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Item
5.02
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Departure
of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain
Officers
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On April
29, 2008, the Compensation Committee (the “Committee”) of the Board of Directors
(the “Board”) of Schnitzer Steel Industries, Inc. (the “Company”) approved an
Instrument of Amendment (the “Amendment”) to the Change in Control Severance
Agreement, dated as of March 24, 2006 (the “Adler Change in Control Severance
Agreement”), between the Company and Tamara L. Adler (Lundgren), Executive Vice
President and Chief Operating Officer (the “COO”).
The
Committee also approved a form of Change of Control Severance Agreement (the
“Change of Control Agreement”) for certain executive and other officers of the
Company, who are designated as Tier 2 or Tier 3 Officers (sometimes referred to
below as “covered employees”). Tier 2 Officers include the Company’s
Executive Vice Presidents, other than the COO, and Senior Vice
Presidents. Tier 3 Officers include corporate Vice Presidents who are
not Executive Vice Presidents or Senior Vice Presidents.
The
summaries herein of the Change of Control Agreement and the Amendment are
qualified in their entirety by the actual agreements, which are attached hereto
as exhibits 10.1 and 10.2, respectively, and incorporated herein by
reference. The Adler Change in Control Severance Agreement is an
exhibit to the Form 8-K filed by the Company on April 12, 2006 and is
incorporated by reference herein.
Change
of Control Agreement
The
Change of Control Agreement generally provides for a lump sum payment to a
covered employee upon the termination of such employee’s employment by the
Company without “cause” or by such employee for “good reason” within eighteen
months following a “change of control” of the Company (as such terms are defined
in the Change of Control Agreement) or, in certain circumstances connected with
a change of control, prior to the actual change of control (the “Change of
Control Period”). The lump sum payment includes (1) the covered
employee’s base salary and any other benefits or awards which pursuant to the
terms of any “plans” (as defined in the Change of Control Agreement) have been
earned or become payable as of the employee’s date of termination but which have
not yet been paid, together with any accrued vacation and unreimbursed business
expenses (the “Accrued Obligations”), (2) any unpaid incentive compensation for
preceding fiscal years which is contingent only on the employee’s continued
employment to a subsequent date and any undetermined annual incentive
compensation for any completed or uncompleted fiscal year, based on the greater
of (i) the amount the employee would have received if he or she achieved 100% of
his or her target award for that year or (ii) the amount determined by
annualizing the Company’s actual results for the fiscal quarter preceding his or
her date of termination; (3) one and one half times for a Tier 2 Officer, or one
times for a Tier 3 Officer, the sum of such covered employee’s base salary
(based on the greater of the annual rate in effect on the date of termination or
immediately prior to the change in control) and annual bonus (greater of (i) the
average of the last three annual bonuses (annualized for any partial year
bonuses) or (ii) the target bonus as most recently established by the
Compensation Committee), and (4) any unpaid balance in such covered employee’s
bonus
bank
under any of the Company’s Economic Value Added Bonus Plans. In the
event of such termination, the covered employee shall also receive vested
benefits and entitlements under any Company plan or agreement with the Company
(the “Other Benefits”).
In the
event of such a termination, the Change of Control Agreement also provides for
(1) continuation of life, accident and health insurance benefits up to an
18-month period for a Tier 2 Officer or a 12-month period for a Tier 3 Officer
at no greater cost to the employee than the employee’s after-tax cost
immediately prior to the change in control, except to the extent a similar
benefit is eventually received by the employee from a subsequent employer, (2)
payment of any unvested and therefore forfeited amount under the Company’s
401(k) Plan, and (3) payment of the actuarial lump sum value of any unvested and
therefore forfeited benefits under the Company’s Pension Retirement Plan, plus
such payment to fully gross up any taxes imposed in the cases of the payments
described in clauses (2) and (3) above. In addition, in such event,
all options to purchase Company common stock shall become immediately vested and
remain exercisable in full for their entire term, and all restricted stock or
restricted stock units then held by the covered employee under which vesting is
based solely on continued employment shall become immediately
vested. In addition, if a “Company Sale” (as defined in the
applicable long-term incentive award agreement) had not occurred on or before
the Effective Date, then in such event, shares of common stock will be issued to
the covered employee under any outstanding performance share award as if a
Company Sale had occurred on the later of the date of the covered employee’s
termination of employment or the change of control.
