Re: Change in Control Severance Agreement
EXHIBIT
10.2
February
17, 2006
Xxxx
X.
Xxxxxx
President
& Chief Executive Officer
Schnitzer
Steel Industries, Inc.
0000
XX
Xxxx Xxxxxx
Xxxxxxxx,
Xxxxxx 00000
Dear
Xxxx:
Schnitzer
Steel Industries, Inc., an Oregon corporation (the “Company”), considers the
establishment and maintenance of a sound and vital management to be essential
to
protecting and enhancing the best interests of the Company. In this connection,
the Company recognizes that, as is the case with many publicly held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the departure or distraction of management personnel
to the detriment of the Company, its customers and its shareholders.
Accordingly, the Board of Directors of the Company (the “Board”) has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company’s management to their
assigned duties without distraction in circumstances arising from the
possibility of a change in control of the Company.
In
order
to induce you to remain in the employ of the Company, this letter agreement,
which has been approved by the Board, sets forth severance benefits which the
Company agrees will be provided to you in the event your employment with the
Company is terminated in connection with a Change in Control (as defined in
Section 3 hereof) under the circumstances described below.
1. Agreement
to Provide Services; Right to Terminate.
(i) Except
as
otherwise provided in paragraph (ii) below, the Company or you may terminate
your employment at any time, subject to the Employment Agreement dated February
17, 2006, and subject to the Company’s providing the benefits hereinafter
specified in accordance with the terms hereof.
(ii) In
the
event of a Potential Change in Control (as defined in Section 3 hereof),
you agree that you will not leave the employ of the Company (other than as
a
result of Disability, as such term is hereinafter defined) and will render
the
services contemplated in the recitals to this Agreement until the earlier of
(a)
a date which is 60 days from the occurrence of such Potential Change in Control,
or (b) a termination of your employment pursuant to which you become entitled
under this Agreement to receive the benefits provided in Section 5(iii) below.
2. Term
of Agreement.
This
Agreement shall commence on the date hereof and shall continue in effect until
August 31, 2009 or earlier termination of your employment; provided that, this
Agreement shall continue in effect for a period of twenty-four (24) months
beyond the term provided herein if a Change in Control shall have occurred
during such term.
3. Change
in Control; Potential Change in Control; Shareholder Approval;
Person.
(i)
For
purposes of this Agreement, a “Change in Control” shall mean the occurrence of
any of the following events:
(A) The
consummation of:
(1) any
consolidation, merger or plan of share exchange involving the Company (a
“Merger”) as a result of which the holders of outstanding securities of the
Company ordinarily having the right to vote for the election of directors
(“Voting Securities”) immediately prior to the Merger do not continue to hold at
least 50% of the combined voting power of the outstanding Voting Securities
of
the surviving corporation or a parent corporation of the surviving corporation
immediately after the Merger, disregarding any Voting Securities issued to
or
retained by such holders in respect of securities of any other party to the
Merger; or
(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;
(B) At
any
time during a period of two consecutive years, individuals who at the beginning
of such period constituted the Board (“Incumbent Directors”) shall cease for any
reason to constitute at least a majority thereof; provided, however, that the
term “Incumbent Director” shall also include each new director elected during
such two-year period whose nomination or election was approved by two-thirds
of
the Incumbent Directors then in office; or
(C) Any
Person (as hereinafter defined) shall, as a result of a tender or exchange
offer, open market purchases or privately negotiated purchases from anyone
other
than the Company, have become the beneficial owner (within the
Notwithstanding
anything in the foregoing to the contrary, unless otherwise determined by the
Board, no Change in Control shall be deemed to have occurred for purposes of
this Agreement if (1) you acquire (other than on the same basis as all other
holders of shares of Common Stock of the Company) an equity interest in an
entity that acquires the Company in a Change in Control otherwise described
under subparagraph (A) above, or (2) you are part of a group that constitutes
a
Person which becomes a beneficial owner of Voting Securities in a transaction
that otherwise would have resulted in a Change in Control under subparagraph
(C)
above.
