UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): November 14, 2006
Commission File Number 1-9929
Insteel Industries, Inc.
(Exact name of registrant as specified in its charter)
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North Carolina
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56-0674867
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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1373 Boggs Drive, Mount Airy, North Carolina
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27030
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(Address of principal executive offices)
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(Zip Code)
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Registrants telephone number, including area code: (
336) 786-2141
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the
filing obligation of the registrant under any of the following provisions:
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR 240.14d-2(b))
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR 240.13e-4(c))
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Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of
Certain Officers; Compensatory Arrangements of Certain Officers
On November 14, 2006, the Board of Directors of Insteel Industries, Inc. (the Company)
approved the appointment of James F. Petelle as Vice President and Assistant Secretary of the
Company, effective immediately. Following the retirement of Gary D. Kniskern as Vice President -
Administration and Secretary of the Company on January 12, 2007, Mr. Petelle will assume Mr.
Kniskerns role. Mr. Petelle, 56, was previously with Andrew Corporation, a manufacturer of
telecommunications infrastructure equipment, where he served as Vice President Law from 2000 to
October 2006, and Secretary from 1990 to May 2006.
Mr. Petelle, along with the other executive officers of the Company, will serve until the
annual meeting of the Board of Directors, which generally follows the Annual Meeting of
Shareholders. Executive officers are appointed annually.
In
addition, on November 14, 2006, the Company entered into certain amended and restated
compensatory agreements with its executive officers, as follows:
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H.O. Woltz III
President and Chief Executive Officer
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Change in Control Severance Agreement
Retirement Security Agreement
Severance Agreement
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Michael C. Gazmarian
Chief Financial Officer and Treasurer
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Change in Control Severance Agreement
Retirement Security Agreement
Severance Agreement
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James F. Petelle
Vice President and Assistant Secretary
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Change in Control Severance Agreement
Retirement Security Agreement
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Gary D. Kniskern
Vice President Administration and Secretary
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Change in Control Severance Agreement
Retirement Security Agreement
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In each case, the agreements referenced above were primarily amended and restated to comply
with the provisions of Internal Revenue Code Section 409A. No material changes were made to the
benefits provided under each agreement.
A brief description of each agreement follows and a more detailed discussion of each agreement
was previously disclosed in our Proxy Statement, dated January 13, 2006.
Change of Control Severance Agreements
The Change of Control Severance Agreements specify the terms of separation in the event that
termination of employment followed a change in control. The initial term of each agreement is two
years and the agreements provide for an automatic renewal of one year unless we or the executive
provides notice of termination as specified in the agreement. The agreements do not provide
assurances of continued employment, nor do they specify the terms of an executives termination
should the termination occur in the absence of a change in control. Under the terms of these
agreements in the event of termination within two years of a change of control, Mr. Petelle would
receive severance benefits equal to one times base compensation, one times the average bonus for
the prior three years and the continuation of health and welfare benefits for two years. Mr.
Petelles current base salary is $150,000. In addition, all stock options would vest immediately.
In the event of termination, outplacement services would be provided.
Supplemental Employee Retirement Plan
The Retirement Security Agreements (each, a SERP) provide nonqualified deferred compensation
to participants, including our named executive officers. The SERPs generally provide participants
with certain supplemental retirement benefits, pre-retirement disability benefits and
pre-retirement death benefits, unless the participants are terminated for cause (as defined in
each SERP), in which case no benefits will accrue and be payable under the SERPs. The SERPs will be
administered by the Executive Compensation Committee (the Committee) of the Board of Directors
and funds for payment of benefits thereunder are our responsibility.
Benefits payable under the SERPs will be payable to participants in equal pro rata
installments according to our regular payroll cycle in effect at the time the payment is due,
unless determined otherwise by the Committee.
Severance Agreements
The Severance Agreements provide certain termination benefits to the executives named above in
the event that the executives employment with us is terminated without cause (as defined in each
Severance Agreement). Each Severance Agreement has a two year term, which is automatically
extended for subsequent 12 month periods, unless either we or the executive provide notice to the
other, at least 90 days prior to the expiration of any term, that the term of the Severance
Agreement shall not be extended. No executive is entitled to termination benefits under a Severance
Agreement (i) if that executives employment with us is terminated for cause or (ii) to the extent
that the executive is entitled to receive benefits under the Change in Control Severance Agreement
between the executive and us in connection with the executives termination.
Under each Severance Agreement, upon termination of the Executives employment with us without
cause, the Executive is generally entitled to receive the following termination benefits: payment
of unpaid salary and bonus, payment of one and one-half times the executives current annual base
salary, outplacement services, reimbursement for any unreimbursed expenses, continued participation
in certain employee benefit and health plans for a period of eighteen months following the
termination, and vesting of all stock options and any other stock-based awards outstanding
immediately prior to termination.
Item 8.01. Other Events
On November 15, 2006, the Company issued a press release announcing that its Board of
Directors had declared a quarterly cash dividend of $0.03 per share payable on January 5, 2007 to
shareholders of record as of December 22, 2006. A copy of this release is being furnished as
Exhibit 99.1 to this Current Report on Form 8-K.
While the Company intends to pay regular quarterly cash dividends for the foreseeable future,
the declaration and payment of future dividends, if any, are discretionary and will be subject to
determination by the board of directors each quarter after taking into account various factors,
including general business conditions and the Companys financial condition, operating results,
cash requirements and expansion plans.
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995 with respect to the Companys
intent and ability to pay future dividends. Although the Company believes that its plans,
intentions and expectations reflected in or suggested by such forward-looking statements are
reasonable, such forward-looking statements are subject to a number of risks and uncertainties, and
the Company can provide no assurances that such plans, intentions or expectations will be achieved.
Many of these risks are discussed in detail in the Companys periodic reports, in particular in its
report on Form 10-K for the year ended October 1, 2005, filed with the U.S. Securities and Exchange
Commission. You should carefully read these risk factors.
All forward-looking statements attributable to the Company or persons acting on its behalf are
expressly qualified in their entirety by these cautionary statements. All forward-looking
statements speak only to the respective dates on which such statements are made and the Company
does not undertake and specifically declines any obligation to publicly release the results of any
revisions to these forward-looking statements that may be made to reflect any future events or
circumstances after the date of such statements or to reflect the occurrence of anticipated or
unanticipated events.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
99.1
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Form of Amended and Restated Change in Control Severance Agreements between the
Company and H.O. Woltz III and Michael C. Gazmarian dated November 14, 2006 (each
agreement is substantially identical to the form in all material respects).
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99.2
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Amended and Restated Change in Control Severance Agreement between the Company and
Gary D. Kniskern dated November 14, 2006.
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99.3
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Change in Control Severance Agreement between the Company and James F. Petelle
dated November 14, 2006.
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99.4
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Form of Amended and Restated Retirement Security Agreements with H.O. Woltz III,
Michael C. Gazmarian and Gary D. Kniskern dated November 14, 2006 (each agreement
is substantially identical to the form in all material respects).
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99.5
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Retirement Security Agreement with James F. Petelle dated November 14, 2006.
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99.6
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Form of Amended and Restated Severance Agreements with H.O. Woltz III and Michael C.
Gazmarian dated November 14, 2006 (each agreement is substantially identical to the
form in all material respects).
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99.7
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Letter of Employment between the Company and James F. Petelle, dated August 23, 2006.
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99.8
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Press release dated November 15, 2006 announcing the declaration of a quarterly cash
dividend of $0.03 per share and the appointment of James F. Petelle as Vice
President and Assistant Secretary.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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INSTEEL INDUSTRIES, INC.
Registrant
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Date: November 16, 2006
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By:
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/s/ H.O. Woltz III
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H.O. Woltz III
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President and Chief Executive Officer
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Date: November 16, 2006
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By:
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/s/ Michael C. Gazmarian
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Michael C. Gazmarian
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Chief Financial Officer and Treasurer
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EXHIBIT 99.1
Group A
AMENDED AND RESTATED CHANGE IN
CONTROL SEVERANCE AGREEMENT
THIS AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT (the Agreement) is made and
entered into this
14
day of
November
, 2006, between INSTEEL INDUSTRIES, INC., a North Carolina
corporation (the Company), and
(the Executive). This Agreement amends,
restates and supersedes the Change in Control Severance Agreement between the Company and the
Executive dated May 20, 2003. Certain capitalized terms used in this Agreement are defined in
Section 6.
R
E
C
I
T
A
L
S
The Company acknowledges that Executive is expected to make significant contributions to the
growth and success of the Company. The Company also acknowledges that there exists the possibility
of a Change in Control of the Company. The Company recognizes that the possibility of a Change in
Control may contribute to uncertainty on the part of senior management and may result in the
departure or distraction of senior management from their operating responsibilities.
Strong and competent management of the Company is essential to advancing the best interests of
the Company and its partners and its shareholders. In the event of a threat or occurrence of a bid
to acquire or change control of the Company or to effect a business combination, it is particularly
important that the business of the Company be continued with a minimum of disruption. The Company
believes that the objective of securing and retaining strong management will be achieved if the
Companys key management employees are given assurances of employment security so that they will
not be distracted by personal uncertainties and risks created by such circumstances. The purpose
of this amended and restated Agreement is to amend and restate the Change in Control Severance
Agreement between the Executive and the Company dated May 20, 2003 to take into account Section
409A of the Internal Revenue Code of 1986, as amended (the Code).
NOW, THEREFORE, in consideration of the mutual covenants and obligations herein, the Company
and Executive agree as follows:
1.
Effective Date.
The Effective Date of this Agreement is the date set forth above.
2.
Term of Agreement.
The Term of this Agreement begins on the Effective Date and ends on the day
before May 20, 2007. Notwithstanding the preceding sentence, the Term of this Agreement shall be
extended for an additional twelve month period, as of each anniversary of May 20, 2007, unless
either party gives written notice, at least ninety days prior to the applicable anniversary, that
the Term of this Agreement will not be extended.
3.
Right to Receive Termination Benefits.
Executive shall be entitled to receive the Termination
Benefits described in Section 4 if the requirements of any of the following subsections (a), (b) or
(c) are satisfied:
(a) Executive shall be entitled to receive the Termination Benefits if (i) a Change in Control
occurs during the Term of this Agreement and (ii) within two years after the Control Change Date
either
(x)
the Company terminates Executives employment with the Company without Cause or
(y)
Executive resigns from the employment of the Company and Executive has Good Reason to resign from
the Company.
(b) Executive shall be entitled to receive the Termination Benefits if (i) a Change in Control
occurs during the Term of this Agreement and (ii) Executive resigns for any reason or no reason
during a thirty-day period that begins on the first anniversary after the Control Change Date.
(c) Executive shall be entitled to receive the Termination Benefits if (i) during the Term of
this Agreement the Company terminates Executives employment without Cause and (ii) Executives
employment is terminated in contemplation of a Change in Control.
No amounts will be payable under this Agreement unless Executives employment with the Company
terminates or is terminated as described in one of the foregoing subsections and either (a), (b) or
(c), as applicable, constitutes a Separation from Service with the Company.
4.
Termination Benefits.
Upon a termination of Executives employment in accordance with Section
3, Executive shall be entitled to receive the following payments and benefits (the Termination
Benefits):
(a) A lump sum payment of any accrued but unpaid salary from the Company through the date
Executives employment terminates.
(b) A lump sum payment of any bonus that has been earned from the Company but which remains
unpaid as of Executives termination of employment.
(c) A lump sum payment of two times Executives base salary at the rate in effect on the date
of Executives termination of employment or, if greater, the rate in effect on the Control Change
Date.
(d) A lump sum bonus payment equal to two times the average bonus paid to Executive for the
three-year period prior to Executives termination of employment.
(e) Reasonable outplacement services provided by the firm selected by Executive, the cost of
which will be paid by the Company; provided, however, that the Companys obligation under this
subsection (e) will not exceed $15,000.
(f) A lump sum reimbursement for any expenses Executive incurred on behalf of the Company
prior to termination of employment to the extent that such expenses are reimbursable under the
Companys standard reimbursement policies but have not been reimbursed as of Executives
termination of employment.
(g) Continued participation in the employee welfare benefit plans (as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended) in which Executive
participates immediately prior to Executives date of termination, on such terms as are
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then in effect, for two years following the termination of Executives employment with the
Company and payment by the Company of the entire cost or premium for continued coverage in the
Company health plan for a period of two years following Executives termination of employment. In
the event that the continued coverage of Executive in any such employee welfare benefit plan,
including without limitation, the Company health plan, is barred by its terms, the Company shall
pay Executive, for two years following Executives termination of employment, the cash equivalent
of the portion of the insurance premium or other cost charged to the Company for Executives
participation in such employee welfare benefit plan(s), including the entire insurance premium or
other cost for coverage in the Company health plan, prior to Executives termination of employment,
plus an additional amount such that after payment of the income and employment tax liability on
such payment, Executive retains an amount equal to the portion of the insurance premium or other
cost charged to the Company for Executives participation in such employee welfare benefit plans,
including the entire insurance premium or other cost for coverage in the Company health plan, prior
to Executives termination of employment. Except as provided in Section 19, such cash payments,
in lieu of coverage, shall be made in accordance with the Companys normal payroll practices during
such two-year period beginning with the first payroll payment date following the Executives
termination of employment.
(h) All stock options and any other stock-based awards outstanding immediately prior to
Executives termination of employment shall immediately vest and become exercisable by Executive
for the remainder of the term provided for in the agreement evidencing the stock option or award in
which such options or other stock-based awards were granted.
(i) Except as provided in Section 19, lump sum Termination Benefits shall be payable within 45
days of Executives termination of employment in accordance with Section 3 and the other
Termination Benefits shall be payable as described above. The payment of the Termination Benefits
shall be reduced by amounts required to be withheld for applicable income and employment taxes.
5.
Limitation on Parachute Payments.
The Termination Benefits and other payments, distributions
and benefits provided by the Company for Executives benefit pursuant to this Agreement and under
other plans, programs, and agreements may constitute Parachute Payments (as defined in Section
280G(b) of the Code that are subject to the golden parachute rules of Code section 280G and the
excise tax of Code section 4999. The Company and Executive intend to reduce any Parachute Payments
(but not any payment, distribution or other benefit that is not a Parachute Payment) if, and only
to the extent that, a reduction will allow Executive to receive a greater Net After Tax Amount than
he would receive absent a reduction. The remaining provisions of this Section describe how that
intent will be effectuated.
(a) The Company will first determine the amount of any Parachute Payments that are payable to
Executive. The Company will also determine the Net After Tax Amount attributable to total
Parachute Payments.
(b) The Company will next determine the amount of Executives Capped Parachute Payments.
Thereafter, the Company will determine the Net After Tax Amount attributable to Executives Capped
Parachute Payments.
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(c) Executive shall receive the total Parachute Payments unless the Company determines that
the Capped Parachute Payments will yield Executive a higher Net After Tax Amount, in which case
Executive will receive the Capped Parachute Payments. If Executive will receive the Capped
Parachute Payments, the total Parachute Payments will be adjusted by first reducing the amount
payable under any other plan, program, or agreement that, by its terms, requires a reduction to
prevent a golden parachute payment under Code section 280G; by next reducing Executives benefit,
if any, under this Agreement, to the extent it is a Parachute Payment; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the reductions first coming from
cash benefits and then from noncash benefits). The Company will notify Executive if it determines
that the Parachute Payments must be reduced to the Capped Parachute Payments and will send
Executive a copy of its detailed calculations supporting that determination. The Company will pay
Executive the Termination Benefits or the reduced Termination Benefits as determined in this
Section 5 as described in Sections 4 and 19.
6.
Certain Definitions.
As used in this Agreement, certain terms have the definitions set forth
below.
(a)
Acquiring Person
means that a Person, considered alone or together with all
Control Affiliates and Associates of that Person, is or becomes directly or indirectly the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of securities representing at
least twenty five percent (25%) of the Companys then outstanding securities entitled to vote
generally in the election of the Board.
(b)
Associate
, with respect to any Person, is defined in Rule 12b-2 under the Exchange
Act;
provided
,
however
, that an Associate shall not include the Company or a
majority-owned affiliate of the Company.
(c)
Board
means the Board of Directors of the Company.
(d)
Capped Parachute Payments
means the largest amount of Parachute Payments that may
be paid without liability for any excise tax under Code section 4999.
(e)
Cause
means (i) willful, deliberate and continued failure by Executive (other than
for reason of mental or physical illness) to perform his duties as established by the Board, or
fraud or dishonesty in connection with such duties, in either case, if such conduct has a
materially detrimental effect on the business operations of the Company; (ii) a material breach by
Executive of his fiduciary duties of loyalty or care to the Company; (iii) conviction of any crime
(or upon entering a plea of guilty or nolo contendere to a charge of any crime) constituting a
felony; (iv) misappropriation of the Companys funds or property; or (v) willful, flagrant,
deliberate and repeated infractions of material published policies and regulations of the Company
of which Executive has actual knowledge.
(f)
Change in Control
means (i) a Person is or becomes an Acquiring Person; (ii)
holders of the securities of the Company entitled to vote thereon approve any agreement with a
Person (or, if such approval is not required by applicable law and is not solicited by the Company,
the closing of such an agreement) that involves the transfer of more than fifty percent
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(50%) of the Companys and its affiliates total assets on a consolidated basis, as reported
in the Companys consolidated financial statements filed with the Securities and Exchange
Commission; (iii) holders of the securities of the Company entitled to vote thereon approve a
transaction (or, if such approval is not required by applicable law and is not solicited by the
Company, the closing of such a transaction) pursuant to which the Company will undergo a merger,
consolidation, or statutory share exchange with a company, regardless of whether the Company is
intended to be the surviving or resulting entity after the merger, consolidation, or statutory
share exchange,
other than
a transaction that results in the voting securities of the Company
carrying the right to vote in elections of persons to the Board outstanding immediately prior to
the closing of the transaction continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty percent (50%) of the
Companys voting securities carrying the right to vote in elections of persons to the Board, or
such securities of such surviving entity, outstanding immediately after the closing of such
transaction; (iv) the Continuing Directors cease for any reason to constitute a majority of the
Board; (v) holders of the securities of the Company entitled to vote thereon approve a plan of
complete liquidation of the Company or an agreement for the sale or liquidation by the Company or
its affiliates of substantially all of the assets of the Company and its affiliates (or, if such
approval is not required by applicable law and is not solicited by the Company, the commencement of
actions constituting such a plan or the closing of such an agreement); or (vi) the Board adopts a
resolution to the effect that, in its judgment, as a consequence of any one or more transactions or
events or series of transactions or events, a Change in Control of the Company has effectively
occurred.
(g)
Continuing Director
means any member of the Board, while a member of the Board and
(i) who was a member of the Board on the Effective Date or (ii) whose nomination for or election to
the Board was recommended or approved by a majority of the Continuing Directors.
(h)
Control Affiliate
, with respect to any Person, means an affiliate as defined in
Rule 12b-2 under the Exchange Act.
(i)
Control Change Date
means the date on which a Change in Control occurs. If a
Change in Control occurs on account of a series of transactions or events, the Control Change
Date is the date of the last of such transactions or events in the series.
(j)
Exchange Act
means the Securities Exchange Act of 1934, as amended.
