LONG-TERM INCENTIVE AWARD AGREEMENT (FY 20__-20__ Performance Period - ___________)
EXHIBIT
10.2
NOTE:
The following form of Long-Term Incentive Award Agreement is the form used
for
awards to corporate-level employees. In the Long-Term Incentive Award Agreements
for employees who work exclusively for one of the Company’s three business
segments, (a) the Payout Factor in Section 2.1 is based 50% on the rTSR Payout
Factor and 50% on the payout factor for the business segment they work in,
(b)
text describing the payout factors for the other two business segments is
deleted from Section 2, (c) Section 2.6 is deleted, (d) a new Section 3.4 is
added in the form set forth in bold and brackets following Section 3.3 below,
and (e) various other conforming language changes are made.
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SCHNITZER
STEEL INDUSTRIES, INC.
|
|
LONG-TERM
INCENTIVE AWARD AGREEMENT
|
|
(FY
20__-20__ Performance Period -
___________)
|
This
Agreement is entered into as of __________ __, 20__, between Schnitzer Steel
Industries, Inc., an Oregon corporation (the “Company”), and _____________
(“Recipient”).
NOW,
THEREFORE, the parties agree as follows:
1. Award.
Subject
to the terms and conditions of this Agreement, the Company shall issue to the
Recipient the number of shares of Class A Common Stock of the Company
(“Performance Shares”) determined under this Agreement based on (a) the
performance of the Company’s stock and its three business segments during the
three-year period from September 1, 20__ to August 31, 20__ (the “Performance
Period”) as described in Section 2, and (b) Recipient’s continued employment
during the Performance Period as described in Section 3. Recipient’s “Target
Share Amount” for purposes of this Agreement is _______ shares.
2. Performance
Conditions.
2.1 Payout
Factor.
Subject
to adjustment under Sections 3, 4, 5 and 6, the number of Performance Shares
to
be issued to Recipient shall be determined by multiplying the Payout Factor
by
the Target Share Amount. The “Payout Factor” shall be equal to the sum of (a)
50% of the rTSR Payout Factor as determined under Section 2.2 below, plus (b)
16⅔% of the MRB Payout Factor as determined under Section 2.3 below, plus (c)
16⅔% of the APB Payout Factor as determined under Section 2.4 below, plus (d)
16⅔% of the SMB Payout Factor as determined under Section 2.5
below.
2.2 rTSR
Payout Factor.
2.2.1 To
determine the “rTSR Payout Factor,” all of the S&P 500 Industrial Companies
(as defined below) shall be ranked from highest to lowest based on their TSR
(as
defined below) for the Performance Period. Based on that ranking, the TSR levels
corresponding to the __th,
__th
and
__th
percentiles of the S&P 500 Industrial Companies shall be determined using
the percentile function in Microsoft Excel. The rTSR Payout Factor shall then
be
determined under the table below based on the TSR of the Company for the
Performance Period.
|
rTSR
Payout
|
||
|
Company’s
TSR
|
Factor
|
|
|
Less
than TSR at __th
percentile
|
0%
|
|
|
TSR
at __th
percentile
|
25%
|
|
|
TSR
at __th
percentile
|
100%
|
|
|
TSR
at __th
percentile or better
|
200%
|
If
the
Company’s TSR is between any two data points set forth in the first column of
the above table, the rTSR Payout Factor shall be determined by interpolation
between the corresponding data points in the second column of the table as
follows: the difference between the Company’s TSR and the TSR at the lower data
point shall be divided by the difference between the TSR at the higher data
point and the TSR at the lower data point, the resulting fraction shall be
multiplied by the difference between the two corresponding data points in the
second column of the table, and the resulting product shall be added to the
lower corresponding data point in the second column of the table, with the
resulting sum being the rTSR Payout Factor.
2.2.2 The
“S&P 500 Industrial Companies” shall mean those companies that are included
in the Industrials segment of the S&P 500 as of the first day of the
Performance Period, excluding any such company whose stock ceases to be publicly
traded prior to the end of the Performance Period (or such shorter period for
which a determination is required under this Agreement).
