AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT
EXHIBIT 99.2
“Group B”
AMENDED AND RESTATED CHANGE IN
CONTROL SEVERANCE AGREEMENT
CONTROL SEVERANCE AGREEMENT
THIS AMENDED AND RESTATED CHANGE IN CONTROL SEVERANCE AGREEMENT (the “Agreement”) is made and
entered into this 14th day of November, 2006, between INSTEEL INDUSTRIES, INC., a North
Carolina corporation, (the “Company”), and Xxxx X. Xxxxxxxx (the “Executive”). This Agreement
amends, restates and supersedes the Change in Control Severance Agreement between the Company and
the Executive dated May 20, 2003. Certain capitalized terms used in this Agreement are defined in
Section 6.
R E C I T A L S
The Company acknowledges that Executive has made and is expected to make significant
contributions to the growth and success of the Company. The Company also acknowledges that there
exists the possibility of a Change in Control of the Company. The Company recognizes that the
possibility of a Change in Control may contribute to uncertainty on the part of senior management
and may result in the departure or distraction of senior management from their operating
responsibilities.
Strong and competent management of the Company is essential to advancing the best interests of
the Company and its partners and its shareholders. In the event of a threat or occurrence of a bid
to acquire or change control of the Company or to effect a business combination, it is particularly
important that the business of the Company be continued with a minimum of disruption. The Company
believes that the objective of securing and retaining strong management will be achieved if the
Company’s key management employees are given assurances of employment security so that they will
not be distracted by personal uncertainties and risks created by such circumstances. The purpose
of this amended and restated Agreement is to amend and restate the Change in Control Severance
Agreement between the Executive and the Company dated May 20, 2003 to take into account Section
409A of the Internal Revenue Code of 1986, as amended (the “Code”).
NOW, THEREFORE, in consideration of the mutual covenants and obligations herein, the Company
and Executive agree as follows:
1. Effective Date. The Effective Date of this Agreement is the date set forth above.
2. Term of Agreement. The Term of this Agreement begins on the Effective Date and ends on the day
before May 20, 2007. Notwithstanding the preceding sentence, the Term of this Agreement shall be
extended for an additional twelve month period, as of each anniversary of May 20, 2007, unless
either party gives written notice, at least ninety days prior to the applicable anniversary, that
the Term of this Agreement will not be extended.
3. Right to Receive Termination Benefits. Executive shall be entitled to receive the Termination
Benefits described in Section 4 if (i) a Change in Control occurs during the Term of this Agreement
and (ii) within two years after the Control Change Date either (x) the Company terminates
Executive’s employment with the Company without Cause or (y) Executive resigns from the employment
of the Company and Executive has Good Reason to resign from the Company, and either (x) or (y), as
applicable, constitutes a Separation from Service with the Company.
No amounts will be payable under this Agreement unless Executive’s employment with the Company
terminates or is terminated as described in the foregoing subsection.
4. Termination Benefits. Upon a termination of Executive’s employment in accordance with Section
3, Executive shall be entitled to receive the following payments and benefits (the “Termination
Benefits”):
(a) A lump sum payment of any accrued but unpaid salary from the Company through the date
Executive’s employment terminates.
(b) A lump sum payment of any bonus that has been earned from the Company but which remains
unpaid as of Executive’s termination of employment.
(c) A lump sum reimbursement for any expenses Executive incurred on behalf of the Company
prior to termination of employment to the extent that such expenses are reimbursable under the
Company’s standard reimbursement policies but have not been reimbursed as of Executive’s
termination of employment.
(d) Continued payment of Executive’s base salary, for one year following Executive’s
termination, at the rate in effect on the date of Executive’s termination of employment or, if
greater, at the rate in effect on the Control Change Date. Except as provided in Section 19, such
payments shall be made in accordance with the Company’s normal payroll practices beginning with the
first payroll payment date following the Executive’s termination of employment.
(e) A lump sum payment equal to one times the average bonus paid to the Executive for the
three-year period prior to the Executive’s termination of employment.
