Impact of Spin-out on BHP and OneSteel Employees

<strong>Impact</strong> <strong>of</strong> <strong>Spin</strong>-<strong>out</strong> on BHP and OneSteel Employees PART 7107ESP options held by any OneSteel Groupemployee which are not subject to anyperformance criteria shall continue in existenceand may be exercised by the OneSteel employee(or, in the event <strong>of</strong> the death <strong>of</strong> that OneSteelemployee, by his or her legal personalrepresentative) at any time within the earlier <strong>of</strong>two years, commencing on the day after the dateon which that OneSteel employee ceases to beemployed by the BHP Group, and the date bywhich the option period expires. The ESP optionsheld by OneSteel Group employees that wereissued since 1999, are subject to performancecriteria and according to their terms, may only beexercised within six months <strong>of</strong> cessation <strong>of</strong>employment if the performance criteria aresatisfied before cessation <strong>of</strong> employment. As theperformance criteria will not be achievable withinsix months <strong>of</strong> the expected <strong>Spin</strong>-<strong>out</strong> Date, theseoptions will not be able to be exercised byOneSteel employees.7.1.4 Intention <strong>of</strong> BHP Directors concerningthe employees <strong>of</strong> BHPThe BHP Directors presently intend to continuethe future employment <strong>of</strong> the current employees<strong>of</strong> the remaining steel businesses <strong>of</strong> BHP, exceptthose employees who will cease to be employees<strong>of</strong> BHP or a BHP subsidiary and commenceemployment with OneSteel or a OneSteelsubsidiary and except those employees who willcease to be employees <strong>of</strong> BHP, OneSteel or any <strong>of</strong>their subsidiaries through redundancy.7.2 OneSteel Group employees7.2.1 OverviewOneSteel has established the following employeeincentive plans (“OneSteel Share Plans”):(a) the Staff Share Plan (“SSP”);(b) the Executive Option Plan (“EOP”); and(c) the Non-Executive Directors’ Share Plan(“NED Plan”).There are two parts to the SSP, being the SSP TaxExempt Plan and the SSP Tax Deferred Plan.The OneSteel Share Plans have been designed toalign the interests <strong>of</strong> employees and executives <strong>of</strong>the OneSteel Group with OneSteel Shareholdersand are regarded as an integral component <strong>of</strong>OneSteel’s remuneration strategy.OneSteel has determined that the total number<strong>of</strong> OneSteel Shares, together with the totalnumber <strong>of</strong> unexercised options over unissuedOneSteel Shares, which may be issued pursuantto all OneSteel Share Plans in any five year period(excluding issues as a result <strong>of</strong> exempt <strong>of</strong>fers asdescribed in the OneSteel Share Plans) must notexceed 5% <strong>of</strong> the total number <strong>of</strong> OneSteelShares on issue from time to time. This limitationonly applies to new issues <strong>of</strong> OneSteel Sharesand unexercised options which have not lapsed,and not to existing OneSteel Shares purchased onthe market under the OneSteel Share Plans. It isintended that all OneSteel Shares acquired byparticipants as a result <strong>of</strong> forgoing salary orbonuses (or remuneration in the case <strong>of</strong> nonexecutiveOneSteel Directors) will be purchasedon the market. All other OneSteel Shares acquiredunder the OneSteel Share Plans will be sourcedfrom new issues. Management and administration<strong>of</strong> the OneSteel Share Plans will be <strong>out</strong>sourced.Executive OneSteel Directors may participate inthe SSP Tax Deferred Plan, but not the SSP TaxExempt Plan. Executive Directors will participate inthe long term incentive <strong>of</strong>fer <strong>out</strong>lined in Part7.2.5, and, in addition, may forgo up to 25% <strong>of</strong>their fixed base salary and up to 100% <strong>of</strong> anyshort term incentive bonus to acquire OneSteelShares to the same value under the SSP TaxDeferred Plan. Non-executive OneSteel Directorsmay forgo up to 100% <strong>of</strong> their remuneration toacquire OneSteel Shares to the same value underthe NED Plan. Details <strong>of</strong> the NED Plan <strong>of</strong>fer areset <strong>out</strong> in Part 7.2.6. OneSteel Directors will notparticipate in the SSP General Offer set <strong>out</strong> inPart 7.2.4.Subject to the Listing Rules, the OneSteelDirectors may by