2.2.3 The
“TSR”
for the Company and each S&P 500 Industrial Company shall be calculated by
(a) assuming that $100 is invested in the common stock of the company at a
price
equal to the average of the closing market prices of the stock on the last
trading day of each of the last three months of the Company’s fiscal 20__, (b)
assuming that for each dividend or other cash distribution paid on the stock
during the Performance Period, the amount equal to the dividend or distribution
paid on the assumed number of shares held is reinvested in additional shares
at
a price equal to the closing market price of the stock on the last day of the
month in which the dividend or distribution is paid, and (c) determining the
final dollar value of the total assumed number of shares based on the average
of
the closing market prices of the stock on the last trading day of each of the
last three months of the Performance Period. The “TSR” shall then equal the
amount determined by subtracting $100 from the foregoing final dollar value,
dividing the result by 100 and expressing the resulting fraction as a
percentage.
2.3 MRB
Payout Factor.
2.3.1 The
MRB
Payout Factor shall be determined under the table below based on the Operating
Income Per Ton (as defined below) for the Performance Period of the facilities
and business operations that comprised the Company’s wholly-owned Metals
Recycling Business segment as of September 1, 20__ (the “Historic
MRB”).
|
Operating
Income
|
MRB
Payout
|
|
|
Per
Ton
|
Factor
|
|
|
Less
than $__
|
0%
|
|
|
$__
|
25%
|
|
|
$__
|
100%
|
|
|
$__
or more
|
200%
|
If
the
Operating Income Per Ton is between any two data points set forth in the first
column of the above table, the MRB Payout Factor shall be determined by
interpolation between the corresponding data points in the second column of
the
table as follows: the difference between the Operating Income Per Ton and the
lower data point shall be divided by the difference between the higher data
point and the lower data point, the resulting fraction shall be multiplied
by
the difference between the two corresponding data points in the second column
of
the table, and the resulting product shall be added to the lower corresponding
data point in the second column of the table, with the resulting sum being
the
MRB Payout Factor.
2.3.2 The
“Operating Income Per Ton” for the Performance Period shall be equal to (a) the
sum of the operating income of the Historic MRB for the three fiscal years
of
the Performance Period, divided by (b) the sum of the long tons of ferrous
metals sold by the Historic MRB for the three fiscal years of the Performance
Period. For this purpose, the operating income of the Historic MRB shall be
determined in accordance with generally accepted accounting principles in the
United States applied in a manner consistent with the application of such
principles to the preparation of the Company’s financial statements; provided,
however, that (i) such operating income shall be adjusted to eliminate any
expense or reversal of expense for estimated or actual environmental remediation
costs related to environmental damage that occurred prior to ________ __, 20__,
and (ii) such operating income shall not include any allocation of management
overhead above the Historic MRB level.
2.4 APB
Payout Factor.
2.4.1 The
APB
Payout Factor shall be determined under the table below based on the number
of
EVA Positive Stores (as defined below) of the Company’s Auto Parts Business
Segment at the end of the Performance Period; provided, however, that
notwithstanding the table below, the APB Payout Factor shall be 0% unless at
least __% of the Stores (as defined below) of the Auto Parts Business Segment
at
the end of the Performance Period are EVA Positive Stores (the “__%
Condition”).
|
EVA
Positive
|
APB
Payout
|
|
|
Stores
|
Factor
|
|
|
Less
than __
|
0%
|
|
|
__
|
25%
|
|
|
__
|
100%
|
|
|
__
|
200%
|
|
|
__
or more
|
300%
|
If
the
number of EVA Positive Stores is between any two data points set forth in the
first column of the above table, the APB Payout Factor shall be determined
by
interpolation between the corresponding data points in the second column of
the
table as follows: the difference between the number of EVA Positive Stores
and
the lower data point shall be divided by the difference between the higher
data
point and the lower data point, the resulting fraction shall be multiplied
by
the difference between the two corresponding data points in the second column
of
the table, and the resulting product shall be added to the lower corresponding
data point in the second column of the table, with the resulting sum being
the
APB Payout Factor.
2.4.2 A
“Store”
shall mean a retail location of the Auto Parts Business that is owned by the
Company at the end of the Performance Period and was acquired or opened at
least
one month prior to the end of the Performance Period.
2.4.3 A
Store
shall be considered an “EVA Positive Store” at the end of the Performance Period
if the LTIP EVA of the Store for the last 12 months of the Performance Period
(or such shorter number of full months as the Store had been owned by the
Company) is greater than $0. A Store’s “LTIP EVA” for any period shall be
determined by subtracting the Store’s Capital Charge calculated for the period
from the Store’s Adjusted Operating Income After Tax for the period. The parties
acknowledge and agree that LTIP EVA is calculated differently from the manner
in
which EVA is calculated for purposes of the Company’s EVA Bonus
Plans.