(k)
Good Reason
means Executives resignation from the employment of the Company and
its affiliates on account of one or more of the following events:
(i) a material diminution by the Board of the duties, functions and responsibilities of
Executive as the PRESIDENT/CHIEF EXECUTIVE OFFICER of the Company without his consent;
(ii) the failure of the Company to permit Executive to exercise such responsibilities as are
consistent with Executives positions or are of a nature as are usually
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associated with such offices of a corporation engaged in substantially the same business as
the Company;
(iii) the Companys causing Executive to relocate his employment more than fifty (50) miles
from Mt. Airy, North Carolina, without the consent of Executive;
(iv) the failure of the Company to make a payment when due or, if later, within 10 days after
Executive has made demand for such payment;
(v) the Companys reduction of Executives (A) annual base salary, as in effect from time to
time after the Effective Date; (B) bonus, such that the aggregate threshold, target, or maximum
bonus projected for Executive for a fiscal year is lower than the aggregate threshold, target, or
maximum bonus, respectively, projected for Executive for the immediately preceding fiscal year; or
(C) employee welfare, fringe or pension benefits, other than reductions determined to be necessary
to comply with the Employee Retirement Income Security Act of 1974, as amended, or to retain the
tax-qualified or tax-favored status of the benefit under the Code, which determination shall be
made by the Board in good faith;
(vi) a breach of Section 10 of this Agreement;
(vii) the Company or the Board directs Executive to engage in unlawful or unethical conduct or
conduct contrary to the Companys good business practices.
(l)
Net After Tax Amount
means the amount of any Parachute Payments or Capped
Parachute Payments, as applicable, net of taxes imposed under Code sections 1, 3101(b) and 4999 and
any state or local income taxes applicable as in effect on the date of the payment under Section 5
of this Agreement. The determination of the Net After Tax Amount shall be made using the highest
combined effective rate imposed by the foregoing taxes on income of the same character as the
Parachute Payments or Capped Parachute Payments, as applicable, in effect for the year for which
the determination is made.
(m)
Person
means any human being, firm, corporation, partnership, or other entity.
Person also includes any human being, firm, corporation, partnership, or other entity as defined
in sections 13(d)(3) and 14(d)(2) of the Exchange Act. The term Person does not include the
Company, or any Related Entity, and the term Person does not include any employee-benefit plan
maintained by the Company or any Related Entity, and any person or entity organized, appointed, or
established by the Company or any Related Entity for or pursuant to the terms of any such
employee-benefit plan, unless the Board determines that such an employee-benefit plan or such
person or entity is a Person.
(n)
Related Entity
means any entity that is part of a controlled group of corporations
or is under common control with the Company within the meaning of section 1563(a), 414(b) or 414(c)
of the Code.
(o)
Separation from Service
means the termination of the Executives employment with
the Company and all Related Entities; provided, however, that the Executive will not be considered
as having had a Separation from Service if (i) the Executive continues to provide services to the
Company or any Related Entity as an employee at an annual rate that is at least
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equal to 20 percent of the services rendered, on average, during the immediately preceding
three full calendar years of employment (or, if employed less than three years, such lesser period)
and the annual remuneration for such services is at least equal to 20 percent of the average annual
remuneration earned during the final three full calendar years of employment (or if less, such
lesser period), (ii) the Executive continues to provide services to the Company or any Related
Entity in a capacity other than as an employee and such services are provided at an annual rate
that is 50 percent or more of the services rendered, on average, during the immediately preceding
three full calendar years of employment (or, if employed less than three years, such lesser period)
and the annual remuneration for such services is 50 percent or more of the annual remuneration
earned during the final three full calendar years of employment (or, if less, such lesser period)
or (iii) the Executive is on military leave, sick leave or other bona fide leave of absence (such
as temporary employment by the government) so long as the period of such leave does not exceed six
months, or if longer, so long as the Executives right to reemployment with the Company or any
Related Entity is provided either by statute or by contract. If the period of leave exceeds six
months and the Executives right to reemployment is not provided either by statute or by contract,
the Separation from Service will be deemed to occur on the first date immediately following such
six-month period. For purposes of this Section 6(o), the annual rate of providing services shall
be determined based upon the measurement used to determine the Executives base compensation. This
definition of Separation from Service is intended to comply with the definition of separation from
service as used in Section 409A(a)(2)(A)(i) of the Code and shall be interpreted accordingly.
(p)
Specified Employee
generally means an employee who is (i) an officer of the
Company or a Related Entity having annual compensation greater than $140,000 (with certain
adjustments for inflation after 2006), (ii) a five-percent owner of the Company or a Related Entity
or (iii) a one-percent owner of the Company or a Related Entity having annual compensation greater
than $150,000. This definition is intended to comply with the specified employee rules of
Section 409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly.
7.
Attorneys Fees.
Executive shall be entitled to reimbursement by the Company for any attorneys
fees and any other reasonable expenses that Executive incurs in enforcing or protecting his rights
under this Agreement. Subject to Section 19, such reimbursement shall be made within thirty days
following final resolution of the dispute or occurrence giving rise to such fees and expenses,
regardless of whether Executive is deemed the prevailing party in the resolution of the dispute or
occurrence.
8.
No Assignment.
Except as required by applicable law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment
by operation of law and any attempt to effect any such action shall be null, void and of no effect.
9.
Governing Law.
This Agreement shall be governed by the laws of the State of North Carolina
other than its choice of law provisions to the extent that they would require the application of
the laws of a State other than the State of North Carolina.
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10.
Successors.
The Company shall require any successor to all or substantially all of the
Companys respective business or assets (whether direct or indirect, by purchase, merger,
consolidation or otherwise), to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle
Executive to resign from the employ of the Company and to receive the Termination Benefits and
other benefits under this Agreement in the same amount and on the same terms as Executive would be
entitled to hereunder if he terminated his employment for Good Reason following a Change in
Control. References in this Agreement to the Company include the Company as herein before
defined and any successor to the Companys business, assets or both which assumes and agrees to
perform this Agreement by operation of law or otherwise.
11.
Binding Agreement.
This Agreement shall inure to the benefit of and be enforceable by Executive
and his personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive dies while any amount remains payable to him
hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to
Executives devisee, legatee or other designee or, if there is none, to Executives estate.
12.
No Employment Rights.
Nothing in this Agreement confers on Executive any right to continuance
of employment by the Company or any Related Entity. Nothing in this Agreement interferes with the
right of the Company or a Related Entity to terminate Executives employment at any time for any
reason whatsoever, with or without Cause, subject to the requirements of this Agreement. Nothing
in this Agreement restricts the right of Executive to terminate his employment with the Company and
Related Entities at any time for any reason whatsoever, with or without Good Reason.
13.
Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original but all of which together constitute one and the same instrument.
14.
Entire Agreement.
This Agreement expresses the whole and entire agreement between the parties
with reference to the payment of the Termination Benefits and supersedes and replaces any prior
agreement, understanding or arrangement (whether oral or written) by or between the Company and
Executive with respect to the payment of the Termination Benefits.
15.
Notices.
All notices, requests and other communications to any party under this Agreement
shall be in writing and shall be given to such party at its address set forth below or such other
address as such party may hereafter specify for the purpose by notice to the other party:
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If to Executive:
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696 Montclaire Drive
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Mount Airy, North Carolina 27030
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If to the Company:
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Insteel Industries, Inc.
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1373 Boggs Drive
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Mt. Airy, North Carolina 27030
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Each notice, request or other communication shall be effective if (i) given by mail, seventy-two
hours after such communication is deposited in the mails with first class postage prepaid, address
as aforesaid or (ii) if given by any other means, when delivered at the address specified in this
Section 15.
16.
Modification of Agreement.
No waiver or modification of this Agreement shall be valid unless
in writing and duly executed by the party to be charged therewith. No evidence of any waiver or
modification shall be offered or received in evidence at any proceeding, arbitration or litigation
between the parties unless such waiver or modification is in writing, and duly executed. The
parties agree that this Section 16 may not be waived except as herein set forth.
17.
Recitals.
The Recitals to this Agreement are incorporated herein and shall constitute an
integral part of this Agreement.
18.
Section 409A.
This Agreement is intended to comply with the applicable requirements of Section
409A of the Code and shall be construed and interpreted in accordance therewith. Notwithstanding
the preceding, the Company and its Related Entities shall not be liable to the Executive or any
other person if the Internal Revenue Service or any court or other authority having jurisdiction
over such matter determines for any reason that any amount under this Agreement is subject to
taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.
19.
Delay of Payment.
Notwithstanding any other provision of this Agreement, if the Executive is a
Specified Employee, to the extent necessary to comply with Section 409A of the Code, no payments or
benefits (which are not otherwise exempt) may be paid or provided hereunder before the date which
is six months after the Executives Separation from Service or, if earlier, his death. The amounts
which would have otherwise been required to be paid, and the benefits which would have otherwise
been provided, during such six months or, if earlier, until Executives death, shall be paid to
Executive in one lump sum cash payment as soon as administratively practical after the date which
is six months after Executives Separation from Service or, if earlier, after the Executives
death. Any other payments scheduled to be made or benefits scheduled to be provided after such
period shall be made or provided at the times otherwise designated in this Agreement disregarding
the delay of payment for the payments and benefits described in this Section 19.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above
written.
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(EXECUTIVE)
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INSTEEL INDUSTRIES, INC.
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By:
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Name
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Title
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10
EXHIBIT 99.2
Group B
AMENDED AND RESTATED CHANGE IN
CONTROL SEVERANCE AGREEMENT
THIS AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT (the Agreement) is made and
entered into this 14
th
day of November, 2006, between INSTEEL INDUSTRIES, INC., a North
Carolina corporation, (the Company), and Gary D. Kniskern (the Executive). This Agreement
amends, restates and supersedes the Change in Control Severance Agreement between the Company and
the Executive dated May 20, 2003. Certain capitalized terms used in this Agreement are defined in
Section 6.
R
E
C
I
T
A
L
S
The Company acknowledges that Executive has made and is expected to make significant
contributions to the growth and success of the Company. The Company also acknowledges that there
exists the possibility of a Change in Control of the Company. The Company recognizes that the
possibility of a Change in Control may contribute to uncertainty on the part of senior management
and may result in the departure or distraction of senior management from their operating
responsibilities.
Strong and competent management of the Company is essential to advancing the best interests of
the Company and its partners and its shareholders. In the event of a threat or occurrence of a bid
to acquire or change control of the Company or to effect a business combination, it is particularly
important that the business of the Company be continued with a minimum of disruption. The Company
believes that the objective of securing and retaining strong management will be achieved if the
Companys key management employees are given assurances of employment security so that they will
not be distracted by personal uncertainties and risks created by such circumstances. The purpose
of this amended and restated Agreement is to amend and restate the Change in Control Severance
Agreement between the Executive and the Company dated May 20, 2003 to take into account Section
409A of the Internal Revenue Code of 1986, as amended (the Code).
NOW, THEREFORE, in consideration of the mutual covenants and obligations herein, the Company
and Executive agree as follows:
1.
Effective Date
. The Effective Date of this Agreement is the date set forth above.
2.
Term of Agreement
. The Term of this Agreement begins on the Effective Date and ends on the day
before May 20, 2007. Notwithstanding the preceding sentence, the Term of this Agreement shall be
extended for an additional twelve month period, as of each anniversary of May 20, 2007, unless
either party gives written notice, at least ninety days prior to the applicable anniversary, that
the Term of this Agreement will not be extended.
3.
Right to Receive Termination Benefits
. Executive shall be entitled to receive the Termination
Benefits described in Section 4 if (i) a Change in Control occurs during the Term of this Agreement
and (ii) within two years after the Control Change Date either (x) the Company terminates
Executives employment with the Company without Cause or (y) Executive resigns from the employment
of the Company and Executive has Good Reason to resign from the Company, and either (x) or (y), as
applicable, constitutes a Separation from Service with the Company.
No amounts will be payable under this Agreement unless Executives employment with the Company
terminates or is terminated as described in the foregoing subsection.
4.
Termination Benefits
. Upon a termination of Executives employment in accordance with Section
3, Executive shall be entitled to receive the following payments and benefits (the Termination
Benefits):
(a) A lump sum payment of any accrued but unpaid salary from the Company through the date
Executives employment terminates.
(b) A lump sum payment of any bonus that has been earned from the Company but which remains
unpaid as of Executives termination of employment.
(c) A lump sum reimbursement for any expenses Executive incurred on behalf of the Company
prior to termination of employment to the extent that such expenses are reimbursable under the
Companys standard reimbursement policies but have not been reimbursed as of Executives
termination of employment.
(d) Continued payment of Executives base salary, for one year following Executives
termination, at the rate in effect on the date of Executives termination of employment or, if
greater, at the rate in effect on the Control Change Date. Except as provided in Section 19, such
payments shall be made in accordance with the Companys normal payroll practices beginning with the
first payroll payment date following the Executives termination of employment.
(e) A lump sum payment equal to one times the average bonus paid to the Executive for the
three-year period prior to the Executives termination of employment.
(f) Reasonable outplacement services provided by the firm selected by Executive, the cost of
which will be paid by the Company; provided, however, that the Companys obligation under this
subsection (f) will not exceed $15,000.
(g) Continued participation in the employee welfare benefit plans (as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended) in which Executive
participates immediately prior to Executives date of termination, on such terms as are then in
effect, for one year following the termination of Executives employment with the Company and
payment by the Company of the entire cost or premium for continued coverage in the Company health
plan for a period of one year following Executives termination of
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employment. In the event that the continued coverage of Executive in any such employee
welfare benefit plan, including without limitation, the Company health plan, is barred by its
terms, the Company shall pay Executive, for one year following Executives termination of
employment, the cash equivalent of the portion of the insurance premium or other cost charged to
the Company for Executives participation in such employee welfare benefit plan(s), including the
entire insurance premium or other cost for coverage in the Company health plan, prior to
Executives termination of employment, plus an additional amount such that after payment of the
income and employment tax liability on such payment, Executive retains an amount equal to the
portion of the insurance premium or other cost charged to the Company for Executives participation
in such employee welfare benefit plans, including the entire insurance premium or other cost for
coverage in the Company health plan, prior to Executives termination of employment. Except as
provided in Section 19, such cash payments, in lieu of coverage, shall be made in accordance with
the Companys normal payroll practices during such one-year period beginning with the first payroll
payment date following the Executives termination of employment.
(h) All stock options and any other stock-based awards outstanding immediately prior to
Executives termination of employment shall immediately vest and become exercisable by Executive
for the remainder of the term provided for in the agreement evidencing the stock option or award in
which such options or other stock-based awards were granted.
(i) Except as provided in Section 19, lump sum Termination Benefits shall be payable within 45
days of Executives termination of employment in accordance with Section 3 and the other
Termination Benefits shall be payable as described above. The payment of the Termination Benefits
shall be reduced by amounts required to be withheld for applicable income and employment taxes.
5.
Limitation on Parachute Payments
. The Termination Benefits and other payments, distributions
and benefits provided by the Company for Executives benefit pursuant to this Agreement and under
other plans, programs, and agreements may constitute Parachute Payments (as defined in Section
280G(b) of the Code that are subject to the golden parachute rules of Code section 280G and the
excise tax of Code section 4999. The Company and Executive intend to reduce any Parachute Payments
(but not any payment, distribution or other benefit that is not a Parachute Payment) if, and only
to the extent that, a reduction will allow Executive to receive a greater Net After Tax Amount than
he would receive absent a reduction. The remaining provisions of this Section describe how that
intent will be effectuated.
(a) The Company will first determine the amount of any Parachute Payments that are payable to
Executive. The Company will also determine the Net After Tax Amount attributable to total
Parachute Payments.
(b) The Company will next determine the amount of Executives Capped Parachute Payments.
Thereafter, the Company will determine the Net After Tax Amount attributable to Executives Capped
Parachute Payments.
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(c) Executive shall receive the total Parachute Payments unless the Company determines that
the Capped Parachute Payments will yield Executive a higher Net After Tax Amount, in which case
Executive will receive the Capped Parachute Payments. If Executive will receive the Capped
Parachute Payments, the total Parachute Payments will be adjusted by first reducing the amount
payable under any other plan, program, or agreement that, by its terms, requires a reduction to
prevent a golden parachute payment under Code section 280G; by next reducing Executives benefit,
if any, under this Agreement, to the extent it is a Parachute Payment; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the reductions first coming from
cash benefits and then from noncash benefits). The Company will notify Executive if it determines
that the Parachute Payments must be reduced to the Capped Parachute Payments and will send
Executive a copy of its detailed calculations supporting that determination. The Company will pay
Executive the Termination Benefits or the reduced Termination Benefits as determined in this
Section 5 as described in Sections 4 and 19.
6.
Certain Definitions
. As used in this Agreement, certain terms have the definitions set forth
below.
(a)
Acquiring Person
means that a Person, considered alone or together with all
Control Affiliates and Associates of that Person, is or becomes directly or indirectly the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of securities representing at
least twenty five percent (25%) of the Companys then outstanding securities entitled to vote
generally in the election of the Board.
(b)
Associate
, with respect to any Person, is defined in Rule 12b-2 under the Exchange
Act;
provided,
however
, that an Associate shall not include the Company or a
majority-owned affiliate of the Company.
(c)
Board
means the Board of Directors of the Company.
(d)
Capped Parachute Payments
means the largest amount of Parachute Payments that may
be paid without liability for any excise tax under Code section 4999.
(e)
Cause
means (i) willful, deliberate and continued failure by Executive (other than
for reason of mental or physical illness) to perform his duties as established by the Board, or
fraud or dishonesty in connection with such duties, in either case, if such conduct has a
materially detrimental effect on the business operations of the Company; (ii) a material breach by
Executive of his fiduciary duties of loyalty or care to the Company; (iii) conviction of any crime
(or upon entering a plea of guilty or nolo contendere to a charge of any crime) constituting a
felony; (iv) misappropriation of the Companys funds or property; or (v) willful, flagrant,
deliberate and repeated infractions of material published policies and regulations of the Company
of which Executive has actual knowledge.
(f)
Change in Control
means (i) a Person is or becomes an Acquiring Person; (ii)
holders of the securities of the Company entitled to vote thereon approve any agreement with a
Person (or, if such approval is not required by applicable law and is not solicited by the
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Company, the closing of such an agreement) that involves the transfer of more than fifty
percent (50%) of the Companys and its affiliates total assets on a consolidated basis, as
reported in the Companys consolidated financial statements filed with the Securities and Exchange
Commission; (iii) holders of the securities of the Company entitled to vote thereon approve a
transaction (or, if such approval is not required by applicable law and is not solicited by the
Company, the closing of such a transaction) pursuant to which the Company will undergo a merger,
consolidation, or statutory share exchange with a company, regardless of whether the Company is
intended to be the surviving or resulting entity after the merger, consolidation, or statutory
share exchange,
other than
a transaction that results in the voting securities of the Company
carrying the right to vote in elections of persons to the Board outstanding immediately prior to
the closing of the transaction continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty percent (50%) of the
Companys voting securities carrying the right to vote in elections of persons to the Board, or
such securities of such surviving entity, outstanding immediately after the closing of such
transaction; (iv) the Continuing Directors cease for any reason to constitute a majority of the
Board; (v) holders of the securities of the Company entitled to vote thereon approve a plan of
complete liquidation of the Company or an agreement for the sale or liquidation by the Company or
its affiliates of substantially all of the assets of the Company and its affiliates (or, if such
approval is not required by applicable law and is not solicited by the Company, the commencement of
actions constituting such a plan or the closing of such an agreement); or (vi) the Board adopts a
resolution to the effect that, in its judgment, as a consequence of any one or more transactions or
events or series of transactions or events, a Change in Control of the Company has effectively
occurred.
(g)
Continuing Director
means any member of the Board, while a member of the Board and
(i) who was a member of the Board on the Effective Date or (ii) whose nomination for or election to
the Board was recommended or approved by a majority of the Continuing Directors.
(h)
Control Affiliate
, with respect to any Person, means an affiliate as defined in
Rule 12b-2 under the Exchange Act.
(i)
Control Change Date
means the date on which a Change in Control occurs. If a
Change in Control occurs on account of a series of transactions or events, the Control Change
Date is the date of the last of such transactions or events in the series.
(j)
Exchange Act
means the Securities Exchange Act of 1934, as amended.
