The Stel Salaried Pensioners Organization wishes to thank The Hamilton Spectator for permission to post the following article by Reporter Tara Perkins, published in the February 6, 2006 edition

Stelco to separate into nine new subsidiaries, forswear dividends

By TARA PERKINS

TORONTO (CP) - Stelco Inc. (TSX:STE.A) intends to split into nine new subsidiaries and not pay dividends or buy back shares while its pension plan remains in deficit.

The steelmaker will ask an Ontario Superior Court judge on Friday for permission to make the changes demanded by Tricap Management Ltd., a Toronto restructuring fund which is lending Stelco $375 million. The new business units, owned 100 per cent by Stelco, will each have its own board of directors, employee communications, web page, signage, human resource functions and accounting records.

It is one of the final steps the Hamilton-based company intends to complete before emerging from its two-year-old bankruptcy protection process this spring.

Tricap will own about 38 per cent of the stock Stelco will issue after it completes its reorganization and cancels its current shares.

Some employees fear the moves are designed to isolate and make it easier to get rid of the underperforming Hamilton steelmaking complex.

But Tricap said in a memo to Stelco that the new structure will maximize our ability to raise capital for the company on optimal terms, and provide the greatest opportunity to realize the turnaround potential of the (Hamilton) operations.

Rolf Gerstenberger, president of United Steelworkers Local 1005 in Hamilton, said Monday he's not convinced the structure isn't designed to sell off parts of Stelco.

We really don't have much control over whatever they're going to do, he said.

In court documents, Tricap senior vice-president Edwin Nordholm said the fund revised its proposal following discussions with employee groups, the provincial government and bondholders.

Tricap's new reorganization documents, yet to be approved by the court, would prohibit Stelco from making any dividend payments on its common shares, redeeming or otherwise purchasing any of its common shares, or making any other form of distribution to its shareholders while any of the main pension plans remain subject to the 10-year funding arrangement.

The province recently forced Stelco to sign a payment schedule intended to pay off its $1.3-billion solvency pension deficit in a decade.

Tricap said the freeze on dividends illustrates the long-term nature of its investment in the company.

Its interest in Stelco will rank below pension funding and employment obligations, it said in court documents. It added that it is putting its substantial new equity investment at risk in the belief that Stelco will emerge as a viable business with long-term prospects.

Gerstenberger countered that there's nothing to prevent Tricap from cashing in on its investment by selling its shares if the stock price rises.

Each new business unit will be responsible for current obligations to its employees and retirees, but will not be liable for obligations of other units.

However, Stelco and all of the units will be liable for the annual funding of the pension under the 10-year deal.

In addition, an acquirer of any or all of the subsidiaries would be bound by Stelco's pension funding arrangements.

Stelco's Hamilton operations are to divided into business units dealing with steel, energy assets, coke batteries and land. The same four-unit structure would be created for the Lake Erie operations in Nanticoke, Ont. The ninth unit would contain Stelco's mining interests.

The reorganization under the Canada Business Corporations Act would make each business unit a limited partnership, with Stelco Inc. as limited partner.

Tricap, owned by Brookfield Asset Management (TSX:BAM.LV.A), the former Brascan Corp., said Stelco has called the changes complex but achievable.

Stelco's current shares half a penny Monday to 14 cents on the Toronto Stock Exchange. The new shares are to be issued at $5.50 apiece.