2.4.4 A
Store’s
“Capital Charge” for any period shall be equal to the Store’s Capital as of the
end of the period multiplied by __% multiplied by a fraction, the numerator
of
which is the number of full months in the period and the denominator of which
is
12. A Store’s “Capital” as of any date shall mean (a) the Store’s share of the
total assets of the Auto Parts Business, which shall consist of the total assets
located at or directly associated with the Store plus the Store’s allocable
portion of the total assets of the Auto Parts Business not located at or
directly associated with any other Store, less (b) the Store’s share of the
total non-interest bearing liabilities of the Auto Parts Business, which shall
consist of the total non-interest bearing liabilities directly associated with
the Store plus the Store’s allocable portion of the total non-interest bearing
liabilities of the Auto Parts Business not directly associated with any other
Store; provided,
however,
that
assets and liabilities shall exclude any intercompany balances other than
receivables for autobodies sold to the Company’s Metals Recycling Business, and
that liabilities shall exclude any liability for estimated or actual
environmental remediation costs related to environmental damage that occurred
prior to the later of ________ __, 20__ or the acquisition of the applicable
property.
2.4.5 A
Store’s
“Adjusted Operating Income After Tax” for any period shall be equal to 71% of
the excess of (a) the Store’s revenues, over (b) the Store’s share of the total
cost of goods sold and operating expenses of the Auto Parts Business, which
shall consist of the total cost of goods sold and operating expenses incurred
at
or in direct association with the Store plus the Store’s allocable portion of
the total cost of goods sold and operating expenses of the Auto Parts Business
not incurred at or in direct association with any other Store; provided,
however,
that
cost of goods sold and operating expenses shall be adjusted to eliminate any
expense or reversal of expense for estimated or actual environmental remediation
costs related to environmental damage that occurred prior to the later of
________ __, 20__ or the acquisition of the applicable property.
2.4.6 In
applying the above definitions of Capital and Adjusted Operating Income After
Tax, the amounts of “assets,” “liabilities,” “revenues,” “cost of goods sold”
and “operating expenses” shall in each case be determined in accordance with
generally accepted accounting principles in the United States applied in a
manner consistent with the application of such principles to the preparation
of
the Company’s financial statements.
2.5 SMB
Payout Factor.
2.5.1 The
SMB
Payout Factor shall be determined under the table below based on the Man Hours
Per Ton (as defined below) of the Company’s Steel Manufacturing Business Segment
for the Performance Period.
|
Man
Hours
|
SMB
Payout
|
|
|
Per
Ton
|
Factor
|
|
|
More
than ____
|
0%
|
|
|
____
|
25%
|
|
|
____
|
100%
|
|
|
____
or less
|
200%
|
If
the
Man Hours Per Ton is between any two data points set forth in the first column
of the above table, the SMB Payout Factor shall be determined by interpolation
between the corresponding data points in the second column of the table as
follows: the difference between the Man Hours Per Ton and the higher data point
shall be divided by the difference between the higher data point and the lower
data point, the resulting fraction shall be multiplied by the difference between
the two corresponding data points in the second column of the table, and the
resulting product shall be added to the lower corresponding data point in the
second column of the table, with the resulting sum being the SMB Payout
Factor.
2.5.2 The
“Man
Hours Per Ton” for the Performance Period shall be equal to (a) the sum of the
man hours worked at the Steel Manufacturing Business’ steel mill for the three
fiscal years of the Performance Period, divided by (b) the sum of the short
tons
of finished steel products produced by the Steel Manufacturing Business during
the three fiscal years of the Performance Period. For this purpose, the man
hours worked at the steel mill shall be the total of all hours worked for both
production and non-production employees at the steel mill, including staff
not
directly involved in the production process; provided, however, that with
2.6 Sale
of Business Segment.
Notwithstanding anything to the contrary in this Agreement, if the Company
sells
or disposes of a controlling interest in the stock or assets of any of its
three
business segments or engages in any other transaction that causes the operating
results of any business segment to no longer be included in the Company’s
financial statements on a fully consolidated basis, the payout factor related
to
that business segment shall for purposes of any determination under this
Agreement after the date of such transaction be deemed to be 200%.
3. Employment
Condition.
3.1 Full
Payout.
In
order to receive the full number of Performance Shares determined under Section
2, Recipient must be employed by the Company on the October 31 immediately
following the end of the Performance Period (the “Vesting Date”).