(k)
Good Reason
means Executives resignation from the employment of the Company and
its affiliates on account of one or more of the following events:
(i) a material diminution by the Board of the duties, functions and responsibilities of
Executive as the VICE PRESIDENT-ADMINISTRATION AND SECRETARY of the Company without his consent;
5
(ii) the failure of the Company to permit Executive to exercise such responsibilities as are
consistent with Executives positions or are of a nature as are usually associated with such
offices of a corporation engaged in substantially the same business as the Company;
(iii) the Companys causing Executive to relocate his employment more than fifty (50) miles
from Mt. Airy, North Carolina, or his place of primary residence as of the Effective Date of this
Agreement, without the consent of Executive;
(iv) the failure of the Company to make a payment to Executive when due or, if later, within
10 days after Executive has made demand for such payment;
(v) the Companys material reduction of Executives (A) annual base salary, as in effect from
time to time after the Effective Date; (B) bonus, such that the aggregate threshold, target, or
maximum bonus projected for Executive for a fiscal year is lower than the aggregate threshold,
target, or maximum bonus, respectively, projected for Executive for the immediately preceding
fiscal year; or (C) employee welfare, fringe or pension benefits, other than reductions determined
to be necessary to comply with the Employee Retirement Income Security Act of 1974, as amended, or
to retain the tax-qualified or tax-favored status of the benefit under the Code, which
determination shall be made by the Board in good faith;
(vi) a breach of Section 10 of this Agreement;
(vii) the Company or the Board directs Executive to engage in unlawful or unethical conduct or
conduct contrary to the Companys good business practices.
(l)
Net After Tax Amount
means the amount of any Parachute Payments or Capped
Parachute Payments, as applicable, net of taxes imposed under Code sections 1, 3101(b) and 4999 and
any state or local income taxes applicable as in effect on the date of the payment under Section 5
of this Agreement. The determination of the Net After Tax Amount shall be made using the highest
combined effective rate imposed by the foregoing taxes on income of the same character as the
Parachute Payments or Capped Parachute Payments, as applicable, in effect for the year for which
the determination is made.
(m)
Person
means any human being, firm, corporation, partnership, or other entity.
Person also includes any human being, firm, corporation, partnership, or other entity as defined
in sections 13(d)(3) and 14(d)(2) of the Exchange Act. The term Person does not include the
Company, or any Related Entity, and the term Person does not include any employee-benefit plan
maintained by the Company or any Related Entity, and any person or entity organized, appointed, or
established by the Company or any Related Entity for or pursuant to the terms of any such
employee-benefit plan, unless the Board determines that such an employee-benefit plan or such
person or entity is a Person.
(n)
Related Entity
means any entity that is part of a controlled group of corporations
or is under common control with the Company within the meaning of section 1563(a), 414(b) or 414(c)
of the Code.
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(o)
Separation from Service
means the termination of the Executives employment with
the Company and all Related Entities; provided, however, that the Executive will not be considered
as having had a Separation from Service if (i) the Executive continues to provide services to the
Company or any Related Entity as an employee at an annual rate that is at least equal to 20 percent
of the services rendered, on average, during the immediately preceding three full calendar years of
employment (or, if employed less than three years, such lesser period) and the annual remuneration
for such services is at least equal to 20 percent of the average annual remuneration earned during
the final three full calendar years of employment (or if less, such lesser period), (ii) the
Executive continues to provide services to the Company or any Related Entity in a capacity other
than as an employee and such services are provided at an annual rate that is 50 percent or more of
the services rendered, on average, during the immediately preceding three full calendar years of
employment (or, if employed less than three years, such lesser period) and the annual remuneration
for such services is 50 percent or more of the annual remuneration earned during the final three
full calendar years of employment (or, if less, such lesser period) or (iii) the Executive is on
military leave, sick leave or other bona fide leave of absence (such as temporary employment by the
government) so long as the period of such leave does not exceed six months, or if longer, so long
as the Executives right to reemployment with the Company or any Related Entity is provided either
by statute or by contract. If the period of leave exceeds six months and the Executives right to
reemployment is not provided either by statute or by contract, the Separation from Service will be
deemed to occur on the first date immediately following such six-month period. For purposes of
this Section 6(o), the annual rate of providing services shall be determined based upon the
measurement used to determine the Executives base compensation. This definition of Separation
from Service is intended to comply with the definition of separation from service as used in
Section 409A(a)(2)(A)(i) of the Code and shall be interpreted accordingly.
(p)
Specified Employee
generally means an employee who is (i) an officer of the
Company or a Related Entity having annual compensation greater than $140,000 (with certain
adjustments for inflation after 2006), (ii) a five-percent owner of the Company or a Related Entity
or (iii) a one-percent owner of the Company or a Related Entity having annual compensation greater
than $150,000. This definition is intended to comply with the specified employee rules of
Section 409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly.
7.
Attorneys Fees
. Executive shall be entitled to reimbursement by the Company for any attorneys
fees and any other reasonable expenses that Executive incurs in enforcing or protecting his rights
under this Agreement. Subject to Section 19, such reimbursement shall be made within thirty days
following final resolution of the dispute or occurrence giving rise to such fees and expenses,
regardless of whether Executive is deemed the prevailing party in the resolution of the dispute or
occurrence.
8.
No Assignment
. Except as required by applicable law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment
by operation of law and any attempt to effect any such action shall be null, void and of no effect.
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9.
Governing Law
. This Agreement shall be governed by the laws of the State of North Carolina
other than its choice of law provisions to the extent that they would require the application of
the laws of a State other than the State of North Carolina.
10.
Successors
. The Company shall require any successor to all or substantially all of the
Companys respective business or assets (whether direct or indirect, by purchase, merger,
consolidation or otherwise), to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle
Executive to resign from the employ of the Company and to receive the Termination Benefits and
other benefits under this Agreement in the same amount and on the same terms as Executive would be
entitled to hereunder if he terminated his employment for Good Reason following a Change in
Control. References in this Agreement to the Company include the Company as herein before
defined and any successor to the Companys business, assets or both which assumes and agrees to
perform this Agreement by operation of law or otherwise.
11.
Binding Agreement
. This Agreement shall inure to the benefit of and be enforceable by
Executive and his personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive dies while any amount remains payable to him
hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to
Executives devisee, legatee or other designee or, if there is none, to Executives estate.
12.
No Employment Rights
. Nothing in this Agreement confers on Executive any right to continuance
of employment by the Company or any Related Entity. Nothing in this Agreement interferes with the
right of the Company or a Related Entity to terminate Executives employment at any time for any
reason whatsoever, with or without Cause, subject to the requirements of this Agreement. Nothing
in this Agreement restricts the right of Executive to terminate his employment with the Company and
Related Entities at any time for any reason whatsoever, with or without Good Reason.
13.
Counterparts
. This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original but all of which together constitute one and the same instrument.
14.
Entire Agreement
. This Agreement expresses the whole and entire agreement between the parties
with reference to the payment of the Termination Benefits and supersedes and replaces any prior
agreement, understanding or arrangement (whether oral or written) by or between the Company and
Executive with respect to the payment of the Termination Benefits.
15.
Notices
. All notices, requests and other communications to any party under this Agreement
shall be in writing and shall be given to such party at its address set forth below or such other
address as such party may hereafter specify for the purpose by notice to the other party:
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If to Executive:
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164 Fernbrook Place
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Mount Airy, North Carolina 27030
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If to the Company:
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Insteel Industries, Inc.
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1373 Boggs Drive
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Mt. Airy, North Carolina 27030
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Each notice, request or other communication shall be effective if (i) given by mail, seventy-two
hours after such communication is deposited in the mails with first class postage prepaid, address
as aforesaid or (ii) if given by any other means, when delivered at the address specified in this
Section 15.
16.
Modification of Agreement
. No waiver or modification of this Agreement shall be valid unless
in writing and duly executed by the party to be charged therewith. No evidence of any waiver or
modification shall be offered or received in evidence at any proceeding, arbitration or litigation
between the parties unless such waiver or modification is in writing, and duly executed. The
parties agree that this Section 16 may not be waived except as herein set forth.
17.
Recitals
. The Recitals to this Agreement are incorporated herein and shall constitute an
integral part of this Agreement.
18.
Section 409A.
This Agreement is intended to comply with the applicable requirements of Section
409A of the Code and shall be construed and interpreted in accordance therewith. Notwithstanding
the preceding, the Company and its Related Entities shall not be liable to the Executive or any
other person if the Internal Revenue Service or any court or other authority having jurisdiction
over such matter determines for any reason that any amount under this Agreement is subject to
taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.
19.
Delay of Payment.
Notwithstanding any other provision of this Agreement, if the Executive is a
Specified Employee, to the extent necessary to comply with Section 409A of the Code, no payments or
benefits (which are not otherwise exempt) may be paid or provided hereunder before the date which
is six months after the Executives Separation from Service or, if earlier, his death. The amounts
which would have otherwise been required to be paid, and the benefits which would have otherwise
been provided, during such six months or, if earlier, until Executives death, shall be paid to
Executive in one lump sum cash payment as soon as administratively practical after the date which
is six months after Executives Separation from Service or, if earlier, after the Executives
death. Any other payments scheduled to be made or benefits scheduled to be provided after such
period shall be made or provided at the times otherwise designated in this Agreement disregarding
the delay of payment for the payments and benefits described in this Section 19.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above
written.
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GARY D. KNISKERN
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/s/ Gary D. Kniskern
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INSTEEL INDUSTRIES, INC.
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By:
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/s/ H.O. Woltz III
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Name H.O. Woltz III
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Title President & CEO
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10
EXHIBIT 99.3
Group B
CHANGE IN CONTROL SEVERANCE AGREEMENT
THIS CHANGE IN CONTROL SEVERANCE AGREEMENT (the Agreement) is made and entered into this
14th day of November, 2006, between INSTEEL INDUSTRIES, INC. a North Carolina corporation (the
Company) and James F. Petelle (the Executive). Certain capitalized terms used in this
Agreement are defined in Section 6.
R
E
C
I
T
A
L
S
The Company acknowledges that Executive is expected to make significant contributions to the
growth and success of the Company. The Company also acknowledges that there exists the possibility
of a Change in Control of the Company. The Company recognizes that the possibility of a Change in
Control may contribute to uncertainty on the part of senior management and may result in the
departure or distraction of senior management from their operating responsibilities.
Strong and competent management of the Company is essential to advancing the best interests of
the Company and its partners and its shareholders. In the event of a threat or occurrence of a bid
to acquire or change control of the Company or to effect a business combination, it is particularly
important that the business of the Company be continued with a minimum of disruption. The Company
believes that the objective of securing and retaining strong management will be achieved if the
Companys key management employees are given assurances of employment security so that they will
not be distracted by personal uncertainties and risks created by such circumstances.
NOW, THEREFORE, in consideration of the mutual covenants and obligations herein the Company
and Executive agree as follows:
1.
Effective Date
. The Effective Date of this Agreement is
November 14, 2006
.
2.
Term of Agreement
. The Term of this Agreement begins on the Effective Date and ends on the day
before the second anniversary of the Effective Date. Notwithstanding the preceding sentence, the
Term of this Agreement shall be extended for an additional twelve month period, as of each
anniversary of the Effective Date, unless either party gives written notice, at least ninety days
prior to the applicable anniversary of the Effective Date, that the Term of this Agreement will not
be extended.
3.
Right to Receive Termination Benefits
. Executive shall be entitled to receive the Termination
Benefits described in Section 4 if (i) a Change in Control occurs during the Term of this Agreement
and (ii) within two years after the Control Change Date either (x) the Company terminates
Executives employment with the Company without Cause or (y) Executive resigns from the employment
of the Company and Executive has Good Reason to resign from the
Company, and either (x) or (y), as applicable, constitutes a Separation from Service with the
Company.
No amounts will be payable under this Agreement unless Executives employment with the Company
terminates or is terminated as described in the foregoing subsection.
4.
Termination Benefits
. Upon a termination of Executives employment in accordance with Section
3, Executive shall be entitled to receive the following payments and benefits (Termination
Benefits):
(a) A lump sum payment of any accrued but unpaid salary from the Company through the date
Executives employment terminates.
(b) A lump sum payment of any bonus that has been earned from the Company but which remains
unpaid as of Executives termination of employment.
(c) A lump sum reimbursement for any expenses Executive incurred on behalf of the Company
prior to termination of employment to the extent that such expenses are reimbursable under the
Companys standard reimbursement policies but have not been reimbursed as of Executives
termination of employment.
(d) Continued payment of Executives base salary, for one year following Executives
termination, at the rate in effect on the date of Executives termination of employment or, if
greater, at the rate in effect on the Control Change Date. Except as provided in Section 19, such
payments shall be made in accordance with the Companys normal payroll practices beginning with the
first payroll payment date following the Executives termination of employment.
(e) A lump sum payment equal to one times the average bonus paid to the Executive for the
three -year period prior to the Executives termination of employment; provided, however, that if
the Executive has not been employed for a full three years at the time of his termination of
employment, Executive shall receive, in lieu of the foregoing amount, a lump sum payment equal to
his annual base salary at the rate in effect on the date of Executives termination of employment
or, if greater, at the rate in effect on the Control Change Date, multiplied by the average bonus
percentage for the immediately preceding three years for the executive management group of the
Company (not including the Executive).
(f) Reasonable outplacement services provided by the firm selected by Executive, the cost of
which will be paid by the Company; provided, however, that the Companys obligation under this
subsection (f) will not exceed $15,000.
(g) Continued participation in the employee welfare benefit plans (as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended) in which Executive
participates immediately prior to Executives date of termination, on such terms as are then in
effect, for one year following the termination of Executives employment with the Company and
payment by the Company of the cost or premium for continued coverage in the
2
Company health plan for a period of one year following Executives termination of employment.
In the event that the continued coverage of Executive in any such employee welfare benefit plan,
including without limitation the Company health plan, is barred by its terms, the Company shall pay
Executive, for one year following Executives termination of employment, the cash equivalent of the
portion of the insurance premium or other cost charged to the Company for Executives participation
in such employee welfare benefit plan(s), including the entire insurance premium or other cost for
coverage in the Company health plan, prior to Executives termination of employment, plus an
additional amount such that, after payment of the income and employment tax liability on such
payment, Executive retains an amount equal to the portion of the insurance premium or other cost
charged to the Company for Executives participation in such employee welfare benefit plans,
including the entire insurance premium or other cost for coverage in the Company health plan, prior
to Executives termination of employment. Except as provided in Section 19, such cash payments, in
lieu of coverage, shall be made in accordance with the Companys normal payroll practices during
such one-year period beginning with the first payroll payment date following the Executives
termination of employment.
(h) All stock options and any other stock-based awards outstanding immediately prior to
Executives termination of employment shall immediately vest and become exercisable by Executive
for the remainder of the term provided for in the agreement evidencing the stock option or award in
which such options or other stock-based awards were granted.
(i) Except as provided in Section 19, lump sum Termination Benefits shall be payable within 45
days of Executives termination of employment in accordance with Section 3 and the other
Termination Benefits shall be payable as described above. The payment of the Termination Benefits
shall be reduced by amounts required to be withheld for applicable income and employment taxes.
5.
Limitation on Parachute Payments
. The Termination Benefits and other payments, distributions
and benefits provided by the Company for Executives benefit pursuant to this Agreement and under
other plans, programs, and agreements may constitute Parachute Payments (as defined in Section
280G(b) of the Internal Revenue Code of 1986 (the Code) that are subject to the golden
parachute rules of Code section 280G and the excise tax of Code section 4999. The Company and
Executive intend to reduce any Parachute Payments (but not any payment, distribution or other
benefit that is not a Parachute Payment) if, and only to the extent that, a reduction will allow
Executive to receive a greater Net After Tax Amount than he would receive absent a reduction. The
remaining provisions of this Section describe how that intent will be effectuated.
(a) The Company will first determine the amount of any Parachute Payments that are payable to
Executive. The Company will also determine the Net After Tax Amount attributable to total
Parachute Payments.
(b) The Company will next determine the amount of Executives Capped Parachute Payments.
Thereafter, the Company will determine the Net After Tax Amount attributable to Executives Capped
Parachute Payments.
3
(c) Executive shall receive the total Parachute Payments unless the Company determines that
the Capped Parachute Payments will yield Executive a higher Net After Tax Amount, in which case
Executive will receive the Capped Parachute Payments. If Executive will receive the Capped
Parachute Payments, the total Parachute Payments will be adjusted by first reducing the amount
payable under any other plan, program, or agreement that, by its terms, requires a reduction to
prevent a golden parachute payment under Code section 280G; by next reducing Executives benefit,
if any, under this Agreement, to the extent it is a Parachute Payment; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the reductions first coming from
cash benefits and then from noncash benefits). The Company will notify Executive if it determines
that the Parachute Payments must be reduced to the Capped Parachute Payments and will send
Executive a copy of its detailed calculations supporting that determination. The Company will pay
Executive the Termination Benefits or the reduced Termination Benefits determined in this Section 5
as described in Sections 4 and 19.
6.
Certain Definitions
. As used in this Agreement, certain terms have the definitions set forth
below.
(a)
Acquiring Person
means that a Person, considered alone or together with all
Control Affiliates and Associates of that Person, is or becomes directly or indirectly the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of securities representing at
least twenty five percent (25%) of the Companys then outstanding securities entitled to vote
generally in the election of the Board.
(b)
Associate
, with respect to any Person, is defined in Rule 12b-2 under the Exchange
Act;
provided,
however
, that an Associate shall not include the Company or a
majority-owned affiliate of the Company.
(c)
Board
means the Board of Directors of the Company.
(d)
Capped Parachute Payments
means the largest amount of Parachute Payments that may
be paid without liability for any excise tax under Code section 4999.
(e)
Cause
means (i) willful, deliberate and continued failure by Executive (other than
for reason of mental or physical illness) to perform his duties as established by the Board, or
fraud or dishonesty in connection with such duties, in either case, if such conduct has a
materially detrimental effect on the business operations of the Company; (ii) a material breach by
Executive of his fiduciary duties of loyalty or care to the Company; (iii) conviction of any crime
(or upon entering a plea of guilty or nolo contendere to a charge of any crime) constituting a
felony; (iv) misappropriation of the Companys funds or property; or (v) willful, flagrant,
deliberate and repeated infractions of material published policies and regulations of the Company
of which Executive has actual knowledge.
(f)
Change in Control
means (i) a Person is or becomes an Acquiring Person; (ii)
holders of the securities of the Company entitled to vote thereon approve any agreement with a
Person (or, if such approval is not required by applicable law and is not solicited by the
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Company, the closing of such an agreement) that involves the transfer of more than fifty
percent (50%) of the Companys and its affiliates total assets on a consolidated basis, as
reported in the Companys consolidated financial statements filed with the Securities and Exchange
Commission; (iii) holders of the securities of the Company entitled to vote thereon approve a
transaction (or, if such approval is not required by applicable law and is not solicited by the
Company, the closing of such a transaction) pursuant to which the Company will undergo a merger,
consolidation, or statutory share exchange with a company, regardless of whether the Company is
intended to be the surviving or resulting entity after the merger, consolidation, or statutory
share exchange,
other than
a transaction that results in the voting securities of the Company
carrying the right to vote in elections of persons to the Board outstanding immediately prior to
the closing of the transaction continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty percent (50%) of the
Companys voting securities carrying the right to vote in elections of persons to the Board, or
such securities of such surviving entity, outstanding immediately after the closing of such
transaction; (iv) the Continuing Directors cease for any reason to constitute a majority of the
Board; (v) holders of the securities of the Company entitled to vote thereon approve a plan of
complete liquidation of the Company or an agreement for the sale or liquidation by the Company or
its affiliates of substantially all of the assets of the Company and its affiliates (or, if such
approval is not required by applicable law and is not solicited by the Company, the commencement of
actions constituting such a plan or the closing of such an agreement); or (vi) the Board adopts a
resolution to the effect that, in its judgment, as a consequence of any one or more transactions or
events or series of transactions or events, a Change in Control of the Company has effectively
occurred.
