Document:

SCHN EX10.1_2012.11.30-Q1

RESTRICTED STOCK UNIT 
AWARD AGREEMENT
  
Pursuant to Section 8 of the 1993 Stock Incentive Plan (the “Plan”) of Schnitzer Steel Industries, Inc., an Oregon corporation (the “Company”), on November 6, 2012, the Compensation Committee of the Board of Directors of the Company authorized and granted to «First_name» «Last_Name» (the “Recipient”) an award of restricted stock units with respect to the Company’s Class A Common Stock (“Common Stock”), subject to the terms and conditions of this agreement between the Company and the Recipient (this “Agreement”).  By accepting this award, the Recipient agrees to all of the terms and conditions of this Agreement.   
  
1.    Award and Terms of Restricted Stock Units.  The Company awards to the Recipient under the Plan «RSU_Amount» restricted stock units (the “Award”), subject to the restrictions, terms and conditions set forth in this Agreement. 
  
(a)    Rights under Restricted Stock Units.  A restricted stock unit (a “RSU”) obligates the Company, upon vesting in accordance with this Agreement, to issue to the Recipient one share of Common Stock for each RSU.  The number of shares of Common Stock issuable with respect to each RSU is subject to adjustment as determined by the Board of Directors of the Company as to the number and kind of shares of stock deliverable upon any merger, reorganization, consolidation, recapitalization, stock dividend, spin-off or other change in the corporate structure affecting the Common Stock generally. 
  
(b)    Vesting Date.  The RSUs awarded under this Agreement shall initially be 100% unvested and subject to forfeiture.  The Vesting Reference Date of this Award is June 1, 2012.  Subject to Sections 1(c), (d), (e) and (f), the RSUs shall vest in equal annual installments over five years as follows:
	
		
	 
	% of RSUs Vested

	Prior to first anniversary of the Vesting Reference Date
	—%

	First anniversary of the Vesting Reference Date
	20%

	Second anniversary of the Vesting Reference Date
	40%

	Third anniversary of the Vesting Reference Date
	60%

	Fourth anniversary of the Vesting Reference Date
	80%

	Fifth anniversary of the Vesting Reference Date
	100%

(c)    Acceleration on Death, Disability or Retirement.  If the Recipient ceases to be an employee of the Company or a parent or subsidiary of the Company by reason of the Recipient’s death, disability or retirement, all outstanding but unvested RSUs shall become immediately vested.  The term “disability” means a medically determinable physical or mental condition of the Recipient resulting from bodily injury, disease, or mental disorder which is likely to continue for the remainder of the Recipient’s life and which renders the Recipient incapable of performing the job assigned to the Recipient by the Company or any substantially equivalent replacement job.  The term “retirement” shall mean (i) normal retirement after reaching age 65, (ii) early retirement after reaching age 55 and completing 10 years of service, or (iii) early retirement after completing 30 years of service without regard to age.

(d)    Certain Transactions.  Notwithstanding any provision in this Agreement (but subject to the last sentence of this Section 1(d)), in the event of dissolution of the Company or a merger, consolidation or plan of exchange affecting the Company, the Compensation Committee of the Board of Directors (the “Compensation Committee”) may, in its sole discretion and to the extent possible under the structure of the applicable transaction, select one or a combination of the following alternatives for treating this Award of RSUs:
(i)    The Award shall remain in effect in accordance with its terms; 

(ii)    All or a portion of the RSUs shall, to the extent then still subject to the vesting restrictions, be released from the vesting restrictions in connection with the closing of the applicable transaction; or

(iii)    The RSUs shall be converted into restricted stock units or restricted stock of one or more of the corporations that are the surviving or acquiring corporations in the applicable transaction.  The amount and type of converted restricted stock units or restricted stock shall be determined by the Company, taking into account the relative values of the companies involved in the applicable transaction and the exchange rate, if any, used in determining shares of the surviving corporation(s) to be held by holders of shares of the Company following the applicable transaction. Unless otherwise determined by the Company, by action of the Compensation Committee, the converted restricted stock units or restricted stock shall continue to be subject to the forfeiture provisions applicable to the RSUs at the time of the applicable transaction.

Notwithstanding the foregoing provisions of this Section 1(d) to the contrary, no such alternative shall occur with respect to the RSUs to the extent that, if it did, a 20% tax would be imposed under Section 409A of the Internal Revenue Code on the Recipient.