resolution revoke, add to, or varyall or any <strong>of</strong> the provisions <strong>of</strong> the OneSteel SharePlans, or all or any <strong>of</strong> the rights or obligations <strong>of</strong>the participants or any <strong>of</strong> them, provided that theinterests <strong>of</strong> the participants are not, in theopinion <strong>of</strong> the OneSteel Directors, materiallyprejudiced.7.2.2 Staff Share Plan (“SSP”)The SSP is intended to enable all staff to acquireand build meaningful, behaviour influencingownership <strong>of</strong> OneSteel Shares as part <strong>of</strong> theirremuneration. In respect <strong>of</strong> Australian employees,the SSP accesses the available taxationconcessions under Division 13A <strong>of</strong> the Income TaxAssessment Act 1936 (“ITAA”) which the FederalGovernment intended to encourage employees tobecome shareholders in their employers.7

108 PART 7 <strong>Impact</strong> <strong>of</strong> <strong>Spin</strong>-<strong>out</strong> on BHP and OneSteel EmployeesThe SSP in Australia will generally operate intwo forms:(a) the SSP Tax Exempt Plan: to satisfy therequirements <strong>of</strong> the $1,000 tax exemptionunder Division 13A <strong>of</strong> the ITAA; and(b) the SSP Tax Deferred Plan: to satisfy therequirements <strong>of</strong> the tax deferral concessionsunder Division 13A <strong>of</strong> the ITAA.OneSteel Shares acquired under the SSP can besourced either by way <strong>of</strong> a new issue, or by onmarket purchase. The OneSteel Shares will beheld by the plan trustee, subject to the plan rulesand trust deed.All OneSteel Shares acquired under the SSP willrank equally with all other OneSteel Shares thenissued for dividends, rights issues, bonus issuesand voting rights and participants will be entitled toreceive these shareholder benefits while theOneSteel Shares are held in the SSP.All plan management and administration costsrelating to the SSP will be met by OneSteel.(a) SSP Tax Exempt PlanThe SSP Tax Exempt Plan is open to all eligibleemployees except OneSteel Directors. The SSPTax Exempt Plan allows for the allocation <strong>of</strong> up to$1,000 worth <strong>of</strong> OneSteel Shares per annum pereligible employee, as a combination <strong>of</strong> abonus/incentive and a remuneration sacrifice.This benefit is tax deductible to OneSteel and, ifelected by the eligible employee, tax exempt tothe OneSteel employee, subject to certain conditions.Participants in the SSP Tax Exempt Plan will notbe permitted to dispose <strong>of</strong> their OneSteel Sharesuntil three years after the date <strong>of</strong> acquisitionunless they leave the employment <strong>of</strong> OneSteel.This is a requirement <strong>of</strong> Division 13A <strong>of</strong> the ITAA.There is no risk <strong>of</strong> forfeiture <strong>of</strong> the shares byparticipants.The SSP Tax Exempt Plan General Offer whichOneSteel proposes to make is set <strong>out</strong> inPart 7.2.4.(b) SSP Tax Deferred PlanThe SSP Tax Deferred Plan allows employees toreceive OneSteel Shares as a combination <strong>of</strong> abonus/incentive and a remuneration sacrifice and,subject to certain conditions and unless theparticipant elects otherwise, not to pay tax on thebenefit for up to ten years. OneSteel receives atax deduction for the value <strong>of</strong> any OneSteelShares acquired under the SSP Tax Deferred Planby on market purchase on ASX.The SSP Tax Deferred Plan General Offer whichOneSteel proposes to make is set <strong>out</strong> in Part 7.2.4.OneSteel executives and executive OneSteelDirectors will also have OneSteel Shares allocatedas part <strong>of</strong> their long term incentive, expressed asa percentage <strong>of</strong> their fixed salary. The allocation <strong>of</strong>these OneSteel Shares will be subject to financialperformance hurdles and time based vesting. Thelong term incentive <strong>of</strong>fer <strong>of</strong> OneSteel Shares whichOneSteel proposes to make is set <strong>out</strong> in Part 7.2.5.Participants in the SSP Tax Deferred Plan may notbe permitted to dispose <strong>of</strong> their OneSteel Sharesunless certain conditions are satisfied, asspecified at the time <strong>of</strong> <strong>of</strong>fer <strong>of</strong> participation.Participants may forfeit their OneSteel Shares ifthey voluntarily cease to be an employee at a timewhen they have not met any conditions, timebased vesting criteria, completed