EX-10.12



 





INSTEEL INDUSTRIES, INC.

RETIREMENT SECURITY AGREEMENT




     THIS RETIREMENT SECURITY AGREEMENT (the “Agreement”), made and entered
into as of the    day of    , 2004 (the “effective date”), by and
between INSTEEL INDUSTRIES, INC., a corporation located in Mount Airy, North
Carolina (the “Corporation”), and    (the “Executive”);



R E C I T A L S:




     The Corporation desires to provide supplemental retirement benefits to the
Executive separate from and in addition to any other retirement benefits to
which the Executive is or may become entitled under any plan of the Corporation
or any other agreement between the Executive and the Corporation.



     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 Internal Revenue Code (the “Code”), but it is
intended to constitute an arrangement to provide 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 from the effective date of this Agreement until he
completes thirty years of continuous service with the Corporation, 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. 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.




     (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 years he worked for the Corporation




     (iv) “Normal retirement date” means the later of the
Executive’s sixty-fifth birthday or 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



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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 completes at least ten years of
continuous service with the Corporation but his continuous service terminates
for reasons other than death, disability or for “cause” (as defined in Section
2.4) after he attains age fifty-five but prior to his normal retirement date,
the Corporation will pay a supplemental early retirement benefit to the
Executive. The annual amount of the supplemental retirement early 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.



     2.3 Disability retirement: If the Executive completes at least ten years
of continuous service with the Corporation but terminates continuous service
prior to his normal retirement date because of disability, 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



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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 inability, by reason of
any medically determinable physical or mental impairment that can be expected
to result in death 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 “Board”) pursuant to a medical examination by
a medical doctor selected or approved by the Executive 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, or fraud or



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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 Executive Compensation
Committee of the Board.




     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 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 other than for
“cause” but before benefit payments commence, or (ii) after the date as of
which benefit payments have commenced under this Agreement, payment of the
Executive’s benefit shall commence or continue, as the case may be, to the
Executive’s



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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 benefit under this Agreement, to the extent accrued as of
any date, following the first to occur of his completion of ten years of
continuous service with the Corporation, or the date of his termination of
continuous service because of death or disability (as defined in Section 2.3).
The Executive shall not be vested in his supplemental benefit under this
Agreement if he terminates service with the Corporation prior to completing ten
years of continuous service for any reason other than death or disability (as
defined in Section 2.3). The Executive shall forfeit any benefit earned and
vested under this Agreement if his continuous service with the Corporation is
terminated for cause (as defined in Section 2.4).



     4.2 Accelerated vesting: Notwithstanding any other provision of this
Agreement, the Executive Compensation Committee may, with the approval of the
Board, direct that all or part of the Executive’s supplemental retirement
benefit 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
Executive Compensation Committee shall determine.



     Section 5. Deferral of Payment Date:



     As of any date that is at least twelve months prior to the Executive’s
normal retirement date (as specified in Section 2.1), the Committee and the
Executive may agree to establish a date following the Executive’s normal
retirement date (referred to herein as his “subsequent normal retirement date”)
as his normal retirement date for purposes of this Agreement; provided, that
such subsequent normal retirement date shall be at least five years following
the date of the agreement between the Committee and the Executive to establish
such subsequent normal retirement date. If a



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subsequent normal retirement date is established pursuant to this Section 5,
this Agreement shall be administered in all respects as if such subsequent
normal retirement date was the normal retirement date specified in Section 2.1,
except that the supplemental retirement benefit described in Section 2.1 shall
be adjusted actuarially by the 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 Committee shall apply actuarial
assumptions agreed to by the Executive at the time the deferral agreement is
entered into.




Section 6. 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 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
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 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 Committee and shall be irrevocable when filed. Any benefit
disclaimed shall be payable from the Corporation




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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 Committee:



     7.1 The Committee shall be responsible for the general administration and
interpretation of this Agreement and for carrying out its provisions, except to
the extent all or any of such obligations are specifically imposed on the
Board.



     7.2 The 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 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 Committee may from
time to time establish rules or by-laws for the administration of the Agreement
and the transaction of its business. The Committee may correct errors and, so
far as practicable, may adjust any benefit or credit or payment accordingly.
The 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 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.



     7.5 The 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 Committee shall deem
requisite or desirable in carrying out the provisions of the Agreement. The



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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
Committee shall communicate such needs to the Corporation so that its policies
may be appropriately coordinated to meet such needs.




     7.6 The 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 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 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 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.



     Section 8. Funding:



     The obligation of the Corporation to make payments hereunder shall
constitute a liability of the Corporation to the Executive. Notwithstanding
the foregoing, the Corporation may establish a grantor trust (the “Trust”) to
which the Corporation shall contribute according to its terms to pay the
benefits provided for in the Agreement; provided, that to the extent that there
shall not be sufficient funds in the Trust to make one or more payments
provided for under this Agreement, such payments shall be made from the general
funds of the Corporation. Except as otherwise provided herein, the Corporation
shall not be required to establish or maintain any special or separate fund, or



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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.




     Section 9. Allocation of Responsibilities:



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




9.1 Board: To amend or terminate this
Agreement in accordance with Section 11.2;




9.2 Committee:




(i) To interpret the provisions of the Agreement and to
determine the rights of the Executive under the Agreement,
except to the extent otherwise provided in Section 12
relating to claims procedure;




(ii) To administer the Agreement in accordance with its
terms, except to the extent powers to administer the
Agreement are specifically delegated to another person or
persons as provided in the Agreement;




(iii) To account for the supplemental retirement benefit of
the Executive; and




(iv) To file such reports as may be required with the United
States Department of Labor, the Internal Revenue Service and
any other government agencies to which reports may be
required to be submitted from time to time.