(g)
Continuing Director
means any member of the Board, while a member of the Board and
(i) who was a member of the Board on the Effective Date or (ii) whose nomination for or election to
the Board was recommended or approved by a majority of the Continuing Directors.
(h)
Control Affiliate
, with respect to any Person, means an affiliate as defined in
Rule 12b-2 under the Exchange Act.
(i)
Control Change Date
means the date on which a Change in Control occurs. If a
Change in Control occurs on account of a series of transactions or events, the Control Change
Date is the date of the last of such transactions or events in the series.
(j)
Exchange Act
means the Securities Exchange Act of 1934, as amended.
(k)
Good Reason
means Executives resignation from the employment of the Company and
its affiliates on account of one or more of the following events:
(i) a material diminution by the Board of the duties, functions and responsibilities of
Executive as the
Vice President and Secretary o
f the Company without his consent;
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(ii) the failure of the Company to permit Executive to exercise such responsibilities as are
consistent with Executives positions or are of a nature as are usually associated with such
offices of a corporation engaged in substantially the same business as the Company;
(iii) the Companys causing Executive to relocate his employment more than fifty (50) miles
from Mt. Airy, North Carolina, or his place of primary residence as of the Effective Date of this
Agreement, without the consent of Executive;
(iv) the failure of the Company to make a payment to Executive when due or, if later, within
10 days after Executive has made demand for such payment;
(v) the Companys material reduction of Executives (A) annual base salary, as in effect from
time to time after the Effective Date; (B) bonus, such that the aggregate threshold, target, or
maximum bonus projected for Executive for a fiscal year is lower than the aggregate threshold,
target, or maximum bonus, respectively, projected for Executive for the immediately preceding
fiscal year; or (C) employee welfare, fringe or pension benefits, other than reductions determined
to be necessary to comply with the Employee Retirement Income Security Act of 1974, as amended, or
to retain the tax-qualified or tax-favored status of the benefit under the Code, which
determination shall be made by the Board in good faith;
(vi) a breach of Section 10 of this Agreement;
(vii) the Company or the Board directs Executive to engage in unlawful or unethical conduct or
conduct contrary to the Companys good business practices.
(l)
Net After Tax Amount
means the amount of any Parachute Payments or Capped
Parachute Payments, as applicable, net of taxes imposed under Code sections 1, 3101(b) and 4999 and
any state or local income taxes applicable as in effect on the date of the payment under Section 5
of this Agreement. The determination of the Net After Tax Amount shall be made using the highest
combined effective rate imposed by the foregoing taxes on income of the same character as the
Parachute Payments or Capped Parachute Payments, as applicable, in effect for the year for which
the determination is made.
(m)
Person
means any human being, firm, corporation, partnership, or other entity.
Person also includes any human being, firm, corporation, partnership, or other entity as defined
in sections 13(d)(3) and 14(d)(2) of the Exchange Act. The term Person does not include the
Company, or any Related Entity, and the term Person does not include any employee-benefit plan
maintained by the Company or any Related Entity, and any person or entity organized, appointed, or
established by the Company or any Related Entity for or pursuant to the terms of any such
employee-benefit plan, unless the Board determines that such an employee-benefit plan or such
person or entity is a Person.
(n)
Related Entity
means any entity that is part of a controlled group of corporations
or is under common control with the Company within the meaning of section 1563(a), 414(b) or 414(c)
of the Code.
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(o)
Separation from Service
means the termination of the Executives employment with
the Company and all Related Entities; provided, however, that the Executive will not be considered
as having had a Separation from Service if (i) the Executive continues to provide services to the
Company or any Related Entity as an employee at an annual rate that is at least equal to 20 percent
of the services rendered, on average, during the immediately preceding three full calendar years of
employment (or, if employed less than three years, such lesser period) and the annual remuneration
for such services is at least equal to 20 percent of the average annual remuneration earned during
the final three full calendar years of employment (or if less, such lesser period), (ii) the
Executive continues to provide services to the Company or any Related Entity in a capacity other
than as an employee and such services are provided at an annual rate that is 50 percent or more of
the services rendered, on average, during the immediately preceding three full calendar years of
employment (or, if employed less than three years, such lesser period) and the annual remuneration
for such services is 50 percent or more of the annual remuneration earned during the final three
full calendar years of employment (or, if less, such lesser period) or (iii) the Executive is on
military leave, sick leave or other bona fide leave of absence (such as temporary employment by the
government) so long as the period of such leave does not exceed six months, or if longer, so long
as the Executives right to reemployment with the Company or any Related Entity is provided either
by statute or by contract. If the period of leave exceeds six months and the Executives right to
reemployment is not provided either by statute or by contract, the Separation from Service will be
deemed to occur on the first date immediately following such six-month period. For purposes of
this Section 6(o), the annual rate of providing services shall be determined based upon the
measurement used to determine the Executives base compensation. This definition of Separation
from Service is intended to comply with the definition of separation from service as used in
Section 409A(a)(2)(A)(i) of the Code and shall be interpreted accordingly.
(p)
Specified Employee
generally means an employee who is (i) an officer of the
Company or a Related Entity having annual compensation greater than $140,000 (with certain
adjustments for inflation after 2006), (ii) a five-percent owner of the Company or a Related Entity
or (iii) a one-percent owner of the Company or a Related Entity having annual compensation greater
than $150,000. This definition is intended to comply with the specified employee rules of
Section 409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly.
7.
Attorneys Fees
. Executive shall be entitled to reimbursement by the Company for any attorneys
fees and any other reasonable expenses that Executive incurs in enforcing or protecting his rights
under this Agreement. Subject to Section 19, such reimbursement shall be made within thirty days
following final resolution of the dispute or occurrence giving rise to such fees and expenses,
regardless of whether Executive is deemed the prevailing party in the resolution of the dispute or
occurrence.
8.
No Assignment
. Except as required by applicable law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment
by operation of law and any attempt to effect any such action shall be null, void and of no effect.
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9.
Governing Law
. This Agreement shall be governed by the laws of the State of North Carolina
other than its choice of law provisions to the extent that they would require the application of
the laws of a State other than the State of North Carolina.
10.
Successors
. The Company shall require any successor to all or substantially all of the
Companys respective business or assets (whether direct or indirect, by purchase, merger,
consolidation or otherwise), to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle
Executive to resign from the employ of the Company and to receive the Termination Benefits and
other benefits under this Agreement in the same amount and on the same terms as Executive would be
entitled to hereunder if he terminated his employment for Good Reason following a Change in
Control. References in this Agreement to the Company include the Company as herein before
defined and any successor to the Companys business, assets or both which assumes and agrees to
perform this Agreement by operation of law or otherwise.
11.
Binding Agreement
. This Agreement shall inure to the benefit of and be enforceable by
Executive and his personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive dies while any amount remains payable to him
hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to
Executives devisee, legatee or other designee or, if there is none, to Executives estate.
12.
No Employment Rights
. Nothing in this Agreement confers on Executive any right to continuance
of employment by the Company or any Related Entity. Nothing in this Agreement interferes with the
right of the Company or a Related Entity to terminate Executives employment at any time for any
reason whatsoever, with or without Cause, subject to the requirements of this Agreement. Nothing
in this Agreement restricts the right of Executive to terminate his employment with the Company and
Related Entities at any time for any reason whatsoever, with or without Good Reason.
13.
Counterparts
. This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original but all of which together constitute one and the same instrument.
14.
Entire Agreement
. This Agreement expresses the whole and entire agreement between the parties
with reference to the payment of the Termination Benefits and supersedes and replaces any prior
agreement, understanding or arrangement (whether oral or written) by or between the Company and
Executive with respect to the payment of the Termination Benefits.
15.
Notices
. All notices, requests and other communications to any party under this Agreement
shall be in writing and shall be given to such party at its address set forth below or such other
address as such party may hereafter specify for the purpose by notice to the other party:
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If to Executive:
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James F. Petelle
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165 Virginia Street
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Mount Airy, North Carolina 27030
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If to the Company:
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Insteel Industries, Inc.
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1373 Boggs Drive
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Mt. Airy, North Carolina 27030
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Each notice, request or other communication shall be effective if (i) given by mail, seventy-two
hours after such communication is deposited in the mails with first class postage prepaid, address
as aforesaid or (ii) if given by any other means, when delivered at the address specified in this
Section 15.
16.
Modification of Agreement
. No waiver or modification of this Agreement shall be valid unless
in writing and duly executed by the party to be charged therewith. No evidence of any waiver or
modification shall be offered or received in evidence at any proceeding, arbitration or litigation
between the parties unless such waiver or modification is in writing, and duly executed. The
parties agree that this Section 16 may not be waived except as herein set forth.
17.
Recitals
. The Recitals to this Agreement are incorporated herein and shall constitute an
integral part of this Agreement.
18.
Section 409A
. This Agreement is intended to comply with the applicable requirements of Section
409A of the Code and shall be construed and interpreted in accordance therewith. Notwithstanding
the preceding, the Company and its Related Entities shall not be liable to the Executive or any
other person if the Internal Revenue Service or any court or other authority having jurisdiction
over such matter determines for any reason that any amount under this Agreement is subject to
taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.
19.
Delay of Payment
. Notwithstanding any other provision of this Agreement, if the Executive is a
Specified Employee, to the extent necessary to comply with Section 409A of the Code, no payments or
benefits (which are not otherwise exempt) may be paid or provided hereunder before the date which
is six months after the Executives Separation from Service or, if earlier, his death. The amounts
which would have otherwise been required to be paid, and the benefits which would have otherwise
been provided, during such six months or, if earlier, until Executives death, shall be paid to
Executive in one lump sum cash payment as soon as administratively practical after the date which
is six months after Executives Separation from Service or, if earlier, after the Executives
death. Any other payments scheduled to be made or benefits scheduled to be provided after such
period shall be made or provided at the times otherwise designated in this Agreement disregarding
the delay of payment for the payments and benefits described in this Section 19.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above
written.
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[EXECUTIVE]
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/s/ James F. Petelle
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INSTEEL INDUSTRIES, INC.
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By:
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/s/ H.O. Woltz III
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Name H.O. Woltz III
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Title President & CEO
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10
EXHIBIT 99.4
INSTEEL INDUSTRIES, INC.
AMENDED AND RESTATED RETIREMENT SECURITY AGREEMENT
THIS AMENDED AND RESTATED RETIREMENT SECURITY AGREEMENT (the Agreement), made and entered
into as of the
14TH
day of
November
, 2006 (the effective date), by and between
INSTEEL
INDUSTRIES, INC.
, a corporation located in Mount Airy, North Carolina (the Corporation), and
(the Executive);
R
E
C
I
T
A
L
S
The Corporation desires to provide supplemental retirement benefits to the Executive separate
from and in addition to any other retirement benefits to which the Executive is or may become
entitled under any plan of the Corporation or any other agreement between the Executive and the
Corporation. This Agreement amends, restates and supersedes the Retirement Security Agreement
dated as of the
day of
, 2004, that was in effect between the Corporation and the
Executive (the Predecessor Agreement) until the execution of this Agreement. The purpose of this
amended and restated Agreement is to revise the Predecessor Agreement to take into account Section
409A of the Internal Revenue Code of 1986, as amended (the Code).
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1
Purpose
.
This Agreement is being entered into by the Corporation to provide the Executive with
additional retirement and death benefits for the Executive and his beneficiaries. The Agreement is
not intended to be a qualified retirement plan under Section 401(a) of the Code, but it is intended
to constitute an arrangement that provides nonqualified deferred compensation within the meaning of
Section 409A of the Code. This Agreement is also intended to be a plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended (ERISA), and to be part of an
unfunded plan maintained by the Corporation primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees of the Corporation
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
SECTION 2
Supplemental Retirement Benefit
.
2.1
Normal retirement
. If the Executive remains in continuous service with the
Corporation until he completes thirty years of continuous service with the Corporation, but his
continuous service terminates for reasons other than death or by the Corporation for cause (as
defined in Section 2.4), the Corporation shall pay a supplemental retirement benefit to the
Executive. The annual amount of the supplemental retirement benefit shall be fifty percent
(50%) of the Executives final average compensation. The supplemental retirement benefit shall be
paid in equal installments in accordance with the Corporations regular payroll practices for
executives in effect from time to time, commencing as of the first payroll period ending
coincident
with or immediately following the Executives normal retirement date, and continuing for a term
certain of fifteen years; except as otherwise provided in Sections 5 or 14. For purposes of this
Agreement, unless otherwise indicated by the context.
(i) Compensation means the annual rate of gross base compensation in effect for the
Executive for service with the Corporation in effect on the last day of the calendar year;
provided, that for the year in which the Executives termination of employment with the Corporation
occurs because of retirement or otherwise, his compensation shall be the annual base rate in effect
on the date of his termination of employment.
(ii) Continuous service means the Executives uninterrupted service in the employment of the
Corporation in a full-time capacity. The Executives continuous service shall not be deemed to be
terminated or interrupted by a leave of absence or sick leave not exceeding one year granted to the
Executive by the Corporation or any other leave granted to the Executive where Executives right to
re-employment is guaranteed by statute or by contract.
(iii) Final average compensation means the average of the Executives compensation as of the
last day of each of the five consecutive calendar years during the ten calendar years preceding
the Executives normal retirement date that produces the highest average. If the Executive has not
worked during at least five calendar years preceding his normal retirement date, the Executives
final average compensation means the average of his compensation for all of the calendar years he
worked for the Corporation
(iv) Normal retirement date means the later of (i) the Executives sixty-fifth birthday or
(ii) the date the Executive terminates continuous service with the Corporation after completing
thirty years of continuous service.
(v) Year of continuous service means a twelve-month period of continuous service by the
Executive, beginning on the Executives initial date of employment with the Corporation (and each
anniversary thereof), and ending on the day immediately preceding the anniversary of that date.
2.2
Early retirement
. If the Executive remains in continuous service with the
Corporation until he completes at least ten years of continuous service with the Corporation but
his continuous service terminates for reasons other than death or by the Corporation for cause
(as defined in Section 2.4) after he attains age fifty-five but prior to his normal retirement
date, and he has not previously incurred a disability (as defined in Section 2.3), the
Corporation will pay a supplemental early retirement benefit to the Executive. The annual amount
of the supplemental early retirement benefit shall be fifty percent (50%) of the Executives final
average compensation determined as of the date of his termination of service, reduced by
1/360
th
for each full calendar month of continuous service less than 360 that the
Executive has completed as of that date. The Executives supplemental early retirement benefit
shall be paid in
equal installments in accordance with the Corporations regular payroll practices for
executives in effect from time to time, commencing as of the first payroll period ending coincident
with or immediately following the later of the date the Executive attains age sixty-five or the
date the Executive terminates continuous service, and continuing for a term certain of fifteen
years; except as otherwise provided in Sections 5 or 14.
2
2.3
Disability retirement
. If the Executive remains in continuous service with the
Corporation until he completes at least ten years of continuous service with the Corporation but
incurs a disability prior to his normal retirement date, the Corporation shall pay a supplemental
disability benefit to the Executive. The amount of the supplemental disability benefit shall be
as follows: (i) during the period, if any, that the Executive is receiving benefit payments under
a long-term disability insurance plan for executives of the Corporation (the LTD plan), the
amount determined under Section 2.2, treating the date of the Executives disability as his early
retirement date, provided that such amount, when added to the Executives benefit under the LTD
plan, shall not exceed one hundred percent (100%) of the Executives final average compensation
determined as of the date of his termination of service because of disability; and (ii) during any
period that the Executive is not receiving benefit payments under the LTD plan, an amount equal to
the greater of the Executives benefit determined under Section 2.2 as of the date of his
disability or fifty percent (50%) of the Executives final average compensation. The Executives
supplemental disability benefit will be paid in equal installments in accordance with the
Corporations regular payroll practices for executives in effect from time to time, commencing as
of the first payroll period ending coincident with or immediately following the date as of which
the Executives disability is deemed to have occurred, and continuing for a term certain of ten
years. For this purpose, disability shall mean the Executive is (i) unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a continuous period of not
less than twelve months, or (ii) is, by reason of any medically determinable physical or medical
impairment that can be expected to result in death or that can be expected to last for a continuous
period of not less than twelve months, receiving income replacement benefits for a period of not
less than three months under an accident or health plan covering employees of the Corporation. The
determination of the existence or nonexistence of disability under (i) above shall be made by the
Executive Compensation Committee of the Board of Directors of the Corporation (the Compensation
Committee) pursuant to a medical examination by a medical doctor selected or approved by the
Compensation Committee and a medical doctor selected or approved by the Executive; provided, that
if the two medical doctors shall not agree that the Executive is or is not disabled, the two
doctors shall select a third medical doctor to examine the Executive, and such third doctors
determination of the Executives disability shall be conclusive.
2.4
Termination of continuous service for cause.
Notwithstanding any other
provision of this Agreement, if the Corporation terminates the Executives continuous service for
cause, no benefit shall be paid by the Corporation pursuant to this Agreement. For this purpose,
cause means (i) willful, deliberate and continued failure by the Executive (other than for reason
of mental or physical illness) to perform his duties as established by the Board of Directors of
the Corporation (the Board), or fraud or dishonesty in connection with such duties, in either
case, if such conduct has a materially detrimental effect on the business operations of
the Corporation; (ii) a material breach by the Executive of his fiduciary duties of loyalty or
care to the Corporation; (iii) the conviction of the Executive of any crime (or upon entering a
plea of guilty or nolo contendere to a charge of any crime) constituting a felony; (iv)
misappropriation of the Corporations funds or property by the Executive; or (v) willful, flagrant,
deliberate and repeated infractions of material published policies and regulations of the
3
Corporation of which the Executive has actual knowledge. Whether the Executives termination is
for cause shall be determined by the Compensation Committee.
SECTION 3
Death of Executive
.
3.1
Death while in continuous service
. If the Executive dies while in continuous
service with the Corporation, the Corporation will pay a supplemental death benefit to the
Executives beneficiary. The annual amount of the supplemental death benefit shall be fifty
percent (50%) of the Executives final average compensation, determined as of the date of the
Executives death. The Executives supplemental death benefit provided in this Section 3.1 shall
be paid in equal installments in accordance with the Corporations regular payroll practices for
executives in effect from time to time, commencing as of the first payroll period ending coincident
with or immediately following the date of the Executives death and continuing for a term certain
of ten years.
3.2
Death after termination of continuous service but before benefit payments commence or
death after benefit payments commence
. If the Executive dies either (i) after his termination
of continuous service for which he is entitled to receive supplemental benefits hereunder but
before such supplemental benefit payments commence, or (ii) after the date as of which such
supplemental benefit payments have commenced under this Agreement, payment of the Executives
remaining supplemental benefits shall commence or continue, as the case may be, to the Executives
beneficiary following the Executives death, treating the Executives beneficiary as the Executive
for all purposes under this Agreement.
SECTION 4
Vesting
.
4.1
Vesting and forfeiture of benefits
. The Executive shall become vested in his
supplemental benefits under this Agreement, to the extent accrued as of any date, following the
first to occur of his completion of the required years of continuous service with the Corporation
to be entitled to the benefit, or the date of his termination of continuous service because of
death. The Executive shall not be vested in his supplemental benefits under this Agreement if he
terminates service with the Corporation prior to completing the required years of continuous
service to be entitled to the benefit for any reason other than death. Notwithstanding the
foregoing, the Executive shall forfeit any benefits earned and vested under this Agreement if his
continuous service with the Corporation is terminated by the Corporation for cause (as defined in
Section 2.4).