3.2 Retirement;
Termination Without Cause After 12 Months.
If
Recipient’s employment with the Company is terminated at any time prior to the
Vesting Date because of retirement (as defined in paragraph 6(a)(iv)(D) of
the
Plan), or if Recipient’s employment is terminated by the Company without Cause
(as defined below) after the end of the 12th
month of
the Performance Period and prior to the Vesting Date, Recipient shall be
entitled to receive a pro-rated award to be paid following completion of the
Performance Period. The number of Performance Shares to be issued as a pro-rated
award under this Section 3.2 shall be determined by multiplying the number
of
Performance Shares determined under Section 2 by a fraction, the numerator
of
which is the number of days Recipient was employed by the Company since the
beginning of the Performance Period and the denominator of which is the number
of days in the period from the beginning of the Performance Period to the
Vesting Date. Any obligation of the Company to issue a pro-rated award under
this Section 3.2 shall be subject to and conditioned upon the execution and
delivery by Recipient of a Release of Claims in such form as may be requested
by
the Company. For purposes of this Section 3.2, “Cause” shall mean (a) the
conviction (including a plea of guilty or nolo contendere) of Recipient of
a
felony involving theft or moral turpitude or relating to the business of the
Company, other than a felony predicated on Recipient's vicarious liability,
(b)
Recipient’s continued failure or refusal to perform with reasonable competence
and in good faith any of the lawful duties assigned by (or any lawful directions
of) the Company that are commensurate with Recipient’s position with the Company
(not resulting from any illness, sickness or physical or mental incapacity),
which continues after the Company has given notice thereof (and a reasonable
opportunity to cure) to Recipient, (c) deception, fraud, misrepresentation
or
dishonesty by Recipient in connection with Recipient’s employment with the
Company, (d) any incident materially compromising Recipient’s reputation or
ability to represent the Company with the public, (e) any willful misconduct
by
Recipient that substantially impairs the Company’s business or reputation, or
(f) any other willful misconduct by Recipient that is clearly inconsistent
with
Recipient’s position or responsibilities.
3.3 Death
or Total Disability.
If
Recipient’s employment with the Company is terminated at any time prior to the
Vesting Date because of death or total disability (as defined
[This
Section to be included only in agreements for MRB, APB and SMB business segment
employees][ 3.4 Sale
of Business Segment.
If at any time prior to the Vesting Date the Company sells or disposes of a
controlling interest in the stock or assets of the ___ Business Segment or
engages in any other transaction that causes the operating results of the ___
Business Segment to no longer be included in the Company’s financial statements
on a fully consolidated basis, and as a result of such transaction Recipient
ceases to be an employee of either the Company or any consolidated subsidiary
of
the Company, Recipient shall be entitled to receive a pro-rated award to be
paid
as soon as reasonably practicable following such event. For purposes of
calculating the pro-rated award under this Section 3.4, (a) the ___ Payout
Factor shall be deemed to be 200%, and (b) the rTSR Payout Factor shall be
calculated as if the Performance Period ended on the last day of the Company’s
most recently completed fiscal quarter prior to the closing of the transaction.
The number of Performance Shares to be issued as a pro-rated award under this
Section 3.4 shall be determined by multiplying the number of Performance Shares
determined after applying the modifications described in the preceding sentence
by a fraction, the numerator of which is the number of days Recipient was
employed by the Company since the beginning of the Performance Period and the
denominator of which is the number of days in the period from the beginning
of
the Performance Period to the Vesting Date.]
3.4 Other
Terminations.
If
Recipient’s employment by the Company is terminated at any time prior to the
Vesting Date and neither Section 3.2 nor Section 3.3 applies to such
termination, Recipient shall not be entitled to receive any Performance
Shares.
4. Company
Sale.
4.1 If
a
Company Sale (as defined below) occurs before the Vesting Date, Recipient shall
be entitled to receive a pro-rated award to be paid no later than the earlier
of
15 days following such event or the last day on which the Performance Shares
could be issued so that Recipient may participate as a shareholder in receiving
proceeds from the Company Sale. For purposes of calculating the pro-rated award
under this Section 4, (a) the MRB Payout Factor,
4.2 For
purposes of this Agreement, a “Company Sale” shall mean the occurrence of any of
the following events:
4.2.1 any
consolidation, merger or plan of share exchange involving the Company (a
“Merger”) in which the Company is not the continuing or surviving corporation or
pursuant to which outstanding shares of Class A Common Stock would be converted
into cash, other securities or other property; or
4.2.2 any
sale,
lease, exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, the assets of the
Company.
