Document:

EX-10.3 FORM OF AMENDED REITREMENT SECURITY AGRMT.

 

 Exhibit 10.3

AMENDED AND RESTATED

INSTEEL INDUSTRIES, INC.

RETIREMENT SECURITY AGREEMENT

          THIS AMENDED AND RESTATED RETIREMENT SECURITY AGREEMENT (the “Agreement”), made and entered
into as of the 19th day of September, 2007 (the “effective date”), by and between INSTEEL
INDUSTRIES, INC., a corporation located in Mount Airy, North Carolina (the “Corporation”), and
                                         (the “Executive”);

RECITALS

          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. This Agreement amends,
restates and supersedes in its entirety the Amended and Restated Retirement Security Agreement
between the parties dated November 14, 2006, as amended January 11, 2007.

     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.

               (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.

          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

2

 

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.

3

 

     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).

          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.

4

 

     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.

     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

5

 

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 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.

6

 

          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.

     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;

7

 

          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

               (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

8

 

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.

     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

9

 

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.

               (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

10

 

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.

                    (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

11

 

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.

          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

12

 

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.

          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

13

 

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.

          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

14

 

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.

          IN WITNESS WHEREOF, this Amended and Restated 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:	 	 	 	 
	 

	 	 	 	 	 	 	 	 
	 

	 	 	 	 	 	President	 	 
	Attest:
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

Secretary

	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	[Corporate Seal]
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 	 	 	 	EXECUTIVE	 	 
	 
	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 
	 

	 	 	 	By:
	 	 	 	(SEAL)
	 

	 	 	 	 	 	 	 	 
	Witness
	 	 	 	 	 	 	 	 

15EX-10.4 AMENDED 2005 EQUITY INCENTIVE PLAN

 

Exhibit 10.4

2005 EQUITY INCENTIVE PLAN

OF

INSTEEL INDUSTRIES, INC.

As amended by the Board of Directors on September 18, 2007

 

 

2005 EQUITY INCENTIVE PLAN OF

INSTEEL INDUSTRIES, INC.

1. Purpose.

          The purpose of the 2005 Equity Incentive Plan of Insteel Industries, Inc. (the “Plan”) is to
encourage and enable selected key employees and non-employee directors of Insteel Industries, Inc.
(the “Corporation”) to acquire or to increase their holdings of common stock of the Corporation
(the “Common Stock”) in order to promote a closer identification of their interests with those of
the Corporation and its shareholders, thereby further stimulating their efforts to enhance the
return on capital generated by the Corporation and the creation of value for its shareholders.
This purpose will be carried out through the granting of stock options, restricted stock,
restricted stock units and performance awards on the terms set forth herein.

2. Certain Definitions.

          For purposes of the Plan, the following terms shall have the meanings indicated:

          (a) “Award” means an Option, Restricted Stock, Restricted Stock Unit or Performance Award
granted under this Plan.

          (b) “Award Agreement” means a written or electronic agreement executed on behalf of the
Corporation by the Chief Executive Officer (or another officer designated by the Administrator) and
delivered to the Participant and containing terms and provisions of Awards, consistent with the
Plan, as the Administrator may approve. Such agreement may, but is not required to be, executed by
the Participant.

          (c) “Cause” means (W) termination of Participant’s employment for “cause” in accordance with
the Corporation’s or a Related Corporation’s written policies or pursuant to the definition of
“cause” as indicated in any agreement Participant may have with the Corporation or any Related
Corporation; (X) dishonesty or conviction of a crime which brings the Participant into disrepute or
is likely to have a material detrimental impact on the business operations of the Corporation or
any Related Corporation; (Y) failure to perform his or her duties to the satisfaction of the
Corporation after written notice; or (Z) engaging in conduct that could be materially damaging to
the Corporation without a reasonable good faith belief that such conduct was in the best interest
of the Corporation or Related Corporation. The determination of “Cause” shall be made by the
Administrator and its determination shall be final and conclusive.

          (d) A “Change of Control” shall be deemed to have occurred on the earliest of the following
dates:

     (i) The date any entity or person shall have become the beneficial owner of, or shall
have obtained voting control over, twenty percent (20%) or more of the outstanding Common
Stock of the Corporation.

     (ii) The date (A) the Corporation consummates a merger or consolidation with or into
another corporation, or any other transaction pursuant to which any shares of

 

 

Common Stock of the Corporation are converted into cash, securities or other property
of another corporation or entity, other than a merger, consolidation or other transaction in
which holders of Common Stock immediately prior to the merger, consolidation or other
transaction have substantially the same proportionate ownership of common stock or ownership
interests of the surviving corporation or entity immediately after the merger, consolidation
or other transaction, or (B) there is a sale or other disposition of all or substantially
all the assets of the Corporation other than to a corporation or other entity in which
holders of Common Stock of the Corporation immediately prior to the sale or other
disposition have substantially the same proportionate ownership of stock or ownership
interests of the surviving corporation or other entity immediately after the sale or other
disposition or (C) there is a complete liquidation or dissolution of the Corporation; or

     (iii) The date there shall have been a change in a majority of the Board of Directors
of the Corporation within a 12-month period unless the nomination for election by the
Corporation’s shareholders of each new director was approved by the vote of two-thirds of
the directors then still in office that were in office at the beginning of the 12-month
period.

(For purposes herein, the term “person” shall mean any individual, corporation, partnership, group,
association or other person, as such term is defined in Section 13(d)(3) or Section 14(d)(2) of the
Exchange Act, other than the Corporation, a subsidiary of the Corporation or any employee benefit
plan(s) sponsored or maintained by the Corporation or any subsidiary thereof, and the term
“beneficial owner” shall have the meaning given the term in Rule 13d-3 under the Exchange Act.)