(e)    Special Acceleration in Certain Events.  Notwithstanding any other provision in this Agreement, upon a change in control of the Company, all outstanding but unvested RSUs shall become immediately vested.  The term “change in control of the Company” means the occurrence of any of the following events:

(i)    The consummation of:

(A)    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

(B)    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; 

(ii)    At any time during a period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors of the Company (“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 

(iii)    Any person 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), directly or indirectly, of Voting Securities representing 20% or more of the combined voting power of the then outstanding Voting Securities.  For purposes of this Section 1(e), the term “person” means and includes any individual, corporation, partnership, group, association or other “person,” as such term is used in Section 14(d) of the Securities Exchange Act of 1934, other than the Company or any employee benefit plan sponsored by the Company.

Notwithstanding anything in this Section 1(e) to the contrary, unless otherwise determined by the Board of Directors of the Company, no change in control of the Company shall be deemed to have occurred for purposes of this Agreement if (1) the Recipient acquires (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 of the Company otherwise described under subparagraph (i) of this Section 1(e), or (2) the Recipient is 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 of the Company under subparagraph (iii) of this Section 1(e).

(f)    Forfeiture of RSUs on Termination of Service.  If the Recipient ceases to be an employee of the Company or a parent or subsidiary of the Company under circumstances where the RSUs have not previously vested and do not become vested pursuant to Section 1(c) or 1(d), the Recipient shall immediately forfeit all outstanding but unvested RSUs awarded pursuant to this Agreement and the Recipient shall have no right to receive the related Common Stock.  
   
(g)    Restrictions on Transfer.  The Recipient may not sell, transfer, assign, pledge or otherwise encumber or dispose of the RSUs subject to this Agreement.  The Recipient may designate beneficiaries to receive the shares of Common Stock underlying the RSUs subject to this Agreement if the Recipient dies before delivery of the shares of Common Stock by so indicating on a form supplied by the Company.  If the Recipient fails to designate a beneficiary, such Common Stock will be delivered to the person or persons establishing rights of ownership by will or under the laws of descent and distribution.
  
(h)    No Voting Rights; Dividends.  The Recipient shall have no rights as a shareholder with respect to the RSUs or the Common Stock underlying the RSUs until the underlying Common Stock is issued to the Recipient.  The Recipient will be entitled to receive any cash dividends declared on the Common Stock underlying the RSUs after the RSUs have vested and the Common Stock has been issued.  The Company shall accrue and pay to the Recipient on the vesting of the RSUs an amount in cash equal to dividends that would have been paid on the Common Stock underlying the RSUs after the date of the issuance of the RSUs.  No interest shall be paid by the Company on accrued amounts.

(i)    Delivery Date for the Shares Underlying the RSUs.  As soon as practicable, but in no event later than thirty days, following a date on which any RSUs vest (a “Vesting Date”), the Company will issue the Recipient the Common Stock underlying the then vested RSUs in the form of uncertificated shares in book entry form; provided, however, that if accelerated vesting of the RSU occurs pursuant to Section 1(c) by reason of the Recipient’s retirement or disability, the date of issuance of the shares underlying the RSUs shall be delayed until the date that is six months after the date of the Recipient’s separation from service (within the meaning of Section 409A of the Internal Revenue Code); provided further, however, that if accelerated vesting of the RSUs occurs pursuant to Section 1(d) or 1(e), the date of issuance of the shares underlying the RSUs shall occur as soon as practicable, but in no event later than thirty days, following the earliest to occur of (1) the Recipient’s separation from service (within the meaning of Section 409A of the Internal Revenue Code (but subject to the immediately preceding proviso)), (2) the Recipient’s death or (3) a change in ownership or effective control of the Company, or in the ownership of a substantial portion of the assets of the Company, within the meaning of Section 409A(a)(2)(A)(v) of the Internal Revenue Code.  The shares of Common Stock will be issued in the Recipient’s name or, in the event of the Recipient’s death, in the name of either (i) the beneficiary designated by the Recipient on a form supplied by the Company or (ii) if the Recipient has not designated a beneficiary, the person or persons establishing rights of ownership by will or under the laws of descent and distribution.