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     Section 10. Benefits Not Assignable; Facility of Payments:



     10.1 No portion of any benefit credited or paid under this Agreement with
respect to the Executive shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge, and any
attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge the same shall be void, nor shall any portion of such benefit be in any
manner payable to any assignee, receiver or any one trustee, or be liable for
his debts, contracts, liabilities, engagements or torts, or be subject to any
legal process to levy upon or attach.



     10.2 If any individual entitled to receive a payment under the Agreement
shall be physically, mentally or legally incapable of receiving or
acknowledging receipt of such payment, the Committee, upon the receipt of
satisfactory evidence of his incapacity and satisfactory evidence that another
person or institution is maintaining him and that no guardian or committee has
been appointed for him, may cause any payment otherwise payable to him to be
made to such person or institution so maintaining him. Payment to such person
or institution shall be in full satisfaction of all claims by or through the
Executive to the extent of the amount thereof.



     Section 11. Amendment and Termination of Agreement:



     This Agreement shall not be amended or terminated other than by a writing
signed by the Corporation and the Executive.



     Section 12. Claims Procedure:



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



     12.1 Filing of a claim for benefits: If the Executive or his beneficiary
(the “claimant”) believes that he is entitled to benefits under the Agreement
which are not being paid to him or which are not being accrued for his benefit,
he shall file a written claim therefor with the Committee.



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     12.2 Notification to claimant of decision: Within 90 days after receipt
of a claim by the Committee (or within 180 days if special circumstances
require an extension of time), the
Committee shall notify the claimant 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.
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. If the Committee fails to notify the claimant of the
decision in timely manner, the claim shall be deemed denied as of the close of
the initial 90-day period (or the close of the extension period, if
applicable).



     12.3 Procedure for review: Within 60 days following receipt by the
claimant of notice denying his claim, in whole or in part, or, if such notice
shall not be given, within 60 days following the latest date on which such
notice could have been timely given, the claimant shall appeal denial of the
claim by filing a written application for review with the Board. Following
such request for review, the Board shall fully and fairly review the decision
denying the claim. Prior to the decision of the Board, the claimant shall be
given an opportunity to review pertinent documents and to submit issues and
comments in writing.



     12.4 Decision on review: The decision on review of a claim denied in
whole or in part by the Board on initial review shall be made in the following
manner:



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12.4.1 Within 60 days following receipt by the Board of the request for
review (or within 120 days if special circumstances require an extension
of time), the Board 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, written notice of the extension shall be
furnished to the claimant prior to the commencement of the extension. If
the decision on review is not furnished in a
timely manner, the claim shall be deemed denied as of the close of the
initial 60-day period (or the close of the extension period, if
applicable).




12.4.2 With respect to a claim that is denied in whole or in part, the
decision on review shall set forth specific reasons for the decision,
shall be written in a manner calculated to be understood by the claimant,
and shall cite specific references to the pertinent Agreement provisions
on which the decision is based.



     12.5 If a dispute remains following the decision of the Board under
Section 12.4, 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 Board or the 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 Board or the Committee. Any
expenses of such arbitration shall be allocated among the parties to this
Agreement by the arbitrator.



     12.6 Action by authorized representative of claimant: All actions set
forth in this Section 12 to be taken by the claimant may likewise be taken by a
representative of the claimant duly authorized by him to act in his behalf on
such matters. The Committee and the Board may require such evidence as either
may reasonably deem necessary or advisable of the authority to act of any such
representative.



     Section 13. Miscellaneous Provisions:



     13.1 Notices: The Executive and each beneficiary shall be responsible for
furnishing the 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



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shall be deemed given if directed to
such address and mailed by regular United States mail, first class, postage
prepaid. If any check mailed to such address is returned as undeliverable to
the addressee, mailing of checks will be suspended until the Executive or
beneficiary furnishes the proper address.
This provision shall not be construed as requiring the mailing of any notice or
notification otherwise permitted to be given by posting or by other
publication.




13.2 Lost distributees: A benefit shall be deemed forfeited if the
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.




13.3 Reliance on data: The Corporation and the 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 Committee shall have
no obligation to inquire into the accuracy of any representation made at any
time by the Executive or his beneficiary.




13.4 Receipt and release for payments: Any payment made from the
Corporation to or with respect to the Executive or his beneficiary, or pursuant
to a disclaimer by a beneficiary, shall, to the extent thereof, be in full
satisfaction of all claims hereunder against the Corporation with respect to
the Agreement. The recipient of any payment may be required by the 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 Committee.




13.5 Withholding: The Corporation shall withhold from any payments or
benefits under this Agreement all federal, state, or local taxes or other
amounts as shall be required pursuant to any law or governmental regulation or
ruling.




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     13.6 Headings: The headings and subheadings of the Agreement have been
inserted for convenience of reference and are to be ignored in any construction
of the provisions hereof.



     13.7 Continuation of employment: The establishment of the Agreement shall
not be construed as conferring any legal or other rights upon the Executive or
any persons for continuation of
employment, nor shall it interfere with the right of the Corporation to
discharge any employee or to deal with him without regard to the effect thereof
under the Agreement.



     13.8 Binding on successors: The obligations of the parties hereto shall
inure to the benefit of and shall be binding upon their successors and assigns,
including any successor to the Corporation by merger, consolidation or
otherwise that may agree to continue this Agreement.



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



     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:

	 	 	 	

President
	

	 	 	 	 
	Secretary
	 	 	 	 
	 
	 	 	 	 
	[Corporate Seal]
	 	 	 	 
	 	 	EXECUTIVE
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	

(SEAL)

	

	 	 	 	 
	Witness
	 	 	 	 







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