Prepared by MERRILL CORPORATION









Exhibit 10.27




 




Schnitzer Steel

Industries. Inc.




 




ECONOMIC VALUE ADDED

(“EVA”) Bonus Plan




 




Effective Date: September

1, 2000




 




The following are the

terms of the Schnitzer Steel Industries, Inc. (“The Company” or “Schnitzer

Steel”) EVA (Economic Value Added) Bonus Plan (the “Plan”) for the eligible

employees of the Company and its wholly-owned subsidiaries (collectively, the

“Employees” or “Participants”). 

References to the “Company” or “Schnitzer Steel” shall be deemed to

refer instead to a wholly owned subsidiary as the context requires for a

particular employee, employed by such subsidiary.




 




	

  A.


  	

  1.


  	

  Purpose and Description

  of the Bonus Plan


  





 




In order to align

employee incentives with shareholder and lender interests, incentive

compensation will reward the creation of value.  This Plan will tie incentive compensation or bonuses to Economic

Value Added (“EVA”) and, thereby, reward value creation, but also “feel” the

effect for declines in value. EVA is mathematically defined as net operating

profit after taxes (NOPAT), minus a Capital Charge.




 




More simply put, NOPAT is

the sum of taking the sales of a business, less all of the costs and expenses

incurred to manufacture the products and generate the sales, including

taxes.  Excluded from NOPAT are the costs

incurred to finance the business (e.g., interest costs on borrowings,

dividends, etc.).  The Capital Charge is

one additional cost that is considered in the computation of EVA.  The Capital Charge is a concept that

considers the cost or the required returns of the business’ lenders (e.g.,

banks, mortgage holders, etc.) and owners/shareholders.  The size of the Capital Charge is primarily

based upon the amount of money invested in the business.  The more inventory, customer receivables,

equipment, etc., invested in the business the higher the Capital Charge. Thus,

a Participant will be motivated to minimize as well as optimize the investment

level in the business to maximize EVA. The following is the EVA equation:




 




EVA

=  Net Operating Profit After Taxes

(NOPAT) – Capital Charge




 




In addition, the Plan’s

“banking” feature, discussed in more detail below, is designed to motivate

Employees to make decisions that are not only beneficial to the Company in the

short-term, but also have lasting benefits that will endure into the future.




 




	

   


  	

  2.


  	

  Eligibility


  





 




The Human Resources

Department of the Company will determine eligibility. In general, an employee

of the Company and its wholly owned subsidiaries are eligible so long as they

are regular full time employees or part time employees who are scheduled to

work at least 24 hours or more per week on a regular basis and have been

employed as a regular employee for a minimum of 90 days, exclusive of the

employees subject to a collective bargaining agreement, unless such agreement

expressly provides otherwise.  Newly

hired regular employees who meet the criteria for participation are eligible to

earn a prorated bonus based upon the number of days employed in the fiscal year

in which they are hired.







	

    


  	

  3.


  	

  Bonus Calculation


  





 




A Participant will earn

an EVA Bonus based upon the actual EVA achieved by his or her EVA Center(s)

during the fiscal year as compared to a target (discussed in more detail

below).




 




Each year, a

Participant’s declared bonus will be computed as follows:




 




	

  EVA


  	

   


  	

   


  	

  Target


  	

   


  	

   


  	

   


  	

   


  
	

  Bonus


  	

  =


  	

  Base


  	

  x


  	

  Bonus


  	

  x


  	

  Bonus


  
	

  Declaration


  	

  Salary


  	

   


  	

  Percentage


  	

   


  	

  Multiple


  
									





 




To better understand how

an EVA Bonus will be declared, see the example below.




 




Bonus Multiple




 




The Bonus Multiple is

determined by the EVA achieved for the fiscal year compared to the EVA

objective for that year. The Bonus Multiple is mathematically determined as

follows:




 




Bonus Multiple =  1 + Actual EVA - Target EVA




                                        EVA

Leverage Amount




                                             

(the “Interval”)




 




 




Target EVA is the

required EVA needed for a Participant to earn a full Target Bonus or 1.0 times

the Target Bonus.  Beginning in fiscal

years 2002 and each fiscal year after, the EVA Target for each EVA Center will be

objectively determined by starting with last year’s EVA plus an improvement

factor (“Expected Improvement”).




 




The EVA Leverage Amount

(also called the Interval) is the change in EVA over and above the Target EVA

required to double a Participant’s bonus (i.e., change from a 1.0 to a 2.0

times Bonus Multiple) or the shortfall below Target EVA needed to change from a

1.0 to a 0.0 times Bonus Multiple.  The

EVA Leverage Amount varies by EVA Center, based on the expected volatility of

the operating results.