(j)    Taxes and Tax Withholding.  The Recipient acknowledges and agrees that no election under Section 83(b) of the Internal Revenue Code can or will be made with respect to the RSUs.  The Recipient acknowledges that, except as provided below, on each date that shares underlying the RSUs are issued to the Recipient (the “Payment Date”), the Value (as defined below) on that date of the shares so issued will be treated as ordinary compensation income for federal and state income and FICA tax purposes, and that the Company will be required to withhold taxes on these income amounts.  To satisfy the required minimum withholding amount, the Company shall withhold from the shares otherwise issuable the number of shares having a Value equal to the minimum withholding amount.  For purposes of this Section 6, the “Value” of a share shall be equal to the closing market price for the Common Stock on the last trading day preceding the Payment Date.  Alternatively, the Company may, at its option, permit the Recipient to pay such withholding amount in cash under procedures established by the Company.  The Recipient acknowledges that under current tax law, the Company is required to withhold FICA taxes with respect to the RSUs at the earlier of (i) the issuance of shares underlying the RSUs or (ii) the date that the Recipient becomes eligible for retirement (or the date of grant of the RSUs if the Recipient is eligible for retirement at the time the RSUs are granted).  To satisfy the required minimum FICA withholding in the event that Recipient is eligible for retirement, the Recipient shall, immediately upon notification of the amount due, pay to the Company in cash or by check amounts necessary to satisfy applicable FICA withholding requirements.  If the Recipient fails to pay the amount demanded, the Company or the Recipient’s employer may withhold that amount from other amounts payable to the Recipient, including salary, subject to applicable law.
(k)    Not a Contract of Employment.  Nothing in the Plan or this Agreement shall confer upon Recipient any right to be continued in the employment of the Company or any parent or subsidiary of the Company, or to interfere in any way with the right of the Company or any parent or subsidiary by whom Recipient is employed to terminate Recipient’s employment at any time or for any reason, with or without cause, or to decrease Recipient’s compensation or benefits.

2.    Non-Competition.

(a)    Consequences of Violation.  If the Company determines that Recipient has engaged in an action prohibited by Section 2(b) below, then:

(i)    Recipient shall immediately forfeit all outstanding RSUs awarded pursuant to this Agreement and shall have no right to receive the underlying shares or the related dividend equivalent payment; and

(ii)    If the Payment Date for any RSUs has occurred, and the Company’s determination of a violation occurs on or before the first anniversary of the Vesting Date for those RSUs, Recipient shall repay to the Company (A) the number of shares of Common Stock issued to Recipient under this Agreement on that Payment Date (the “Forfeited Shares”), plus (B) the amount of cash equal to the withholding taxes paid by withholding shares from Recipient on that Payment Date, plus (C) the amount of any dividend equivalent payment paid to Recipient on that Payment Date.  If any Forfeited Shares are sold by Recipient prior to the Company’s demand for repayment, Recipient shall repay to the Company 100% of the proceeds of such sale or sales.  The Company may, in its sole discretion, reduce the amount to be repaid by Recipient to take into account the tax consequences of such repayment for Recipient.

(b)    Prohibited Actions.  The consequences described in Section 2(a) shall apply if during Recipient’s employment with the Company, or at any time during the period of one year following termination of such employment, Recipient, directly or indirectly, owns, manages, controls, or participates in the ownership, management or control of, or is employed by, consults for, or is connected in any manner with:
(i)    if Recipient is, or was at the time of termination of employment, employed by the Company’s Steel Manufacturing Business (“SMB”), any business that (A) is engaged in the steel manufacturing business, (B) produces any of the same steel products as SMB, and (C) competes with SMB for sales to customers in California, Oregon, Washington, Nevada, British Columbia or Alberta;
(ii)    if Recipient is, or was at the time of termination of employment, employed by the Company’s Metals Recycling Business (“MRB”), any business that (A) is engaged in the metals recycling business, and (B) operates a metal recycling collection or processing facility within 75 miles of any of MRB’s metal recycling facilities;
(iii)    if Recipient is, or was at the time of termination of employment, employed by the Company’s Auto Parts Business (“APB”), any business that (A) is engaged in the self-service used auto parts business, and (B) operates a self-service used auto parts store within 75 miles of any of APB’s stores; or
(iv)    if Recipient is, or was at the time of termination of employment, employed in the Company’s Corporate Shared Services Division, any business that is described in Section 2(b)(i), Section 2(b)(ii) or Section 2(b)(iii).

3.    Miscellaneous. 
  
(a)    Entire Agreement; Amendment.  This Agreement and the Plan constitute the entire agreement of the parties with regard to the subjects hereof.

(b)    Interpretation of the Plan and the Agreement.  The Compensation Committee shall have the sole authority to interpret the provisions of this Agreement and the Plan and all determinations by it shall be final and conclusive.

(c)    Electronic Delivery.  The Recipient consents to the electronic delivery of notices and any prospectus and any other documents relating to this Award in lieu of mailing or other form of delivery. 
  
(d)    Rights and Benefits.  The rights and benefits of this Agreement shall inure to the benefit of and be enforceable by the Company’s successors and assigns and, subject to the restrictions on transfer of this Agreement, be binding upon the Recipient’s heirs, executors, administrators, successors and assigns. 
  
