<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996
Commission File Number 1-9929
INSTEEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0674867
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1373 BOGGS DRIVE, MOUNT AIRY, NORTH CAROLINA 27030
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (910) 786-2141
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
COMMON STOCK (NO PAR VALUE) NEW YORK STOCK EXCHANGE
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates
of the registrant as of December 4, 1996 was $47,762,928.
The number of shares outstanding of the registrant's common stock as
of December 4, 1996 was 8,435,461.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement to be delivered to
shareholders in connection with the 1997 Annual Meeting of Shareholders are
incorporated by reference into Part III.
<PAGE> 2
PART I
ITEM 1. BUSINESS.
GENERAL
Insteel Industries, Inc. ("Insteel" or "the Company") manufactures and
markets a wide range of wire products. The Company's wholly-owned subsidiary,
Insteel Wire Products Company, is comprised of two divisions, Insteel Wire
Products (IWP) and Insteel Construction Systems (ICS). IWP produces concrete
reinforcing products, industrial wire, agricultural fencing and nails for the
construction, home furnishings, appliance and agricultural industries. ICS
manufactures the Insteel 3-D(R) building panel for commercial and residential
construction.
Insteel's business strategy is to attain leadership positions in the
markets that it serves and continue expanding into higher value-added products
that offer more attractive returns than some of the Company's historical
businesses. Future growth will leverage off of the Company's core competencies
in the manufacture and sales of wire products.
From its founding in 1953 up until its entry into the wire business in
1974, Insteel manufactured concrete building products for the construction
industry. Sales of wire products expanded substantially during 1975 - 1988, as
the Company attained leadership positions in a number of its product lines and
markets. In 1988, the Company elected to focus its resources on the wire
industry and sold its concrete products division.
ICS was formed in 1989 as a joint venture with an Austrian firm, EVG.
In 1992, ICS entered into a joint venture agreement that created an affiliate,
Insteel Panel/MEX, to manufacture and distribute 3-D panel in Mexico. During
the second quarter of 1995, the Company purchased EVG's 30% minority interest,
and following the completion of the stock purchase, merged ICS into Insteel's
wholly-owned subsidiary, Insteel Wire Products Company.
During 1992 and 1993, the Company completed a strategic realignment
program which included the redeployment of production capacity and the
consolidation of the management and administrative responsibilities for its
previously stand-alone wire products subsidiaries. Three manufacturing
facilities were closed while three other facilities were significantly
expanded. In 1993, the Company merged its Expo Wire Company, Rappahannock Wire
Company, Forbes Steel & Wire Corporation and Intersteel Corporation
subsidiaries into one wholly-owned subsidiary, Insteel Wire Products Company.
Also during 1993, the Company terminated the scrap brokerage business that
bought and sold steel scrap on a commissioned basis.
In January 1994, Insteel entered the prestressed concrete strand ("PC
strand") business with the start-up of a new manufacturing facility. The
Company expanded the capacity of the operation in October 1996 with the
addition of a second production line.
In March 1996, the Company entered the collated fastener business with
the start-up of a new manufacturing facility.
The Company is proceeding with plans to enter the tire reinforcement
business with the reconfiguration and expansion of its Fredericksburg, Virginia
plant into a state-of-the-art bead wire manufacturing facility. Production is
scheduled to commence during the second quarter of fiscal 1997.
PRODUCTS
Concrete reinforcing products include welded wire fabric and PC
strand. Welded wire fabric is produced as both a commodity and specially
engineered reinforcing product for concrete pipe, commercial construction and
infrastructure construction. The product is manufactured in both rolls and mats
in widths of up to 13.5 feet. PC strand is a sophisticated concrete reinforcing
product used in both pretensioned and posttensioned prestressed concrete
construction for structural members, bridges, buildings, parking decks,
pilings, railroad ties and utility poles.
Industrial wire products are primarily sold to manufacturers of
bedding and furniture springs, appliances,
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strapping ties, display racks, grocery carts and chain link fences. Product
attributes vary with the end use and can include galvanizing for corrosion
resistance and intermediate heat-treating, in addition to stringent tolerance
requirements and mechanical properties.
Bulk nails consist of a wide variety of products such as common nails,
finishing nails, box nails, sinkers, duplex nails and galvanized nails where
corrosion resistance is required.
Collated fasteners are comprised of a broad range of collated nails
that are used by most of the pneumatic automatic power tools currently
manufactured. The Company anticipates future expansion into other collated
fastener products.
Agricultural products are primarily galvanized wire that is woven,
welded or formed into fencing or barbed wire used on farms as well as in
commercial and residential applications.
Insteel 3-D(R) building panel is a steel-reinforced polysterene
sandwich panel to which concrete is applied, creating an insulated
continuously-reinforced concrete structure. The product is used in the
construction of commercial buildings, prisons, apartments and homes. The 3-D
panel is far superior to conventional building methods in terms of strength,
durability, structural performance, insulation qualities, design flexibility,
ease of installation and speed of construction. The most critical factor
impacting customer acceptance has been, and continues to be, the cost effective
application of concrete.
MARKETING AND DISTRIBUTION
Insteel markets its products through sales representatives who are
employees of the Company. Insteel aligns its sales and marketing staff with the
markets that it is servicing. IWP's sales function is organized into two
customer-based business units: (1) concrete reinforcing, including welded wire
fabric and PC strand, and (2) wire products consisting of industrial wire, bulk
nails, collated fasteners and agricultural products. ICS has its own sales and
marketing organization which is focused on the promotion of the 3-D panel. The
Company sells its products directly to users and through numerous wholesalers,
distributors and retailers located primarily in the eastern part of the U.S. as
well as a portion of the Southwest.
Insteel delivers its products using either its own trucking fleet, or
via common or contract carriers, depending upon comparative costs and
scheduling requirements. In order to minimize freight costs, the Company
backhauls raw materials on its fleet whenever customer locations are in close
proximity to its suppliers.
RAW MATERIALS
The primary raw material required in the production of Insteel's wire
products is hot rolled carbon steel wire rod. The Company purchases wire rod
from both domestic and foreign suppliers.
In prior years, domestic wire rod markets remained tight and prices
escalated as U.S. manufacturers operated near full capacity. Recent increases
in domestic wire rod capacity together with announced expansions scheduled over
the next few years should have a favorable impact on the quality and
availability of the Company's most significant raw material. The Company
believes that raw materials and supplies are available in quantities adequate
to meet the Company's current and future needs.
COMPETITION
The markets in which the Company's business is conducted are highly
competitive. Insteel faces formidable competition in most areas of its business
activity, including competition from companies whose revenues and financial
resources are much larger than the Company's. Some of its competitors are
integrated steelmakers that produce both wire rod and wire products and offer
multiple product lines over broad geographical areas. Other competitors are
smaller independent wire mills that offer limited competition in certain
markets. Market participants compete on the basis of price, quality and
service. Selling prices tend to ultimately move with changes in raw material
costs, although spreads can widen or narrow depending upon market conditions.
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Technology has become a critical factor in maintaining competitive levels of
conversion costs and quality. The Company believes that it is the leading low
cost producer of wire products operating the most technologically-advanced
manufacturing facilities. In addition, the Company offers a broader range of
products through more diverse distribution channels than any of its
competitors. The Company believes that it is well-positioned to compete
favorably based on the industry's critical success factors.
EMPLOYEES
As of September 30, 1996, the Company employed 1,054 people. The
Company has a collective bargaining agreement with a labor union at its
Delaware plant covering its hourly employees. The Company believes that
relations with the labor union and employees are satisfactory.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance in all material respects
with applicable environmental laws and regulations. The Company has experienced
no material difficulties in complying with legislative or regulatory standards
and believes that these standards have not materially impacted Insteel's
financial position or results of operations. Compliance with future additional
environmental requirements could necessitate capital outlays. However, the
Company does not believe that these expenditures should ultimately result in a
material adverse effect on Insteel's financial position, results of operations,
liquidity or capital resources.
EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
- --------------------- ----- -------------------------------------------------
<S> <C> <C>
Howard O. Woltz, Jr. 71 Chairman of the Board and a Director
H.O. Woltz III 40 President, Chief Executive Officer and a Director
Gary D. Kniskern 51 Vice President - Administration and Secretary
Michael C. Gazmarian 37 Chief Financial Officer and Treasurer
</TABLE>
Howard O. Woltz, Jr., has been Chairman of the Board since 1958 and
has served in various capacities for more than 38 years. He had been President
of the Company from 1958 to 1968 and from 1974 to 1989. He previously served as
Vice President, General Counsel and a director of Quality Mills, Inc. (a
publicly-held manufacturer of knit apparel and fabrics), for more than 35 years
prior to its acquisition in December 1988 by Russell Corporation.
H. O. Woltz III, a son of Howard O. Woltz, Jr., was elected Chief
Executive Officer in February 1991 and has served in various capacities for
more than 18 years. He was named President and Chief Operating Officer in
August 1989. He had been Vice President of the Company since September 1988
and, previously, President of Rappahannock Wire Company, a subsidiary of the
Company, since 1981. Mr. Woltz has been a director of the Company since 1986
and also serves as President of Insteel Wire Products Company.
Gary D. Kniskern was elected Vice President - Administration in August
1994 and has served in various capacities for more than 17 years. He had been
Secretary and Treasurer since December 1984 and, previously, internal auditor
since 1979.
Michael C. Gazmarian was elected Treasurer in August 1994. He joined
Insteel as Chief Financial Officer in July 1994. He had been with Guardian
Industries Corp. since 1986, serving in various financial capacities. Most
recently, he was Vice President - Finance and Administration for Consolidated
Glass & Mirror Corp., a Guardian subsidiary.
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The executive officers listed above were elected by the Board of
Directors at its annual meeting held February 13, 1996. All officers serve
until the next annual meeting of the Board of Directors or until their
successors are elected and qualify. The next meeting at which officers will be
elected is scheduled for February 4, 1997.
ITEM 2. PROPERTIES.
Insteel's corporate headquarters and IWP's divisional office are
located in Mount Airy, North Carolina. ICS' divisional office is located in
Brunswick, Georgia. IWP has eight manufacturing facilities located in Andrews,
South Carolina (2 plants); Gallatin, Tennessee (2 plants); Dayton, Texas;
Fredericksburg, Virginia; Mount Airy, North Carolina; and Wilmington, Delaware.
ICS operates a manufacturing facility located in Brunswick, Georgia and a joint
venture operation located in Mexicali, B.C., Mexico.
The Company owns all of its properties with the exception of the
Mexican joint venture facility, which is leased. The Dayton, Fredericksburg,
Gallatin and Brunswick plants are all pledged as security under long-term
financing agreements. The Company owns and leases a fleet of trucks and
trailers for the delivery of its products.
The Company considers that its properties are in good operating
condition and that its machinery and equipment have been well-maintained.
Manufacturing facilities are suitable for their intended purposes and have
capacities adequate for current and projected needs for existing products.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is a party or which any of their property is a
subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS.
The Company's common stock is listed on the New York Stock Exchange
under the symbol III. At November 26, 1996, there were 761 shareholders of
record.
FINANCIAL INFORMATION BY QUARTER (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1996
- ----
OPERATING RESULTS
Net sales $57,505 $63,764 $72,991 $72,510
Gross profit 2,786 5,044 7,592 6,943
Net earnings (loss) (551) 656 2,138 2,000
PER SHARE DATA
Earnings (loss) per share (.07) .08 .25 .24
Dividends declared .06 .06 .06 .06
Stock prices
High 7.38 7.50 7.38 7.25
Low 6.38 6.50 6.63 6.63
1995
- ----
OPERATING RESULTS
Net sales $58,619 $66,003 $69,360 $66,362
Gross profit 4,674 6,943 6,698 3,592
Net earnings 684 4,026 1,596 30
PER SHARE DATA
Earnings per share .08 .48 .19 .01
Dividends declared .06 .06 .06 .06
Stock price
High 8.88 8.25 8.13 8.88
Low 6.88 7.00 7.00 7.00
</TABLE>
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ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales $266,770 $260,344 $247,045 $245,016 $239,559
Earnings before cumulative effect of
change in accounting principle* 4,243 6,336 3,772 6,292 4,345
Net earnings 4,243 6,336 5,097 6,292 4,345
Earnings per share before extraordinary
item and cumulative effect of change
in accounting principle (primary)* .50 .76 .45 .80 .68
Net earnings per share (primary) .50 .76 .61 .80 .68
Dividends per share .24 .24 .24 .23 .21
Total assets 145,663 146,135 138,879 133,042 112,766
Long-term debt 29,655 21,451 26,215 28,637 29,885
Shareholders' equity 73,677 71,212 66,461 62,930 44,944
</TABLE>
* See Item 7, below, and Note 1 of Notes to Consolidated Financial Statements
for information regarding the change in accounting principle.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
RESULTS OF OPERATIONS
STATEMENTS OF EARNINGS - SELECTED DATA
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 CHANGE 1995 CHANGE 1994
- -------------------------------- -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C>
Net sales $266,770 2 % $260,344 5% $247,045
Gross profit $ 22,365 2 % $ 21,907 11% $ 19,754
Percentage of net sales 8.4% 8.4 % 8.0%
Selling, general and
administrative expense $ 13,438 2 % $ 13,164 6% $ 12,455
Percentage of net sales 5.0% 5.1 % 5.0%
Operating income $ 8,927 2 % $ 8,743 20% $ 7,299
Percentage of net sales 3.3% 3.4 % 3.0%
Interest expense $ 2,273 (3)% $ 2,344 9% $ 2,160
Percentage of net sales 0.9% 0.9 % 0.9%
Earnings before income taxes $ 6,569 5 % $ 6,259 5% $ 5,949
Percentage of net sales 2.5% 2.4 % 2.4%
Effective income tax rate 35.4% (1.2)% 36.6%
</TABLE>
1996 COMPARED WITH 1995
Insteel's net sales rose 2% in 1996 to a record high for the second
consecutive year. Total wire product shipments increased 5% from the prior year
as a result of favorable market conditions during the second half of the year.
Average selling prices per ton decreased 3% from 1995 due to intense price
competition. PC strand sales continued to rise, increasing 17% from a year ago.
The new collated fastener facility, which started production in March 1996,
also contributed to the sales increase together with higher shipments of bulk
nail products. Agricultural fencing products experienced weak demand as a
result of the deferral of fencing projects caused by high grain costs and low
cattle prices, together with a surge in imports from Mexican competitors. Sales
of the Insteel 3-D(R) building panel increased 36% compared with 1995.
Gross profit increased 2% in 1996 compared with 1995 while remaining
flat as a percentage of sales at 8.4%. The softening in demand that reduced
margins during the second half of 1995 carried over into the first half of
1996. Margins continued to be compressed by the consumption of higher cost
inventories together with lower selling values. During the second half of
1996, margins recovered due to higher shipment volumes and wider spreads
between raw material costs and selling values. The PC strand operation was the
primary driver behind the year-to-year increase due to higher sales volumes and
decreasing conversion costs resulting from improved operating efficiencies.
Operating levels for the collated fastener facility steadily increased through
the second half of the year, generating income for the first time in the month
of September.
Selling, general and administrative expense (SG&A expense) increased
2% in 1996 compared with 1995 while declining slightly as a percentage of
sales. Start-up expenses and operating losses related to the collated fastener
and bead wire expansions reduced 1996 net earnings by ten cents a share. The
Company is undertaking a major upgrade of its management information systems
over the next two years that will enhance Insteel's manufacturing, customer
service and administrative processes.
Interest expense decreased 3% in 1996 compared with 1995 as a result
of lower interest rates.
The Company's effective income tax rate increased to 35.4% in 1996
compared with (1.2%) in 1995. The benefit for income taxes in 1995 reflects a
$2.4 million reduction relating to the future utilization of tax benefits
arising from the acquisition of the minority interest in Insteel Construction
Systems, Inc. (ICS). Excluding this tax adjustment, the effective income tax
rate for 1995 was 36.6%. The decrease in the comparable
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rate for 1996 is primarily due to a reduction in state income tax rates.
1995 COMPARED WITH 1994
Insteel's net sales reached a new high in 1995, increasing 5% compared
with the prior year. Total wire product shipments rose 2% from 1994. Average
wire selling prices per ton increased 3% from the prior year due to improved
product mix and higher price levels. The year was marked by dramatically
different business conditions in the first and second halves relative to 1994.
Sales for the first half of 1995 were up 17% over the same prior year period
due to strong market demand and the additional volume generated by the PC
strand facility. During the second half of the year, a softening business
environment and related build-up in customer inventories led to a 3% decline in
sales compared with the same period in 1994.
Gross profit rose 11% in 1995 compared with 1994 while increasing as a
percentage of sales to 8.4% from 8.0%. Strong customer demand in the first
half of the year widened spreads between selling prices and raw material costs
and favorably impacted gross margins. Weakening market conditions in the second
half of the year led to narrower spreads and excess inventories. In response,
production rates at most facilities were sharply reduced in order to realign
inventories with customer demand. The resulting increase in per-unit production
costs negatively impacted gross margins, particularly in the fourth quarter.
The PC strand operation, which incurred start-up losses during the first half
of 1994, was the driving factor behind the improvement in 1995.
SG&A expense increased 6% in 1995 compared with 1994 while increasing
slightly as a percentage of sales. The increase was primarily due to $400,000
of non-recurring expenses incurred during the fourth quarter.
Interest expense increased 9% in 1995 compared with 1994 due to higher
interest rates and the capitalization of interest related to the construction
of the PC strand facility in the first quarter of 1994.
The statement of earnings for 1994 reflects the funding of 30% of ICS'
losses by its former joint venture partner. As a result of the purchase of the
remaining interest in ICS in the second quarter of 1995, minority interest was
not applicable to the 1995 results.
The Company's effective income tax rate decreased to (1.2%) in 1995
compared with 36.6% in 1994. The benefit for income taxes in 1995 reflects a
$2.4 million reduction relating to the future utilization of tax benefits
arising from the acquisition of the remaining interest in ICS. In the first
quarter of 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," and recognized a $1.3
million benefit for previously unrecorded deferred tax assets related to other
net operating loss carryforwards. Excluding these tax adjustments, the
effective income tax rate for 1995 and 1994 was 36.6%.
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LIQUIDITY AND CAPITAL RESOURCES
SELECTED FINANCIAL DATA
($ IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996 1995 1994
- ---------------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net cash provided by operating activities $ 18,309 $ 4,543 $ 531
Net cash used for investing activities $(13,405) $ (5,328) $(10,053)
Net cash provided by (used for) financing activities $ (3,744) $(186) $ 1,467
EBITDA(1) $ 16,903 $ 16,400 $ 15,209
Working capital $ 33,648 $ 26,030 $ 25,183
Turnover ratios:(2)
Working capital(3) 9.2x 10.5x 11.0x
Receivables 8.2x 8.0x 7.9x
Inventories 6.8x 6.9x 8.7x
Total debt $ 32,843 $ 34,907 $ 33,562
Percentage of total capitalization 31% 33% 34%
Shareholders'equity $ 73,677 $ 71,212 $ 66,461
Percentage of total capitalization 69% 67% 66%
Total capital $106,520 $106,119 $100,023
Total debt to EBITDA 1.94 2.13 2.21
Total market capitalization to EBITDA 5.3x 5.9x 6.9x
</TABLE>
(1) Earnings before interest, taxes, depreciation and amortization.
(2) Based upon average year-end balances.
(3) Excluding cash and cash equivalents.
Cash generated from operating activities increased to $18.3 million in
1996 compared with $4.5 million in 1995 and $531,000 in 1994. Inventories were
reduced substantially during 1996, declining $8.7 million, or 21%, from
September 30, 1995. Weak market conditions and depressed shipment volumes
during the second half of 1995 had resulted in a sharp increase in inventories
from the prior year-end. EBITDA rose to $16.9 million in 1996 compared with
$16.4 million in 1995 and $15.2 million in 1994.
Investing activities consumed $13.4 million of cash in 1996 compared
with $5.3 million in 1995 and $10.1 million in 1994. Capital expenditures
amounted to $29.5 million during the three-year period as the Company started
up and expanded new facilities to produce PC strand and collated fasteners in
addition to upgrading its existing manufacturing operations. Construction is
underway on the reconfiguration of the Company's Fredericksburg, Virginia plant
into a state-of-the-art bead wire manufacturing facility. Total expenditures
for this project will approximate $15.0 million.
Financing activities used $3.7 million and $186,000 in 1996 and 1995,
respectively, while providing $1.5 million in 1994. In January 1996, the annual
lines of credit that provided total availability of $20.0 million were replaced
by a $35.0 million unsecured revolving credit facility that will expire in
November 2000. As a result, the short-term debt balance was refinanced under
the revolver and is now classified as a long-term liability.
Insteel's financial position remained strong in 1996. The Company's
total debt to capital ratio decreased to 31% at September 30, 1996 compared
with 33% in 1995 and 34% in 1994. At September 30, 1996, approximately $22.6
million was available under the revolving credit facility. The Company
currently expects to fund its capital expenditure requirements and liquidity
needs from a combination of internally generated funds, the revolving credit
facility and additional long-term sources of financing.
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FACTORS THAT MAY AFFECT FUTURE RESULTS
Insteel operates in a rapidly changing environment that involves a
number of risks and uncertainties, some of which are beyond the Company's
control. The Company has short delivery cycles and as a result does not have a
large order backlog, which makes the forecasting of revenue inherently
uncertain. As delivery lead times have decreased, the Company has generated a
higher percentage of sales from new order bookings in the same fiscal period.
Business conditions and growth in the general economy have an impact
on the Company's operating results. Seasonality also affects the Company's
operating results, particularly in the first quarter of the fiscal year, which
has historically represented the lowest quarterly sales volume. Shipments
typically increase in the second quarter and reach a high point in the third or
fourth quarter, reflecting the buying patterns of the Company's customers.
Wire rod market conditions also have a significant impact on the
Company's operating results. Hot rolled steel rod is the Company's primary raw
material and constitutes the largest component of manufacturing costs. Realized
selling values for the Company's products cannot always be adjusted in the
short-term to recover cost increases in steel rod, but generally tend to
reflect changes in these prices over the long run. Recently announced
expansions in domestic wire rod capacity should increase supplier competition
and favorably impact quality and availability. As order lead times begin to
decrease, the Company should be able to significantly reduce raw material
inventory levels in comparison to recent years when maintaining adequate supply
was a primary concern.
Insteel's business strategy continues to be focused on further
expansion into higher value-added products that offer superior returns relative
to the Company's traditional businesses. In March 1996, the Company entered the
collated fastener business with the start-up of a new manufacturing facility in
Andrews, South Carolina. In October 1996, the expansion of the PC strand
operation in Gallatin, Tennessee was completed with the start-up of a second
production line. The Company is also proceeding with plans to enter the tire
reinforcement business with the reconfiguration and expansion of its
Fredericksburg, Virginia facility. Production of tire bead wire is scheduled to
commence during the second quarter of fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(a) FINANCIAL STATEMENTS AND SCHEDULE
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets as of September 30, 1996 and 1995 12
Consolidated Statements of Earnings for the three years ended September 30, 1996 13
Consolidated Statements of Shareholders' Equity for the three years ended September 30, 1996 14
Consolidated Statements of Cash Flows for the three years ended September 30, 1996 15
Notes to Consolidated Financial Statements 16
Schedule II - Valuation and Qualifying Accounts for the three years ended September 30, 1996 24
Report of Independent Public Accountants 25
</TABLE>
(b) SUPPLEMENTARY DATA
Selected quarterly financial data appears under the caption "Financial
Information by Quarter (Unaudited)" in Item 5 of this report.
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INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-----------------------------------
1996 1995
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,423 $ 263
Accounts receivable, net 33,872 31,516
Inventories 31,845 40,566
Prepaid expenses and other 1,693 1,509
-------- --------
Total current assets 68,833 73,854
Property, plant and equipment, net 71,072 65,100
Other assets 5,758 7,181
-------- --------
Total assets $145,663 $146,135
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,841 $ 27,471
Accrued expenses 8,156 6,897
Short-term debt - 8,260
Current portion of long-term debt 3,188 5,196
-------- --------
Total current liabilities 35,185 47,824
Long-term debt 29,655 21,451
Deferred income taxes 6,410 5,010
Other liabilities 736 638
Commitments
Shareholders' equity:
Preferred stock, no par value
Authorized shares: 1,000
None issued - -
Common stock, $2 stated value
Authorized shares: 20,000
Issued and outstanding shares: 1996, 8,435; 1995, 8,393 16,871 16,787
Additional paid-in capital 38,192 38,033
Retained earnings 18,614 16,392
-------- --------
Total shareholders' equity 73,677 71,212
-------- --------
Total liabilities and shareholders' equity $145,663 $146,135
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 13
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Net sales $266,770 $260,344 $247,045
Cost of sales 244,405 238,437 227,291
-------- -------- --------
Gross profit 22,365 21,907 19,754
Selling, general and administrative expense 13,438 13,164 12,455
-------- -------- --------
Operating income 8,927 8,743 7,299
Interest expense 2,273 2,344 2,160
Minority interest in loss of subsidiary - - (625)
Other expense (income) 85 140 (185)
-------- -------- --------
Earnings before income taxes and cumulative effect of
change in accounting principle 6,569 6,259 5,949
Provision (benefit) for income taxes 2,326 (77) 2,177
-------- -------- --------
Earnings before cumulative effect of change in
accounting principle 4,243 6,336 3,772
Cumulative effect of change in accounting principle - - 1,325
-------- -------- --------
Net earnings $ 4,243 $ 6,336 $ 5,097
======== ======== ========
Earnings per share:
Before cumulative effect of change
in accounting principle $ .50 $ .76 $ .45
Cumulative effect of change in accounting principle - - .16
-------- -------- --------
Net earnings $ .50 $ .76 $ .61
======== ======== ========
Cash dividends per share $ .24 $ .24 $ .24
======== ======== ========
Weighted average shares outstanding 8,416 8,363 8,311
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 14
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
---------------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year $16,787 $16,667 $16,533
Stock options exercised 84 120 134
------- ------- -------
Balance, end of year $16,871 $16,787 $16,667
======= ======= =======
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year $38,033 $37,730 $37,434
Stock options exercised 159 303 296
------- ------- -------
Balance, end of year $38,192 $38,033 $37,730
======= ======= =======
RETAINED EARNINGS:
Balance, beginning of year $16,392 $12,064 $8,963
Cash dividends declared (2,021) (2,008) (1,996)
Net earnings 4,243 6,336 5,097
------- ------- -------
Balance, end of year $18,614 $16,392 $12,064
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 15
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 4,243 $ 6,336 $ 5,097
------- ------- -------
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Cumulative effect of change in accounting principle - - (1,325)
Depreciation and amortization 8,061 7,797 7,100
Minority interest in loss of subsidiary - - (625)
Accounts receivable, net (1,592) 1,819 (4,598)
Inventories 8,721 (11,816) (5,040)
Accounts payable and accrued expenses (2,372) 2,395 586
Other changes 1,248 (1,988) (664)
------- ------- -------
Total adjustments 14,066 (1,793) (4,566)
------- ------- -------
Net cash provided by operating activities 18,309 4,543 531
------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (13,193) (5,554) (10,707)
Proceeds (payments) on notes receivable (212) 226 654
------- ------- -------
Net cash used for investing activities (13,405) (5,328) (10,053)
------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short-term debt (8,260) 3,320 4,940
Proceeds from long-term debt 80,424 1,986 1,306
Principal payments on long-term debt (74,130) (3,906) (3,838)
Proceeds from stock options 243 423 430
Dividends paid (2,021) (2,009) (1,996)
Capital contribution to subsidiary by minority interest - - 625
------- ------- -------
Net cash provided by (used for) financing activities (3,744) (186) 1,467
------- ------- -------
Net increase (decrease) in cash 1,160 (971) (8,055)
Cash and cash equivalents at beginning of year 263 1,234 9,289
------- ------- -------
Cash and cash equivalents at end of year $ 1,423 $ 263 $ 1,234
======= ======= =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 2,264 $ 2,268 $ 1,912
Income taxes $ 926 $ 1,569 $ 1,424
Non-cash activities:
Purchase of minority interest through issuance of notes payable - $ 832 -
Conversion of accounts receivable to investment in affiliate - $ 300 -
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 16
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(Amounts in thousands, except per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS. Insteel Industries, Inc. ("Insteel" or "the
Company") is a wire products manufacturer whose primary market is the
construction industry. The Company produces welded wire fabric and prestressed
concrete strand for concrete reinforcement, industrial wire, agricultural
fencing, nails and wire reinforced building panels. Insteel sells its products
nationwide from nine plants in the U.S. and a joint venture operation in Mexico.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its subsidiaries. During the second
quarter of 1995, the Company purchased the remaining 30% of its joint venture
subsidiary, Insteel Construction Systems, Inc. (ICS). Following the stock
purchase, ICS was merged into Insteel's wholly-owned subsidiary, Insteel Wire
Products Company (IWP). The Company accounted for this transaction under the
purchase method and allocated the entire purchase price as a reduction of the
valuation allowance for deferred tax assets. Results prior to the ICS stock
purchase reflect the 30% minority interest of Insteel's joint venture partner.
All significant intercompany balances and transactions have been eliminated.
USE OF ESTIMATES. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS. The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
REVENUE RECOGNITION. Revenue is recognized when the related products
are shipped.
INVENTORIES. Inventories are valued at the lower of average cost
(which approximates computation on a first-in, first-out basis) or market
(net realizable value or replacement cost).
INVESTMENTS IN AFFILIATED COMPANIES. Investments in common stock of
the Company's Mexican affiliate, Insteel Panel/MEX (IPM) are accounted for by
the equity method.
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are
stated at cost. Depreciation is computed for financial reporting purposes
principally by use of the straight-line method over the following estimated
useful lives: machinery and equipment, 3 - 15 years; buildings, 10 - 30 years;
land improvements, 5 - 15 years. Capitalized software is amortized over the
shorter of the estimated useful life or 5 years. No interest costs were
capitalized in 1996 or 1995. Capitalized interest costs were $268 in 1994.
OTHER ASSETS. Other assets consist principally of various intangible
assets, long-term notes receivable and the cash surrender value of life
insurance policies. Intangible assets are amortized on a straight-line basis
over the expected periods to be benefited.
INCOME TAXES. Effective October 1, 1993, the Company adopted SFAS No.
109, "Accounting for Income Taxes." The cumulative effect on prior years of
this change in accounting principle increased net earnings by $1,325 or $.16
per share and is reported separately in the consolidated statement of earnings
for 1994. Under the asset and liability method of SFAS No. 109, deferred tax
assets and liabilities are recognized for the differences between the tax basis
of assets or liabilities and their reported financial statement amounts.
