The Stel Salaried Pensioners Organization wishes to thank The Hamilton Spectator for permission to post the following article,

published in the February 7, 2006 edition

Freeze on dividends

Stelco shareholders' money on hold until pension debt gone

The Canadian Press
Toronto (Feb 7, 2006)

Stelco shareholders won't receive dividends until the steelmaker's pension plan is out of the red.

In court documents released Friday, Tricap Management -- which will own 38 per cent of Stelco once it emerges from bankruptcy protection -- said the company will neither distribute dividends nor buy back shares until it fulfills an agreement with the province to pay off its $1.3 billion pension shortfall within a decade.

The province of Ontario demanded the agreement in exchange for its contribution of $150 million to Stelco.

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.

The last time Stelco paid a dividend to its shareholders was in 2000.

Rolf Gerstenberger, president of United Steelworkers Local 1005 in Hamilton, countered there's nothing to prevent Tricap from cashing in on its investment by selling its shares if the stock price rises.

Stelco 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 plan entails a fundamental reorganization of Stelco into nine subsidiaries or business units, each with its own management, employee communications, web page, signage, human resource functions and accounting records.

The new business units, would be owned 100 per cent by Stelco, which would in turn act as a holding company and head office. The plan would separate Stelco's profitable Lake Erie operations from its aged Hamilton Hilton Works -- a move some employees fear is 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."

Gerstenberger said he's not convinced the structure isn't designed to sell off parts of Stelco.

In court documents, Tricap senior vice-president Edwin Nordholm said the fund revised its proposal after consulting employee groups, the province 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."