(ii) For
purposes of this Agreement, a “Potential Change in Control” shall be deemed to
have occurred if:
(A) the
Company enters into an agreement, the consummation of which would result in
the
occurrence of a Change in Control;
(B) any
Person (including the Company) publicly announces an intention to take or to
consider taking actions which if consummated would constitute a Change in
Control; or
(C) the
Board
adopts a resolution to the effect that, for purposes of this Agreement, a
Potential Change in Control has occurred.
(iii) For
purposes of this Agreement, “Shareholder Approval” shall be deemed to have
occurred if the shareholders of the Company approve an agreement entered into
by
the Company, the consummation of which would result in the occurrence of a
Change in Control.
(iv) For
purposes of this Agreement, the term “Person” shall mean and include any
individual, corporation, partnership, group, association or other “person,” as
such term is used in Section 14(d) of the Securities Exchange Act of 1934 (the
“Exchange Act”), other than the Company or any employee benefit plan sponsored
by the Company.
4. Termination
Following Shareholder Approval or Change in Control.
If a
Change in Control occurs, you shall be entitled to the benefits provided in
Section 5(iii) hereof in the event that (x) a Date of Termination (as defined
in
Section 4(v) below) of your employment with the Company occurred or occurs
after
the earlier of Shareholder Approval, if applicable, or the Change in Control
and
no later than twenty-four (24) months after the Change in Control, or (y) your
employment with the Company is terminated by you for Good Reason (as defined
below) based on an event occurring concurrent with or subsequent to the earlier
of Shareholder Approval, if applicable, or the Change in Control and your Notice
of Termination (as defined in Section 4(iv) below) in
(i) Disability.
Termination by the Company of your employment based on “Disability” shall mean
termination because of your absence from your duties with the Company on a
full-time basis for one hundred eighty (180) consecutive days as a result of
your incapacity due to physical or mental illness, unless within thirty (30)
days after Notice of Termination is given to you following such absence you
shall have returned to the full-time performance of your duties.
(ii) Cause.
Termination by the Company of your employment for “Cause” shall mean termination
upon (a) the willful and continued failure by you to perform substantially
your assigned duties with the Company (other than any such failure resulting
from your incapacity due to physical or mental illness) after a demand for
substantial performance is delivered to you by the Chairman of the Board or
President of the Company which specifically identifies the manner in which
such
executive believes that you have not substantially performed your duties or
(b)
the willful engaging by you in illegal conduct which is materially and
demonstrably injurious to the Company. For purposes of this paragraph (ii),
no
act, or failure to act, on your part shall be considered “willful” unless done,
or omitted to be done, by you in knowing bad faith and without reasonable belief
that your action or omission was in, or not opposed to, the best interests
of
the Company. Any act, or failure to act, based upon authority given pursuant
to
a resolution duly adopted by the Board or based upon the advice of counsel
for
the Company shall be conclusively presumed to be done, or omitted to be done,
by
you in good faith and in the best interests of the Company. Notwithstanding
the
foregoing, you shall not be deemed to have been terminated for Cause unless
and
until there shall have been delivered to you a copy of a resolution duly adopted
by the affirmative vote of not less than three-quarters of the entire membership
of the Board at a meeting of the Board called and held for the purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of the conduct set forth above in (a) or (b) of this
paragraph (ii) and specifying the particulars thereof in detail.
(iii) Good
Reason.