EARNINGS PER SHARE. Earnings per share are based on the weighted
average number of shares outstanding. Common equivalent shares did not have a
dilutive effect in 1996, 1995 or 1994.
16
<PAGE> 17
RECLASSIFICATIONS. Certain reclassifications have been made in prior
years' financial statements for consistent presentation.
(2) DEBT AND CREDIT FACILITIES
Long-term debt, due dates and interest rates are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------------
1996 1995
------- -------
<S> <C> <C>
Senior secured notes; due dates through 2002 at 8.25% $13,000 $15,000
Revolving credit agreement; expires November 2000 at variable interest rate
(6.06% at September 30, 1996) 12,412 -
Industrial revenue refunding bonds; due dates through 2005 at 6.50% - 7.75% 2,800 3,080
Industrial development revenue refunding bonds; due dates through 1999 at
variable interest rate (3.95% and 4.60% at September 30, 1996 and 1995) 2,380 2,720
Industrial revenue bonds; due dates through 2000 at variable interest rate
(4.05% and 4.70% at September 30, 1996 and 1995) 1,543 2,003
Mortgage note 600 600
Unsecured note payable; due dates through 1996 at 6.50% 108 522
Unsecured note at variable interest rate (6.88% at September 30, 1995) - 936
Secured note at 7.30% - 900
Secured note at 7.25% - 886
------- -------
Total long-term debt 32,843 26,647
Less current maturities 3,188 5,196
------- -------
Long-term debt, excluding current maturities $29,655 $21,451
======= =======
</TABLE>
In January 1996, the Company entered into a $35.0 million unsecured
revolving credit facility with a commercial bank. The Company refinanced its
annual lines of credit that had been classified as short-term debt under the
facility in addition to a portion of its long-term debt. Under the revolving
credit agreement, interest is payable at a variable rate based on LIBOR and the
Company pays a commitment fee based on the unused portion of the facility. The
interest spread over LIBOR and unused commitment fee are adjusted quarterly
based on the Company's ratio of debt to earnings before interest, taxes,
depreciation and amortization (EBITDA). At September 30, 1996, approximately
$22.6 million was available under the facility.
The revolving credit facility and certain other debt agreements
contain restrictive covenants which, among other restrictions, limit the amount
of additional debt relative to total capitalization and EBITDA, require
tangible net worth to be maintained at specified amounts and restrict the
payment of dividends. At September 30, 1996, the Company was in compliance with
all of the restrictive covenants. Property, plant and equipment with an
aggregate carrying value of $36,231 is pledged as collateral under the
Company's debt agreements.
In management's opinion, the recorded amounts of the fixed rate
obligations approximate their fair value at September 30, 1996 and 1995 based
on borrowing rates then available to the Company.
Aggregate maturities of long-term debt for the next five years are as
follows: 1997, $3,188; 1998, $3,080; 1999, $3,080; 2000, $3,803; 2001, $14,412,
beyond, $5,280.
17
<PAGE> 18
(3) SHAREHOLDERS' EQUITY
Shares of common stock outstanding are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Balance, beginning of year 8,393 8,333 8,267
Stock options exercised 42 60 66
----- ----- -----
Balance, end of year 8,435 8,393 8,333
===== ===== =====
</TABLE>
On August 15, 1995, the Board of Directors authorized the repurchase
of up to one million shares of the Company's common stock. The Board action did
not specify either a time period or the price at which shares may be
repurchased. As of September 30, 1996, no shares had been repurchased by the
Company.
(4) STOCK OPTION PLANS
The Company has stock option plans under which employees and directors
may be granted options to purchase shares of common stock at the fair market
value at the time of the grant. Options granted under the 1985 employee and
1990 director stock option plans vest over five years and expire five years
from the date of the grant. By action of the Board of Directors on September
24, 1994, no further options may be granted under these plans. Options granted
under the 1994 employee and director stock option plans vest over five years
and expire ten years from the date of the grant.
Stock options outstanding are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------------
1996 1995 1994
--------------------- ------------------- --------------------
SHARES PRICE RANGE SHARES PRICE RANGE SHARES PRICE RANGE
------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, beginning of year 409 $5.21-12.25 464 $5.21-12.25 337 $5.21-12.25
Additional options granted 94 6.88- 7.13 95 7.50- 7.88 195 8.50-10.44
Options exercised (42) 5.21- 6.20 (100) 5.78- 6.96 (67) 5.78- 7.84
Options cancelled (15) 5.21-12.25 (50) 6.01-10.44 (1) 5.78- 7.84
----- ----------- ----- ----------- ----- -----------
Balance, end of year 446 $6.88-10.68 409 $5.21-12.25 464 $5.21-12.25
Shares reserved for future option grants 761 855 950
----- ----- -----
Total shares reserved 1,207 1,264 1,414
===== ===== =====
Total shares exercisable 250 204 231
===== ===== =====
</TABLE>
18
<PAGE> 19
(5) INCOME TAXES
The provision (benefit) for income taxes consists of:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
CURRENT:
Federal $ 880 $1,219 $1,318
State 160 100 222
------ ------ ------
1,040 1,319 1,540
DEFERRED:
Federal 1,591 (1,385) 568
State (305) (11) 69
------ ------ ------
1,286 (1,396) 637
====== ====== ======
Provision (benefit) for income taxes $2,326 $ (77) $2,177
====== ====== ======
</TABLE>
The provision (benefit) for income taxes differs from the amount
computed by applying the federal statutory rate to the Company's earnings
before taxes as a result of the following differences:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Provision for income taxes at statutory rate $2,233 $2,128 $2,023
Change in the beginning-of-the-year balance of the
valuation allowance for deferred tax assets allocated to
the provision for income taxes - (2,368) -
State income taxes, net of federal income tax benefit 105 66 155
Equity in losses of subsidiary not included in
consolidated return - - 534
Adjustments to deferred income taxes previously
established - - (520)
Other, net (12) 97 (15)
------ ------ ------
Provision (benefit) for income taxes $2,326 $ (77) $2,177
====== ====== ======
</TABLE>
Deferred tax assets and liabilities are recognized for the differences
between the tax basis of assets and liabilities and their reported financial
statement amounts. Significant components of deferred tax assets and
liabilities are as follows:
19
<PAGE> 20
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1996 1995
------- -------
<S> <C> <C>
DEFERRED TAX ASSETS:
Net operating loss carryforwards $ - $ 2,242
Accrued expenses or asset reserves for financial statements not
yet deductible for tax purposes 2,012 1,814
Alternative minimum tax credit carryforwards 1,455 525
------- -------
Gross deferred tax assets 3,467 4,581
------- -------
DEFERRED TAX LIABILITIES:
Plant and equipment principally due to differences in
depreciation and capitalized interest (8,119) (8,112)
Other reserves (875) (621)
Prepaid expenses for financial statements that were deducted for
tax purposes (257) (346)
------- -------
Gross deferred tax liabilities (9,251) (9,079)
------- -------
Net deferred tax liability $(5,784) $(4,498)
======= =======
</TABLE>
During the second quarter of 1995, the Company purchased the remaining
30% of its joint venture subsidiary, ICS. Following the completion of the stock
purchase, ICS was merged into Insteel's wholly-owned subsidiary, IWP. The
valuation allowance was reduced $2,368 or $.28 per share with a corresponding
reduction in the deferred provision for income taxes based on the expected
utilization of the net operating loss carryforwards generated by ICS prior to
the merger. The balance of the valuation allowance was reduced by the amount of
the purchase price for the remaining 30% interest in ICS.
20
<PAGE> 21
(6) EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS. Insteel has various defined benefit pension plans
for eligible employees that provide benefits based primarily upon years of
service and compensation levels. The Company's funding policy is to contribute
amounts at least equal to those required by law. The funded status of these
plans and amounts recognized in the Company's consolidated balance sheet are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------------
1996 1995
------- -------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 8,949 $ 8,631
Nonvested benefit obligation 676 521
------- -------
Accumulated benefit obligation 9,625 9,152
======= =======
Projected benefit obligation 11,604 11,588
Plan assets at fair market value 10,789 10,262
------- -------
Projected benefit obligation in excess of plan assets (815) (1,326)
Unrecognized net asset (265) (333)
Unrecognized prior service cost (458) (490)
Unrecognized net gain (loss) (361) 437
------- -------
Accrued pension liability included in accrued expenses $(1,899) $(1,712)
======= =======
</TABLE>
The weighted average discount rates and long-term rates for
compensation increases used for estimating the benefit obligations and the
expected return on plan assets are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Assumptions at year-end:
Discount rate 7.5% 7.5% 7.0%
Rate of increase in compensation levels 5.0% 6.0% 6.0%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
</TABLE>
Pension expense includes the following components:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------
1996 1995 1994
------ ---- ----
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 608 $639 $698
Interest cost on projected benefit obligation 806 793 772
Expected investment return on plan assets (1,028) (662) (757)
Net amortization and deferral 136 (60) (81)
------ ---- ----
Net pension expense $ 522 $710 $632
====== ==== ====
</TABLE>
Plan assets are primarily invested in publicly traded stocks and bonds,
pooled equity funds, fixed income investment funds and insurance company
guaranteed investment accounts. The plans hold 27 shares of Insteel common stock
with a market value of $176 at September 30, 1996.
21
<PAGE> 22
MANAGEMENT SECURITY PROGRAM. Insteel has a management security program
for certain employees. Under the plan, participants are entitled to cash
benefits upon retirement at age 65, payable annually for 15 years. The plan is
funded by life insurance policies on the participants purchased by the Company.
Management security program expense was $87 in 1996, $74 in 1995 and $49 in
1994.
PROFIT-SHARING AND INCENTIVE PLANS. Insteel has a profit-sharing plan
covering substantially all of its employees. Under the plan, a profit pool of
10% of earnings before income taxes is paid to the Company's employees each
year. Corporate officers and a portion of the Company's management participate
in other incentive plans based upon the attainment of certain targeted levels
for return on capital and key performance measurements. Profit-sharing and
incentive plan expense was $1,074 in 1996, $958 in 1995 and $792 in 1994.
ESOP. Insteel has an Employee Stock Ownership Plan (ESOP) covering
substantially all of its employees. Under the plan, the Company can make
voluntary cash contributions which are used to purchase shares of the Company's
common stock on the open market. These shares are then allocated to eligible
employees once a year. Company contributions to the ESOP were $85 in 1996, $85
in 1995 and $0 in 1994.
VEBA. Insteel has a Voluntary Employee Beneficiary Association (VEBA).
Under the plan, both employees and the Company may make contributions to pay
for medical benefits. Company contributions to the VEBA were $727 in 1996, $685
in 1995 and $710 in 1994.
(7) COMMITMENTS
The Company leases a portion of its property, plant and equipment
under operating leases that expire at various dates through 2026. Under most
lease agreements, the Company pays insurance, taxes and maintenance. Rental
expense for operating leases was $1,084 in 1996, $1,159 in 1995 and $960 in
1994. Minimum rental commitments under all non-cancelable leases with an
initial term in excess of one year are payable as follows: 1997, $908; 1998,
$887; 1999, $393; 2000, $403; 2001, $424; beyond, $2,038.
Commitments for the construction or purchase of property, plant and
equipment approximate $11,256 at September 30, 1996.
(8) JOINT VENTURE
In May 1992, the Company's ICS subsidiary entered into a joint venture
agreement for the purpose of manufacturing and distributing wire reinforced
building panels in Mexico. Notes receivable from the joint venture were $300 at
September 30, 1996 and September 30, 1995. Notes receivable from the joint
venture partner were $230 at September 30, 1996 and $238 at September 30, 1995.
Trade accounts receivable from the joint venture were $606 at September 30,
1996 and $382 at September 30, 1995.
(9) RELATED PARTY TRANSACTIONS
Construction services amounting to $1,434 in 1996 and $582 in 1995
were provided by a company whose chairman is a Company director.
22
<PAGE> 23
(10) OTHER FINANCIAL DATA
Balance sheet information:
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------------------
1996 1995
------- -------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $34,427 $31,910
Less allowance for doubtful accounts (555) (394)
------- -------
Total $33,872 $31,516
======= =======
Inventories:
Raw materials $15,911 $24,025
Supplies 2,099 2,127
Work in process 1,426 1,372
Finished goods 12,409 13,042
------- -------
Total $31,845 $40,566
======= =======
Property, plant and equipment, net:
Land and land improvements $ 5,086 $ 4,758
Buildings 30,091 28,414
Machinery and equipment 81,204 74,051
Construction in progress 6,331 1,979
------- -------
122,712 109,202
Less accumulated depreciation (51,640) (44,102)
------- -------
Total $71,072 $65,100
======= =======
</TABLE>
23
<PAGE> 24
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
--------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year $394 $256 $366
Additions charged to earnings 385 148 308
Accounts written off (224) (10) (418)
---- ---- ----
Balance, end of year $555 $394 $256
==== ==== ====
</TABLE>
24
<PAGE> 25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Insteel Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Insteel
Industries, Inc. and subsidiaries as of September 30, 1996, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
the year then ended. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on
our audit. The accompanying 1995 and 1994 financial statements of Insteel
Industries, Inc. and subsidiaries were audited by other auditors whose reports
dated October 24, 1995, and October 28, 1994, respectively, expressed
unqualified opinions on those financial statements. The report of the other
auditors on the 1994 financial statements included an explanatory paragraph
describing the change in the method of accounting for income taxes discussed in
Note 1 to the consolidated financial statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1996 financial statements referred to above present fairly,
in all material respects, the financial position of Insteel Industries, Inc.
and subsidiaries as of September 30, 1996, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in Item 14(a)(2) is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not a required part of the basic financial statements. This schedule has
been subjected to the auditing procedures applied in our audit of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
October 18, 1996.
25
<PAGE> 26
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Insteel Industries, Inc.:
We have audited the accompanying consolidated balance sheet of Insteel
Industries, Inc. and subsidiaries as of September 30, 1995, and the related
consolidated statements of earnings, shareholders' equity, and cash flows for
the year then ended. In connection with our audit of the consolidated financial
statements, we also have audited the financial statement Schedule II -
Valuation and Qualifying Accounts. These financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1995 financial statements referred to above present fairly,
in all material respects, the financial position of Insteel Industries, Inc.
and subsidiaries as of September 30, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
October 24, 1995
26
<PAGE> 27
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders of
Insteel Industries, Inc.
Mount Airy, North Carolina
We have audited the accompanying consolidated statements of earnings,
shareholders' equity, and cash flows of Insteel Industries, Inc. (the
"Company") and subsidiaries for the year ended September 30, 1994, and the
additional financial statement schedule listed at Item 14(a)(2) for the year
ended September 30, 1994. These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Insteel Industries, Inc. and subsidiaries for the year ended September 30,
1994 in conformity with generally accepted accounting principles. Also, in our
opinion, such financial statement schedule, when considered in relation to the
basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for income taxes effective October 1, 1993 to conform with
Statement of Financial Accounting Standards No. 109.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
October 28, 1994
27
<PAGE> 28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The information required for this item has been reported by means of a
Current Report on Form 8-K, dated September 13, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information with respect to directors and nominees appears under the
caption "Election of Directors" in the Company's Proxy Statement for the 1997
Annual Meeting of Shareholders and is incorporated by reference.
Information on executive officers appears under the caption "Executive
Officers of the Company" in Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required for this item appears under the captions
"Executive Compensation" and "Performance Graph" in the Company's Proxy
Statement for the 1997 Annual Meeting of Shareholders and is incorporated by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required for this item appears under the captions
"Principal Shareholders" and "Security Ownership of Management" in the
Company's Proxy Statement for the 1997 Annual Meeting of Shareholders and is
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required for this item appears under the captions
"Executive Compensation - Compensation Committee Interlocks and Insider
Participation" and "Transactions With Management and Others" in the Company's
Proxy Statement for the 1997 Annual Meeting of Shareholders and is incorporated
by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1) FINANCIAL STATEMENTS
The financial statements as set forth under Item 8 are filed as part
of this report.
(a)(2) FINANCIAL STATEMENT SCHEDULES
Supplemental Schedule II - Valuation and Qualifying Accounts appears
on page 24 of this report.
All other schedules have been omitted because they are either not
required or not applicable.
(b) REPORTS ON FORM 8-K
During the quarter ended September 30, 1996, the Company filed one
Current Report on Form 8-K, dated September 13, 1996, reporting under Item 4
thereof a change in the Company's principal accountants.
28
<PAGE> 29
(c) EXHIBITS
See exhibit index on page 31.
(d) FINANCIAL STATEMENT SCHEDULES
See Item 14(a)(2) above.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
INSTEEL INDUSTRIES, INC.
Dated: December 9, 1996 By: H. O. WOLTZ III
-----------------------
H. O. WOLTZ III
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on December 9, 1996 below by the following persons
on behalf of the registrant and in the capacities indicated:
<TABLE>
<CAPTION>
Name and Signature Position(s)
- -------------------------- ---------------------------------------------------------------
<S> <C>
HOWARD O. WOLTZ, JR. Chairman of the Board
- --------------------
HOWARD O. WOLTZ, JR.
H. O. WOLTZ III President, Chief Executive Officer and a Director
- --------------------
H. O. WOLTZ III
JOSEPH D. NOELL, III Director
- --------------------
JOSEPH D. NOELL, III
MICHAEL C. GAZMARIAN Chief Financial Officer and Treasurer (Principal
- -------------------- Financial and Accounting Officer)
MICHAEL C. GAZMARIAN
THOMAS J. CUMBY Director
- --------------------
THOMAS J. CUMBY
LOUIS E. HANNEN Director
- --------------------
LOUIS E. HANNEN
FRANCES H. JOHNSON Director
- --------------------
FRANCES H. JOHNSON
CHARLES B. NEWSOME Director
- --------------------
CHARLES B. NEWSOME
W. ALLEN ROGERS, II Director
- --------------------
W. ALLEN ROGERS, II
C. RICHARD VAUGHN Director
- --------------------
C. RICHARD VAUGHN
JOHN E. WOLTZ Director
- --------------------
JOHN E. WOLTZ
</TABLE>
30
<PAGE> 31
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR
YEAR ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
3- ARTICLES OF INCORPORATION AND BYLAWS
3.1 Restated articles of incorporation of the registrant, as amended (Incorporated by reference to
Exhibit 3.1 to the Company's Current Report on Form 8-K, dated May 3, 1988).
3.2 Bylaws of the registrant (as last amended February 5, 1991) (Incorporated by reference to the
exhibit of the same number contained in the Company's Annual Report on Form 10-K for the year
ended September 30, 1991).
4- INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
4.2 Articles IV and VI of the registrant's restated articles of incorporation, which are
incorporated herein by reference to Exhibit 3.1.
4.3 Article 2, Section 8, of the registrant's bylaws, which is incorporated herein by reference to
Exhibit 3.2.
*4.13 Loan Agreement dated as of September 1, 1988, between Liberty County Industrial Development
Corporation ("Issuer") and Insteel Industries, Inc. ("Company") pursuant to which the Issuer
agreed to loan the proceeds from its $3,400,000 Industrial Development Revenue Refunding Bonds,
Series 1988 (Insteel Industries, Inc. Project) (the "Bonds") to the Company and the Company
agreed to repay such loan to the Issuer.
*4.14 Promissory Note dated October 26, 1988 and issued by the Company to the Issuer in the principal
amount of $3,400,000, which note evidences the loan from the Issuer to the Company under the
Loan Agreement (Exhibit 4.13).
*4.15 Purchase Contract dated October 26, 1988, among the Issuer, the Company, Texas Department of
Commerce and Federated Tax-Free Trust ("Purchaser") pursuant to which the Purchaser agreed to
purchase the Bonds issued by the Issuer.
*4.16 Letter of Credit and Reimbursement Agreement dated as of September 1, 1988, by and between the
Company and First Union National Bank of North Carolina ("Bank") pursuant to which the Bank
agreed to issue its Letter of Credit to secure payment of the Bonds and the Company agreed to
reimburse the Bank for any and all drawings made under the Letter of Credit.
+4.17 Loan Agreement dated as of May 1, 1989, between Brunswick and Glynn County Development
Authority ("Issuer") and Insteel Industries, Inc. ("Company"), pursuant to which the Issuer
agreed to loan the proceeds from its $4,500,000 Industrial Development Revenue Bonds, Series
1989 (Insteel Industries, Inc. Project) (the "Bonds") to the Company and the Company agreed to
repay such loan to the Issuer.
+4.18 Promissory Note dated June 27, 1989, and issued by the Company to the Issuer in the principal
amount of $4,500,000 which note evidences the loan from the Issuer to the Company under the
Loan Agreement (Exhibit 4.17).
+4.19 Purchase Contract dated June 27, 1989, among the Issuer, the Company and Seaboard Corporation
("Purchaser") pursuant to which the Purchaser agreed to purchase the Bonds issued by the Issuer.
+4.20 Letter of Credit and Reimbursement Agreement dated as of May 1, 1989, by and between the
Company and First Union National Bank of North Carolina ("Bank") pursuant to which the Bank
agreed to issue its Letter of Credit to secure payment of the Bonds and the Company agreed to
reimburse the Bank for any and all drawings made under the Letter of Credit.
#4.24 Indenture of Trust between Industrial Development Authority of the City of Fredericksburg,
Virginia and Crestar Bank as Trustee, dated as of September 1, 1990, relating to $4,205,000
Industrial Development Authority of the City of Fredericksburg, Virginia Industrial Development
First Mortgage Revenue Refunding Bonds (Insteel Industries, Inc./Rappahannock Wire Company
Project) Series of 1990.
</TABLE>
31
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------
<S> <C> <C>
#4.25 Refunding Agreement between Industrial Development Authority of the City of Fredericksburg,
Virginia ("Issuer") and Insteel Industries, Inc., and Rappahannock Wire Company (since renamed
Insteel Wire Products Company) (together, the "Companies"), dated as of September 1, 1990,
pursuant to which the Issuer agreed to loan the proceeds from its $4,205,000 Industrial
Development First Mortgage Revenue Refunding Bonds (Insteel Industries, Inc./Rappahannock Wire
Company Project) Series of 1990 to the Companies and the Companies agreed to repay such loan to
the Issuer.
**4.35 Note Agreement (including form of Note, appendices and exhibits) between Insteel Industries,
Inc. and Jefferson-Pilot Life Insurance Company, dated as of April 15, 1993, relating to
$15,000,000 principal amount of 8.25% Senior Secured Notes due October 15, 2002.
**4.36 Deed of Trust, Security Agreement, Assignment of Rents and Financing Statement, dated as of
April 15, 1993, relating to the 8.25% Senior Secured Notes issued pursuant to Exhibit 4.35.
**4.37 Guaranty Agreement, dated as of April 15, 1993, relating to the 8.25% Senior Secured Notes
issued pursuant to Exhibit 4.35.
4.41 Amended and Restated Credit Agreement between First Union National Bank of North Carolina and
Insteel Industries, Inc. dated January 26, 1996 providing for a $35,000,000 revolving line of
credit and a $17,500,000 letter of credit and banker's acceptance facility including Amended
and Restated Revolving Credit Note.
UNDERTAKING: The Company agrees to file upon request of the Commission any instrument with
respect to long-term debt not registered for which the total amount authorized does not exceed
10% of the total assets of the Company and its subsidiaries on a consolidated basis.
10- MATERIAL CONTRACTS
#10.4 1985 Insteel Industries, Inc. Employee Incentive Stock Option Plan (amended February 6, 1990).
+10.5 Employee Stock Ownership Plan of Insteel Industries, Inc., including Employee Stock Ownership
Plan Trust Agreement.
10.6 1990 Director Stock Option Plan of Insteel Industries, Inc. (Incorporated by reference to the
exhibit of the same number contained in the Company's Annual Report on Form 10-K for the year
ended September 30, 1991).
**10.7 Profit Sharing Plan of Insteel Wire Products Company.
**10.8 Profit Sharing Plan of Insteel Industries, Inc.
++10.9 1994 Employee Stock Option Plan of Insteel Industries, Inc.
++10.10 1994 Director Stock Option Plan of Insteel Industries, Inc.
10.11 Nonqualified Stock Option Plan (Incorporated by reference to the exhibit of the same number
contained in the Company's Annual Report on Form 10-K for the year ended September 30, 1995).
10.20 Retirement Savings Plan of Insteel Industries, Inc.
21- List of Subsidiaries of Insteel Industries, Inc., at September 30, 1996.
23- Consents of Experts and Counsel: Independent Auditors' Consent.
23.1 Consent of Arthur Andersen LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Deloitte & Touche LLP
27- Financial Data Schedule
* Incorporated by reference to the exhibit of the same number contained in the Company's
Annual Report on Form 10-K for the year ended September 30, 1988.
+ Incorporated by reference to the exhibit of the same number contained in the Company's
Annual Report on Form 10-K for the year ended September 30, 1989.
</TABLE>
32
<PAGE> 33
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- -------
<S> <C>
# Incorporated by reference to the exhibit of the same number contained in the Company's Annual
Report on Form 10-K for the year ended September 30, 1990.
** Incorporated by reference to the exhibit of the same number contained in the Company's Annual
Report on Form 10-K for the year ended September 30, 1993.
++ Incorporated by reference to the exhibit of the same number contained in the Company's Annual
Report on Form 10-K for the year ended September 30, 1994.
</TABLE>
33
<PAGE> 1
EXHIBIT 4.41
===============================================================================
$52,500,000
===============================================================================
AMENDED AND RESTATED CREDIT AGREEMENT
BETWEEN
FIRST UNION NATIONAL BANK OF NORTH CAROLINA
AND
INSTEEL INDUSTRIES, INC.
===============================================================================
January 26, 1996
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
1. DEFINITIONS.
1.1 Defined Terms 1
1.2 Accounting Terms 12
1.3 Singular/Plural 12
1.4 Other Terms 12
2. REVOLVING LINE OF CREDIT.
2.1 Revolving Loans 12
2.2 Revolving Credit Note 13
2.3 Payment of Interest on Revolving Loans 13
2.4 Provisions Applicable to the LIBOR Rate 13
2.4 Selection of Interest Rate 13
2.5 Default Rate; Post-Petition Interest 13
2.6 Mandatory Repayment of Principal of
Revolving Loans 14
2.7 Use of Proceeds of Revolving Loans 14
2.8 Disbursement of Revolving Loans 14
2.9 Voluntary Reduction of Revolving
Line of Credit Commitment 14
3. LETTER OF CREDIT FACILITY.
3.1 Issuance of Letters of Credit 14
3.2 Acceptance of Bankers' Acceptances 15
3.3 Letter of Credit and Bankers'
Acceptance Fees 15
3.4 Reimbursement Obligations
Under Letters of Credit 16
3.5 Bankers' Acceptance Reimbursement
and Payment Obligations 17
3.6 Actions of Beneficiary 18
3.7 Outstanding Letters of Credit and Bankers'
Acceptances On Termination Date 19
4. PROVISIONS APPLICABLE TO BOTH THE REVOLVING LOANS, THE
BANKERS' ACCEPTANCE OBLIGATIONS AND THE LETTER OF
CREDIT OBLIGATIONS.
4.1 Payments; Manner and Application of Payments 19
4.2 Maximum Interest Rate 20
4.3 Increased Costs 20
4.4 Funding Loss Indemnification 21
4.5 Illegality; Impracticality 21
4.6 Facility Fee 22
4.7 All Obligations to Constitute One Loan 22
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
<S> <C> <C>
5. CLOSING; CONDITIONS OF LOANS.
5.1 Closing 22
5.2 Conditions of Initial Revolving Loan;
Bankers' Acceptance and Letter of Credit 22
5.3 Conditions of All Loans; Bankers'
Acceptances and Letters of Credit 24
5.4 Waiver of Conditions 25
6. REPRESENTATIONS AND WARRANTIES.
6.1 Corporate Organization and Power 25
6.2 Litigation; Government Regulation 26
6.3 Taxes 26
6.4 Enforceability of Loan Documents;
Compliance With Other Instruments 26
6.5 Governmental Authorization 27
6.6 Event of Default 27
6.7 Margin Securities 27
6.8 Full Disclosure 27
6.9 Business Location 28
6.10 ERISA 28
6.11 Financials 28
6.12 Title to Property 28
6.13 Solvency 28
6.14 Use of Proceeds 28
6.15 Assets for Conduct of Business 29
6.16 Trade Relations 29
6.17 Compliance With Laws 29
6.18 Guaranty 29
6.19 Environmental Matters 29
6.20 Withholding Taxes 30
6.21 Labor Contract; Labor Disputes 30
6.22 Leases 30
6.23 Reaffirmation of Warranties and
Representations 30
6.24 Survival of Warranties and Representations 31
7. AFFIRMATIVE COVENANTS.
7.1 Repayment of Obligations 31
7.2 Performance Under Loan Documents 31
7.3 Financial and Business Information as to
Borrower 31
7.4 Notice of Certain Events 33
7.5 Corporate Existence and Maintenance of
Properties 33
7.6 Payment of Indebtedness; Performance of
Other Obligations 33
7.7 Maintenance of Insurance 34
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
7.8 Maintenance of Books and Records;
Inspection 34
7.9 Compliance with ERISA 34
7.10 Payment of Taxes 35
7.11 Compliance With Laws 35
7.12 Compliance With Environmental Laws 35
8. NEGATIVE COVENANTS.
8.1 Merger and Dissolution 36
8.2 Acquisitions 36
8.3 Funded Debt 36
8.4 Liens and Encumbrances 37
8.5 Disposition of Property 37
8.6 Transactions With Related Persons 37
8.7 Restricted Investments 37
8.8 Restrictions on Dividends 37
8.9 Fiscal Year 38
8.10 Sale and Leasebacks 38
8.11 New Business 38
8.12 Subsidiaries or Partnerships 38
8.13 Guaranty 38
8.14 Transactions Affecting Repayment
of Indebtedness 38
8.15 Tangible Net Worth 38
8.16 Funded Debt to EBITDA Ratio 38
8.17 Funded Debt to Total Capitalization 38
9. EVENTS OF DEFAULT.
9.1 Events of Default 39
10. RIGHTS AND REMEDIES AFTER EVENTS OF DEFAULT.
10.1 Rights and Remedies 41
10.2 Rights and Remedies With Respect to
Letters of Credit and Bankers' Acceptances 41
10.3 Rights and Remedies Cumulative:
Non-Waiver: Etc. 42
11. PAYMENT OF EXPENSES. 42
12. MISCELLANEOUS.
12.1 Survival of Agreements 43
12.2 Governing Law 43
12.3 Notices 43
12.4 Indemnification of Bank and Participants 44
12.5 Waivers by Borrowers 45
12.6 Assignment 45
</TABLE>
<PAGE> 5
<TABLE>
<CAPTION>
Page
<S> <C> <C>
12.7 Participants 45
12.8 Amendment 45
12.9 Severability 46
12.10 Entire Agreement 46
12.11 Binding Effect 46
12.12 Captions 46
12.13 Conflict of Terms 46
12.14 Injunctive Relief 46
12.15 Construction of Agreement 46
12.16 Time of Essence 46
12.17 Effect of Restatement 46
12.18 Waiver of Jury Trial 47
</TABLE>
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT ("Agreement"), made and entered
into this 26th day of January, 1996, by and between INSTEEL INDUSTRIES, INC., a
North Carolina corporation ("Borrower"); and FIRST UNION NATIONAL BANK OF NORTH
CAROLINA, a national banking association ("Bank");
WITNESSETH:
WHEREAS, Borrower and Bank are parties to that certain Loan Agreement, dated
December 22, 1992, as amended ("Existing Credit Agreement"), pursuant to which
Bank agreed to extend certain financial accommodations to Borrower;
WHEREAS, Borrower has requested that Bank continue to extend financial
accommodations to it in order to provide funds for the refinancing of the
indebtedness owing by Borrower to Bank under the Existing Credit Agreement, for
working capital and such other corporate purposes as are permitted hereunder;
WHEREAS, Bank has agreed to extend financial accommodations for such purposes
to Borrower in the form of a $35,000,000 revolving line of credit and a
$17,500,000 letter of credit facility to be made in accordance with, and
subject to, the terms and conditions set forth below; and
WHEREAS, this Agreement shall amend and restate in its entirety the Existing
Credit Agreement and it shall represent the entire agreement between Borrower
and Bank with respect to the terms and conditions upon which Bank is to make
loans and advances to Borrower and to issue letters of credit and bankers'
acceptances to or for the benefit of Borrower from and after the date hereof;
NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, Borrower and Bank hereby agree as follows:
SECTION 1. DEFINITIONS.
