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”);
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:
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 Executive’s final average
compensation. The supplemental retirement benefit shall be paid in
equal installments in accordance with the Corporation’s
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 Executive’s 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 Executive’s
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 Executive’s uninterrupted service in
the employment of the Corporation in a full-time capacity. The
Executive’s 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 Executive’s
right to re-employment is guaranteed by statute or by
contract.
(iii) “Final
average compensation” means the average of the
Executive’s compensation as of the last day of each of the
five consecutive calendar years during the ten calendar years
preceding the Executive’s 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 Executive’s 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
Executive’s 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
Executive’s 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 Executive’s 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 Executive’s supplemental early retirement benefit
shall be paid in equal installments in accordance with the
Corporation’s 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
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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 Executive’s
disability as his early retirement date, provided that such amount,
when added to the Executive’s benefit under the LTD plan,
shall not exceed one hundred percent (100%) of the
Executive’s 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 Executive’s benefit determined under Section 2.2
as of the date of his disability or fifty percent (50%) of the
Executive’s final average compensation. The Executive’s
supplemental disability benefit will be paid in equal installments
in accordance with the Corporation’s 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 Executive’s 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 doctor’s determination of the Executive’s
disability shall be conclusive.
2.4
Termination of continuous service for “cause.”
Notwithstanding any other provision of this Agreement, if the
Corporation terminates the Executive’s 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
Corporation’s 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
Executive’s termination is for “cause” shall be
determined by the Compensation Committee.
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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 Executive’s
beneficiary. The annual amount of the supplemental death benefit
shall be fifty percent (50%) of the Executive’s final average
compensation, determined as of the date of the Executive’s
death. The Executive’s supplemental death benefit provided in
this Section 3.1 shall be paid in equal installments in
accordance with the Corporation’s 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 Executive’s 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 Executive’s remaining supplemental benefits shall
commence or continue, as the case may be, to the Executive’s
beneficiary following the Executive’s death, treating the
Executive’s beneficiary as the Executive for all purposes
under this Agreement.
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 Executive’s
supplemental benefits under this Agreement shall be nonforfeitable
as of any date prior to the Executive’s 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 Executive’s 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
Executive’s 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.
The
Executive’s 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 Executive’s 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 Executive’s beneficiary dies prior to
asserting a written claim for any death benefit payable under the
Agreement, such benefit shall be payable to the Executive’s
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 Executive’s 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.
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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 Compensatio
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