4.2
Accelerated vesting
. Notwithstanding any other provision of this Agreement, the
Compensation Committee may, with the approval of the Board, direct that all or part of the
Executives supplemental benefits under this Agreement shall be nonforfeitable as of
any date prior to the Executives normal retirement date on such terms and conditions as the
Compensation Committee shall determine.
4
SECTION 5
Deferral of Payment Date
.
The Compensation Committee and the Executive may agree to establish a new date for payment of
the Executives supplemental benefits under Sections 2.1 and 2.2 that is after the dates otherwise
set forth therein (referred to herein as his subsequent payment date); provided, that such
subsequent payment date satisfies the conditions of this Section 5. For a subsequent payment date
to be effective, (i) the Executive and the Compensation Committee must agree on the subsequent
payment date not less than 12 months prior to the date the first payment for the particular payment
event is scheduled to be made, (ii) the agreement establishing the subsequent payment date must not
take effect for at least 12 months and (iii) the subsequent payment date must extend the first
payment that would have been made (other than on death or disability) for a period of not less than
five years from the date such payment for the particular payment event otherwise would have been
made. If a subsequent payment date is established pursuant to this Section 5, this Agreement shall
be administered in all respects as if such subsequent payment date was the date specified in
Sections 2.1 or 2.2, except that the supplemental retirement benefit described in Sections 2.1 and
2.2, and to which the Executive would otherwise be entitled, shall be adjusted actuarially by the
Compensation Committee to reflect any delay in the commencement of benefits beyond the Executives
attainment of age 65. For purposes of making such adjustment, the Compensation Committee shall
apply actuarial assumptions agreed to by the Executive at the time the subsequent payment date is
set.
SECTION 6
Beneficiary
.
The Executives beneficiary shall be the person or persons designated by the Executive on the
beneficiary designation form provided by and filed with the Compensation Committee or its designee.
If the Executive does not designate a beneficiary, his beneficiary shall be his surviving spouse.
If the Executive does not designate a beneficiary and has no surviving spouse, the beneficiary
shall be the Executives estate. The designation of a beneficiary may be changed or revoked only
by filing a new beneficiary designation form with the Compensation Committee or its designee. If
the Executives beneficiary dies prior to asserting a written claim for any death benefit payable
under the Agreement, such benefit shall be payable to the Executives estate. If a beneficiary
(the primary beneficiary) is receiving or is entitled to receive payments under the Agreement and
dies before receiving all of the payments due him, the balance to which he is entitled shall be
paid to the contingent beneficiary, if any, named in the Executives current beneficiary
designation form. If there is no contingent beneficiary, the balance shall be paid to the estate
of the primary beneficiary. Any beneficiary may disclaim all or any part of any benefit to which
such beneficiary shall be entitled hereunder by filing a written disclaimer with the Compensation
Committee at least ten days before payment of such benefit is to be made. Such a disclaimer shall
be made in form satisfactory to the Compensation Committee and shall be irrevocable when filed.
Any benefit disclaimed shall be
payable from the Corporation under this Agreement in the same manner as if the beneficiary who
filed the disclaimer had died on the date of such filing.
5
SECTION 7
Administration by Compensation Committee
.
7.1 The Compensation Committee shall be responsible for the general administration and
interpretation of this Agreement and for carrying out its provisions, except to the extent all or
any of such obligations are specifically imposed on the Board.
7.2 The Compensation Committee shall maintain full and complete records of its deliberations
and decisions with respect to this Agreement. The minutes of its proceedings shall be conclusive
proof of the facts of the operation of the Agreement. The records of the Compensation Committee
with respect to this Agreement shall contain all relevant data pertaining to the Executive and his
rights under the Agreement.
7.3 Subject to the limitations of the Agreement, the Compensation Committee may from time to
time establish rules or by-laws for the administration of the Agreement and the transaction of its
business. The Compensation Committee may correct errors and, so far as practicable, may adjust any
benefit or credit or payment accordingly. The Compensation Committee may in its discretion waive
any notice requirements in the Agreement; provided, that a waiver of notice in one or more cases
shall not be deemed to constitute a waiver of notice in any other case.
7.4 Subject to the provisions of Section 12, the Compensation Committee shall have the duty
and authority to interpret and construe the provisions of this Agreement and to decide any dispute
which may arise regarding the rights of the Executive hereunder. Benefits under this Agreement
will be paid only if the Compensation Committee decides in its discretion that the Executive is
entitled to them.
7.5 The Compensation Committee may engage an attorney, accountant or any other technical
advisor on matters regarding the operation of the Agreement and to perform such other duties as
shall be required in connection therewith, and may employ such clerical and related personnel as
the Compensation Committee shall deem requisite or desirable in carrying out the provisions of the
Agreement. The Compensation Committee shall from time to time, but no less frequently than
annually, review the financial and liquidity needs of the Corporation under the Agreement. The
Compensation Committee shall communicate such needs to the Corporation so that its policies may be
appropriately coordinated to meet such needs.
7.6 The Compensation Committee shall be entitled to reimbursement by the Corporation for its
reasonable expenses properly and actually incurred in the performance of its duties in the
administration of the Agreement.
7.7 No member of the Compensation Committee shall be personally liable by reason of any
contract or other instrument executed by him or on his behalf as a member of the Compensation
Committee nor for any mistake of judgment made in good faith, and the Corporation shall indemnify
and hold harmless, directly from its own assets (including the proceeds of any insurance policy the
premiums for which are paid from the Corporations own assets), each member of the Compensation
Committee and each other officer, employee, or director of the Corporation to whom any duty or
power relating to the administration or interpretation of the Agreement may be delegated or
allocated, against any unreimbursed or uninsured cost or expense (including any sum paid in
settlement of a claim with the prior written approval of the Board) arising out of any act or
omission to act in connection with the
6
Agreement unless arising out of such persons own fraud, bad
faith, willful misconduct or gross negligence.
SECTION 8
Funding
.
The obligation of the Corporation to make payments hereunder shall constitute a liability of
the Corporation to the Executive. Notwithstanding the foregoing, the Corporation may establish a
grantor trust (the Trust) to which the Corporation shall contribute according to its terms to pay
the benefits provided for in the Agreement; provided, that to the extent that there shall not be
sufficient funds in the Trust to make one or more payments provided for under this Agreement, such
payments shall be made from the general funds of the Corporation. Except as otherwise provided
herein, the Corporation shall not be required to establish or maintain any special or separate
fund, or otherwise to segregate assets to assure that such payments shall be made, and the
Executive shall not have any interest in any particular assets of the Corporation by reason of its
obligations hereunder. When the Trust is established, a copy of the document shall be attached
hereto and its terms shall be incorporated herein by reference. Nothing contained in this
Agreement or the Trust shall create or be construed as creating a trust of any kind or any other
fiduciary relationship between or among the Corporation, the Executive, the trustee under the
Trust, or any other person. To the extent that any person acquires a right to receive payment from
the Corporation or the Trust, such right shall be no greater than the right of an unsecured
creditor of the Corporation. In no event shall the Trust or the assets of the Trust be located
outside of the United States and at no time shall the Trust be funded if such funding would cause
the Executive to be subject to taxation or penalties pursuant to Section 409A of the Code.
SECTION 9
Allocation of Responsibilities
.
The persons responsible for the Agreement and the duties and responsibilities allocated
to each are as follows:
9.1
Board
. To amend or terminate this Agreement in accordance with Section 11.2;
9.2
Committee
.
(i) To interpret the provisions of the Agreement and to determine the rights of the Executive
under the Agreement, except to the extent otherwise provided in Section 12 relating to claims
procedure;
(ii) To administer the Agreement in accordance with its terms, except to the extent powers to
administer the Agreement are specifically delegated to another person or persons as provided in the
Agreement;
(iii) To account for the supplemental benefits of the Executive; and
(iv) To file such reports as may be required with the United States Department of Labor, the
Internal Revenue Service and any other government agencies to which reports may be required to be
submitted from time to time.
7
SECTION 10
Benefits Not Assignable; Facility of Payments
.
10.1 No portion of any benefit credited or paid under this Agreement with respect to the
Executive shall be subject in any manner to anticipation, alienation, sale, transfer, assignment,
pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be void, nor shall any portion of such benefit be in any
manner payable to any assignee, receiver or any one trustee, or be liable for his debts, contracts,
liabilities, engagements or torts, or be subject to any legal process to levy upon or attach.
10.2 If any individual entitled to receive a payment under the Agreement shall be physically,
mentally or legally incapable of receiving or acknowledging receipt of such payment, the
Compensation Committee, upon the receipt of satisfactory evidence of his incapacity and
satisfactory evidence that another person or institution is maintaining him and that no guardian or
committee has been appointed for him, may cause any payment otherwise payable to him to be made to
such person or institution so maintaining him. Payment to such person or institution shall be in
full satisfaction of all claims by or through the Executive to the extent of the amount thereof.
SECTION 11
Amendment and Termination of Agreement
.
This Agreement shall not be amended or terminated other than by a writing signed by the
Corporation and the Executive. The Agreement may be terminated (i) within 12 months of a corporate
dissolution of the Corporation taxed under Section 331 of the Code, or with the approval of a
bankruptcy court pursuant to 11 U.S.C. 503(b)(1)(A), provided that the amounts deferred under the
Agreement are paid to the Executive at the later of the calendar year in which the termination of
the Agreement occurs, the first calendar year in which the payment is administratively practicable
or the calendar year in which the amount is no longer subject to a substantial risk of forfeiture,
(ii) within the 30 days preceding or the 12 months following a change in control (as defined in
Section 409A of the Code), provided that all substantially similar arrangements sponsored by the
Corporation and its Related Entities are terminated, so that the Executive and all participants
under substantially similar arrangements are paid within 12 months of the date of termination of
the arrangements and (iii) at any time so long as: (a) the Corporation terminates all other
arrangements of the Corporation and its Related Entities that are treated as account balance plans
as defined in Treasury Regulation Section 31.3121(v)(2)-1(c)(1)(ii)(A) (other than certain
separation pay arrangements), (b) no payments other than payments that
would be payable under the terms of the arrangements if the termination had not occurred are
made within 12 months of the termination of the arrangements, (c) all payments are made within 24
months of the termination of the arrangements, (d) neither the Corporation nor its Related Entities
adopt a new arrangement that would be treated as an account balance plan as defined in Treasury
Regulation Section 31.3121(v)(2)-1(c)(1)(ii)(A) (other than certain separation pay arrangements) at
any time within five years following the date of termination of the Agreement and (e) the
Corporation and its Related Entities satisfy such other events and conditions as the Commissioner
of the Internal Revenue Service may prescribe. Any payment pursuant to this Section 11 shall be
adjusted to account for the acceleration of payment using reasonable actuarial assumptions
established by the Company. This Section is intended to
8
satisfy the plan termination rules of
Treasury Regulation Section 1.409A-3(h)(2)(viii) and shall be interpreted accordingly. For
purposes of this Agreement Related Entity means any entity that is part of a controlled group of
corporations or is under common control with the Corporation within the meaning of Sections
1563(a), 414(b) or 414(c) of the Code.
SECTION 12
Claims Procedure
.
The following claims procedure shall apply with respect to this Agreement:
12.1
Filing of a claim for benefits
. If the Executive or his beneficiary (the
claimant) believes that he is entitled to benefits under the Agreement which are not being paid
to him or which are not being accrued for his benefit, he shall file a written claim therefor with
the Compensation Committee within ninety (90) days of the date such benefits otherwise would have
commenced (assuming the claimant is entitled to the benefits) or the claim will be forever barred.
12.2
Notification to claimant of decision
.
(a)
General
. Within 90 days after receipt of a claim, other than a claim for benefits
upon a disability, by the Compensation Committee (or within 180 days if special circumstances
require an extension of time), the Compensation Committee shall notify the claimant in writing of
its decision with regard to the claim. In the event of such special circumstances requiring an
extension of time, there shall be furnished to the claimant prior to expiration of the initial
90-day period written notice of the extension, which notice shall set forth the special
circumstances and the date by which the decision shall be furnished.
(b)
Disability
. Except as provided below, within 45 days after receipt of a
disability claim by the Compensation Committee, the Compensation Committee shall notify the
claimant in writing of its decision with regard to the claim (regardless of whether all the
information necessary to make a benefit determination accompanies the claim) unless a 30-day
extension is necessary due to matters beyond the control of the Compensation Committee. If such an
extension is necessary, the Compensation Committee shall notify the claimant prior to the
expiration of the initial 45-day period. If the Compensation Committee determines that a decision
cannot be made within the first extension period due to matters beyond the control of the
Compensation Committee, the time period for making a determination may be further extended for an
additional 30 days. If such an additional extension is necessary, the Compensation
Committee shall notify the claimant prior to the expiration of the first 30-day extension
period. Any notice of an extension period shall indicate (i) the circumstances necessitating the
extension of time, (ii) the date by which the Compensation Committee expects to furnish a notice of
decision, (iii) the specific standards on which such entitlement to a benefit is based, (iv) the
unresolved issues that prevent a decision on the claim and (v) any additional information needed to
resolve those issues. A claimant will be provided a minimum of 45 days to submit any necessary
additional information to the Compensation Committee. In the event that a 30-day extension is
necessary due to a claimants failure to submit information necessary to decide a claim under this
subsection, the period for furnishing a notice of decision shall be tolled from the date on which
the notice of the extension is sent to the claimant until the date the claimant responds to the
request for additional information.
9
(c)
Denial
. If such claim shall be wholly or partially denied, notice thereof shall
be in writing and worded in a manner calculated to be understood by the claimant, and shall set
forth: (i) the specific reason or reasons for the denial; (ii) specific reference to pertinent
provisions of the Agreement on which the denial is based; (iii) a description of any additional
material or information necessary for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and (iv) an explanation of the procedure for review of
the denial and the time limits applicable to such procedures, including the claimants right to
bring a civil action, to the extent permissible, following an adverse benefit determination on
review. In addition to the information specified above, an adverse benefit determination
concerning a disability claim shall also set forth, in a manner calculated to be understood by the
claimant, (i) an explanation of any internal rule or guideline relied on to make the adverse
determination, or (ii) a statement that a specific rule or guideline was relied upon and that a
copy of the rule will be provided to the claimant free of charge upon request.
(d)
Request for review
. If a claim for benefits is denied in whole or in part, the
claimant or his duly authorized representative may request in writing a full and fair review of the
adverse benefit determination. The Compensation Committee may appoint a committee to review
benefit claims, which must consider any denied claim that is submitted for review. If no committee
is appointed, the Compensation Committee will process any valid request for review. The claims
procedure must provide the claimant with (i) at least 60 days (180 days in the case of a Disability
claim) following receipt of an adverse determination on which to appeal the determination, (ii) the
opportunity to submit written comments, documents and records relating to the claim, (iii)
reasonable access to and copies of documents and records relevant to the claim for benefits, upon
request and free of charge, and (iv) a review taking into account all comments, documents, records
and information submitted by the claimant relating to the claim, without regard to whether the
information was submitted or considered in the initial benefit determination.
(e)
Review of denied claims
. The Compensation Committee must make a decision
concerning the determination upon review of a denied claim within 60 days (45 days in the case of a
disability claim) of receipt of a request for review. Under special circumstances, the review
period may be extended for an additional 60 days (45 days in the case of a disability claim). If
an extension is required, the Compensation Committee will provide the
claimant with written notification of the special circumstances involved and the date by which
the Compensation Committee expects to render a final decision.
(1)
Hearing
. The Compensation Committee or the committee appointed to review claims must
determine whether there will be a hearing. A hearing must be scheduled to give sufficient time for
this review and submission, giving notice of the schedule and deadlines for submission.
(2)
Review by Compensation Committee or committee
. If the Compensation Committee (or a
committee if a one has been appointed) has regularly scheduled meetings at least quarterly, the
rules in this subsection govern the time for the decision on review and supersede the rules
described above. If the claimants written request for review is received more than 30 days before
a meeting, a decision on review must be made at the next meeting after
10
the request for review has
been received. If the claimants written request for review is received 30 days or less before a
meeting of the Compensation Committee (or committee), the decision on review must be made at the
Compensation Committees (or committees) second meeting after the request for review has been
received. If an extension of time is required, written notice of the extension must be furnished
to the claimant before the extension begins.
(3)
Disability claims
. The review shall be conducted by the Compensation Committee (exclusive
of the person who made the initial adverse decision or such persons subordinate). In reviewing
the appeal, the Compensation Committee shall (i) not afford deference to the initial denial of the
claim, (ii) consult a medical professional who has appropriate training and experience in the field
of medicine relating to the claimants disability and who was neither consulted as part of the
initial denial nor is the subordinate of such individual and (iii) identify the medical or
vocational experts whose advice was obtained with respect to the initial benefit denial, without
regard to whether the advice was relied upon in making the decision. If a claim is denied due to a
medical judgment, the reviewer will consult with a health care professional who has appropriate
training and experience in the field of medicine involved in the medical judgment. The health care
professional consulted will not be the same person consulted in connection with the initial benefit
decision (nor be the subordinate of that person). The decision on review also will identify any
medical or vocational experts who advised the Compensation Committee in connection with the
original benefit decision, even if the advice was not relied upon in making the decision.
(f)
Notification on review
. If a request for review is wholly or partially denied,
the Compensation Committee must give written or electronic notice to the claimant within the time
provided in subsection (e). The notice must contain the information detailed in subsection (c).
If the notification concerns the denial of a disability claim, the notice must also contain; (i) a
statement describing any voluntary appeal procedures offered by the Agreement and the claimants
right to obtain information about such procedures, and (ii) a statement that the claimant may have
other voluntary alternative dispute resolution options, such as mediation.
(g)
Determinations are binding
. All good-faith determinations by the Compensation
Committee are conclusive and binding on all persons, and there is no right of
appeal except as provided above. Any electronic notification shall comply with the standards
imposed by Department of Labor Regulation 2520.104b-1(c).
12.3
Arbitration
. If a dispute remains following the decision of the Compensation
Committee under Section 12.2, the issue or issues in dispute shall be settled and finally
determined by arbitration in Winston-Salem, North Carolina, under the then existing rules of the
American Arbitration Association; and judgment may be entered upon the award of the arbitrator by
any Court of competent jurisdiction. The standard of review for such arbitration shall be
de
novo
; therefore, discretion granted to the Compensation Committee by any other
provision of this Agreement shall be disregarded, and there shall be no presumption in favor of any
decision made by the Compensation Committee. If the Executive disagrees with the final decision of
the Compensation Committee under Section 12.2, Executive must file the request for arbitration
within ninety (90) days of the Compensation Committees final decision pursuant to
11
Section 12.2 or
the Compensation Committees decision shall be final and any further claim forever barred. Any
expenses of such arbitration shall be allocated among the parties to this Agreement by the
arbitrator.
12.4
Action by authorized representative of claimant
. All actions set forth in this
Section 12 to be taken by the claimant may likewise be taken by a representative of the claimant
duly authorized by him to act in his behalf on such matters. The Compensation Committee may
require such evidence as either may reasonably deem necessary or advisable of the authority to act
of any such representative.
SECTION 13
Miscellaneous Provisions
.
13.1
Notices
. The Executive and each beneficiary shall be responsible for furnishing
the Compensation Committee or its designee with their current address for the mailing of notices
and benefit payments. Any notice required or permitted to be given to the Executive or a
beneficiary shall be deemed given if directed to such address and mailed by regular United States
mail, first class, postage prepaid. If any check mailed to such address is returned as
undeliverable to the addressee, mailing of checks will be suspended until the Executive or
beneficiary furnishes the proper address. This provision shall not be construed as requiring the
mailing of any notice or notification otherwise permitted to be given by posting or by other
publication.