1.1 Defined Terms. For purposes of this Agreement, in addition to the
terms defined elsewhere in this Agreement, the following terms shall have the
meanings set forth below:
"Additional Funded Debt" shall mean Funded Debt in excess of the Funded Debt
set forth on Exhibit I attached hereto on the date of any refinancing thereof
and any new Funded Debt incurred after the Closing Date.
"Affiliate" shall mean any Person which, directly or indirectly, owns or
controls, on an aggregate basis, including all beneficial ownership and
ownership or control as a trustee,
<PAGE> 7
guardian or other fiduciary, at least five percent (5%) of the outstanding
Stock having ordinary voting power to elect a majority of the board of
directors (irrespective of whether, at the time, Stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency) of Borrower or any Subsidiary, or is
controlled by or is under common control with Borrower or any Subsidiary, or
any stockholders of Borrower or any Subsidiary. For the purpose of this
definition, "control" means the possession, directly or indirectly, of the
power to direct or cause the direction of management and policies, whether
through the ownership of voting securities, by contract or otherwise.
"Agreement" or "this Agreement" shall include this Agreement and all
amendments, modifications and supplements hereto and shall refer to this
Agreement as the same may be in effect at the time such reference becomes
operative.
"Applicable Margin" shall mean, at any date of determination, the
marginal rate of interest which shall be paid by Borrower in addition to the
LIBOR Rate and the marginal facility fee rate which coincides to the Funded
Debt to EBITDA Ratio (calculated for each Fiscal Quarter with respect to the
Fiscal Quarter then ended and the immediately preceding three (3) Fiscal
Quarters), as specifically set forth in a separate letter agreement, dated as
of the Closing Date, between Borrower and Bank, as such letter may be amended,
restated, modified or supplemented from time to time.
"Bank" shall mean First Union National Bank of North Carolina, a
national banking association.
"Bankers' Acceptance Agreement" shall mean the Documentary Acceptance
Agreement, dated on or about the Closing Date, between Bank and Borrower,
pursuant to which, and upon the terms and subject to the conditions set forth
therein, Bank has agreed to accept Bankers' Acceptances.
"Bankers' Acceptance Obligations" shall mean that portion of the
Obligations constituting Borrower's obligation to reimburse Bank for all
amounts paid by Bank under, or with respect to, a Bankers' Acceptance and all
other indebtedness, obligations and liabilities owing by Borrower to Bank under
a Bankers' Acceptance Agreement.
"Bankers' Acceptances" shall mean a draft drawn on Bank by Borrower to
the order of Bank in the amount of at least $50,000 or an integral multiple
thereof and which has been accepted by Bank in its sole discretion pursuant to
the Bankers' Acceptance Agreement.
"Beneficiary" shall mean the beneficiary of a Letter of Credit issued
by Bank pursuant to this Agreement.
-2-
<PAGE> 8
"Borrower" shall mean Insteel Industries, Inc., a North Carolina
corporation.
"Business Day" shall mean any day (excluding Saturday, Sunday and
legal holidays) on which commercial banks in Mount Airy, North Carolina are
open.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, 42 U.S.C. Sec. 9601 et. seq., as amended
from time to time, and all rules and regulations from time to time promulgated
thereunder.
"Capitalized Lease Obligation" shall mean any Indebtedness represented
by obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with Generally Accepted Accounting Principles,
and the amount of such Indebtedness shall be the capitalized amount of such
obligations determined in accordance with Generally Accepted Accounting
Principles.
"Closing" shall mean the consummation of the lending transaction
contemplated hereby to occur at the time and place set forth in Section 5.1
hereof.
"Closing Date" shall mean the date referred to in Section 5.1 hereof.
"Current Maturities of Long Term Debt" shall mean, at any date of the
determination thereof, all Funded Debt (excluding the Revolving Loans) and all
Capitalized Lease Obligations, which are payable on demand or within one (1)
year from such date.
"Default" shall mean any event or condition which, with the giving of
notice or the passage of time or both, would constitute an Event of Default if
Borrower took no action to correct the same.
"Default Rate" shall mean the thirty (30) day LIBOR Contract Rate in
effect from time to time plus two percent (2%) per annum.
"Derivative Agreement" shall mean any interest rate swap agreement,
interest rate cap agreement, interest rate collar agreement, currency hedge
agreement or other similar agreement or arrangement designed to protect
Borrower against fluctuations in interest rates or currency exchange rates,
including, without limitation, any "swap agreement" as defined in 11 U.S.C.
Sec. 101(55).
"Discount Rate" shall mean, with respect to a Draft drawn for
acceptance on any day, a rate per annum equal to the discount rate customarily
used by Bank for the discounting of Bankers' Acceptances.
-3-
<PAGE> 9
"Disposal" shall mean the intentional or unintentional abandonment,
discharge, deposit, injection, dumping, spilling, leaking, storing, burning,
thermal destruction or replacing of any substance so that it or any of its
constituents may enter the Environment.
"Dollars" or "$" shall mean dollars of the United States of America.
"Drafts" shall have the meaning set forth in Section 3.2 of this
Agreement.
"EBITDA" shall mean with respect to the Fiscal Quarter then ended and
the immediately preceding three (3) Fiscal Quarters, Net Income, plus income
taxes, interest, depreciation and amortization of Borrower and its Subsidiaries
for such fiscal period, each of which were subtracted from Net Income for such
fiscal period, minus (a) any gain or loss arising from the sale of capital
assets, (b) any gain arising from any writeup of assets, (c) earnings of
any Subsidiary of Borrower accrued prior to the date it became a Subsidiary,
(d) earnings of any corporation, substantially all of the assets of which have
been acquired in any manner by Borrower or any of its Subsidiaries, realized by
such corporation prior to the date of such acquisition, (e) the earnings of any
Person to which the assets of Borrower or any of its Subsidiaries shall have
been sold, transferred or disposed of, or into which Borrower or any of its
Subsidiaries shall have been merged, or been a party to any consolidation or
other form of reorganization, prior to the date of such transaction, (f) any
gain arising from the acquisition of any securities of Borrower or any of its
Subsidiaries, and (g) any gain or loss arising from extraordinary or
non-recurring items, all determined in accordance with Generally Accepted
Accounting Principles.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time, and all rules and regulations from time to
time promulgated thereunder.
"Environment" shall mean any water, including, without limitation,
surface water and gravel water or water vapor, any land including land surface
or subsurface, stream sediments, air, fish, wildlife, plants and all other
natural resources or environmental media.
"Environmental Laws" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances, regulations, codes and rules relating to the
protection of the Environment and/or governing the use, storage, treatment,
generation, transportation, processing, handling, production or Disposal of
Hazardous Substances and the policies, guidelines, procedures, interpretations,
decisions,
-4-
<PAGE> 10
orders and directives of federal, state and local governmental agencies and
authorities with respect thereto.
"Environmental Liabilities" shall mean any liabilities, whether accrued,
contingent or otherwise, arising from and in any matter associated with any
Environmental Laws applicable to the Borrower or its Subsidiaries.
"Environmental Permits" shall mean all licenses, permits, approvals,
authorizations, consents or registrations required by any applicable
Environmental Laws and all applicable judicial and administrative orders in
connection with ownership, lease, purchase, transfer, closure, use and/or
operation of any Property owned, leased or operated by Borrower and/or as may
be required for the storage, treatment, generation, transportation, processing,
handling, production or disposal of Hazardous Substances.
"Event of Default" shall have the meaning specified in Section 9.1
hereof.
"Financials" shall mean the audited and unaudited balance sheets and
statements of income, retained earnings and cash flows of Borrower for each
fiscal period previously delivered by Borrower to Bank and all other financial
statements of Borrower delivered by Borrower to Bank pursuant to Section 7.3 of
this Agreement.
"Fiscal Quarter" shall mean one of the quarterly fiscal periods in the
Fiscal Year of Borrower.
"Fiscal Year" shall mean the period of Borrower ending on September 30
of each calendar year and commencing on October 1 of each calendar year.
"Funded Debt" shall mean, as it applies to Indebtedness, (i)
Indebtedness for borrowed money; (ii) Indebtedness, including, without
limitation, Capitalized Lease Obligations, whether or not in any such case the
same was for borrowed money, (A) which is represented by notes payable or
drafts accepted that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar instruments, or
(C) upon which interest charges are customarily paid (other than accounts
payable) or that were issued or assumed as full or partial payment for any
Property of Borrower; and (iii) Indebtedness under any guaranty of obligations
that would constitute Funded Debt under clauses (i) and (ii) hereof.
"Funded Debt to EBITDA Ratio" shall mean at any date of determination
the ratio of Funded Debt to EBITDA.
"Generally Accepted Accounting Principles" shall mean generally accepted
accounting principles as recognized by the American Institute of Certified
Public Accountants, consistently applied and maintained on a consistent basis
for Borrower
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throughout the period indicated and consistent with the prior financial
practices of Borrower as reflected on the Financials so as to properly reflect
the financial condition and results of operations and changes in financial
position of Borrower.
"Hazardous Substances" shall mean, without limitation, any explosives,
radon, radioactive materials, asbestos, urea formaldehyde, foam insulation,
polychlorinated biphenyls, petroleum and petroleum products, methane, hazardous
materials, hazardous waste, hazardous or toxic substances, and any other
material defined as a hazardous substance in Section 101(14) of CERCLA.
"Indebtedness" shall mean all liabilities, obligations and
indebtedness of any and every kind and nature, including, without limitation,
the Obligations and all obligations to trade creditors, whether heretofore, now
or hereafter owing, arising, due or payable from Borrower to any Person and
howsoever evidenced, created, incurred, acquired or owing, whether primary,
secondary, direct, contingent, fixed or otherwise. Without in any way limiting
the generality of the foregoing, Indebtedness specifically includes the
following:
(a) All obligations or liabilities of any Person that are
secured by any lien, claim, encumbrance or security interest upon Property
owned by Borrower, even though Borrower has not assumed or become liable for
the payment thereof;
(b) All obligations or liabilities created or arising
under any lease of real or personal property, or conditional sale or other
title retention agreement with respect to Property used or acquired by
Borrower, even though the rights and remedies of the lessor, seller or lender
thereunder are limited to repossession of such Property;
(c) All unfunded pension fund obligations and
liabilities; and
(d) Deferred taxes.
"Interest Period" shall mean, with respect to the Revolving Loans, the
thirty (30) day periods on and after the Closing Date.
"Investment" shall mean, as applied to any Person, any direct or
indirect purchase or other acquisition by such Person of Stock, indebtedness or
other securities or obligations of any other Person, or any direct or indirect
loan, advance, extension of credit or capital contribution by such Person to
any other Person, or any guaranty of such Person with respect to any
liabilities or obligations of any other Person.
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"LIBOR Contract Rate" shall mean with respect to Revolving Loans, the
LIBOR Rate plus the Applicable Margin.
"LIBOR Rate" shall mean the rate per annum (rounded upwards, if
necessary, to the next higher one hundredth of one percent) for deposits in
United States Dollars for a period equal to thirty (30) days appearing on the
Telerate page 3750 at 11:00 a.m. London time two (2) London business days prior
to the Closing Date or the expiration of the then existing thirty (30) day
period.
"Letter of Credit" shall mean a standby or import letter of credit at
any time applied for by Borrower pursuant to a Letter of Credit Application and
issued by Bank for the account of Borrower pursuant to Section 3 hereof.
"Letter of Credit Application" shall mean Bank's standard form of
Application and Agreement For Irrevocable Standby Letter of Credit, and such
other documents as Bank may require for its issuance of a Letter of Credit.
"Letter of Credit Facility" shall mean the facility referred to in
Section 3 hereof.
"Letter of Credit Facility Commitment" shall mean $17,500,000.
"Letter of Credit Obligations" shall mean that portion of the
Obligations constituting Borrower's obligation to reimburse Bank for all
amounts paid by Bank under, or with respect to, a Letter of Credit and all
other indebtedness, obligations and liabilities owing by Borrower to Bank under
a Letter of Credit Application.
"Letter of Credit Termination Date" shall mean the earliest of:
(i) Three hundred sixty four (364) days after the Closing Date
unless extended by Bank upon the written request of Borrower
delivered to Bank prior to the expiration of such period;
(ii) The date of termination of the Letter of Credit Facility by
Bank after the occurrence of an Event of Default;
(iii) Such date of termination of the Letter of Credit Facility as
is mutually agreed upon by Bank and Borrower; and
(iv) The date after all Obligations have been paid in full and
Bank is no longer obligated to issue Letters of Credit or
Bankers' Acceptances hereunder.
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"Loan Documents" shall mean and collectively refer to this Agreement,
the Revolving Credit Note, the Letter of Credit Applications, the Bankers'
Acceptance Agreements and all agreements and other written matters whether
heretofore, now or hereafter executed by or in behalf of Borrower and/or
delivered to Bank or any Participant, with respect to this Agreement, or with
respect to the transactions contemplated by this Agreement.
"Maximum Rate" shall mean the maximum non-usurious rate of interest
permitted by applicable state or federal law that at any time, or from time to
time, may be contracted for, taken, reserved, charged or received on the
Indebtedness in question or, to the extent permitted by applicable laws, under
such applicable laws which may hereafter be in effect and which allow a higher
maximum non-usurious interest rate than applicable laws now allow.
Notwithstanding any other provision hereof, the Maximum Rate shall be
calculated on a daily basis (computed on the actual number of days elapsed over
a year of three hundred sixty-five (365) days).
"Multiemployer Plan" shall have the meaning set forth in Section
4001(a)(3) of ERISA.
"Net Income" shall mean, for any fiscal period, the net earnings (or
loss) for such fiscal period of Borrower and its Subsidiaries as reflected on
the financial statements of Borrower and its Subsidiaries delivered to Bank
pursuant to Section 7.3 of this Agreement, determined in accordance with
Generally Accepted Accounting Principles consistently applied.
"Obligations" shall collectively mean and include (i) the Revolving
Loans (including accrued interest owed in respect of the Revolving Loans) and
all other sums loaned or advanced by Bank to or on behalf of Borrower pursuant
to the terms of this Agreement, the Loan Documents or any other agreement
between Bank and Borrower, (ii) all liabilities, debts and obligations now or
at any time hereafter owing by Borrower to Bank under any Derivative Agreement,
this Agreement or any of the other Loan Documents or otherwise, (iii) the
Letter of Credit Obligations and all other obligations incurred by Bank,
whether direct or indirect, contingent or otherwise, due or not due, under each
Letter of Credit Application or in connection with the issuance of a Letter of
Credit, (iv) the Bankers' Acceptance Obligations and all other obligations
incurred by Bank, whether direct or indirect, contingent or otherwise, due or
not due, under each Bankers' Acceptance Agreement or in connection with the
issuance of a Bankers' Acceptance, and (v) all other liabilities, debts and
obligations of any and every kind, including, but not limited to, all
liabilities arising under any agreements and contracts of guaranty, now or
hereafter owing or to become due from Borrower to Bank, whether created,
evidenced, acquired or arising under this Agreement or any of the other Loan
Documents or any other instruments, obligations, contracts or agreements of any
and every
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kind, now or hereafter existing or entered into between Borrower and Bank or
otherwise, and whether direct or indirect (including those acquired by
assignment), absolute or contingent, primary or secondary, due or to become
due, now existing or hereafter arising and however acquired. The term
includes, without limitation, all Revolving Loans, interest, charges, expenses,
fees, attorneys' and paralegals' fees and any other sums chargeable to Borrower
by Bank under this Agreement or any of the other Loan Documents.
"Participant" shall mean any Person, now or any time hereafter,
participating with Bank in the extension of the credit facility from Bank to
Borrower pursuant to this Agreement.
"Permitted Purchase Money Indebtedness" shall mean Purchase Money
Indebtedness of Borrower incurred after the date hereof which is secured by a
Purchase Money Lien and which, when aggregated with the principal amount of all
other such Purchase Money Indebtedness and Capitalized Lease Obligations
incurred during the term of this Agreement, does not exceed $5,000,000.
"Person" shall mean a corporation, an association, a partnership, an
organization, a business, an individual or a government or political
subdivision thereof or any government agency.
"Plan" shall mean an employee benefit plan now or hereafter maintained
for employees of Borrower that is covered by Title IV of ERISA.
"Prohibited Transaction" shall mean any transactions set forth in
Section 406 of ERISA or Section 4975 of the Internal Revenue Code of 1986.
"Property" shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"Purchase Money Indebtedness" shall mean (i) Indebtedness (other than
the Obligations) for the payment of all or any part of the purchase price of
any fixed assets, (ii) any Indebtedness (other than the Obligations) incurred
at any time of or within ten (10) days prior to or after the acquisition of any
fixed assets for the purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings thereof, but not
any increases in the principal amounts thereof outstanding at the time.
"Purchase Money Lien" shall mean a lien upon Borrower's fixed assets,
but only if such lien shall at all times be confined solely to the fixed assets
the purchase price of which was financed through the incurrence of the Purchase
Money Indebtedness secured by such lien.
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"Release" shall have the same meaning as given to that term in Section
101(22) of CERCLA.
"Reportable Event" shall mean any of the events set forth in Section
4043(b) of ERISA.
"Restricted Investment" shall mean any Investment except the
following:
(i) Investments to be made in the ordinary course of business;
(ii) Current assets arising from the sale of goods and services in
the ordinary course of business of Borrower;
(iii) Investments and direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United
States of America, provided that such obligations mature within one (1)
year from the date of acquisition thereof;
(iv) Investments in certificates of deposit maturing within one
(1) year from the date of acquisition issued by a bank organized under
the laws of the United States or any state thereof having capital
surplus and undivided profits aggregating at least $500,000,000; and
(v) Investments in commercial paper maturing no more than one (1)
year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 or the equivalent thereof by Standard
and Poor's Corporation or at least P-1 or the equivalent thereof by
Moody's Investors Service, Inc.
"Revolving Commitment Termination Date" shall mean the earliest of:
(i) November 30, 2000;
(ii) The date of termination of the Revolving Line of Credit by
Bank after the occurrence of an Event of Default;
(iii) Thirty (30) days after Borrower delivers to the Bank written
notice of termination of the Revolving Line of Credit in accordance
with the provisions of Section 12.3 of this Agreement; provided,
however, if Borrower gives such notice of termination to Bank, then on
or before the effective date of such termination, Borrower shall
indefeasibly pay in full all Obligations and after
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<PAGE> 16
such date of termination, no Revolving Loans may be requested by
Borrower; and
(iv) The date after all Obligations have been paid in full and
Bank is no longer obligated to make Revolving Loans hereunder.
"Revolving Credit Note" shall mean the amended and restated promissory
note of Borrower executed and delivered to Bank pursuant to Section 2.2 hereof
evidencing Borrower's obligation to repay the Revolving Loans, together with
any amendments, modifications and supplements thereto, and any renewals or
extensions thereof, in whole or in part.
"Revolving Line of Credit" shall mean the revolving line of credit
made available by Bank to Borrower pursuant to Section 2.1 hereof.
"Revolving Line of Credit Commitment" shall mean $35,000,000 minus
Additional Funded Debt, as such amount may be reduced from time to time
pursuant to Section 2.9 of this Agreement.
"Revolving Loans" shall mean the loans made by Bank to Borrower under
the Revolving Line of Credit.
"Shareholders' Equity" shall mean at any date the total shareholders'
equity (including capital stock, additional paid-in capital and retained
earnings after deducting treasury stock) appearing on a balance sheet of
Borrower and its Subsidiaries prepared as of such date in accordance with
Generally Accepted Accounting Principles consistently applied.
"Solvent" shall mean, as to any Person, that such Person has capital
sufficient to carry on its business and transactions and all business and
transactions in which it is about to engage and is able to pay its debts as
they mature and owns property having a value, both at fair valuation and at
present fair saleable value, greater than the amount required to pay its debts.
"Stock" shall mean all shares, options, interests, partnerships or
other equivalents (howsoever designated) of or in a corporation, whether voting
or non-voting, including, without limitation, common stock, warrants, preferred
stock, convertible debentures and all agreements, instruments and documents
convertible, in whole or in part, into any one or more or all of the foregoing.
"Subsidiary" shall mean any corporation, more than fifty percent (50%)
of the outstanding Stock having ordinary voting power to elect a majority of
the board of directors of which is at the time, directly or indirectly, owned
by Borrower and/or one or more Subsidiaries (irrespective of whether, at the
time, Stock of any
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other class or classes of such corporation shall have or might have voting
power by reason of the happening of any contingency).
"Tangible Net Worth" shall mean at any date Shareholders' Equity minus
(a) the unamortized amount, if any, of Borrower's intangible assets and goodwill
(including, without limitation, franchises, licenses, patents, trademarks, trade
names, copyrights, service marks and brand names) as reflected on the balance
sheet of Borrower, (b) any Indebtedness owed to Borrower by any Affiliate, (c)
any write-up in the book value of any fixed asset resulting from a revaluation
thereof subsequent to the Closing Date, and (d) the amount, if any, at which any
shares of Stock of Borrower appear on the asset side of the balance sheet of
Borrower.
"Total Capitalization" shall mean at any date Funded Debt plus
Shareholders' Equity on such date.
1.2 Accounting Terms. Any accounting terms used in this Agreement
which are not specifically defined shall have the meanings customarily given
them in accordance with Generally Accepted Accounting Principles; provided,
however, that, in the event that changes in Generally Accepted Accounting
Principles shall be mandated by the Financing Accounting Standards Board, or any
similar accounting body of comparable standing, or shall be recommended by
Borrower's certified public accountants, to the extent that such changes would
modify such accounting terms or the interpretation or computation thereof, such
changes shall be followed in defining such accounting terms only from and after
such date as Borrower and Bank shall have amended this Agreement to the extent
necessary to reflect any such changes in the financial covenants and other terms
and conditions of this Agreement.
1.3 Singular/Plural. Unless the context otherwise requires, words
used herein in the singular include the plural and words in the plural include
the singular.
1.4 Other Terms. All other terms contained in this Agreement
shall, when the context so indicates, have the meanings provided for by the
Uniform Commercial Code of the State of North Carolina to the extent the same
are used or defined therein.
SECTION 2. REVOLVING LINE OF CREDIT.
2.1 Revolving Loans. Bank hereby establishes, upon the terms and
subject to the conditions of this Agreement and in reliance upon the
representations and warranties made by Borrower hereunder, a Revolving Line of
Credit in favor of Borrower in the amount of the Revolving Line of Credit
Commitment and agrees to make and remake one or more Revolving Loans to
Borrower, upon the terms and conditions set forth herein, from time to time on
any Business Day during the period from the date hereof through but not
including the Revolving Commitment Termination Date. Subject to the
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provisions of this Section and Section 4.4 below, Borrower may borrow, repay and
reborrow any amount of the Revolving Line of Credit provided that the aggregate
principal amount of Revolving Loans outstanding at any time under the Revolving
Line of Credit may not exceed the Revolving Line of Credit Commitment.
Notwithstanding the foregoing, Bank shall not have any obligation to make a
Revolving Loan requested by Borrower hereunder unless all of the conditions
precedent set forth in Sections 5.2 and 5.3 hereof are satisfied.
2.2 Revolving Credit Note. At the Closing, Borrower shall execute
and deliver to Bank the Revolving Credit Note payable to the order of Bank for
the full amount of the Revolving Line of Credit Commitment. The Revolving
Credit Note shall be in the form of Exhibit A attached hereto and dated as of
the Closing Date. The amount of principal owing on the Revolving Credit Note at
any given time shall be the aggregate amount of all Revolving Loans made under
the Revolving Line of Credit, less all payments of principal theretofore paid by
Borrower to Bank on the Revolving Loans.
2.3 Payment of Interest on Revolving Loans. Subject to the
provisions of Section 2.5 below, Borrower shall pay to Bank interest on the
unpaid principal amount of the Revolving Loans outstanding at a rate equal to
the LIBOR Contract Rate. Interest will be calculated on a daily basis
(computed on the basis of actual days elapsed over a year of three hundred
sixty (360) days). Interest accrued on the Revolving Loans shall be due and
payable in arrears on the last day of each Fiscal Quarter.
2.4 Provisions Applicable to the LIBOR Rate. The Interest Period
applicable to Revolving Loans shall commence on the Closing Date and on the
last day of the preceding Interest Period. Any Interest Period that would
otherwise end on a day that is not a Business Day shall be extended to the next
succeeding Business Day unless such Business Day falls in another calendar
month, in which case such Interest Period shall end on the next preceding
Business Day. Changes in the rate of interest payable by Borrower due to a
change in the LIBOR Rate shall take effect on the same day on which the LIBOR
Rate changes.
2.5 Default Rate; Post-Petition Interest. Notwithstanding any
other provision of this Agreement, upon the occurrence and during the
continuance of an Event of Default, the outstanding principal balance of the
Revolving Loans, and to the fullest extent permitted by applicable law, all
interest accrued on the Revolving Loans, shall bear interest at the Default
Rate, and shall be payable on demand. To the fullest extent permitted by
applicable law, interest shall continue to accrue on the Revolving Loans after
the filing by or against Borrower of any petition seeking any relief in
bankruptcy or under any act or law pertaining to insolvency or debtor relief,
whether state, federal or foreign.
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2.6 Mandatory Repayment of Principal of Revolving Loans. Borrower shall
repay the principal of the Revolving Loans:
(i) In full, on the Revolving Commitment Termination Date; and
(ii) In full, upon the occurrence of any Event of Default and
acceleration of the Obligations by Bank pursuant to Section 10.1 hereof.
2.7 Use of Proceeds of Revolving Loans. Borrower shall use the
proceeds of all Revolving Loans for working capital, capital expenditures and
such other legal and proper corporate purposes (duly authorized by Borrower's
board of directors) as are permitted hereunder and are consistent with all
applicable laws and statutes.
2.8 Disbursement of Revolving Loans. Borrower hereby irrevocably
authorizes Bank to disburse the proceeds of each Revolving Loan under this
Agreement (i) in accordance with the terms of any written instructions from
Borrower, (ii) in accordance with telephone instructions from any of
Borrower's duly authorized officers or other Persons in each case designated
from time to time in writing by Borrower, or (iii) by deposit or wire transfer
to Borrower's controlled disbursement or depository account with Bank in an
amount equal to the sum communicated to Bank as being necessary to cover checks
or other items of payment drawn by Borrower upon such account and presented to
Bank for payment, but in no event shall Bank be obligated to make Revolving
Loans hereunder in amounts necessary to cover any such checks or other items of
payment presented to Bank to the extent that Borrower is not otherwise entitled
to receive Revolving Loans in such amounts from Bank pursuant to the terms
hereof.
2.9 Voluntary Reduction in Revolving Line of Credit Commitment. Upon
at least five (5) Business Days prior notice, Borrower may cause Bank to reduce
the unutilized portion of the Revolving Line of Credit Commitment in part in
amounts of $5,000,000 plus $1,000,000 or integral multiples thereof if such
reduction is in excess of $5,000,000, or in whole. After any such reduction, the
Revolving Line of Credit Commitment may not thereafter be increased without the
prior written consent of Bank.
SECTION 3. LETTER OF CREDIT FACILITY.
3.1 Issuance of Letters of Credit. Bank hereby establishes, upon the
terms and subject to the conditions of this Agreement and in reliance upon the
representations and warranties made by Borrower hereunder, a letter of credit
facility in favor of Borrower and agrees to issue one or more Letters of Credit
for the account of Borrower, upon the terms and conditions set forth herein,
from time to time on any Business Day during the period from the date hereof
through but not including the Letter of Credit
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Termination Date, provided that the aggregate face amount of all Letters of
Credit and Bankers' Acceptances outstanding at any time shall not exceed the
Letter of Credit Facility Commitment and no Letter of Credit may have an
expiration date later than the Letter of Credit Termination Date.
Notwithstanding the foregoing, Bank shall not have any obligation to issue a
Letter of Credit requested by Borrower hereunder unless all of the conditions
precedent set forth in Sections 5.2 and 5.3 hereof are satisfied.
3.2 Acceptance of Bankers' Acceptances. (a) Bank hereby agrees, upon
the terms and subject to the conditions of this Agreement and in reliance upon
the representations and warranties made by Borrower hereunder, to establish a
bankers' acceptance facility in favor of Borrower and agrees to accept one or
more Bankers' Acceptances for the account of Borrower, upon the terms and
conditions set forth herein, from time to time on any Business Day during the
period from the date hereof through but not including the Letter of Credit
Termination Date, provided the aggregate amount of all Letters of Credit and
Bankers' Acceptances outstanding at any time shall not exceed the Letter of
Credit Facility Commitment and no Bankers' Acceptance may have a maturity date
later than the Letter of Credit Termination Date. Borrower may request that
Bank accept, at its option and with full power of further sale, discount or
other transfer, drafts drawn by Borrower on Bank ("Drafts") in a face amount of
not less than $50,000, upon the terms and conditions set forth herein.