a remunerationsacrifice commitment, or their employment isterminated for misconduct or other similarcircumstances. All OneSteel Shares acquired byparticipants as a result <strong>of</strong> forgoing part <strong>of</strong> theirsalary or bonuses will not be subject toperformance hurdles.7.2.3 Executive Option Plan (“EOP”)The EOP allows OneSteel to grant options overOneSteel Shares to key executives and OneSteelExecutive Directors as selected by the OneSteelBoard remuneration committee, as part <strong>of</strong> theirlong term incentive. Details <strong>of</strong> the long termincentive option <strong>of</strong>fers which OneSteel proposesto make are set <strong>out</strong> in Part 7.2.5.Eligibility: Options to acquire OneSteel Sharesmay be <strong>of</strong>fered to OneSteel executives andexecutive OneSteel Directors, having regard toactual and potential contribution to OneSteel,record <strong>of</strong> employment, other matters which tend toindicate merit, and any other matters consideredrelevant by the OneSteel Board.Option issue: Options may be issued for nominalconsideration in which case the exercise price <strong>of</strong>the options will equal the prevailing market price<strong>of</strong> the OneSteel Shares at the time <strong>of</strong> grant.Options may also be issued for considerationequal to the prevailing market price <strong>of</strong> OneSteelShares at the time <strong>of</strong> grant. The consideration forissue <strong>of</strong> an option may be paid in cash or by thegiving <strong>of</strong> a promise to pay.

<strong>Impact</strong> <strong>of</strong> <strong>Spin</strong>-<strong>out</strong> on BHP and OneSteel Employees PART 7109Quotation <strong>of</strong> options on ASX will not be sought.However, OneSteel will apply for <strong>of</strong>ficial quotation <strong>of</strong>OneSteel Shares issued on the exercise <strong>of</strong> options.OneSteel Shares issued on the exercise <strong>of</strong> optionswill rank equally with other OneSteel Shares.Exercise price: The exercise price applicable tooptions issued for nominal consideration shall, atthe discretion <strong>of</strong> the OneSteel Directors, bedetermined by reference to the volume weightedaverage market price <strong>of</strong> OneSteel Shares during thefive trading days on ASX up to and including thedate <strong>of</strong> grant <strong>of</strong> the options or such other date orperiod as the OneSteel Board considersappropriate.Where options are not issued for nominalconsideration, the exercise price will be nil. If apromise to pay was given in respect <strong>of</strong> the optionissue price, the option issue price must be paidon the earlier <strong>of</strong> 12 months from the date <strong>of</strong>exercise <strong>of</strong> the options, the cessation <strong>of</strong>employment <strong>of</strong> the executive or on a change incontrol <strong>of</strong> OneSteel.Restrictions on exercise: An option may only beexercised between three to nine years after thedate the option is granted, subject to the rules <strong>of</strong>the EOP, any applicable performance hurdles, anyminimum holding period, and any other exerciserestrictions imposed by the OneSteel Board.Options may be exercised before expiry <strong>of</strong> anyminimum holding period and satisfaction <strong>of</strong> anyperformance hurdles if the executive dies, retires,is made redundant, becomes disabled, or if thereis any change in control <strong>of</strong> OneSteel.Lapse: An unexercised option will lapse on theearlier <strong>of</strong> the last exercise date (generally nineyears after the date <strong>of</strong> grant unless determinedotherwise by the OneSteel Board), the date sixmonths after the termination <strong>of</strong> employment, inthe event the executive dies, retires, is maderedundant or becomes disabled, or the date onemonth after the eligible executive ceases to beemployed by the OneSteel Group for any otherreason (other than dismissal for cause) or thedate determined by the OneSteel Board if theexecutive is dismissed for cause.7.2.4 Staff Share Plan General OfferIt is proposed that all OneSteel employees will be<strong>of</strong>fered the opportunity to be allocated OneSteelShares under either the SSP Tax Exempt Plan orthe SSP Tax Deferred Plan. The key details <strong>of</strong> thisStaff Share Plan General Offer will be:Either under the SSP Tax Exempt Plan:(a) $500 worth <strong>of</strong> OneSteel