SCHNITZER STEEL INDUSTRIES, INC. EMPLOYMENT AGREEMENT
EXHIBIT
10.1
SCHNITZER
STEEL INDUSTRIES, INC.
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Xxxx
X. Xxxxxx
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Executive
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Schnitzer
Steel Industries, Inc.,
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Company
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XX
Xxx 00000
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Xxxxxxxx,
XX 00000-0000
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In
consideration of the mutual covenants contained herein, and other good and
valuable consideration, the Company and Executive agree as follows.
1. Effective
Date and Term.
The
effective date of this Agreement is February 17, 2006, and this Agreement
governs the terms and conditions of Executive’s employment through August 31,
2009. This Agreement replaces and supersedes the Agreement of Initial Employment
Terms dated July 18, 2005 between the Company and Executive. This Agreement
has
been approved by the Compensation Committee of the Company’s Board of Directors
(the “Compensation
Committee”).
2. Employment
At-Will.
The
Company employs Executive as President and Chief Executive Officer of the
Company on the terms and conditions set forth in this Agreement.
Executive serves as President and Chief Executive Officer of the Company at
the
pleasure of the Board of Directors. Executive’s employment is at will and may be
terminated at any time, for any reason or no reason, upon notice by either
the
Company or Executive, subject to the obligations of the Company and Executive
as
provided in this Agreement. Termination of Executive as President and Chief
Executive Officer, for any reason, shall constitute the resignation by
Executive, effective upon such termination as a director and officer of the
Company. Upon request, Executive shall provide the Company with additional
written evidence of any such resignation.
3. Change
in Control Severance Agreement.
The
Company and the Executive have entered into a Change in Control Severance
Agreement dated February 17, 2006 (the “Change
in Control Agreement”).
4. Annual
Salary and Bonus.
(a) Base
Salary.
Beginning January 1, 2006, Executive’s base salary (the
“Base
Salary”)
shall
be at the annual rate of $750,000.
Base
Salary shall be payable in installments on regular Company paydays, subject
to
withholding for taxes and other proper deductions. Base Salary for any partial
period of employment shall be prorated. Executive’s performance and the amount
of the Base Salary shall be reviewed annually in connection with the Company’s
normal compensation review and bonus cycle for executive officers, and the
Base
Salary may be increased from time to time in the sole discretion of the
Compensation Committee.
(b) Annual
Performance Bonus for Fiscal Year Ended August 31, 2006.
Executive’s target cash bonus for the fiscal year ending August 31, 2006 shall
be $750,000. The actual amount of Executive’s bonus for this period shall be
determined by the Compensation Committee in its sole discretion based on its
judgment regarding Executive’s performance during fiscal year 2006, and may be
more or less than the target amount. There is no pre-determined minimum or
maximum amount of the bonus. Bonus payment for performance during fiscal year
2006 will be on the basis of a review and discussion by the Compensation
Committee, and will include consideration of a variety of financial and
organizational objectives and the overall performance of the Company, as well
as
the achievement of personal goals agreed with the Compensation Committee. The
bonus provided for in this Section 4(b) shall be payable to Executive on a
date
selected by the Company between September 1 and November 15, 2006, and is
subject to withholding for taxes and other proper deductions.
(c) Annual
Performance Bonus for Fiscal Years ending August 31, 2007, 2008 and
2009.
At the
beginning of fiscal year 2007, 2008 and 2009 (and in any event no later than
90
days into the fiscal year) the Compensation Committee will establish a bonus
program for that fiscal year for Executive that will have two components: a
component based on objective Company financial measures and a component based
on
management objectives (MBO). The first component will set forth objective
Company financial performance criteria that will determine the amount of
Executive’s bonus. The plan will specify bonus amounts higher and lower than the
target for Company performance based on the predetermined objectives. The
Compensation Committee will establish the objective Company financial
performance criteria in consultation with Executive. The Committee may determine
in advance adjustments to GAAP for specific items that will be taken into
account for the purpose of determining the Company’s financial performance for
the bonus determination. The second component will be based on MBO performance
criteria. At the beginning of each fiscal year the Compensation Committee,
in
consultation with Executive, will establish management objectives for Executive.
