Stelco Inc. has filed a restructuring plan outline that it says is designed to ensure a viable company over the long term and provide lasting benefits for its stakeholders.

Courtney Pratt, Stelco President and CEO, said, "Our plan outline is reasonable, realistic and responsible. It's reasonable because it treats stakeholders fairly and in accordance with their rights. It's realistic because we believe it is financially achievable. And it's responsible because we are the only party with a legal obligation to balance the interests and competing demands of stakeholders. I invite all stakeholders to consider this plan outline from everybody's perspective, not just their own, and to conclude that it is fair and reasonable. After so many months of negotiating we should start working together to secure the approval and implementation of a fair and reasonable plan."

The plan provides for the recapitalization of Stelco by arranging new loans, selling non-core assets and issuing new securities. The plan is designed to treat the interests of creditors and other stakeholders in a fair and balanced manner:

• Pension beneficiaries, current employees, the union and the Government of Ontario will benefit from a plan to retire the company's pension plan solvency deficiencies of about $1.3 billion by 2015. It is intended that the pension plans would receive approximately $900 million in upfront contributions and annual cash payments before the first new debt instrument matures in 2012.
• Secured operating lenders will be refinanced at the time of plan implementation.
• Unsecured creditors will receive full recovery on approximately $665 million owed to them by conversion of part of their obligations to equity and the balance to new debt, some of which will be secured.
• Current equity holders will be offered less than 2% of the fully-diluted shares outstanding, the right to purchase shares under a $100 million rights offering and will receive warrants to purchase 10% of the company on a fully-diluted basis.

"We've worked long and hard to find a middle ground between competing demands," Mr. Pratt noted. "Various stakeholders may criticize the plan because it does not provide them with everything they want. There is not enough value in the company to give every group everything it wants. The key is to provide enough that everyone can support. We believe this plan strikes that balance, that it is achievable, and that it will result in a viable Stelco over the long term. This balance and achievability reflects the fact that the plan outline does not propose to expropriate one party's interest to satisfy the demands of another."

"The plan also provides a reasonable and financially responsible solution to the pension funding issue," Mr. Pratt noted. "This has been one of our stated objectives throughout the restructuring process. We believe that the 10-year deficiency retirement plan balances the competing interests of responsibly funding Stelco's pension obligations and ensuring that the company has the funds needed to carry on its business. Those funds include the $425 million to be invested in our critical capital expenditure program under the plan outline."

The plan is also designed to provide the company with the liquidity and leverage that are appropriate and in-line with industry peers. It envisions $600 million in new credit facilities, approximately $650 million of net liquidity and a significant reduction in the company's total debt.

A backgrounder to the plan and a summary of the plan outline are included below. Plan outline documents can be accessed through a link available on Stelco's website.

Stelco's Restructuring Plan Outline

Background—Stelco states that it worked with stakeholders for nearly 17 months to secure consensus. The company has initiated, accepted and participated in a number of consultative processes. The goal has been to achieve the consensus of stakeholders around a plan that will receive the necessary votes required for approval of a restructuring plan that will enable Stelco to emerge from CCAA protection.

Stelco also states that the company does not possess enough value to meet every stakeholder's demands, noting that some stakeholders have indicated their desire to improve upon their pre-CCAA position at the expense of others. The key is to find a middle ground that everyone can support.

Stelco is the only stakeholder with a legal obligation to balance the interests and competing demands of other stakeholders. Other parties have the luxury of making demands designed only to benefit their own interests. In addition, the law states that a restructuring plan can only be implemented if it secures the approval of affected creditors and the Court. Key to obtaining those approvals is a plan that takes into account and treats the interests of all stakeholders in a reasonable manner.

Stelco believes that stakeholders have clearly enunciated their demands and negotiating positions. However, continuation of this posturing without resolution will not result in a timely outcome. At the same time, the company's competitive circumstance has suffered as a result of such factors as falling steel prices, softening market conditions, and increased raw material, energy and other costs.

Stelco is committed to achieving a restructuring plan that enables it to emerge from CCAA as a viable company for the long term; that is competitive throughout the market cycle; that preserves jobs; that meets its obligations to retirees and other stakeholders; and, that has the capital structure to support the company in achieving these objectives.

In support of moving forward with the restructuring, Stelco has developed a plan outline it believes is appropriate to submit to stakeholders for their approval. The company plans to meet this week with stakeholders to discuss the plan outline, which is offered as a reasonable plan that is fair to all stakeholders. It undoubtedly will be criticized by stakeholder groups that are not getting everything they want or demand. However, it has the support of the company's Board, management, financial advisors and Chief Restructuring Officer, all of whom view the plan outline as fair and reasonable.