(f) Reasonable outplacement services provided by the firm selected by Executive, the cost of
which will be paid by the Company; provided, however, that the Company’s obligation under this
subsection (f) will not exceed $15,000.
(g) Continued participation in the “employee welfare benefit plans” (as defined in Section
3(1) of the Employee Retirement Income Security Act of 1974, as amended) in which Executive
participates immediately prior to Executive’s date of termination, on such terms as are then in
effect, for one year following the termination of Executive’s employment with the Company and
payment by the Company of the entire cost or premium for continued coverage in the Company health
plan for a period of one year following Executive’s termination of
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employment. In the event that the continued coverage of Executive in any such employee
welfare benefit plan, including without limitation, the Company health plan, is barred by its
terms, the Company shall pay Executive, for one year following Executive’s termination of
employment, the cash equivalent of the portion of the insurance premium or other cost charged to
the Company for Executive’s participation in such employee welfare benefit plan(s), including the
entire insurance premium or other cost for coverage in the Company health plan, prior to
Executive’s termination of employment, plus an additional amount such that after payment of the
income and employment tax liability on such payment, Executive retains an amount equal to the
portion of the insurance premium or other cost charged to the Company for Executive’s participation
in such employee welfare benefit plans, including the entire insurance premium or other cost for
coverage in the Company health plan, prior to Executive’s termination of employment. Except as
provided in Section 19, such cash payments, in lieu of coverage, shall be made in accordance with
the Company’s normal payroll practices during such one-year period beginning with the first payroll
payment date following the Executive’s termination of employment.
(h) All stock options and any other stock-based awards outstanding immediately prior to
Executive’s termination of employment shall immediately vest and become exercisable by Executive
for the remainder of the term provided for in the agreement evidencing the stock option or award in
which such options or other stock-based awards were granted.
(i) Except as provided in Section 19, lump sum Termination Benefits shall be payable within 45
days of Executive’s termination of employment in accordance with Section 3 and the other
Termination Benefits shall be payable as described above. The payment of the Termination Benefits
shall be reduced by amounts required to be withheld for applicable income and employment taxes.
5. Limitation on Parachute Payments. The Termination Benefits and other payments, distributions
and benefits provided by the Company for Executive’s benefit pursuant to this Agreement and under
other plans, programs, and agreements may constitute Parachute Payments (as defined in Section
280G(b) of the Code that are subject to the “golden parachute” rules of Code section 280G and the
excise tax of Code section 4999. The Company and Executive intend to reduce any Parachute Payments
(but not any payment, distribution or other benefit that is not a Parachute Payment) if, and only
to the extent that, a reduction will allow Executive to receive a greater Net After Tax Amount than
he would receive absent a reduction. The remaining provisions of this Section describe how that
intent will be effectuated.
(a) The Company will first determine the amount of any Parachute Payments that are payable to
Executive. The Company will also determine the Net After Tax Amount attributable to total
Parachute Payments.
(b) The Company will next determine the amount of Executive’s Capped Parachute Payments.
Thereafter, the Company will determine the Net After Tax Amount attributable to Executive’s Capped
Parachute Payments.
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(c) Executive shall receive the total Parachute Payments unless the Company determines that
the Capped Parachute Payments will yield Executive a higher Net After Tax Amount, in which case
Executive will receive the Capped Parachute Payments. If Executive will receive the Capped
Parachute Payments, the total Parachute Payments will be adjusted by first reducing the amount
payable under any other plan, program, or agreement that, by its terms, requires a reduction to
prevent a “golden parachute” payment under Code section 280G; by next reducing Executive’s benefit,
if any, under this Agreement, to the extent it is a Parachute Payment; and thereafter by reducing
Parachute Payments payable under other plans and agreements (with the reductions first coming from
cash benefits and then from noncash benefits). The Company will notify Executive if it determines
that the Parachute Payments must be reduced to the Capped Parachute Payments and will send
Executive a copy of its detailed calculations supporting that determination. The Company will pay
Executive the Termination Benefits or the reduced Termination Benefits as determined in this
Section 5 as described in Sections 4 and 19.