Notwithstanding the foregoing, Bank shall not have any obligation to accept any
Draft unless all of the conditions precedent set forth in Sections 5.2 and 5.3
hereof are satisfied.
3.3 Letter of Credit and Bankers' Acceptance Fees. In consideration
of Bank's issuing Letters of Credit for Borrower's account pursuant to Section
3.1 hereof, Borrower agrees to pay Bank a fee equal to the percentage or minimum
fee customarily charged by Bank for the issuance of Letters of Credit times the
face amount of each Letter of Credit issued from time to time pursuant to this
Agreement plus the other charges customarily charged by Bank generally to its
customers for handling, amendments, drawings on and other administration of
Letters of Credit. In consideration of Bank's accepting Bankers' Acceptances
for Borrower's account pursuant to Section 3.2 hereof, Borrower agrees to pay
Bank a fee equal to the percentage or minimum fee customarily charged by Bank
for the issuance of Bankers' Acceptances plus the other charges customarily
charged by Bank generally to its other customers for handling, amendments,
drawings on and other administration of the Bankers' Acceptances. Issuance fees
shall be deemed fully earned upon issuance of each Letter of Credit or Bankers'
Acceptance, shall be due and payable in advance upon the issuance of the Letter
of Credit or acceptance of Bankers' Acceptance and shall not be subject to
rebate or proration upon the termination of this Agreement for any reason.
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3.4 Reimbursement Obligations under Letters of Credit.
(a) Borrower hereby unconditionally agrees to reimburse Bank on
the day of any drawing under a Letter of Credit for the actual amount paid by
Bank on such drawing. Borrower shall also pay interest on each unreimbursed
drawing under a Letter of Credit at a rate per annum equal to the Default Rate
(computed on the basis of actual days elapsed over a year of three hundred sixty
(360) days). Interest owing under this Section 3.4 shall be due and payable at
such time as Borrower reimburses Bank for any drawing under a Letter of Credit
and on demand. To the fullest extent permitted by applicable law, interest
shall continue to accrue on each unreimbursed drawing under a Letter of Credit
after the filing by or against Borrower of any petition seeking any relief in
bankruptcy or under any act or law pertaining to insolvency or debtor relief,
whether state, federal or foreign.
(b) Borrower's obligation under this Section 3.4 to reimburse Bank
for each drawing under a Letter of Credit shall be absolute and unconditional
under any and all circumstances and irrespective of any set-off, counterclaim or
defense to payment which Borrower may have or have had against the Beneficiary,
Bank or any other Person, including, without limitation, any defense based upon:
(i) a failure of Borrower to receive all or any part of the
consideration with respect to which such drawing under a Letter of Credit
was made;
(ii) any lack of validity or enforceability of a Letter of
Credit, the Letter of Credit Application relating thereto or any of the
Loan Documents;
(iii) any amendment or waiver of or any consent to departure
from any of the Loan Documents;
(iv) the existence of any claim, set-off, defense or other
right which Borrower may have at any time against the Beneficiary (or any
Persons for whom the Beneficiary may be acting), Bank or any other
Person, whether in connection with this Agreement, the transactions
contemplated herein or in the Loan Documents or any unrelated
transaction;
(v) any statement or any other document presented under a
Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein or made in
connection therewith being untrue or inaccurate in any respect, provided
any payment does not constitute gross negligence or willful misconduct on
the part of Bank;
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(vi) any non-application or misapplication by the Beneficiary
or otherwise of the proceeds of any drawing under a Letter of Credit;
(vii) payment by Bank under a Letter of Credit against
presentation of documentation which does not comply with the terms of
such Letter of Credit, provided such payment does not constitute gross
negligence or willful misconduct on the part of Bank;
(viii) the failure by Bank to honor any drawing under a Letter
of Credit, provided such failure does not constitute gross negligence or
willful misconduct on the part of Bank; or
(ix) any other circumstances or happening similar to any of
the foregoing.
3.5 Bankers' Acceptance Reimbursement and Payment Obligations.
(a) Borrower shall deliver to Bank blank Drafts duly executed by
Borrower, payable to Bank and endorsed in blank or to Bank's order, which Bank
shall hold in safekeeping. From time to time Borrower may request that Bank
create a Bankers' Acceptance under this Agreement by giving Bank written or
telephonic notice confirmed in writing, and by sending a copy thereof, together
with any supporting documentation, to Bank pursuant to Section 12.3 hereof. On
receipt thereof, Bank may, in its sole discretion, create a Bankers' Acceptance
by preparing a Draft in accordance with the information set forth in such
notice, duly accepting and discounting such Draft, and paying to Borrower, in
the manner set forth in subsection (c) below, an amount equal to the discounted
face amount ("Discounted Face Amount) of such Draft (computed at the Discount
Rate for the period from the date of the Draft to the date of its maturity,
calculated on the basis of a year of three hundred sixty (360) days). Bank
shall be fully indemnified by Borrower in completing Drafts in reliance upon any
instructions (including telephonic instructions) received pursuant to this
Section 3.5(a). In case any authorized signatory of Borrower whose signature
shall appear on any Draft shall cease to have such authority before the creation
of a Bankers' Acceptance with respect to such Draft, Bank's obligation under
this Agreement and under such Bankers' Acceptance shall nevertheless be valid
for all purposes as if such authority had remained in force until such creation.
(b) Bank shall use the same care with respect to the safekeeping
of such Drafts as Bank uses with respect to its own similar property but shall
not be obligated to maintain any insurance for Borrower's benefit.
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(c) The Discounted Face Amount of each Draft payable to Borrower
pursuant to the terms of this Agreement shall be disbursed in accordance with
Section 2.8 of this Agreement.
(d) Borrower unconditionally agrees to pay to Bank on the maturity
date of each Bankers' Acceptance (whether by acceleration or otherwise), the
face amount of such Bankers' Acceptance, plus any liabilities, charges and
expenses (including reasonable attorneys' fees) paid or incurred by Bank in
connection with any Bankers' Acceptance or the enforcement thereof. All amounts
payable by Borrower pursuant to this Section 3.5 shall be paid in immediately
available funds. Borrower agrees that no Bankers' Acceptance may be prepaid
prior to its maturity date without Bank's consent.
(e) Borrower hereby agrees to indemnify and hold Bank harmless
with respect to any obligation or liability imposed on Bank (including, without
limitation, the amount of any penalties and charges and the cost of maintaining
reserves) arising out of the purchase or discount of such Bankers' Acceptance,
in the absence of gross negligence or willful misconduct on the part of Bank.
Bank's determination as to the amount of any such obligation or liability shall
be final and conclusive absent manifest error. At Bank's request, Borrower shall
provide satisfactory evidence as to the genuineness and validity of the
transaction underlying any Bankers' Acceptance and such other information as may
be reasonably requested by Bank.
(f) Bank shall have no responsibility for, and Borrower shall
indemnify Bank against and hold Bank harmless from, each and every claim,
demand, liability, loss, cost or expense to which Bank may be subjected or which
Bank may incur arising out of any transaction or contract to which any Bankers'
Acceptance relates or to any goods or documents involved therein.
3.6 Actions of Beneficiary. Borrower assumes all risks of the acts or
omissions of each Beneficiary with respect to its use of a Letter of Credit.
Neither Bank nor any of its officers or directors shall be liable or responsible
for: (a) the use which may be made of a Letter of Credit or any acts or
omissions of the Beneficiary in connection therewith; (b) the validity,
sufficiency or genuineness of documents, or of any endorsement thereon, even if
such documents should prove to be in any or all respects invalid, insufficient,
fraudulent or forged in the absence of gross negligence or willful misconduct on
the part of Bank; (c) payment by Bank against presentation of documents which do
not fully comply with the terms of a Letter of Credit, including failure of any
documents to bear any reference or adequate reference to a Letter of Credit, in
the absence of gross negligence or willful misconduct on the part of Bank; or
(d) for errors, omissions, interruptions or delays in transmission or delivery
of any messages, by mail, telecopier, telex or otherwise, except that Borrower
shall have a
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claim against Bank, and Bank shall be liable to Borrower, to the extent of any
damages suffered by Borrower which Borrower proves were caused by Bank's
willful failure, or gross negligence resulting in Bank's failure, to make
lawful payment under a Letter of Credit after the presentation to it by a
Beneficiary of all documentation required by the terms of a Letter of Credit to
accompany a drawing thereunder strictly complying with the terms and conditions
of a Letter of Credit. In furtherance and not in limitation of the foregoing,
Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary.
3.7 Outstanding Letters of Credit and Bankers' Acceptances on Letter of
Credit Termination Date. On the Letter of Credit Termination Date, if all
outstanding Letters of Credit and Bankers' Acceptances are not terminated or
cancelled and Bank released from all liability thereunder, Borrower shall
either (a) cause to be issued in favor of Bank as beneficiary a direct pay
letter of credit from a commercial bank and in form both reasonably acceptable
to Bank providing for direct reimbursement to Bank of all sums paid by Bank on
the outstanding Letters of Credit and Bankers' Acceptances or (b) deposit with
Bank funds equal to the undrawn face amount of all Letters of Credit and
Bankers' Acceptances then outstanding to be held by Bank as security for the
outstanding Letter of Credit Obligations and Bankers' Acceptance Obligations.
SECTION 4. PROVISIONS APPLICABLE TO THE REVOLVING LOANS, THE BANKERS'
ACCEPTANCE OBLIGATIONS AND THE LETTER OF CREDIT OBLIGATIONS.
4.1 Payments; Manner and Application of Payments.
(a) All payments by Borrower on account of principal, interest and
fees on the Revolving Loans, the Bankers' Acceptance Obligations and the Letter
of Credit Obligations shall be made in immediately available funds to Bank at
its office in Mount Airy, North Carolina prior to 1:00 p.m., Mount Airy, North
Carolina time on the date payment is due, or at such other place as is
designated in writing by Bank. If any payment of principal, interest or fees
falls due on a day which is not a Business Day, then such due date shall be
extended to the next succeeding Business Day, and, with respect to principal,
interest shall accrue and be payable for such period of extension. Any payments
received by Bank later than 1:00 p.m. shall be deemed to have been made on the
next day.
(b) In the event that Borrower does not pay to Bank any interest,
fees, costs or expenses payable by Borrower pursuant to this Agreement or the
Revolving Credit Note, or any Letter of Credit Obligations, including, without
limitation, the reimbursement obligations set forth in Sections 3.4 and 3.5
hereof,
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Borrower hereby irrevocably authorizes Bank to pay itself the same by drawing
such amounts as a Revolving Loan under the Revolving Line of Credit as of the
respective due dates of such interest, fees, costs, expenses, Bankers'
Acceptance Obligations and Letter of Credit Obligations, but the failure of
Bank to so pay itself by drawing a Revolving Loan under the Revolving Line of
Credit shall not affect Borrower's obligation to pay such interest, fees,
costs, expenses, Bankers' Acceptance Obligations and Letter of Credit
Obligations.
(c) All payments made by Borrower shall be applied (i) first, to
the payment of accrued and unpaid fees and interest on the Obligations, and (ii)
second, to the payment of unpaid principal on the Obligations; provided,
however, that during the continuance of an Event of Default, Bank shall apply
all such payments to the Obligations in any amounts and any priority as Bank in
its sole discretion may determine.
4.2 Maximum Interest Rate. Nothing contained in this Agreement, in the
Revolving Credit Note or the other Loan Documents shall be deemed to establish
or require the payment of interest to Bank at a rate in excess of the Maximum
Rate. In the event that the rate of interest required to be paid under the
provisions of this Agreement, the Revolving Credit Note or the other Loan
Documents exceeds the Maximum Rate, the rate of interest required to be paid
hereunder and under the Revolving Credit Note shall be automatically reduced to
the Maximum Rate and any amounts collected in excess of the permissible amount
shall be deemed a prepayment of principal on the Revolving Loans and the Letter
of Credit Obligations.
4.3 Increased Costs. If at any time after the date hereof, and from
time to time, Bank or any Participant shall determine reasonably and in good
faith that the adoption or modification of any applicable federal or state law,
rule or regulation regarding Bank's or any Participant's required levels of
reserves, insurance or capital (including any allocation of capital requirements
or conditions), or similar requirements, or any change therein or any
interpretation or administration thereof by any court, governmental authority,
central bank or comparable agency charged with the interpretation,
administration or compliance of Bank or any Participant with any of such
requirements (which are unforeseen by Bank at the present time), has or would
have the effect of (i) increasing Bank's or any Participant's net cost relating
to the Obligations of Borrower hereunder, (ii) reducing the yield or rate of
return of Bank or any Participant on the Obligations of Borrower hereunder to a
level below that which Bank or any Participant could have achieved but for the
adoption or modification of any such requirements, (iii) imposing any reserve,
special deposit or similar requirements relating to any extensions of credit on
or other assets of, or any deposits with or other liabilities of, Bank or any
Participant (such increases or reductions being collectively
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referred to herein as "Increased Costs"), Borrower shall, within ten (10) days
of any request by Bank or any Participant, pay to Bank or such Participant such
additional amounts as (in Bank's or any Participant's sole judgment, after good
faith and reasonable computation) will compensate Bank or such Participant for
such increase in net costs or reduction in yield or rate of return of Bank or
such Participant. Upon making such request to Borrower for the payment of such
additional amounts, Bank and such Participant shall deliver to Borrower a
notice setting forth the basis for and calculation of such Increased Costs. No
failure by Bank or any Participant to demand payment of any additional amounts
payable hereunder shall constitute a waiver of Bank's or any Participant's
right to demand payment of any amounts arising at any subsequent time in
accordance with the terms hereof. Nothing herein contained shall be construed
or so operate as to require Borrower to pay any interest, fees, costs or
charges greater than is permitted by applicable law.
4.4 Funding Loss Indemnification. If Borrower makes any payment of
principal with respect to any Revolving Loan (whether at stated maturity, as the
result of acceleration of maturity or otherwise) on any day other than the due
date of such interest payment or the last day of the Interest Period applicable
thereto, Borrower shall reimburse Bank on demand for any resulting loss or
expense (not including lost profits) incurred by Bank as determined by Bank and
certified by Bank to Borrower (which certificate shall be deemed correct and
conclusively binding upon Borrower and Bank absent manifest error). Borrower
shall indemnify Bank and hold Bank harmless from any loss (not including lost
profits), cost or expense Bank may sustain or incur as a consequence of the
failure of Borrower to complete any borrowing after notice thereof has been
given to Bank, including, without limitation, any loss, cost or expense incurred
by reason of the liquidation or re-employment of deposits or other funds
required by Bank to fund such borrowing when such amount is not borrowed. Bank
shall certify the amount of its loss, cost or expense to Borrower and such
certification shall be conclusive absent manifest error.
4.5 Illegality; Impracticality. If it shall become unlawful for Bank
to obtain funds in the London interbank market in order to fund or maintain
Revolving Loans or otherwise to perform its obligations hereunder with respect
to any such Revolving Loan, upon not less than five (5) Business Days notice by
Bank to Borrower, the rate of interest on all such Revolving Loans shall
thereupon be determined by Bank using a comparable interest rate selected by
Bank in its reasonable discretion, and the right of Borrower to obtain Revolving
Loans using the LIBOR Rate as a base shall thereupon terminate. Notwithstanding
any other provision of this Agreement to the contrary, if, upon receiving a
borrowing request for a Revolving Loan, (i) deposits in United States dollars
for periods comparable to the Interest Period are not quoted or available to
Bank in the London interbank market, or (ii) the LIBOR
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Rate will not adequately or fairly reflect the costs to Bank of making or
maintaining the related Revolving Loan, or (iii) by reason of national or
international financial, political or economic conditions or by reason of any
applicable law, treaty, rule or regulation (whether domestic or foreign) now or
hereafter in effect, or the interpretation or administration thereof by any
governmental authority, or compliance by Bank with any request or directive of
such authority (whether or not having the force of law), including, without
limitation, exchange controls, it is impracticable, unlawful or impossible for
Bank to make or continue the relevant Revolving Loan using the LIBOR Rate as a
base, then Borrower shall not be entitled, so long as such circumstances
continue, to request Revolving Loans hereunder using the LIBOR Rate as a base
and the rate of interest on all such Revolving Loans shall thereafter for so
long as such circumstances continue be determined by Bank using a comparable
interest rate selected by Bank in its reasonable discretion.
4.6 Facility Fee. During the term of the Revolving Line of Credit,
Borrower shall pay Bank a facility fee at the Applicable Margin in effect on the
first (1st) day of each Fiscal Quarter on the daily undisbursed portions of the
Revolving Line of Credit Commitment. Such facility fee shall accrue from and
including the Closing Date through but not including the Revolving Commitment
Termination Date, shall be calculated on the basis of a three hundred sixty
(360) day year for the actual number of days elapsed, and shall be payable
quarterly in arrears on the first Business Day of each Fiscal Quarter for the
immediately preceding Fiscal Quarter, or, if earlier, the Revolving Commitment
Termination Date.
4.7 All Obligations to Constitute One Loan. All Obligations of
Borrower under this Agreement shall constitute one general obligation of
Borrower and shall be secured by all security interests, liens, claims,
encumbrances, and rights of offset at any time or times hereafter granted by
Borrower to Bank.
SECTION 5. CLOSING; CONDITIONS OF LOANS.
5.1 Closing. The Closing shall take place on the date of the execution
of this Agreement by Bank ("Closing Date") at the offices of Carruthers & Roth,
P.A., Greensboro, North Carolina, or at such other time and place as the parties
hereto shall mutually agree.
5.2 Conditions of Initial Revolving Loan, Bankers' Acceptance and
Letter of Credit. Notwithstanding any other provision of this Agreement or any
other Loan Document, and without affecting any other rights of Bank under the
other sections of this Agreement, Bank shall have no obligation under Sections
2.1, 3.1 and 3.2 of this Agreement to make the initial Revolving Loan, accept
any Banker's Acceptance or issue any Letter of Credit on the Closing Date unless
and until, in addition to each of the conditions set
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forth in Section 5.3 hereof, the following conditions have been satisfied in a
manner satisfactory to Bank and its counsel:
(a) No Injunction, Etc. No action, proceeding, investigation,
regulation or legislation shall have been instituted or commenced before any
court, governmental agency or legislative body to enjoin, restrain, or prohibit,
or to obtain substantial damages in respect of, or which is related to or arises
out of this Agreement or the consummation of the transactions contemplated
hereby, or which, in Bank's reasonable discretion, would make it inadvisable to
consummate the transactions contemplated by this Agreement.
(b) Governmental Approvals. All necessary approvals,
authorizations and consents, if any be required, of all governmental bodies
(including courts) having jurisdiction with respect to the transactions
contemplated by this Agreement shall have been obtained.
(c) Loan Documentation. Bank shall have received, on or prior to
the Closing Date, the following documents, each duly executed and delivered to
Bank, and each in form and substance satisfactory to Bank and its counsel:
(i) Revolving Credit Note. The duly executed Revolving Credit
Note;
(ii) Certificate of Secretary of Borrower. Certificate of the
Secretary or an Assistant Secretary of Borrower certifying (x) that
attached thereto is a true and complete copy of the bylaws of Borrower as
in effect on the date of such certification, (y) that attached thereto is
a true and complete copy of resolutions adopted by the executive
committee of the Board of Directors of Borrower, authorizing the
execution, delivery and performance of this Agreement and the other Loan
Documents, and the consummation of the transactions contemplated hereby
and thereby, and (z) as to the incumbency and genuineness of the
signature of each officer of Borrower executing this Agreement or any of
the other Loan Documents;
(iii) Articles of Incorporation of Borrower. Copies of the Articles
of Incorporation of Borrower, and all amendments thereto, certified by
the Secretary of State of North Carolina;
(iv) Certificates of Existence. Original Certificates of Existence
for Borrower issued by the Secretary of State of North Carolina, and the
appropriate official of each other jurisdiction where the conduct of
Borrower's business activities or the ownership of its properties
necessitates qualification;
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(v) Certificate as to No Default. A certificate signed by an
officer of Borrower, in form and substance satisfactory to Bank and its
counsel, dated as of the Closing Date, certifying that (x) the
representations and warranties of Borrower contained in this Agreement
and the other Loan Documents are true, correct and complete as of such
date, (y) that Borrower is on such date in compliance with all of the
terms and provisions set forth in this Agreement and the other Loan
Documents, and (z) on the Closing Date, no Default or Event of Default
exists;
(vi) Disbursement Instructions. Written instructions from Borrower
to Bank as to any sums to be paid out of the proceeds of the initial
Revolving Loan made pursuant to this Agreement;
(vii) Opinion of Counsel. A written opinion of counsel to Borrower
as to the transactions contemplated by this Agreement and the other Loan
Documents to be in form and substance satisfactory to Bank and its
counsel; and
(viii) Supplemental Documentation. Such other documentation as Bank
or its counsel shall reasonably request.
(d) No Material Adverse Change. Since December 31, 1995, there
shall not have occurred any material adverse change in the business, financial
condition or results of operations of Borrower, or any event, condition, or
state of facts which would be expected materially and adversely to affect the
business, financial condition or results of operations of Borrower.
5.3 Conditions of All Loans, Bankers' Acceptances and Letters of
Credit. Notwithstanding any other provision of this Agreement or any other Loan
Document, and without affecting in any manner the rights of Bank under the other
sections of this Agreement, Bank shall have no obligation under Sections 2.1,
3.1 and 3.2 of this Agreement to make any Revolving Loan, accept any Bankers'
Acceptance or issue any Letter of Credit unless and until, in addition to each
of the conditions set forth in Section 5.2 hereof, the following conditions have
been and continue to be satisfied in a manner satisfactory to Bank:
(a) No Material Adverse Change. There shall not have occurred
after the Closing Date any material adverse change in the business, financial
condition or results of operations of Borrower, or any event, condition or state
of facts which would be expected materially and adversely to affect the
business, financial condition or results of operations of Borrower.
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(b) Delivery of Documents. Bank shall have received the
originals or copies of all documents required to be delivered to Bank pursuant
to the terms of this Agreement and all other certificates, reports and
information required to be delivered to Bank hereunder.
(c) Representations and Warranties. The representations and
warranties contained in Section 6 of this Agreement and the other Loan Documents
are and shall continue to be true and correct in all material respects (except
to the extent that they shall be untrue or incorrect solely as a result of
occurrences permitted under this Agreement).
(d) No Default or Event of Default. No Default or Event of
Default shall have occurred and be continuing.
(e) Performance of Agreement. All covenants and agreements on the
part of Borrower to be performed hereunder shall have been performed and, unless
otherwise expressly agreed, any conditions precedent set forth in Section 5.2
hereof shall have been fulfilled.
(f) Letter of Credit Application. Bank shall have received a duly
executed Letter of Credit Application with respect to any Letter of Credit
requested by Borrower.
(g) Bankers' Acceptance Agreement. Bank shall have received a
duly executed Bankers' Acceptance Agreement with respect to any Bankers'
Acceptance requested by Borrower.
5.4 Waiver of Conditions. If Bank makes any Revolving Loan, accepts
any Bankers' Acceptance or issues any Letter of Credit hereunder prior to the
fulfillment of any of the conditions precedent set forth in Sections 5.2 and 5.3
hereof, the making of such Revolving Loan, the acceptance of such Bankers'
Acceptance or the issuance of such Letter of Credit shall constitute only an
extension of time for the fulfillment of such condition and not a waiver
thereof, and Borrower shall thereafter use its best efforts to fulfill each such
condition promptly.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
In order to induce Bank to enter into this Agreement and to make
Revolving Loans, accept Bankers' Acceptances and issue Letters of Credit,
Borrower makes the following warranties and representations to Bank:
6.1 Corporate Organization and Power. Borrower (a) is a corporation
duly organized, validly existing and in good standing under the laws of the
State of North Carolina;(b) is qualified to do business and is in good standing
in every jurisdiction where the nature of its business or the ownership of its
properties requires
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it to be so qualified; (c) has the power to engage in the transactions
contemplated hereby; and (d) has the full power, authority and legal right to
execute and deliver this Agreement and the other Loan Documents and to perform
and observe the terms and provisions thereof. Borrower has no Subsidiaries
other than Insteel Wire Products Company, a North Carolina corporation, and
Intercontinental Metals Corporation, a North Carolina corporation. Except as
set forth in Exhibit B attached hereto, neither Borrower nor any of its
Subsidiaries has been known as or used any other corporate, fictitious or trade
names.
6.2 Litigation; Government Regulation. Except as set forth on Exhibit
C attached hereto, there are no actions, suits or proceedings pending or, to the
knowledge of Borrower, threatened against or affecting Borrower or its
Subsidiaries at law or in equity before any court or administrative officer or
agency which might result in a material adverse change in the business or
financial condition of Borrower or its Subsidiaries or impair Borrower's or its
Subsidiaries' ability to perform its obligations under the Loan Documents.
Neither Borrower nor any of its Subsidiaries is in violation of or in default
under any applicable statute, rule, order, decree, writ, injunction or
regulation of any governmental body (including any court) where such violation
would have a materially adverse effect upon Borrower's or its Subsidiaries'
business, property, assets, operations or condition, financial or otherwise.
6.3 Taxes. Borrower is not delinquent in the payment of any taxes
which have been levied or assessed by any governmental authority against it or
its assets. Borrower and its Subsidiaries have timely filed all tax returns
which are required by law to be filed, and have paid all taxes shown on said
returns and all other assessments or fees levied upon Borrower, its Subsidiaries
or upon its respective Property to the extent that such taxes, assessments or
fees have become due, except such amounts thereof as are being contested in good
faith and for which adequate provision has been made for such payment. To the
knowledge of the officers of Borrower, no material controversy in respect of
income taxes is pending or threatened.
6.4 Enforceability of Loan Documents; Compliance With Other
Instruments. The Loan Documents are the legal, valid and binding obligations of
Borrower, enforceable against Borrower in accordance with their respective
terms. Borrower is not subject to any corporate restriction or to any order,
rule, regulation, writ, injunction or decree of any court or governmental
authority or to any statute which materially and adversely affects its business,
property, assets or financial condition. Except as set forth in Section 6.21 of
this Agreement, neither Borrower nor any of its Subsidiaries is a party to any
labor dispute, there are no strikes or walkouts relating to any labor contracts
and no such contract is scheduled to expire during the term of this Agreement.
Neither
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Borrower nor any of its consolidated Subsidiaries is in default in the payment
of any amount owing under, or in the performance of any other material
obligation in respect of, any indenture, loan agreement, mortgage, lease, deed
or similar agreement related to the borrowing of monies to which Borrower or
such Subsidiary is a party or by which it is bound. Neither the execution,
delivery or performance of the Loan Documents, nor compliance therewith: (a)
conflicts or will conflict with or results or will result in any breach of, or
constitutes or will constitute with the passage of time or the giving of notice
or both, a default under, (i) the Articles of Incorporation or Bylaws of
Borrower, (ii) any law, order, writ, injunction or decree of any court or
governmental authority, or (iii) any agreement or instrument to which Borrower
or any of its Subsidiaries is a party or by which Borrower or its Subsidiaries
or its respective Property is bound or (b) results or will result in the
creation or imposition of any lien, charge or encumbrance upon its respective
Property pursuant to any such agreement or instrument.
6.5 Governmental Authorization. No authorization, consent or approval
of any governmental authority is required for the execution, delivery and
performance of the Loan Documents or the consummation of the transactions
contemplated thereby. Borrower and its Subsidiaries have, and are in good
standing with respect to, all governmental approvals, permits, certificates,
inspections, consents and franchises necessary to continue to conduct its
business as heretofore conducted and to own or lease and operate its properties
as now owned or leased by it. None of such approvals, permits, certificates,
consents, or franchises contains any term, provision, condition or limitation
more burdensome than such as are generally applicable to Persons engaged in the
same or similar business as Borrower.
6.6 Event of Default. No event has occurred and is continuing which
constitutes a Default or an Event of Default.
6.7 Margin Securities. None of the transactions contemplated by
this Agreement (including, without limitation thereof, the use of the proceeds
of the Revolving Loans) will violate or result in a violation of Section 7 of
the Securities Exchange Act of 1934, as amended, or any regulations issued
pursuant thereto. Borrower does not own or intend to carry or purchase directly
or indirectly any margin securities. None of the proceeds of the Revolving
Loans will be used to purchase or carry (or refinance any borrowing, the
proceeds of which were used to purchase or carry) any "margin security" within
the meaning of the Securities Exchange Act of 1934, as amended.
6.8 Full Disclosure. None of the Loan Documents, nor any statements
furnished by or on behalf of Borrower or any Subsidiary to Bank in connection
with the Loan Documents, contain any untrue statement of a material fact or omit
a material fact necessary to
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make the statements contained therein or herein not misleading. To the best of
Borrower's knowledge, there is no fact which Borrower has not disclosed to Bank
in writing which materially affects adversely or, to the best of Borrower's
knowledge, will materially affect adversely the assets, business, profits or
conditions (financial or otherwise) of Borrower or its Subsidiaries or the
ability of Borrower to perform its Obligations under the Loan Documents.
6.9 Business Locations. Borrower's chief executive office, principal
place of business, and other offices, places of business and locations where
Borrower keeps its books and records are at the locations set forth on Exhibit
D attached hereto and made a part hereof.
6.10 ERISA. Except as disclosed on Exhibit E attached hereto, Borrower
does not have any Plan. Borrower has not received any notice to the effect that
it is not in full compliance with any of the requirements of ERISA. No fact or
situation that could result in a material adverse change in the financial
condition of Borrower, including, without limitation, any Reportable Event or
Prohibited Transaction, exists in connection with any Plan. Borrower has no
withdrawal liability in connection with a Multiemployer Plan.
6.11 Financials. The Financials delivered to Bank have been prepared in
accordance with Generally Accepted Accounting Principles (subject, in the case
of interim Financials, to normal year-end adjustments), contain no material
misstatement or material omission, and fairly present the financial position,
assets and liabilities of Borrower as of the respective dates thereof and the
results of operations of Borrower for the respective periods then ended. Except
for the transactions contemplated by this Agreement, since the date of the last
of the Financials, there has been no material adverse change in the assets,
liabilities or financial position of Borrower or its Subsidiaries or in the
results of Borrower's or its Subsidiaries' operations, and neither Borrower nor
any of its Subsidiaries has incurred any obligation or liability which would
materially and adversely affect its financial condition or business operations.
6.12 Title to Property. Borrower has good, indefeasible and
merchantable title to and ownership of or valid leasehold or other interests in
its Property, including without limitation, the Property reflected in the
Financials.