Shares at no costto the participant;plus, if the participant so elects,(b) $500 worth <strong>of</strong> One Steel Shares funded by theparticipant forgoing $500 <strong>of</strong> pre-tax salary.None <strong>of</strong> the OneSteel Shares acquired under theSSP Tax Exempt Plan General Offer will be subjectto forfeiture.Or under the SSP Tax Deferred Plan:(a) $1,000 worth <strong>of</strong> OneSteel Shares at no costto the participant;plus, if the participant so elects,(b) up to $2,000 worth <strong>of</strong> OneSteel Sharesfunded by the participant forgoing thesame amount <strong>of</strong> pre-tax salary matched ona dollar for dollar basis by an additionalamount <strong>of</strong> up to $2,000 worth <strong>of</strong> OneSteelShares allocated by OneSteel to the account<strong>of</strong> the participant.The $1,000 <strong>of</strong> OneSteel Shares issued at no costto the participant, plus the matching OneSteelShares issued under the SSP Tax Deferred PlanGeneral Offer, are subject to forfeiture if theparticipant voluntarily resigns within two years <strong>of</strong>the OneSteel Shares being issued.In addition, employees, including executiveOneSteel Directors, may forgo up to 25% <strong>of</strong> theirpre-tax base salary and up to 100% <strong>of</strong> any shortterm incentive to acquire OneSteel Shares underthe SSP Tax Deferred Plan.All OneSteel Shares acquired by the participantunder the SSP Tax Deferred Plan are only subjectto forfeiture if the participant commits theft,fraud, defalcation, gross misconduct, or bringsOneSteel into disrepute.The number <strong>of</strong> OneSteel Shares to be issued underthe Staff Share Plan General Offer will be based onthe weighted average price <strong>of</strong> all OneSteel Sharestraded on the ASX on the five trading dayscommencing on a date after the Listing Date to bedetermined by the OneSteel Board.Under current Australian tax law, employees mayparticipate in either the SSP Tax Exempt Plan orthe SSP Tax Deferred Plan, but not both, in thesame tax year.7

110 PART 7 <strong>Impact</strong> <strong>of</strong> <strong>Spin</strong>-<strong>out</strong> on BHP and OneSteel Employees7.2.5 Executive and Executive Directors’ longterm incentive <strong>of</strong>ferIt is proposed that OneSteel executives andexecutive OneSteel Directors will be allocated aspecific number <strong>of</strong> OneSteel Shares under theSSP Tax Deferred Plan and options under the EOP.Participants will not be able to access the value<strong>of</strong> these OneSteel Shares, or exercise theoptions, unless certain performance hurdles andminimum time frames are met. Allocations <strong>of</strong>OneSteel Shares and options and performancehurdles and other conditions will be determined bythe remuneration committee <strong>of</strong> the OneSteelBoard, comprising independent, non-executiveOneSteel Directors.Options will be valued for this purpose based on25% <strong>of</strong> the exercise price per option. OneSteelShare allocations will represent 75% <strong>of</strong> the totalannual allocations, and option allocations willrepresent 25% <strong>of</strong> the total annual allocations.OneSteel Share allocations will normally besourced by way <strong>of</strong> a new issue.It is proposed that the first allocation <strong>of</strong> options willbe issued for nominal consideration and have anexercise price based on the weighted average price<strong>of</strong> all OneSteel Shares traded on ASX on the fivetrading days commencing on a date after the ListingDate to be determined by the OneSteel Board.An overall cumulative cap on the number <strong>of</strong>OneSteel Shares and options that may be issuedto any individual under the long term incentive<strong>of</strong>fer will be the equivalent <strong>of</strong> three times thefixed base salary <strong>of</strong> the participant.Long term incentive share and option <strong>of</strong>ferThe key terms <strong>of</strong> the long term incentive shareand option <strong>of</strong>fers are:(a) eligibility is restricted to executives, includingsenior management and executive OneSteelDirectors;(b) dividends in respect <strong>of</strong> OneSteel Shares maybe distributed to participants in accordancewith their respective allocations;(c) subject to the performance hurdle beingmet, a participant may request the OneSteelShares to be transferred to him/her, orrequest the trustee to sell the OneSteelShares and distribute the proceeds, or