Exhibit 10.2

Form of 2007 Annual Incentive Award Agreement

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2007 ANNUAL INCENTIVE AWARD AGREEMENT

PURSUANT TO

CHAPARRAL STEEL COMPANY 2006 OMNIBUS INCENTIVE PLAN

Dear                                         :

1. Annual Incentive Award. Chaparral Steel Company, a Delaware corporation (the
“Company”), hereby awards to you an Annual Incentive Award (this “Award”)
pursuant to Section 5(d) of the Chaparral Steel Company 2006 Omnibus Incentive
Plan (the “Plan”), a copy of which is attached hereto as Exhibit A and made a
part hereof for all purposes. The Date of Grant for this Award is July 11, 2006.
This Award is subject to your acceptance of and agreement to all the terms,
conditions, and restrictions in the Plan that are applicable to Awards under
Section 5 and to your acceptance of and agreement to the further terms,
conditions and restrictions described in this 2007 Annual Incentive Award
Agreement (the “Agreement”). In addition, the effectiveness of this Agreement is
expressly conditioned upon the approval of the Plan by the stockholders of the
Company and your relinquishment simultaneously with such approval of any rights
pursuant to that certain Chaparral Steel Company Three Year Incentive Plan for
the Three Consecutive Fiscal Year Periods Ended May 31, 2007 and that certain
Chaparral Steel Company Three Year Incentive Plan for the Three Consecutive
Fiscal Year Periods Ended May 31, 2008. Until such approval is obtained and such
rights have been relinquished, this Agreement will not be effective or binding.
If any provision of this Agreement conflicts with the expressly applicable terms
of the Plan, it is hereby acknowledged and agreed that those terms of the Plan
will control and, if necessary, the applicable provisions of this Agreement will
be hereby deemed amended so as to carry out the purposes and intent of the Plan.
Capitalized terms used in this Agreement that are not otherwise defined herein
will have the meaning given them in the Plan in effect as of the date of this
Agreement.

In addition to the Annual Incentive Award described in this Agreement, you will
be granted stock options or stock appreciation rights (“SARs”) under the
Chaparral Steel Company Amended and Restated 2005 Omnibus Equity Compensation
Plan (the “Omnibus Equity Plan”) twice during the Company’s 2007 fiscal year.
The number of shares to be included in each grant will be equal to the result of
dividing your base salary by the weighted average sales price of one share of
the Company’s common stock on the Nasdaq Global Select Market on the grant date.
The grant price of the stock option or SAR will be equal to the weighted average
sales price of one share of the Company’s common stock on the Nasdaq Global
Select Market on the grant date. The awards will be granted effective as of the
April and October meetings of the Company’s Board of Directors and will be
evidenced by an Award Agreement under the Omnibus Equity Plan. To the extent
stock options are granted, such options will, to the extent possible, be
designed to be incentive stock options under section 422 of the Internal Revenue
Code with a ten (10) year term. All options that are not issued as incentive
stock options will be issued as nonqualified stock options. Options will vest
over a five (5) year period at the rate of twenty percent (20%) each year,
beginning on the first anniversary of the date of grant. SARs will have a term
of ten (10) years and will vest over a five (5) year period at the rate of
twenty percent (20%) each year, beginning on the first anniversary of the date
of grant. SARs may be settled in stock or in cash as determined by the Board of
Directors.

 

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2. Performance Period. The Annual Incentive Award Performance Period for this
Award will be June 1, 2006 through May 31, 2007; provided that any portion of
the Award paid in restricted Stock, as described in Section 5, will be subject
to an additional vesting period.

3. Maximum Award Value. If the Company fails to achieve the minimum Performance
Target described in Section 4, the value of this Award will be $0. In no event
will the amount payable pursuant to this Award (including both cash and the Fair
Market Value of shares of restricted Stock delivered in settlement (i.e.,
payment) of this Award) exceed ten million dollars ($10,000,000) as determined
in the sole discretion of the Committee following the Annual Incentive Award
Performance Period.

4. Performance Target. The Performance Target for this Award will be based on
the Company’s annual Return on Assets (“ROA”), where ROA is calculated based on
the ratio of earnings before interest and taxes (“EBIT”) compared to the
Company’s total assets, less cash, goodwill and the cash surrender value of any
life insurance the Company holds on participants in the Chaparral Steel Company
Financial Security Plan. You will be entitled to payment of an Award, pursuant
to Section 6 below, based upon the ROA achieved by the Company during the
Performance Period as set forth on the attached Exhibit B.

5. Eligibility. To be eligible to receive a payment under Section 6 below, you
must remain an Employee until the last day of the Performance Period.
Additionally, if during the two (2) year period following the settlement of this
Award, (i) the Company terminates your employment for Cause (as defined in the
Plan) or you terminate your employment for any reason other than your death,
retirement on or after age fifty-five (55) or Good Reason (as defined in the
Plan), you will forfeit the then unvested portion of the Stock awarded to you
pursuant to Section 6.