13.2
Lost distributees
. A benefit shall be deemed forfeited if the Compensation
Committee is unable after a reasonable period of time to locate the Executive or his beneficiary to
whom payment is due; provided, however, that such benefit shall be reinstated if a valid claim is
made by or on behalf of the Executive or his beneficiary for the forfeited benefit no later than
ninety (90) days after the date such benefits otherwise would have commenced (assuming the claimant
is entitled to the benefits) or the claim will be forever barred.
13.3
Reliance on data
. The Corporation and the Compensation Committee shall have the
right to rely on any data provided by the Executive or by any beneficiary. Representations of such
data shall be binding upon any party seeking to claim a benefit through a Executive, and the
Corporation and the Compensation Committee shall have no obligation to
inquire into the accuracy of any representation made at any time by the Executive or his
beneficiary.
13.4
Receipt and release for payments
. Any payment made from the Corporation to or
with respect to the Executive or his beneficiary, or pursuant to a disclaimer by a beneficiary,
shall, to the extent thereof, be in full satisfaction of all claims hereunder against the
Corporation with respect to the Agreement. The recipient of any payment may be required by the
Compensation Committee, as a condition precedent to such payment, to execute a receipt and release
with respect thereto in such form as shall be acceptable to the Compensation Committee.
13.5
Withholding
. The Corporation shall withhold from any payments or benefits under
this Agreement, or shall otherwise obtain payment from Executive for, all federal,
12
state, or local
taxes or other amounts as shall be required pursuant to any law or governmental regulation or
ruling.
13.6
Headings
. The headings and subheadings of the Agreement have been inserted for
convenience of reference and are to be ignored in any construction of the provisions hereof.
13.7
Continuation of employment
. The establishment of the Agreement shall not be
construed as conferring any legal or other rights upon the Executive or any persons for
continuation of employment or any right to receive or continue to receive any rate of pay or other
compensation, nor shall it interfere with the right of the Corporation to discharge the Executive
or to deal with him without regard to the effect thereof under the Agreement.
13.8
Binding on successors
. The obligations of the parties hereto shall inure to the
benefit of and shall be binding upon their successors and assigns, including any successor to the
Corporation by merger, consolidation or otherwise that may agree to continue this Agreement.
13.9
Construction
. The provisions of the Agreement shall be construed and enforced
according to the laws of the State of North Carolina.
13.10
Predecessor Agreement
. This Agreement amends, supersedes and restates the
Predecessor Agreement as of the effective date first written above. By his signature below, the
Executive acknowledges the effect of this Agreement, and that the ability to continue to
participate in this Agreement on its terms is legal consideration to support the restatement of the
terms of the Predecessor Agreement with the terms of this Agreement.
13.11
Compliance
. No benefits shall be paid hereunder except in compliance with all
applicable laws and regulations (including, without limitation, withholding tax requirements), any
listing agreement with any stock exchange to which the Corporation is a party, and the rules of all
domestic stock exchanges on which the Corporations shares of capital stock may be listed. The
Corporation shall have the right to rely on an opinion of its counsel as to such compliance. No
benefits shall be paid hereunder unless the Corporation has obtained
such consent or approval as the Corporation may deem advisable from regulatory bodies having
jurisdiction over such matters.
13.12
Confidentiality
. The terms and conditions of this Agreement and the Executives
participation hereunder shall remain strictly confidential. The Executive may not discuss or
disclose any terms of this Agreement or its benefits with anyone except for Executives attorneys,
accountants and immediate family members who shall be instructed to maintain the confidentiality
agreed to under this Agreement, except as may be required by law.
SECTION 14
Application of Section 409A
.
14.1
Compliance
. This Agreement is intended to comply with the applicable
requirements of Section 409A of the Code and shall be construed and interpreted in accordance
therewith. Notwithstanding the preceding, the Corporation and its Related Entities shall not be
13
liable to the Executive or any other person if the Internal Revenue Service or any court or other
authority having jurisdiction over such matter determines for any reason that any amount under this
Agreement is subject to taxes, penalties or interest as a result of failing to comply with Section
409A of the Code.
14.2
Separation from service
. Notwithstanding any other provision of this Agreement,
the Executive will not be entitled to payment upon his termination of employment pursuant to this
Agreement unless the Executive has terminated employment with the Corporation and all of Related
Entities and otherwise had a separation from service as defined below. For purposes of this
Agreement, separation from service means the termination of the Executives employment with the
Corporation and all Related Entities; provided, however, that the Executive will not be considered
as having had a separation from service if (i) the Executive continues to provide services to the
Corporation or any of its Related Entities as an employee at an annual rate that is at least equal
to 20 percent of the services rendered, on average, during the immediately preceding three full
calendar years of employment (or, if employed less than three years, such lesser period) and the
annual remuneration for such services is at least equal to 20 percent of the average annual
remuneration earned during the final three full calendar years of employment (or if less, such
lesser period), (ii) the Executive continues to provide services to the Corporation or any of its
Related Entities in a capacity other than as an employee and such services are provided at an
annual rate that is 50 percent or more of the services rendered, on average, during the immediately
preceding three full calendar years of employment (or, if employed less than three years, such
lesser period) and the annual remuneration for such services is 50 percent or more of the annual
remuneration earned during the final three full calendar years of employment (or, if less, such
lesser period) or (iii) the Executive is on military leave, sick leave or other bona fide leave of
absence (such as temporary employment by the government) so long as the period of such leave does
not exceed six months, or if longer, so long as the Executives right to reemployment with the
Corporation or any Related Entity is provided either by statute or by contract. If the period of
leave exceeds six months and the Executives right to reemployment is not provided either by
statute or by contract, the separation from service will be deemed to occur on the first date
immediately following such six-month period. For purposes of this Section, the annual rate of
providing services shall be determined based upon the measurement used to determine the Executives
base compensation. This definition of
separation from service is intended to comply with the definition of separation from service
as used in Section 409A(a)(2)(A)(i) of the Code and shall be interpreted accordingly.
14.3
Specified employee
. Notwithstanding any other provision of this Agreement, if
the Executive is a specified employee (as defined below), and if the Executives benefits
hereunder are paid upon a Separation from Service then, to the extent necessary to comply with
Section 409A of the Code, no payments may be made hereunder before the date which is six months
after the Executives separation from service or, if earlier, his death. All such amounts, which
would have otherwise been required to be paid during such six months or, if earlier, Executives
death, shall be paid to Executive in one lump sum payment as soon as administratively practical
after the date which is six months after Executives separation from service or, if earlier,
Executives death. Any other payments scheduled to be made after such period shall be made at the
times otherwise designated in this Agreement disregarding the delay for payments required herein.
For purposes of this Agreement, specified employee generally
14
means an employee who is (i) an
officer of the Corporation or any of its Related Entities having annual compensation greater than
$140,000 (with certain adjustments for inflation after 2006), (ii) a five-percent owner of the
Corporation or (iii) a one-percent owner of the Corporation having annual compensation greater than
$150,000. This definition is intended to comply with the specified employee rules of Section
409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly.
IN WITNESS WHEREOF, this Retirement Security Agreement is executed by and in behalf of the
parties hereto as the day and year first above written.
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INSTEEL INDUSTRIES, INC.
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By:
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President
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Attest:
Secretary
[Corporate Seal]
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EXECUTIVE
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By:
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(SEAL)
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Witness
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15
EXHIBIT 99.5
INSTEEL INDUSTRIES, INC.
RETIREMENT SECURITY AGREEMENT
THIS RETIREMENT SECURITY AGREEMENT (the Agreement), made and entered into as of the 14th day
of November, 2006 (the effective date), by and between
INSTEEL INDUSTRIES, INC.
, a corporation
located in Mount Airy, North Carolina (the Corporation), and James F. Petelle (the Executive);
R
E
C
I
T
A
L
S
The Corporation desires to provide supplemental retirement benefits to the Executive separate
from and in addition to any other retirement benefits to which the Executive is or may become
entitled under any plan of the Corporation or any other agreement between the Executive and the
Corporation.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1
Purpose
.
This Agreement is being entered into by the Corporation to provide the Executive with
additional retirement and death benefits for the Executive and his beneficiaries. The Agreement is
not intended to be a qualified retirement plan under Section 401(a) of the Code, but it is intended
to constitute an arrangement that provides nonqualified deferred compensation within the meaning of
Section 409A of the Code. This Agreement is also intended to be a plan for purposes of the
Employee Retirement Income Security Act of 1974, as amended (ERISA), and to be part of an
unfunded plan maintained by the Corporation primarily for the purpose of providing deferred
compensation for a select group of management or highly compensated employees of the Corporation
within the meaning of Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA.
SECTION 2
Supplemental Retirement Benefit
.
2.1
Normal retirement
. If the Executive remains in continuous service with the
Corporation until he completes thirty years of continuous service with the Corporation, but his
continuous service terminates for reasons other than death or by the Corporation for cause (as
defined in Section 2.4), the Corporation shall pay a supplemental retirement benefit to the
Executive. The annual amount of the supplemental retirement benefit shall be fifty percent (50%)
of the Executives final average compensation. The supplemental retirement benefit shall be paid
in equal installments in accordance with the Corporations regular payroll practices for executives
in effect from time to time, commencing as of the first payroll period ending coincident with or
immediately following the Executives normal retirement date, and continuing
for a term certain of fifteen years; except as otherwise provided in Sections 5 or 14. For
purposes of this Agreement, unless otherwise indicated by the context.
(i) Compensation means the annual rate of gross base compensation in effect for the
Executive for service with the Corporation in effect on the last day of the
calendar year;
provided, that for the year in which the Executives termination of employment with the Corporation
occurs because of retirement or otherwise, his compensation shall be the annual base rate in effect
on the date of his termination of employment.
(ii) Continuous service means the Executives uninterrupted service in the employment of the
Corporation in a full-time capacity. The Executives continuous service shall not be deemed to be
terminated or interrupted by a leave of absence or sick leave not exceeding one year granted to the
Executive by the Corporation or any other leave granted to the Executive where Executives right to
re-employment is guaranteed by statute or by contract.
(iii) Final average compensation means the average of the Executives compensation as of the
last day of each of the five consecutive calendar years during the ten calendar years preceding
the Executives normal retirement date that produces the highest average. If the Executive has not
worked during at least five calendar years preceding his normal retirement date, the Executives
final average compensation means the average of his compensation for all of the calendar years he
worked for the Corporation
(iv) Normal retirement date means the later of (i) the Executives sixty-fifth birthday or
(ii) the date the Executive terminates continuous service with the Corporation after completing
thirty years of continuous service.
(v) Year of continuous service means a twelve-month period of continuous service by the
Executive, beginning on the Executives initial date of employment with the Corporation (and each
anniversary thereof), and ending on the day immediately preceding the anniversary of that date.
2.2
Early retirement
. If the Executive remains in continuous service with the
Corporation until he completes at least ten years of continuous service with the Corporation but
his continuous service terminates for reasons other than death or by the Corporation for cause
(as defined in Section 2.4) after he attains age fifty-five but prior to his normal retirement
date, and he has not previously incurred a disability (as defined in Section 2.3), the
Corporation will pay a supplemental early retirement benefit to the Executive. The annual amount
of the supplemental early retirement benefit shall be fifty percent (50%) of the Executives final
average compensation determined as of the date of his termination of service, reduced by
1/360
th
for each full calendar month of continuous service less than 360 that the
Executive has completed as of that date. The Executives supplemental early retirement benefit
shall be paid in equal installments in accordance with the Corporations regular payroll practices
for executives in effect from time to time, commencing as of the first payroll period ending
coincident with or immediately following the later of the date the Executive attains age sixty-five
or the date the Executive terminates continuous service, and continuing for a term certain of
fifteen years; except as otherwise provided in Sections 5 or 14.
2.3
Disability retirement
. If the Executive remains in continuous service with the
Corporation until he completes at least ten years of continuous service with the Corporation but
incurs a disability prior to his normal retirement date, the Corporation shall pay a supplemental
disability benefit to the Executive. The amount of the supplemental disability benefit shall be
as follows: (i) during the period, if any, that the Executive is receiving benefit
2
payments under
a long-term disability insurance plan for executives of the Corporation (the LTD plan), the
amount determined under Section 2.2, treating the date of the Executives disability as his early
retirement date, provided that such amount, when added to the Executives benefit under the LTD
plan, shall not exceed one hundred percent (100%) of the Executives final average compensation
determined as of the date of his termination of service because of disability; and (ii) during any
period that the Executive is not receiving benefit payments under the LTD plan, an amount equal to
the greater of the Executives benefit determined under Section 2.2 as of the date of his
disability or fifty percent (50%) of the Executives final average compensation. The Executives
supplemental disability benefit will be paid in equal installments in accordance with the
Corporations regular payroll practices for executives in effect from time to time, commencing as
of the first payroll period ending coincident with or immediately following the date as of which
the Executives disability is deemed to have occurred, and continuing for a term certain of ten
years. For this purpose, disability shall mean the Executive is (i) unable to engage in any
substantial gainful activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or can be expected to last for a continuous period of not
less than twelve months, or (ii) is, by reason of any medically determinable physical or medical
impairment that can be expected to result in death or that can be expected to last for a continuous
period of not less than twelve months, receiving income replacement benefits for a period of not
less than three months under an accident or health plan covering employees of the Corporation. The
determination of the existence or nonexistence of disability under (i) above shall be made by the
Executive Compensation Committee of the Board of Directors of the Corporation (the Compensation
Committee) pursuant to a medical examination by a medical doctor selected or approved by the
Compensation Committee and a medical doctor selected or approved by the Executive; provided, that
if the two medical doctors shall not agree that the Executive is or is not disabled, the two
doctors shall select a third medical doctor to examine the Executive, and such third doctors
determination of the Executives disability shall be conclusive.
2.4
Termination of continuous service for cause.
Notwithstanding any other
provision of this Agreement, if the Corporation terminates the Executives continuous service for
cause, no benefit shall be paid by the Corporation pursuant to this Agreement. For this purpose,
cause means (i) willful, deliberate and continued failure by the Executive (other than for reason
of mental or physical illness) to perform his duties as established by the Board of Directors of
the Corporation (the Board), or fraud or dishonesty in connection with such duties, in either
case, if such conduct has a materially detrimental effect on the business operations of the
Corporation; (ii) a material breach by the Executive of his fiduciary duties of loyalty or care to
the Corporation; (iii) the conviction of the Executive of any crime (or upon entering a plea of
guilty or nolo contendere to a charge of any crime) constituting a felony; (iv) misappropriation of
the Corporations funds or property by the Executive; or (v) willful, flagrant, deliberate and
repeated infractions of material published policies and regulations of the Corporation of which
the Executive has actual knowledge. Whether the Executives termination is for cause shall
be determined by the Compensation Committee.
3
SECTION 3
Death of Executive
.
3.1
Death while in continuous service
. If the Executive dies while in continuous
service with the Corporation, the Corporation will pay a supplemental death benefit to the
Executives beneficiary. The annual amount of the supplemental death benefit shall be fifty
percent (50%) of the Executives final average compensation, determined as of the date of the
Executives death. The Executives supplemental death benefit provided in this Section 3.1 shall
be paid in equal installments in accordance with the Corporations regular payroll practices for
executives in effect from time to time, commencing as of the first payroll period ending coincident
with or immediately following the date of the Executives death and continuing for a term certain
of ten years.
3.2
Death after termination of continuous service but before benefit payments commence or
death after benefit payments commence
. If the Executive dies either (i) after his termination
of continuous service for which he is entitled to receive supplemental benefits hereunder but
before such supplemental benefit payments commence, or (ii) after the date as of which such
supplemental benefit payments have commenced under this Agreement, payment of the Executives
remaining supplemental benefits shall commence or continue, as the case may be, to the Executives
beneficiary following the Executives death, treating the Executives beneficiary as the Executive
for all purposes under this Agreement.
SECTION 4
Vesting
.
4.1
Vesting and forfeiture of benefits
. The Executive shall become vested in his
supplemental benefits under this Agreement, to the extent accrued as of any date, following the
first to occur of his completion of the required years of continuous service with the Corporation
to be entitled to the benefit, or the date of his termination of continuous service because of
death. The Executive shall not be vested in his supplemental benefits under this Agreement if he
terminates service with the Corporation prior to completing the required years of continuous
service to be entitled to the benefit for any reason other than death. Notwithstanding the
foregoing, the Executive shall forfeit any benefits earned and vested under this Agreement if his
continuous service with the Corporation is terminated by the Corporation for cause (as defined in
Section 2.4).
4.2
Accelerated vesting
. Notwithstanding any other provision of this Agreement, the
Compensation Committee may, with the approval of the Board, direct that all or part of the
Executives supplemental benefits under this Agreement shall be nonforfeitable as of any date prior
to the Executives normal retirement date on such terms and conditions as the Compensation
Committee shall determine.
SECTION 5
Deferral of Payment Date
.
The Compensation Committee and the Executive may agree to establish a new date for payment of
the Executives supplemental benefits under Sections 2.1 and 2.2 that is after the dates otherwise
set forth therein (referred to herein as his subsequent payment date); provided, that such
subsequent payment date satisfies the conditions of this Section 5. For a subsequent payment date
to be effective, (i) the Executive and the Compensation Committee
4
must agree on the subsequent
payment date not less than 12 months prior to the date the first payment for the particular payment
event is scheduled to be made, (ii) the agreement establishing the subsequent payment date must not
take effect for at least 12 months and (iii) the subsequent payment date must extend the first
payment that would have been made (other than on death or disability) for a period of not less than
five years from the date such payment for the particular payment event otherwise would have been
made. If a subsequent payment date is established pursuant to this Section 5, this Agreement shall
be administered in all respects as if such subsequent payment date was the date specified in
Sections 2.1 or 2.2, except that the supplemental retirement benefit described in Sections 2.1 and
2.2, and to which the Executive would otherwise be entitled, shall be adjusted actuarially by the
Compensation Committee to reflect any delay in the commencement of benefits beyond the Executives
attainment of age 65. For purposes of making such adjustment, the Compensation Committee shall
apply actuarial assumptions agreed to by the Executive at the time the subsequent payment date is
set.
SECTION 6
Beneficiary
.
The Executives beneficiary shall be the person or persons designated by the Executive on the
beneficiary designation form provided by and filed with the Compensation Committee or its designee.
If the Executive does not designate a beneficiary, his beneficiary shall be his surviving spouse.
If the Executive does not designate a beneficiary and has no surviving spouse, the beneficiary
shall be the Executives estate. The designation of a beneficiary may be changed or revoked only
by filing a new beneficiary designation form with the Compensation Committee or its designee. If
the Executives beneficiary dies prior to asserting a written claim for any death benefit payable
under the Agreement, such benefit shall be payable to the Executives estate. If a beneficiary
(the primary beneficiary) is receiving or is entitled to receive payments under the Agreement and
dies before receiving all of the payments due him, the balance to which he is entitled shall be
paid to the contingent beneficiary, if any, named in the Executives current beneficiary
designation form. If there is no contingent beneficiary, the balance shall be paid to the estate
of the primary beneficiary. Any beneficiary may disclaim all or any part of any benefit to which
such beneficiary shall be entitled hereunder by filing a written disclaimer with the Compensation
Committee at least ten days before payment of such benefit is to be made. Such a disclaimer shall
be made in form satisfactory to the Compensation Committee and shall be irrevocable when filed.
Any benefit disclaimed shall be payable from the Corporation under this Agreement in the same
manner as if the beneficiary who filed the disclaimer had died on the date of such filing.
SECTION 7
Administration by Compensation Committee
.
7.1 The Compensation Committee shall be responsible for the general administration and
interpretation of this Agreement and for carrying out its provisions, except to the extent all or
any of such obligations are specifically imposed on the Board.
5
7.2 The Compensation Committee shall maintain full and complete records of its deliberations
and decisions with respect to this Agreement. The minutes of its proceedings shall be conclusive
proof of the facts of the operation of the Agreement. The records of the Compensation Committee
with respect to this Agreement shall contain all relevant data pertaining to the Executive and his
rights under the Agreement.
