1. Essar Steel Algoma Inc. Pension Plans Susan Ursel and Karen Ensslen
Retiree Consultation
555 Richmond Street West, Suite 1200 Toronto, Ontario M5V 3B1
Susan Ursel and Karen Ensslen
Tel: (416) ▪ Fax: (416)

2. Overview Representative counsel and the retiree committee
Algoma’s CCAA Proceedings
The sale of the business
The basic structure of the pension agreement
Proposed changes to the Hourly and Salaried Plans
Proposed changes to the Wrap Plan
The Wrap Plan interim arrangements
Recommendation
Questions 2

3. Representative Counsel’s Role
The Court appointed Ursel Phillips Fellows Hopkinson LLP to represent the interests of:
the retired and former members (and the surviving spouse and other beneficiaries identified by any such member) of the ESAI Salaried Pension Plan and the ESAI Wrap Pension Plan
as well as the interests of those members of the ESAI Hourly Pension Plan, who opted out of representation by USW Local 2251 3

4. The Retirees’ Committee
Under the Representative Counsel Order, we have consulted with and relied upon advice, information and instructions from a committee made up of the presidents and delegates from
SOAR Chapter 7
SOAR Chapter 17 and
Steelworkers Retirees’ Club 1009
Counsel has worked closely with the Retirees’ Committee over the past 3 years to represent the interests of the deferred and retired members of the pension plans 4

5. The Retirees’ Committee
Membership in the Retirees’ Committee has changed over time as members have had to withdraw for personal and health reasons and have been replaced.
We are grateful for the past assistance of Bob Grant and the late Jack Bright. 5

6. The Retirees’ Committee
Current members of the Retirees’ Committee working with Representative Counsel are:
Don Barill
Dave Chadwick
Jack Ostroski
James Albert Punch
Eric Sillanpaa
Burnie Thorp 6

7. Representative Counsel
Today’s consultation meetings follow two previous information meetings that we held with retirees on:
February 17, 2016 and
June 16, 2017. 7

8. Algoma’s CCAA Proceedings
November 9, Essar Steel Algoma applied for protection from its creditors under the Companies’ Creditors Arrangements Act (“CCAA”)
This protection relieved the Company of its obligations in relation to its pre-petition debt, while the Company took steps under the Court’s supervision to restructure. 8

9. Algoma’s CCAA Proceedings
At the outset of the CCAA Proceedings, the Company had secured debts of approx. $1 Billion:
Term Loan – approx. $375 M
Senior Secured Notes – approx. $375 M
Junior Secured Notes – approx. $250 M
Asset-Backed Loan – approx. $50 M
Debtor-in-Possession Loan – approx. $220 M 9

10. Algoma’s CCAA Proceedings
At the outset of the CCAA Proceedings, the cumulative wind-up deficits in the pension plans were approx. $500 million:
Hourly Plan - $329.4 M (as at Aug 1, 2015)
Salaried Plan - $130.6 M (as at Aug 31, 2015)
Wrap Plan - $62.7 M (as at Dec 1, 2015) 10

11. Algoma’s CCAA Proceedings
Jan 13, 2016 –The Court issued an Order suspending Special Payments to Algoma’s three pension plans
Jan 28, Representative Counsel sought leave to appeal the Special Payments Order
April 18, 2016 – Court of Appeal denied Representative Counsel’s motion for leave to appeal the Special Payments Order 11

12. Sales Process
Feb 10, 2016 – The Court approved the Sales and Investment Solicitation Process (“SISP”) – a process to find a buyer for the business
June 17, 2016 – The Company filed motion to approve a sale to KPS Capital Partners and the Term Lenders
July 13, 2016 – KPS withdrew from the proposed transaction and Company adjourned its motion 12

13. Sales Process
Sep 30, 2016 – Term Lenders reached an agreement with a majority of holders of Senior Secured Bonds (together, the “Consenting Creditors”) under a Restructuring Support Agreement to purchase the Company 13

14. Sales Process
July 20, The Company and New Algoma entered into an Asset Purchase Agreement (“APA”), which is conditional upon satisfaction of, among other things, the Pension Regulations Condition
September 21, 2018 – Court approved the APA. 14

15. Negotiations re CBAs and Pensions
Nov- Dec 2016 – early negotiations between the union locals, retirees and the Term Lenders and Senior Bondholders
March 6, 2017 – Court Orders Unions, Retirees, Company and Term Lenders/Senior Bondholders into Mediation 15

16. Negotiations re CBAs and Pensions
March 22-30, 2017 – Mediation occurs between Term Lenders, Senior Bondholders and the Company, and the Retirees and Union Locals
Discussions in Toronto mediated by the Honourable Warren Winkler and Bill Kaplan
Contents of discussions subject to confidentiality order of the Court
Mediation adjourned without an agreement 16