The Compensation Committee and Executive will strive to establish objectives
that are clearly understood and measurable. The plan will specify bonus amounts
higher or lower than the target for performance based on the objectives. At
the
end of the fiscal year, the Compensation Committee will review Executive’s
performance, and determine the extent to which the objectives have been met
and
the applicable bonus amount. For FY 2007, the target annual bonus under the
combined bonus plan will be 1x Base Salary, and the Company financial
performance component will apply to 50% of the bonus target and the MBO
component will apply to 50% of the bonus target. The same shall apply for FY2008
and 2009 unless otherwise determined by the Compensation Committee in
consultation with Executive. The bonus for a fiscal year shall be payable to
Executive on a date selected by the Company between September 1 and November
15
, 2006 in the next fiscal year, and is subject to withholding for taxes and
other proper deductions.
5. Options
and Other Benefits.
(a) Option
Grants.
The
amount and terms of any stock option grants after the date of this Agreement
shall be in the discretion of the Compensation Committee.
(b) Benefits.
Executive shall be entitled to participate in the Company’s employee benefit
plans, insurance, executive medical coverage, sick leave, holidays, auto
allowance and such other benefits as the Company from time to time may generally
provide to its most senior officers, except that Executive shall not be a
participant in the Company’s Supplemental Executive Retirement Bonus Plan
(“SERBP”)
or the
Company’s Economic Value Added Bonus Program. If Executive’s employment
continues beyond June 1, 2006, Executive will also become eligible for
retirement benefits, including the SERBP, subject to the Compensation
Committee’s review and approval regarding the terms and conditions of such
benefits.
(c) Long
Term Incentive Plan.
Executive is eligible to participate in the Company’s long term incentive
programs (“LTIP”),
and
awards to Executive under the LTIP will be made at the discretion of the
Compensation Committee in accordance with the modified LTIP now in effect for
the Company, or as later modified by the Company.
6. Definitions.
The
following terms shall have the following meanings for purposes of this
Agreement:
(a) “Cause”
shall
mean (i) the willful and continued failure by Executive to perform
substantially his assigned duties with the Company (other than any such failure
resulting from his incapacity due to physical or mental illness) after a demand
for substantial performance is delivered to Executive
by the
Chairman of the Board of the Company which specifically identifies the manner
in
which the Chairman of the Board believes that Executive has not substantially
performed his duties or (ii) the willful engaging by Executive in illegal
conduct which is materially and demonstrably injurious to the Company. For
purposes of this Section 6(a) (ii), no act, or failure to act, on Executive’s
part
shall be considered “willful” unless done, or omitted to be done, by Executive
in knowing bad faith and without reasonable belief that his 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 Executive in good
faith and in the best interests of the Company. Notwithstanding the foregoing,
Executive shall not be deemed to have been terminated for Cause unless and
until
there shall have been delivered to Executive 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 Executive and an opportunity for Executive, together with
his counsel, to be heard before the Board), finding that in the good faith
opinion of the Board Executive were guilty of the conduct set forth above in
(i)
or (ii) of this Section 6(a)) and specifying the particulars thereof in
detail.
(b) “Disability”
shall
mean Executive’s
absence from his duties with the Company on a full-time basis for one hundred
eighty (180) consecutive days as a result of his incapacity due to physical
or
mental illness, unless within thirty (30) days after notice of
termination
is given to Executive following such absence he shall have returned to the
full-time performance of his duties.