          (e) “Code” means the Internal Revenue Code of 1986, as amended or recodified from time to
time, and any successor thereto.

          (f) “Committee” means the Executive Compensation Committee of the Board of Directors or any
other standing or special committee that may be established and appointed by the Board of Directors
for the purpose of administering this Plan and performing such other duties as are contemplated to
be performed by the Committee as herein provided. The Committee shall be composed of not less than
three directors, all of whom are “non-employee directors” (within the meaning of Rule 16b-3 of the
Act), “outside directors” (within the meaning of Section 162(m) of the Code) and “independent”
directors (within the meaning of the applicable stock exchange listing standards on which shares of
the Common Stock are traded).

          (g) “Common Stock” means the Common Stock, no par value, of the Corporation.

          (h) “Covered Employee” means any individual who, on the last day of the taxable year, is the
Chief Executive Officer of the Corporation or is acting in such capacity or among the four highest
paid compensated officers (other than the Chief Executive Officer) within the meaning of Section
162(m) of the Code.

          (i) “Date of Grant” shall mean the date that the Administrator acts to grant an Award, or on
any later date specified by the Administrator as the effective date of the Award.

2

 

          (j) “Disability” shall mean the inability of the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental impairment which can be
expected to result in death, or which has lasted or can be expected to last for a continuous period
of not less than twelve months, within the meaning of Section 22(e)(3) of the Code. The
Administrator shall determine whether a Participant is disabled within the meaning of the Plan.

          (k) “Exchange Act” means the Securities Exchange Act of 1934, as in effect from time to time.

          (l) “Fair Market Value” with respect to a share of Common Stock shall be established in good
faith by the Administrator and, except as may otherwise be determined by the Administrator, the
fair market value shall be determined in accordance with the following provisions: (A) if the
shares of Common Stock are listed for trading on the New York Stock Exchange or the American Stock
Exchange, the fair market value shall be the closing sales price per share of the shares on the New
York Stock Exchange or the American Stock Exchange (as applicable) on the date immediately
preceding the date the Award is granted or otherwise being valued, or, if there is no transaction
on such date, then on the trading date nearest preceding the date the Award is granted or otherwise
being valued for which closing price information is available, and, provided further, if the shares
are quoted on the Nasdaq National Market or the Nasdaq SmallCap Market of the Nasdaq Stock Market
but are not listed for trading on the New York Stock Exchange or the American Stock Exchange, the
fair market value shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system on the date immediately preceding the date the Award is
granted or otherwise being valued for which such information is available; or (B) if the shares of
Common Stock are not listed or reported in any of the foregoing, then the fair market value shall
be determined by the Administrator in accordance with the applicable provisions of Section
20.2031-2 of the Federal Estate Tax Regulations, or in any other manner consistent with the Code
and accompanying regulations.

          (m) “Incentive Stock Option” means an option to purchase Common Stock which qualifies as an
incentive stock option under Section 422 of the Code and which is designated by the Administrator
to be an Incentive Stock Option.

          (n) “Nonqualified Stock Option” means an option to purchase Common Stock which is designated
as such or which does not qualify as an Incentive Stock Option.

          (o) “Option” means either an Incentive Stock Option or a Nonqualified Stock Option granted
under Section 8 of the Plan.

          (p) “Option Price” means the purchase price per share of Common Stock payable on exercise of
an Option.

          (q) “Parent” or “parent corporation” means any corporation (other than the Corporation) in an
unbroken chain of corporations ending with the Corporation if, at the time as of which a
determination is being made, each corporation other than the Corporation owns stock possessing
fifty percent or more of the total combined voting power of all classes of stock in another
corporation in the chain.

3

 

          (r) “Participant” means an eligible person under Section 7 of the Plan who is selected by the
Administrator to receive an Award under this Plan.

          (s) “Performance Award” means a contractual right awarded pursuant to Section 10 of this Plan
to receive a share of Common Stock (or its value in cash) or a cash-denominated award which are
forfeitable by the Participant until the achievement of pre-established performance objectives over
a performance period.

          (t) “Plan” means this 2005 Equity Incentive Plan of Insteel Industries, Inc., as contained
herein and any amendments hereto or restatements hereof.

          (u) “Related Corporation” means any parent or subsidiary of the Corporation.

          (v) “Restricted Stock” means an award of shares of Common Stock made pursuant to Section 9 of
this Plan that is nontransferable and forfeitable by the Participant until the completion of a
specified period of future service, the achievement of pre-established performance objectives or
until otherwise determined by the Administrator.

          (w) “Restricted Stock Unit” means a contractual right awarded pursuant to Section 9 of this
Plan to receive a share of Common Stock (or its value in cash) that is forfeitable by the
Participant until the completion of a specified period of future service, the achievement of
pre-established performance objectives or until otherwise determined by the Administrator.

          (x) “Rule 16b-3” means Rule 16b-3 under Section 16 of the Act (or any successor rule to the
same effect) as in effect from time to time.

          (y) “Securities Act” means the Securities Act of 1933, as in effect from time to time.

          (z) “Subsidiary” or “subsidiary corporation” means any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the Corporation if, at the time as
of which a determination is being made, each corporation other than the last corporation in the
unbroken chain owns stock possessing fifty percent or more of the total combined voting power of
all classes of stock in another corporation in the chain.