 




The Expected Improvement

and EVA Leverage Amount were determined by independent financial analysis at

the inception of the Plan and will remain unchanged for the first two full

fiscal years of the Plan, except in the event of a material change in the

Company’s businesses or capital structure. 

The Company’s Chief Financial Officer maintains a list of the Expected

Improvements and EVA Leverage Amount for each EVA Center.




 




EVA

Target Bonus




 




Eligible Participants

will have a Target Bonus expressed as a percentage of their base salary (the

“Target Bonus Percentage”).  The Target

Bonus Percentage varies by level of responsibilities within the Company.  Human Resources maintains the list of

Participants and their Target Bonus Percentages.




 




The Target Bonus for each

Participant is determined by multiplying the Participant’s Base Salary, as

defined below, paid during the fiscal year by the Target Bonus Percentage.




 




Base Salary




 




Base Salary includes

overtime (if applicable) and paid time off (PTO) as defined by the Human

Resources Department, but excludes commissions, relocation payments, auto

allowances, severance benefits, disability benefits, other fringe benefits and

extraordinary payments.  See additional

discussion on Individual Awards below.













The following is an

example of an EVA Bonus Declaration for a fictitious “Participant A”:




 




Base Salary  = $35,000




EVA Target Bonus = 10% of

Base Salary or $3,500




EVA Leverage Amount or

Interval = $2,000,000




Target EVA for fiscal

200X = $500,000




Actual EVA for fiscal

200X = $650,000




Bonus Multiple =




                                                1 + (650,000 –

500,000)




                                                                2,000,000                    = 1.075




 




	

  EVA Bonus Declaration


  	

  =


  	

  Base Salary x Target

  Bonus Percentage x Bonus Multiple


  
	

   


  	

  =


  	

  $35,000 x 10% x 1.075


  
	

   


  	

  =


  	

  $3,763


  
	

   


  	

   


  	

   


  





 




	

    


  	

  4.


  	

  Performance Versus

  Target


  





 




The Plan has significant

upside, as well as downside performance potential.  As note above, the Bonus Multiple is based on EVA improvement of

the Participants’ assigned EVA Center(s). 

If the EVA Center achieves its Target EVA, the Participant will achieve

his or her Target Bonus Percentage or 1.0 times his or her Bonus Multiple.  If the EVA Center exceeds its Target EVA,

the Participant will earn a multiple greater then 1.0.  Conversely if the EVA Center falls below its

EVA Target, the Participant will earn a multiple that is less then 1.0.




 




EVA performance and

incentive earnings are directly linked; the better the performance of a

Participants’ EVA Centers, the more the Participant will earn.




 




Does this mean that base

pay can be taken away from you? 

No.  It does mean, however, that

it is possible to earn a “negative bonus”. 

A negative bonus will occur if the actual EVA in any year falls

dramatically short of the EVA Target. 

In this case, the negative bonus would be applied to the EVA Bonus Bank,

if applicable.  (See the discussion

below regarding the EVA Bonus Bank.)




 




Participants, Grades 1 to

8, including eligible hourly Participants, will not participate in the EVA

Bonus Bank and therefore, will not be subject to a negative bonus.  In exchange, their Bonus Multiple for these

Participants will not exceed 2.0.




 




	

    


  	

  5.


  	

  Payment of Bonus and

  EVA Bonus Bank (Grades 9 and Above)


  





 




The amount of any

positive bonus shall be paid in cash (net of withholdings) to the Participant,

subject to a banking system of two thirds of the amount in excess of the annual

EVA Target Bonus.  The total bonus

payment for each Plan year will be determined as follows:




 




                Beginning

Bank Balance




+              Bonus

Declared




=              Available

Bank Balance




 




-               Bank

Payout to Participant




[Up to Target Bonus plus 33

1/3% of any remaining amount in the Bank]




 




=              Ending

Bank Balance




 




The banking system serves

to smooth bonus payouts over the business cycle.  This banking system also ensures that performance is sustained by

making the payout of bank balances contingent on sustained performance, through

the formula outlined above.













As described above, it is

possible to earn a negative bonus.  As

such, it is also possible for a Participant’s Bonus Bank balance to be

negative.  In the event a Participant’s Bonus

Bank is negative going into a new plan year and during that year a positive EVA

Bonus is declared for a Participant’s EVA Center, 50% of the declared Bonus (to

the extent the Bonus Bank is negative) will be used to reduce the negative

Bonus Bank.  The remaining declared

bonus would be paid to the Participant during the current year.