17. Negotiations re CBAs and Pensions
December 5, 2017 – Court amends Representative Counsel Order to recognize Local 2251 as representative for retired and former members of the Hourly Plan who were represented by USW Local 2251 immediately prior to the date on which they retired or their employment otherwise terminated (or the surviving spouse of any such member), excluding any such members who opted out of being represented by USW Local 2251
December 6, 2017 – Court recognised that USW Local 2724 has the exclusive authority to bargain the terms of its collective agreement, including any terms in respect of pensions or other post-employment benefits 17

18. Negotiations re CBAs and Pensions
June 19, 2018 – USW Locals 2251 and 2724 reach Memoranda of Agreement regarding New CBAs, including the Pension Matters Agreement 18

19. Exiting CCAA Protection
The Closing of the Sale is an important step because it will allow Algoma to exit the CCAA Proceedings.
Exiting the CCAA Proceedings will allow the company to stop spending money on restructuring costs and instead put those funds into needed Capital Expenditures and the success of the business

20. The Sale of the Business
The Consenting Creditors have established a new company, Algoma Steel Inc. (“New Algoma”)
The Company and New Algoma have entered into an Asset Purchase Agreement (the “APA”), which is conditional upon satisfaction of certain conditions.
The APA was approved by the Court on September 21,
This sale is expected to close in November 2018.

21. The Sale of the Business
The conditions in the APA include requirements that:
new collective bargaining agreements, acceptable to the Consenting Creditors be ratified;
legislative and/or regulatory amendments to the Pension Benefits Act (“PBA”), acceptable to the Consenting Creditors, are proclaimed into force that set out the terms under which the Pension Plans are to be funded and applicable exemptions from the PBA (“Pensions Regulations Condition”);

22. The Sale of the Business
Included in the Pensions Regulations Conditions are requirements for regulations to be proclaimed in force in respect of the Wrap Plan which:
(i) set out the terms under which the Wrap Plan is to be funded; and
(ii) provide for exemptions from subsection 57(3) of the PBA with respect to any contributions due to the Wrap Plan prior to the Closing Date and from the application of subsection 57(4) of the PBA (the “Wrap Plan Regulations Condition”).

23. The Basic Structure of the Pension Agreement
Through the mediation process mandated by the Court, the Consenting Creditors and the Unions entered into an agreement under which New Algoma will assume all three existing pension plans, in accordance with certain terms.

24. The Basic Structure of the Pension Agreement
The pension agreement involves a basic quid pro quo:
The three pension plans will be maintained and funded by New Algoma and will continue to pay out benefits
In exchange, New Algoma receives:
Annual caps on certain funding obligations related to special payments
Exemptions from certain provisions of the Pension Benefits Act that could affect their ability to obtain competitive financing

25. The Basic Structure of the Pension Agreement
Although not related to the pensions, it is important to note that, as part of the overall agreement with the unions, other significant concessions that would have impacted the retirees were resisted:
Proposals that would have required retirees to use a single-source pharmacy
Proposals to reduce post-retirement benefits

26. Proposed Changes to the Hourly and Salaried Plans
Benefits: There will be no changes to the benefits paid under the Hourly and Salaried Plans, except in relation to:
Indexation, which is reinstated for each year between 2018 and An agreement has been reached to revisit the indexation formula.
Early retirement windows

27. Proposed Changes to the Hourly and Salaried Plans
Pension Benefits Guarantee Fund (“PBGF”) Coverage:
The PBGF is a special fund that was established by the Government of Ontario to cover certain pension benefits for certain defined benefit pension plans to a maximum of $1,500 per month if they are wound up, there is a funding shortage and the funding requirements of the Pension Benefits Act (PBA) and regulations cannot be met (because the employer is insolvent).
The Hourly Plan and Salaried Plan do not currently have PBGF protection.
When both plans reach a solvency ratio of 85% or higher, the PBGF will begin to apply.

28. Proposed Changes to the Hourly and Salaried Plans
Funding:
In general, employers are required to provide funding to cover:
the normal costs associated with current service contributions to the plan, and
special payments required to fund any deficits, including going concern unfunded liabilities, solvency deficiencies, and any deficiencies or unfunded liabilities arising out of plan amendments.
Under general regulatory changes effective May 1, 2018, employers are no longer required to make special payments in respect of solvency deficiencies where a pension plan has a solvency ratio above 85%.

