Exhibit 10.3

 

 

INSTEEL INDUSTRIES INC.

RETIREMENT SECURITY AGREEMENT

 

THIS RETIREMENT SECURITY AGREEMENT (the “Agreement”), made and entered into as
of the 27th day of May, 2020 (the “effective date”), by and between INSTEEL
INDUSTRIES INC., a corporation located in Mount Airy, North Carolina (the
“Corporation”), and Mark A Carano (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
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 15. 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.

 

 

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(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 termination of
employment that produces the highest average. If the Executive has not worked
during at least five consecutive calendar years during such ten calendar years
immediately preceding his termination of employment, the Executive’s final
average compensation means the average of his compensation for all of the
calendar years he worked for the Corporation during such ten years.

 

(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 1/360th 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 15.

 

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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 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.

 

 

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).

 

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 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.

 

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SECTION 6

Change of Control.

 

In the event that a Change of Control of the Corporation occurs prior to the
date that payment of the Executive’s benefit commences under this Agreement,
then notwithstanding any other provision of this Agreement, and in lieu of the
benefits payable under Section 2 or Section 3, the Executive shall be fully
vested in his accrued benefit and the Corporation shall pay the lump sum present
value of such accrued benefit to the Executive in a single cash payment within
thirty (30) days of the effective date of the Change of Control. For purposes of
this Section 6, the term “Change of Control of the Corporation” shall include
all events described in Section 1.409A-3 of the Treasury Regulations in effect
from time to time. The lump sum present value of the Executive’s accrued benefit
shall be based on the accumulated benefit obligation on the Change of Control
date, as determined by the Corporation’s actuary in accordance with generally
accepted accounting principles.

 

 

SECTION 7

Beneficiary.

 

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.

 

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SECTION 8

Administration by Compensation Committee.

 

8.1     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.

 

8.2     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.

 

8.3     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.

 

8.4     Subject to the provisions of Section 13, 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.

 

8.5     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.

 

8.6     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.

 

8.7     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 Corporation’s 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
person’s own fraud, bad faith, willful misconduct or gross negligence.

 

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SECTION 9

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 10

Allocation of Responsibilities.

 

The persons responsible for the Agreement and the duties and responsibilities
allocated to each are as follows:

 

10.1     Board. To amend or terminate this Agreement in accordance with Section
12;

 

10.2     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 13 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

 

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(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 11

Benefits Not Assignable; Facility of Payments.

 

11.1     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.

 

11.2     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 12

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 and the
Executive’s accrued benefit paid to him in a single cash payment (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, or (ii) upon the agreement
of the parties 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.
The amount of any payment pursuant to this Section shall be based on the
accumulated benefit obligation as of the date of payment, as determined by the
Corporation’s actuary in accordance with generally accepted accounting
principles. 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.

 

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SECTION 13

Claims Procedure.

 

The following claims procedure shall apply with respect to this Agreement:

 

13.1     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.

 

13.2     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 claimant’s 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.

 

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(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 claimant’s 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.

 

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(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
claimant’s 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 claimant’s 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 Committee’s
(or committee’s) 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
person’s 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 claimant’s 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 claimant’s
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).

 

13.3     Arbitration. If a dispute remains following the decision of the
Compensation Committee under Section 13.2, 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 13.2, Executive must file the request for arbitration within ninety (90)
days of the Compensation Committee’s final decision pursuant to Section 13.2 or
the Compensation Committee’s 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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13.4     Action by authorized representative of claimant. All actions set forth
in this Section 13 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 14

Miscellaneous Provisions.

 

14.1     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.

 

14.2     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.

 

14.3     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.

 

14.4     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.

 

14.5     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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14.6     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.

 

14.7     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.

 

14.8     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.

 

14.9     Construction. The provisions of the Agreement shall be construed and
enforced according to the laws of the State of North Carolina.

 

14.10     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 Corporation’s 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.

 

14.11     Confidentiality. The terms and conditions of this Agreement and the
Executive’s 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 Executive’s 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 15

Application of Section 409A.

 

15.1     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 this Agreement
is subject to taxes, penalties or interest as a result of failing to comply with
Section 409A of the Code.

 

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15.2     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 its 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 Executive’s
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 or otherwise at an annual rate that
is at least equal to 50 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 50 percent of the average annual remuneration
earned during the final three full calendar years of employment (or if less,
such lesser period), or (ii) 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 Executive’s 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 Executive’s 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 Executive’s
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.

 

15.3     Specified employee. Notwithstanding any other provision of this
Agreement, if the Executive is a “specified employee” (as defined below), and if
the Executive’s 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 Executive’s
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,
Executive’s death, shall be paid to Executive in one lump sum payment as soon as
administratively practical after the date which is six months after Executive’s
separation from service or, if earlier, Executive’s 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), (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.

 

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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.

 

 

INSTEEL INDUSTRIES INC.

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

Attest:

 

 

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Secretary

 

 

EXECUTIVE

 

 

 

 

 

 

 

 

 

 

By:

 

 

 

 

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