Stelco’s plan would be implemented in two phases, with Phase One kicking in immediately upon the company's exit from CCAA. This phase includes issuance to creditors of $566 million of new debt and $100 million of new equity. This phase will also see the payment of contributions to the company's four main pension plans of $100 million in Senior Secured Notes and up to $100 million in cash from the proceeds of the sale of the non-core assets.

In Phase Two, following a pension funding agreement with the Government of Ontario and the conclusion of renewal collective bargaining agreements at Lake Erie and Hamilton, $200 million of debt will be converted to equity and a $100 million rights offering will be completed.

It is anticipated that the plan implementation will occur on or about September 30, 2005.

New Financing—Under Stelco’s plan, new financing will be raised to address the claims of creditors. This
will include:

• Senior Secured Floating Rate Notes at a US$ equivalent of $250 million, due in 2012.
• Secured Convertible 6.25% Notes valued at $116 million, due in 2015. These Notes become unsecured upon completion of the pension funding agreement and the renewal collective bargaining agreements at Hamilton and Lake Erie. The Notes are convertible into common shares.
• Unsecured Convertible 1% Notes valued at $200 million, due in 2010. These Notes are, among other features, convertible into common shares at the option of Stelco upon completion of the pension funding agreement and the renewal collective bargaining agreements.

In addition, 11 million New Common Shares of Stelco will be outstanding immediately after plan implementation, 10 million of which will go to the creditor group and 1 million to existing equity holders. Rights to purchase New Common Shares pursuant to a $100 million rights offering expected to be completed within 18 months and to be added to liquidity. Warrants, with a 10-year maturity, to purchase 6.0 million New Common Shares or about 10% of all New Common Shares to be issued on a fully-diluted basis.

New Cash will include:

• $175 million net proceeds anticipated from the sale of non-core assets.
• $100 million from the Rights offering
• $90 million from the Warrants

The plan outline offers the prospect of a Stelco that is viable over the long term, beginning with approximately $650 million in net liquidity ($550 million Phase One plus $100 million Phase Two), and an assumed enterprise value of $885 million. With the plan, the positions of nearly all stakeholders will be enhanced, with potential upside value, and funding for $425 million in critical capital expenditures over 18-24 months. The plan allows for an affordable pension funding schedule, and it has a reasonable prospect of being achieved if stakeholders react responsibly.

The plan features an appropriate capital structure with liquidity, leverage, and balance sheet structure that are appropriate and in-line with peers. It includes up to $600 million of operating credit facilities, and a balance sheet that is improved by $300 million in equity (debt conversion + new equity). With Stelco’s plan, near-term maturities will be replaced with long-term debt, and leverage will reflect that of the peer group.

With Stelco’s plan, existing secured operating lenders will be repaid in full. Stelco's senior debentureholders, subordinated debentureholders, plus trade and other unsecured creditors having claims totaling some $666 million will receive pro rata share of:

• The US$ equivalent of $250 million of the Senior Secured Floating Rate Notes
• $116 million of Secured Convertible 6.25% Notes
• $200 million of Unsecured Convertible 1% Notes
• $100 million of New Common Shares

Under the proposed plan, Stelco's four main pension plans will receive the following contributions once Stelco and the government of Ontario have entered into a pension funding agreement consistent with the terms of the Stelco plan.

• An upfront contribution of the US$ equivalent of $100 million of Senior Secured Floating Rate Notes
• 2/3 of the net proceeds from the sale of the non-core assets, up to a maximum of $100 million in cash
• Annual cash payments of approximately $98 million
• Pension plan solvency deficiencies of about $1.3 billion will be retired by 2015

As a result, the pension plan deficiencies will be addressed in a manner that will reasonably secure the benefits of current retirees and plan members.

Stelco’s salaried and bargaining unit employees and retirees are unaffected by the proposed plan. They are not being requested to make any concessions in terms of salaries and wages or pension and other benefits, and they will benefit from the proposed accelerated pension funding plan.

In exchange for their existing common shares, existing shareholders will receive a pro rata share of:

• 1 million New Common Shares
• The Rights

As a result, existing shareholders have the opportunity to retain value if they are prepared to invest new money in Stelco by exercising the Rights and Warrants.

On exit from CCAA, the general unsecured creditors will hold 90.9% of the equity while existing equity holders will hold 9.1%. If existing equity holders do nothing more, their holdings will decline to less than 2%. After the exercise of their Rights and their contribution of $100 million, existing equity holders will have 29.8% of the equity while the general unsecured creditors will hold 70.2% (pre-exercise of Warrants).

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.