29. Proposed Changes to the Hourly and Salaried Plans
Since December 2013, the Hourly and Salaried Plans had been funded in accordance with a special regulation
Annual special payments were capped at $55 million/year in 2014 and 2015, and $60 million/year in 2016 (in the aggregate).
These special payments were suspended by the Court during the CCAA proceedings.

30. Proposed Changes to the Hourly and Salaried Plans
New funding rules will apply to Algoma, providing for:
Special payments to the Hourly Plan and Salaried Plan will be capped at $31 million/year (in the aggregate) until both plans reach a solvency ratio of 85%, and thereafter in accordance with the regulations
The special payments will be divided between each of the Hourly Plan and Salaried Plan pro rata based on each plan’s solvency deficiency as reflected in the last actuarial valuation.

31. Proposed Changes to the Hourly and Salaried Plans
Funding Relief:
Under the Pension Benefits Act, companies can apply for certain temporary funding relief.
New Algoma and USW Locals 2724 and 2251 have agreed that none of those parties will apply to the government for special funding relief without the consent of the other parties.

32. Proposed Changes to the Hourly and Salaried Plans
The Hourly and Salaried Plans will be exempted from certain provisions of the Pension Benefits Act:
Section 57(3) - An employer is deemed to hold in trust for the beneficiaries the amount of employer contributions due and not paid into the pension plan.
This sub-section will not apply in respect of special payments that came due between the start of the CCAA Proceedings on November 9, 2015 and the Closing Date and which were not paid during the CCAA Proceedings.

33. Proposed Changes to the Hourly and Salaried Plans
Section 57(4) - On wind up of a pension plan, an employer is deemed to hold in trust for the beneficiaries the amount of employer contributions accrued to the date of wind up of the pension plan but not yet due.
This “deemed trust” can negatively impact an operating company’s ability to borrow, and thereby reduce its competitiveness. This exemption was required by New Algoma and its lenders to ensure that New Algoma can be properly financed.

34. Proposed Changes to the Hourly and Salaried Plans
The deemed trust provisions of the PBA are intended to provide greater security for benefits if there were an insolvency than pension claims would have without them. The exemption from the deemed trust for the special payments during the CCAA Proceeding and for the  pension deficit on wind up means that such claims might be treated the same way as any ordinary claim, such as by a supplier.

35. Proposed Changes to the Wrap Plan
Benefits: There will be no changes to the benefits paid under the Wrap Plan
Funding:
Since 2014, the Wrap Plan has been funded on a “cash in = cash out” basis, in accordance with which, each month, payments were made equalling the total of all pension benefits and ancillary benefits that were payable for the preceding month
However, these “cash in = cash out” payments were suspended during the CCAA proceedings

36. Proposed Changes to the Wrap Plan
Funding:
Effective after the Closing Date, this “cash in = cash out” funding will continue, subject to an annual cap on the maximum funding of $5 million/year
It is expected that this funding regime will be sufficient to allow benefits to continue to be paid out of the Wrap Plan in the future

37. Proposed Changes to the Wrap Plan
Deemed Employer: a special regulation will deem New Algoma an “employer” under the PBA for the purposes of the Wrap Plan to allow New Algoma to assume and to make contributions to the Wrap Plan as if it was the “employer”.
This is necessary because New Algoma never employed any members of the Wrap Plan, all of whom are already retired.

38. Proposed Changes to the Wrap Plan
The Wrap Plan will be exempted from certain provisions of the Pension Benefits Act:
Section 57(3) - An employer is deemed to hold in trust for the beneficiaries the amount of employer contributions due and not paid into the pension plan.
This sub-section will not apply in respect of special payments that came due between the start of the CCAA Proceedings on November 9, 2015 and the Closing Date and which were not paid during the CCAA Proceedings.

39. Proposed Changes to the Wrap Plan
Section 57(4) - On wind up of a pension plan, an employer is deemed to hold in trust for the beneficiaries the amount of employer contributions accrued to the date of wind up of the pension plan but not yet due.
This “deemed trust” can negatively impact an operating company’s ability to borrow, and thereby reduce its competitiveness. This exemption was required by New Algoma and its lenders to ensure that New Algoma can be properly financed.

40. Proposed Changes to the Wrap Plan
Section 55(1) – A pension plan must provide for funding sufficient to provide pension benefits in accordance with the PBA and the regulations.
This exemption is required because of the permanent $5M annual cap on funding.
Section 69(1)(d) of the PBA and s of the General Regulation under the PBA – The Superintendent by order may wind up a pension plan if all or substantially all of the members of the pension plan cease to be employed by the employer.
This exemption is required to remove the discretion of the Superintendent to order a wind up as this circumstance is currently met because of the unique nature of the Wrap Plan, namely that all of the members of the Wrap Plan are retirees or former employees and have ceased to be employed by the employer.