(e)    Further Action.  The parties agree to execute such instruments and to take such action as may reasonably be necessary to carry out the intent of this Agreement. 

(f)    Severability.  Each provision of this Agreement will be treated as a separate and independent clause and unenforceability of any one clause will in no way impact the enforceability of any other clause.  Should any of the provisions of this Agreement be found to be unreasonable or invalid by a court of competent jurisdiction, such provision will be enforceable to the maximum extent enforceable by the law of that jurisdiction.
	
				
	 
	SCHNITZER STEEL INDUSTRIES, INC.

	 
	 

	 
	 

	 
	By:
	 
	 

	 
	 
	Authorized OfficerSCHN EX10.2_2012.11.30-Q1

SCHNITZER STEEL INDUSTRIES, INC.
LONG-TERM INCENTIVE AWARD AGREEMENT
(FY 2013-2014 Performance Period)
On July 24, 2012, the Compensation Committee (the “Committee”) of the Board of Directors (the “Board”) of Schnitzer Steel Industries, Inc. (the “Company”) authorized and granted a performance-based award to _________________ (“Recipient”) pursuant to Section 11 of the Company’s 1993 Stock Incentive Plan (the “Plan”).  Compensation paid pursuant to the award is intended to qualify as performance-based compensation under Section 162(m) of the Internal Revenue Code of 1986 (the “Code”).  By accepting this award, Recipient agrees to all of the terms and conditions of this Agreement.
1.    Award.  Subject to the terms and conditions of this Agreement, the Company shall issue to the Recipient the number of shares of Class A Common Stock of the Company (“Performance Shares”) determined under this Agreement based on (a) the performance of the Company during the two-year period from September 1, 2012 to August 31, 2014 (the “Performance Period”) as described in Section 2, (b) Recipient’s continued employment during the Performance Period as described in Section 3, and (c) Recipient’s not engaging in actions prohibited by Section 4.  Recipient’s “Target Share Amount” for purposes of this Agreement is _______ shares.
2.    Performance Conditions.
2.1    Payout Factor.  Subject to adjustment under Sections 3, 4, 5, 6 and 7, the number of Performance Shares to be issued to Recipient shall be determined by multiplying the Payout Factor by the Target Share Amount.  The “Payout Factor” shall be equal to the sum of (a) 50% of the EBITDA Payout Factor as determined under Section 2.2 below, plus (b) 50% of the ROE Payout Factor as determined under Section 2.3 below.
2.2    EBITDA Payout Factor.
2.2.1    The “EBITDA Payout Factor” shall be equal to the average of the Annual EBITDA Payout Factors determined for each of the two fiscal years of the Performance Period.  The “Annual EBITDA Payout Factor” for each fiscal year shall be determined under the table below based on the EBITDA Improvement for the fiscal year; provided, however, that if the Adjusted Operating Income for any fiscal year is less than $0, the “Annual EBITDA Payout Factor” for that fiscal year shall be 0%.    
	
			
	Fiscal 2013
	Fiscal 2014
	Annual EBITDA

	EBITDA Improvement
	EBITDA Improvement
	Payout Factor

	[Intentionally Omitted]
	 
	 

If the EBITDA Improvement for any fiscal year is between any two data points set forth in the applicable column of the above table for that fiscal year, the Annual EBITDA Payout Factor shall be determined by interpolation between the corresponding data points in the third column of the table as follows:  the difference between the EBITDA Improvement and the lower data point shall 

71717497.5 0068163-00004 

be divided by the difference between the higher data point and the lower data point, the resulting fraction shall be multiplied by the difference between the two corresponding data points in the third column of the table, and the resulting product shall be added to the lower corresponding data point in the third column of the table, with the resulting sum being the Annual EBITDA Payout Factor.
2.2.2    The “EBITDA Improvement” for any fiscal year shall be calculated by subtracting the Adjusted EBITDA for the immediately preceding fiscal year from the Adjusted EBITDA for that fiscal year, dividing the resulting amount by the Adjusted EBITDA for the immediately preceding fiscal year, and then expressing the quotient as a percentage and rounding to the nearest tenth of a percentage point.  “Adjusted EBITDA” for any fiscal year shall mean the sum of the Company’s operating income for that fiscal year and the Company’s depreciation and amortization for that fiscal year, in each case as set forth in the audited consolidated financial statements of the Company and its subsidiaries for that fiscal year, and as adjusted in accordance with Section 2.4 below.
2.2.3    The “Adjusted Operating Income” for any fiscal year shall mean the Company’s operating income for that fiscal year as set forth in the audited consolidated financial statements of the Company and its subsidiaries for that fiscal year, and as adjusted in accordance with Section 2.4 below.
2.3    ROE Payout Factor.
2.3.1    The “ROE Payout Factor” shall be equal to the average of the Annual ROE Payout Factors determined for each of the two fiscal years of the Performance Period.  The “Annual ROE Payout Factor” for each fiscal year shall be determined under the table below based on the ROE Improvement for the fiscal year; provided, however, that if the Adjusted ROE for any fiscal year is less than 0%, the “Annual ROE Payout Factor” for that fiscal year shall be 0%.
	