6.13 Solvency. Borrower is Solvent.
6.14 Use of Proceeds. Borrower's use of the proceeds of any Revolving
Loans made by Bank to Borrower pursuant to this Agreement are, and continue to
be, legal and proper corporate uses (duly authorized by its Board of Directors)
and such uses are consistent
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with all applicable laws and statutes, as in effect as of the date hereof.
6.15 Assets for Conduct of Business. Borrower possesses adequate
assets, licenses, patents, patent applications, copyrights, trademarks and
trade names to conduct its business as heretofore conducted.
6.16 Trade Relations. To the best of Borrower's knowledge, there exists
no actual or threatened termination, cancellation or limitation of, or any
modification or change in the business relationship of Borrower or any customer
or any group of customers whose purchases individually or in the aggregate are
material to the business of Borrower, or with any material supplier which would
have a material adverse effect on the business, financial condition or results
of operations of Borrower, and there exists no present condition or state of
facts or circumstances which would materially adversely affect Borrower or
prevent Borrower from conducting such business after the consummation of the
transaction contemplated by this Agreement in substantially the same manner in
which it has heretofore been conducted.
6.17 Compliance With Laws. Borrower and its Subsidiaries have duly
complied with, and its business operations and leaseholds are in compliance in
all material respects with, the provisions of all federal, state and local laws,
rules and regulations applicable to Borrower and its Subsidiaries or the conduct
of Borrower's or its Subsidiaries' business, including, without limitation, all
Environmental Laws, and there have been no citations, notices or orders of
non-compliance received by Borrower or its Subsidiaries under any such law, rule
or regulation which would have a material and adverse effect on the business of
Borrower or its Subsidiaries or the value of its respective Property.
6.18 Guaranty. Borrower has no outstanding guaranties of Indebtedness
of another Person except as otherwise permitted under Section 8.13 hereof.
6.19 Environmental Matters. To the best of Borrower's knowledge,
neither Borrower nor any Subsidiary is subject to any Environmental Liability
and neither Borrower nor any Subsidiary has been designated as a potentially
responsible party under CERCLA or under any state statute similar to CERCLA
which is likely to have a material adverse effect on the business of Borrower or
any of its Subsidiaries or the value of its respective Property. Neither
Borrower nor any of its Subsidiaries is subject to any existing, or, to the best
of Borrower's knowledge, any pending or threatened suit, claim, notice of
violation, or request for information under any Environmental Law, nor, to the
best of Borrower's knowledge, has Borrower or any of its Subsidiaries been
provided any notice or information under any Environmental Law which would have
a material adverse effect upon the business of Borrower or
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Borrower or any of its Subsidiaries or the value of its respective Property.
To the best of Borrower's knowledge, Borrower and its Subsidiaries have not
failed to obtain any Environmental Permit, the failure to obtain which would
have a material adverse effect upon the business of Borrower or any of its
Subsidiaries.
6.20 Withholding Taxes. Borrower and its Subsidiaries are current in
respect to the payment of all federal and state withholding taxes and social
security taxes. Borrower currently accrues its payroll tax applications and
maintains sufficient available funds to satisfy its payroll tax liability.
6.21 Labor Contract; Labor Disputes. Neither Borrower nor any of its
Subsidiaries is a party to any collective bargaining contract or agreement with
its employees other than a collective bargaining contract with the hourly
employees at the Wilmington, Delaware facility occupied by Insteel Wire Products
Company. Borrower is not a party to, and there is not pending or threatened,
any labor dispute, strike, lockout, grievance, work stoppage or walkout relating
to any labor contract to which Borrower is a party. Borrower and its
Subsidiaries have complied with the provisions of the Fair Labor Standards Act
of 1938, as amended, and neither Borrower nor any of its officers, directors or
employees, has committed any unfair labor practice, as defined in the National
Labor Relations Act of 1947, as amended.
6.22 Leases. Exhibit F attached hereto lists, as of the Closing Date,
all capitalized leases of Borrower and Exhibit G attached hereto lists, as of
the Closing Date, all operating leases of Borrower, including, in each case, the
name of the lessor, the description of the leased Property, whether real or
personal, and the location of such Property. Borrower enjoys peaceful and
undisturbed possession under all of its leases and all such leases are valid and
subsisting and in full force and effect.
6.23 Reaffirmation of Warranties and Representations. Each request for
a Revolving Loan, a Bankers' Acceptance or a Letter of Credit by Borrower
pursuant to this Agreement shall constitute (a) to the best knowledge of each
officer of Borrower and to the best knowledge of each Person authorized or
permitted to request Revolving Loans hereunder, an automatic warranty and
representation by Borrower to Bank that there does not then exist a Default or
an Event of Default and (b) a reaffirmation that, to the best knowledge of each
officer of Borrower and to the best knowledge of each Person authorized or
permitted to request Revolving Loans hereunder, all of the representations and
warranties of Borrower and its Subsidiaries contained in this Agreement and the
other Loan Documents continue to be true and correct in all material respects.
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6.24 Survival of Warranties and Representations. Borrower covenants,
warrants and represents to Bank that all representations and warranties of
Borrower and its Subsidiaries contained in this Agreement and the other Loan
Documents shall be true at the time of Borrower's execution of this Agreement
and the other Loan Documents and shall survive the execution, delivery and
acceptance thereof by the parties thereto and the closing of the transactions
described therein or related thereto.
SECTION 7. AFFIRMATIVE COVENANTS.
Until payment in full of all Obligations of Borrower to Bank, Borrower
covenants and agrees that, unless Bank consents in writing, Borrower will:
7.1 Repayment of Obligations. Repay the Obligations according to the
terms of this Agreement and the other Loan Documents.
7.2 Performance Under Loan Documents. Perform all Obligations required
to be performed by it under the terms of this Agreement and the other Loan
Documents and any other agreements now or hereafter existing or entered into
between Borrower and Bank.
7.3 Financial and Business Information as to Borrower. Deliver to Bank
with respect to Borrower:
(a) As soon as practicable, but no later than thirty (30) days
after the close of each Fiscal Quarter, beginning with the current Fiscal
Quarter, a consolidated and consolidating balance sheet of Borrower and its
Subsidiaries as of the close of each Fiscal Quarter, and a consolidated and
consolidating statement of income and cash flow, for that portion of the Fiscal
Year to date then ended, prepared in accordance with Generally Accepted
Accounting Principles (subject to timing and normal year-end adjustments),
applied on a basis consistent with that of the preceding period or containing
disclosure of the effect on the financial position or results of operations of
any change in the application of accounting principles and practices during the
Fiscal Quarter, and certified as accurate by the chief financial officer of
Borrower;
(b) As soon as possible, but no later than ninety (90) days after
the close of each Fiscal Year of Borrower and its Subsidiaries, beginning with
the current Fiscal Year, a consolidated and consolidating balance sheet of
Borrower as of the close of such Fiscal Year and consolidated and consolidating
statements of income, retained earnings and cash flow for the Fiscal Year then
ended, prepared in accordance with Generally Accepted Accounting Principles,
applied on a basis consistent with the preceding year or containing disclosure
of the effect on financial position or results of operation of any change in the
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application of accounting principles and practices during the Fiscal Year, and
accompanied by a report thereon, containing an unqualified opinion, without
scope limitations imposed by Borrower, from a firm of independent certified
public accountants selected by Borrower and acceptable to Bank;
(c) Concurrently with the delivery of the financial statements
described in subsection (b) hereof, a certificate from the independent certified
public accountants that in making their examination of the financial statements
of Borrower and its Subsidiaries, they obtained no knowledge of the occurrence
or existence of any Default or any Event of Default, or a statement specifying
the nature and period of existence of any such Default or Event of Default;
(d) Concurrently with the delivery of the financial statements
described in subsections (a) and (b) above, a certificate from the chief
executive, operating or financial officer of Borrower certifying to Bank that,
to the best of his knowledge, Borrower and its Subsidiaries have kept, observed,
performed and fulfilled each and every covenant, obligation and agreement
binding upon Borrower and its Subsidiaries contained in this Agreement or the
other Loan Documents, and that no Default or Event of Default has occurred or
specifying any such Default or Event of Default, together with a financial
compliance worksheet, in form satisfactory to Bank, reflecting the computation
of the financial covenants set forth in Section 8 as of the end of the period
covered by such financial statements;
(e) Concurrently with the delivery of the financial statements
described in subsections (a) and (b) above, a compliance certificate
substantially in the form of Exhibit H attached hereto, duly executed by the
chief executive, operating or financial officer of Borrower;
(f) As soon as possible, but not later than ninety (90) days after
the end of each Fiscal Year, an annual budget of Borrower and its Subsidiaries
for the succeeding Fiscal Year in reasonable detail, including a quarterly cash
flow of Borrower and its Subsidiaries for the succeeding Fiscal Year (each
annual budget shall include a balance sheet and a statement of anticipated
sales, expenses and profit and loss before taxes for each Fiscal Quarter),
together with such changes and updates in such annual budget as may be deemed
necessary by Borrower because of any material deviation or variance between the
actual results and the corresponding projections in such annual budget; and
(g) Upon Bank's written request, such other information about the
financial condition and operations of Borrower as Bank may from time to time
reasonably request.
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7.4 Notice of Certain Events. As soon as practicable, but in no event
later than five (5) days after the occurrence thereof, give written notice to
Bank of: (a) any material litigation or proceeding brought against Borrower or
any of its Subsidiaries, whether or not the claim is considered by Borrower to
be covered by insurance; (b) any written notice of a violation received by
Borrower or any of its Subsidiaries from any governmental regulatory body or law
enforcement authority which, if such violation were established, might have a
materially adverse effect on the business of Borrower; (c) any labor controversy
which has resulted in a strike or other work action materially affecting
Borrower or any of its Subsidiaries; (d) any attachment, judgment, lien, levy or
order in excess of $500,000 which has been placed on or assessed against
Borrower or any of its Subsidiaries or its respective Property; (e) any Default
or Event of Default; and (f) any other matter which has resulted in a material
adverse change in the financial condition or operations of Borrower or any of
its Subsidiaries.
7.5 Corporate Existence and Maintenance of Properties. Maintain and
preserve its corporate existence and all rights, privileges and franchises now
enjoyed which are necessary for the conduct of Borrower's business, conduct its
business in an orderly, efficient and customary manner, keep its properties in
good working order and condition, and from time to time make all needed repairs
to, renewals of or replacements of its properties (except to the extent that any
of such properties is obsolete or is being replaced) so that the efficiency of
such property shall be fully maintained and preserved. Borrower and its
Subsidiaries shall file or cause to be filed in a timely manner all reports,
applications, estimates and licenses which shall be required by any governmental
authority and which, if not timely filed, would have a material adverse effect
on Borrower or its Property.
7.6 Payment of Indebtedness; Performance of Other Obligations. Pay all
Indebtedness when due, and all other obligations in accordance with customary
trade practices, and comply with all acts, rules, regulations and orders of any
legislative, administrative or judicial body or official applicable to
Borrower's Property or any part thereof or to the operation of Borrower's
business; provided, however, that Borrower may in good faith by appropriate
proceedings in good faith and with due diligence contest any such Indebtedness,
obligations, acts, rules, regulations, orders and directions that do not
materially adversely affect the value of its Property, and if requested by Bank,
shall establish reserves reasonably satisfactory to Bank. Borrower and its
Subsidiaries shall also observe and remain in compliance with all laws,
ordinances, governmental rules and regulations to which it is subject and obtain
and maintain all licenses, permits, franchises or other governmental
authorizations necessary to the ownership of its properties or the conduct of
its business, and all covenants and conditions of all agreements and instruments
to which
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Borrower is a party which failure to comply or failure to maintain would
materially and adversely affect the business, prospects, profits or condition
(financial or otherwise) of Borrower.
7.7 Maintenance of Insurance. Maintain and pay for insurance upon all
Property covering such risks (but not including environmental coverage) and in
such amounts and with such insurance companies as shall be reasonably
satisfactory to Bank. Borrower shall also maintain, with financially sound and
reputable insurers, insurance with respect to its properties and business
against such casualties and contingencies of such types (including, but not
limited to, liability, larceny, embezzlement, or other criminal misappropriation
insurance) and in such amounts as is customary in the case of a Person in the
same or similar business.
7.8 Maintenance of Books and Records; Inspection. Maintain adequate
books, accounts and records, and prepare all financial statements required under
this Agreement in accordance with Generally Accepted Accounting Principles and
in compliance with the regulations of any governmental regulatory body having
jurisdiction over it; and permit employees or agents of Bank at any reasonable
time (and prior to the occurrence of a Default or an Event of Default upon
reasonable notice) to inspect Borrower's and its Subsidiaries' Property, and to
examine or audit Borrower's and its Subsidiaries' books, accounts and records
and make copies and memoranda of them. Borrower and its Subsidiaries shall
permit any representative of Bank during normal business hours (and prior to the
occurrence of a Default or an Event of Default upon reasonable notice) to visit
and inspect any of the properties of Borrower and its Subsidiaries, to examine,
make extracts and inspect all books of accounts, records, reports and other
papers, to make copies and extracts therefrom, and to discuss the affairs,
finances, accounts and related issues of Borrower and its Subsidiaries with
their respective officers, employees and independent public accountants (and by
this provision Borrower authorizes said accountants to discuss the finances and
affairs of Borrower and its Subsidiaries), all at such reasonable times (and
prior to the occurrence of a Default or an Event of Default upon reasonable
notice) and as often as may be reasonably requested.
7.9 Compliance with ERISA. At all times make prompt payment of
contributions required to meet the minimum funding standards set forth in ERISA
with respect to any employee benefit plan; promptly upon request, furnish to
Bank copies of any annual report required to be filed under ERISA in connection
with each employee benefit plan; not withdraw from participation in, permit the
termination or partial termination of, or permit the occurrence of any other
event with respect to any employee benefit plan that could result in liability
to the Pension Benefit Guaranty Corporation; notify Bank as soon as practicable
of any Reportable Event and of any additional act or condition arising in
connection with any employee benefit plan which Borrower believes might
constitute grounds for
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the termination thereof by the Pension Benefit Guaranty Corporation or for the
appointment by the appropriate United States district court of a trustee to
administer such plan; and furnish to Bank upon Bank's request, such additional
information about any employee benefit plan as may be reasonably requested.
7.10 Payment of Taxes. Pay and discharge or cause to be paid and
discharged all taxes, assessments and other governmental charges or levies
opposed upon Borrower or its Subsidiaries or upon its income or profits, or upon
any Property belonging to Borrower or its Subsidiaries, prior to the date on
which penalties attached thereto, and all lawful claims which, if unpaid, might
become a lien or charge upon any Property; provided, however, that Borrower and
its Subsidiaries may in good faith by appropriate proceedings and with due
diligence contest any such tax, assessment, charge, levy or claim, if Borrower
and its Subsidiaries establish any funded reserves reasonably requested by Bank.
7.11 Compliance with Laws. Comply in all material respects with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of Borrower's business and the ownership of its Property.
7.12 Compliance with Environmental Laws. Exercise its best efforts to
comply in all material respects with all Environmental Laws applicable to
Borrower and its Subsidiaries and Borrower's and its Subsidiaries' business and
exercise its best efforts not to suffer, cause or permit the Disposal of
Hazardous Substances at any Property owned, leased or operated by Borrower or
any of its Subsidiaries in violation of any applicable Environmental Law;
provided, however, in the event of such a Disposal, despite Borrower's best
efforts, Borrower and its Subsidiaries shall, if such Disposal is caused by
Borrower or one of its Subsidiaries, be in compliance with the foregoing, if,
within the time required by applicable Environmental Laws, Borrower and its
Subsidiaries shall take such remedial action as is required by applicable
Environmental Laws to contain, remove, clean up and remediate such Disposal, and
shall, if such Disposal is not caused by Borrower or one of its Subsidiaries, be
in compliance with the foregoing if Borrower and its Subsidiaries take
reasonable steps to mitigate the adverse effects of such a Disposal on Borrower
and its Subsidiaries. Borrower shall, in accordance with the provisions of
Section 7.4 of this Agreement, promptly notify Bank in the event Borrower
becomes aware of any Disposal of Hazardous Substance at any Property owned,
leased or operated by Borrower or any of its Subsidiaries in violation of any
Environmental Law which would have a material adverse effect on the business of
the Borrower and its Subsidiaries or in the event Borrower becomes aware of any
Release or threatened Release of Hazardous Substance from any such Property in
violation of any Environmental Law which would have a material adverse effect on
the business of the Borrower and its
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Subsidiaries. Borrower shall promptly deliver to Bank copies of any documents
received from the United States Environmental Protection Agency or any state,
county or municipal environmental or health agency asserting any Environmental
Liabilities of Borrower or any of its Subsidiaries and of any document submitted
by Borrower or any of its Subsidiaries to the United States Environmental
Protection Agency or any state, county or municipal, environmental or health
agency in response to any such documents.
SECTION 8. NEGATIVE COVENANTS.
Until payment in full of all Obligations of Borrower to Bank, Borrower
covenants and agrees that, unless Bank consents in writing or as otherwise set
forth herein, Borrower will not:
8.1 Merger and Dissolution. Liquidate or dissolve, or enter into any
consolidation, merger, syndicate or other combination or sell, lease or dispose
of, in a single transaction or a series of related transactions, its business or
assets as a whole or such part as in the opinion of Bank constitutes a
substantial portion of its business or assets; provided, however, that
Subsidiaries of Borrower may merge with one another and with Borrower so long as
Borrower is the surviving corporation of such merger and immediately after
giving effect to such merger no Default or Event of Default shall have occurred
and be continuing.
8.2 Acquisitions. Acquire the business or all or a substantial portion
of the assets of any Person, whether by purchase of stock, assets or otherwise;
provided, however, Borrower may make such acquisitions provided the aggregate
payments (including cash and non-cash) therefor do not exceed $10,000,000 in the
aggregate during the term of this Agreement.
8.3 Funded Debt. Create, incur or suffer to exist any Funded Debt
except for: (a) the Obligations owed to Bank under this Agreement and the other
Loan Documents; (b) the Funded Debt set forth on Exhibit I attached hereto; and
(c) Permitted Purchase Money Indebtedness; provided, however, for so long as no
Event of Default has occurred and is continuing, Borrower may, without the prior
written consent of Bank, (i) refinance the Obligations arising under the
Revolving Line of Credit, (ii) refinance the Funded Debt set forth on Exhibit I
attached hereto if the principal amount of the refinanced Funded Debt is not in
excess of the principal amount of such Funded Debt on the date of such
refinancing, and (iii) obtain Additional Funded Debt if and only if (y) the
covenants, representations and warranties set forth in the documents,
instruments and agreements evidencing such Funded Debt are no more restrictive
than the covenants, representations and warranties set forth in this Agreement,
and (z) no principal payments are due and payable on such Funded Debt before
November 30, 2000.
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8.4 Liens and Encumbrances. Create, assume or suffer to exist any deed
of trust, mortgage, encumbrance or other lien (including a lien of attachment,
judgment or execution) or security interest (including the interest of a
conditional seller of goods), securing a charge or obligation, on or of any of
its Property, real or personal, whether now owned or hereafter acquired, except
for: (a) the liens set forth on Exhibit J attached hereto; and (b) Purchase
Money Liens securing Permitted Purchase Money Indebtedness which are not
incurred in violation of Section 8.3 of this Agreement.
8.5 Disposition of Property. Sell, lease, transfer, convey or
otherwise dispose of any of its Property except for sales or dispositions of its
Property in the ordinary course of business.
8.6 Transactions With Related Persons. Directly or indirectly, make
any loan or advance, purchase, assume or guarantee any note to or from any of
its officers, directors, stockholders or Affiliates, or to or from any member of
the immediate family of any of its officers, directors, shareholders or
Affiliates, except for travel or other reasonable expense advances to employees
in the ordinary course of business which do not total more than $25,000 in the
aggregate outstanding at any one time; or subcontract any operations to any
Affiliate; or enter into, or be a party to, any transaction with any Affiliate
or officer, director or stockholder of Borrower, except in the ordinary course
of and pursuant to the reasonable requirements of Borrower's and its
Subsidiaries' business and upon fair and reasonable terms which are fully
disclosed to Bank and are no less favorable to Borrower and its Subsidiaries
than would obtain in a comparable arm's length transaction with a Person not an
Affiliate or stockholder of Borrower.
8.7 Restricted Investments. Make any Restricted Investment except for
(a) travel or other reasonable expense advances to employees permitted by
Section 8.6 hereof; (b) prepaid expenses incurred in the ordinary course of
business; and (c) accounts created in the ordinary course of business.
8.8 Restrictions on Dividends. Declare or pay any dividends (other
than dividends payable solely in its own Stock) upon any of its Stock, or
purchase, redeem or otherwise acquire, directly or indirectly, any shares of its
Stock, or make any distribution of cash, property or assets among the holders of
shares of its Stock, or make any material change in its capital structure;
provided, however, that for any Fiscal Year Borrower may pay dividends and may
purchase, redeem or otherwise acquire any shares of its Stock if and only if:
(a) No Default or Event of Default shall then exist;
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(b) After giving effect to such dividend, purchase, redemption or
acquisition, no Default or Event of Default shall exist; and
(c) Such dividend, purchase, redemption or acquisition has been
duly authorized by all necessary corporate action and is permitted by applicable
law.
8.9 Fiscal Year. Change its Fiscal Year.
8.10 Sale and Leasebacks. Enter into any arrangement with any Person
providing for the leasing by Borrower or its Subsidiaries of any asset which has
been sold or transferred by Borrower or such Subsidiaries to such Person.
8.11 New Business. Engage in any business other than the business in
which Borrower is currently engaged or a business reasonably related thereto or
make any material change in any of its business objectives, purposes and
operations which might in any way adversely affect the repayment of the
obligations.
8.12 Subsidiaries or Partnerships. At any time after the date hereof,
become a partner or joint venturer in any partnership or joint venture or create
or acquire any Subsidiary or transfer any assets to a Subsidiary.
8.13 Guaranty. Guarantee or otherwise, in any way, become liable with
respect to the obligations or liabilities of any Person except: (a) its
Affiliate's obligations to Bank; and (b) by endorsement of instruments or items
of payment for deposit to the general account of Borrower or for delivery to
Bank on account of the obligations.
8.14 Transactions Affecting Repayment of Indebtedness. Enter into any
transaction which materially and adversely affects Borrower's or its
Subsidiaries' Property or Borrower's ability to repay any Indebtedness.
8.15 Tangible Net Worth. Permit Tangible Net Worth at the end of any
Fiscal Quarter to be less than Tangible Net Worth on December 31, 1995 minus
$10,000,000, plus fifty percent (50%) of positive Net Income for each Fiscal
Quarter thereafter, beginning with the Fiscal Quarter ending March 31, 1996.
8.16 Funded Debt to EBITDA Ratio. Permit the Funded Debt to EBITDA
Ratio to be greater than 3.5 to 1.0.
8.17 Funded Debt to. Total Capitalization. Permit the percentage of
Funded Debt to Total Capitalization to be greater than fifty percent (50%) at
any time.
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SECTION 9. EVENTS OF DEFAULT.
9.1 Event of Default. The occurrence of any one or more of the
following events shall constitute an "Event of Default":
(a) Borrower fails to pay any portion of the Obligations when due
and payable;
(b) Borrower or any of its Subsidiaries fails or neglects to
observe, perform or comply with any term, provision, condition or covenant
contained in Sections 7.3, 7.4, 8.15, 8.16 or 8.17 of this Agreement;
(c) Borrower or any of its Subsidiaries fails or neglects to
observe, perform or comply with any term, provision, condition, covenant,
warranty or representation contained in this Agreement or the other Loan
Documents or in any other agreement now existing or hereafter executed
evidencing,.securing or relating in any way to the obligations of Borrower,
which is required to be observed, performed or complied with by Borrower, other
than those enumerated in Section 9.1(a) and (b) above, and the same is not cured
within the earlier of ten (10) days after Borrower's having knowledge thereof or
Bank's giving Borrower written notice thereof;
(d) If any representation or warranty made in writing by or on
behalf of Borrower or any of its Subsidiaries in this Agreement or in the other
Loan Documents or in any other agreement now existing or hereafter executed
between Borrower or any of its Subsidiaries and Bank, or in connection with the
transactions contemplated hereby or thereby, shall prove to have been false or
incorrect in any material respect at the time as of which such representation or
warranty was made;
(e) The occurrence of any default or event of default on the part
of Borrower or any of its Subsidiaries (including specifically, but without
limitation, due to non-payment) under the terms of any agreement, document or
instrument pursuant to which Borrower or any of its Subsidiaries has incurred
any Funded Debt in excess of $50,000 in the aggregate at any one time
outstanding (other than the Obligations), which default is not cured within the
time, if any, permitted therefor in the agreement governing such Funded Debt;
(f) The filing by Borrower or any of its Subsidiaries of any
voluntary petition seeking liquidation, reorganization, arrangement,
readjustment of its debts or for any other relief under the Bankruptcy Code or
under any other act or law pertaining to insolvency or debtor relief, whether
state, federal or foreign, now or hereafter existing, or the appointment of a
receiver, custodian or trustee of Borrower or for all or a substantial part of
Borrower's or any of its Subsidiaries' Property;
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(g) The filing against Borrower or any of its Subsidiaries of any
involuntary petition seeking liquidation, reorganization, arrangement,
readjustment of its debts or for any other relief under the Bankruptcy Code or
under any other act or law pertaining to insolvency or debtor relief, whether
state, federal or foreign, now or hereafter existing, and such petition is not
dismissed within sixty (60) days after the filing thereof or within such sixty
(60) day period an order for relief under the Bankruptcy Code or any other
applicable act or law shall be entered;
(h) Borrower ceases to be Solvent, or Borrower ceases to conduct
its business substantially as now conducted or is enjoined, restrained or in any
way prevented by court order from conducting all or any material part of its
business affairs;
(i) A notice of lien, levy or assessment is filed of record to all
or any of Borrower's or any of its Subsidiaries, assets by the United States, or
any department, agency or instrumentality thereof, or by any state, county,
municipal or other governmental agency, including, without limitation, the
Pension Benefit Guaranty Corporation, or if any taxes or debts owing at any time
or times hereafter to any one of them becomes a lien or encumbrance upon
Borrower's or any of its Subsidiaries, Property and the same is not dismissed,
released, bonded or discharged within thirty (30) days after the same becomes a
lien or encumbrance or, in the case of ad valorem taxes, prior to the last day
when payment may be made without penalty;
(j) The entry of a judgment or the issuance of a warrant of
attachment, execution or similar process against Borrower or any of its
Subsidiaries or any of their respective Property in excess of $50,000 in the
aggregate at any one time outstanding, which shall not be appealed and secured
if and as required by applicable law pending such appeal, dismissed, released,
discharged or bonded within thirty (30) days;
(k) If a custodian, trustee, receiver or assignee for the benefit
of creditors is appointed or takes possession of Borrower's or any of its
Subsidiaries' Property; or
(l) The occurrence of any of the following events: (i) the
happening of a Reportable Event with respect to any profit sharing or pension
plan of Borrower or any of its Subsidiaries governed by ERISA; (ii) the
appointment of a trustee by an appropriate United States District Court to
administer any such plan; (iii) the institution of any proceedings by the
Pension Benefit Guaranty Corporation to terminate any such plan or to appoint a
trustee to administer any such plan; (iv) the failure of Borrower to furnish to
Bank a copy of each report which is filed by Borrower or any of its Subsidiaries
with respect to each such plan promptly after the filing thereof with the
Secretary of Labor or
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the Pension Benefit Guaranty Corporation; or (v) the failure of Borrower to
notify Bank promptly upon receipt by Borrower or any of its Subsidiaries of any
notice of the institution of any proceeding or any other actions which may
result in the termination of any such plan.
SECTION 10. RIGHTS AND REMEDIES AFTER EVENT OF DEFAULT.
10.1 Rights and Remedies. Upon the occurrence of any Event of Default,
Bank shall have, in addition to all other rights and remedies which Bank may
have under this Agreement, the other Loan Documents, and applicable law, the
following rights and remedies, all of which may be exercised with or without
further notice to Borrower:
(a) The right to terminate the commitment of Bank to make
Revolving Loans, accept Bankers' Acceptances or issue Letters of Credit
hereunder, and, upon the occurrence of Event of Default specified in Section
9.1(f), (g) or (h), the obligation of Bank to make Revolving Loans, accept
Bankers' Acceptances or issue Letters of Credit hereunder shall automatically be
deemed terminated;
(b) The right to declare all or any part of the Obligations
immediately due and payable, whereupon such obligations shall become immediately
due and payable, without presentment, demand, notice or legal process of any
kind, all of which are hereby expressly waived by Borrower; and upon the
occurrence of an Event of Default specified in Section 9.1(f), (g) or (h), all
of the obligations shall automatically become due and payable;
(c) The right to setoff and apply any and all deposits (general or
special, time or demand, provisional or final) at any time held in other than a
fiduciary or payroll account and any other indebtedness at any time owing by
Bank to or for the credit or account of Borrower against any and all of the
obligations;
(d) Bank may cause the Beneficiary of each Letter of Credit
outstanding to draw upon such Letter of Credit for the undrawn amount thereof;
and
(e) The right to exercise any remedy available to Bank at law or
in equity.
10.2 Rights and Remedies with Respect to Letters of Credit and Bankers'
Acceptances. Upon the occurrence of an Event of Default, Bank may, at its
option, demand that Borrower deposit with Bank funds equal to the undrawn face
amount of all Letters of Credit and the face amount of all Bankers' Acceptances
then outstanding. If Borrower fails to make such deposit within three (3) days
after written demand therefor, Bank may, at its option, advance such amount as a
Revolving Loan hereunder, whether or not with the making of such Revolving Loan
the Revolving Line of Credit
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<PAGE> 47
Commitment would be exceeded, which shall be payable at the applicable interest
rate set forth in Section 2.3 hereof. Any such funds deposited by Borrower or
advanced by Bank as a Revolving Loan shall be held by Bank in a noninterest
bearing account as security for all of the Letter of Credit Obligations and
Bankers, Acceptance obligations and to provide a fund from which Bank shall
make future payments upon drawings under the outstanding Letters of Credit and
payments of Bankers' Acceptances. At such time as all Letters of Credit and
Bankers, Acceptances have expired, matured or have been cancelled or
terminated, any amount remaining in such account shall be applied against any
outstanding obligations owed by Borrower to Bank, or if all obligations have
then been indefeasibly paid in full, returned to Borrower. The provisions of
this Section 10.2 shall survive the termination of this Agreement.