6. Payment of Awards. Subject to Section 5 of this Agreement, if the Company
achieves the minimum Performance Target during the Annual Incentive Award
Performance Period, you will be entitled to settlement of this Award pursuant to
this Section 6. The amount to be paid to you in settlement of the Award will be
calculated as set forth on the Attached Exhibit B. Any restricted Stock issued
in settlement of this Award will vest in two (2) equal annual increments on the
first and second anniversaries of the date the Award is settled pursuant to
Section 5(d)(iv) of the Plan. Such restricted Stock awards will become fully
vested before the end of the two (2) year period in the event of your death,
retirement on or after age fifty-five (55), termination of employment by the
Company for any reason other than Cause or your termination of employment for
Good Reason. The number of shares of restricted Stock awarded to you upon
settlement of this Award will be determined based upon the Fair Market Value of
such Stock on the first trading date that is not within the “black-out period”
prescribed by the Company’s Insider Trading Policy following the date this Award
is settled and will be issued as “Other Stock-Based Awards” under Article 10
under the Omnibus Equity Plan.

 

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  7. Conditions to Stock Portion of Award.

 

  a. Escrow of Stock. The Company will issue in your name a certificate or
certificates representing the restricted Stock awarded to you pursuant to
Section 6 and retain that certificate or those certificates until such Stock
vests or is forfeited. You must execute one or more stock powers in blank for
those certificates and deliver those stock powers to the Company. You hereby
agree that the Company will hold the certificate or certificates representing
such shares of restricted Stock and the related stock powers pursuant to the
terms of this Agreement until such time as such certificate or certificates are
either delivered to you or canceled pursuant to this Agreement. Each dividend
payment will be made no later than the end of the calendar year in which the
dividends are paid to stockholders of that class of stock or, if later, the 15th
day of the third month following the date the dividends are paid to stockholders
of that class of stock.

 

  b. Ownership of Restricted Stock. From and after the time that the restricted
Stock has been issued in your name, you will be entitled to all the rights of
absolute ownership of the restricted Stock, including the right to vote those
shares and to receive dividends thereon if, as, and when declared by the Board,
subject, however, to the terms, conditions and restrictions set forth in this
Agreement.

 

  c. Restrictions, Forfeiture. The restricted Stock is restricted in that it may
not be sold, transferred or otherwise alienated or hypothecated until such
restrictions are removed or expire as described in Section 6 of this Agreement.
The restricted Stock is also restricted in the sense that it may be forfeited to
the Company. You hereby agree that if the restricted Stock is forfeited, as
provided herein, the Company will have the right to deliver the certificate or
certificates representing the restricted Stock to the Company’s transfer agent
for cancellation or, at the Company’s election, for transfer to the Company to
be held by the Company in treasury or by any designee of the Company.

 

  d. Adjustment. In the event there is any change in the outstanding Stock of
the Company by reason of any reorganization, recapitalization, stock split,
stock dividend, combination of shares or otherwise, there will be substituted
for or added to each share of Stock theretofore appropriated or thereafter
subject, or which may become subject, to this Award, the number and kind of
shares of stock or other securities or property into which each outstanding
share of Stock will be so changed or for which each such share will be
exchanged, or to which each such share will be entitled, as the case may be.
Adjustment under the preceding provisions of this Section 7 will be made by the
Committee pursuant to the terms of the Omnibus Equity Plan, whose determination
as to the manner in which adjustments will be made will be final, binding, and
conclusive. No fractional interest will be issued under the Plan on account of
any such adjustment.

 

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  e. Delivery of Stock and Registration. Promptly following the expiration of
the restrictions on the restricted Stock pursuant to Section 6 of this
Agreement, the Company will cause to be issued and delivered to you or your
designee a certificate evidencing the number of shares of restricted Stock as to
which such restrictions have lapsed, free of any restrictive legend relating to
the lapsed restrictions. The value of such restricted Stock will not bear any
interest owing to the passage of time. Nothing herein will require the Company
to issue or the transfer agent to deliver any shares of Stock with respect to
the Award pursuant to this Agreement if (a) that issuance would, in the opinion
of counsel for the Company, constitute a violation of the Securities Act of 1933
or any similar or superseding statute or statutes, any other applicable statute
or regulation, or the rules of any applicable securities exchange or securities
association, as then in effect; or (b) the withholding obligation as provided in
Section 8 of this Agreement has not been satisfied.

From time to time, the Board and appropriate officers of the Company will and
are authorized to take whatever actions are necessary to file required documents
with governmental authorities, stock exchanges, and other appropriate persons to
enable Awards to be settled in Stock.

 

  f. Restrictions on Resale. You may not sell or otherwise dispose of shares of
Stock delivered to you pursuant to Section 7.e. of this Agreement unless the
shares of such Stock have been duly registered under the Securities Act of 1933,
as amended, and any applicable state securities laws or you provide to the
Company an opinion of counsel acceptable to the Company that no such
registration is required.

