INSTEEL
INDUSTRIES INC.
RETURN ON CAPITAL INCENTIVE COMPENSATION PLAN
(As Amended and Restated Effective August 12,
2008)
1.
STATEMENT OF PURPOSE; ELIGIBILITY; EFFECTIVE DATE
1.1
Statement of Purpose . The purpose of the Insteel Industries
Inc. Return on Capital Incentive Compensation Plan as amended (the
“Plan”), is to encourage the creation of shareholder
value by establishing a direct link between the Return on Capital
(“ROC”) achieved and the incentive compensation of
Participants in the Plan.
Participants
contribute to the success of Insteel Industries Inc. (the
“Company”) through the application of their skills and
experience in fulfilling the responsibilities associated with their
positions. The Company desires to benefit from the contributions of
the Participants and to provide an incentive compensation plan that
encourages the sustained creation of shareholder value. The Plan is
intended to accomplish these purposes by providing opportunities
for Participants to earn awards in the form of cash bonuses based
upon attainment of preestablished, objective performance
goals.
1.2
Eligibility . Participants in the Plan shall be those
employees of the Company or other Employers (that is, wholly-owned
subsidiaries of the Company) who are selected by the Committee to
participate. Eligible Participants shall be selected to participate
on an annual or other periodic basis as determined by the
Committee. With respect to those Participants who are Covered
Employees, such designation shall be made during the first
90 days of each Year and before 25% of the relevant
performance period has passed (or otherwise made at such time and
on such terms as will ensure that the Bonus Award will, to the
extent practicable, qualify as “performance-based
compensation” for purposes of Code Section 162(m)).
Participation in the Plan for any one performance period does not
guarantee that an Employee will be selected to participate in any
other performance period.
1.3
Effective Date . The Plan became effective on
October 1, 2006. The Plan is hereby amended and restated
effective August 12, 2008, subject to certain approvals by the
shareholders of the Company as required by Code
Section 162(m). To the extent required under Code
Section 162(m), Bonus Awards under the Plan (as amended and
restated through August 12, 2008) granted prior to such
shareholder approval shall be conditioned upon and shall be payable
only upon approval of such performance criteria by the shareholders
of the Company in accordance with the requirements of Code
Section 162(m).
2.1
Definitions . In addition to other terms defined herein,
capitalized terms used in the Plan shall (unless otherwise provided
elsewhere in the Plan) have the following respective meanings and
all references to Sections in the following definitions shall refer
to Sections of the Plan:
“Beneficiary”
means the person or persons designated as such in accordance with
Section 6.
“Board”
means the Board of Directors of the Company.
“Bonus
Award” (or “Award”) means the dollar amount which
results from multiplying the Bonus Percent for the Year by the
Participant’s Compensation for the Year.
“Bonus
Increment” determines the sensitivity of the Bonus Award to
performance and reflects the slope of the SV — Bonus Award
Line. The Bonus Increment shall be calculated by multiplying five
percent (5%) by the Invested Capital as of the beginning of the
Year for the Participation Pool, subject to adjustment by the
Committee.
“Bonus
Multiplier” means the difference between Actual SV and
Minimum SV in relation to the Bonus Increment for the Participation
Pool and shall be calculated by subtracting (i) the Minimum SV
from (ii) the Actual SV for the Year and then dividing the
difference by the Bonus Increment for the Year. If the Bonus
Multiplier for the Year is less than zero (0), then the
Participant’s Bonus Percent for the Year shall be zero (0).
The Bonus Multiplier is capped at 2.0 unless adjusted by the
Committee.
“Bonus
Percent” means the percentage amount which results from
multiplying the Participant’s Target Bonus Percent for the
Year by the Bonus Multiplier for the Year.
“Capital
Charge” means the Company’s WACC for the Year
multiplied by the average Invested Capital for the Year.
“Code”
means the Internal Revenue Code of 1986, as amended. Any references
herein to a specific Code section shall be deemed to include all
related regulations or other guidance with respect to such Code
section.
“Committee”
means the Executive Compensation Committee of the Board, which
administers the Plan.
“Company”
means Insteel Industries, Inc., a North Carolina
corporation.