3. Administration of the Plan.

          (a) The Plan shall be administered by the Committee. To the extent permitted by law, the
Committee may delegate to one or more executive officers of the Company the power to make Awards to
Participants, other than to any non-employee director or any officer under Section 16 of the Act or
a Covered Employee if the Award is intended to qualify as “performance-based compensation” within
the meaning of Section 162(m) of the Code, provided that when so delegating, the Committee shall
fix the aggregate maximum amount of such Awards and the maximum Award for any one Participant that
may be awarded by such delegate(s). For the purposes herein, the term “Administrator” shall refer
to the Committee and its delegates.

          (b) Any action of the Administrator may be taken by a written instrument signed by all of the
members of the Administrator and any action so taken by written consent shall be as

4

 

fully effective as if it had been taken by a majority of the members at a meeting duly held
and called. Subject to the provisions of the Plan, the Administrator shall have full and final
authority, in its discretion, to take any action with respect to the Plan including, without
limitation, the following: (i) to determine the individuals to receive Awards, the nature of each
Option as an Incentive Stock Option or a Nonqualified Stock Option, the times when Awards shall be
granted, the number of shares to be subject to each Award, the Option Price (determined in
accordance with Section 8), the Option Period (determined in accordance with Section 8), the time
or times when each Award shall vest and be exercisable or payable, and all related terms
conditions, restrictions and limitations; (ii) to prescribe the form or forms of any Award
Agreements; (iii) to establish, amend and rescind rules and regulations for the administration of
the Plan; and (iv) to construe and interpret the Plan, the rules and regulations, and the Award
Agreements, and to make all other determinations deemed necessary or advisable for administering
the Plan. The Administrator also shall have authority, in its discretion, to accelerate the date
that any Award which was not otherwise exercisable, vested or payable shall become exercisable,
vested or payable in whole or in part without any obligation to accelerate such date with respect
to any other Award granted to any recipient. The express grant in this Plan of any specific power
to the Administrator shall not be construed as limiting any power or authority of the
Administrator. Any decision made, or action taken, by the Administrator shall be final and
conclusive. The members of the Administrator shall not be liable for any act done in good faith
with respect to this Plan or any Award Agreement. All expenses of administering this Plan shall be
borne by the Corporation.

          (c) The Corporation shall indemnify and hold harmless each person who is or shall have been a
member of the Administrator, acting as such, or any delegate of such, against and from any cost,
liability, loss or expense, that may be imposed upon or reasonably incurred by such person in
connection with or resulting from any action, claim, suit, or other proceeding to which such person
may be a party or in which such person may be involved by reason of any action taken or not taken
under the Plan or against and from any and all amounts paid by such person in settlement thereof,
with the Corporation’s approval, or paid by such person in satisfaction of any judgment in such
action, suit or proceeding against such person, provided he or she shall give the Corporation the
opportunity, at its own expense, to handle and defend the same before such person undertakes to
handle or defend it on his or her own behalf. Notwithstanding the foregoing, the Corporation shall
not indemnify or hold harmless any such person if (i) applicable law or the Corporation’s Articles
of Incorporation or Bylaws prohibit such indemnification or (ii) such persons did not act in good
faith or in a manner that such person believed to be consistent with the Plan or (iii) such
person’s conduct constituted gross negligence or willful misconduct. The foregoing right of
indemnification shall not be exclusive of any other rights of indemnification to which such persons
may be entitled under the Company’s Articles of Incorporation or Bylaws, as a matter of law or
otherwise, or under any other power that the Corporation may have to indemnify such person or hold
him or her harmless. The provisions of the foregoing indemnity shall survive indefinitely the term
of this Plan.

4. Effective Date; Term of the Plan.

          The effective date of the Plan shall be February 15, 2005. Awards may be granted under the
Plan on or after the effective date, but not after the tenth anniversary of the effective date.

5

 

However, this Plan, and any Awards granted hereunder, shall not be effective unless the Plan
is approved by the Corporation’s shareholders within one year after the adoption of the Plan.

5. Shares of Common Stock Subject to the Plan.

          The number of shares of Common Stock that may be issued pursuant to Awards shall not exceed in
the aggregate 885,000 shares of authorized but unissued Common Stock. The Corporation hereby
reserves sufficient authorized shares to provide for the exercise or settlement of such Awards.
The following rules shall apply for purposes of the determination of the number of shares available
for grant under the Plan:

          (a) Any shares of Common Stock which are subject to Awards under this Plan that are terminated
unexercised, forfeited or surrendered or that expire for any reason (including, but not limited to,
shares of Common Stock tendered to exercise outstanding Options or shares tendered or withheld for
taxes under any Award under this Plan) shall again be available for issuance under the Plan,
provided that such shares may only be used in respect of Awards of the same or a substantially
similar type (i.e., shares related to forfeited Options may be used to grant new Options, forfeited
Restricted Stock may be used to grant new Restricted Stock, Restricted Stock Units or Performance
Shares).

          (b) Awards that can only be settled in cash shall not result in a charge against the aggregate
number of shares available for issuance. For purposes of determining the maximum number of shares
available for issuance under the Plan, Awards that may be settled in shares of Common Stock shall
initially cause the available reserve to be reduced by the maximum number of shares of Common Stock
that may be issued in connection with the Award. Notwithstanding the foregoing, any shares not
actually issued at exercise or settlement shall again be available for issuance under the Plan.