			
	Fiscal 2013
	Fiscal 2014
	Annual ROE

	ROE Improvement
	ROE Improvement
	Payout Factor

	[Intentionally Omitted]
	 
	 

If the ROE Improvement for any fiscal year is between any two data points set forth in the applicable column of the above table for that fiscal year, the Annual ROE Payout Factor shall be determined by interpolation between the corresponding data points in the third column of the table as follows:  the difference between the ROE Improvement and the lower data point shall be divided by the difference between the higher data point and the lower data point, the resulting fraction shall be multiplied by the difference between the two corresponding data points in the third column of the table, and the resulting product shall be added to the lower corresponding data point in the third column of the table, with the resulting sum being the Annual ROE Payout Factor.
2.3.2    The “ROE Improvement” for any fiscal year shall be equal to the Adjusted ROE for that fiscal year minus the Adjusted ROE for the immediately preceding fiscal year.  “Adjusted ROE” for any fiscal year shall be equal to Adjusted Net Income for that fiscal year divided by Average Adjusted Shareholders’ Equity for that fiscal year, expressed as a percentage and rounded to the nearest hundredth of a percentage point.  “Adjusted Net Income” for any fiscal 

71717497.5 0068163-00004    2

year shall mean the net income (loss) attributable to SSI for that fiscal year as set forth in the audited consolidated statement of operations of the Company and its subsidiaries for the fiscal year, and as adjusted in accordance with Section 2.4 below.  “Average Adjusted Shareholders’ Equity” for any fiscal year shall mean the average of five (5) numbers consisting of the Adjusted Shareholders’ Equity as of the last day of the fiscal year and as of the last day of the four preceding fiscal quarters.  “Adjusted Shareholders’ Equity” as of any date shall mean the total SSI shareholders’ equity as set forth in the consolidated balance sheet of the Company and its subsidiaries as of the applicable date, and as adjusted in accordance with Section 2.4 below.
2.4    Adjustments.
2.4.1    Change in Accounting Principle.  If the Company implements a change in accounting principle during the three-year period from September 1, 2011 to August 31, 2014 (the “the Measurement Period”) either as a result of issuance of new accounting standards or otherwise, and the effect of the accounting change was not reflected in the Company’s business plan at the time of approval of this award, then the Adjusted EBITDA, Adjusted Operating Income, Adjusted Net Income and Adjusted Shareholders’ Equity for each affected period shall be adjusted to eliminate the impact of the change in accounting principle.
2.4.2    Restructuring Charges.  Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income for each fiscal year during the Measurement Period shall be adjusted to eliminate the impact of any restructuring charges incurred by the Company during the Measurement Period.
2.4.3    Impairments.  Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income for each fiscal year during the Measurement Period, and Adjusted Shareholders’ Equity as of each quarter end during the Measurement Period, shall be adjusted to eliminate the impact of any charges taken by the Company during the Measurement Period for impairment of goodwill or other intangible assets.
2.4.4    Discontinued Operations.  Adjusted Net Income for each fiscal year during the Measurement Period shall be adjusted to eliminate any profit or loss reported in the Company’s financial statements as discontinued operations and any gain or loss from the disposition of a Company subsidiary, all or substantially all of the assets of a Company subsidiary or a division, or any material amount of assets of a Company subsidiary.
2.4.5    Portland Harbor Accruals and Expenses.  Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income for each fiscal year during the Measurement Period, and Adjusted Shareholders’ Equity as of each quarter end during the Measurement Period, shall be adjusted to eliminate the impact of any changes in environmental liabilities recorded during the Measurement Period in connection with the Portland Harbor Superfund Site investigation and remediation costs and natural resource damage claims (“Portland Harbor Accruals”).  Adjusted EBITDA, Adjusted Operating Income and Adjusted Net Income for each fiscal year during the Measurement Period shall also be adjusted to eliminate any fees, costs and expenses incurred in connection with the Portland Harbor Superfund Site (net of any insurance or other reimbursements thereof and excluding Portland Harbor Accruals).

