Appointment
of New CEO and New Chairman of the Board
On
October 29, 2008, Tamara L. Lundgren was appointed President and Chief Executive
Officer (collectively, the “CEO”) of Schnitzer Steel Industries, Inc. (the
“Company”) by the Company’s Board of Directors (the “Board”) effective on
December 1, 2008. The Board also elected Ms. Lundgren to the Board
effective on December 1, 2008. Ms. Lundgren, 51, joined the Company in
September 2005 as Vice President and Chief Strategy Officer and became Executive
Vice President, Strategy and Investments and President - Shared Services in
April 2006. Ms. Lundgren had served as Executive Vice President and
Chief Operating Officer of the Company since November 6, 2006. Prior
to joining the Company, Ms. Lundgren was an investment banker, most recently as
a managing director at JPMorgan Chase, which she joined in 2001. From
1996 until 2001, Ms. Lundgren was a managing director at Deutsche Bank AG in New
York and London. Prior to joining Deutsche Bank, Ms. Lundgren was a partner at
the law firm of Hogan & Hartson, LLP in Washington, D.C.
The
Company executed an amended and restated employment agreement dated October 29,
2008 with Ms. Lundgren (the “Lundgren Employment Agreement”), which is effective
as of December 1, 2008, regarding her new position as the CEO of the
Company. The Lundgren Employment Agreement supersedes the employment
agreement dated March 24, 2006 entered into between the Company and Ms.
Lundgren.
The
Lundgren Employment Agreement governs the terms and conditions of her employment
as the CEO through December 1, 2011. However, commencing on December
1, 2009, and on each subsequent anniversary, the term of the Lundgren Employment
Agreement will be automatically extended for an additional one-year period,
provided that either
the Company or Ms. Lundgren may elect not to extend the term by giving at least
90 days’ prior written notice before the next extension date. The
Lundgren Employment Agreement provides for (i) an annual base salary of
$800,000, subject to annual review and increase, but not decrease, by the
Compensation Committee of the Board (the “Compensation Committee”), (ii) a
one-time signing bonus of $900,000, which is subject to repayment for
termination by Ms. Lundgren without “good reason” (as such term is defined in
the Lundgren Employment Agreement), provided that any such repayment is subject
to reduction for each of the initial 36 months during which she remains employed
with the Company, and (iii) an annual cash bonus to be determined by the
Compensation Committee based on two components: achievement of Company financial
measures and achievement of management objectives, each as established by the
Compensation Committee at the beginning of each fiscal year. Ms.
Lundgren’s target annual bonus for each fiscal year is her annual salary as in
effect on the last day of such fiscal year. The actual amount of Ms.
Lundgren’s annual bonus may be higher or lower than the target bonus, but will
not exceed five times her annual salary. Ms. Lundgren will be awarded
restricted stock units having an aggregate initial value of $45,000, 20% of
which will vest on June 1, 2009 and at a rate of 20% per year on each of the
first four anniversaries of June 1, 2009. Ms. Lundgren is eligible to
participate in the Company’s long term incentive programs (“LTIP”), and her
performance share award under the LTIP for the FY09-11 performance period will
have an aggregate grant date value of $1.2 million. Ms. Lundgren is
also eligible to participate in the Company’s employee benefits plans,
insurance, executive medical coverage and such other benefits provided by the
Company to its most senior officers, including the Company’s Supplemental
Executive Retirement Bonus Plan (“SERBP”). Future stock option
grants, equity-based awards and awards under the LTIP to Ms. Lundgren will be
made at the discretion of the Committee.