10.3 Rights and Remedies Cumulative; Non-Waiver; Etc, The enumeration of
Bank's rights and remedies set forth in this Agreement is not intended to be
exhaustive and the exercise by Bank of any right or remedy shall not preclude
the exercise of any other rights or remedies, all of which shall be cumulative,
and shall be in addition to any other right or remedy given hereunder, under the
Loan Documents or under any other agreement between Borrower or Bank or which
may now or hereafter exist in law or in equity or by suit or otherwise. No
delay or failure to take action on the part of Bank in exercising any right,
power or privilege shall operate as a waiver thereof, nor shall any single or
partial exercise of any such right, power or privilege preclude other or further
exercise thereof or the exercise of any other right, power or privilege or shall
be construed to be a waiver of any Default or Event of Default. No course of
dealing between Borrower and Bank or its agents or employees shall be effective
to change, modify or discharge any provision of this Agreement or to constitute
a waiver of any Default or Event of Default.
SECTION 11. PAYMENT OF EXPENSES.
Whether or not the transactions contemplated by this Agreement shall be
consummated, Borrower will pay or reimburse Bank and any Participant upon demand
for all expenses (including, without limitation, reasonable attorneys' and
paralegals, expenses) incurred or paid by Bank in connection with: (a) the
preparation, negotiation, execution, delivery, interpretation or enforcement of
this Agreement or the other Loan Documents, or any modification of or amendment
to this Agreement or the other Loan Documents if either requested by Borrower or
if an Event of Default has occurred or any sale or sales of any interest in the
extension of the credit facility to Borrower hereunder to one or more
Participants; (b) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Bank, Borrower or any other Person) in any way relating
to this Agreement or the other Loan Documents, or Borrower's affairs; (c) any
attempt to collect the obligations or to enforce any rights of Bank against
Borrower or any other Person
-42-
<PAGE> 48
which may be obligated to Bank by virtue of this Agreement or the other Loan
Documents; and (d) any refinancing or restructuring of the credit arrangement
provided under this Agreement in the nature of a "work-out" or in any
insolvency or bankruptcy proceeding.
SECTION 12. MISCELLANEOUS.
12.1 Survival of Agreements. All agreements, representations and
warranties contained herein or made in writing by or on behalf of Borrower in
connection with the transactions contemplated hereby shall survive the execution
and delivery of this Agreement and the other Loan Documents. No termination or
cancellation (regardless of cause or procedure) of this Agreement shall in any
way affect or impair the powers, obligations, duties, rights and liabilities of
the parties hereto in any way with respect to (a) any transaction or event
occurring prior to such termination or cancellation, or (b) any of Borrower's
undertakings, agreements, covenants, warranties and representations contained in
this Agreement and the other Loan Documents and all such undertakings,
agreements, covenants, warranties and representations shall survive such
termination or cancellation. Borrower further agrees that to the extent
Borrower makes a payment or payments to Bank, which payment or payments or any
part thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside and/or required to be repaid to a trustee, receiver or
any other party under any bankruptcy, insolvency or similar state or federal
law, common law or equitable cause, then, to the extent of such payment or
repayment, the obligations or part thereof intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
received by Bank.
12.2 Governing Law. This Agreement shall be interpreted, and the rights
and liabilities of the parties hereto determined, in accordance with the
internal laws (as opposed to conflicts of law provisions) of the State of North
Carolina.
12.3 Notices. All notices and other communications hereunder shall be
personally delivered or made by telegram, telex, electronic transmitter or
overnight air courier or certified or registered mail, return receipt requested,
and shall be deemed to be received by the other party on the date of receipt if
personally delivered, or one (1) day after sending, if sent by telegram, telex,
electronic transmitter or overnight air courier, and three (3) days after
mailing, if sent by certified or registered mail. All notices shall be
addressed to the party to be notified as follows:
(a) If to Borrower: Insteel Industries, Inc.
1373 Boggs Drive
Mount Airy, North Carolina 27030
Attn: Michael C. Gazmarian
Facsimile No. 910-786-2144
-43-
<PAGE> 49
With a copy to: Womble Carlyle Sandridge & Rice, PLLC
Southern National Financial
Center 200 West Second Street
Winston-Salem, North Carolina 27101
(for street address)
Post office Drawer 84
Winston-Salem, North Carolina 27102
(for post office box)
Attn: Zeb E. Barnhardt, Jr., Esq.
Facsimile No. 910-721-3660
(b) If to Bank: First Union National Bank
of North Carolina
300 North Greene Street
Greensboro, North Carolina 27401
(for street address)
Post Office Box 21965
Greensboro, North Carolina 27420
(for post office box)
Attn: Richard J. Rizzo, Jr.
Facsimile No. 910-378-4043
With a copy to: Carruthers & Roth, P.A.
235 North Edgeworth Street
Greensboro, North Carolina 27401
(for street address)
Post Office Box 540
Greensboro, North Carolina 27402
(for post office box)
Attn: June L. Basden, Esq.
Facsimile No. 910-273-7885
or to such other address as each party may designate for itself by like notice
given in accordance with this Section 12.3.
12.4 Indemnification of Bank and Participants. From and at all times
after the date of this Agreement, and in addition to all of Bank's other rights
and remedies against Borrower, Borrower agrees to indemnify Bank and each
Participant and hold Bank and each Participant harmless from and against any and
all claims, losses, damages, liabilities, suits, actions, proceedings, costs and
expenses of any kind or nature whatsoever (including without limitation,
reasonable attorney's fees, costs and expenses) incurred or suffered by or
asserted against Bank or any Participant, whether direct, indirect or
consequential, as a result of or arising from or in any way relating to (A)
Borrower's failure to observe, perform or discharge its duties hereunder; (b)
any suit, action or proceeding (including any inquiry or investigation) by any
Person, whether threatened or initiated, asserting a claim for any legal or
equitable remedy against any Person under any statute or regulation, including
without limitation, any federal or state securities laws, or under any common
LAW or equitable cause
-44-
<PAGE> 50
or otherwise, arising from or in connection with the negotiation, preparation,
execution or performance of this Agreement or the other Loan Documents or any
transactions contemplated herein or therein, whether or not Bank or any
Participant is a party to any such action, proceeding, suit or the target of
any such inquiry or investigation; or (c) any claim, demand, action or suit
which may arise against Bank by reason of any action taken pursuant to this
Agreement, any Letter of Credit or any of the Loan Documents; provided,
however, the foregoing indemnification shall not apply to any liability
resulting from the gross negligence or willful misconduct of Bank or any
Participant (as finally determined by a court of competent jurisdiction).
without limiting the generality of the foregoing, this indemnity shall extend
to any claims asserted against Bank or any Participant by any Person under any
Environmental Laws. All of the foregoing losses, liabilities, damages, costs
and expenses of Bank and each Participant shall be payable by Borrower upon
demand by Bank and shall be additional obligations hereunder. Notwithstanding
any contrary provision of this Agreement, the obligation of Borrower under this
Section 12.4 shall survive the payment in full of the obligations and the
termination of this Agreement.
12.5 Waivers by Borrower. Except as otherwise provided for in this
Agreement, Borrower waives presentment, demand and protest and notice of
presentment, protest, default, non-payment, maturity and all other notices.
12.6 Assignment. Borrower may not sell, assign or transfer this
Agreement, or the other Loan Documents or any portion thereof, including
without limitation, Borrower's rights, title, interests, remedies, powers, and
duties hereunder or thereunder. Borrower hereby consents to Bank's
participation, sale, assignment, transfer or other disposition at any time or
times hereafter of this Agreement or the other Loan Documents, or of any
portion hereof or thereof, including without limitation, Bank's rights, title,
interests, remedies, powers and duties hereunder or thereunder.
12.7 Participants. If a Participant shall at any time participate with
Bank in making loans hereunder or under any other agreement between Bank and
Borrower, Borrower hereby grants to such Participant (in addition to any other
rights which such Participant shall have) and such Participant shall have and
hereby is granted a continuing lien and security interest in any money,
securities or other Property of Borrower in the custody or possession of
Participant, including the right to set-off, to the extent of Participant's
participating interests in the Loans, as such Participant would have if it were
a direct lender to Borrower.
12.8 Amendment. This Agreement and the other Loan Documents cannot be
amended, changed, discharged or terminated orally, but only by an instrument in
writing signed by Bank and Borrower.
-45-
<PAGE> 51
12.9 Severability. To the extent any provision of this Agreement is
prohibited by or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
12.10 Entire Agreement. This Agreement and the other documents,
certificates and instruments referred to herein constitute the entire agreement
between the parties and supersede and rescind any prior agreements relating to
the subject matter hereof, including, without limitation the commitment letter
between Bank and Borrower dated October 9, 1995.
12.11 Binding Effect. All of the terms of this Agreement and the other
Loan Documents, as the same may from time to time be amended, shall be binding
upon, inure to the benefit of and be enforceable by the respective successors
and assigns of Borrower and Bank. This provision, however, shall not be deemed
to modify Section 12.6.
12.12 Captions. The captions to the various Sections and subsections of
this Agreement have been inserted for convenience only and shall not limit or
affect any of the terms hereof.
12.13 Conflict of Terms. The provisions of the other Loan Documents are
incorporated in this Agreement by this reference thereto. Except as otherwise
provided in this Agreement and except as otherwise provided in the other Loan
Documents, if any provision contained in this Agreement is in conflict with, or
inconsistent with, any provision of the other Loan Documents, the provision
contained in this Agreement shall control.
12.14 Injunctive Relief. Borrower recognizes that in the event Borrower
fails to perform, observe or discharge any of its obligations or liabilities
under this Agreement, any remedy of law may prove to be inadequate relief to
Bank. Borrower therefore agrees that Bank, if Bank so requests, shall be
entitled to temporary and permanent injunctive relief in any such case without
the necessity of proving actual damages.
12.15 Construction of Agreement. whenever the term "reasonable attorneys'
fees" is used in this Agreement or the other Loan Documents, such term shall
refer to the fees of counsel based upon usual and customary hourly rates and not
upon any fixed percentage of the obligations.
12.16 Time of Essence. Time is of the essence of this Agreement and the
other Loan Documents.
12.17 Effect of Restatement. The execution and delivery of this
Agreement shall not constitute a novation, and except as specifically amended
hereby, shall not constitute a waiver, release
-46-
<PAGE> 52
or modification of any rights, claims or remedies of Bank under the Existing
Loan Agreement or any Indebtedness or other obligations owing to Bank
thereunder, based on any facts or events occurring or existing prior to the
date of this Agreement.
12.18 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY
APPLICABLE LAW, BORROWER AND BANK EACH WAIVE THE RIGHT TO A JURY TRIAL IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER
LOAN DOCUMENTS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed under seal in their corporate names by their duly authorized corporate
officers as of the date first above written.
ATTEST: INSTEEL INDUSTRIES, INC.
/s/ Gary D. Kniskern By: /s/ H. O. Woltz III
- ------------------------------ -------------------------------
Secretary Title: President
- ------------------------ -------------------------
[CORPORATE SEAL]
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: /s/ Alan Pike
--------------------------------
Title: Vice President
--------------------------
-47-
<PAGE> 53
SCHEDULE OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit Description of Exhibit Section
- ------- ---------------------- -------
<S> <C> <C>
A Revolving Credit Note 2.2
B Other Corporate, Fictitious 6.1
or Trade Names
C Litigation 6.2
D Places of Business and 6.9
Principal Place of Business
E Plans 6.10
F Capitalized Leases 6.22
G Operating Leases 6.22
H Compliance Certificate 7.3
I Permitted Money Borrowed 8.3
Indebtedness
J Permitted Liens 8.4
</TABLE>
<PAGE> 54
EXHIBIT A TO
AMENDED AND RESTATED
CREDIT AGREEMENT
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$35,000,000 Greensboro, North Carolina
January 26, 1996
FOR VALUE RECEIVED, the undersigned INSTEEL INDUSTRIES, INC., a North
Carolina corporation ("Borrower"), promises to pay to FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, a national banking association ("Bank"), or order, at the
principal office of the Bank in Greensboro, North Carolina, or at such other
place as the Bank may from time to time designate in writing, the principal sum
of Thirty-Five Million Dollars ($35,000,000), or, if less, the unpaid balance
of all Revolving Loans made by the Bank to the Borrower under the Revolving
Line of Credit extended by the Bank to the Borrower pursuant to the Loan
Agreement, together with interest on the unpaid principal amount of this Note
at the rates provided in the Credit Agreement.
This Note amends and restates in its entirety that certain $15,000,000
Promissory Note and Security Agreement, dated December 21, 1994, executed by
the Borrower to the order of Bank and is the Revolving Credit Note issued to
evidence Revolving Loans made by the Bank to the Borrower under the Revolving
Line of Credit pursuant to Section 2.1 of the Amended and Restated Credit
Agreement, dated of even date herewith, between the Borrower and the Bank, as
the same may from time to time be amended, modified or supplemented ("Credit
Agreement"), and is entitled to the benefits of and the remedies provided in,
the Credit Agreement. All of the terms, conditions and covenants of the Credit
Agreement are expressly made a part of this Note, by reference in the same
manner and with the same effect as if set forth herein. Reference is made to
the Credit Agreement for provisions for the maturity, payment, prepayment and
acceleration of this Note. All capitalized terms used in this Note without
definition shall have the meanings ascribed to such terms in the Credit
Agreement.
Except as specifically set forth in the Credit Agreement, the
Borrower, for itself and its successors and assigns, expressly waives
presentment for payment, demand, protest and notice of demand, notice of
dishonor and notice of nonpayment and all other notices.
This Note shall be governed by, construed and enforced in accordance
with the internal laws, and not the laws of conflicts, of the State of North
Carolina.
<PAGE> 55
In the event that this Note shall at any time after maturity be
collected by or through an attorney-at-law, the Borrower agrees to pay, in
addition to the entire unpaid principal balance and interest due hereunder, all
collection costs, including reasonable attorneys' fees (subject to the
provisions of Section 12.15 of the Credit Agreement), incurred by the Bank in
collecting the indebtedness due hereunder, computed on the basis of usual and
customary rates and not on the basis of a fixed percentage of the indebtedness
due hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by its duly authorized corporate officers and its corporate seal to
be hereunto affixed on the day and year first above written.
ATTEST: INSTEEL INDUSTRIES, INC.
By:
- ---------------------------- ---------------------------------
Secretary Title:
- --------------------- ---------------------------
[CORPORATE SEAL]
-2-
<PAGE> 56
EXHIBIT B TO
AMENDED AND RESTATED
CREDIT AGREEMENT
Other Corporate, Fictitious or Trade Names
<TABLE>
<S> <C>
Insteel 3-D Registered Trademark
Insteel Wire Products Registered Trademark
Meshmatic Registered Trademark
Expo Wire Registered Trademark
Forbes Steel & Wire Registered Trademark
Rappahannock Wire Registered Trademark
</TABLE>
<PAGE> 57
EXHIBIT C TO
AMENDED AND RESTATED
CREDIT AGREEMENT
Litigation
None
<PAGE> 58
EXHIBIT D TO
AMENDED AND RESTATED
CREDIT AGREEMENT
Places of Business and Principal Place of Business
<TABLE>
<CAPTION>
Location Use
- -------- ---
<S> <C>
1373 Boggs Drive Corporate Office
Mount Airy, North Carolina
1345 Boggs Drive Sales and Administrative office
Mount Airy, North Carolina
129 Carter Street Manufacturing Facility
Mount Airy, North Carolina
500 Klemp Road Manufacturing Facility
Dayton, Texas
1351 Belman Road Manufacturing Facility
Fredericksburg, Virginia
East Gapway Road Manufacturing Facility
Andrews, South Carolina
600 Rappahannock Drive Manufacturing Facility
Gallatin, Tennessee
638 Rappahannock Drive Manufacturing Facility
Gallatin, Tennessee
Academy Street Formerly Manufacturing Facility
Pilot Mountain, North Carolina Now Held for Sale
2610 Sidney Lanier Drive Manufacturing Facility
Brunswick, Georgia
800 New Castle Avenue Manufacturing Facility
Wilmington, Delaware
East Gapway Road Manufacturing Facility Under
Andrews, South Carolina Construction on the
Closing Date
</TABLE>
<PAGE> 59
EXHIBIT E TO
AMENDED AND RESTATED
CREDIT AGREEMENT
Plans
Pension Plan of Insteel Industries, Inc.
Insteel Wire Products Retirement Income Plan for Hourly Employees
Wilmington, Delaware
Insteel Wire Products Retirement Income Plan for Hourly Employees
Canonsburg, Pennsylvania
Employee Stock Ownership Plan of Insteel Industries, Inc. (ESOP)
Voluntary Employee Beneficiary Association Plan (VEBA)
<PAGE> 60
EXHIBIT F TO
AMENDED AND RESTATED
CREDIT AGREEMENT
Capitalized Leases
<TABLE>
<CAPTION>
Name of Lessor Description of Property Location
- -------------- ----------------------- --------
<S> <C> <C>
Lester S. Nolan Land - Delaware Facility Wilmington, Delaware
</TABLE>
<PAGE> 61
EXHIBIT G TO
AMENDED AND RESTATED
CREDIT AGREEMENT
Operating Leases
<TABLE>
<CAPTION>
Real/
Personal
Name of Lessor Description of Property Property Location
- -------------- ------------------------ -------- --------
<S> <C> <C> <C>
Ryder Truck Rental, Freightliner Tractor Personal Virginia
Inc.
Ryder Truck Rental, Kenworth Tractor Personal Texas
Inc.
Ryder Truck Rental, Freightliner Tractor Personal North Carolina
Inc.
Ryder Truck Rental, Freightliner Tractor Personal South Carolina
Inc.
Ryder Truck Rental, Freightliner Tractor Personal Tennessee
Inc.
Copelco Credit Corp. Minolta Copier Personal North Carolina
General Electric Cessna Citation Jet Personal North Carolina
Capital Corp.
</TABLE>
<PAGE> 62
EXHIBIT H TO
AMENDED AND RESTATED
CREDIT AGREEMENT
INSTEEL INDUSTRIES, INC.
Quarterly Compliance Report
As of Fiscal Quarter Ending Date Report Filed
- --------------------------- -----------------
Pursuant to that certain Amended and Restated Credit Agreement, dated
January 26, 1996 ("Credit Agreement"), between INSTEEL INDUSTRIES,
INC.("Borrower") and FIRST UNION NATIONAL BANK OF NORTH CAROLINA ("Bank"), the
undersigned on behalf of Borrower hereby delivers this Quarterly Compliance
Report to Bank to induce Bank to make loans and advances to Borrower. All
capitalized terms used herein shall have the meanings ascribed to such terms in
the Credit Agreement.
1. Tangible Net Worth. Borrower shall not permit Tangible Net worth at
the end of any Fiscal Quarter to be less than Tangible Net Worth on
December 31, 1995 minus $10,000,000 plus fifty percent (50%) of
positive Net Income for each Fiscal Quarter thereafter, beginning with
the Fiscal Quarter ending March 31, 1996.
<TABLE>
<S> <C> <C>
(A) Shareholders' Equity at end $
of current Fiscal Quarter ------------
(B) MINUS unamortized intangible ($ )
assets ------------
(C) MINUS Indebtedness owed to ($ )
Borrower by Affiliates ------------
(D) MINUS write-up in fixed ($ )
assets from revaluation ------------
(E) MINUS Stock of Borrower on ($ )
asset side of balance sheet ------------
----------------------
(F) Sum of lines 1(A) through 1(E) Total ($ )
(Tangible Net Worth) ============
(G) Base (Tangible Net Worth on $
December 31, 1995 minus ------------
$10,000,000)
(H) PLUS 50% of positive Net Income $
for all previous Fiscal Quarters ------------
beginning with Fiscal Quarter
ending March 31, 1996
</TABLE>
<PAGE> 63
INSTEEL INDUSTRIES, INC.
Quarterly Compliance Report
As of Fiscal Quarter Ending Date Report Filed
- --------------------------- -------------------------
<TABLE>
<S> <C> <C>
(I) PLUS 50% of positive Net $
Income for the current ------------
Fiscal Quarter
----------------------
(J) Sum of lines 1(G) through 1(I) Total $
==============
Line 1(F) must be greater than line 1(J) Yes/No
(Circle one)
2. Funded Debt to EBITDA Ratio. Borrower shall not permit the ratio of
Funded Debt to EBITDA to be greater than 3.5 to 1.0.
(A) Funded Debt at end of current $
Fiscal Quarter -------------
(B) EBITDA for three (3) $
previous Fiscal Quarters -------------
(C) EBITDA for current Fiscal $
Quarter -------------
----------------------
(D) Sum of lines 2(B) and 2(C) $
=============
Ratio of line 2(A) to line 2(D) =
--------------
REQUIRED: not more than 3.5
3. Funded Debt to Total Capitalization. Borrower shall not permit the
percentage of Funded Debt to Total Capitalization to be more than fifty
percent (50%) at any time.
(A) Funded Debt at end of current $
Fiscal Quarter -------------
(B) Shareholders' Equity at end $
of current Fiscal Quarter -------------
--------------------
(C) Sum of lines 3(A) and 3(B) $
=============
</TABLE>
-2-
<PAGE> 64
INSTEEL INDUSTRIES, INC.
Quarterly Compliance Report
As of Fiscal Quarter Ending Date Report Filed
- --------------------------- ---------------------------
Percentage of line 3(A) to line 3(C) =
---------------------
REQUIRED: not more than 50%
<TABLE>
<CAPTION>
Funded Debt to Applicable Margin
EBITDA Ratio for LIBOR Rate Loan Facility Fee
-------------- ------------------- ------------
<S> <C> <C> <C>
Equal to or 0.375% 0.175%
less than
1.5 to 1.0
Circle
appropriate Greater than 1.5 0.5% 0.175%
Funded Debt to 1.0 but less
to EBITDA than or equal to
Ratio as 2.0 to 1.0
Computed
above Greater than 2.0 0.625% 0.2%
to 1.0 but less
than or equal to
2.5 to 1.0
Greater than 2.5 0.75% 0.2%
to 1.0 but less
than or equal to
3.0 to 1.0
Greater than 3.0 0.875% 0.225%
to 1.0 but less
than or equal to
3.5 to 1.0
Greater than 3.5 2.875% 0.25%
to 1.0
</TABLE>
4. Permitted Purchase Money Indebtedness. Permitted Purchase Money
Indebtedness incurred is $_______________ in the aggregate since the
date of the Credit Agreement.
-3-
<PAGE> 65
INSTEEL INDUSTRIES, INC.
Quarterly Compliance Report
As of Fiscal Quarter Ending Date Report Filed
- --------------------------- ----------------------------
5. Acquisitions. Acquisition of assets or stock of any Person are $_________
in the aggregate since the date of the Credit Agreement.
The undersigned certifies to Bank on behalf of Borrower that: (a) this
Quarterly Compliance Report is true and correct in all material respects, is in
accordance with the books and records of Borrower, and is prepared in accordance
with the terms of the Credit Agreement and the other Loan Documents; (b) as of
the date hereof, all of the representations and warranties of Borrower contained
in the Credit Agreement and the other Loan Documents are true and correct in all
material respects (except to the extent that they are untrue or incorrect solely
as a result of an occurrence permitted under the Credit Agreement or the other
Loan Documents); and (c) no Default or Event of Default has occurred and is
continuing.
(SEAL)
------------------------------
Name:
--------------------------------
Title:
--------------------------------
-4-
<PAGE> 66
EXHIBIT I TO
AMENDED AND RESTATED
CREDIT AGREEMENT
Funded Debt
<TABLE>
<CAPTION>
Principal Amount
Obligor at 11/30/95 Amortization Schedule
- ------- ---------------- ---------------------
<S> <C> <C>
First Union National Bank $ 800,000 Monthly Installments of
of North Carolina $50,000 Through March
1997
First Union National Bank $ 802,981 Monthly Installments of
of North Carolina $47,000 Through August
1997
Jefferson-Pilot Life Insurance $14,000,000 Semi-Annual Installments
Company of $1,000,000 Through
October 2002
Liberty County Industrial $ 2,720,000 Semi-Annual Installments
Development Corporation of $170,000 Through
(Texas IRBs) January 1999
Industrial Development $ 2,800,000 Serial Bonds of $1,400,000
Authority of the City of Due in Varying Amounts
Fredericksburg, Virginia Through 2000 - Term Bond
(Virginia IRBs) Installments of $840,000
Due in 2002 and 2005
Brunswick and Glynn County $ 2,003,000 Quarterly Installments of
Development Authority $115,000 Through March 2000
(Georgia IRBs)
EVG $ 420,576 Quarterly Installments of
$109,000 Through November
1996
First Union National Bank $ 8,458,630 Annual Unsecured Line of
of North Carolina Credit - Due January 1996
Wachovia Bank of North $ 900,000 Monthly Installments of
Carolina, N.A. $18,000 Through February
2000
</TABLE>
<PAGE> 67
EXHIBIT J TO
AMENDED AND RESTATED
CREDIT AGREEMENT
Permitted Liens
<TABLE>
<CAPTION>
Amount
Outstanding
Creditor Name and Address Collateral at 11/30/95
- ------------------------- ---------- -----------
<S> <C> <C>
First Union National Bank Certain EVG Machines $ 800,000
of North Carolina at the Delaware Facility
Charlotte, North Carolina
First Union National Bank All Equipment at the $ 802,981
of North Carolina South Carolina Facility
Charlotte, North Carolina
Jefferson-Pilot Life All Property at the
Insurance Company Tennessee Facilities
Greensboro, North Carolina Except for one EVG Machine $14,000,000
Liberty County Industrial All Property at the $ 2,720,000
Development Corporation Texas Facility
Liberty, Texas
Industrial Development All Property at the $ 2,800,000
Authority of the City of Virginia Facility
Fredericksburg, Virginia
Fredericksburg, Virginia
Brunswick and Glynn County All Property at the $ 2,003,000
Development Authority Georgia Facility
Brunswick, Georgia
</TABLE>
<PAGE> 68
INSTEEL INDUSTRIES, INC.
1373 Boggs Drive
Mount Airy, North Carolina 27030
January 26, 1996
First Union National Bank
of North Carolina
Post Office Box 21965
Greensboro, North Carolina 27420
Ladies and Gentlemen:
This letter sets forth the "Applicable Margin" to be used in
connection with that certain Amended and Restated Credit Agreement, dated of
even date herewith, between Insteel Industries, Inc., a North Carolina
corporation ("Borrower"), and First Union National Bank of North Carolina, a
national banking association ("Bank"), and any amendments, modifications,
supplements or restatements thereof ("Credit Agreement"). This letter is the
letter mentioned in the definition of "Applicable Margin" in Section 1.1 of the
Credit Agreement. All capitalized terms used herein without definition shall
have the meanings ascribed to such terms in the Credit Agreement.
Until amended in a writing executed by Borrower and Bank, "Applicable
Margin" as used in the Credit Agreement shall mean at any date of determination
thereof, a sum equal to the percentage set forth below based on the Funded Debt
to EBITDA Ratio on such date, which shall be determined on the Closing Date and
at the end of each Interest Period and, if appropriate, the Applicable Margin
shall be reduced or increased for the next Interest Period according to the
following schedule:
<TABLE>
<CAPTION>
Funded Debt to Applicable Margin
EBITDA Ratio For LIBOR Rate Loan Facility Fee
--------------- -------------------- ------------
<S> <C> <C>
Equal to or less 0.375% 0.175%
than 1.5 to 1.0
Greater than 0.5% 0.175%
1.5 to 1.0 but
less than or equal
to 2.0 to 1.0
Greater than 0.625% 0.2%
2.0 to 1.0 but
less than or equal
to 2.5 to 1.0
</TABLE>
<PAGE> 69
First Union National Bank
of North Carolina
January 26, 1996
Page 2
<TABLE>
<CAPTION>
Funded Debt to Applicable Margin
EBITDA Ratio For LIBOR Rate Loan Facility Fee
--------------- ------------------- ------------
<S> <C> <C>
Greater than 0.75% 0.2%
2.5 to 1.0 but
less than or equal
to 3.0 to 1.0
Greater than 0.875% 0.225%
3.0 to 1.0 but
less than or equal
to 3.5 to 1.0
</TABLE>
If the Funded Debt to EBITDA Ratio is greater than 3.5 to 1.0 the Default Rate
shall be applicable to the Obligations and the facility fee due and payable
pursuant to Section 4.6 of the Credit Agreement shall be computed at the rate
of 0.25%.
The parties agree that the terms of this letter are to be kept
confidential and not revealed to any other Person, except for disclosure to
accountants, attorneys and other advisors, and except where disclosure may be
required of a party by any law, regulation, rule or order applicable to it or
by a regulatory authority having jurisdiction over such party.
Yours very truly,
INSTEEL INDUSTRIES, INC.
By: /s/ H. O. Woltz III
----------------------------------
Title: President
---------------------------
AGREED TO AND ACCEPTED:
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: /s/ Alan Pike
--------------------------
Title: Vice President
--------------------
<PAGE> 70
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$35,000,000 Greensboro, North Carolina
January 26, 1996
FOR VALUE RECEIVED, the undersigned INSTEEL INDUSTRIES, INC., a North
Carolina corporation ("Borrower"), promises to pay to FIRST UNION NATIONAL BANK
OF NORTH CAROLINA, a national banking association ("Bank"), or order, at the
principal office of the Bank in Greensboro, North Carolina, or at such other
place as the Bank may from time to time designate in writing, the principal sum
of Thirty-Five Million Dollars ($35,000,000), or, if less, the unpaid balance
of all Revolving Loans made by the Bank to the Borrower under the Revolving
Line of Credit extended by the Bank to the Borrower pursuant to the Loan
Agreement, together with interest on the unpaid principal amount of this Note
at the rates provided in the Credit Agreement.
This Note amends and restates in its entirety that certain $15,000,000
Promissory Note and Security Agreement, dated December 21, 1994, executed by
the Borrower to the order of Bank and is the Revolving Credit Note issued to
evidence Revolving Loans made by the Bank to the Borrower under the Revolving
Line of Credit pursuant to Section 2.1 of the Amended and Restated Credit
Agreement, dated of even date herewith, between the Borrower and the Bank, as
the same may from time to time be amended, modified or supplemented ("Credit
Agreement"), and is entitled to the benefits of and the remedies provided in,
the Credit Agreement. All of the terms, conditions and covenants of the Credit
Agreement are expressly made a part of this Note, by reference in the same
manner and with the same effect as if set forth herein. Reference is made to
the Credit Agreement for provisions for the maturity, payment, prepayment and
acceleration of this Note. All capitalized terms used in this Note without
definition shall have the meanings ascribed to such terms in the Credit
Agreement.
Except as specifically set forth in the Credit Agreement, the Borrower,
for itself and its successors and assigns, expressly waives presentment for
payment, demand, protest and notice of demand, notice of dishonor and notice of
nonpayment and all other notices.