71717497.5 0068163-00004    3

2.4.6    Inventory Adjustments.  Adjusted EBITDA and Adjusted Operating Income for each fiscal year during the Measurement Period (but not Adjusted Net Income) shall be adjusted to eliminate the impact of any charges taken by the Company during the Measurement Period to reduce the recorded value of any inventories to net realizable value.
2.4.7    Tax and Noncontrolling Interest Impacts.  All adjustments to Adjusted Net Income for the items listed in Sections 2.4.1 to 2.4.5 in any fiscal year shall be net of income taxes based on the Company’s consolidated effective tax rate for the fiscal year and net of any impacts of such items on net income attributable to noncontrolling interests.
3.    Employment Condition.
3.1    Full Payout.  In order to receive the full number of Performance Shares determined under Section 2, Recipient must be employed by the Company on the October 31 immediately following the end of the Performance Period (the “Vesting Date”).  For purposes of Sections 3 and 4, all references to the “Company” shall include the Company and its subsidiaries.
3.2    Retirement; Termination Without Cause After 12 Months.  If Recipient’s employment with the Company is terminated at any time prior to the Vesting Date because of retirement (as defined in paragraph 6(a)(iv)(D) of the Plan), or if Recipient’s employment is terminated by the Company without Cause (as defined below) after the end of the 12th month of the Performance Period and prior to the Vesting Date, Recipient shall, subject to Section 4.1, be entitled to receive a pro-rated award to be paid following completion of the Performance Period.  The number of Performance Shares to be issued as a pro-rated award under this Section 3.2 shall be determined by multiplying the number of Performance Shares determined under Section 2 by a fraction, the numerator of which is the number of days Recipient was employed by the Company since the beginning of the Performance Period and the denominator of which is the number of days in the period from the beginning of the Performance Period to the Vesting Date.  Any obligation of the Company to issue a pro-rated award under this Section 3.2 shall be subject to and conditioned upon the execution and delivery by Recipient of a Release of Claims in such form as may be requested by the Company.  For purposes of this Section 3.2, “Cause” shall mean (a) the conviction (including a plea of guilty or nolo contendere) of Recipient of a felony involving theft or moral turpitude or relating to the business of the Company, other than a felony predicated on Recipient's vicarious liability, (b) Recipient’s continued failure or refusal to perform with reasonable competence and in good faith any of the lawful duties assigned by (or any lawful directions of) the Company that are commensurate with Recipient’s position with the Company (not resulting from any illness, sickness or physical or mental incapacity), which continues after the Company has given notice thereof (and a reasonable opportunity to cure) to Recipient, (c) deception, fraud, misrepresentation or dishonesty by Recipient in connection with Recipient’s employment with the Company, (d) any incident materially compromising Recipient’s reputation or ability to represent the Company with the public, (e) any willful misconduct by Recipient that substantially impairs the Company’s business or reputation, or (f) any other willful misconduct by Recipient that is clearly inconsistent with Recipient’s position or responsibilities.
3.3    Death or Disability.  If Recipient’s employment with the Company is terminated at any time prior to the Vesting Date because of death or disability, Recipient shall be 

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entitled to receive a pro-rated award to be paid as soon as reasonably practicable following such event.  The term “disability” means a medically determinable physical or mental condition of Recipient resulting from bodily injury, disease, or mental disorder which is likely to continue for the remainder of Recipient’s life and which renders Recipient incapable of performing the job assigned to Recipient by the Company or any substantially equivalent replacement job.  For purposes of calculating the pro-rated award under this Section 3.3, the EBITDA Payout Factor and the ROE Payout Factor shall both be calculated as if the Performance Period ended on the last day of the Company’s most recently completed fiscal quarter prior to the date of death or disability.  For this purpose, the Adjusted EBITDA and Adjusted Operating Income for any partial fiscal year shall both be annualized (e.g., multiplied by 4/3 if the partial period is three quarters) before determining the Annual EBITDA Payout Factor for that fiscal year, and the EBITDA Payout Factor shall be determined by averaging however many full and partial fiscal years for which an Annual EBITDA Payout Factor shall have been determined.  Also for this purpose, the Adjusted Net Income for any partial fiscal year shall be annualized and the Average Adjusted Shareholders’ Equity shall be determined based on the average of Adjusted Shareholders’ Equity as of the last day of only those quarters that have been completed, before determining the Annual ROE Payout Factor for that partial fiscal year, and the ROE Payout Factor shall be determined by averaging however many full and partial fiscal years for which an Annual ROE Payout Factor shall have been determined.  The number of Performance Shares to be issued as a pro-rated award under this Section 3.3 shall be determined by multiplying the number of Performance Shares determined after applying the modifications described in the preceding sentences by a fraction, the numerator of which is the number of days Recipient was employed by the Company since the beginning of the Performance Period and the denominator of which is the number of days in the period from the beginning of the Performance Period to the Vesting Date.