“Compensation”
means the Participant’s actual base salary and wages paid
during the Year, excluding incentive payments, salary continuation,
bonuses, income from equity awards (including, without limitation,
stock options and restricted stock awards), deferred compensation,
commissions and any other forms of compensation over and above the
Participant’s base salary and wages. Notwithstanding the
foregoing, Compensation for the Year only includes that
Compensation paid after the Employee is selected to participate in
the Plan, unless specifically determined otherwise by Management
with respect to Participants who are not Covered Employees, and
subject to the approval of the Committee .
“Covered
Employee” shall have the meaning given such term under Code
Section 162(m).
“Disability”
means a bodily injury or disease which results in the Participant
becoming eligible for coverage under the Employer’s long-term
disability plan.
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“Distribution”
means the cash payment of a Bonus Award with respect to Bonus
Awards earned in the previous Year.
“Distribution
Date” means the date on which the Distribution occurs, which
date shall be once each Year and no later than December 15 of
the Year following the Year for which the Bonus Award is
earned.
“Effective
Date” means October 1, 2006, the date on which this Plan
commenced.
“Employee”
means any person who is an employee of the Company or any other
Employer (including entities which may become Employers after the
Effective Date of the Plan).
“Executive
Officer” shall mean those Employees who are determined to be
executive officers in accordance with the policies and procedures
of the Company.
“Employer”
means Insteel Industries, Inc. (also referred to as the
“Company”) and its wholly-owned
subsidiaries.
“Invested
Capital” means total assets less non-interest bearing
liabilities for the Participation Pool, subject to any adjustments
deemed appropriate by Management subject to the approval of the
Committee.
“Management”
means the Executive Officers of Insteel Industries, Inc.,
individually or as a group.
“Minimum
SV” means the SV amount at or below which no Bonus Award
would be earned for the Year.
“Net
Operating Profit After Tax” (also referred to as
“NOPAT”) means operating income before financing costs
and income taxes reduced by income taxes based upon the
Company’s effective income tax rate, as calculated for each
Participation Pool. The total expenses associated with all of the
Company’s incentive plans, including this Plan, are charged
to the operating income of the Company prior to the computation of
NOPAT.
“Participant”
means an Employee of an Employer who is recommended by management
to participate in the Plan, subject to Committee approval;
provided, that participants who are Executive Officers (including
such Executive Officers who may be Covered Employees) shall be
selected solely by the Committee.
“Participation
Pool” means the legal entity or business segment to which the
Participant is assigned based upon his or her respective
responsibilities. The SV of the Participation Pool serves as the
basis for the calculation of the Participant’s Bonus
Award.
“Plan”
means this Return on Capital Incentive Compensation Plan, as
amended and restated effective August 12, 2008, and as it may
be hereafter amended and/or restated.
3
“Retirement”
means termination of employment by a Participant for whatever
reason other than death or Disability after attainment of age
fifty-five (55), or, if prior to having attained age fifty-five
(55), only after having obtained the prior permission of the
Committee.
“Shareholder
Value” (also referred to as “SV”) means the
amount for each Participation Pool obtained by subtracting
(i) the Capital Charge for the Year from (ii) Net
Operating Profit After Tax for the Year, or as follows: SV = NOPAT
— Capital Charge.
“Target
Bonus Percent” means the percent of the Participant’s
Compensation that will be earned if actual SV equals Target SV. The
Target Bonus Percent for each Participant’s position shall be
established by Management subject to the approval of the
Committee.
“Target
SV” means that SV amount, whether positive, negative or zero
(0), which, if attained, produces a Bonus Multiplier of one
(1.000). For any one Year, Target SV shall be set at zero or an
alternative amount established by the Committee.
“Weighted
Average Cost of Capital” (also referred to as
“WAAC”) means the Company’s weighted average cost
of debt and equity expressed as a percent which represents the
Company’s minimum required rate of return on capital, as
determined for each Participation Pool. The WACC shall be
recommended by Management and approved by the Committee on an
annual basis prior to the beginning of each Year. The WACC shall be
rounded to the nearest whole percent and is subject to adjustment
by the Committee for significant changes in the Company’s
capital structure and its cost of debt and equity.
“Year”
means each fiscal year of the Company for which performance is
measured under the Plan with respect to Bonus Award opportunities
for such period.