6. Certain Definitions. As used in this Agreement, certain terms have the definitions set forth
below.
(a) Acquiring Person means that a Person, considered alone or together with all
Control Affiliates and Associates of that Person, is or becomes directly or indirectly the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of securities representing at
least twenty five percent (25%) of the Company’s then outstanding securities entitled to vote
generally in the election of the Board.
(b) Associate, with respect to any Person, is defined in Rule 12b-2 under the Exchange
Act; provided, however, that an Associate shall not include the Company or a
majority-owned affiliate of the Company.
(c) Board means the Board of Directors of the Company.
(d) Capped Parachute Payments means the largest amount of Parachute Payments that may
be paid without liability for any excise tax under Code section 4999.
(e) Cause means (i) willful, deliberate and continued failure by Executive (other than
for reason of mental or physical illness) to perform his duties as established by 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 Company; (ii) a material breach by
Executive of his fiduciary duties of loyalty or care to the Company; (iii) conviction 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 Company’s funds or property; or (v) willful, flagrant,
deliberate and repeated infractions of material published policies and regulations of the Company
of which Executive has actual knowledge.
(f) Change in Control means (i) a Person is or becomes an Acquiring Person; (ii)
holders of the securities of the Company entitled to vote thereon approve any agreement with a
Person (or, if such approval is not required by applicable law and is not solicited by the
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Company, the closing of such an agreement) that involves the transfer of more than fifty
percent (50%) of the Company’s and its affiliates’ total assets on a consolidated basis, as
reported in the Company’s consolidated financial statements filed with the Securities and Exchange
Commission; (iii) holders of the securities of the Company entitled to vote thereon approve a
transaction (or, if such approval is not required by applicable law and is not solicited by the
Company, the closing of such a transaction) pursuant to which the Company will undergo a merger,
consolidation, or statutory share exchange with a company, regardless of whether the Company is
intended to be the surviving or resulting entity after the merger, consolidation, or statutory
share exchange, other than a transaction that results in the voting securities of the Company
carrying the right to vote in elections of persons to the Board outstanding immediately prior to
the closing of the transaction continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than fifty percent (50%) of the
Company’s voting securities carrying the right to vote in elections of persons to the Board, or
such securities of such surviving entity, outstanding immediately after the closing of such
transaction; (iv) the Continuing Directors cease for any reason to constitute a majority of the
Board; (v) holders of the securities of the Company entitled to vote thereon approve a plan of
complete liquidation of the Company or an agreement for the sale or liquidation by the Company or
its affiliates of substantially all of the assets of the Company and its affiliates (or, if such
approval is not required by applicable law and is not solicited by the Company, the commencement of
actions constituting such a plan or the closing of such an agreement); or (vi) the Board adopts a
resolution to the effect that, in its judgment, as a consequence of any one or more transactions or
events or series of transactions or events, a Change in Control of the Company has effectively
occurred.
(g) Continuing Director means any member of the Board, while a member of the Board and
(i) who was a member of the Board on the Effective Date or (ii) whose nomination for or election to
the Board was recommended or approved by a majority of the Continuing Directors.
(h) Control Affiliate, with respect to any Person, means an affiliate as defined in
Rule 12b-2 under the Exchange Act.
(i) Control Change Date means the date on which a Change in Control occurs. If a
Change in Control occurs on account of a series of transactions or events, the “Control Change
Date” is the date of the last of such transactions or events in the series.
(j) Exchange Act means the Securities Exchange Act of 1934, as amended.