3.4    Other Terminations.  If Recipient’s employment by the Company is terminated at any time prior to the Vesting Date and neither Section 3.2 nor Section 3.3 applies to such termination, Recipient shall not be entitled to receive any Performance Shares.
4.    Non-Competition.
4.1    Consequences of Violation.  If the Company determines that Recipient has engaged in an action prohibited by Section 4.2 below, then:
4.1.1    Recipient shall immediately forfeit all rights under this Agreement to receive any unissued Performance Shares; and
4.1.2    If Performance Shares were issued to Recipient following completion of the Performance Period, and the Company’s determination of a violation occurs on or before the first anniversary of the Vesting Date, Recipient shall repay to the Company (a) the number of shares of Common Stock issued to Recipient under this Agreement (the “Forfeited Shares”), plus (b) the amount of cash equal to the withholding taxes paid by withholding shares of Common Stock from Recipient as provided in Section 7.  If any Forfeited Shares are sold by Recipient prior to the Company’s demand for repayment, Recipient shall repay to the Company 100% of the proceeds of such sale or sales.  The Company may, in its sole discretion, reduce the amount to be repaid by Recipient to take into account the tax consequences of such repayment for Recipient.

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4.2    Prohibited Actions.  The consequences described in Section 4.1 shall apply if during Recipient’s employment with the Company, or at any time during the period of one year following termination of such employment, Recipient, directly or indirectly, owns, manages, controls, or participates in the ownership, management or control of, or is employed by, consults for, or is connected in any manner with:
4.2.1    if Recipient is, or was at the time of termination of employment, employed by the Company’s Steel Manufacturing Business (“SMB”), any business that (a) is engaged in the steel manufacturing business, (b) produces any of the same steel products as SMB, and (c) competes with SMB for sales to customers in California, Oregon, Washington, Nevada, British Columbia or Alberta;
4.2.2    if Recipient is, or was at the time of termination of employment, employed by the Company’s Metals Recycling Business (“MRB”), any business that (a) is engaged in the metals recycling business, and (b) operates a metal recycling collection or processing facility within 75 miles of any of MRB’s metal recycling facilities;
4.2.3    if Recipient is, or was at the time of termination of employment, employed by the Company’s Auto Parts Business (“APB”), any business that (a) is engaged in the self-service used auto parts business, and (b) operates a self-service used auto parts store within 75 miles of any of APB’s stores; or
4.2.4    if Recipient is, or was at the time of termination of employment, employed in the Company’s Corporate Shared Services Division, any business that is described in Section 4.2.1, Section 4.2.2 or Section 4.2.3.
5.    Company Sale.
5.1    If a Company Sale (as defined below) occurs before the Vesting Date, Recipient shall be entitled to receive an award payout no later than the earlier of fifteen (15) days following such event or the last day on which the Performance Shares could be issued so that Recipient may participate as a shareholder in receiving proceeds from the Company Sale.  The amount of the award payout under this Section 5.1 shall be the amount determined using a Payout Factor equal to the greater of (a) 100%, or (b) the Payout Factor calculated as if the Performance Period ended on the last day of the Company’s most recently completed fiscal quarter prior to the date of the Company Sale.  For this purpose, the Adjusted EBITDA and Adjusted Operating Income for any partial fiscal year shall both be annualized (e.g., multiplied by 4/3 if the partial period is three quarters) before determining the Annual EBITDA Payout Factor for that fiscal year, and the EBITDA Payout Factor shall be determined by averaging however many full and partial fiscal years for which an Annual EBITDA Payout Factor shall have been determined.  Also for this purpose, the Adjusted Net Income for any partial fiscal year shall be annualized and the Average Adjusted Shareholders’ Equity shall be determined based on the average of Adjusted Shareholders’ Equity as of the last day of only those quarters that have been completed, before determining the Annual ROE Payout Factor for that partial fiscal year, and the ROE Payout Factor shall be determined by averaging however many full and partial fiscal years for which an Annual ROE Payout Factor shall have been determined.

