Related Party Transactions and Outside Related Director Information


12/27/2005 Proxy Information

Jill Schnitzer Edelson and Jean S. Reynolds are first cousins. Scott Lewis is the son of a first cousin of Ms. Edelson and Ms. Reynolds. Kenneth M. Novack is married to a first cousin of Ms. Edelson and Ms. Reynolds.

The Company is controlled by members of the Schnitzer family. The Schnitzer family also controls other companies including: Schnitzer Investment Corp. (SIC), engaged in the real estate business; Liberty Shipping Group LLC (LSGLLC) and its manager LSGGP LLC (LSGGP), engaged in the ocean shipping business; and Island Equipment Company, Inc. (IECO), engaged in various businesses in Guam and other South Pacific islands.

The Company’s Portland, Oregon metals recycling facility has operated on property leased from SIC, a related party, since 1972. The term of the lease extended to 2063, with annual rent of approximately $1.8 million subject to periodic adjustment. In 2004, SIC began marketing the property for sale. Because the Company deemed the location of the property to be strategic to its operations, the Company purchased the property in May 2005 for $20 million. The transaction was approved by the Company’s Audit Committee in accordance with the Company’s policy on related party transactions.

The Company leases its administrative offices from SIC under operating leases. The leases expire in 2013 and current annual rent is $0.4 million. Lease amendments have been signed under which, upon completion of tenant improvements, one lease will be terminated, the leased premises under the other lease will be increased, annual rent will accordingly increase to $0.5 million and the lease term will be extended to 2015.

During 2005, the Company provided management and administrative services to, and in some cases received services from, SIC, LSGLLC, LSGGP, and IECO pursuant to a Second Amended Shared Services Agreement, as amended as of September 1, 1994. Starting in fiscal 2005 and continuing into fiscal 2006, the Company and these related parties have reduced or ceased the sharing of services in a number of areas as part of a process expected to eliminate substantially all of the sharing of services among the companies in fiscal 2006. The agreement provides that all service providing employees, except executive officers, are charged out at rates based on the actual hourly compensation expense to the Company for such employees (including fringe benefits and bonuses) plus an hourly charge for reimbursement of space costs associated with such employees, all increased by 15% as a margin for additional overhead and to cover capital employed. The Company independently determines the salaries to pay its executive officers, and the other companies reimburse the Company fully for salaries and related benefits the other companies decide to pay, plus the hourly space charge and the 15% margin. Under the agreement, the Company independently determines the amount of bonus to pay to each of its employees, and the other companies reimburse the Company fully for any bonuses the other companies decide to pay. The agreement also provides for the monthly payment by these related parties to the Company of amounts intended to reimburse the Company for their proportionate use of the Company's telephone and computer systems. Net charges by the Company to the related parties under the agreement in fiscal 2005 totaled $0.5 million.

Pursuant to a policy adopted by the Board of Directors, all transactions with other Schnitzer family companies require the approval of the Audit Committee.

The Company’s Articles of Incorporation and Bylaws obligate the Company to indemnify current or former directors and officers to the fullest extent not prohibited by law, and further obligate the Company to advance expenses incurred in defending any pending or threatened proceeding to any such person who undertakes to repay such expenses if it is ultimately determined by a court that the person is not entitled to be indemnified. In connection with the pending investigations by the Company’s Audit Committee, the Securities and Exchange Commission and the U.S. Department of Justice into the Company’s past practice of making improper payments to purchasing managers of customers in Asia, Robert W. Philip, the Company’s former Chairman, President and Chief Executive Officer, has requested advancement of expenses and has provided the required undertaking. During fiscal 2005, the Company advanced $410,864 for legal expenses of Mr. Philip in this matter.

Thomas D. Klauer, Jr., President of the Company’s Pick-N-Pull Auto Dismantlers subsidiary, is the sole shareholder of a corporation that is the 25% minority partner in a partnership with the Company that operates four Pick-N-Pull stores in Northern California. Mr. Klauer’s 25% share of the profits of this partnership totaled $1,566,815 in fiscal 2005. Mr. Klauer also owns the property at one of these stores which is leased to the partnership under a lease providing for annual rent of $213,000, subject to annual adjustments based on the Consumer Price Index, and a term expiring in December 2010. The partnership has the option to renew the lease, upon its expiration, for a five-year period