5. Certification
and Payment.
As soon
as practicable following the completion of the audit of the Company’s
consolidated financial statements for the final fiscal year of the Performance
Period, the Company shall calculate the Payout Factor and the corresponding
number of Performance Shares issuable to Recipient. This calculation shall
be
submitted to the Committee. Notwithstanding anything to the contrary in this
Agreement, the Committee may, in its sole discretion, reduce or eliminate the
number of Performance Shares so calculated based on circumstances relating
to
the performance of the Company or Recipient. No later than the Vesting Date
the
Committee shall certify in writing (which may consist of approved minutes of
a
Committee meeting) the levels of rTSR, Operating Income Per Ton, EVA Positive
Stores and Man Hours Per Ton attained by the Company for the Performance Period
and the number of Performance Shares issuable to Recipient based on such
performance. Subject to applicable tax withholding, the number of Performance
Shares so certified shall be issued to Recipient as soon as practicable
following the Vesting Date, but no Performance Shares shall be issued prior
to
certification. No fractional shares shall be issued and the number of
Performance Shares deliverable shall be rounded to the nearest whole share.
In
the event of the death or total disability of Recipient as described in Section
3.3 or a Company Sale as described in Section 4, each of which requires payout
of a pro-rated award earlier than the Vesting Date, a similar calculation and
certification process shall be followed within the time frames required by
those
sections.
6. Tax
Withholding.
Recipient acknowledges that, on the date the Performance Shares are issued
to
Recipient (the “Payment Date”), the Value (as defined below) on that date of
7. Changes
in Capital Structure.
If the
outstanding Class A Common Stock of the Company is hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of any stock split, combination
of
shares or dividend payable in shares, recapitalization or reclassification,
appropriate adjustment shall be made by the Committee in the number and kind
of
shares subject to this Agreement so that the Recipient’s proportionate interest
before and after the occurrence of the event is maintained.
8. Approvals.
The
obligations of the Company under this Agreement are subject to the approval
of
state, federal or foreign authorities or agencies with jurisdiction in the
matter. The Company will use its reasonable best efforts to take steps required
by state, federal or foreign law or applicable regulations, including rules
and
regulations of the Securities and Exchange Commission and any stock exchange
on
which the Company’s shares may then be listed, in connection with the award
evidenced by this Agreement. The foregoing notwithstanding, the Company shall
not be obligated to deliver Class A Common Stock under this Agreement if such
delivery would violate or result in a violation of applicable state or federal
securities laws.
9. No
Right to Employment.
Nothing
contained in this Agreement shall confer upon Recipient any right to be employed
by the Company or to continue to provide services to the Company or to interfere
in any way with the right of the Company to terminate Recipient’s services at
any time for any reason, with or without cause.
10. Miscellaneous.
10.1 Entire
Agreement; Amendment.
This
Agreement constitutes the entire agreement of the parties with regard to the
subjects hereof and may be amended only by written agreement between the Company
and Recipient.
10.2 Notices.
Any
notice required or permitted under this Agreement shall be in writing and shall
be deemed sufficient when delivered personally to the party to whom it is
addressed or when deposited into the United States Mail as registered or
certified mail, return receipt requested, postage prepaid, addressed to the
Company, Attention: Corporate Secretary, at its principal executive offices
or
to Recipient at the address of Recipient in the Company’s records, or at such
other address as such party may designate by ten (10) days’ advance written
notice to the other party.
10.3 Assignment;
Rights and Benefits.
Recipient shall not assign this Agreement or any rights hereunder to any other
party or parties without the prior written consent
10.4 Further
Action.
The
parties agree to execute such further instruments and to take such further
action as may reasonably be necessary to carry out the intent of this
Agreement.
10.5 Applicable
Law; Attorneys’ Fees.
The
terms and conditions of this Agreement shall be governed by the laws of the
State of Oregon. In the event either party institutes litigation hereunder,
the
prevailing party shall be entitled to reasonable attorneys’ fees to be set by
the trial court and, upon any appeal, the appellate court.
10.6 Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed an original.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day
and year first above written.
| |
SCHNITZER
STEEL INDUSTRIES, INC.
|
||
| By: | |||
|
Title:
|
|||
| RECIPIENT | |||