This Note shall be governed by, construed and enforced in accordance with
the internal laws, and not the laws of conflicts, of the State of North
Carolina.
<PAGE> 71
In the event that this Note shall at any time after maturity be collected
by or through an attorney-at-law, the Borrower agrees to pay, in addition to the
entire unpaid principal balance and interest due hereunder, all collection
costs, including reasonable attorneys' fees (subject to the provisions of
Section 12.15 of the Credit Agreement), incurred by the Bank in collecting the
indebtedness due hereunder, computed on the basis of usual and customary rates
and not on the basis of a fixed percentage of the indebtedness due hereunder.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
under seal by its duly authorized corporate officers and its corporate seal to
be hereunto affixed on the day and year first above written.
ATTEST: INSTEEL INDUSTRIES, INC.
/s/ Gary D. Kniskern By: /s/ H. O. Woltz III
- -------------------------- ------------------------------
Secretary Title: President
- ------------------ -----------------------
[CORPORATE SEAL]
-2-
<PAGE> 1
EXHIBIT 10.20
INSTEEL INDUSTRIES, INC.
RETIREMENT SAVINGS PLAN
EFFECTIVE DATE: MAY 1, 1996
<PAGE> 2
TABLE OF CONTENTS
INSTEEL INDUSTRIES, INC.
RETIREMENT SAVINGS PLAN
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 1. PURPOSE OF PLAN.................................................. 1
SECTION 2. DEFINITIONS...................................................... 1
2.1 Account ......................................................... 2
2.2 Accrued benefit ................................................. 2
2.3 Acquisition loan ................................................ 2
2.4 Active participant .............................................. 2
2.5 Actual deferral percentage or ADP ............................... 3
2.6 Adjustment date ................................................. 4
2.7 Affiliated employer ............................................. 4
2.8 Board ........................................................... 4
2.9 Code ............................................................ 4
2.10 Committee ....................................................... 4
2.11 Company ......................................................... 4
2.12 Company discretionary contributions ............................. 5
2.13 Company matching contributions .................................. 5
2.14 Company stock ................................................... 5
2.15 Company stock account ........................................... 5
2.16 Compensation .................................................... 6
2.17 Contribution percentage ......................................... 7
2.18 Debt ............................................................ 8
2.19 Effective date .................................................. 8
2.20 Elective deferral or elective deferrals ......................... 8
2.21 Eligible employee ............................................... 9
2.22 Employee ........................................................ 10
2.23 Entry date ...................................................... 10
2.24 ERISA ........................................................... 10
2.25 Excess aggregate contributions .................................. 10
2.26 Excess contributions ............................................ 10
2.27 Excess elective deferral ........................................ 11
2.28 Financed shares ................................................. 11
2.29 General account ................................................. 11
2.30 Highly compensated employee ..................................... 11
2.31 Leased employee ................................................. 12
2.32 Nonhighly compensated participant ............................... 13
2.33 Normal retirement age ........................................... 13
2.34 Participant ..................................................... 13
2.35 Plan ............................................................ 14
2.36 Plan year ....................................................... 14
2.37 Readily tradable on an established market ....................... 14
</TABLE>
<PAGE> 3
<TABLE>
<S> <C> <C>
2.38 Retire or retirement ............................................ 14
2.39 Salary reduction agreement ...................................... 14
2.40 Salary reduction contributions .................................. 15
2.41 Service ......................................................... 15
2.42 Spouse or surviving spouse ...................................... 15
2.43 Statutory compensation .......................................... 15
2.44 Supplemental Company contributions .............................. 16
2.45 Suspense account ................................................ 16
2.46 Trust or trust fund ............................................. 16
2.47 Trustee ......................................................... 16
2.48 Trust agreement ................................................. 16
2.49 Year-end adjustment date ........................................ 16
SECTION 3. CONTRIBUTIONS TO THE TRUST AND ALLOCATION THEREOF................ 16
3.1 Salary Reduction Contributions .................................. 16
3.2 Company Matching Contributions .................................. 24
3.3 Multiple Use .................................................... 27
3.4 Company discretionary contributions ............................. 28
3.5 Allocation of Company discretionary contributions ............... 28
3.6 Limitations on allocations ...................................... 29
3.7 General Limitations ............................................. 32
SECTION 4. RETIREMENT; TERMINATION OF SERVICE............................... 32
4.1 Normal retirement ............................................... 32
4.2 Delayed retirement .............................................. 33
4.3 Disability retirement ........................................... 33
4.4 Death ........................................................... 33
4.5 Termination of service .......................................... 33
4.6 Pretermination distributions .................................... 35
SECTION 5. PAYMENT OF BENEFITS.............................................. 37
5.1 Payment of benefit for reasons other than death ................. 37
5.2 Payment of death benefit ........................................ 38
5.3 Distribution requirements and definitions ....................... 39
5.4 Medium of payment; Put option; Right of first refusal;
Valuation of Company stock ...................................... 39
5.5 Legend .......................................................... 43
5.6 Directions ...................................................... 43
SECTION 6. VESTING.......................................................... 43
SECTION 7. ACQUISITION LOANS................................................ 43
7.1 Terms ........................................................... 43
7.2 Use of proceeds ................................................. 43
7.3 Collateral ...................................................... 44
7.4 Available assets; Payments ...................................... 44
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
7.5 Default ......................................................... 45
7.6 Suspense account; Release of shares ............................. 45
7.7 Obligations of the Trustee ...................................... 46
7.8 Obligations of the Company ...................................... 47
7.9 Restrictions on Company stock ................................... 48
SECTION 8. VOTING AND TENDERING OF COMPANY STOCK............................ 48
8.1 Voting .......................................................... 48
8.2 Tendering ....................................................... 50
SECTION 9. ACCOUNTS OF PARTICIPANTS......................................... 51
9.1 General accounts ................................................ 51
9.2 Company stock accounts .......................................... 52
9.3 Cash dividends .................................................. 53
9.4 Rights, warrants and options .................................... 55
9.5 Persons in pay status ........................................... 55
9.6 Allocations following certain sale transactions ................. 56
9.7 Accounting for allocations ...................................... 56
9.8 Participant directed investments ................................ 57
9.9 Diversification ................................................. 58
SECTION 10. ADMINISTRATION BY COMMITTEE...................................... 59
10.1 Membership of Committee ......................................... 59
10.2 Committee officers; Subcommittee ................................ 59
10.3 Committee meetings .............................................. 59
10.4 Transaction of business ......................................... 59
10.5 Committee records ............................................... 60
10.6 Establishment of rules .......................................... 60
10.7 Conflicts of interest ........................................... 60
10.8 Correction of errors ............................................ 60
10.9 Authority to interpret plan ..................................... 60
10.10 Third party advisors ............................................ 61
10.11 Compensation of members ......................................... 61
10.12 Committee expenses .............................................. 61
10.13 Indemnification of Committee .................................... 62
SECTION 11. MANAGEMENT OF FUNDS AND AMENDMENT OF PLAN........................ 62
11.1 Trust fund; Investment purpose .................................. 62
11.2 Fiduciary duties ................................................ 62
11.3 Authority to amend .............................................. 64
11.4 Trust agreement ................................................. 64
11.5 Requirements of writing ......................................... 65
SECTION 12. ALLOCATION OF RESPONSIBILITIES AMONG NAMED FIDUCIARIES............. 65
12.1 Duties of named fiduciaries ..................................... 65
12.2 Co-fiduciary liability .......................................... 67
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 13. BENEFITS NOT ASSIGNABLE; PAYMENTS................................ 67
13.1 Benefits not assignable ......................................... 67
13.2 Payments to minors and others ................................... 67
SECTION 14. TERMINATION OF PLAN AND TRUST: MERGER OR CONSOLIDATION OF PLAN... 68
14.1 Complete termination ............................................ 68
14.2 Partial termination ............................................. 69
14.3 Merger or consolidation ......................................... 69
14.4 Protection of benefits .......................................... 69
SECTION 15. COMMUNICATION TO EMPLOYEES....................................... 69
SECTION 16. CLAIMS PROCEDURE................................................. 70
16.1 Filing of a claim for BENEFITS .................................. 70
16.2 Notification to claimant of decision ............................ 70
16.3 Procedure for review ............................................ 71
16.4 Decision on review .............................................. 71
16.5 Action by authorized representative of claimant ................. 71
SECTION 17. PARTIES TO THE PLAN.............................................. 72
17.1 Single plan ..................................................... 72
17.2 Committee appointment ........................................... 73
17.3 Authority to amend .............................................. 73
SECTION 18. SPECIAL TOP-HEAVY PROVISIONS..................................... 73
18.1 Definitions...................................................... 73
18.2 Top-heavy requirements .......................................... 76
18.3 Adjustments to Limitations on Allocations ....................... 77
SECTION 19. PORTABILITY OF PARTICIPANT ACCOUNTS.............................. 77
19.1 Definitions ..................................................... 77
19.2 Construction .................................................... 78
SECTION 20. ROLLOVERS........................................................ 78
20.1 Timing .......................................................... 78
20.2 Eligibility ..................................................... 79
20.3 Maximum amount .................................................. 79
20.4 Accounting ...................................................... 79
20.5 Transfers prior to becoming a participant ....................... 79
20.6 Impermissible rollovers ......................................... 79
SECTION 21. MISCELLANEOUS PROVISIONS......................................... 80
21.1 Notices ......................................................... 80
21.2 Lost distributees ............................................... 80
21.3 Reliance on data ................................................ 80
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
21.4 Bonding ......................................................... 80
21.5 Receipt and release for payments ................................ 81
21.6 No guarantee .................................................... 81
21.7 Headings ........................................................ 81
21.8 Continuation of employment ...................................... 82
21.9 Federal and state securities law compliance ..................... 82
21.10 Construction .................................................... 82
</TABLE>
v
<PAGE> 7
INSTEEL INDUSTRIES, INC.
RETIREMENT SAVINGS PLAN*
Section 1. Purpose of Plan:
The primary purpose of this plan is to enable participating employees
of the Company and its affiliated employers to acquire a stock ownership
interest in the Company or its affiliated employers, thereby permitting such
employees to share in the growth and prosperity of the Company and its
affiliated employers, and to accumulate capital for their future economic
security. Consequently, Company contributions to the plan shall be invested
primarily in Company stock. The plan also is designed to provide a technique
of corporate finance to the Company. As such, the plan may borrow money or
otherwise obtain credit to finance the acquisition of Company stock and may
provide a market to facilitate the transfer of Company stock. The plan is a
stock bonus plan intended to be qualified within the meaning of Section 401(a)
of the Code. The plan also contains provisions that permit the plan to
function as a leveraged employee stock ownership plan under Section 4975(e)(7)
of the Code and Section 407(d)(6) of ERISA. The plan also contains a cash or
deferred arrangement under Section 401(k) of the Code which permits
participants to make elective deferrals to the plan, and to receive matching
contributions made by the Company in accordance with Section 401(m) of the
Code.
Section 2. Definitions:
As used in the plan, including Section 1 and this Section 2, and in
the trust agreement, references to one gender shall include the other and,
unless otherwise indicated by the context:
- -------------------
* NOTE: Except as otherwise provided herein, this plan amends and
supersedes effective as of May 1, 1996, the Employee Stock Ownership
Plan of Insteel Industries, Inc. (the "predecessor plan") which was
adopted by the Board of Directors of the Company effective October 1,
1988. Reference is made to the Insteel Industries, Inc. Retirement
Savings Plan Trust Agreement of even date herewith, which is a part of
the plan.
<PAGE> 8
2.1 "Account" means the aggregate of the separate
accounts maintained by the Committee with respect to each participant. The
separate accounts so maintained shall include the following:
2.1.1 "Salary reduction contribution account" means the
account of the participant that is credited with salary reduction
contributions as provided in Section 3.1.
2.1.2 "Company matching contribution account" means the
account of the participant that is credited with Company matching
contributions as provided in Section 3.2.
2.1.3 "Company discretionary contribution account" means
the account of the participant that is credited with Company
discretionary contributions as provided in Section 3.4.
2.1.4 "Rollover account" means the account of the
participant that is credited with rollover contributions as provided
in Section 20.
2.2 "Accrued Benefit" means with respect to each
participant the value of his account as of the applicable adjustment date
following adjustment thereof as provided in Section 9.
2.3 "Acquisition Loan" means a loan described in Section
4975(d)(3) of the Code and Section 408(b)(3) of ERISA made to the trust by a
disqualified person (as defined in Section 4975(e)(2) of the Code) or a party-
in-interest (as defined in Section 3(14) of ERISA) or a loan made to the trust
that is guaranteed by a disqualified person or party-in-interest, which is used
by the Trustee to finance the acquisition of Company stock or to repay a prior
acquisition loan. Such a loan may include a direct loan of cash to the trust,
a purchase money transaction involving the trust, or an assumption of an
obligation of the trust.
2.4 "Active Participant" means with respect to any plan
year a participant who is in service on the year-end adjustment date. If a
participant shall retire from service or die while in service in any plan year,
he shall be treated as an active participant for the plan year in which
2
<PAGE> 9
such retirement or death shall occur, whether or not he shall actually be in
service on the year-end adjustment date.
2.5 "Actual deferral percentage" or "ADP" with respect to a
participant for a plan year means the ratio (expressed as a percentage and
calculated to the nearest one-hundredth of a percentage point) of: (i) the
salary reduction contributions, if any, and supplemental Company contributions,
if any, made to the trust under the plan by the Company on his behalf for the
plan year other than salary reduction contributions distributed to the
participant pursuant to the provisions of Section 3.6.2(ii); to (ii) his
statutory compensation for that portion of the plan year during which he was a
participant. Notwithstanding the foregoing, the ADP of a nonhighly compensated
participant shall be determined without regard to any excess elective deferrals
made under the plan or any other plan maintained by an affiliated employer with
respect to him. The ADP for a specified group of participants for a plan year
shall be the average (expressed as a percentage and calculated to the nearest
one-hundredth of a percentage point) of the ADPs calculated separately for each
participant in such group. The ADP of a participant who is eligible to make a
salary reduction contribution under the plan (including a participant whose
salary reduction contributions are suspended pursuant to Section 3.7) but does
not do so, who does not receive an allocation of a supplemental Company
contribution that is treated as a salary reduction contribution under Section
3.1.4(iii)(b) or who is not eligible to make a salary reduction contribution
because allocations to his account would exceed the dollar limitation or the
compensation limitation in Section 3.6.1 shall be zero. For purposes of
determining the ADP of a highly compensated participant who is a 5 percent
owner or one of the 10 most highly compensated employees, the salary reduction
contributions, supplemental Company contributions that are treated as salary
reduction contributions and statutory compensation of such highly compensated
participant shall include the salary reduction contributions, supplemental
Company contributions that are treated as salary reduction contributions and
statutory compensation for the plan year of family members (as defined in
3
<PAGE> 10
Section 2.30.3 of the plan). Family members with respect to such highly
compensated participants shall be disregarded as separate employees in
determining the ADP for both nonhighly compensated participants and highly
compensated participants. The determination and treatment of the ADP of any
participant shall satisfy such other requirements as may be prescribed by the
Secretary of the Treasury.
2.6 "Adjustment Date" means the following:
2.6.1 With respect to general accounts, May 31, 1996, and
thereafter, each date securities are traded on a national securities exchange,
except regularly scheduled holidays of the Trustee.
2.6.2 With respect to Company stock accounts, September 30, 1996,
and thereafter, each regular business day of the Trustee. See Section 2.49 for
definition of "year-end adjustment date."
2.7 "Affiliated Employer" means (i) any corporation that is a
member of a controlled group of corporations (as defined in Section 414(b) of
the Code) which includes the Company; (ii) any trade or business (whether or not
incorporated) that is under common control (as defined in Section 414(c) of the
Code) with the Company; (iii) any organization (whether or not incorporated)
that is a member of an affiliated service group (as defined in Section 414(m)
of the Code) which includes the Company; and (iv) any other entity required to
be aggregated with the Company pursuant to Section 414(o) of the Code.
2.8 "Board" means the Board of Directors of the Company, or the
Executive Committee of such Board when acting for the Board.
2.9 "Code" means the Internal Revenue Code of 1986, as amended,
and rules and regulations issued thereunder.
2.10 "Committee" means the administrative committee provided for
in Section 10.
2.11 "Company" means Insteel Industries, Inc., a North Carolina
corporation with its principal office at Mount Airy, North Carolina, and any
affiliated employer that agrees to become a party to the plan.
4
<PAGE> 11
2.12 "Company Discretionary Contributions" means the amounts
contributed to the plan by the Company pursuant to the provisions of Section
3.4.
2.13 "Company Matching Contributions" means the amounts contributed
to the plan by the Company pursuant to the Provisions of Section 3.2.
2.14 "Company Stock" means shares of common stock issued by the
Company or any other corporation which is a member of the same controlled group
of corporations with the Company (as determined pursuant to Section 409(l)(4)
of the Code) (including fractional shares of such stock) which are readily
tradable on an established market (as defined in Section 2.37). If there are
no shares of common stock which meet the requirements of the preceding
sentence, the term "Company stock" means shares of common stock issued by the
Company or any other corporation which is a member of the same controlled group
of corporations with the Company (as determined pursuant to Section 409(1)(4)
of the Code) (including fractional shares of such stock) which have a
combination of voting power and dividend rights equal to or in excess of (A)
that class of common stock of the Company or of any other such corporation
which has the greatest voting power, and (B) that class of common stock of the
Company or of any other such corporation which has the greatest dividend
rights. Non callable preferred stock shall be treated as "Company stock" if
such stock is convertible at any time into stock which constitutes "Company
stock" under this Section 2.14 and if such conversion is at a conversion price
which (as of the date of acquisition by the plan) is reasonable. Under
Regulations prescribed by the Secretary of the Treasury, preferred stock shall
be treated as non-callable if after the call there will be a reasonable
opportunity for a conversion which meets the requirements of the preceding
sentence.
2.15 "Company Stock Account" means the portion of the account of
the participant that is credited or debited with Company stock.
5
<PAGE> 12
2.16 "Compensation" means for any participant his basic
remuneration during the plan year for personal services actually rendered by
the participant in the course of his service with the Company, including
overtime pay, production bonuses, commissions and payments under the Company's
Salary Continuation Plan, but excluding profit-sharing bonuses, the cost of any
group insurance, hospitalization, sick or similar benefits, the cost of
benefits under the plan or any other payments or benefits not customarily
considered to be basic remuneration, including, without limitation, payments
under the Company's Short-Term Disability Plan. For purposes of the plan, the
compensation of a participant shall be limited to $200,000 (as adjusted
pursuant to Section 415(d) of the Code) (the "annual compensation limitation").
If for any plan year compensation is determined on the basis of a period that
contains fewer than 12 calendar months, the annual compensation limitation
shall be an amount equal to the annual compensation limitation for the calendar
year in which such period begins multiplied by the ratio obtained by dividing
the number of full months in the period by 12. In determining the compensation
of a participant for purposes of the annual compensation limitation, the family
aggregation rules of Section 2.30.3 of the plan shall apply, except that in
applying such rules, the term "family" shall include only the spouse of the
participant and any lineal descendants of the participant who have not attained
age 19 before the close of the plan year. If, as a result of the application
of such rules the annual compensation limitation is exceeded, then the annual
compensation limitation shall be prorated among the affected individuals in
proportion to each such individual's compensation as determined under this
Section 2.16 prior to the application of the annual compensation limitation or
in accordance with any other method permitted by the Internal Revenue Service.
In addition to other applicable limitations set forth in the plan, and
notwithstanding any other provision of the plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the plan shall not exceed the Omnibus Budget
Reconciliation Act of 1993 ("OBRA '93") annual
6
<PAGE> 13
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Code. The cost-of-living adjustment in
effect for a calendar year applies to any period, not exceeding 12 months, over
which compensation is determined (determination period) beginning in such
calendar year. If a determination period consists of fewer than 12 months, the
OBRA '93 annual compensation limit will be multiplied by a fraction, the
numerator of which is the number of months in the determination period, and the
denominator of which is 12. For plan years beginning on or after January 1,
1994, any reference in this plan to the limitation under Section 401(a)(17) of
the Code shall mean the OBRA '93 annual compensation limit set forth in this
provision. If compensation for any prior determination period is taken into
account in determining an employee's benefits accruing in the current plan
year, the compensation for that prior determination period is subject to the
OBRA '93 annual compensation limit in effect for that prior determination
period. For this purpose, for determination periods beginning before the first
day of the first plan year beginning on or after January 1, 1994, the OBRA '93
annual compensation limit is $150,000.
2.17 "Contribution percentage" with respect to a participant for a
plan year means the ratio (expressed as a percentage and calculated to the
nearest one-hundredth of a percentage point) of: (i) the Company matching
contributions made to the trust under the plan on his behalf for the plan year;
to (ii) his statutory compensation for that portion of the plan year during
which he was a participant. The contribution percentage for a specified group
of participants for a plan year shall be the average (expressed as a percentage
and calculated to the nearest one-hundredth of a percentage point) of the
contribution percentages calculated separately for each participant in such
group. Pursuant to regulations issued by the Secretary of the Treasury, the
Committee may elect to take into account salary reduction contributions made on
behalf of any participant to any qualified plan maintained by the Company for
purposes of determining the contribution percentage of such
7
<PAGE> 14
participant. The contribution percentage for a participant who is eligible to
make a salary reduction contribution under the plan but does not do so, and who
does not receive an allocation of a supplemental contribution that is treated
as a salary reduction contribution under Section 3.1.4(ii)(b), or who does not
receive an allocation of a Company contribution because the dollar limitation
or the compensation limitation of Section 3.6.1 would be exceeded, shall be
zero. Notwithstanding the foregoing, salary reduction contributions
distributed to a participant pursuant to the provisions of Section 3.6.2(ii)
may not be taken into account for purposes of determining the contribution
percentage of such participant. For purposes of determining the contribution
percentage of a highly compensated participant who is a 5 percent owner or one
of the 10 most highly compensated employees, the Company matching contributions
(including salary reduction contributions if taken into account for purposes of
determining the contribution percentage) and testing compensation of such
highly compensated participant shall include the Company matching contributions
(including salary reduction contributions, if applicable) and testing
compensation for the plan year of family members (as defined in Section 2.30.3
of the plan). Family members with respect to such highly compensated
participants shall be disregarded as separate employees in determining the
contribution percentage both for nonhighly compensated participants and for
highly compensated participants. The determination and treatment of the
contribution percentage of any participant shall satisfy such other
requirements as may be prescribed by the Secretary of the Treasury.
2.18 "Debt" means any borrowing obligation incurred by the Trustee
that is not an acquisition loan.
2.19 "Effective date" of the plan shall be May 1, 1996, except as
otherwise provided herein.
2.20 "Elective deferral" or "elective deferrals" means, with
respect to any taxable year of a participant, the sum of:
8
<PAGE> 15
(a) Any contribution under a qualified cash or deferred
arrangement (as defined in Section 401(k) of the Code) made by the
Company on behalf of the participant at his election in lieu of cash
compensation, including a salary reduction contribution under Section
2.1 of the plan, to the extent not includible in his gross income for
the taxable year under Section 402(e)(3) of the Code;
(b) Any contribution under a simplified employee pension
plan (as defined in Section 408(k) of the Code) made by the Company on
behalf of the participant to the extent not includible in his gross
income for the taxable year under Section 402(h)(1)(B) of the Code;
and
(c) Any contribution made by the Company on behalf of the
participant to purchase an annuity contract under Section 403(b) of
the Code pursuant to a salary reduction agreement (within the meaning
of Section 3121(a)(5)(D) of the Code).
Notwithstanding any provisions of this plan to the contrary, the elective
deferrals of any participant for any taxable year of the participant made under
this plan, and any other qualified plan maintained by the Company, shall not in
the aggregate exceed $7,000 (or such greater amount as may be permitted under
Section 402(g)(4), (5) or (8) of the Code). See Section 3.1.1 of the plan
permitting distribution of excess elective deferrals.
2.21 "Eligible employee" means each employee except the
following:
(a) An employee included in a unit of employees covered
by a collective bargaining unit that has entered into a bona fide
collective bargaining agreement with the Company that does not
specifically provide for coverage of the employee under the plan,
provided that retirement benefits were the subject of good faith
bargaining between the Company and employee representatives;
(b) An employee who is a nonresident alien and receives
no earned income (within the meaning of Section 911 (d)(2) of the
Code) from the Company constituting income from sources within the
United States (within the meaning of Section 861(a)(3) of the Code);
(c) An individual who is deemed to be an employee solely
by reason of being a leased employee; and
(d) An employee who is employed by an affiliated employer
which is not a party to the plan.
See Section 2.34 for provisions governing participation in the plan by an
eligible employee.
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2.22 "Employee" means, except as otherwise provided herein, an
individual in the service of the Company if the relationship between him and
the Company is the legal relationship of employer and employee. In determining
who is an employee for purposes of the plan, the following provisions shall
apply:
2.22.1 Subject to the provisions of Section 3.6.4(c), all employees
of an affiliated employer shall be treated as employees of the Company.
2.22.2 All leased employees shall be treated as employees of the
Company. See Sections 2.21 and 2.34 for provisions governing eligibility of an
employee to become a participant in the plan.
2.23 "Entry date" means June 1, 1996, and thereafter, October 1 and
April 1 of each plan year, commencing with October 1, 1996.
2.24 "ERISA" means the Employee Retirement Income Security Act of
1974 (including amendments of the Code affected thereby), as amended, and rules
and regulations issued thereunder.
2.25 "Excess aggregate contributions" means with respect to any
plan year the excess of:
(a) The aggregate amount of Company matching contributions
(and any elective deferrals taken into account in computing the
contribution percentage) actually made to the trust on behalf of highly
compensated participants for such plan year; over
(b) The maximum amount of such contributions permitted
under the limitations described in Section 3.2.
2.26 "Excess contributions" means with respect to any plan year the
excess of:
(a) The aggregate amount of salary reduction contributions
actually made to the trust on behalf of highly compensated participants
for such plan year; over
(b) The maximum amount of such contributions permitted
under the limitations of Section 3.1.4.
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2.27 "Excess elective deferral" means for any taxable year of a
participant the amount of the elective deferral on behalf of a participant for
any taxable year of such participant in excess of $7,000 (or such greater
amount as may be permitted pursuant to the provisions of Sections 402(g)(4),
(5) and (8) of the Code). Excess elective deferral also shall refer to the
specific amount of elective deferrals for the taxable year of the participant
which the participant allocates to this plan pursuant to the provisions of
Section 3.1.1.
2.28 "Financed shares" means shares of Company stock acquired with
the proceeds of an acquisition loan.
2.29 "General account" means the portion of the account of the
participant that is credited or debited with cash or assets other than Company
stock.
2.30 "Highly compensated employee" means any employee who during
the plan year or the preceding plan year:
(i) was at any time a 5 percent owner (as defined in
Section 416(i)(1)(B) of the Code);
(ii) received statutory compensation from the Company and
affiliated employers in excess of $75,000 (as adjusted pursuant to
Section 415(d) of the Code);
(iii) received statutory compensation from the Company and
affiliated employers in excess of $50,000 (as adjusted pursuant to
Section 415(d) of the Code) and was in the top-paid group of employees
for such year; or
(iv) was at any time an officer and received statutory
compensation from the Company and affiliated employers greater than 50
percent of the dollar limitation described in Section 415(b)(1)(A) of
the Code for such year. No more than 50 employees (or, if lesser, the
greater of 3 employees or 10 percent of the employees) shall be
treated as officers. If for any plan year no officer of the Company
receives statutory compensation greater than 50 percent of the dollar
limitation described in Section 415(b)(1)(A) of the Code in effect for
such year, the highest paid officer of the Company for such year shall
be treated as a highly compensated employee.
For purposes of this Section 2.30, the following provisions shall apply:
2.30.1 An employee not described in subparagraph (ii), (iii)
or (iv) above for the preceding plan year (without regard to this
Section 2.30.1) shall not be treated
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as described in subparagraph (ii), (iii) or (iv) in the current plan
year unless he is one of the 100 employees paid the greatest statutory
compensation during the current plan year.
2.30.2 An employee who performs service for the Company at
any time during a plan year shall be in the top-paid group of
employees for such year if such employee is in the top 20 percent of
the employees of the Company ranked on the basis of statutory
compensation paid during such year.
2.30.3 If any individual is a member of the family of a 5
percent owner who is an active or former employee or a highly
compensated employee who is one of the 10 most highly compensated
employees during a plan year, then (i) such individual shall not be
considered a separate employee; and (ii) any statutory compensation
paid to such individual (and any contribution or benefit on behalf of
such employee) shall be treated as if it were paid to or on behalf of
the 5 percent owner or highly compensated employee. For purposes of
this Section 2.30.3, the term "family" or "family member" means an
employee's spouse and lineal ascendants or descendants and the spouse
of lineal ascendants or descendants.
2.30.4 A former employee shall be treated as a highly
compensated employee if he was a highly compensated employee when he
separated from service, or at any time after attaining age 55.
2.30.5 The term "statutory compensation" means statutory
compensation as defined in Section 2.43, but including amounts
excludable from the employee's gross income under Section 125,
402(a)(8) (effective January 1, 1993, 402(e)(3)), 402(h) or 403(b) of
the Code.
The determination of who is a highly compensated employee, including
determination of the number and identity of employees in the top-paid group,
the 100 employees paid the greatest statutory compensation and the number of
employees treated as officers, shall be made in accordance with Section 414(q)
of the Code and the regulations thereunder. The Company for any plan year may
elect to identify highly compensated employees based only upon the calendar
year ending within the plan year to the extent permitted under Section 414(q)
of the Code and the regulations thereunder.
2.31 "Leased employee" means any individual, other than an employee
of the Company or an affiliated employer (the "recipient employer"), who,
pursuant to an agreement between the recipient employer and any other person
(the "leasing organization"), has performed services for the recipient
employer, or the recipient employer and related persons determined in
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<PAGE> 19
accordance with Section 414(n)(6) of the Code, on a substantially full-time
basis for a period of at least one year, and such services are of a type
historically performed by employees in the business field of the recipient
employer. Contributions or benefits provided a leased employee by the leasing
organization that are attributable to services performed for the recipient
employer shall be treated as provided by the recipient employer. A leased
employee shall not be considered an employee of the recipient employer if: (a)
such individual is covered by a money purchase pension plan providing (i) a
non-integrated employer contribution of at least 10 percent of statutory
compensation, as defined in Section 2.43 of the plan, but including amounts
excludable from the individual's gross income under Section 125, 402(a)(8)
(effective January 1, 1993, 402(e)(3)), 402(h) or 403(b) of the Code, (ii)
immediate participation, and (iii) full and immediate vesting; and (b) leased
employees do not constitute more than 20 percent of the recipient employer's
non-highly compensated work force (as defined in Section 414(n)(5)(c)(ii) of
the Code).