          (c) If there is any change in the shares of Common Stock because of a merger, consolidation or
reorganization involving the Corporation or a Related Corporation, or if the Corporation declares a
stock dividend or stock split distributable in shares of Common Stock, or if there is a change in
the capital structure of the Corporation or a Related Corporation affecting the Common Stock, the
number of shares of Common Stock reserved for issuance under the Plan and the per individual
limitations shall be correspondingly adjusted, and the Administrator shall make such adjustments to
Awards (including the Option Price of outstanding Options) or to any provisions of this Plan as the
Administrator deems equitable to prevent dilution or enlargement of Award benefits.
Notwithstanding the foregoing, the issuance by the Corporation of stock of any class, or securities
convertible into stock of any class, for cash or property, or for labor or services, either upon
direct sale or upon the exercise of rights or warrants to subscribe therefore, or upon conversion
of stock or other obligations of the Corporation convertible into such stock or other securities,
shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of
shares of Common Stock reserved for issuance under the Plan, the per individual limits or the terms
of outstanding Awards.

6

 

6. Individual Limits.

          Subject to adjustment as provided in Section 5(c) of this Plan, in any calendar year, no
individual Participant shall be granted under this Plan (i) Stock Options for more than 100,000
shares of Common Stock, (ii) Restricted Stock, Restricted Stock Units or Performance Awards
denominated in shares of Common Stock for more than 50,000 shares of Common Stock in the aggregate,
or (iii) Performance Awards denominated in cash valued at maximum at more than $750,000.

7. Eligibility.

          An Award may be granted only to an individual who satisfies the following eligibility
requirements on the date the Award is granted:

          (a) The individual is a key employee or non-employee director of the Corporation or a key
employee of a Related Corporation (including an entity that becomes a Related Corporation after the
adoption of this Plan). For this purpose, an individual shall be considered to be an “employee”
only if there exists between the individual and the Corporation or a Related Corporation the legal
and bona fide relationship of employer and employee. In determining whether such a relationship
exists, the regulations of the United States Treasury Department relating to the determination of
the employment relationship for the purpose of collection of income tax on wages at the source
shall be applied. Also for this purpose, a “key employee” shall mean an employee of the
Corporation or a Related Corporation whom the Administrator determines qualifies as a key employee
based on the nature and extent of such employee’s duties, responsibilities, personal capabilities,
performance, potential or any combination of such factors.

          (b) With respect to the grant of an Incentive Stock Option, the individual must be an employee
who does not own, immediately before the time that the Incentive Stock Option is granted, stock
possessing more than ten percent (10%) of the total combined voting power of all classes of stock
of the Corporation or a Related Corporation; provided, that an individual owning more than ten
percent (10%) of the total combined voting power of all classes of stock of the Corporation or a
Related Corporation may be granted an Incentive Stock Option if the price at which such Option may
be exercised is greater than or equal to 110 percent of the fair market value of the shares on the
date the Option is granted and the period of the Option does not exceed five years. For this
purpose, an individual will be deemed to own stock which is attributed to him under Section 424(d)
of the Code.

8. Options Grants to Employees.

          Subject to the limitations of the Plan, the Administrator may in its sole and absolute
discretion grant Options to such eligible individuals, in such numbers, upon such terms and
conditions and at such times as the Administrator shall determine. Both Incentive Stock Options
and Nonqualified Stock Options may be granted under the Plan. To the extent that an Option is
designated as an Incentive Stock Option but does not qualify as such under Section 422 of the Code,
the Option (or portion thereof) shall be treated as a Nonqualified Option. Each grant shall
specify the number of shares of Common Stock to which the Option pertains, subject to the

7

 

limitations set forth in Sections 5 and 6 of this Plan. In addition, the following provisions
shall apply with respect to Options:

          (a) The Option Price shall be no less than the Fair Market Value per share of the Common Stock
on the date the Option is granted, as established by the Administrator and set forth in the terms
of the Award Agreement.

          (b) The period during which an Option may be exercised (the “Option Period”) shall be
determined by the Administrator when the Option is granted and shall extend from the date on which
the Option is granted to a date not more than ten years from the date on which the Option is
granted. Subject to the restriction contained in the preceding sentence and as otherwise provided
in this Plan, an Option shall be exercisable on such date or dates, during such period, for such
number of shares, and subject to such conditions as shall be determined by the Administrator and
set forth in the Award Agreement evidencing such Option, subject to the discretion of the
Administrator to accelerate the time or times when Options may be exercised. Any Option or portion
thereof not exercised before the expiration of the Option Period shall terminate. Any grant may
provide that the Option will become exercisable in the event of termination of employment or a
Change in Control of the Corporation or any other similar transaction or event.

          (c) An Option may be exercised by giving written notice to the Administrator or its designee
at such time and place as the Administrator shall direct. Such notice shall specify the number of
shares to be purchased pursuant to an Option and the aggregate purchase price to be paid therefor,
and shall be accompanied by the payment of such purchase price. Such payment shall be in the form
of (i) cash; (ii) shares of Common Stock owned by the Participant for at least six months at the
time of exercise and acceptable to the Administrator; or (iii) any combination thereof; provided,
that the Administrator may, in its sole and absolute discretion and subject to such terms and
conditions as it deems appropriate, also permit all or a portion of the purchase price to be paid
by delivery of written notice of exercise to the Corporation and delivery to a broker of written
notice of exercise and irrevocable instructions to promptly deliver to the Corporation the amount
of sale or loan proceeds to pay the Option Price. Shares tendered in payment on the exercise of an
Option shall be valued at their Fair Market Value on the date of exercise.

          (d) No Option shall be exercised unless the Participant, at the time of exercise, shall have
been an employee or non-employee director continuously since the date the Option was granted unless
provided for otherwise in other agreements between the Participant and the Corporation, subject to
the following:

     (i) An Option shall not be affected by any change in the terms, conditions or status of
the Participant’s employment, provided that the Participant continues to be an employee of
the Corporation or a Related Corporation.