In the
event that Ms. Lundgren’s employment is terminated by the Company without
“cause”, including the Company’s decision not to extend the term of the
agreement, or by Ms. Lundgren for “good reason” (as such terms are defined in
the Lundgren Employment Agreement) and not under circumstances that would give
rise to severance payments to Ms. Lundgren under the Lundgren Change in Control
Agreement (as defined below), Ms. Lundgren would be entitled to receive (i) her
base salary, any earned but unpaid bonus for the prior fiscal year, 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, (ii) all paid time off
accrued but untaken through the effective date of such termination, (iii)
reimbursement of expenses incurred through the effective date of such
termination pursuant to the Company’s normal expense reimbursement policy, (iv)
a lump sum severance payment in an amount equal to three times her then-current
annual base salary and target annual bonus, (v) a pro rata portion of the
incentive bonus which she would have received if she had remained employed for
the fiscal year in which the termination occurs (based on the portion of the
year worked) and (vi) for a 24-month period after the date of termination, life,
accident and health insurance benefits for herself, her spouse and
dependents. In addition, all options to purchase Company stock then
held by Ms. Lundgren would become immediately vested and exercisable in full,
all restricted stock then held by Ms. Lundgren would become immediately vested
and all related forfeiture provisions would lapse and all performance shares
then held by Ms. Lundgren would vest to the extent provided in the applicable
plan and award agreement. In order to receive these severance
benefits, Ms. Lundgren must execute a release in favor of the
Company. The Lundgren Employment Agreement provides that the
following events, among others, constitute “good reason” for termination: (i) an
adverse change or diminution in Ms. Lundgren’s status, title, positions or
responsibilities as the President and CEO or any removal of Ms. Lundgren or any
failure to reappoint or reelect Ms. Lundgren to such positions and (ii) certain
relocations from New York City, New York and Portland, Oregon.
If any
severance payments or benefits received by Ms. Lundgren under the Lundgren
Employment Agreement will be subject to an excise tax on “excess parachute
payments,” the Company will make an additional payment to Ms. Lundgren such that
Ms. Lundgren will receive net benefits as if no such tax and any related
interest and penalties 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 certain
other payments made pursuant to the Lundgren Employment Agreement and its other
plans and policies in connection with a change in control of the
Company.
In
consideration for the payments, benefits and other obligations of the Company to
Ms. Lundgren under the Lundgren Employment Agreement, Ms. Lundgren is obligated
not to (a) manage, control, participate in, consult with or render services for
a “competing business” (as such term is defined in the Lundgren Employment
Agreement) for so long as she is employed with the Company and for a period of
one year after the termination of such employment and (b) for so long as she is
employed with the Company and for a period of two years after the termination of
such employment, divert any customer from its business relationship with the
Company or solicit any such customer, except on behalf of the Company, or
solicit the Company’s employees.
On
October 29, 2008, Mr. Carter was elected by the Board to become the Chairman of
the Board (the “Chairman”) effective on December 1, 2008, when he will step down
as CEO of the Company. The Company executed an amended and restated
employment agreement with Mr. Carter (the “Carter Employment Agreement”), which
is effective as of December 1, 2008, regarding his new position. The
Carter Employment Agreement supersedes the employment agreement dated February
17, 2006 entered into between the Company and Mr. Carter.
The
Carter Employment Agreement governs the terms and conditions of his employment
as the Chairman through December 1, 2011. At any time during the term
of the Carter Employment Agreement, Mr. Carter may request a reduction in his
duties and time commitment to the Company and, if the Board agrees to such
request, Mr. Carter’s base salary will be proportionally reduced by a mutually
agreed upon amount that appropriately reflects his reduced duties and time
commitment. The Carter Employment Agreement provides for (i) an
annual base salary of $720,000, subject to annual review and increase, but not
decrease, by the Compensation Committee and (ii) an annual cash bonus to be
determined by the Compensation Committee based on two components: achievement of
Company financial measures and achievement of management objectives, each as
established by the Compensation Committee at the beginning of each fiscal
year. Mr. Carter’s target annual bonus for each fiscal year is his
annual salary as in effect on the last day of such fiscal year. The
actual amount of Mr. Carter’s annual bonus may be higher or lower than the
target bonus, but will not exceed three times his annual salary. Mr.
Carter will be awarded fully vested stock having an aggregate initial value of
$2.4 million on or before December 31, 2008, subject to his continued employment
or service with the Company or an earlier termination by the Company without
“cause” (for the avoidance of doubt, termination by the Company due to death or
disability does not constitute a termination without cause) or by Mr. Carter for
“good reason” (as such terms are defined in the Carter Employment
Agreement). Mr. Carter is eligible to participate in the Company
employee benefits plans, insurance, executive medical coverage and such other
benefits provided by the Company to its most senior officers, including the
SERBP, but he will no longer be eligible to participate in the LTIP other than
with respect to any awards under the LTIP that were outstanding on October 29,
2008.