Termination by you of your employment with the Company for “Good Reason” shall
mean termination by you of your employment with the Company based on any of
the
following events provided you give Notice of Termination after the occurrence
of
any of the following events and no later than 30 days after the later of (1)
notice to you of such event, or (2) the Change in Control:
(A) a
change
in your status, title, positions or responsibilities as President and Chief
Executive Officer or the assignment to you of any duties or responsibilities
which are inconsistent with such status, title or positions, or any
(B) a
reduction by the Company in your base salary as in effect immediately prior
to
the earlier of Shareholder Approval, if applicable, or the Change in
Control;
(C) the
failure by the Company to continue in effect any Plan (as hereinafter defined)
in which you are participating immediately prior to the earlier of Shareholder
Approval, if applicable, or the Change in Control (or Plans providing you with
at least substantially similar benefits) other than as a result of the normal
expiration of any such Plan in accordance with its terms as in effect
immediately prior to the earlier of Shareholder Approval, if applicable, or
the
Change in Control, or the taking of any action, or the failure to act, by the
Company which would adversely affect your continued participation in any of
such
Plans on at least as favorable a basis to you as is the case immediately prior
to the earlier of Shareholder Approval, if applicable, or the Change in Control
or which would materially reduce your benefits in the future under any of such
Plans or deprive you of any material benefit enjoyed by you immediately prior
to
the earlier of Shareholder Approval, if applicable, or the Change in
Control;
(D) the
failure by the Company to provide and credit you with the number of paid
vacation days to which you are then entitled in accordance with the Company’s
normal vacation policy as in effect immediately prior to the earlier of
Shareholder Approval, if applicable, or the Change in Control;
(E) the
Company’s requiring you to be based more than 30 miles from where your office is
located immediately prior to the earlier of Shareholder Approval, if applicable,
or the Change in Control except for required travel on the Company’s business to
an extent substantially consistent with the business travel obligations which
you undertook on behalf of the Company prior to the earlier of Shareholder
Approval, if applicable, or the Change in Control;
(F) the
failure by the Company to obtain from any Successor (as hereinafter defined)
the
assent to this Agreement contemplated by Section 7 hereof;
(G) any
purported termination by the Company of your employment which is not effected
pursuant to a Notice of Termination satisfying the requirements of paragraph
(iv) below (and, if applicable, paragraph (ii) above); and for purposes of
this
Agreement, no such purported termination shall be effective; or
(H) the
failure by the Company to pay you any portion of your current compensation,
to
credit your Deferred Compensation Plan account in accordance
with
your
previous election, or to pay you any portion of an installment of deferred
compensation under any Plan in which you participated, within seven (7) days
of
the date such compensation is due.
For
purposes of this Agreement, “Plan” shall mean any compensation plan such as an
incentive, stock option or restricted stock plan or any employee benefit plan
such as a thrift, pension, profit sharing, deferred compensation, medical,
disability, accident, life insurance, or relocation plan or policy or any other
plan, program or policy of the Company intended to benefit
employees.
(iv) Notice
of Termination.
Any
purported termination by the Company or by you (other than termination due
to
your death, which shall terminate your employment automatically) following
the
earlier of Shareholder Approval, if applicable, or a Change in Control shall
be
communicated by Notice of Termination to the other party hereto. For purposes
of
this Agreement, a “Notice of Termination” shall mean a notice which shall
indicate the specific termination provision in this Agreement relied upon and
shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of your employment under the provision so
indicated.
(A) With
respect to any Notice of Termination given by you for Good Reason, such Notice
of Termination may indicate that such termination for Good Reason shall be
conditioned upon, and postponed until, the date on which it is finally
determined, either by mutual written agreement of the parties or by the
arbitrators in a proceeding as provided in Section 13 hereof, that Good Reason
exists for such termination. If a Notice of Termination given by you for Good
Reason indicates that such termination shall be so conditioned and postponed,
then, if the Company disputes the existence of Good Reason, the Company shall,
within thirty (30) days after the Notice of Termination is given, notify you
that a dispute exists concerning the termination, whereupon Section 13 hereof
shall apply to such dispute. If no such notice is given by the Company within
such 30-day period, then a final determination that Good Reason exists shall
be
deemed to have occurred on the date thirty (30) days after the Notice of
Termination for Good Reason is given.
