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Purchase of National Steel's Assets is Approved by Bankruptcy Court

U.S. Steel Will Acquire the Assets Free and Clear of All Mortgages, Liens and Charges

Pittsburgh— U.S. Bankruptcy Court in Chicago has approved U.S. Steel's purchase of National Steel Corporation's integrated steel assets. U.S. Steel also announced that it has signed a definitive Asset Purchase Agreement with National, which was approved by the bankruptcy court.

Under the terms of the agreement, U.S. Steel will purchase substantially all of National's steelmaking and steel finishing assets and the assets of National Steel Pellet Company for $1.05 billion, including $850 million in cash and the assumption of $200 million of National's lease and contractual obligations. The agreement provides that net working capital will be at least $450 million on the closing date. U.S. Steel intends to fund the cash component of the acquisition through a combination of existing cash balances, credit facilities, and the issuance of debt securities. U.S. Steel will not assume any liabilities related to National's pension plans, which have been terminated by the Pension Benefit Guaranty Corporation, nor will it assume National's defined benefit retiree medical and life insurance plans and, consistent with the U.S. Bankruptcy Code, the transaction will exclude all liabilities except as have been agreed to by U.S. Steel. The transaction is expected to close later in the second quarter and is subject to customary closing conditions.

U.S. Steel will record liabilities related to current active National employees primarily for future retiree medical costs, subject to certain eligibility requirements. These liabilities are broadly estimated at $290 million and include at least $35 million for early retirement incentives and lump sum payments to the Steelworkers Pension Trust, which will have a cash impact in 2003. The Steelworkers Pension Trust is a multi-employer pension plan to which U.S. Steel will make defined contributions per hour worked for all National union employees who join U.S. Steel.

Implementation of the new labor agreement and related actions for U.S. Steel employees and retirees will result in charges of at least $400 million, of which approximately $115 million for early retirement incentives will have a cash impact in 2003. The balance mainly relates to the recognition of deferred actuarial losses as a result of an expected 2003 pension plan curtailment triggered by the anticipated early retirements. The agreement also enables U.S. Steel to significantly reduce its employee and retiree healthcare expenses through the introduction of variable cost sharing mechanisms. U. S. Steel also anticipates realigning its non-represented staff in the near-term so as to achieve significant productivity gains, the effects of which are not reflected in the foregoing amounts.

In its order approving the sale, the Court found, among other things: that the U.S. Steel offer is the highest and otherwise best offer, that U. S. Steel will acquire the assets free and clear of all mortgages, liens, and charges, that U.S. Steel will provide a greater recovery for National's creditors than would be provided by any other practical available alternative, and that the sale must be approved and consummated promptly in order to preserve the viability of National's business as a going concern.

Under the Asset Purchase Agreement with National, U.S. Steel will acquire facilities at National's two integrated steel plants, Great Lakes Steel, in Ecorse and River Rouge, Michigan, and the Granite City Division in Granite City, Illinois; the Midwest finishing facility in Portage, Indiana; ProCoil Corporation in Canton, Michigan; National Steel Pellet Company's iron ore pellet operations in Keewatin, Minnesota, and various other subsidiaries; and joint-venture interests, including National's share of Double G Coatings, L.P. in Jackson, Mississippi.





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