 




For example, lets assume

a Participant has a negative Bonus Bank of $1,000 beginning the year.  During the year, a $1,500 bonus is

declared.  Under these circumstances

$750 would be paid in the current year (50% of the $1,500) and the

Participant’s Bonus Bank would enter the following year with a balance of a

negative $250 (-$1,000 beginning Bonus Bank + $750 or 50% of the current year’s

Declared Bonus).




 




The payment will be made

(net of withholding) shortly after the Company’s fourth quarter earnings

release.




 




The Bonus Bank balance,

if any, is not separately funded or set aside like a 401(K) or pension plan and

remains an asset of the Company, subject to the rights of general

creditors.  Further, it is not adjusted

for interest or gains and losses.




 




	

  B.


  	

  1.


  	

  Administration and

  Guidelines of the Plan


  





 




The Finance and Human

Resources Departments will administer the Plan.  Guidelines for EVA adjustments and the “capitalization” of

certain items will be maintained by the Company’s Chief Financial Officer and

may be reviewed upon request.




 




	

    


  	

  2.


  	

  Duration of the Current

  Plan Provisions


  





 




It is anticipated that

the EVA Bonus Plan will endure long into the future. However, the current

provisions in the Plan have been set and will not change, except in the

circumstances noted below, until August 31, 2003.  After that date, the Plan’s provisions will be reviewed and key

factors may be recalibrated.




 




A key factor subject to

recalibration is the Company’s estimated Cost of Capital used in the determination

of the EVA Capital Charge.  After

extensive independent financial analysis we have estimated the Company’s

average Cost of Capital to be 10%.  This

amount will not change through August 31, 2002.  However, beginning in September 2002, the Cost of Capital will be

reviewed annually by the Company’s Chief Financial Officer to verify that the

Cost of Capital being used is a reasonable approximation of the actual cost to

the Company.  The Cost of Capital will only

change if there is a greater than 1 percent increase or decrease in the

estimated Cost of Capital from the prior year.




 




In addition, if during

the two fiscal years following the Plan’s adoption, the Company materially

changes in either its form, lines of business or capital structure, the President

of the Company and the Compensation Committee each reserve the right to make

any changes to the EVA Bonus Plan as they deem appropriate.




 




The President of the

Company and the Compensation Committee each have the right to discontinue the

EVA Bonus Plan at any time after August 31, 2003, upon not less than thirty

days advance notice.













 




	

    


  	

  3.


  	

  Individual Awards


  





 




Individual Awards for

Participants shall be based on the Base Salary (as defined above) actually paid

to the Participant during the fiscal year.




 




The Individual Awards for

Shared Service Participants of the Company will be based upon an analysis of

the amount of time the Participant charged to Schnitzer Steel in the prior

fiscal year.  That amount of time will

be rounded to the nearest 25%. In the case of a new Participant, the Individual

Award will be based upon the time charged to Schnitzer Steel during the fiscal

year, again rounded to the nearest 25%.




 




For example, Participant

A charged 1,350 hours to Schnitzer Steel in the prior year, which would equate

to 65% (1,350/2,080) of his or her time employed by the Schnitzer Group of

companies.  This amount would be rounded

up to 75%. Since the amount was based upon the prior fiscal year, if that

allocation is not a reasonable indicator of time (greater than 25% variance)

for the then current year, the Individual Award would be adjusted

accordingly.  The remaining potential

bonus if any (in the example above, 25%), would be paid at the sole discretion

of the Office of the President and would be paid when bonuses are paid by the

other Schnitzer Group companies.




 




	

    


  	

  4.


  	

  Determination of Bonus

  Awards


  





 




The Company’s Chief

Financial Officer will compute each EVA Center’s Actual EVA for the applicable

plan year and present it for approval by the President. As soon as reasonably

practical after the Company’s fourth quarter press release, the bonus payments

will be made to the Participants.




 




	

    


  	

  5.


  	

  New Hires/Promotions


  





 




An individual who is

hired/promoted into a position that participates in the Bonus Plan may be

eligible for an Individual Award on a pro-rata basis for that year so long as

he/she has been employed full time for 90 consecutive calendar days.  The pro-rata basis will be determined by the

number of days the Participant holds his or her respective position(s) for the

respective fiscal year.  For example, a

Participant is hired into a bonus eligible position on November 17th.  He or she would be eligible to earn

288/365ths of his or her Target Bonus for the year.




 




Mid-year promotions that

change the Participant’s Target Bonus and/or EVA Center will be prorated based

upon the number of days employed in each position and/or EVA Center during the

fiscal year.




 




	

    


  	

  6.