(B) Notwithstanding
anything to the contrary in this Agreement:
(1) if,
at
any time before the Date of Termination determined pursuant to this Agreement
with respect to any purported termination by you of your employment with the
Company, there exists a basis for the Company to terminate your employment
for
Cause, then the Company may, regardless of whether or not you have given Notice
of Termination for Good Reason and regardless of whether or not Good Reason
exists, terminate your employment for Cause, in which event you shall not be
entitled to the benefits provided in Section 5(iii) hereof, and
(2) if
you
die or your employment is terminated based on Disability after you have given
Notice of Termination for Good Reason and before the Date of Termination
determined under this Agreement with respect to that Notice of Termination,
and
it is subsequently finally determined that Good Reason existed at the time
your
employment terminated, then termination of your employment shall be deemed
to
have occurred for Good Reason (and not due to your death or Disability) and
you
shall be entitled to the benefits provided in Section 5(iii)
hereof.
(v) Date
of Termination.
“Date
of Termination” shall mean the date your employment with the Company is
terminated following the earlier of Shareholder Approval, if applicable, or
a
Change in Control, which date shall be determined as follows:
(A) if
your
employment is to be terminated for Disability, thirty (30) days after Notice
of
Termination is given (provided that, if you shall have returned to the
performance of your duties on a full-time basis during such thirty (30) day
period, then the termination for Disability contemplated by the Notice of
Termination shall not occur),
(B) if
your
employment is terminated due to your death, the date of your death,
(C) if
your
employment is to be terminated by the Company other than for Disability, or
if
your employment is to be terminated by you without a claim of Good Reason,
the
date specified in the Notice of Termination, and
(D) if
your
employment is to be terminated by you for Good Reason, the date ninety (90)
days
after the date on which a Notice of Termination is given, unless
either:
(1) an
earlier date has been agreed to by the Company either in advance of, or after,
receiving such Notice of Termination (in which case such earlier date shall
be
the Date of Termination),
(2) pursuant
to and in accordance with Section 4(iv) you have indicated in your Notice of
Termination that you are conditioning your termination upon (and postponing
such
termination until) the date on which it is finally determined that Good Reason
exists for such termination (in which case the later of such date as determined
in accordance with Section 4(iv) above, or the date otherwise determined under
this Section 4(v)(D), shall be the Date of Termination),
(3) the
Company shall not have notified you within fifteen (15) days after a Notice
of
Termination for Good Reason is given that it intends to fully correct the
circumstances giving rise to Good Reason (in which
case
the
date fifteen (15) days after the Notice of Termination shall be the Date of
Termination), or
(4) if
the
Company gives notice as provided in Section 4(v)(D)(3) and if the circumstances
giving rise to Good Reason are fully corrected on or prior to the date that
is
ninety (90) days after such Notice of Termination was given, then the
termination for Good Reason contemplated by such Notice of Termination shall
not
occur.
5. Compensation
Upon Termination or During Disability.
(i) During
any period following the earlier of Shareholder Approval, if applicable, or
a
Change in Control that you fail to perform your duties as a result of incapacity
due to physical or mental illness, you shall continue to receive your full
base
salary at the rate then in effect and any benefits or awards under any Plans
shall continue to accrue during such period, to the extent not inconsistent
with
such Plans, until your employment is terminated pursuant to and in accordance
with Sections 4(i) and 4(v) hereof. Thereafter, your benefits shall be
determined in accordance with the Plans then in effect.
(ii) If
your
employment shall be terminated for Cause or as a result of death following
the
earlier of Shareholder Approval, if applicable, or a Change in Control, the
Company shall pay you your full base salary through the Date of Termination
at
the rate in effect just prior to the time a Notice of Termination is given
plus
any benefits or awards which pursuant to the terms of any Plans have been earned
or become payable, but which have not yet been paid to you. Thereupon the
Company shall have no further obligations to you under this
Agreement.