7.3 Subject to the limitations of the Agreement, the Compensation Committee may from time to
time establish rules or by-laws for the administration of the Agreement and the transaction of its
business. The Compensation Committee may correct errors and, so far as practicable, may adjust any
benefit or credit or payment accordingly. The Compensation Committee may in its discretion waive
any notice requirements in the Agreement; provided, that a waiver of notice in one or more cases
shall not be deemed to constitute a waiver of notice in any other case.
7.4 Subject to the provisions of Section 12, the Compensation Committee shall have the duty
and authority to interpret and construe the provisions of this Agreement and to decide any dispute
which may arise regarding the rights of the Executive hereunder. Benefits under this Agreement
will be paid only if the Compensation Committee decides in its discretion that the Executive is
entitled to them.
7.5 The Compensation Committee may engage an attorney, accountant or any other technical
advisor on matters regarding the operation of the Agreement and to perform such other duties as
shall be required in connection therewith, and may employ such clerical and related personnel as
the Compensation Committee shall deem requisite or desirable in carrying out the provisions of the
Agreement. The Compensation Committee shall from time to time, but no less frequently than
annually, review the financial and liquidity needs of the Corporation under the Agreement. The
Compensation Committee shall communicate such needs to the Corporation so that its policies may be
appropriately coordinated to meet such needs.
7.6 The Compensation Committee shall be entitled to reimbursement by the Corporation for its
reasonable expenses properly and actually incurred in the performance of its duties in the
administration of the Agreement.
7.7 No member of the Compensation Committee shall be personally liable by reason of any
contract or other instrument executed by him or on his behalf as a member of the Compensation
Committee nor for any mistake of judgment made in good faith, and the Corporation shall indemnify
and hold harmless, directly from its own assets (including the proceeds of any insurance policy the
premiums for which are paid from the Corporations own assets), each member of the Compensation
Committee and each other officer, employee, or director of the Corporation to whom any duty or
power relating to the administration or interpretation of the Agreement may be delegated or
allocated, against any unreimbursed or uninsured cost or expense (including any sum paid in
settlement of a claim with the prior written
approval of the Board) arising out of any act or omission to act in connection with the
Agreement unless arising out of such persons own fraud, bad faith, willful misconduct or gross
negligence.
6
SECTION 8
Funding
.
The obligation of the Corporation to make payments hereunder shall constitute a liability of
the Corporation to the Executive. Notwithstanding the foregoing, the Corporation may establish a
grantor trust (the Trust) to which the Corporation shall contribute according to its terms to pay
the benefits provided for in the Agreement; provided, that to the extent that there shall not be
sufficient funds in the Trust to make one or more payments provided for under this Agreement, such
payments shall be made from the general funds of the Corporation. Except as otherwise provided
herein, the Corporation shall not be required to establish or maintain any special or separate
fund, or otherwise to segregate assets to assure that such payments shall be made, and the
Executive shall not have any interest in any particular assets of the Corporation by reason of its
obligations hereunder. When the Trust is established, a copy of the document shall be attached
hereto and its terms shall be incorporated herein by reference. Nothing contained in this
Agreement or the Trust shall create or be construed as creating a trust of any kind or any other
fiduciary relationship between or among the Corporation, the Executive, the trustee under the
Trust, or any other person. To the extent that any person acquires a right to receive payment from
the Corporation or the Trust, such right shall be no greater than the right of an unsecured
creditor of the Corporation. In no event shall the Trust or the assets of the Trust be located
outside of the United States and at no time shall the Trust be funded if such funding would cause
the Executive to be subject to taxation or penalties pursuant to Section 409A of the Code.
SECTION 9
Allocation of Responsibilities
.
The persons responsible for the Agreement and the duties and responsibilities allocated
to each are as follows:
9.1
Board
. To amend or terminate this Agreement in accordance with Section 11.2;
9.2
Committee
.
(i) To interpret the provisions of the Agreement and to determine the rights of the Executive
under the Agreement, except to the extent otherwise provided in Section 12 relating to claims
procedure;
(ii) To administer the Agreement in accordance with its terms, except to the extent powers to
administer the Agreement are specifically delegated to another person or persons as provided in the
Agreement;
(iii) To account for the supplemental benefits of the Executive; and
(iv) To file such reports as may be required with the United States Department of Labor, the
Internal Revenue Service and any other government agencies to which reports may be required to be
submitted from time to time.
SECTION 10
Benefits Not Assignable; Facility of Payments
.
10.1 No portion of any benefit credited or paid under this Agreement with respect to the
Executive shall be subject in any manner to anticipation, alienation, sale, transfer,
7
assignment,
pledge, encumbrance or charge, and any attempt so to anticipate, alienate, sell, transfer, assign,
pledge, encumber or charge the same shall be void, nor shall any portion of such benefit be in any
manner payable to any assignee, receiver or any one trustee, or be liable for his debts, contracts,
liabilities, engagements or torts, or be subject to any legal process to levy upon or attach.
10.2 If any individual entitled to receive a payment under the Agreement shall be physically,
mentally or legally incapable of receiving or acknowledging receipt of such payment, the
Compensation Committee, upon the receipt of satisfactory evidence of his incapacity and
satisfactory evidence that another person or institution is maintaining him and that no guardian or
committee has been appointed for him, may cause any payment otherwise payable to him to be made to
such person or institution so maintaining him. Payment to such person or institution shall be in
full satisfaction of all claims by or through the Executive to the extent of the amount thereof.
SECTION 11
Amendment and Termination of Agreement
.
This Agreement shall not be amended or terminated other than by a writing signed by the
Corporation and the Executive. The Agreement may be terminated (i) within 12 months of a corporate
dissolution of the Corporation taxed under Section 331 of the Code, or with the approval of a
bankruptcy court pursuant to 11 U.S.C. 503(b)(1)(A), provided that the amounts deferred under the
Agreement are paid to the Executive at the later of the calendar year in which the termination of
the Agreement occurs, the first calendar year in which the payment is administratively practicable
or the calendar year in which the amount is no longer subject to a substantial risk of forfeiture,
(ii) within the 30 days preceding or the 12 months following a change in control (as defined in
Section 409A of the Code), provided that all substantially similar arrangements sponsored by the
Corporation and its Related Entities are terminated, so that the Executive and all participants
under substantially similar arrangements are paid within 12 months of the date of termination of
the arrangements and (iii) at any time so long as: (a) the Corporation terminates all other
arrangements of the Corporation and its Related Entities that are treated as account balance plans
as defined in Treasury Regulation Section 31.3121(v)(2)-1(c)(1)(ii)(A) (other than certain
separation pay arrangements), (b) no payments other than payments that would be payable under the
terms of the arrangements if the termination had not occurred are made within 12 months of the
termination of the arrangements, (c) all payments are made within 24 months of the termination of
the arrangements, (d) neither the Corporation nor its Related Entities adopt a new arrangement that
would be treated as an account balance plan as defined in Treasury Regulation Section
31.3121(v)(2)-1(c)(1)(ii)(A) (other than certain separation pay arrangements) at any time within
five years following the date of termination of the Agreement and (e) the Corporation and its
Related Entities satisfy such other events and conditions as the Commissioner of the Internal
Revenue Service may prescribe. Any payment pursuant to this Section 11 shall be adjusted to
account for the acceleration of payment using reasonable actuarial assumptions established by the
Company. This Section is intended to satisfy the plan termination
rules of Treasury Regulation Section 1.409A-3(h)(2)(viii) and shall be interpreted
accordingly. For purposes of this Agreement Related Entity means any entity that is part of a
controlled group of corporations or is under common control with the
Corporation within the meaning of Sections 1563(a), 414(b) or 414(c)
of the code.
8
SECTION 12
Claims Procedure
.
The following claims procedure shall apply with respect to this Agreement:
12.1
Filing of a claim for benefits
. If the Executive or his beneficiary (the
claimant) believes that he is entitled to benefits under the Agreement which are not being paid
to him or which are not being accrued for his benefit, he shall file a written claim therefor with
the Compensation Committee within ninety (90) days of the date such benefits otherwise would have
commenced (assuming the claimant is entitled to the benefits) or the claim will be forever barred.
12.2
Notification to claimant of decision
.
(a)
General
. Within 90 days after receipt of a claim, other than a claim for benefits
upon a disability, by the Compensation Committee (or within 180 days if special circumstances
require an extension of time), the Compensation Committee shall notify the claimant in writing of
its decision with regard to the claim. In the event of such special circumstances requiring an
extension of time, there shall be furnished to the claimant prior to expiration of the initial
90-day period written notice of the extension, which notice shall set forth the special
circumstances and the date by which the decision shall be furnished.
(b)
Disability
. Except as provided below, within 45 days after receipt of a
disability claim by the Compensation Committee, the Compensation Committee shall notify the
claimant in writing of its decision with regard to the claim (regardless of whether all the
information necessary to make a benefit determination accompanies the claim) unless a 30-day
extension is necessary due to matters beyond the control of the Compensation Committee. If such an
extension is necessary, the Compensation Committee shall notify the claimant prior to the
expiration of the initial 45-day period. If the Compensation Committee determines that a decision
cannot be made within the first extension period due to matters beyond the control of the
Compensation Committee, the time period for making a determination may be further extended for an
additional 30 days. If such an additional extension is necessary, the Compensation Committee shall
notify the claimant prior to the expiration of the first 30-day extension period. Any notice of
an extension period shall indicate (i) the circumstances necessitating the extension of time, (ii)
the date by which the Compensation Committee expects to furnish a notice of decision, (iii) the
specific standards on which such entitlement to a benefit is based, (iv) the unresolved issues that
prevent a decision on the claim and (v) any additional information needed to resolve those issues.
A claimant will be provided a minimum of 45 days to submit any necessary additional information to
the Compensation Committee. In the event that a 30-day extension is necessary due to a claimants
failure to submit information necessary to decide a claim under this subsection, the period for
furnishing a notice of decision shall be tolled from the
date on which the notice of the extension is sent to the claimant until the date the claimant
responds to the request for additional information.
(c)
Denial
. If such claim shall be wholly or partially denied, notice thereof shall
be in writing and worded in a manner calculated to be understood by the claimant, and shall set
forth: (i) the specific reason or reasons for the denial; (ii) specific reference to pertinent
provisions of the Agreement on which the denial is based; (iii) a description of any
9
additional
material or information necessary for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and (iv) an explanation of the procedure for review of
the denial and the time limits applicable to such procedures, including the claimants right to
bring a civil action, to the extent permissible, following an adverse benefit determination on
review. In addition to the information specified above, an adverse benefit determination
concerning a disability claim shall also set forth, in a manner calculated to be understood by the
claimant, (i) an explanation of any internal rule or guideline relied on to make the adverse
determination, or (ii) a statement that a specific rule or guideline was relied upon and that a
copy of the rule will be provided to the claimant free of charge upon request.
(d)
Request for review
. If a claim for benefits is denied in whole or in part, the
claimant or his duly authorized representative may request in writing a full and fair review of the
adverse benefit determination. The Compensation Committee may appoint a committee to review
benefit claims, which must consider any denied claim that is submitted for review. If no committee
is appointed, the Compensation Committee will process any valid request for review. The claims
procedure must provide the claimant with (i) at least 60 days (180 days in the case of a Disability
claim) following receipt of an adverse determination on which to appeal the determination, (ii) the
opportunity to submit written comments, documents and records relating to the claim, (iii)
reasonable access to and copies of documents and records relevant to the claim for benefits, upon
request and free of charge, and (iv) a review taking into account all comments, documents, records
and information submitted by the claimant relating to the claim, without regard to whether the
information was submitted or considered in the initial benefit determination.
(e)
Review of denied claims
. The Compensation Committee must make a decision
concerning the determination upon review of a denied claim within 60 days (45 days in the case of a
disability claim) of receipt of a request for review. Under special circumstances, the review
period may be extended for an additional 60 days (45 days in the case of a disability claim). If
an extension is required, the Compensation Committee will provide the claimant with written
notification of the special circumstances involved and the date by which the Compensation Committee
expects to render a final decision.
(1)
Hearing
. The Compensation Committee or the committee appointed to review claims must
determine whether there will be a hearing. A hearing must be scheduled to give sufficient time for
this review and submission, giving notice of the schedule and deadlines for submission.
(2)
Review by Compensation Committee or committee
. If the Compensation Committee (or a
committee if a one has been appointed) has regularly scheduled
meetings at least quarterly, the rules in this subsection govern the time for the decision on
review and supersede the rules described above. If the claimants written request for review is
received more than 30 days before a meeting, a decision on review must be made at the next meeting
after the request for review has been received. If the claimants written request for review is
received 30 days or less before a meeting of the Compensation Committee (or committee), the
decision on review must be made at the Compensation Committees (or committees) second meeting
after
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the request for review has been received. If an extension of time is required, written
notice of the extension must be furnished to the claimant before the extension begins.
(3)
Disability claims
. The review shall be conducted by the Compensation Committee (exclusive
of the person who made the initial adverse decision or such persons subordinate). In reviewing
the appeal, the Compensation Committee shall (i) not afford deference to the initial denial of the
claim, (ii) consult a medical professional who has appropriate training and experience in the field
of medicine relating to the claimants disability and who was neither consulted as part of the
initial denial nor is the subordinate of such individual and (iii) identify the medical or
vocational experts whose advice was obtained with respect to the initial benefit denial, without
regard to whether the advice was relied upon in making the decision. If a claim is denied due to a
medical judgment, the reviewer will consult with a health care professional who has appropriate
training and experience in the field of medicine involved in the medical judgment. The health care
professional consulted will not be the same person consulted in connection with the initial benefit
decision (nor be the subordinate of that person). The decision on review also will identify any
medical or vocational experts who advised the Compensation Committee in connection with the
original benefit decision, even if the advice was not relied upon in making the decision.
(f)
Notification on review
. If a request for review is wholly or partially denied,
the Compensation Committee must give written or electronic notice to the claimant within the time
provided in subsection (e). The notice must contain the information detailed in subsection (c).
If the notification concerns the denial of a disability claim, the notice must also contain; (i) a
statement describing any voluntary appeal procedures offered by the Agreement and the claimants
right to obtain information about such procedures, and (ii) a statement that the claimant may have
other voluntary alternative dispute resolution options, such as mediation.
(g)
Determinations are binding
. All good-faith determinations by the Compensation
Committee are conclusive and binding on all persons, and there is no right of appeal except as
provided above. Any electronic notification shall comply with the standards imposed by Department
of Labor Regulation 2520.104b-1(c).
12.3
Arbitration
. If a dispute remains following the decision of the Compensation
Committee under Section 12.2, the issue or issues in dispute shall be settled and finally
determined by arbitration in Winston-Salem, North Carolina, under the then existing rules of the
American Arbitration Association; and judgment may be entered upon the award of the arbitrator by
any Court of competent jurisdiction. The standard of review for such arbitration shall be
de
novo
; therefore, discretion granted to the Compensation Committee by any other
provision of this Agreement shall be disregarded, and there shall be no presumption in favor of
any decision made by the Compensation Committee. If the Executive disagrees with the final
decision of the Compensation Committee under Section 12.2, Executive must file the request for
arbitration within ninety (90) days of the Compensation Committees final decision pursuant to
Section 12.2 or the Compensation Committees decision shall be final and any further claim forever
barred. Any expenses of such arbitration shall be allocated among the parties to this Agreement by
the arbitrator.
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12.4
Action by authorized representative of claimant
. All actions set forth in this
Section 12 to be taken by the claimant may likewise be taken by a representative of the claimant
duly authorized by him to act in his behalf on such matters. The Compensation Committee may
require such evidence as either may reasonably deem necessary or advisable of the authority to act
of any such representative.
SECTION 13
Miscellaneous Provisions
.
13.1
Notices
. The Executive and each beneficiary shall be responsible for furnishing
the Compensation Committee or its designee with their current address for the mailing of notices
and benefit payments. Any notice required or permitted to be given to the Executive or a
beneficiary shall be deemed given if directed to such address and mailed by regular United States
mail, first class, postage prepaid. If any check mailed to such address is returned as
undeliverable to the addressee, mailing of checks will be suspended until the Executive or
beneficiary furnishes the proper address. This provision shall not be construed as requiring the
mailing of any notice or notification otherwise permitted to be given by posting or by other
publication.
13.2
Lost distributees
. A benefit shall be deemed forfeited if the Compensation
Committee is unable after a reasonable period of time to locate the Executive or his beneficiary to
whom payment is due; provided, however, that such benefit shall be reinstated if a valid claim is
made by or on behalf of the Executive or his beneficiary for the forfeited benefit no later than
ninety (90) days after the date such benefits otherwise would have commenced (assuming the claimant
is entitled to the benefits) or the claim will be forever barred.
13.3
Reliance on data
. The Corporation and the Compensation Committee shall have the
right to rely on any data provided by the Executive or by any beneficiary. Representations of such
data shall be binding upon any party seeking to claim a benefit through a Executive, and the
Corporation and the Compensation Committee shall have no obligation to inquire into the accuracy of
any representation made at any time by the Executive or his beneficiary.
13.4
Receipt and release for payments
. Any payment made from the Corporation to or
with respect to the Executive or his beneficiary, or pursuant to a disclaimer by a beneficiary,
shall, to the extent thereof, be in full satisfaction of all claims hereunder against the
Corporation with respect to the Agreement. The recipient of any payment may be required by the
Compensation Committee, as a condition precedent to such payment, to execute a receipt and release
with respect thereto in such form as shall be acceptable to the Compensation Committee.
13.5
Withholding
. The Corporation shall withhold from any payments or benefits under
this Agreement, or shall otherwise obtain payment from Executive for, all federal, state, or local
taxes or other amounts as shall be required pursuant to any law or governmental regulation or
ruling.
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13.6
Headings
. The headings and subheadings of the Agreement have been inserted for
convenience of reference and are to be ignored in any construction of the provisions hereof.
13.7
Continuation of employment
. The establishment of the Agreement shall not be
construed as conferring any legal or other rights upon the Executive or any persons for
continuation of employment or any right to receive or continue to receive any rate of pay or other
compensation, nor shall it interfere with the right of the Corporation to discharge the Executive
or to deal with him without regard to the effect thereof under the Agreement.
13.8
Binding on successors
. The obligations of the parties hereto shall inure to the
benefit of and shall be binding upon their successors and assigns, including any successor to the
Corporation by merger, consolidation or otherwise that may agree to continue this Agreement.
13.9
Construction
. The provisions of the Agreement shall be construed and enforced
according to the laws of the State of North Carolina.
13.10
Predecessor Agreement
. This Agreement amends, supersedes and restates the
Predecessor Agreement as of the effective date first written above. By his signature below, the
Executive acknowledges the effect of this Agreement, and that the ability to continue to
participate in this Agreement on its terms is legal consideration to support the restatement of the
terms of the Predecessor Agreement with the terms of this Agreement.
13.11
Compliance
. No benefits shall be paid hereunder except in compliance with all
applicable laws and regulations (including, without limitation, withholding tax requirements), any
listing agreement with any stock exchange to which the Corporation is a party, and the rules of all
domestic stock exchanges on which the Corporations shares of capital stock may be listed. The
Corporation shall have the right to rely on an opinion of its counsel as to such compliance. No
benefits shall be paid hereunder unless the Corporation has obtained such consent or approval as
the Corporation may deem advisable from regulatory bodies having jurisdiction over such matters.
13.12
Confidentiality
. The terms and conditions of this Agreement and the Executives
participation hereunder shall remain strictly confidential. The Executive may not discuss or
disclose any terms of this Agreement or its benefits with anyone except for Executives attorneys,
accountants and immediate family members who shall be instructed to maintain the confidentiality
agreed to under this Agreement, except as may be required by law.
SECTION 14
Application of Section 409A
.
