period ended September 30, 1998 and 1997, and of changes in stockholders' equity and redeemable preferred stock--Series B for the nine-month period ended September 30, 1998. These financial statements are the responsibility of the Company's management. We conducted our reviews in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our reviews, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements referred to above for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet of National Steel Corporation and subsidiaries as of December 31, 1997, and the related consolidated statements of income, cash flows, and stockholders' equity and redeemable preferred stock-- Series B for the year then ended (not presented here), and in our report dated January 28, 1998 (except for Notes C, I, and K, as to which the date is February 26, 1998), we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of December 31, 1997, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived. Ernst & Young LLP Indianapolis, Indiana November 13, 1998 EX-15.B 7 ACKNOWLEDGEMENT LETTER Exhibit 15-B Board of Directors National Steel Corporation We are aware of the incorporation by reference in the following Registration Statements: Form S-8, No. 33-51991, pertaining to the 1994 and 1995 Stock Grants to Union Employees, Form S-8, No. 33-51081, pertaining to the 1993 National Steel Corporation Long-Term Incentive Plan, Form S-8, No. 33-51083, pertaining to the 1993 National Steel Corporation Non-Employee Director's Stock Option Plan, and Form S-8, No. 33-61087, pertaining to the National Steel Retirement Savings Plan and National Steel Represented Employee Retirement Savings Plan, of our report dated November 13, 1998 relating to the unaudited interim consolidated financial statements of National Steel Corporation and subsidiaries that are included in its Form 10-Q for the quarter ended September 30, 1998. Ernst & Young LLP Indianapolis, Indiana November 13, 1998 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 106,641 16,284 318,192 15,935 485,301 919,080 3,454,648 2,236,983 2,367,832 534,534 288,472 0 0 433 892,364 2,367,832 2,162,636 2,162,636 1,908,047 1,908,047 178,526 (1,709) 7,737 68,326 3,416 64,910 0 0 0 64,910 1.50 1.50
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