mayexercise the options upon the sooner <strong>of</strong>:(i) three years after the allocation <strong>of</strong> theOneSteel Shares or options; or(ii) termination <strong>of</strong> employment;(d) the OneSteel Board remunerationcommittee has a discretion to allow earlyaccess to the OneSteel Shares or options ifthe participant dies, retires, or his or heremployment is terminated as a consequence<strong>of</strong> redundancy; and(e) the performance hurdle to apply to the firstallocation <strong>of</strong> OneSteel Shares and options isthat OneSteel’s Total Shareholder Return(“TSR”) which is broadly, share price growthplus dividends reinvested (“TSR”), will becompared to both:(i) the Australian Consumer Price Index (“CPI”)plus 5% (“Base Comparator”);(ii) the ASX All Industrials AccumulationIndex (excluding banks, media andtelecommunications) (“ASX IndexComparator”); and(f) The number <strong>of</strong> OneSteel shares to beallocated under the long term incentive <strong>of</strong>ferwill be based on the weighted average price<strong>of</strong> all OneSteel Shares traded on ASX on thefive trading days commencing on a date afterthe Listing Date to be determined by theOneSteel Board.OneSteel’s ranking against the Base Comparatorand the ASX Index Comparator on the thirdanniversary <strong>of</strong> the date <strong>of</strong> grant <strong>of</strong> the OneSteelShares and options and thereafter will determinewhether a participant may exercise the options, orwithdraw the OneSteel Shares, and if so, how manyoptions may be exercised or OneSteel Shareswithdrawn in accordance with the table below.Performance ranking range% <strong>of</strong> OneSteel Shares and options available to participantUp to and including 60%nil61% to 80% 60%81% to 99% 80%100% 100%

<strong>Impact</strong> <strong>of</strong> <strong>Spin</strong>-<strong>out</strong> on BHP and OneSteel Employees PART 7111In assessing OneSteel’s performance, theOneSteel Board will apply, on a consistent basis,an averaging method over a period <strong>of</strong> onecalendar month to smooth any short term volatilityin order to reflect the sustainability <strong>of</strong> OneSteel’sperformance.For each allocation <strong>of</strong> OneSteel Shares andoptions, half <strong>of</strong> the OneSteel Shares and optionswill be subject to ranking OneSteel’s TSRperformance to the Base Comparator, and theother half will be subject to ranking OneSteel’sTSR performance to the ASX Index Comparator.7.2.6 Non-Executive Directors’ Share Plan(“NED Plan”)OneSteel has established the NED Plan to enablenon-executive OneSteel Directors to receive part<strong>of</strong> their remuneration in the form <strong>of</strong> OneSteelShares.Non-executive OneSteel Directors may elect toacquire OneSteel Shares instead <strong>of</strong> receivingsome or all <strong>of</strong> their annual directors’ remunerationfees in cash, and accordingly the amount to bepaid to the NED Plan by OneSteel would bededucted from the fees which would otherwise bepayable to the non-executive OneSteel Directors.Under the NED Plan, OneSteel Shares would bepurchased by the trustee <strong>of</strong> the NED Plan on ASXduring the ordinary course <strong>of</strong> trading at the marketprices prevailing at the time <strong>of</strong> purchase.OneSteel Shares would not be acquired at adiscount to the market price. The contributionsmade to the NED Plan described above wouldfund the purchase <strong>of</strong> the OneSteel Shares(including all duty and brokerage payable onpurchases).The amount <strong>of</strong> non-executive OneSteel Directors’fees to be contributed to the NED Plan each year(if any) will be determined by each non-executiveOneSteel Director at the beginning <strong>of</strong> a specificperiod, and remain in force for a minimum period<strong>of</strong> six months. Participating non-executiveOneSteel Directors will not be able to make anydecisions regarding the timing <strong>of</strong> purchase <strong>of</strong> theOneSteel Shares.No performance hurdles will apply to the OneSteelShares acquired under the NED Plan.The principal terms <strong>of</strong> the NED Plan are as follows:(a) membership <strong>of</strong> the NED Plan is available todirectors <strong>of</strong> the OneSteel Group who are notengaged in full time employment byOneSteel or its subsidiaries and who havenotified the trustee <strong>of</strong> the NED Plan that heor she accepts nomination to