  	

  Transfers


  





 




A Participant who

transfers his or her employment from one EVA Center to another shall have his

or her EVA Bonus Bank transferred to the new EVA Center.  For the year including the transfer, the

Participant will have his or her bonus award based on time spent in each

particular EVA Center on a pro-rata basis for the portion of year the

individual was employed by each EVA Center (adjusted by the number of days

employed in the EVA Center during the fiscal year).  The Participant’s pro-rata share will be based on the EVA

Center’s full year EVA performance.




 




	

    


  	

  7.


  	

  Death or Disability


  





 




A Participant who dies or

becomes permanently disabled, as defined by the Company’s disability policy,

while in the employment of Schnitzer Steel shall receive full payment of his or

her Bonus Bank Balance after the impact of a pro-rata bonus (based upon the

number of days employed) for the fiscal year in which he or she dies or becomes

permanently disabled.  In the event of

death, the payment will be made to the Participant’s estate. Such payment shall

be made at the regular time for making bonus payments in respect to the year of

such death or disability.













 




	

    


  	

  8.


  	

  Retirement


  





 




A Participant who retires

from the Company shall receive full payment of his or her Bonus Bank balance

and will be eligible for a pro-rata bonus (based upon the number of days

employed) for the fiscal year in which he or she retires.  Such payment shall be made in a lump sum at

the regular time of making bonus payments. For the purposes of this paragraph

8, a person who is at least age 55 is deemed to be “retired” when he or she

would receive retirement benefits under his or her retirement pension plan, if

any.




 




	

    


  	

  9.


  	

  Involuntary Termination

  without Cause


  





 




A Participant who is

involuntarily terminated without cause shall receive full payment of his or her

Bonus Bank balance and will be eligible for a pro-rata bonus (based upon the

number of days employed) for the fiscal year in which he or she was

involuntarily terminated without cause. Such payment shall be made in a lump

sum at the regular time of making bonus payments.




 




	

    


  	

  10.


  	

  Voluntary Resignation

  or Termination with Cause


  





 




Voluntary termination of

employment (except in the event of Retirement) or termination with cause

(consistent with Company policy) shall result in forfeiture of the

Participant’s Bonus Bank balance and pro-rata bonus for the year of voluntary

resignation or termination with cause.  

Further, an employee must still be employed by the Company on the

payment date in order to be paid for the prior year bonus.




 




For example: A

Participant was employed for the entire fiscal year ended August 31, 2001 and

his or her EVA Center earned a Bonus Multiple for the year then ended.  However, the Participant terminates his or

her employment on September 30, 2001. 

The bonus payments for fiscal 2001 were paid on October 1, 2001.  In this case, the Participant would forfeit

his or her entire fiscal 2001 bonus and Bonus Bank, if any.




 




	

    


  	

  11.


  	

  Negative Bonus Bank

  Balances Upon Termination


  





 




Negative ending Bonus

Bank balances are waived upon a Participant’s termination of employment.




 




	

    


  	

  12.


  	

  General Provisions


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

  a)


  	

  Withholding of Taxes


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

  The Company shall have

  the right to withhold the amount of taxes, which in the determination of the

  Company are required to be withheld under law with respect to any amount due

  or paid under the Plan.


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

  b)


  	

  Expenses


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

  All expenses and costs

  in connection with the adoption and administration of the Plan shall be borne

  by the Company.


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

  c)


  	

  No Prior Right or Offer


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

  Except and until

  expressly granted pursuant to the Plan, nothing in the Plan shall be deemed

  to give any Participant any contractual or other right to participate in the

  benefits of the Plan.  No award to any

  such Participant in any fiscal year shall be deemed to create a right to

  receive any award or to participate in the benefits of the Plan in any

  subsequent fiscal year.


  





 













 




	

    


  	

  13.


  	

  Limitations


  
	

   


  	

   


  	

   


  
	

   


  	

   


  	

  a)


  	

  No Continued Employment


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

  Neither the

  establishment of the Plan or the grant of an award thereunder shall be deemed

  to constitute an express or implied contract of employment with any

  Participant for any period of time, or change a Participant’s “at will”

  status, or in any way abridge the rights of the Company to determine the

  terms and conditions of employment or to terminate the employment of any Participant

  with or without cause, at any time.


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

  b)


  	

  Not Part of Other

  Benefits


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

  The benefits provided

  in this Plan shall not be deemed a part of any other benefit provided by the

  Company to its employees.  The Company

  does not assume and shall have no obligation to Participants, except as

  expressly provided in this Plan.


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

  c)


  	

  Other Incentive or

  Benefits


  
	

   


  	

   


  	

   


  	

   


  
	

   


  	

   


  	

   


  	

  Nothing contained

  herein shall limit the Company’s power to grant bonuses to employees of the

  Company, whether or not they are Participants in this Plan.