14.1
Compliance
. This Agreement is intended to comply with the applicable
requirements of Section 409A of the Code and shall be construed and interpreted in accordance
therewith. Notwithstanding the preceding, the Corporation and its Related Entities shall not be
liable to the Executive or any other person if the Internal Revenue Service or any court or other
authority having jurisdiction over such matter determines for any reason that any amount under
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this
Agreement is subject to taxes, penalties or interest as a result of failing to comply with Section
409A of the Code.
14.2
Separation from service
. Notwithstanding any other provision of this Agreement,
the Executive will not be entitled to payment upon his termination of employment pursuant to this
Agreement unless the Executive has terminated employment with the Corporation and all of Related
Entities and otherwise had a separation from service as defined below. For purposes of this
Agreement, separation from service means the termination of the Executives employment with the
Corporation and all Related Entities; provided, however, that the Executive will not be considered
as having had a separation from service if (i) the Executive continues to provide services to the
Corporation or any of its Related Entities as an employee at an annual rate that is at least equal
to 20 percent of the services rendered, on average, during the immediately preceding three full
calendar years of employment (or, if employed less than three years, such lesser period) and the
annual remuneration for such services is at least equal to 20 percent of the average annual
remuneration earned during the final three full calendar years of employment (or if less, such
lesser period), (ii) the Executive continues to provide services to the Corporation or any of its
Related Entities in a capacity other than as an employee and such services are provided at an
annual rate that is 50 percent or more of the services rendered, on average, during the immediately
preceding three full calendar years of employment (or, if employed less than three years, such
lesser period) and the annual remuneration for such services is 50 percent or more of the annual
remuneration earned during the final three full calendar years of employment (or, if less, such
lesser period) or (iii) the Executive is on military leave, sick leave or other bona fide leave of
absence (such as temporary employment by the government) so long as the period of such leave does
not exceed six months, or if longer, so long as the Executives right to reemployment with the
Corporation or any Related Entity is provided either by statute or by contract. If the period of
leave exceeds six months and the Executives right to reemployment is not provided either by
statute or by contract, the separation from service will be deemed to occur on the first date
immediately following such six-month period. For purposes of this Section, the annual rate of
providing services shall be determined based upon the measurement used to determine the Executives
base compensation. This definition of separation from service is intended to comply with the
definition of separation from service as used in Section 409A(a)(2)(A)(i) of the Code and shall
be interpreted accordingly.
14.3
Specified employee
. Notwithstanding any other provision of this Agreement, if
the Executive is a specified employee (as defined below), and if the Executives benefits
hereunder are paid upon a Separation from Service then, to the extent necessary to comply with
Section 409A of the Code, no payments may be made hereunder before the date which is six months
after the Executives separation from service or, if earlier, his death. All such amounts, which
would have otherwise been required to be paid during such six months or, if earlier, Executives
death, shall be paid to Executive in one lump sum payment as soon as administratively practical
after the date which is six months after Executives separation from
service or, if earlier, Executives death. Any other payments scheduled to be made after such
period shall be made at the times otherwise designated in this Agreement disregarding the delay for
payments required herein. For purposes of this Agreement, specified employee generally means an
employee who is (i) an officer of the Corporation or any of its Related Entities having annual
compensation greater than $140,000 (with certain adjustments for inflation after 2006),
14
(ii) a
five-percent owner of the Corporation or (iii) a one-percent owner of the Corporation having annual
compensation greater than $150,000. This definition is intended to comply with the specified
employee rules of Section 409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly.
IN WITNESS WHEREOF, this Retirement Security Agreement is executed by and in behalf of the
parties hereto as the day and year first above written.
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INSTEEL INDUSTRIES, INC.
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By:
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/s/ H.O. Woltz III
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President
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Attest:
Secretary
[Corporate Seal]
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EXECUTIVE
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By:
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/s/ James F. Petelle
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(SEAL)
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Witness
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James F. Petelle
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15
EXHIBIT 99.6
AMENDED AND RESTATED SEVERANCE AGREEMENT
THIS AMENDED AND RESTATED SEVERANCE AGREEMENT (the Agreement) is made and entered into this
the
14TH
day of
November
, 2006, between INSTEEL INDUSTRIES, INC., a North Carolina corporation (the
Company), and
(the Executive). This Agreement amends, restates and supersedes
the Severance Agreement between the Executive and the Company dated December 2, 2004. Certain
capitalized terms used in this Agreement are defined in Section 6.
R
E
C
I
T
A
L
S
The Company acknowledges that Executive has made and is expected to make significant
contributions to the growth and success of the Company. The Company also acknowledges that
Executive is employed on an at-will basis and that the possibility of a termination without Cause
may contribute to uncertainty on the part of Executive and may result in the departure or
distraction of Executive from his operating responsibilities.
Outstanding management of the Company is always essential to advancing the best interests of
the Company and its partners and its shareholders. The Company believes that the objective of
securing and retaining outstanding management will be achieved if the Companys key management
employees are given assurances against the risk of a termination without Cause so that they will
not be distracted by personal uncertainties and risks created by such circumstances. The purpose
of this amended and restated Agreement is to amend and restate the severance agreement between the
Executive and the Company dated December 2, 2004 to take into account Section 409A of the Internal
Revenue Code of 1986, as amended (the Code).
NOW, THEREFORE, in consideration of the mutual covenants and obligations herein, the Company
and Executive agree as follows:
1.
Effective Date.
The Effective Date of this Agreement is the date set forth above.
2.
Term of Agreement.
The Term of this Agreement begins on the Effective Date and ends on the day
before December 2, 2007. Notwithstanding the preceding sentence, the Term of this Agreement shall
be extended for an additional twelve month period, as of each anniversary of December 2, 2007,
unless either party gives written notice, at least ninety days prior to the applicable anniversary,
that the Term of this Agreement will not be extended.
3.
Right to Receive Termination Benefits.
Executive shall be entitled to receive the Termination
Benefits described in Section 4 if, during the Term of this Agreement, Executives employment with
the Company (and all Related Entities of the Company) is terminated without Cause by the Company
(or any Related Entity of the Company). No amounts will be payable
under this Agreement unless Executives employment with the Company (and its Related Entities)
terminates or is terminated for any reason other than as described in the preceding sentence and
such termination of employment constitutes a Separation from Service as defined below.
4.
Termination Benefits.
Upon a termination of Executives employment in accordance with Section
3, Executive shall be entitled to receive the following Termination Benefits:
(a) A lump sum payment of any accrued but unpaid salary from the Company through the date
Executives employment terminates;
(b) A lump sum payment of any bonus that has been earned from the Company but which remains
unpaid as of Executives termination of employment;
(c) A lump sum payment of one and one-half times Executives annual base salary at the rate in
effect on the date of Executives termination of employment;
(d) Reasonable outplacement services provided by the firm selected by Executive, the cost of
which will be paid by the Company; provided, however, that the Companys obligation under this
subsection (d) will not exceed $15,000;
(e) A lump sum reimbursement for any expenses Executive incurred on behalf of the Company
prior to termination of employment to the extent that such expenses are reimbursable under the
Companys standard reimbursement policies but have not been reimbursed as of Executives
termination of employment;
(f) Continued participation in the employee welfare benefit plans (as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended) in which Executive
participates immediately prior to Executives date of termination on such terms as are then in
effect for eighteen months following the termination of Executives employment with the Company and
payment by the Company of the entire cost or premium for continued coverage pursuant to Section
4980B of the Code in the Company health plan for a period of eighteen months following Executives
termination (or such lesser period that Executive is entitled to such continued coverage). In the
event that the continued coverage of Executive in any such employee welfare benefit plan or the
Company health plan is barred by its terms, the Company shall pay Executive, for the eighteen
months following Executives termination (or the remainder of the eighteen month period in which
continued coverage is barred) or for such lesser period during which Executive might have been
entitled to such continued coverage, the cash equivalent of the portion of the insurance premium
charged to the Company for Executives participation in such employee welfare benefit plan(s)
and/or the entire premium for continued coverage in the Companys health plan prior to Executives
termination plus an additional amount such that after payment of the income and employment tax
liability on such payment, Executive retains an amount equal to the portion of the insurance
premium charged to the Company for Executives participation in such employee welfare benefit
plan(s) and the entire premium for continued coverage in the Companys health plan prior to
Executives termination of employment.
(g) All stock options and any other stock-based awards outstanding immediately prior to
Executives termination of employment shall immediately vest and become exercisable by
Executive for the remainder of the term provided for in the agreement evidencing the stock
option or award in which such options or other stock-based awards were granted.
Except as provided in Section 20, Termination Benefits payable in a lump sum shall be payable
within ten days of Executives termination of employment in accordance with Section 3 and the other
Termination Benefits shall be paid as described above. The payment of the Termination
2
Benefits
shall be reduced by amounts required to be withheld for applicable income and employment taxes.
5.
Limitation on Parachute Payments.
The Termination Benefits and other payments, distributions
and benefits provided by the Company for Executives benefit pursuant to this Agreement and under
other plans, programs, and agreements may constitute Parachute Payments (as defined in Section
280G(b) of the Code that are subject to the golden parachute rules of Code Section 280G and the
excise tax of Code Section 4999. The Company and Executive intend to reduce any Parachute Payments
(but not any payment, distribution or other benefit that is not a Parachute Payment) if, and only
to the extent that, a reduction will allow Executive to receive a greater Net After Tax Amount than
he would receive absent a reduction. The remaining provisions of this subsection describe how that
intent will be effectuated.
(a) The Company will first determine the amount of any Parachute Payments that are payable to
Executive. The Company will also determine the Net After Tax Amount attributable to total
Parachute Payments.
(b) The Company will next determine the amount of Executives Capped Parachute Payments.
Thereafter, the Company will determine the Net After Tax Amount attributable to Executives Capped
Parachute Payments.
(c) Executive shall receive the total Parachute Payments unless the Company determines that
the Capped Parachute Payments will yield Executive a higher Net After Tax Amount, in which case
Executive will receive the Capped Parachute Payments. If Executive will receive the Capped
Parachute Payments, the total Parachute Payments will be adjusted by first reducing the amount
payable under any other plan, program, or agreement that, by its terms, requires a reduction to
prevent a golden parachute payment under Code Section 280G; by next reducing Executives benefit,
if any, under this Agreement, to the extent it is a Parachute Payment; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the reductions first coming from
cash benefits and then from noncash benefits). The Company will notify Executive if it determines
that the Parachute Payments must be reduced to the Capped Parachute Payments and will send
Executive a copy of its detailed calculations supporting that determination. The Company will pay
Executive the Termination Benefits or the reduced Termination Benefits determined in this Section 5
as described in Sections 4 and 20.
6.
Certain Definitions.
As used in this Agreement, certain terms have the definitions set forth
below.
(a)
Capped Parachute Payments
means the largest amount of Parachute Payments that may
be paid without liability for any excise tax under Code Section 4999.
(b)
Cause
means (i) willful, deliberate and continued failure by Executive (other than
for reason of mental or physical illness) to perform his duties as established by the Board, or
fraud or dishonesty in connection with such duties, in either case, if such conduct has a
materially detrimental effect on the business operations of the Company; (ii) a material breach by
Executive of his fiduciary duties of loyalty or care to the Company; (iii) conviction of any crime
(or upon entering a plea of guilty or nolo contendere to a charge of any crime) constituting a
3
felony; (iv) misappropriation of the Companys funds or property; or (v) willful, flagrant,
deliberate and repeated infractions of material published policies and regulations of the Company
of which Executive has actual knowledge.
(c)
Net After Tax Amount
means the amount of any Parachute Payments or Capped
Parachute Payments, as applicable, net of taxes imposed under Code Sections 1, 3101(b) and 4999 and
any state or local income taxes applicable as in effect on the date of the payment under this
Agreement. The determination of the Net After Tax Amount shall be made using the highest combined
effective rate imposed by the foregoing taxes on income of the same character as the Parachute
Payments or Capped Parachute Payments, as applicable, in effect for the year for which the
determination is made.
(d)
Related Entity
means any entity that is part of a controlled group of corporations
or is under common control with the Company within the meaning of Sections 1563(a), 414(b) or
414(c) of the Code.
(e)
Separation from Service
means the termination of the Executives employment with
the Company and all Related Entities; provided, however, that the Executive will not be considered
as having had a Separation from Service if (i) the Executive continues to provide services to the
Company or any Related Entity as an employee at an annual rate that is at least equal to 20 percent
of the services rendered, on average, during the immediately preceding three full calendar years of
employment (or, if employed less than three years, such lesser period) and the annual remuneration
for such services is at least equal to 20 percent of the average annual remuneration earned during
the final three full calendar years of employment (or if less, such lesser period), (ii) the
Executive continues to provide services to the Company or any Related Entity in a capacity other
than as an employee and such services are provided at an annual rate that is 50 percent or more of
the services rendered, on average, during the immediately preceding three full calendar years of
employment (or, if employed less than three years, such lesser period) and the annual remuneration
for such services is 50 percent or more of the annual remuneration earned during the final three
full calendar years of employment (or, if less, such lesser period) or (iii) the Executive is on
military leave, sick leave or other bona fide leave of absence (such as temporary employment by the
government) so long as the period of such leave does not exceed six months, or if longer, so long
as the Executives right to reemployment with the Company or any Related Entity is provided either
by statute or by contract. If the period of leave exceeds six months and the Executives right to
reemployment is not provided either by statute or by contract, the Separation from Service will be
deemed to occur on the first date immediately following such six-month period. For purposes of
this Section 6(e), the annual rate of providing services shall be determined based upon the
measurement used to determine the Executives base compensation. This definition of Separation
from Service is intended to comply with the definition of separation from service as used in
Section 409A(a)(2)(A)(i) of the Code and shall be interpreted accordingly.
(f)
Specified Employee
generally means an employee who is (i) an officer of the
Company or a Related Entity having annual compensation greater than $140,000 (with certain
adjustments for inflation after 2006), (ii) a five-percent owner of the Company or a Related Entity
or (iii) a one-percent owner of the Company or a Related Entity having annual compensation greater
than $150,000. This definition is intended to comply with the specified employee rules of
Section 409A(a)(2)(B)(i) of the Code and shall be interpreted accordingly.
4
7.
No Duplication of Benefits.
No benefits shall be payable under this Agreement if Executive
becomes entitled to receive benefits under the Change in Control Severance Agreement between
Executive and the Company dated May 20, 2003 or any successor agreement. Additionally, the Company
and the Executive may be parties to other agreements, policies, plans, programs or arrangements
relating to the Executives employment. In such an event, this Agreement shall be construed and
interpreted so that severance pay and benefits are provided under this Agreement only to the extent
that similar amounts of severance and benefits are not paid or provided to the Executive under any
other agreements, policies, plans, programs or arrangements; it being the intent of this Agreement
not to provide to the Executive any duplicative payments of severance pay or other benefits. The
Company, in its sole discretion, shall determine whether payments or other benefits to the
Executive under any other such agreements, policies, plans, programs or arrangements shall
constitute duplicative payments of severance pay or benefits hereunder. In the event the Company
determines that payments or other benefits to the Executive under any other such agreements,
policies, plans, programs or arrangements constitute duplicative payments, the severance pay or
benefits otherwise payable under this Agreement shall be reduced to the extent of such duplicative
payments.
8.
Attorneys Fees.
Executive shall be entitled to reimbursement by the Company for any attorneys
fees and any other reasonable expenses that Executive incurs in enforcing or protecting his rights
under this Agreement. Subject to Section 20, such reimbursement shall be made within thirty days
following final resolution of the dispute or occurrence giving rise to such fees and expenses,
regardless of whether Executive is deemed the prevailing party in the resolution of the dispute or
occurrence.
9.
No Assignment.
Except as required by applicable law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment
by operation of law and any attempt to effect any such action shall be null, void and of no
effect.
10.
Governing Law.
This Agreement shall be governed by the laws of the State of North Carolina
other than its choice of law provisions to the extent that they would require the application of
the laws of a State other than the State of North Carolina.
11.
Successors.
The Company shall require any successor to all or substantially all of the
Companys respective business or assets (whether direct or indirect, by purchase, merger,
consolidation or otherwise), to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle
Executive to resign from the employ of the Company and to receive the Termination
Benefits and other benefits under this Agreement in the same amount and on the same terms as
Executive would be entitled to hereunder if his employment was terminated in accordance with
Section 3. References in this Agreement to the Company include the Company as herein before
defined and any successor to the Companys business, assets or both which assumes and agrees to
perform this Agreement by operation of law or otherwise.
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12.
Binding Agreement.
This Agreement shall inure to the benefit of and be enforceable by
Executive and his personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive dies while any amount remains payable to him
hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to
Executives devisee, legatee or other designee or, if there is none, to Executives estate.
13.
No Employment Rights.
Nothing in this Agreement confers on Executive any right to continuance
of employment by the Company or any Related Entity or any right to receive or continue to receive
any rate of pay or other compensation. Nothing in this Agreement interferes with the right of the
Company or a Related Entity to terminate Executives employment at any time for any reason
whatsoever, with or without Cause, subject to the requirements of this Agreement. Nothing in this
Agreement restricts the right of Executive to terminate his employment with the Company and Related
Entities at any time for any reason whatsoever, with or without good reason.
14.
Counterparts.
This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original but all of which together constitute one and the same instrument.
15.
Entire Agreement.
This Agreement expresses the whole and entire agreement between the parties
with reference to the payment of the Termination Benefits and supersedes and replaces any prior
agreement, understanding or arrangement (whether oral or written) by or between the Company and
Executive with respect to the payment of the Termination Benefits.
16.
Notices.
All notices, requests and other communications to any party under this Agreement
shall be in writing and shall be given to such party at its address set forth below or such other
address as such party may hereafter specify for the purpose by notice to the other party:
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If to Executive:
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If to the Company:
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Insteel Industries, Inc.
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1373 Boggs Drive
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Mt. Airy, North Carolina 27030
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Each notice, request or other communication shall be effective if (i) given by mail, seventy-two
hours after such communication is deposited in the mails with first class postage prepaid, address
as aforesaid or (ii) if given by any other means, when delivered at the address specified in this
Section 16.
17.
Modification of Agreement.
No waiver or modification of this Agreement shall be valid unless
in writing and duly executed by the party to be charged therewith. No evidence of any
waiver or modification shall be offered or received in evidence at any proceeding, arbitration or
litigation between the parties unless such waiver or modification is in writing, and duly executed.
The parties agree that this Section 17 may not be waived except as herein set forth.
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18.
Recitals.
The Recitals to this Agreement are incorporated herein and shall constitute an
integral part of this Agreement.
19.
Section 409A
. This Agreement is intended to comply with the applicable requirements of Section
409A of the Code and shall be construed and interpreted in accordance therewith. Notwithstanding
the preceding, the Company and its Related Entities shall not be liable to the Executive or any
other person if the Internal Revenue Service or any court or other authority having jurisdiction
over such matter determines for any reason that any amount under this Agreement is subject to
taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.
20.
Delay of Payment
. Notwithstanding any other provision of this Agreement, if the Executive is a
Specified Employee, to the extent necessary to comply with Section 409A of the Code, no payments or
benefits (which are not otherwise exempt) may be paid or provided hereunder before the date which
is six months after the Executives Separation from Service or, if earlier, his death. The amounts
which would have otherwise been required to be paid, and the benefits which would have otherwise
been provided, during such six months or, if earlier, until Executives death, shall be paid to
Executive in one lump sum cash payment as soon as administratively practical after the date which
is six months after Executives Separation from Service or, if earlier, after the Executives
death. Any other payments scheduled to be made or benefits scheduled to be provided after such
period shall be made or provided at the times otherwise designated in this Agreement disregarding
the delay of payment for the payments and benefits described in this Section 20.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above
written.
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INSTEEL INDUSTRIES, INC.
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By:
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Name
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Title
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