membershipand agrees to adhere to the terms andconditions <strong>of</strong> the NED Plan;(b) a specific amount <strong>of</strong> the director’s feeswhich would otherwise be payable to eachparticipating OneSteel Director would bepaid to the trustee <strong>of</strong> the NED Plan on amonthly basis. This will be applied by thetrustee <strong>of</strong> the NED Plan to purchaseOneSteel Shares on ASX in the ordinarycourse <strong>of</strong> trading at the market priceprevailing at the time <strong>of</strong> the purchase. TheNED Plan trustee will be responsible for theshare purchases. Each OneSteel Director willbe responsible for any income tax payable inrespect <strong>of</strong> those contributions;(c) OneSteel Shares purchased will beregistered in the name <strong>of</strong> the trustee andallocated by the trustee to the participatingOneSteel Directors in proportion to theamounts paid to the NED Plan in respect <strong>of</strong>each participating OneSteel Director;(d) OneSteel Shares purchased will not beavailable for transfer to a OneSteel Directoruntil the sooner <strong>of</strong> the retirement <strong>of</strong> theOneSteel Director or if a OneSteel Directordies while holding <strong>of</strong>fice, on the OneSteelDirector’s death, or the OneSteel Directorapplies to the NED Plan trustee to withdrawshares and the OneSteel Board approves thewithdrawal request, whichever occurs first.Dividends paid by OneSteel in respect <strong>of</strong> theOneSteel Shares allocated to a OneSteelDirector will be paid to the OneSteelDirector;(e) OneSteel Shares held in the NED Plan onaccount <strong>of</strong> a OneSteel Director will be liableto forfeiture if the OneSteel Director hascommitted any act <strong>of</strong> fraud, defalcation orgross misconduct in relation to the affairs <strong>of</strong>the OneSteel Group whether or not chargedwith an <strong>of</strong>fence; and(f) nothing in the NED Plan shall restrict in anyway the right <strong>of</strong> OneSteel Shareholders toremove a OneSteel Director from his or her<strong>of</strong>fice or in any way qualify the provisions <strong>of</strong>the law or OneSteel’s constitution relating tothe termination <strong>of</strong> <strong>of</strong>fice <strong>of</strong> non-executiveOneSteel Directors.7

112 PART 7 <strong>Impact</strong> <strong>of</strong> <strong>Spin</strong>-<strong>out</strong> on BHP and OneSteel EmployeesPrior to each <strong>of</strong>fer under the NED Plan, OneSteelwill apply to ASX for a waiver from the application<strong>of</strong> Listing Rule 10.14 to the extent necessary topermit OneSteel to make contributions under theNED Plan with<strong>out</strong> obtaining additional shareholderapproval.7.2.7 Details <strong>of</strong> executive OneSteel Directors’share and option allocationsThe number <strong>of</strong> OneSteel Shares and optionswhich may be issued to executive OneSteelDirectors under the <strong>of</strong>fers proposed to be madeunder the OneSteel Share Plans are shown in thetable below.OneSteel has received in principle approval fromASX for a waiver <strong>of</strong> Listing Rule 10.14 to the extentnecessary to permit OneSteel to issue OneSteelShares and options described below to executiveOneSteel Directors with<strong>out</strong> obtaining additionalshareholder approval, provided that the securitiesare issued no later than six months after theListing Date.Executive Directors Shares 1 Options 2Robert Every 980,113 1,306,818Bernard Carrasco 247,159 329,545Notes: 1. Represents OneSteel Shares which will be issued under the long term incentive <strong>of</strong>fer. Assumes an issue price perOneSteel Share <strong>of</strong> $2.64. If the actual price is higher when the OneSteel Shares are allocated, the number <strong>of</strong>OneSteel Shares which may be allocated will be less. If the actual price is lower, the number <strong>of</strong> OneSteel shareswhich may be allocated will be higher.2. Assumes an option remuneration value <strong>of</strong> $0.66 each, being 25% <strong>of</strong> an assumed market price <strong>of</strong> $2.64 perOneSteel Share, which is also the assumed exercise price <strong>of</strong> the option. If the actual exercise price is higher, theoption value is higher, resulting in a fewer number <strong>of</strong> options being allocated. If the actual exercise price is lower,the option value is lower, resulting in a greater number <strong>of</strong> options to be allocated.