In the
event that Mr. Carter’s employment is terminated by the Company without “cause”,
including the Company’s decision not to extend the term of the agreement, or by
Mr. Carter for “good reason” and not under circumstances that would give rise to
severance payments to Mr. Carter under the Carter Change in Control Agreement
(as defined below), Mr. Carter would be entitled to receive (i) his base salary,
any earned but unpaid bonus for the prior fiscal year, 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, (ii) all paid time off accrued
but untaken through the effective date of such termination, (iii) reimbursement
of expenses incurred through the effective date of such termination pursuant to
the Company’s normal expense reimbursement policy, (iv) a lump sum severance
payment in an amount equal to three times his then-current annual base salary
and target annual bonus, (v) a pro rata portion of his incentive bonus which he
would have received if remained employed for the fiscal year in which the
termination occurs (based on the portion of the year worked) and (vi) for a
24-month period after the date of
termination,
life, accident and health insurance benefits for himself, his spouse and
dependents. In addition, all options to purchase Company stock then
held by Mr. Carter would become immediately vested and exercisable in full, all
restricted stock then held by Mr. Carter would become immediately vested and all
related forfeiture provisions would lapse and all performance shares then held
by Mr. Carter would vest to the extent provided in the applicable plan and award
agreement. In order to receive these severance benefits, Mr. Carter
must execute a release in favor of the Company. The Carter
Employment Agreement provides that the following events, among others,
constitute “good reason” for termination: (i) an adverse change or diminution in
Mr. Carter’s status, title, positions or responsibilities as Chairman and (ii)
requirement of being based more than 30 miles from where Mr. Carter’s office is
located on the date of the Carter Employment Agreement.
If any
severance payments or benefits received by Mr. Carter under the Carter
Employment Agreement will be subject to an excise tax on “excess parachute
payments,” the Company will make an additional payment to Mr. Carter such that
Mr. Carter will receive net benefits as if no such tax and any related interest
and penalties were payable.
In
consideration for the payments, benefits and other obligations of the Company to
Mr. Carter under the Carter Employment Agreement, Mr. Carter is obligated not to
(a) manage, control, participate in, consult with or render services for a
“competing business” (as such term is defined in the Carter Employment
Agreement) for so long as he is employed with the Company and for a period of
one year after the termination of such employment and (b) for so long as he is
employed with the Company and for a period of two years after the termination of
such employment, divert any customer from its business relationship with the
Company or solicit any such customer, except on behalf of the Company, or
solicit the Company’s employees.
On
October 29, 2008, the Company also executed amended and restated Change in
Control Severance Agreements with Ms. Lundgren (the “Lundgren Change in Control
Agreement”) and with Mr. Carter (the “Carter Change in Control Agreement”,
together with the Lundgren Change in Control Agreement, the “Change in Control
Agreements”), respectively. The Lundgren Change in Control Agreement
supersedes the Change in Control Severance Agreement entered into between the
Company and Ms. Lundgren on April 10, 2006, as amended by an Instrument of
Amendment dated as of April 29, 2008. The Carter Change in Control
Agreement supersedes the Change in Control Severance Agreement entered into
between the Company and Mr. Carter on February 17, 2006.
The
Lundgren Change in Control Agreement is effective as of December 1, 2008 and
shall continue in effect until December 1, 2011 or earlier termination of Ms.
Lundgren’s employment, provided that commencing on December 1, 2009, and on each
subsequent anniversary, the Lundgren Change in Control Agreement will be
automatically extended for an additional one-year period unless the Company or
Ms. Lundgren gives at least 90 days prior notice not to extend. The
Company’s ability to give such notice will be suspended during the period
commencing on the date on which the Company executes an agreement to undergo a
“change in control” (as such term is defined in the applicable Change in Control
Agreement) and ending on the date on which such “change in control” is
consummated or such agreement lapses or is otherwise terminated. In
addition, the Lundgren Change in Control Agreement will remain in effect for a
period of 24 months following consummation of a “change in control” of the
Company that occurs during the term of the Lundgren Change in Control
Agreement. The Carter Change in Control Agreement is effective as of
December 1, 2008 and shall continue in effect until December 1, 2011 or earlier
termination of Mr. Carter’s employment.
