October 29, 2008
EXHIBIT 10.2
October
29, 2008
Xxxxxx X.
Xxxxxxxx
President
and Chief Executive Officer
Schnitzer
Steel Industries, Inc.
0000 XX
Xxxx Xxxxxx
Xxxxxxxx,
Xxxxxx 00000
Re:
Change in Control Severance Agreement
Dear
Xxxxxx:
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 amended and restated
letter agreement (the “Agreement”), which
has been approved by the Compensation Committee of 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. This Agreement amends and restates the Change in Control
Severance Agreement between you and the Company, dated as of March 24,
2006.
1. Right to
Terminate. The Company or you may terminate your employment as
the Company’s President and Chief Executive Officer at any time, subject to the
Amended and Restated Employment Agreement dated October 29, 2008 (the “Employment
Agreement”) and this Agreement, as applicable. Capitalized
terms not otherwise defined herein shall have the meanings ascribed to such
terms in the Employment Agreement.
2. Term of
Agreement. This Agreement shall commence on December 1, 2008
and shall continue in effect through December 1, 2011, or earlier termination of
your employment; provided, that (1)
commencing on December 1, 2009 and each December 1 thereafter, the term of this
Agreement shall automatically be extended for one additional year unless at
least 90 days prior to such December 1 date, the Company or you shall have given
notice that this Agreement shall not be extended; provided, further that (1) the
Company’s ability to give such a notice shall be suspended during the period
commencing on the date on which the Company executes an agreement to undergo a
Change in Control and ending on the date on which such Change in
Control
is consummated or such agreement lapses or is otherwise terminated, as
applicable and (2) in the event a Change in Control occurs during the term of
this Agreement, the Agreement shall automatically be extended such that the
Agreement shall remain in effect for the 24-month period commencing on the date
such Change in Control is consummated.
3. Change in
Control.
(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 meaning of Rule
13d-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)),
directly or indirectly, of Voting Securities representing twenty percent (20%)
or more of the combined voting power of the then outstanding Voting
Securities.
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.
- 2
-
(ii) 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 Exchange Act, other
than the Company or any employee benefit plan sponsored by the
Company.
4. Termination During Change in
Control Protection Period. If a Change in Control occurs, you
shall be entitled to the payments and benefits provided in Section 5(ii) hereof
in the event that within 24 months following the Change in Control, (x) your
employment with the Company is terminated by the Company for any reason other
than Cause (for the avoidance of doubt, a termination by the Company “for any
reason other than Cause” includes a termination by the Company due to your
Disability), or (y) your employment with the Company is terminated by you for
Good Reason (as defined below). Notwithstanding anything to the
contrary herein, in the event a Change in Control shall occur during the
six-month period following the termination of your employment by the Company
without Cause, or by you for Good Reason, then your employment shall be deemed
to have been terminated immediately after such Change in Control and you shall
be entitled to the benefits provided in Section 5(ii) hereof, less the amount of
severance (if any) you have received pursuant to Sections 7(b)(ii) and 7(b)(iii)
of your Employment Agreement.
(i) 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 set forth in (A) through (H) below, provided (1)
you give Notice of Termination (as defined below) no later than 90 days after
the first occurrence of the events giving rise to your intent to terminate your
employment for Good Reason; (2) the Company fails to fully correct such events
within 30 days of receiving such Notice of Termination, and (3) such termination
occurs no later than 180 days following the first occurrence of the events
giving rise to Good Reason:
(A) an
adverse change or diminution in your status, title, positions or
responsibilities as President and Chief Executive Officer or the assignment to
you of any duties, reporting requirements or responsibilities which are
inconsistent with such status, title or positions (including, without
limitation, any requirement that you report to any person other than the Board
or any failure to be the senior most officer of the Company), or your removal
from or any failure to reappoint or you to such positions (including, without
limitation, any failure to be reappointed or reelected to the Board), in each
case except in connection with the termination of your employment for Cause or
by you other than for Good Reason;
(B) a
reduction by the Company in your base salary as in effect immediately prior to
the Change in Control (or any higher rate in effect subsequent to 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 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 Change in Control, or the taking of any
action, or the failure to
- 3
-
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 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 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 Change in Control
(or any higher number of paid vacation days to which you are entitled following
the Change in Control);
(E) the
Company’s requiring you to relocate your personal residence, or to change your
base office locations from either of the current locations in New York City, New
York and Portland, Oregon, absent agreement by you, 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 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 Section 4(iv)
below; 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 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.
(ii) 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 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.
(iii) Date of Termination.
“Date of
Termination” shall mean the date your employment with the Company is
terminated, which date shall be determined as follows:
- 4
-
(A) if your
employment is terminated due to your death, the date of your death;
(B) if your
employment is to be terminated by the Company 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
(C) if your
employment is to be terminated by you for Good Reason, the date on which your
employment terminates in accordance with Section 4(i) above.
5. Compensation Upon
Termination.
(i) If your
employment shall be terminated for Cause, the Company shall pay you the Accrued
Obligations (as defined in the Employment Agreement). Thereupon the
Company shall have no further obligations to you under this
Agreement.