     (ii) The employment relationship of a Participant may, in the discretion of the
Administrator, be treated as continuing intact for any period that the Participant is on
military or sick leave or other bona fide leave of absence, provided that the period of such
leave does not exceed 90 days, and in any event shall be treated as continuing during

8

 

such period as the Participant’s right to reemployment is guaranteed either by statute or by
contract. The employment relationship of a Participant may, in the discretion of the
Administrator, also be treated as continuing intact while the Participant is not in active service because of Disability; provided, that shares acquired by the Participant
pursuant to exercise of an Incentive Stock Option shall be subject to Sections 421 and 422
of the Code only if and to the extent that such exercise occurs within twelve months less
one day following the date the Participant’s employment is considered to be terminated
because of such Disability under Section 422. The Administrator shall determine the date of
a Participant’s termination of employment for any reason (the “termination date”).

     (iii) Unless an individual Award Agreement provides otherwise, if the employment of a
Participant is terminated because of death or Disability, the Option may be exercised
following such termination only to the extent determined by the Administrator in its
discretion and set forth in the Award Agreement; provided that such discretion may include a
decision to accelerate the date for exercising all or any part of the Option which was not
otherwise exercisable on the termination date. In that event, the Option must be exercised,
if at all, prior to the earlier of: (A) the first anniversary of the Participant’s death or
Disability, or (B) the close of the Option Period. In the event of the Participant’s death,
such Option shall be exercisable by such person or persons as shall have acquired the right
to exercise the Option by will or by the laws of intestate succession. In the event of the
Participant’s Disability , such Option may be exercised by the Participant’s guardian or
legal representative.

     (iv) Unless an individual Award Agreement provides otherwise, if the employment of a
Participant is terminated for any reason other than death, Disability or Cause, his or her
Option may be exercised only to the extent determined by the Administrator in its discretion
and set forth in the Award Agreement; provided, that such discretion may include a decision
to accelerate the date of exercising all or any part of the Option which was not otherwise
exercisable on the Participant’s termination date. In that event, the Option must be
exercised, if at all, prior to the earlier of: (A) 90 days following the Participant’s
termination date for any reason other than death, Disability or Cause, or (B) the close of
the Option Period.

     (v) Unless an individual agreement provides otherwise, if the employment of a
Participant is terminated for Cause, his or her Option shall terminate and no longer be
exercisable as of the Participant’s termination date (whether or not the Option previously
became exercisable).

          (e) In no event shall there first become exercisable by the Participant in any one calendar
year Incentive Stock Options granted by the Corporation or any Related Corporation with respect to
shares of Common Stock having an aggregate fair market value (determined at the time the Incentive
Stock Option is granted) greater than $100,000. If the limitation is exceeded, Options that cause
the limitation to be exceeded shall be exercisable nonetheless as Nonqualified Stock Options.

          (f) A Participant or his or her legal representative, legatees or distributees shall not be
deemed to be the holder of any shares subject to an Option and shall not have any rights as a

9

 

shareholder unless and until certificates for such shares are issued (electronic or otherwise) to
him/her or them under the Plan. A certificate or certificates (electronic or otherwise) for shares
of Common Stock acquired upon exercise of an Option shall be issued in the name of the Participant (or his or her beneficiary) and distributed to the Participant (or his or her
beneficiary) as soon as practicable following receipt of proper notice of exercise and payment of
the Option Price and any other applicable tax withholdings.

          (g) A Participant shall notify the Corporation of any sale or other disposition of shares of
Common Stock acquired pursuant to an Option that was an Incentive Stock Option if such sale or
disposition occurs (i) within two years of the grant of the Option or (ii) within one year of the
issuance of shares of Common Stock to the Participant. Such notice shall be in writing and
directed to the Secretary of the Corporation. The Corporation shall not be liable to any
Participant if an Option intended to be an Incentive Stock Option does not qualify as such.

9. Restricted Stock and Restricted Stock Unit Grants to Employees.

          Subject to the limitations of the Plan, the Administrator may in its sole and absolute
discretion grant Restricted Stock and Restricted Stock Units to such eligible individuals, in such
numbers, upon such terms and conditions and at such times as the Administrator shall determine and
set forth in an Award Agreement.

          (a) Each grant shall specify the number of shares of Common Stock to which it pertains,
subject to the limitations set forth in Sections 5 and 6 of this Plan.

          (b) Each grant shall specify the required period or periods (if any) of continuous service by
the Participant with the Company and/or any performance or other conditions to be satisfied before
the restrictions on the Restricted Stock or Restricted Stock Units (or installments thereof) shall
lapse. Any grant may provide for vesting in the event of a termination of employment or a Change
in Control of the Corporation or any other similar transaction or event. To the extent the
Participant’s rights in Restricted Stock or Restricted Stock Units are forfeitable and
nontransferable for a period of time, the Administrator on the date of grant shall determine the
maximum period over which the rights may become nonforfeitable and transferable, except that such
period shall not exceed 10 years.

          (c) Restricted Stock shall be evidenced in such manner as the Administrator may deem
appropriate, including book-entry registration or issuance of one or more stock certificates. The
Administrator shall require that any stock certificates evidencing any Restricted Stock be held in
the custody of the Corporation and/or bear a legend until the restrictions lapse, and that, as a
condition of any Restricted Stock award, the Participant shall have delivered a stock power,
endorsed in blank, relating to the shares of Common Stock covered by such Award. As a condition to
grant, if required by applicable law or otherwise determined by the Administrator, Participants may
be required to pay a minimum purchase price. Restricted Stock is nontransferable and subject to
forfeiture until the restrictions lapse.