The
Change in Control Agreements generally provide that in the event that the
employment of Ms. Lundgren or Mr. Carter (together, the “Executives”) is
terminated by the Company without “cause” (including termination by the Company
due to disability) or by an Executive for “good reason” during a six-month
period preceding a “change in control” of the Company or within a 24-month
period following a “change in control” of the Company (as such terms are defined
in the applicable Change in Control Agreement), such Executive would be entitled
to receive (i) such Executive’s base salary plus the current year annual bonus
payment through the date of termination and any other benefits or awards which,
pursuant to the terms of any “plans” (as defined in the applicable Change in
Control Agreement), have been earned or become payable but which have not yet
been paid and (ii) severance pay in a single payment, the amount of which would
be calculated as follows: in the case of Ms. Lundgren, such amount would be
equal to the sum of (1) three times the greater of (x) her annual base salary in
effect on the date of termination or (y) her annual base salary in effect
immediately prior to the date of the change in control, plus (2) three times the
greater of (x) the average of her last three annual bonuses, except that the
amount taken into account for any such bonus shall not exceed three times the
target bonus for such year or (y) the most recently established target bonus,
and, in the case of Mr. Carter, such amount would be equal to three times the
sum of (1) the greater of (x) his annual base salary in effect on the date of
termination or (y) his annual base salary in effect immediately prior to the
date of the change in control, plus (2) his most recently established target
bonus. The Executive would also continue to receive such Executive’s
life, accident and health insurance benefits for a period of up to thirty-six
(36) months. In addition, all options to purchase Company stock then
held by such Executive would become immediately vested and exercisable in full
and all performance shares and restricted stock then held by such Executive
would become immediately vested and all related forfeiture provisions would
lapse.
Under the
Change in Control Agreements, if any payments or benefits received by an
Executive in connection with a “change in control” will be subject to an excise
tax on “excess parachute payments,” the Company will make an additional payment
to the Executive such that the Executive will receive net benefits as if no such
tax and any related interest and penalties were payable.
The
summaries herein of the Lundgren Employment Agreement, the Lundgren Change in
Control Agreement, the Carter Employment Agreement and the Carter Change in
Control Agreement are qualified in their entirety by the actual agreements,
which are attached hereto as exhibits 10.1, 10.2, 10.3 and 10.4 and are
incorporated herein by reference.
The
announcement of these appointments is included in the press release attached
hereto as exhibit 99.1.
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Item
9.01
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Financial
Statements and Exhibits
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(c) Exhibits.
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*10.1
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Amended
and Restated Employment Agreement by and between Schnitzer Steel
Industries, Inc. and Ms. Lundgren, dated October 29, 2008
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*10.2
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Amended
and Restated Change in Control Severance Agreement by and between
Schnitzer Steel Industries, Inc. and Ms. Lundgren, dated October 29,
2008
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*10.3
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Amended
and Restated Employment Agreement by and between Schnitzer Steel
Industries, Inc. and Mr. Carter, dated October 29, 2008
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*10.4
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Amended
and Restated Change in Control Severance Agreement by and between
Schnitzer Steel Industries, Inc. and Mr. Carter, dated October 29,
2008
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99.1
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Press
Release of Schnitzer Steel Industries, Inc. issued on November 4,
2008
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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:
November 4, 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
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Exhibit
Index
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*10.1
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Amended
and Restated Employment Agreement by and between Schnitzer Steel
Industries, Inc. and Ms. Lundgren, dated October 29, 2008
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*10.2
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Amended
and Restated Change in Control Severance Agreement by and between
Schnitzer Steel Industries, Inc. and Ms. Lundgren, dated October 29,
2008
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*10.3
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Amended
and Restated Employment Agreement by and between Schnitzer Steel
Industries, Inc. and Mr. Carter, dated October 29, 2008
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*10.4
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Amended
and Restated Change in Control Severance Agreement by and between
Schnitzer Steel Industries, Inc. and Mr. Carter, dated October 29,
2008
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99.1
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Press
Release of Schnitzer Steel Industries, Inc. issued on November 4,
2008
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*
Compensatory plan or arrangement.