If any
payments under the Change of Control Agreement or otherwise will be subject to
the excise tax on “excess parachute payments,” the Company will make an
additional payment to the covered employee such that the covered employee will
receive net benefits as if no such tax were payable. If such
additional payments are required, the Company will not be able to deduct such
additional payments for federal income tax purposes and also will be denied such
a deduction for most of the other payments made to the covered employee pursuant
to the Change of Control Agreement and its other plans and
polices. If the “parachute value” is less than 110% of 2.99 times
such employee’s “base amount” (as such terms are defined in the Change of
Control Agreement), however, no additional payment is required and the amounts
payable to the covered employee will be reduced to 2.99 times such employee’s
“base amount.”
If a
covered employee becomes entitled to receive the foregoing benefits, for 18
months for a Tier 2 Officer or 12 months for a Tier 3 Officer after the date of
the termination of such covered employee’s employment with the Company, the
covered employee is obligated under the Change of Control Agreement not to (a)
render services to or be employed by the Company’s competitors or (b) solicit
the Company’s employees or divert any supplier, customer or employee from its
business relationship with the Company or intentionally interfere with any such
business relationship.
In the
event the covered employee’s employment terminates during the Change of Control
Period due to his or her death or disability (as defined in the Change of
Control Agreement), the covered employee or his or her estate or beneficiaries
shall receive the Accrued Obligations, Other Benefits and death or disability
(as applicable) benefits under Company plans in effect with respect to the
employee during the 120-day period immediately preceding the change of
control
or, if more favorable, as in effect on the date of the employee’s death or, in
the case of disability, at any time after the change of control.
In the
event the covered employee’s employment terminates during the Change of Control
Period due to termination by the Company with cause, the employee shall only
receive base salary through the date of termination and the Other
Benefits. In the event the covered employee’s employment terminates
during the Change of Control Period due to voluntary termination by the employee
without good reason, the employee shall only receive the Accrued Obligations and
Other Benefits.
Amendment
The Adler
Change in Control Severance Agreement was amended by the Amendment, dated as of
April 29, 2008, and shall continue in effect until August 31, 2009 or earlier
termination of Ms. Adler’s employment, provided that commencing on September 1,
2009 and each September 1 thereafter, the terms of the Adler Change in Control
Severance Agreement will automatically be extended for one additional year
unless either party gives notice not to extend at least 90 days prior to such
September 1 date, and provided further that the Adler Change in Control
Severance Agreement will continue in effect for a period of 24 months beyond the
term provided therein if a “potential change in control” or “change in control”
(as such terms are defined in the Adler Change in Control Severance Agreement)
shall have occurred during such term.
The Adler
Change of Control Severance Agreement was further amended to (a) include in the
lump-sum severance payment, in addition to the other severance payments provided
for in that agreement, any bonus for the current year through the date of
termination, and (b) provide that the annual bonus portion of the three times
salary and annual bonus severance payment is based on the greater of (i) the
average of the last three annual bonuses (annualized for any partial year’s
bonus), provided that, such 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).
In
addition, the Amendment provided that, for purposes of defining a termination
for “good reason” (as defined in the Adler Change in Control Severance
Agreement), (i) a change in Ms. Adler’s status, title, positions or
responsibilities as Executive Vice President and Chief Operating Officer would
be added to the circumstances constituting “good reason” and (ii) only certain
relocations from New York City may constitute “good reason” (instead of
relocations from New York City and Portland).
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Item
9.01
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Financial
Statements and Exhibits
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(d) Exhibits.
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*10.1
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Form
of Change of Control Severance Agreement
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*10.2
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Instrument
of Amendment to the Change in Control Severance Agreement with Tamara L.
Adler (Lundgren)
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*
Compensatory plan or arrangement.
SIGNATURE
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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SCHNITZER
STEEL INDUSTRIES, INC.
(Registrant)
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Dated:
May 2, 2008
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By:
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/s/ RICHARD
C. JOSEPHSON |
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Name: Richard
C. Josephson |
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Title: Senior
Vice President & General Counsel |
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Exhibit
Index
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Exhibit
No.
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Description
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*10.1
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Form
of Change of Control Severance Agreement
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*10.2
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Instrument
of Amendment to the Change in Control Severance Agreement with Tamara L.
Adler (Lundgren)
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*
Management compensatory plan or arrangement.