41. Proposed Changes to the Wrap Plan
The special regulation will also add a provision allowing the Superintendent to wind up the Wrap Plan if the Wrap Plan is unable to pay the full pension benefits as they fall due.

42. Interim Wrap Plan Arrangements
A legislative amendment to the PBA is required to satisfy the Wrap Pension Regulation Condition, and it is not expected that both the legislation and the regulations with respect to the Wrap Plan will have been proclaimed into force by the Closing Date.
In order for the Transaction to close on the Closing Date, the parties have agreed to interim arrangements regarding the Wrap Plan.

43. Interim Wrap Plan Arrangements
The Interim Wrap Arrangements are intended to provide similar treatment to the Wrap Plan during the interim period as if the Wrap Terms were implemented on the Closing Date, while at the same time balancing the small risk that the Wrap Pension Regulation Condition is not satisfied after the Closing Date because, although unlikely based on all indications, the necessary legislation is not passed.

44. Interim Wrap Plan Arrangements
On October 23, 2018, the Office of the Premier issued a statement:
Ontario's Government for the People is protecting thousands of steel industry jobs in Sault Ste. Marie and the surrounding communities. This investment will support the healthy restructuring of Algoma Steel and provide a sustainable future, while supporting thousands of hard-working employees and pensioners in the North.
Today, Premier Doug Ford visited Algoma to announce the government's support in the form of regulatory relief from certain pension obligations under the Pension Benefits Act as well as Pension Benefits Guarantee Fund (PBGF) coverage if certain conditions are satisfied.
"Our government is committed to protecting jobs, and ensuring Algoma remains competitive in a tough market. They are the second largest private-sector employer in Northern Ontario, and the largest in Sault Ste. Marie," said Ford. "Our government is supporting a successful restructuring at Algoma by taking steps to make sure the company is commercially viable, and a stable source of jobs and economic growth for years to come.“
Algoma's pension plans support approximately 2,100 current and 6,300 former or retired employees. As the largest private-sector employer in Sault Ste. Marie and the second largest in Northern Ontario, Algoma has approximately 2,700 direct employees.

45. Interim Wrap Plan Arrangements
The Interim Wrap Arrangements would be implemented through, effective on the Closing Date:
an agreement among Essar Steel Algoma Inc., New Algoma, the USW and Locals 2251 and 2724 and Representative Counsel, and
an Order of the Court approving such agreement and granting related relief.

46. Interim Wrap Plan Arrangements
The funding obligation of New Algoma will remain the same as described above during the interim period
However, instead of funding into the Wrap Plan, New Algoma will make the payments during the interim period into a separate escrow account held by the Monitor, which payments will be contributed to the Wrap Plan:
i. upon satisfaction of the Wrap Pension Regulation Condition; or
ii. if the Wrap Pension Regulation Condition is not satisfied by the agreed date, upon winding up of the Wrap Plan.

47. Interim Wrap Plan Arrangements
The Court Order will:
i. direct New Algoma to provide the above funding;
ii. confirm that New Algoma is not the “employer” of the Wrap Plan (within the meaning of the PBA) and has no liabilities or obligations in respect of the Wrap Plan other than those described in the Wrap Interim Agreement until such time as the Wrap Pension Regulation Condition has been satisfied and New Algoma has assumed the Wrap Plan; and
iii. grant a super-priority Court-ordered charge over the escrow account in favour of the Wrap Plan beneficiaries pending contribution into the Wrap Plan, which will ensure the Wrap Plan has security over the funds in the escrow account in priority to all other potential creditors.

48. Interim Wrap Plan Arrangements
The Wrap Plan Agreement will include agreements that:
i. subsection 57(3) of the PBA will not apply to the Wrap Plan or Algoma with respect to any contributions due to the Wrap Plan prior to the Closing Date;
ii. the Wrap Plan will be permanently exempt from the application of subsection 57(4) of the PBA;
iii. the parties will not assert in the CCAA Proceedings or any other proceedings or any other forum:
1. a deemed trust claim in respect of the Wrap Plan or Algoma with respect to any contributions due to the Wrap Plan prior to the Closing Date;
2. a deemed trust claim in respect of the Wrap Plan on any wind up thereof; or
3. a deficit claim in respect of any funding deficiencies existing in the Wrap Plan as of the Closing Date (except as against Algoma as plan sponsor in respect of any wind up of the Wrap Plan);

49. Interim Wrap Plan Arrangements
In order to allow for legislation and regulations satisfying the Wrap Pension Regulation Condition to be promulgated, the Wrap Order will extend the stay of proceedings granted under the Initial Order in respect of the Wrap Plan until:
the Wrap Pension Regulation Condition has been satisfied; or
the Court, following a motion on notice to the parties, issues an order lifting the stay. No party to the Wrap Plan Agreement may apply to the Court to lift the stay for 12 months (plus any further period to be agreed) after the Closing Date.

