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.
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 Company’s 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, Executive’s 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 Executive’s 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
Executive’s 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 Executive’s employment
terminates;
(b) A lump
sum payment of any bonus that has been earned from the Company but
which remains unpaid as of Executive’s termination of
employment;
(c) A lump
sum payment of one and one-half times Executive’s annual base
salary at the rate in effect on the date of Executive’s
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 Company’s 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 Company’s standard
reimbursement policies but have not been reimbursed as of
Executive’s 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 Executive’s date of termination on such
terms as are then in effect for eighteen months following the
termination of Executive’s 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
Executive’s 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
Executive’s 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 Executive’s
participation in such employee welfare benefit plan(s) and/or the
entire premium for continued coverage in the Company’s health
plan prior to Executive’s 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
Executive’s participation in such employee welfare benefit
plan(s) and the entire premium for continued coverage in the
Company’s health plan prior to Executive’s termination
of employment.
(g) All stock
options and any other stock-based awards outstanding immediately
prior to Executive’s 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 Executive’s
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 Executive’s 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 Executive’s Capped
Parachute Payments. Thereafter, the Company will determine the Net
After Tax Amount attributable to Executive’s 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 Executive’s 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
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