          (d) Restricted Stock Units represent a contractual right to receive the economic equivalent of
an award of Restricted Stock. At the discretion of the Administrator as set forth in the Award
Agreement, Restricted Stock Units may be settled in shares of Common Stock, the

10

 

cash value of shares of Common Stock, or a combination. No shares of Common Stock will be issued at the time an
award of Restricted Stock Units is made.

          (e) Unless otherwise determined by the Administrator and except as provided in (f) below,
Participants holding Restricted Stock may exercise full voting rights and other rights as a
shareholder with respect to those shares prior to the lapse of restrictions, except that the
Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of shares
granted pursuant to Restricted Stock. The transfer limitations set forth in the preceding sentence
shall not apply after the Restricted Stock becomes transferable and no longer forfeitable.
However, Participants holding Restricted Stock Units (as opposed to Restricted Stock) shall not
have any rights as a shareholder prior to the actual issuance of shares of Common Stock.

          (f) Unless otherwise determined by the Administrator, Participants holding Restricted Stock or
Restricted Stock Units shall be entitled to receive all dividends (or dividend equivalents) and
other distributions paid with respect to the shares underlying the Awards. Such dividends (or
dividend equivalents) may be paid in any of the following manners, as the Administration may
determine from time to time:

	 	(i)	 	in cash;
	 
	 	(ii)	 	in shares of common stock bearing no restrictions; or
	 
	 	(iii)	 	as credits to an account established for each Participant and invested in
additional Restricted Stock or Restricted Stock Units on the distribution date of the
applicable dividends; provided that the restrictions on any additional shares or
units..

          (g) To the extent the Restricted Stock or Restricted Stock Units are designated as
“performance-based” compensation under Section 162(m) of the Code, they shall be subject to the
restrictions set forth in Section 11.

          (h) Unless an individual Award Agreement provides otherwise, if the employment of a
Participant is terminated for Cause, his or her Restricted Stock and Restricted Stock Units shall
terminate and can no longer become vested or payable as of the Participant’s termination date.

10. Performance Awards to Employees.

          Subject to the limitations of the Plan, the Administrator may in its sole and absolute
discretion grant Performance Awards to such eligible individuals, in such numbers, upon such terms
and conditions and at such times as the Administrator shall determine. Performance Awards may be
denominated in cash (e.g. units valued at $100) or shares of Common Stock. Performance Awards may
be settled in cash or shares of Common Stock, at the discretion of the Administrator, as set forth
in the Award Agreement.

          (a) Each grant shall specify the number of shares of Common Stock or units to which it
pertains, subject to the limitations set forth in Sections 5 and 6 of this Plan. No shares of
Common Stock will be issued at the time an award of Performance Shares is made.

11

 

          (b) Each grant shall specify the performance conditions and required period or periods (if
any) of continuous service by the Participant with the Corporation to earn the Performance Awards.
The Administrator may provide that if performance relative to the performance goals exceeds targeted levels, then the number of Performance Awards earned shall
be a multiple, not in excess of 200%, of those that would be earned for target performance. Any
grant may provide for the settlement of Performance Awards in the event of a termination of
employment or a Change in Control of the Corporation or any other similar transaction or event.
The Administrator, on the date of grant, shall determine the maximum period over which Performance
Awards may be earned, except that such period shall not exceed 10 years.

          (c) Unless otherwise determined by the Administrator, Participants holding Performance Awards
shall not have any rights as a shareholder prior to the actual issuance of shares of Common Stock,
if applicable.

          (d) To the extent the Performance Awards are designated as “performance-based” compensation
under Section 162(m) of the Code, they shall be subject to the restrictions set forth in Section
11.

          (e) Unless an Individual Award Agreement provides otherwise, if the employment of a
Participant is terminated for Cause, his or her Performance Awards shall terminate and no longer be
payable or settled as of the Participant’s Termination Date.

11. Qualified Performance-Based Awards.

          The Administrator may designate whether any Award granted to a Covered Employee is intended to
qualify as “performance-based compensation” within the meaning of Section 162(m) of the Code.

          (a) Any Award designated as intended to be performance-based compensation shall be, to the
extent required by Section 162(m) of the Code, either (1) conditioned upon the achievement of one
or more of the following performance measures or (2) granted based upon the achievement of one or
more of the following performance measures: total shareholder return, stock price, operating
earnings, net earnings, return on equity or capital, income, level of expenses, growth in revenue,
or other performance measures deemed by the Administrator to be appropriate.. Performance goals
may be established on a Corporation-wide basis or with respect to one or more business units or
divisions or subsidiaries. The targeted level or levels of performance (which may include minimum,
maximum and target levels of performance) with respect to such performance measures may be
established at such levels and in such terms as the Administrator may determine, in its discretion,
including in absolute terms, as a goal relative to performance in prior periods, or as a goal
compared to the performance of one or more comparable companies or an index covering multiple
companies. When establishing performance goals for a performance period, the Administrator may
exclude any or all “extraordinary items” as determined under U.S. generally accepted accounting
principles including, without limitation, the charges or costs associated with restructurings of
the Company, discontinued operations, other unusual or non recurring items, and the cumulative
effects of accounting changes. The Administrator may also adjust the performance goals for any
performance period as it deems equitable in recognition of unusual or non-recurring events

12

 

affecting the Corporation, changes in applicable tax laws or accounting principles, or such other
factors as the Administrator may determine; including, without limitation, any adjustments that
would result in the Corporation paying non-deductible compensation to a Participant.

          (b) Any Award that is intended to qualify as “performance-based compensation” shall also be
subject to the following:

     (i) No later than 90 days following the commencement of each performance period (or
such other time as may be required or permitted by Section 162(m) of the Code), the
Administrator shall, in writing, (1) grant a target number of shares or units, (2) select
the performance goal or goals applicable to the performance period and (3) specify the
relationship between performance goals and the number of shares or units that may be earned
by a Participant for such performance period.