(k) Good Reason means Executive’s resignation from the employment of the Company and
its affiliates on account of one or more of the following events:
(i) a material diminution by the Board of the duties, functions and responsibilities of
Executive as the VICE PRESIDENT-ADMINISTRATION AND SECRETARY of the Company without his consent;
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(ii) the failure of the Company to permit Executive to exercise such responsibilities as are
consistent with Executive’s positions or are of a nature as are usually associated with such
offices of a corporation engaged in substantially the same business as the Company;
(iii) the Company’s causing Executive to relocate his employment more than fifty (50) miles
from Mt. Airy, North Carolina, or his place of primary residence as of the Effective Date of this
Agreement, without the consent of Executive;
(iv) the failure of the Company to make a payment to Executive when due or, if later, within
10 days after Executive has made demand for such payment;
(v) the Company’s material reduction of Executive’s (A) annual base salary, as in effect from
time to time after the Effective Date; (B) bonus, such that the aggregate threshold, target, or
maximum bonus projected for Executive for a fiscal year is lower than the aggregate threshold,
target, or maximum bonus, respectively, projected for Executive for the immediately preceding
fiscal year; or (C) employee welfare, fringe or pension benefits, other than reductions determined
to be necessary to comply with the Employee Retirement Income Security Act of 1974, as amended, or
to retain the tax-qualified or tax-favored status of the benefit under the Code, which
determination shall be made by the Board in good faith;
(vi) a breach of Section 10 of this Agreement;
(vii) the Company or the Board directs Executive to engage in unlawful or unethical conduct or
conduct contrary to the Company’s good business practices.
(l) Net After Tax Amount means the amount of any Parachute Payments or Capped
Parachute Payments, as applicable, net of taxes imposed under Code sections 1, 3101(b) and 4999 and
any state or local income taxes applicable as in effect on the date of the payment under Section 5
of this Agreement. The determination of the Net After Tax Amount shall be made using the highest
combined effective rate imposed by the foregoing taxes on income of the same character as the
Parachute Payments or Capped Parachute Payments, as applicable, in effect for the year for which
the determination is made.
(m) Person means any human being, firm, corporation, partnership, or other entity.
“Person” also includes any human being, firm, corporation, partnership, or other entity as defined
in sections 13(d)(3) and 14(d)(2) of the Exchange Act. The term “Person” does not include the
Company, or any Related Entity, and the term Person does not include any employee-benefit plan
maintained by the Company or any Related Entity, and any person or entity organized, appointed, or
established by the Company or any Related Entity for or pursuant to the terms of any such
employee-benefit plan, unless the Board determines that such an employee-benefit plan or such
person or entity is a “Person”.
(n) Related Entity means any entity that is part of a controlled group of corporations
or is under common control with the Company within the meaning of section 1563(a), 414(b) or 414(c)
of the Code.
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(o) Separation from Service means the termination of the Executive’s employment with
the Company 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
Company or any Related Entity as an employee at an annual rate that is at least equal to 20 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 20 percent of the average annual remuneration earned during
the final three full calendar years of employment (or if less, such lesser period), (ii) the
Executive continues to provide services to the Company or any Related Entity in a capacity other
than as an employee and such services are provided at an annual rate that is 50 percent or more 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 50 percent or more of the annual remuneration earned during the final three
full calendar years of employment (or, if less, such lesser period) or (iii) 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 Company 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 6(o), 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.
(p) Specified Employee generally means an employee who is (i) an officer of the
Company or a Related Entity having annual compensation greater than $140,000 (with certain
adjustments for inflation after 2006), (ii) a five-percent owner of the Company or a Related Entity
or (iii) a one-percent owner of the Company or a Related Entity 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.
7. Attorneys’ Fees. Executive shall be entitled to reimbursement by the Company for any attorneys’
fees and any other reasonable expenses that Executive incurs in enforcing or protecting his rights
under this Agreement. Subject to Section 19, such reimbursement shall be made within thirty days
following final resolution of the dispute or occurrence giving rise to such fees and expenses,
regardless of whether Executive is deemed the prevailing party in the resolution of the dispute or
occurrence.
8. No Assignment. Except as required by applicable law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance,
charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment
by operation of law and any attempt to effect any such action shall be null, void and of no effect.
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9. Governing Law. This Agreement shall be governed by the laws of the State of North Carolina
other than its choice of law provisions to the extent that they would require the application of
the laws of a State other than the State of North Carolina.