(ii) If within
the twenty-four (24) months immediately following a Change in Control, a Date of
Termination of your employment with the Company occurs as a result of (a) a
termination by the Company other than for Cause (for the avoidance of doubt, a
termination by the Company “for any reason other than Cause” includes a
termination by the Company due to your Disability), or (b) a termination by you
for Good Reason, then, by no later than the fifth day following the later of the
Date of Termination or, if this Section 5(ii) applies due to the application of
the last sentence of Section 4, the Change in Control (in each case, except as
may otherwise be provided herein), you (or your estate, as applicable) shall be
entitled to a severance benefit as follows:
(A) the
Company shall pay your full base salary at the rate in effect just prior to the
time a Notice of Termination is given plus your current year annual bonus
through the Date of Termination 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, that with
respect to a termination of your employment for Good Reason based on a reduction
by the Company in your base salary as in effect immediately prior to the Change
in Control, the Company shall pay your full base salary through the Date of
Termination at the rate in effect just prior to such reduction 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;
(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 (or your estate, as
applicable) in a single payment an amount in cash equal to the sum of (1) three
times 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 Change in Control plus (2) three times the sum of the greater of
(i) the average of your last three annual bonuses (annualized in the case of any
bonus paid with respect to a partial year); provided, that the
amount taken into account with respect to each of the last three annual bonuses
shall not exceed three times the target bonus established by the Board with
respect to each such year or (ii) the target bonus as most recently established
by the Board;
- 5
-
(C) for a
36-month period after the Date of Termination, the Company shall arrange to
provide you, your spouse and your dependents, as applicable, with life, accident
and health insurance benefits substantially similar to those which you were
receiving immediately prior to 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 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,
restricted stock units and restricted stock then held by you shall become
immediately vested and all forfeiture provisions shall lapse.
(iii) Except as
expressly provided in Section 4 of this Agreement, 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)(ii) 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
this Agreement 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 additional amount (the “Gross-Up Payment”)
such that the net amount retained by you, after deduction of any Excise Tax on
the Change in Control Payments and any federal, state and local income tax and
Excise Tax upon the Gross-Up Payment, shall be equal to the Change in Control
Payments. For purposes of determining the amount of the Gross-Up Payment, you
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 your personal 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, you 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 Change in Control 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
- 6
-
interest
and penalties payable to the taxing authorities with respect to such excess) at
the time that the amount of such excess is finally determined.
(ii) The
Company shall withhold the Excise Tax determined under Section 6(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) 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 your seeking to obtain or enforce in good faith any
right or benefit provided by this Agreement.
9. Survival. The
respective obligations of, and benefits afforded to, the Company and you as
provided in Sections 4, 5, 6, 7, 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 or to Executive as set forth in
the Company’s records, provided that all notices to the Company shall be
directed to the attention of 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 a duly authorized officer of the
Company (other than yourself). 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
- 7
-
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 internal laws of the State of Oregon, without regard to conflicts of law
principles.
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, 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. Compliance with Code Section
409A. Notwithstanding anything herein to the contrary, (i) if
at the time of your termination of employment with the Company you are a
“specified employee” as defined in Section 409A of the Code and the deferral of
the commencement of any payments or benefits otherwise payable hereunder as a
result of such termination of employment is necessary in order to prevent any
accelerated or additional tax under Section 409A of the Code, then the Company
will defer the commencement of the payment of any such payments or benefits
hereunder (without any reduction in such payments or benefits ultimately paid or
provided to you) until the date that is six months following your Date of
Termination (or the earliest date as is permitted under Section 409A of the
Code) and (ii) if any other payments of money or other benefits due to you
hereunder could cause the application of an accelerated or additional tax under
Section 409A of the Code, such payments or other benefits shall be deferred if
deferral will make such payment or other benefits compliant under Section 409A
of the Code, or otherwise such payment or other benefits shall be restructured,
to the extent possible, in a manner, determined by the Board, that does not
cause such an accelerated or additional tax. In the event that
payments under this Agreement are deferred pursuant to this Section 14 in order
to prevent any accelerated tax or additional tax under Section 409A of the Code,
then such payments shall be paid at the time specified under this Section 14
(together with interest for any additional deferral period resulting from this
Section 14 at the applicable federal rate under Section 7872(f)(2)(A) of the
Code in effect on the date of termination). The Company shall consult
with you in good faith regarding the implementation of this Section
14. For purposes of Section 409A of the Code, the right to a series
of installment payments under this Agreement shall be treated as a right to a
series of separate payments. Notwithstanding anything to the contrary
herein, a termination of employment shall not be deemed to have occurred for
purposes of any provision of this Agreement providing for the payment of amounts
or benefits upon or following a termination of employment until such termination
is also a “Separation from Service” within the meaning of Section 409A of the
Code
- 8
-
and, for
purposes of any such provision of this Agreement, references to a “resignation,”
“termination,” “termination of employment” or like terms shall mean Separation
from Service.
15. Related Agreements.
To the extent that any provision of any other agreement between the Company or
any of its subsidiaries and you (including, without limitation, the Employment
Agreement) shall limit, qualify or be inconsistent with any provision of this
Agreement, while this Agreement remains in force and effect, then 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.
16. 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.
By:
/s/ Xxxxxx Xxxxxxxx
Name:
Xxxxxx Xxxxxxxx
Title: Acting
Chair, Compensation Committee of the Board of
Directors
|
Agreed to
this 29th
day
of
October, 2008
/s/
Xxxxxx X. Xxxxxxxx
Xxxxxx X.
Xxxxxxxx
- 9
-
