Stelco Inc. filed material with the Superior Court of Justice (Ontario) opposing the USW International's bid to enable any creditor to prepare and file a restructuring plan in the matter of the company's CCAA process. The USW International motion is to be heard by the Court on August 16, 2005.

In an affidavit sworn by Hap Stephen, Stelco's Chief Restructuring Officer, the company said that, among other things, the plan supported by the USW International is not achievable, and that the USW International seems prepared to see Stelco broken up and Hamilton suffer in pursuit of a political agenda that has severe consequences for the company's stakeholders.

The affidavit states that the USW International is not an affected creditor for the purposes of a CCAA plan. In the matter of the company's pension obligations, for example, the affidavit notes that the company has made all of the required contributions to its pension plans, has made all of its pension payments to retirees, and has indicated that no changes to pension benefits are even being proposed. Stelco has only proposed that in any pension funding agreement relating to accelerated contributions, future increases in pension benefits be postponed until the funding of the pension plans has reached an acceptable level under the company's pension funding plan.

The affidavit notes that the USW International speaks for a minority of the company's unionized employees. Only one of the five union Locals for which the USW International apparently speaks — Local 8782 at Lake Erie — actually represents employees of Stelco Inc. and its core operations that are being restructured. The affidavit notes that the pension plan for Local 8782 represents only about 10% of the company's pension windup deficiency of $1.3 billion.

The affidavit notes that the restructuring plan supported by the USW International is simply not achievable. A number of unsecured creditors, including local trade suppliers and other community businesses, have stated repeatedly that they will not vote to approve a plan so blatantly designed to improve the USW International's own position at the expense of other legitimate stakeholders. The affidavit observes that the USW International does not seek equal treatment of all stakeholders. It offers no concessions, it seeks to open collective agreements and it seeks to obtain economic improvements for the union Locals it apparently represents. The affidavit notes that while Stelco's plan outline proposes full recovery for general unsecured creditors, the plan supported by the USW International only provides 47% recovery without the exercise of the rights and 63% if they invest additional funds and exercise the rights offering.

The affidavit notes that, in light of the clear position taken by other creditors, the USW International's strategy seems to entail the failure of the CCAA process and the imposition of a Court-ordered sale of Stelco's assets. The affidavit notes that the USW International's pronounced preference for a consolidated continental steel industry may be at odds with the views of other Stelco employees, including the employees and retirees of the Hamilton operations.

The affidavit also observes that the USW International has indicated that it would accept a Court-supervised liquidation sale of Stelco assets if a consensual restructuring is not achieved. This could place a number of the Hamilton and other non-Lake Erie operations at risk of failing to attract an offer that would see those operations survive intact. The affidavit notes that the Hamilton facility is one of the least competitive steel mills in North America and would be more at risk in a consolidation of the industry.

The affidavit further notes other consequences of a Court-ordered liquidation sale of assets. These consequences include a process that could take many months to complete, that could jeopardize financing of the business due to the risk of value erosion, that could see a deterioration of the business through the loss of customers and suppliers, and that could cause the departure of skilled technical and other employees in response to the uncertainties caused by the process itself.

Commenting on the situation facing the company, Stelco President and CEO Courtney Pratt said, "Stakeholders are risking the survival of the company and thousands of jobs by their failure to adopt the middle ground or by the pursuit of their own political goals."

"The company is required by law to balance the interests and competing demands of all stakeholders," Mr. Pratt noted. "That's why our plan outline, which can't give every group everything it wants, tries to provide something for everyone. And while we are, in fact, willing to entertain revisions to that outline, we cannot accept changes that would improve the position of one group at the expense of another."

"It's time for the USW International, the Locals it represents and all other stakeholders to decide once and for all whether they wish to see Stelco emerge from its restructuring as a single and viable company," Mr. Pratt added. "A consensual restructuring can still occur, but only if people want it to happen and are willing to come together to make it happen."

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