(c) “Good
Reason”
shall
mean termination by Executive of Executive’s employment with the Company based
on any of the following events:
(i) a
change
in Executive’s status, title, positions or responsibilities as President and
Chief Executive Officer or the assignment to Executive of any duties or
responsibilities which are inconsistent with such status, title or positions,
or
any removal of Executive from or any failure to reappoint or reelect Executive
to such positions, except in connection with the termination of Executive’s
employment for Cause or Disability or as a result of Executive’s death or by
Executive other than for Good Reason;
(ii) a
reduction by the Company in Executive’s base salary;
(iii) the
failure by the Company to provide to Executive the compensation and benefits
as
provided in Section 4 of this Agreement;
(iv) the
failure by the Company to provide and credit Executive with the number of paid
vacation days to which Executive is then entitled in accordance with the
Company’s normal vacation policy;
(v) the
Company’s requiring Executive to be based more than 30 miles from where
Executive’s office is located as of the date of this Agreement except for
required travel on the Company’s business to an extent substantially consistent
with the business travel obligations which Executive undertook as of the date
of
this Agreement;
(vi) the
failure by the Company to obtain from any Successor (as defined in Section
10 of
this Agreement) the assent to this Agreement contemplated by Section 10;
or
(vii) the
failure by the Company to pay Executive any portion of Executive’s current
compensation, to credit any deferred compensation plan account of Executive
in
accordance with Executive’s previous election, or to pay Executive any portion
of an installment of deferred compensation under any plan in which Executive
participated, within seven (7) days of the date such compensation is
due.
Notwithstanding
any provision in this Agreement to the contrary, Executive may terminate his
employment for “Good Reason” only if (1) within 30 days after notice to
Executive of the occurrence of any of the circumstances giving rise to “Good
Reason,” Executive gives written notice to the Company of Executive’s believe
that Good Reason exists and of his intention to terminate his employment for
Good Reason and (2) within 30 days of such notice from Executive the
circumstances giving rise to Good Reason are not fully corrected.
7. Effect
of Termination of Employment.
(a) Termination by
the Company for Cause or by
Executive
without Good Reason.
If the
Company terminates Executive’s employment for Cause
or
Executive
terminates
his employment
without
good reason, Executive shall be entitled to receive only (i)
the
Base
Salary and any other compensation or benefits which have been earned or become
payable as of the date of termination but which have not yet been paid to
Executive,
(ii)
all paid time off accrued but untaken through the effective date of such
termination, and (iii) reimbursement of expenses incurred through the effective
date of such termination pursuant to the Company normal expense reimbursement
policy. The amounts described in clauses (i) through (iii) of the foregoing
are
referred to as the “Accrued
Obligations.”
(b) Termination
by the Company Without Cause
or by Executive for Good Reason.
If
the
Company terminates Executive’s employment without Cause
or
Executive terminates his employment for Good Reason at any time before September
1, 2009 and not under circumstances that would give rise to severance payments
to Executive under the Change in Control Agreement:
(i) Executive
shall be entitled to receive the Accrued
Obligations;
(ii) Executive
shall be entitled to receive a severance
payment (subject to applicable taxes and withholding) in
a lump
sum in an amount equal to two times Executive’s annualized rate of Base
Salary
in
effect immediately prior to the time of termination
plus two
times Executive’s target annual bonus in effect immediately prior to the
termination;
(iii) Executive
shall be paid a prorata portion of the target bonus for the fiscal year in
which
the termination occurs (based on the portion of the year worked);
and
(iv) all
options to purchase Company common stock then held by Executive shall become
immediately vested and exercisable in full and all performance shares and
restricted stock then held by Executive shall become immediately vested and
all
related forfeiture provisions shall lapse.
(c) Death.
If
Executive’s employment is terminated as a result of Executive’s death, Executive
shall be entitled to receive the Accrued
Obligations.
(d) Disability.
If
Executive’s employment is terminated as a result of Executive’s Disability,
Executive shall be entitled to receive the Accrued
Obligations.
(e) Date
of Payment.
Except
as otherwise provided in this Agreement, all cash payments and lump-sum awards
required to be made pursuant to the provisions of this Section 7
shall be
made no later than the 30th day following the effective date of Executive’s
termination.
(f) Release
of Claims.
The
Company shall have the right to require Executive to execute an appropriate
general release of claims relating to his employment at the Company and
termination of employment at the Company that could be brought by Executive
hereunder as a condition to Executive’s receipt of any payments pursuant to this
Section 7.
(g) Options,
Performance Shares and Restricted Stock.
