Stelco Inc. filed a restructuring plan with the Court on Tuesday, Sep. 20. It also filed a restructuring agreement with the Province of Ontario that includes an arrangement for funding the company's pension plans.

Courtney Pratt, Stelco President and CEO, said, "This plan, together with the restructuring agreement with the Province, represents a significant step forward in our quest for a consensual restructuring and a positive outcome. It provides a strong platform for restructuring the Company. And it moves us closer to the goal of emerging successfully from Court protection as a viable steel producer at Lake Erie and in Hamilton. We're looking forward to constructive discussions with our bondholders and others towards obtaining their support."

Mr. Pratt noted that the plan reflects the constructive discussions held with creditors and other stakeholders since the plan outline was filed on July 15th. "We've listened to the views that have been expressed, we've acted on those concerns, and we've tried to amend the plan outline in accordance with our objective of a fair and reasonable restructuring plan," he noted. "The result is a plan that represents an appropriate balancing of interests."

Under the restructuring agreement, the Province will invest $100 million towards an upfront contribution to the company's pension plans. It has also agreed to a schedule of fixed annual cash payments the company will make into the plans through 2015. This formula will replace section 5.1 of the Regulation under the Pension Benefits Act. In return, the Province and the company have agreed that Stelco will increase its proposed upfront
contribution to the pension plans to $400 million rather than the $200 million contained in the company's July plan outline.

The restructuring agreement with the Province is conditional on the conclusion of a funding arrangement with Tricap Management Limited to provide up to $450 million in new financing, and on Stelco entering into a Memorandum of Agreement with each of USW Locals 8782 (Lake Erie) and 5220 (AltaSteel) by 9:30 a.m. on Thursday, September 22, 2005 (or such later date as the Province, acting reasonably, may agree). Stelco indicates that it is committed to continuing its efforts to conclude these agreements.

"The Province has shown considerable leadership and has broken the restructuring log jam by bringing a tangible pension funding solution to the table," Pratt said. "This solution meets the stated objectives of a number of our stakeholders. It provides stability surrounding our pension funding commitments over the next decade. And it provides security and assurance for our active and retired employees. I want to thank the Province for the constructive role it has played in this process and for the meaningful contribution it is making to the resolution of this matter."

The plan will provide Stelco with an estimated $630 million in net liquidity at the plan implementation date of December 31, 2005. The new capital structure and available liquidity will facilitate pursuit of the company's four-point strategic plan announced in July 2004.

Highlights of the plan include new loans, new financing, new equity and new cash.

New loans include a new $600 million asset-based revolving loan facility, and a $350 million revolving bridge facility supplied by a financing provider. Stelco is seeking to finalize an agreement with Tricap for this purpose.

New financing includes $225 million in Secured Convertible Notes and $300 million in Contingent Convertible 5% Notes, which will be convertible into new common shares upon the satisfaction of certain conditions to be determined. Financing also includes $100 million Unsecured Subordinated 1% Note with a ten-year maturity, issued to the Government of Ontario in exchange for a $100 million cash contribution. If the pension solvency deficiency is fully funded by year 10, then 75% of the Note would be forgiven at maturity, with the balance payable in cash or shares.

New equity will include new common shares, all of which will go to the general unsecured creditors, subject to the Warrants rights of the Province. There will also be a $75 million rights offering to subscribe to Secured Convertible Notes; the rights offering will be backstopped in exchange for a cash fee and an option to purchase $25 million of new Secured Convertible Notes on the same terms as the rights offering. The company is negotiating such rights offering and option to purchase with Tricap. In addition, Warrants (with a seven-year maturity) will be issued to the Province of Ontario to purchase up to approximately 8.0% of the fully diluted equity at a 100% premium to the trading value of the new common shares.

New cash will include $155 million in net proceeds from the sale of Stelco non-core assets; $75 million from the planned Rights offering; and $25 million from the exercise of the Secured Convertible Note purchase option.

Existing secured operating lenders are to be repaid in full. Recovery for unsecured creditors will take the form of equity and equity-linked securities. Stelco indicated that there is insufficient value to provide full recovery to unsecured creditors under the plan, although the actual level of recovery to be realized by unsecured creditors cannot yet be determined. The level of recover depends on a number of factors, the most important of which include conditions that must be satisfied under the plan itself, market conditions, and the achievement of collective bargaining agreements. Regarding recovery for shareholders, Stelco indicated that there is insufficient value to provide recovery to existing shareholders, thus the existing shares will be effectively cancelled.

Salaried and bargaining unit employees and retirees are unaffected by Stelco’s restructuring plan. No concessions are being sought in terms of salaries and wages, or pension and other benefits. The pension funding agreement between the Company and the Province will benefit all salaried and bargaining unit employees and retirees.

Stelco Inc. is a large, diversified steel producer involved in major segments of the steel industry through its integrated steel business, minimills, and manufactured products businesses.