10. Successors. The Company shall require any successor to all or substantially all of the
Company’s respective business or assets (whether direct or indirect, by purchase, merger,
consolidation or otherwise), to expressly assume and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it if no such
succession had taken place. Failure of the Company to obtain such assumption and agreement prior
to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle
Executive to resign from the employ of the Company and to receive the Termination Benefits and
other benefits under this Agreement in the same amount and on the same terms as Executive would be
entitled to hereunder if he terminated his employment for Good Reason following a Change in
Control. References in this Agreement to the “Company” include the Company as herein before
defined and any successor to the Company’s business, assets or both which assumes and agrees to
perform this Agreement by operation of law or otherwise.
11. Binding Agreement. This Agreement shall inure to the benefit of and be enforceable by
Executive and his personal or legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If Executive dies while any amount remains payable to him
hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to
Executive’s devisee, legatee or other designee or, if there is none, to Executive’s estate.
12. No Employment Rights. Nothing in this Agreement confers on Executive any right to continuance
of employment by the Company or any Related Entity. Nothing in this Agreement interferes with the
right of the Company or a Related Entity to terminate Executive’s employment at any time for any
reason whatsoever, with or without Cause, subject to the requirements of this Agreement. Nothing
in this Agreement restricts the right of Executive to terminate his employment with the Company and
Related Entities at any time for any reason whatsoever, with or without Good Reason.
13. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall
be deemed an original but all of which together constitute one and the same instrument.
14. Entire Agreement. This Agreement expresses the whole and entire agreement between the parties
with reference to the payment of the Termination Benefits and supersedes and replaces any prior
agreement, understanding or arrangement (whether oral or written) by or between the Company and
Executive with respect to the payment of the Termination Benefits.
15. Notices. All notices, requests and other communications to any party under this Agreement
shall be in writing and shall be given to such party at its address set forth below or such other
address as such party may hereafter specify for the purpose by notice to the other party:
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| If to Executive: | 000 Xxxxxxxxx Xxxxx | |||
| Xxxxx Xxxx, Xxxxx Xxxxxxxx 00000 | ||||
| If to the Company: | Insteel Industries, Inc. | |||
| 0000 Xxxxx Xxxxx | ||||
| Xx. Xxxx, Xxxxx Xxxxxxxx 00000 |
Each notice, request or other communication shall be effective if (i) given by mail, seventy-two
hours after such communication is deposited in the mails with first class postage prepaid, address
as aforesaid or (ii) if given by any other means, when delivered at the address specified in this
Section 15.
16. Modification of Agreement. No waiver or modification of this Agreement shall be valid unless
in writing and duly executed by the party to be charged therewith. No evidence of any waiver or
modification shall be offered or received in evidence at any proceeding, arbitration or litigation
between the parties unless such waiver or modification is in writing, and duly executed. The
parties agree that this Section 16 may not be waived except as herein set forth.
17. Recitals. The Recitals to this Agreement are incorporated herein and shall constitute an
integral part of this Agreement.
18. Section 409A. 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 Company 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.
19. Delay of Payment. Notwithstanding any other provision of this Agreement, if the Executive is a
Specified Employee, to the extent necessary to comply with Section 409A of the Code, no payments or
benefits (which are not otherwise exempt) may be paid or provided hereunder before the date which
is six months after the Executive’s Separation from Service or, if earlier, his death. The amounts
which would have otherwise been required to be paid, and the benefits which would have otherwise
been provided, during such six months or, if earlier, until Executive’s death, shall be paid to
Executive in one lump sum cash payment as soon as administratively practical after the date which
is six months after Executive’s Separation from Service or, if earlier, after the Executive’s
death. Any other payments scheduled to be made or benefits scheduled to be provided after such
period shall be made or provided at the times otherwise designated in this Agreement disregarding
the delay of payment for the payments and benefits described in this Section 19.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above
written.
| XXXX X. XXXXXXXX | ||||
| /s/ Xxxx X. Xxxxxxxx | ||||
| INSTEEL INDUSTRIES, INC. | ||||
| By: | /s/ H.O. Xxxxx III | |||
| Name H.O. Xxxxx III | ||||
| Title President & CEO | ||||
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