3.
ADMINISTRATION OF THE PLAN
3.1
Administration of the Plan . The Plan shall be administered
by the Committee or a subcommittee of the Committee. To the extent
required by Code Section 162(m), the Committee shall be
comprised of at least two members and each member of the Committee
shall be an “outside director” as defined in Code
Section 162(m). In addition to action by meeting in accordance
with applicable laws, any action of the Committee with respect to
the Plan may be taken by a written instrument signed by all of the
members of the Committee, and any such action so taken by written
consent shall be as fully effective as if it had been taken by a
majority of the members at a meeting duly held and called. Subject
to the terms of the Plan, the Committee shall have full authority
in its discretion to take any action with respect to the Plan.
Without limiting the foregoing, the Committee has full authority in
its discretion to take any action with respect to the Plan
including but not limited to the authority (i) to determine
all matters relating to awards, including selection of Employees to
be granted Bonus Awards and all terms, conditions, restrictions and
limitations of a Bonus Award; and (ii) to construe and
interpret the Plan and any instruments evidencing Bonus Awards
granted under the Plan, to establish and interpret rules and
regulations for administering the Plan and to make all other
determinations deemed necessary or advisable for administering the
Plan. The Committee’s authority to grant awards and authorize
payments under the Plan shall not in any way restrict the authority
of the Committee to grant compensation to Employees under any other
compensation
4
plan
or program of the Corporation. Any decision made, or action taken,
by the Committee in connection with the administration of the Plan
shall be final, binding and conclusive. Notwithstanding the
foregoing, the Committee may delegate the administration of the
Plan to one or more of its designees (subject to any conditions
imposed by the Committee), but only with respect to matters which
would not affect the deductibility under Code Section 162(m) of
compensation paid under the Plan to “Covered
Employees”. In the case of any such delegation, references to
the “Committee” herein shall include such designee or
designees, unless the context otherwise requires. No member of the
Committee shall be liable for any action, determination or decision
made in good faith with respect to the Plan or any Bonus Award,
paid under it. The members of the Committee shall be entitled to
indemnification and reimbursement in the manner provided in the
Company’s articles of incorporation or by law. The Company
shall bear all expenses of administering this Plan.
4.
GRANT AND EARNING OF BONUS AWARDS
4.1
Establishment of Bonus Award Opportunities . At the time
performance objectives under the Plan are established for a Year,
the Committee shall designate the Participants who shall be
eligible to participate in the Plan for such Year and will
establish a Target Bonus Percent for each Participant based upon
the responsibilities associated with the Participant’s
position. The Target Bonus Percent for each Participant’s
position for any future Year(s) may be increased, decreased or left
unchanged from the prior Year and may be decreased (but not
increased) during a Year with respect to such current Year. A
Participant’s Bonus Award, if any, for any particular Year
shall be earned based on the attainment of written return on
capital performance objectives approved by the Committee for such
Year. In the case of Awards granted to Covered Employees, such
performance objectives shall be established by the Committee
(i) while the outcome for the performance period is
substantially uncertain, and (ii) (A) no more than
90 days after the commencement of the performance period to
which the performance objective relates and (B) before 25% of
the relevant performance period has elapsed (or otherwise at such
time and upon such terms as to ensure that the Bonus Award will, to
the extent practicable, qualify as “performance-based
compensation” for purposes of Code Section 162(m)).
During any Year, no Participant may be granted more than the
maximum Bonus Award limitation stated in Section 4.2(b)
herein. The Committee may adjust Bonus Awards as appropriate for
partial achievement of goals and/or outside mitigating
circumstances and may also make necessary and appropriate
adjustments in performance goals; provided, however, that, no such
adjustment shall be made to a Bonus Award granted under the Plan to
a Participant who is a Covered Employee if such adjustment would
cause the Bonus Award to fail to qualify as
“performance-based compensation” for purposes of Code
Section 162(m).
4.2
Calculation of Bonus Awards .
(a)
Timing of the Calculation . The calculations necessary to
obtain the Bonus Award amounts for the Year most recently ended
shall be made no later than December 15 of the Year following
the Year for which the Bonus Award is calculated and to which the
performance relates. Such calculations shall be carried out in
accordance with this Section 4.2 a
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