8. Agreement Respecting Taxes. You agree that you will pay to the Company, or
make arrangements satisfactory to the Company regarding payment of any federal,
state or local taxes of any kind required by law to be withheld by the Company
with respect to this Award; and the Company will, to the extent permitted by
law, have the right to deduct from any payment of any kind otherwise due to you,
including, but not limited to, payments pursuant to Section 6 hereof, any
federal, state, or local taxes of any kind required by law to be withheld with
respect to this Award. In the event that you elect to make a Section 83(b)
Election pursuant to the Internal Revenue Code Section 83(b) Election Form
attached to this Agreement as Attachment 1, you agree to comply with the terms
and conditions set forth in such Attachment.

9. Right of Company to Terminate Employment. Nothing contained in this Agreement
will (a) constitute a term of employment with the Company or any subsidiary of
the Company, (b) confer upon you the right to continue in the employ of the
Company or any subsidiary of the Company, or (c) interfere in any way with the
rights of the Company or any subsidiary of the Company to terminate your
employment at any time.

 

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10. Acknowledgment. By executing this Agreement in the appropriate space below,
you (a) acknowledge that you have been provided with a copy of the Plan, and
that your rights under and with respect to this Award are and will be subject to
all the terms and provisions of the Plan and this Agreement, and (b) acknowledge
that this Agreement is not intended to and does not modify the terms of any
employment agreement by and between you and the Company.

[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]

 

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IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by its
duly authorized officer as of the date first written above.

 

CHAPARRAL STEEL COMPANY By:  

 

Name:  

 

Its:  

 

 

AGREED AND ACCEPTED By:  

 

Date:  

 

 

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ATTACHMENT 1

INTERNAL REVENUE CODE SECTION 83(b) ELECTION FORM

 

I. DIRECTIONS

To effectuate an election pursuant to section 83(b) of the Internal Revenue Code
of 1986, as amended (the “Code”):

 

  A. Fill in any omitted information on this election form (the “Form”);

 

  B. Sign and date the Form and return one copy of the Form to Chaparral Steel
Company (the “Company”);

 

  C. Mail a copy of the Form, registered or certified mail, return receipt
requested, to the Service Center where you file your Internal Revenue Service
tax return WITHIN 30 DAYS OF RECEIPT OF THE PROPERTY; and

 

  D. Attach one copy of the Form to your income tax return for calendar year
2007.

 

II. CODE SECTION 83(b) ELECTION

 

  A. Taxpayer Information

 

  (1) Name:                                         
                                                         

 

  (2) Address:                                         
                                                     

  ______________________________________________

 

  (3) Taxpayer identification number/SSN:
                                               

 

  B. Property Description

Shares of common stock, par value $.01 per share of Chaparral Steel Company (the
“Property”)

 

  C. Date and Taxable Year of Transfer

 

  (1) Property transfer date:                                         
                                

 

  (2) The taxable year in which the Property was transferred: 2007.

 

  D. The Nature of the Restriction to Which the Property is Subject

Pursuant to the terms of an Annual Incentive Performance Award Agreement (the
“Agreement”) between the Company and the Taxpayer, the shares of common stock
will not be transferable and will be subject to a substantial risk of forfeiture
as set forth in the Agreement. The restrictions on all of the shares will expire
on

 

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the earliest of: (i) two years from the date the shares were received, (ii) the
date of the Taxpayer’s death, (iii) the date of the Taxpayer’s retirement from
the Company on or after age fifty-five (55), (iv) the date of the Taxpayer’s
termination of employment by the Company for any reason other than Cause or
(v) the date of the Taxpayer’s termination of employment for Good Reason, and
the shares will become transferable except to the extent provided in Section 7
of the Agreement.

 

  E. Property Valuation

 

  (1) Fair market value of property at time of transfer (determined without
regard to restrictions that will lapse, including any substantial risk of
forfeiture restrictions):             .

 

  (2) Amount paid for property: $ 0.

 

  (3) Excess of fair market value over the amount paid: $            .

 

  F. Attestation

I have furnished my employer, for whom services were performed in connection
with the transfer of the property, with a copy of this statement. I am the
recipient of the above described property and therefore need not inform a third
party transferee of this election.

 

SIGNED:   

 

                      DATE:   

 

   Signature of Taxpayer     

NOTE: If you make an election pursuant to this Form, copies of the Form must be:

 

A. Mailed registered or certified mail, return receipt requested, within 30 days
of receipt of the property to the Service Center where you file your Internal
Revenue Service tax return;

 

B. Provided to the entity for which you performed services as discussed above;
and

 

C. Attached to your income tax return for the year of transfer.

You must retain two copies of the completed form for filing with your federal
and, to the extent applicable, state tax returns for the current tax year and an
additional copy for your records.

 

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