The
options, performance shares and restricted stock awarded to Executive by the
Company shall, in the event of a termination of Executive’s employment, be
governed by the provisions of the applicable
award
agreement; provided that the accelerated vesting provisions of Section 7(b)(iv)
shall, if triggered, control in the event of any inconsistency with any such
agreement.
(h) No
Obligation of Executive to Mitigate.
The
amount of any payment provided for in this Section 7 shall not be reduced,
offset or subject to recovery by the Company by reason of any compensation
earned by Executive as the result of employment by another employer after the
date of termination.
(i) 280G
Excise Tax Gross Up Provision.
If
any of
the payments provided for in Section 7(b) 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 Executive at the time any such payment is paid an additional amount
(the “Gross-Up Payment”) such that the net amount retained by Executive, after
deduction of any Excise Tax on the payments and any federal, state and local
income tax and Excise Tax upon the Gross-Up Payment, shall be equal to the
payment provided for in Section 7(b). For purposes of determining the amount
of
the Gross-Up Payment, Executive shall be deemed to pay federal income taxes
at
the highest marginal rate of federal income taxation in the calendar year in
which the Gross-Up Payment is to be made and state and local income taxes at
the
highest marginal rate of taxation in the state and locality of Executive’s
residence on the date of termination, net of the maximum reduction in federal
income taxes which could be obtained from deduction of such state and local
taxes. In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder, Executive shall repay to the
Company at the time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment directly and indirectly
attributable to such reduction plus interest on the amount of such repayment
at
the rate provided for in section 1274(d) of the Code. In the event that the
Excise Tax is determined to exceed the amount taken into account hereunder
(including by reason of any payment the existence or amount of which cannot
be
determined at the time of the Gross-Up Payment), the Company shall make an
additional Gross-Up Payment in respect of such excess (plus any interest payable
to the taxing authorities with respect to such excess) at the time that the
amount of such excess is finally determined. The Company shall withhold the
Excise Tax in accordance with section 4999(b) of the Code, and shall withhold
federal, state and local income taxes from payments under Section 7(b) and
Gross-Up Payments as required by law.
8. Withholding.
Payment
of all compensation under this Agreement, including but not limited to the
Base
Salary and Annual Performance Bonus, shall be subject to all applicable federal,
state and local tax withholding.
9. Attorneys’
Fees.
Each
party shall bear his or its own costs and attorneys’ fees which have been or may
be incurred in connection with the negotiation of this Agreement. The Company
shall pay to Executive all reasonable legal fees and related expenses incurred
by Executive in good faith as a result of Executive seeking to obtain or enforce
in good faith any right or benefit provided by this Agreement.
10.
Successors;
Binding Agreement.
(a) Upon
Executive’s written request, the Company will seek to have any Successor (as
hereinafter defined), by agreement in form and substance satisfactory to
Executive,
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.
(b) This
Agreement shall inure to the benefit of and be enforceable by Executive’s
personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive should die while any amount
would still be payable to Executive 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 Executive’s devisee, legatee or other designee
or, if there be no such designee, to Executive’s estate.
11. Survival.
The
respective obligations of, and benefits afforded to, the Company and Executive
as provided in Sections 7, 9 and 15 of this Agreement shall survive termination
of Executive’s employment and this Agreement.
12. 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 Company as set
forth on the first page of this Agreement or Executive as set forth in the
Company’s records, 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.
13. Miscellaneous.
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.
14. 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.
15. 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 Executive shall be entitled to
seek
specific performance of Executive’s 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 15.
16. Related
Agreements.
To the
extent that any provision of any other agreement between the Company or any
of
its subsidiaries and Executive 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.
17. 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.
Dated:
February 17, 2006
SCHNITZER
STEEL INDUSTRIES, INC.
| By: /s/ Xxxxx X. Xxxx | /s/ Xxxx X. Xxxxxx | ||
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Name:
Xxxxx X. Xxxx
Title:
Chairman of Compensation
Committee
of the Board of Directors
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Xxxx X. Xxxxxx |