     (ii) Following the completion of each performance period, the Administrator shall
certify in writing whether the applicable performance targets have been achieved and the
number of units or shares, if any, earned by a Participant for such performance period.

     (iii) In determining the number of units or shares earned by a Participant for a given
performance period, subject to any applicable Award Agreement, the Administrator shall have
the right to reduce (but not increase) the amount earned at a given level of performance to
take into account additional factors that the Administrator may deem relevant to the
assessment of individual or corporate performance for the performance period.

12. Awards to Non-Employee Directors.

          (a) Annual Grant. Following the close of business of the Corporation on the date of the
annual meeting of shareholders of the Corporation held each year during the term of the Plan,
commencing with the 2005 annual meeting, each non-employee director who is eligible to receive an
Award under the Plan shall be granted such number of Options, shares of Restricted Stock,
Restricted Stock Units, or other forms of long-term compensation available under the Plan, as the
full Board of Directors, in its sole discretion, shall determine;

          (b) Additional Grants Upon Other Election or Appointment to the Board. In addition to the
grant of Options pursuant to Section 12(a) herein, the Committee shall have discretion to grant
Awards to any non-employee Director who is appointed or elected to the Board of Directors at any
time other than at the annual meeting of shareholders of the Corporation.

          (c) Awards granted to non-employee directors may or may not have similar terms as Awards to
employees.

13. Nontransferability of Awards.

          (a) Awards shall not be transferable other than by will or the laws of intestate succession.
An Option shall be exercisable during the Participant’s lifetime only by him/her or by his/her
guardian or legal representative on his/her behalf.

13

 

14. Restrictions on Awards.

          (a) The Administrator may impose such restrictions on any shares issued pursuant to the
exercise of Options or the settlement of any Award granted hereunder as it may deem advisable,
including without limitation restrictions under the Securities Act, under the requirements of the
applicable stock exchange and under any Blue Sky or securities laws applicable to such shares.
Notwithstanding any other Plan provision to the contrary, the Corporation shall not be obligated to
issue, deliver or transfer shares of Common Stock under the Plan, or take any other action, unless
such issuance, delivery, transfer or other action is in compliance with all applicable laws, rules
and regulations (including but not limited to the requirements of the Securities Act or withholding
tax requirements). The Administrator may cause a restrictive legend to be placed on any
certificate issued pursuant to the exercise of an Option, the vesting of Restricted Stock or the
settlement of an Award granted hereunder in such form as may be prescribed from time to time by
applicable laws and regulations or as may be advised by legal counsel.

          (b) The Administrator may postpone any grant, exercise, vesting or payment of any Award for
such time as the Administrator in its sole discretion may deem necessary (i) to effect, amend or
maintain any necessary registration of the Plan or shares of Common Stock issuable pursuant to
Awards under the securities law; (ii) to permit any action to be taken in order to (A) list such
shares of Common Stock or other shares of stock of the Corporation on a stock exchange if shares of
Common Stock or other shares of stock of the Corporation are not then listed on such exchange or
(B) comply with restrictions or regulations incident to the maintenance of a public market for its
shares of Common Stock or other shares of stock of the Corporation, including any rules and
regulations of any stock exchange on which the shares of Common Stock or other shares of stock of
the Corporation are listed; (iii) to determine that such shares of Common Stock are exempt from
such registration or that no action of the kind referred to in (ii)(B) above needs to be taken;
(iv) to comply with any other applicable law, including without limitation, securities law; (v)
during any such time the Corporation or any Related Corporation is prohibited from doing any such
acts under applicable law, including without limitation, during the course of any investigation or
under any contract, loan agreement or covenant or other agreement to which the Corporation or
Related Corporation is a party; (vi) to otherwise comply with any prohibition on such acts or
payments during any applicable blackout period; and the Corporation shall not be obligated by
virtue of any Award Agreement or any other provision of the Plan to recognize the grant, exercise,
vesting or payment of an Award or to grant, sell or issue shares of Common Stock or make any other
payments under such circumstances. Any such postponement shall not extend the term of the Award
and neither the Corporation nor the Administrator shall have any obligation or liability to any
Participant or to any other person with respect to shares of Common Stock or payments to which the
Award shall lapse because of such postponement.

15. No Right to Employment.

          Nothing in the Plan shall confer upon the Participant any right to continue in the employment
or service of the Corporation or a Related Corporation, or to interfere in any way with the right
of the Corporation or a Related Corporation to terminate the Participant’s employment or service at
any time for any reason whatsoever.

14

 

16. Amendment and Termination.

          The Plan may be amended or terminated at any time by the Board of Directors of the
Corporation; provided, that approval of an amendment to the Plan by the shareholders of the
Corporation shall be required to the extent, if any, that shareholder approval of such amendment is
required by applicable law, rule or regulation, including, by way of illustration and not
limitation, any amendment that would increase the number of shares of Common Stock that may be
issued under the Plan or modify the requirements for eligibility for participation or change the
performance objectives with respect to Awards to Covered Employees if such Awards are intended to
qualify as “performance-based compensation” under Section 162(m) of the Code. In addition, in no
event shall the Company reprice any outstanding Option (or cancel and regrant a new Option with a
lower Option Price) without shareholder approval.