(iii) If
a
Change in Control occurs and either (a) after the earlier of Shareholder
Approval, if applicable, or the Change in Control and no later than twenty-four
(24) months after the Change in Control, a Date of Termination of your
employment with the Company occurred or occurs as a result of a termination
by
the Company other than for Cause or Disability, or (b) your employment with
the
Company is terminated by you for Good Reason based on an event occurring
concurrent with or subsequent to the earlier of Shareholder Approval, if
applicable, or the Change in Control and your Notice of Termination in
connection therewith shall have been given no later than twenty-four (24) months
after the Change in Control, then, by no later than the fifth day following
the
later of the Date of Termination or the Change in Control (except as may
otherwise be provided), you shall be entitled, without regard to any contrary
provisions of any Plan, to a severance benefit as follows:
(A) the
Company shall pay your full base salary through the Date of Termination at
the
rate in effect just prior to the time a Notice of Termination is given plus
any
benefits or awards which pursuant to the terms of any Plans have been earned
or
become payable, but which have not yet been paid to you; provided, however,
that
with respect to a termination of your employment for
(B) as
severance pay and in lieu of any further salary for periods subsequent to the
Date of Termination, the Company shall pay to you in a single payment an amount
in cash equal to three (3) times the sum of (1) the greater of (i) your annual
rate of base salary in effect on the Date of Termination or (ii) your annual
rate of base salary in effect immediately prior to the earlier of Shareholder
Approval, if applicable, or the Change in Control and (2) your target bonus
as
most recently established by the Board;
(C) for
a
thirty-six (36) month period after the Date of Termination, the Company shall
arrange to provide you, your spouse and your dependents with life, accident
and
health insurance benefits substantially similar to those which you were
receiving immediately prior to the earlier of Shareholder Approval, if
applicable, or the Change in Control. Notwithstanding the foregoing, the Company
shall not provide any benefit otherwise receivable by you pursuant to this
subparagraph (C) to the extent that a similar benefit is actually received
by
you from a subsequent employer during such thirty-six (36) month period, and
any
such benefit actually received by you shall be reported to the Company;
and
(D) all
options to purchase Company common stock then held by you shall become
immediately vested and exercisable in full and all performance shares and
restricted stock then held by you shall become immediately vested and all
forfeiture provisions shall lapse.
(iv) The
amount of any payment provided for in this Section 5 shall not be reduced,
offset or subject to recovery by the Company by reason of any compensation
earned by you as the result of employment by another employer after the Date
of
Termination, or otherwise. Your entitlements under Section (5)(iii) are in
addition to, and not in lieu of, any rights, benefits or entitlements you may
have under the terms or provisions of any Plan.
6. Tax
Gross-Up Payments.
(i) Whether
or not your employment is terminated, if any of the payments provided for in
Section 5(iii) or any other payment or benefit received or to be received by
you
in connection with a Change in Control or the termination of your employment
(collectively, the “Change in Control Payments”) will be subject to the tax
imposed by section 4999 of the Internal Revenue Code of 1986, as amended (the
“Code”), or any similar tax that may hereafter be imposed (the “Excise Tax”),
the Company shall pay to you at the time any such Change in Control Payment
is
paid an
(ii) The
Company shall withhold the Excise Tax determined under paragraph (i) above
in
accordance with section 4999(b) of the Code, and shall withhold federal, state
and local income taxes from Change in Control Payments and Gross-Up Payments
as
required by law.
7. Successors;
Binding Agreement.
(i) Upon
your
written request, the Company will seek to have any Successor (as hereinafter
defined), by agreement in form and substance satisfactory to you, assent to
the
fulfillment by the Company of its obligations under this Agreement. For purposes
of this Agreement, “Successor” shall mean any Person that succeeds to, or has
the practical ability to control (either immediately or with the passage of
time), the Company’s business directly, by merger, consolidation or purchase of
assets, or indirectly, by purchase of the Company’s Voting Securities or
otherwise.