50. Interim Wrap Plan Arrangements
If the Wrap Pension Regulation Condition is satisfied, New Algoma will assume the Wrap Plan and the terms agreed to will apply, all payments made into the escrow account will be contributed into the Wrap Plan, and the Wrap Special Regulation will apply to the Wrap Plan.
In the unlikely event that the Wrap Pension Regulation Condition is not satisfied, the Wrap Plan may be wound up, in which case New Algoma’s obligations will be limited to ensuring that the solvency ratio on the Valuation Date is the same as the solvency ratio on the Closing Date through a Top-Up payment, if necessary, to the fund. This will leave the Wrap Plan in the same position at the later date as it was on the Closing Date.

51. Summary of Key Changes to the Plans
There will be no reduction in pension benefits to members of any of the three plans, provided the Wrap Plan regulations are proclaimed into force
The Hourly and Salaried Plans will have indexation reinstated until 2022, and will receive PBGF coverage once both plans reach a solvency ratio of 85%

52. Summary of Key Changes to the Plans
Special payments to the Hourly and Salaried Plans will be made in the maximum amount of $31 million/year until the plans are 85% funded, and thereafter in accordance with the regulations
The Wrap Plan will be funded on a “cash in = cash out” basis to a maximum of $5 million/year in funding

53. Summary of Key Changes to the Plans
All three plans will be exempt from s. 57(3) of the PBA - the deemed trust in respect of contributions that were not made during the CCAA proceedings
All three plans will be exempt from s. 57(4) of the PBA – the deemed trust in respect of wind up contributions accrued but not yet due

54. Summary of Key Changes to the Plans
The Wrap Plan will also be exempt from section 55(1) of the PBA – that a pension plan must provide for funding sufficient to provide pension benefits in accordance with the PBA and the regulations – to allow for the “cash in = cash out” mechanism and the cap of $5 million in annual funding
The Wrap Plan will also be exempt from section 69(1)(d) of the PBA and s of the General Regulation under the PBA – thereby removing the discretion of the Superintendent to wind up the Wrap Plan solely because all of the members have ceased to be employed by Essar Steel Algoma Inc., and the Superintendent will have the authority to wind up the Wrap Plan if the Wrap Plan is unable to pay the full pension benefits as they fall due.

55. Summary of Key Changes to the Plans
The general standards under the Pension Benefits Act are designed to enhance the security of pension benefits
The special funding rules and the deemed trust exemptions in the proposed agreements may reduce the security of your pension benefits
Nonetheless, for the reasons that follow, we recommend these changes

56. Recommendation
As your Representative Counsel, we recommend the proposed changes for the following reasons.
This deal has been achieved after a 3-year insolvency process, during which we have worked alongside the unions, through hard bargaining, to obtain the best possible agreement in respect of the pension plans
There is no viable alternative agreement or alternative purchaser to allow the steel plant to continue to operate and assume responsibility for the pensions

57. Recommendation
The purpose of this deal is to continue pensions being paid in their full amount (provided the Wrap Plan Regulations are proclaimed into force)
This deal provides for the Wrap Plan to be assumed by New Algoma, and to continue to be funded and provide benefits for retired and deferred, vested members

58. Recommendation
The funding relief was necessary in order to allow New Algoma to profitably operate the steel plant while assuming responsibility for the pension plans
The exemption from s. 57(3) of the PBA provides a fresh start for New Algoma, ensuring it is not responsible for special payments that were not paid during the CCAA proceedings, and was required by New Algoma
The exemption from s. 57(4) of the PBA was necessary to allow New Algoma to obtain competitive financing to continue the business

59. Recommendation
The exemption of the Wrap Plan from s. 55(1) and 69(1)(d) of the PBA and s of the General Regulation under the PBA protect the Wrap Plan from premature wind up, and the new provisions allow the Superintendent to wind up the plan if it can no longer pay benefits
The Interim Wrap Arrangements balance the risks in the event that, contrary to all present indications, the Government fails to pass the necessary legislative and regulatory changes to give effect to the Wrap Agreement

60. Susan Ursel and Karen Ensslen
Questions?
555 Richmond Street West, Suite 1200 Toronto, Ontario M5V 3B1
Susan Ursel and Karen Ensslen
Tel: (416) ▪ Fax: (416)