17. Withholding.

          The Corporation shall withhold all required local, state and federal taxes from any amount
payable in cash with respect to an Award. The Corporation shall require any recipient of an Award
payable in shares of the Common Stock to pay to the Corporation in cash the amount of any tax or
other amount required by any governmental authority to be withheld and paid over by the Corporation
to such authority for the account of such recipient. Notwithstanding the foregoing, the Corporation
may establish procedures to permit or require a recipient to satisfy such obligation in whole or in
part, and any other local, state or federal income tax obligations relating to such an Award (but
only up to the statutory minimum), by electing (the “election”) to have the Corporation withhold
shares of Common Stock from the shares to which the recipient is entitled. The number of shares to
be withheld shall have a Fair Market Value as of the date that the amount of tax to be withheld is
determined as nearly equal as possible to (but not exceeding) the amount of such obligations being
satisfied. Each election must be made in writing to the Administrator in accordance with election
procedures established by the Administrator.

18. Applicable Law.

          Except as otherwise provided herein, the Plan shall be construed and enforced according to the
laws of the State of North Carolina.

19. Change of Control.

          (a) Unless the Committee determines otherwise at the time of grant and sets forth in the Award
Agreement, in the event the Awards are assumed by an acquirer in accordance with (c) below and a
Participant’s employment or service is involuntarily terminated without Cause during the 24-month
period following a Change of Control:

     (i) all Options, Restricted Stock and Restricted Stock Units outstanding as of the date
of such Change of Control shall become fully vested and payable and, if applicable,
exercisable, whether or not then vested or exercisable as of such termination of the
Participant’s employment or service; and

15

 

     (ii) all Performance Awards shall vest at target and be paid pro-rata based on
completed days in the performance period, as of the date of Participant’s termination of
employment or service.

          (b) Notwithstanding the foregoing, if the Committee reasonably determines, in good faith,
prior to the Change of Control that such outstanding Awards will not be assumed as described in (c)
below (such assumed Awards being referred to as “Assumed Awards”) by the acquirer, the Awards shall
immediately become full vested (at target for Performance Awards) and, if applicable, exercisable
and payable. Additionally, in that case, in the event of or in anticipation of the Change of
Control, the Committee in its discretion (i) may declare that some or all outstanding Options
previously granted under the Plan shall terminate as of the date before or on the Change of Control
without any payment to the holder of the Option, provided the Committee gives prior written notice
to the Participant of such termination and gives such Participant the right to exercise his or her
outstanding Options before such date or (ii) may terminate before or on the Change of Control some
or all outstanding Options previously granted under the Plan in consideration of payment to the
holder of the Option, with respect to each shares of Common Stock for which the Option is then
exercisable, of the excess, if any, of the Fair Market Value on such date of the Common Stock
subject to the exercisable portion of the Option over the Option Price. The payment described in
(ii) above may be made in any manner the Committee determines, including cash, stock or other
property. In the event of or in anticipation of a Change of Control, the Committee in its
discretion also may take such action to provide that all Restricted Stock and Restricted Stock
Units outstanding shall become fully vested and payable and all Performance Awards shall vest and
be payable pro rata as described above. The Committee may take the actions described in this
Section 19(b), other than the accelerated vesting which applies to all outstanding Awards, with
respect to some or all outstanding Awards or on an Award-by-Award basis, which actions need not be
uniform with respect to all outstanding Awards.

          (c) Assumed Awards must: (i) be based on securities which are traded on an established United
States securities market, or which will be so traded within 60 days of the Change of Control; (ii)
provide the Participant with rights and entitlements substantially equivalent to or better than the
rights, terms and conditions applicable under the original Award, including, but not limited to, an
identical or better exercise or vesting schedule and identical or better timing and methods of
payment; and (iii) have substantially equivalent economic value to the original Award (determined
at the time of the Change of Control).

     20. General Provisions.

          (a) This Plan, insofar as it provides for Awards, shall be unfunded, and the Corporation shall
not be required to segregate any assets that may at any time be represented by Awards under this
Plan. Any liability of the Corporation or any person with respect to any Award under this Plan
shall be based solely upon any contractual obligations that may be created thereto. No such
obligation of the Corporation shall be deemed to be secured by any pledge of, or other encumbrance
on, any property or assets of the Corporation or any Related Corporation.

16

 

          (b) Nothing in this Plan shall be construed to limit the authority of the Corporation to
exercise its corporate rights and powers, including, by way of illustration and not by way of
limitation, the right to grant Awards for proper corporate purposes other than under the Plan to
any employee or to any other person, firm, corporation, association or other entity, or to grant
Award, or assume such Awards of any person, in connection with any acquisition, purchase,
lease, merger, consolidation, reorganization, or otherwise, of all or part of the business or
assets of any person, firm, corporation, association or other entity.

          (c) Notwithstanding any other provision hereof, the Committee may grant Awards in substitution
for performance shares, incentive awards, stock awards, stock options, stock appreciation rights or
similar awards held by an individual who becomes a key employee or non-employee director of the
Corporation or a key employee of a Related Corporation in connection with a transaction described
in Section 424(a) of the Code (or which would be so described if the substitution or assumption
under that Section had occurred) with the Corporation or a Related Corporation. Notwithstanding
any other provisions of this Plan (other than the limitations of Section 5), the terms of such
substitute Awards shall be as the Committee, in its discretion, determines is appropriate.

          IN WITNESS WHEREOF, this 2005 Equity Incentive Plan has been executed in behalf of the
Corporation as of the ___ day of                                         .

	 	 	 	 	 
	 	INSTEEL INDUSTRIES, INC.

 	 
	 	By:  	 	 
	 	 	Title: 	 	 
	 

	 	 	 
	Attest:
	 	 
	 
	 	 
	 

Secretary

	 	 
	 
	 	 
	[Corporate Seal]
	 	 

17

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00129-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00129-of-00352.parquet"}]]