(ii) This
Agreement shall inure to the benefit of and be enforceable by your personal
or
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live, all such
amounts, unless otherwise provided herein, shall be paid in accordance with
the
terms of this Agreement to your devisee, legatee or other designee or, if there
be no such designee, to your estate.
8. Fees
and Expenses.
The
Company shall pay to you all legal fees and related expenses incurred by you
in
good faith as a result of (i) your termination following the earlier of
Shareholder Approval, if applicable, or a Change in Control
9. Survival.
The
respective obligations of, and benefits afforded to, the Company and you as
provided in Sections 5, 6, 7(ii), 8 and 13 of this Agreement shall survive
termination of this Agreement, but only with respect to a Change in Control
occurring during the term of this Agreement.
10.
Notice.
For the
purposes of this Agreement, notices and all other communications provided for
in
this Agreement shall be in writing and shall be deemed to have been duly given
when delivered or mailed by United States registered mail, return receipt
requested, postage prepaid and addressed to the address of the respective party
set forth on the first page of this Agreement, provided that all notices to
the
Company shall be directed to the attention of the Chairman of the Board of
the
Company, with a copy to the Secretary of the Company, or to such other address
as either party may have furnished to the other in writing in accordance
herewith, except that notice of change of address shall be effective only upon
receipt.
11. Amendment,
Waiver; Applicable Law.
No
provision of this Agreement may be modified, waived or discharged unless such
modification, waiver or discharge is agreed to in a writing signed by you and
the Chairman of the Board of the Company. No waiver by either party hereto
at
any time of any breach by the other party hereto of, or of compliance with,
any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions
at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter hereof
have been made by either party which are not expressly set forth in this
Agreement. The validity, interpretation, construction and performance of this
Agreement shall be governed by the laws of the State of Oregon.
12. Validity.
The
invalidity or unenforceability of any provision of this Agreement shall not
affect the validity or enforceability of any other provision of this Agreement,
which shall remain in full force and effect.
13. Arbitration.
Any
dispute or controversy arising under or in connection with this Agreement shall
be settled exclusively by arbitration in Portland, Oregon by three arbitrators
in accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrators’ award, which award shall be
a final and binding determination of the dispute or controversy, in any court
having jurisdiction; provided, however, that you shall be entitled to seek
specific performance of your right to be paid until the Date of Termination
during the pendency of any dispute or controversy arising under or in connection
with this Agreement. The Company shall bear all costs and expenses of the
arbitrators arising in connection with any arbitration proceeding pursuant
to
this Section 13.
14. Related
Agreements.
To the
extent that any provision of any other agreement between the Company or any
of
its subsidiaries and you shall limit, qualify or be inconsistent with any
provision of this Agreement, then for purposes of this Agreement, while the
same
shall remain in force, the provision of this Agreement shall control and such
provision of such other agreement shall be deemed to have been superseded,
and
to be of no force or effect, as if such other agreement had been formally
amended to the extent necessary to accomplish such purpose.
15. Counterparts.
This
Agreement may be executed in several counterparts, each of which shall be deemed
to be an original, but all of which together will constitute one and the same
instrument.
If
this
letter correctly sets forth our agreement on the subject matter hereof, kindly
sign and return to the Company the enclosed copy of this letter which will
then
constitute our agreement on this subject.
|
Sincerely,
SCHNITZER
STEEL INDUSTRIES, INC.
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||
| |
|
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| By: | /s/ Xxxxx X. Xxxx | |
|
Xxxxx X. Xxxx,
Chairman
of the Compensation
Committee
of the Board of Directors
|
||
Agreed
to
this 17th day
of
February, 2006.
| /s/ Xxxx X. Xxxxxx | ||
|
Xxxx
X. Xxxxxx
|