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5.2    For purposes of this Agreement, a “Company Sale” shall mean the occurrence of any of the following events:
5.2.1    any consolidation, merger or plan of share exchange involving the Company (a “Merger”) in which the Company is not the continuing or surviving corporation or pursuant to which outstanding shares of Class A Common Stock would be converted into cash, other securities or other property; or
5.2.2    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.
6.    Certification and Payment.  As soon as practicable following the completion of the audit of the Company’s consolidated financial statements for the final fiscal year of the Performance Period, the Company shall calculate the Payout Factor and the corresponding number of Performance Shares issuable to Recipient.  This calculation shall be submitted to the Committee.  No later than the Vesting Date the Committee shall certify in writing (which may consist of approved minutes of a Committee meeting) the levels of EBITDA Improvement and ROE Improvement attained by the Company for the Performance Period and the number of Performance Shares issuable to Recipient based on such performance.  Subject to applicable tax withholding, the number of Performance Shares so certified shall be issued to Recipient as soon as practicable following the Vesting Date, but no Performance Shares shall be issued prior to certification.  No fractional shares shall be issued and the number of Performance Shares deliverable shall be rounded to the nearest whole share.  In the event of the death or disability of Recipient as described in Section 3.3 or a Company Sale as described in Section 5, each of which requires an award payout earlier than the Vesting Date, a similar calculation and certification process shall be followed within the time frames required by those sections.
7.    Tax Withholding.  Recipient acknowledges that, on the date the Performance Shares are issued to Recipient (the “Payment Date”), the Value (as defined below) on that date of the Performance Shares will be treated as ordinary compensation income for federal and state income and FICA tax purposes, and that the Company will be required to withhold taxes on these income amounts.  To satisfy the required minimum withholding amount, the Company shall withhold the number of Performance Shares having a Value equal to the minimum withholding amount.  For purposes of this Section 7, the “Value” of a Performance Share shall be equal to the closing market price for Class A Common Stock on the last trading day preceding the Payment Date.
8.    Changes in Capital Structure.  If the outstanding Class A Common Stock of the Company is hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company by reason of any stock split, combination of shares or dividend payable in shares, recapitalization or reclassification, appropriate adjustment shall be made by the Committee in the number and kind of shares subject to this Agreement so that the Recipient’s proportionate interest before and after the occurrence of the event is maintained.
9.    Approvals. The obligations of the Company under this Agreement are subject to the approval of state, federal or foreign authorities or agencies with jurisdiction in the matter.  The Company will use its reasonable best efforts to take steps required by state, federal or foreign law 

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or applicable regulations, including rules and regulations of the Securities and Exchange Commission and any stock exchange on which the Company’s shares may then be listed, in connection with the award evidenced by this Agreement.  The foregoing notwithstanding, the Company shall not be obligated to deliver Class A Common Stock under this Agreement if such delivery would violate or result in a violation of applicable state or federal securities laws.
10.    No Right to Employment.  Nothing contained in this Agreement shall confer upon Recipient any right to be employed by the Company or to continue to provide services to the Company or to interfere in any way with the right of the Company to terminate Recipient’s services at any time for any reason, with or without cause.
11.    Miscellaneous.
11.1    Entire Agreement.  This Agreement constitutes the entire agreement of the parties with regard to the subjects hereof.
11.2    Notices.  Any notice required or permitted under this Agreement shall be in writing and shall be deemed sufficient when delivered personally to the party to whom it is addressed or when deposited into the United States Mail as registered or certified mail, return receipt requested, postage prepaid, addressed to the Company, Attention: Corporate Secretary, at its principal executive offices or to Recipient at the address of Recipient in the Company’s records, or at such other address as such party may designate by ten (10) days’ advance written notice to the other party.
11.3    Assignment; Rights and Benefits.  Recipient shall not assign this Agreement or any rights hereunder to any other party or parties without the prior written consent of the Company.  The rights and benefits of this Agreement shall inure to the benefit of and be enforceable by the Company’s successors and assigns and, subject to the foregoing restriction on assignment, be binding upon Recipient’s heirs, executors, administrators, successors and assigns.
11.4    Further Action.  The parties agree to execute such instruments and to take such action as may reasonably be necessary to carry out the intent of this Agreement.
11.5    Applicable Law; Attorneys’ Fees.  The terms and conditions of this Agreement shall be governed by the laws of the State of Oregon.  In the event either party institutes litigation hereunder, the prevailing party shall be entitled to reasonable attorneys’ fees to be set by the trial court and, upon any appeal, the appellate court.
11.6    Severability.  Each provision of this Agreement will be treated as a separate and independent clause and unenforceability of any one clause will in no way impact the enforceability of any other clause.  Should any of the provisions of this Agreement be found to be unreasonable or invalid by a court of competent jurisdiction, such provision will be enforceable to the maximum extent enforceable by the law of that jurisdiction.
SCHNITZER STEEL INDUSTRIES, INC.

By    
Title    

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