2.32 "Nonhighly compensated participant" means a participant who is
neither a highly compensated participant nor a family member of a highly
compensated participant within the meaning of Section 2.30.3.
2.33 "Normal retirement age" of a participant means age 65. The
"normal retirement date" of a participant means the first day of the calendar
month coincident with or next following attainment of his normal retirement
age.
2.34 "Participant" means with respect to any plan year an eligible
employee who has entered the plan and any former employee who has an accrued
benefit under the plan which is not wholly forfeitable for the plan year
pursuant to Section 6. An eligible employee or former employee on the effective
date who was a participant in the predecessor plan immediately preceding the
effective date shall enter the plan on the effective date. An eligible
employee who has otherwise not entered the plan shall enter the plan on the
third entry date following the date such eligible
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<PAGE> 20
employee first enters service with the Company; provided, that an eligible
employee who is in service on June 1, 1996 and is not otherwise a participant
may enter the plan as of such date (regardless of the length of his period of
service with the Company) solely for purposes of making salary reduction
contributions described in Section 3.1. For purposes of applying the foregoing
provisions of this Section 2.34, the following special provisions shall apply:
(i) An eligible employee who is not in service on the date
he is otherwise eligible to enter the plan shall not enter the plan
until he reenters service as an eligible employee, whereupon if he
reenters service prior to having a one-year period of severance, he
shall immediately enter the plan.
(ii) An eligible employee who shall have a one-year period
of severance prior to entering the plan and shall thereafter reenter
service, shall be considered a new employee for purposes of determining
the date he enters the plan. A "one-year period of severance" means a
12-consecutive month period beginning on the earlier of: (a) the date
on which the employee quits, retires, is discharged or dies; or (b) the
first anniversary of the date the employee is absent from service for
any other reason.
(iii) A participant who terminates service and later
reenters service shall reenter the plan as of the date he reenters
service as an eligible employee.
2.35 "Plan" means the plan as herein set out or as duly
amended.
2.36 "Plan year" means the 12-month period ending on
September 30 of each year.
2.37 "Readily tradable on an established market" means a
security (which may include Company stock) listed on a national securities
exchange registered under Section 6 of the Securities Exchange Act of 1934 or
quoted on a system sponsored by a national securities association registered
under Section 15A(b) of the Securities Exchange Act and readily tradable on
either such market.
2.38 "Retire" or "retirement" means retirement within the
meaning of Section 4.1, 4.2 or 4.3.
2.39 "Salary reduction agreement" means a written
agreement entered into by a participant pursuant to the provisions of Section
3.1 at the time of the participant's initial enrollment
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<PAGE> 21
in the plan, and at such later times as shall be required under rules and
procedures established from time to time by the Committee.
2.40 "Salary reduction contributions" means the contributions
described in Section 3.1 which are made to the plan by the Company on behalf of
a participant who has elected to defer a specified percentage of his
compensation.
2.41 "Service" means employment by the Company as an employee;
provided, that unless and to the extent the Company expressly agrees otherwise,
service with an employer (other than the Company) prior to such employer
becoming an affiliated employer shall be disregarded for all purposes of the
plan.
2.42 "Spouse" or "surviving spouse" means, except as otherwise
provided in the plan, the legally married spouse or surviving spouse of a
participant; provided, that a former spouse shall be treated as the spouse or
surviving spouse to the extent provided under a qualified domestic relations
order described in Section 414(p) of the Code.
2.43 "Statutory compensation" means for any participant the wages,
salary and fees for professional services and other amounts received (without
regard to whether or not an amount is paid in cash) by such participant during
the plan year for personal services actually rendered by the participant in the
course of his service with the Company to the extent that the amounts are
includible in gross income (including but not limited to commissions,
compensation for services on the basis of a percentage of profits, bonuses,
fringe benefits, reimbursements or other expense allowances under a
non-accountable plan as described in Regulation Section 1.62-2(c)) and excluding
contributions made by the Company to any plan of deferred compensation which
are not includible in the participant's gross income for the taxable year in
which contributed, contributions made by the Company under a simplified
employee pension plan, any distributions from a plan of deferred compensation,
amounts realized from the exercise of a non-qualified stock option or from
15
<PAGE> 22
the sale or other disposition of stock acquired under a qualified stock option,
amounts realized when restricted stock (or property) held by the participant
either becomes freely transferable or is no longer subject to a substantial
risk of forfeiture, and any other amount paid by the Company that receives
special tax benefits or is excluded under the definition of compensation under
Section 415 of the Code and Treasury Regulation Section 1.415-2(d)(3). For
purposes of Section 18, the statutory compensation of a participant shall be
limited to the annual compensation limitation set forth in Section 2.15.
2.44 "Supplemental Company contributions" means a contribution made
by the Company pursuant to Section 3.1.4(iii)(b) of the plan.
2.45 "Suspense account" means the separate account to which
financed shares are allocated pending release and allocation to the Company
stock accounts of participants, as provided in Sections 7 and 9.
2.46 "Trust" or "trust fund" means the trust fund held by the
Trustee under the plan.
2.47 "Trustee" means the person appointed by the Company to
administer the trust.
2.48 "Trust agreement" means the agreement between the Company and
the Trustee, which shall be a part of the plan.
2.49 "Year-end adjustment date" means the last day of a plan year
(i.e., September 30), or if such day is not an adjustment date, then the
adjustment date immediately preceding such day.
Section 3. Contributions to the Trust and Allocation Thereof:
3.1 Salary Reduction Contributions:
3.1.1 Amount of salary reduction contributions; Excess elective
deferrals: By entering into a salary reduction agreement with the Company, each
participant in service may elect to reduce his compensation by a whole number
percentage not less
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than one percent (1%) and not more than ten percent (10%). The amount of the
participant's salary reduction shall be contributed by the Company to the trust
for each plan year as a salary reduction contribution in accordance with the
provisions of Section 3.1.2. In no event shall the salary reduction
contribution made to this plan with respect to a participant for any taxable
year of the participant exceed $7,000 (or such greater amount as may be
permitted pursuant to the provisions of Sections 402(g)(4), (5) and (8) of the
Code) (the "maximum dollar limit"). In the event of an excess elective
deferral (determined by taking into account only the plan and any other
qualified plans maintained by an affiliated employer), the Company shall notify
the plan administrator in writing on behalf of the participant of such excess
elective deferral and the amount thereof shall be adjusted for income and
losses allocable thereto and distributed to the participant (a "corrective
distribution") no later than the April 15 following the end of the taxable year
during which such excess elective deferral was made. The income or loss
allocable to an excess elective deferral under the plan for the participant's
taxable year of the excess elective deferral shall be determined by multiplying
the income or loss allocable to the participant's salary reduction contribution
account for such taxable year by a fraction the numerator of which is the
excess elective deferral made to the plan for such taxable year and the
denominator of which is equal to the balance in the participant's salary
reduction contribution account as of the year-end adjustment date for such plan
year reduced by the gain allocable to such account for such plan year and
increased by the loss allocable to such account for such plan year. Income or
loss allocable to an excess elective deferral for the taxable year shall not
include income or loss for the period between the end of the taxable year and
the date of the corrective distribution. The excess elective deferral which
otherwise would be distributed to the participant shall be reduced in
accordance with Treasury regulations by the amount of any excess contributions
distributed previously to the participant. If the participant is also a
participant in (i) another qualified cash or deferred plan (as defined in
Section 401(k) of the Code), (ii) a simplified employee pension (as defined in
Section 408(k) of the Code), or (iii) a salary reduction arrangement (within
the meaning of Section 3121(a)(5)(D) of the Code) and the elective deferrals
made under such other plan or arrangement and this plan in the aggregate exceed
the maximum dollar limit for such participant's taxable year, then not later
than March 1 following the close of the taxable year during which the excess
elective deferral was made, the participant may notify the Committee in writing
that all or part of the salary reduction contribution made on his behalf under
the plan represents an excess elective deferral for his preceding taxable year
and request that his salary reduction contribution under the plan be reduced by
a specified amount. The specified amount shall be adjusted for income and loss
allocable thereto in the same manner as heretofore provided in this Section
3.1.1. In no event may the participant receive from the plan as a corrective
distribution with respect to a plan year an amount in excess of such
participant's salary reduction contributions under the plan for the plan year,
as adjusted for income and losses allocable thereto. Distributions of excess
elective deferrals to participants may be made notwithstanding any other
provision of the plan or Code. The amount of any excess elective deferral
distributed to the participant pursuant to this Section 3.1.1 shall not be
treated as an annual addition for purposes of Section 3.6.
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3.1.2 Time for making salary reduction contributions: Subject to
Section 3.1.3(iv), a participant's salary reduction contributions shall be
accumulated through payroll deductions and paid by the Company to the Trustee
within 30 days after the date on which such amounts would have been paid to the
participant in the absence of his salary reduction election. In any event, all
salary reduction contributions with respect to a plan year shall be paid to the
Trustee within 30 days after the end of such plan year.
3.1.3 Administrative rules governing salary reduction agreements:
(i) A salary reduction election pursuant to Section 3.1.1
shall be made by the participant by executing and delivering to the
Company a salary reduction agreement in accordance with such rules and
procedures as are adopted by the Committee from time to time. With
respect to an eligible employee who becomes a participant in the plan
on June 1, 1996 (under the special provisions of Section 2.34
applicable to salary reduction contributions) and who desires to make
salary reduction contributions to the plan beginning as of such date,
the salary reduction agreement must be received by the Committee prior
to such date and shall become effective as of the beginning of the
first full payroll period commencing on or after such date. With
respect to an eligible employee who first becomes a participant after
the effective date or a participant who does not elect to begin making
salary reduction contributions to the plan as of such date, the salary
reduction agreement shall become effective at the beginning of the
first full payroll period commencing on or after the entry date
immediately following the date of receipt by the Committee of such
salary reduction agreement. Unless modified or revoked by the
participant, such election shall continue in effect until such time as
he terminates service with the Company. A new salary reduction
agreement with respect to a participant who terminates service and
later reenters service and becomes a participant shall become effective
at the beginning of the first full payroll period commencing on or
after the date such participant reenters the plan.
(ii) A participant may unilaterally modify his salary
reduction agreement as of the first day of October, January, April or
July to increase or decrease the portion of his compensation subject
to salary reduction within the percentage limits set forth in Section
3.1.1. Any such modification shall be made pursuant to such procedures
as the Committee shall from time to time direct, and shall become
effective at the beginning of the first full payroll period commencing
on or after the first day of the calendar quarter next following the
date notice of such modification is received by the Committee.
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<PAGE> 25
(iii) A participant unilaterally may revoke his salary
reduction agreement at any time by providing notice to the Committee
pursuant to such procedures as the Committee shall from time to time
direct. The revocation shall become effective at the beginning of the
first full payroll period commencing immediately following the date
notice of such revocation is received by the Committee. If a
participant revokes his salary reduction agreement, he shall be
ineligible to resume making salary reduction contributions until the
first full payroll period commencing on or after the first day of the
calendar quarter next following the date such revocation became
effective.
(iv) The Company may amend or revoke a salary reduction
agreement with a participant at any time if the Company determines
that such amendment or revocation is necessary to ensure that the
annual additions (as defined in Section 3.6) to the accounts of a
participant do not exceed the annual addition limitations (described
in Section 3.6) for such participant or that the requirements of
Section 3.1.4 are met for such plan year.
(v) The Company shall establish a payroll deduction
system to assist it in making salary reduction contributions. The
Committee from time to time may adopt policies or rules governing the
manner in which such contributions may be made so that the plan may be
administered conveniently.
3.1.4 Limitations on salary reduction contributions:
(i) Notwithstanding anything to the contrary contained
elsewhere in the plan or any salary reduction agreement, all salary
reduction agreements entered into by highly compensated participants
with respect to any plan year shall be valid only if one of the tests
set forth in Section 3.1.4(ii) is satisfied for such plan year.
(ii) For each plan year, the ADP for the group of highly
compensated participants for the plan year shall bear to the ADP for
the group of nonhighly compensated participants for the same year a
relationship that satisfies either of the following tests:
(a) The ADP for the group of highly compensated
participants for the plan year is not more than the ADP for
the group of nonhighly compensated participants for the same
plan year multiplied by 1.25; or
(b) The ADP for the group of highly compensated
participants for the plan year is not more
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<PAGE> 26
than the ADP for the group of nonhighly compensated participants for
the same plan year multiplied by 2, and the excess of the ADP for the
group of highly compensated participants over the ADP for the group of
nonhighly compensated participants is not more than 2 percentage points
(or such lesser amount as the Secretary of the Treasury shall prescribe
by regulation to prevent the multiple use of this alternative
limitation with respect to any highly compensated participant).
For purposes of applying the provisions of this paragraph (ii), the following
provisions shall apply:
1. If 2 or more plans of the Company or an affiliated employer
that include cash or deferred arrangements described in Section 401(k)
of the Code are aggregated for purposes of Sections 401(a)(4) or
410(b) of the Code (other than for purposes of the average benefit
percentage test), the cash or deferred arrangements included in such
plans shall be treated as one arrangement.
2. If a highly compensated participant is a participant under two
or more cash or deferred arrangements (described in Section 401(k) of
the Code) of the Company or an affiliated employer, all such cash or
deferred arrangements shall be treated as one cash or deferred
arrangement for the purpose of determining the ADP with respect to
such highly compensated participant. Notwithstanding the foregoing,
the provisions of this subparagraph shall not apply if the plans of
which such cash or deferred arrangements are a part may not be
aggregated for purposes of Section 410(b) of the Code (other than the
average benefit percentage test).
3. The group of highly compensated participants and the group of
nonhighly compensated participants shall include any participant
defined as such, regardless of whether he elects to make a salary
reduction contribution under the plan.
4. The Company shall maintain records sufficient to demonstrate
satisfaction of the ADP test.
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<PAGE> 27
5. Notwithstanding anything to the contrary in the plan, the
determination and treatment of salary reduction contributions and the
ADP of any participant shall satisfy Section 1.401(k)-1(b) of the
Treasury Regulations and such other requirements as may be prescribed
by the Secretary of the Treasury.
(iii) If at the end of any plan year neither of the tests set forth
in Section 3.1.4(ii) is satisfied, the Committee, in its discretion, shall
adjust the salary reduction contributions of the highly compensated
participants pursuant to (a) or (b) below:
(a) On or before the December 15 next following the end
of each plan year, but in no event later than the year-end adjustment
date following such December 15 (the "distribution date"), the salary
reduction contribution for such plan year of each highly compensated
participant shall be reduced by his share of the excess contribution
for such plan year. Reductions shall be made pursuant to the
following procedure: (1) the maximum amount of salary reduction
contributions permitted for each highly compensated participant shall
be determined by reducing the salary reduction contributions of all
highly compensated participants in order of their ADPs, beginning with
the highest ADP; and (2) salary reduction contributions made for such
year on behalf of a highly compensated participant that exceed the new
maximum percentage determined pursuant to clause (1) shall be reduced
with respect to each such highly compensated participant until the
salary reduction contributions made on behalf of such participant
equal the new lower maximum amount. This procedure shall be repeated
until the plan satisfies one of the tests set forth in Section
3.1.4(ii). All salary reduction contributions so reduced, adjusted for
income and losses allocable thereto, shall be allocated and
distributed to the participant no later than the distribution date.
The income or loss allocable to the participant's share of the excess
contribution for the plan year of such excess contribution shall be
determined by multiplying the amount of the income or loss allocable
to the participant's salary reduction contributions for such plan year
by a fraction the numerator of which is the excess contribution made
to the plan for such plan year, and the denominator of which is the
balance in
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the participant's salary reduction contribution account as of the
year-end adjustment date for such plan year, reduced by the gain
allowable to such account for such plan year and increased by the loss
allocable to such account for such plan year. Income or loss
allocable to the participant's share of the excess contribution shall
not include income or loss for the period between the end of the plan
year and the date of distribution. The excess contribution that
otherwise would be distributed to the participant shall be reduced in
accordance with Treasury Regulations by the amount of any excess
elective deferrals previously distributed to the participant. The
excess contribution, adjusted for income or losses allocable thereto,
of a highly compensated participant whose ADP is determined under the
family aggregation rules described in Section 2.30.3 of the plan shall
be allocated among the family members in proportion to the elective
deferrals of each family member that is combined pursuant to the
provisions of Section 2.5 of the plan in order to determine the ADP
for the group. The amount of any excess contribution shall be treated
as an annual addition for purposes of Section 3.3 for the plan year in
which such excess contribution was made. Distributions of excess
contributions to participants may be made notwithstanding any other
provision of the plan or Code. In no event may the amount of the
excess contributions distributed for a plan year with respect to any
highly compensated participant exceed the amount of salary reduction
contributions made in behalf of the highly compensated participant for
such plan year, as adjusted for income and losses allocable thereto.
(b) As an alternative method of satisfying one of the
tests set forth in Section 3.1.4(ii), within 30 days after the end of
the plan year, the Company may make a supplemental Company
contribution with respect to such plan year on behalf of nonhighly
compensated participants in an amount determined by the Board. Such
supplemental Company contribution shall be allocated to the salary
reduction contribution accounts of those participants entitled to
share in such contribution pursuant to the provisions of Section
3.1.5(ii). On such allocation, the supplemental Company contribution
shall be considered a salary reduction contribution subject to
22
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all provisions of the plan regarding salary reduction contributions
other than Section 4.6. The Company shall pay such supplemental
Company contribution with respect to a plan year to the Trustee within
30 days after the end of such plan year. Notwithstanding anything
contrary contained in the plan, supplemental Company contributions
shall be treated as salary reduction contributions for purposes of the
tests set forth in Section 3.1.4(ii) only if the conditions described
in Section 1.401(k)-1(b)(5) of the Treasury Regulations are satisfied.
(iv) If at any time during a plan year the Committee in its
discretion determines that neither of the tests set forth in Section 3.1.4(ii)
will be met for such plan year, then the Committee in its discretion shall have
the unilateral right during the plan year to require prospective reduction of
the percentage of the compensation of highly compensated participants that may
be subject to salary reduction agreements for part or all of the balance of
such year.
3.1.5 Allocation to salary reduction contribution accounts:
(i) Salary reduction contributions made by the Company shall be
allocated as of each adjustment date to the salary reduction contribution
account of a participant in the amount that such participant's compensation was
reduced pursuant to his salary reduction agreement since the next preceding
adjustment date. The salary reduction contribution account of each participant
shall be accounted for separately from the participant's other accounts under
the plan.
(ii) If the Company elects to make a supplemental contribution with
respect to any plan year, such contribution shall be allocated to the salary
reduction contribution account of each nonhighly compensated participant (a)
who is an active participant; and (b) with respect to whom the Company made a
salary reduction contribution to the trust for such plan year. Such allocation
shall be in the proportion that each such participant's compensation bears to
the total compensation of all such participants. Supplemental contributions
made for a plan year shall be allocated to a participant's salary reduction
contribution account as of the year-end adjustment date even though the Trustee
may receive the contribution after such year-end adjustment date.
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3.2 Company Matching Contributions:
3.2.1 Amount and allocation of Company matching contributions:
Subject to the requirements of Section 7.8, for each plan year the Company may
make one or more Company matching contributions to the plan on behalf of each
participant with respect to whom salary reduction contributions were made to
the plan at such times, in such amounts and subject to such conditions as the
Board shall from time to time determine. On or before the first day of each
plan year, the Company shall determine the amount of Company matching
contributions to be made to the plan for a plan year, if any, the time as of
which such Company contributions shall be made, and any conditions to be
satisfied for such matching contribution to be made. The Company matching
contribution may be made in cash or Company stock, or partly in cash and partly
in Company stock, except to the extent such contribution is required to be in
cash to comply with Section 7.8. The portion of the Company matching
contribution made with respect to each participant that is not applied to make
principal and interest payments under an acquisition loan shall be allocated to
his Company matching contribution account as of the adjustment date on which
such contribution is made. If the Company matching contribution consists of
cash and Company stock, a separate allocation under this Section 3.2.1 shall be
made with respect to such cash and Company stock. Financed shares shall be
allocated to the Company stock accounts of participants according to the method
provided in Section 7.6 as the financed shares are released from the suspense
account in the manner provided in Section 7.6.
3.2.2 Limitations on Company matching contributions: The following
provisions shall apply with respect to Company matching contributions under the
plan:
(A) Contribution percentage limitation: For each plan
year, the contribution percentage for the group of highly compensated
participants shall bear to the contribution percentage for the group
of nonhighly compensated participants a relationship that satisfies
either of the following tests:
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(i) The contribution percentage for the group of highly
compensated participants for the plan year is not more than the.
contribution percentage for the group of nonhighly compensated
participants for the same plan year multiplied by 1.25; or
(ii) The contribution percentage for the group of highly
compensated participants for the plan year is not more than the
contribution percentage for the group of nonhighly compensated
participants for the same plan year multiplied by 2, and the excess of
the contribution percentage for the group of highly compensated
participants over the contribution percentage for the group of
nonhighly compensated participants is not more than 2 percentage
points (or such lesser amount as the Secretary of the Treasury shall
prescribe by regulations to prevent the multiple use of this
alternative limitation with respect to any highly compensated
participant).
(B) For purposes of applying the provisions of this Section 3.2.2,
the following provisions shall apply:
(i) Pursuant to regulations issued by the Secretary of
the Treasury, the Company may elect to take into account elective
deferrals under the plan or any other qualified plan it sponsors for
purposes of computing the contribution percentages.
(ii) If 2 or more plans of the Company or an affiliated
employer are aggregated for purposes of Sections 401(a)(4) or 410(b)
of the Code (other than for purposes of the average benefit percentage
test), the contribution percentage of each participant under the plan
shall be determined as if all such plans were a single plan.
(iii) If a highly compensated participant is a participant
in 2 or more plans described in Section 401(a) of the Code or cash or
deferred arrangements described in Section 401(k) of the Code
maintained by the Company or an affiliated employer to which Company
matching contributions, nondeductible voluntary contributions or
elective deferrals are made on behalf of such highly compensated
participant, all such plans and arrangements shall be treated as a
single plan for the purpose of determining the contribution percentage
of such highly compensated participant. Notwithstanding the
foregoing, the provisions of this subparagraph (iii) shall not apply
if the plans may not be aggregated for purposes of Section 410(b) of
the Code.
(iv) The determination of who is a highly compensated
participant or a nonhighly compensated participant shall include any
employee who is eligible to receive Company matching contributions or,
if the Company takes elective deferrals into account, make
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elective deferrals. In addition, if an employee contribution is
required as a condition of participation in the plan, any employee who
would be a participant in the plan if he made such a contribution
shall be treated as a participant on whose behalf no contributions are
made by the Company.
(v) The Company shall maintain records sufficient to
demonstrate satisfaction of the tests set forth in Section 3.2.2(A)
and the amount of elective deferrals, if any, used in such tests.
(vi) Notwithstanding anything to the contrary in the plan,
the determination and treatment of Company matching contributions and
the contribution percentage of any participant shall satisfy Section
1.401(m)-1(b) of the Treasury Regulations and such other requirements
as may be prescribed by the Secretary of the Treasury.
3.2.3 Correction of excess Company matching contributions: If at the
end of any plan year neither of the tests set forth in Section 3.2.2 is
satisfied, the Committee, in its discretion, shall adjust the Company matching
contributions of the highly compensated participants on or before the December
15 next following the end of each plan year, but in no event later than the
year-end adjustment date following such December 15 (the "distribution date").
The Company matching contribution of each highly compensated participant shall
be reduced by his share of the excess aggregate contributions for such plan
year. Reductions shall be made pursuant to the following procedure: (a) the
maximum amount of Company matching contributions permitted for each highly
compensated participant shall be determined by reducing the Company matching
contributions of all highly compensated participants in order of their
contribution percentages, beginning with the highest of such percentages; and
(b) Company matching contributions made for such year on behalf of a highly
compensated participant that exceed the new maximum amount determined pursuant
to clause (a) shall be reduced with respect to each such highly compensated
participant until the Company matching contributions made on behalf of such
participant equal the new maximum amount. This procedure shall be repeated
until one of the tests set forth in Section 3.2.2(A) is satisfied. All Company
matching contributions so reduced, adjusted for income and losses allocable
thereto, shall be designated by the Company as excess aggregate contributions
and shall be forfeited if otherwise forfeitable, or if not forfeitable,
distributed to the participant no later than the distribution date. The income
or loss allocable to the participant's share of the excess aggregate
contributions for the plan year of such excess aggregate contributions shall be
determined by multiplying the amount of the income or loss allocable to the
participant's Company matching contributions for such plan year and any
elective deferrals treated as Company matching contributions for such plan year
by a fraction the numerator of which is the excess aggregate contributions of
the participant for such plan year, and the denominator of which is the balance
in the participant's Company matching contribution account and any elective
deferrals treated as Company matching contributions as of the year-end
adjustment date for such plan year reduced by the gain allocable to such
account for such plan year and
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<PAGE> 33
increased by the loss allocable to such account for such plan year. The income
or loss allocable to the participant's share of the excess aggregate
contributions for the plan year shall not include income or loss for the period
between the end of the plan year and the date of distribution. The excess
aggregate contribution, adjusted for income or losses allocable thereto, of a
highly compensated participant whose contribution percentage is determined
under the family aggregation rules described in Section 2.30.3 of the plan
shall be allocated among the family members in proportion to the Company
matching contributions and any elective deferrals treated as matching
contributions of each family member that are combined pursuant to the
provisions of Section 2.17 of the plan in order to determine the contribution
percentage for the group. Income or loss allocable to the participant's share
of the excess aggregate contribution shall not include income or loss for the
period between the end of the plan year and the date of distribution.
Forfeitures of excess aggregate contributions shall reduce the amount of
Company matching contributions which the Company otherwise is obligated to make
pursuant to this Section 3.2. Distributions to participants of excess aggregate
contributions may be made notwithstanding any other provision of the plan or
Code. The amount of any excess aggregate contribution shall be treated as an
annual addition for purposes of Section 3.6 for the plan year in which such
excess aggregate contribution was made.
3.2.4 Forfeiture of Company matching contributions: Notwithstanding
anything to the contrary in the plan, if all or part of a participant's salary
reduction contribution is treated as an excess contribution, an excess elective
deferral or an excess aggregate contribution, the Company matching contribution
made with respect to such salary reduction contribution, adjusted for income
and losses allocable thereto and which is not distributed or forfeited in order
to enable the plan to comply with one of the tests set forth in Section
3.2.2(A), shall be forfeited by the participant on or before the December 15
next following the end of the plan year for which the Company matching
contribution was made (the "forfeiture date"). The income or loss allocable to
the forfeited Company matching contribution for the plan year of such Company
matching contribution shall be determined by multiplying the amount of the
income or loss allocable to the participant's Company matching contributions
for such plan year by a fraction the numerator of which is the forfeited
matching contribution for such plan year, and the denominator of which is equal
to the sum of: (i) the balance in the participant's Company matching
contribution account as of the beginning of such plan year; and (ii) the
Company matching contributions made on behalf of the participant for such plan
year. Forfeitures of matching contributions (including income and losses
allocable thereto) shall be applied in the current or next succeeding plan year
to reduce the amount of the Company matching contribution which the Company is
otherwise obligated to make pursuant to this Section 3.2.
3.3 Multiple Use: If multiple use of the alternative limitation
(as defined in Section 1.401(m)-2 of the Treasury Regulation) exists with
respect to any plan year, the Committee shall reduce the contribution
percentage of each highly compensated participant, by applying the
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leveling method described in Section 3.2.3 of the plan. In the alternative,
the Committee may correct multiple use by making supplemental Company
contributions to the plan in accordance with Sections 3.1.4(iii)(b) and
3.1.5(ii) or by using any other method permitted by the Secretary of the
Treasury.
3.4 Company discretionary Contributions: Subject to the
requirements of Section 7.8, the Company may contribute to the trust for each
plan year such amount as the Board shall determine in its discretion. The
Company discretionary contribution may be made in cash or Company stock, or
partly in cash and partly in Company stock, except to the extent such
contribution is required to be in cash to comply with Section 7.8. Company
discretionary contributions for a plan year may be paid during the plan year or
following the plan year on a date not later than the due date for filing the
Company's federal income tax return, including any extension of such due date.
3.5 Allocation of Company discretionary contributions: The portion
of the Company discretionary contribution for a plan year that is not applied
to make principal and interest payments under an acquisition loan (the "balance
of the Company contribution") shall be allocated to active participants
pursuant to this Section 3.5. Subject to the provisions of Sections 3.6 and 18,
as of each year-end adjustment date the Company discretionary contribution
account of each active participant shall be credited with that proportion of
the balance of the Company contribution for the plan year ending on the
year-end adjustment date as the amount of his compensation with respect to such
plan year bears to the total of the compensation of all active participants
with respect to such plan year. If the balance of the Company contribution
consists of cash and Company stock, a separate allocation under this Section
3.5 shall be made with respect to such cash and Company stock. Financed shares
shall be allocated to the Company stock accounts of participants according to
the method provided in Section 7.6 as the financed shares are released from the
suspense account in the manner provided in Section 7.6.
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3.6 Limitations on allocations: In administering the plan, the following
provisions shall apply:
3.6.1 Subject to the provisions of Sections 3.6.3, 3.6.4, 3.6.5 and
3.6.6, in no event shall the sum of the annual additions (as defined in Section
3.6.4) to the accounts of a participant for any limitation year (as defined in
Section 3.6.4) beginning on or after January 1, 1987 under this plan and any
other defined contribution plan (as defined in Section 3.6.4) of the Company
exceed in the aggregate the lesser of: (a) $30,000 (or, if greater, 25 percent
of the defined benefit dollar limitation described in Section 415(b)(1)(A) of
the Code), referred to herein as the "dollar limitation," or (b) 25 percent of
such participant's statutory compensation received during the limitation year,
referred to herein as the "statutory compensation limitation." The amount of
the dollar limitation shall be adjusted in accordance with the Code to reflect
increases in the cost of living. If the limitations provided in this Section
3.6.1 would be exceeded for any limitation year with respect to any
participant, any required reduction in the annual addition to his account under
this plan shall be made as provided in Section 3.6.2.
3.6.2 If, as a result of the allocation of forfeitures, an error in
estimating a participant's statutory compensation, or other limited facts and
circumstances, the dollar limitation or the statutory compensation limitation
set forth in Section 3.6.1 would be exceeded for any limitation year, such
excess with respect to a participant for such limitation year shall be disposed
of in the following order:
(i) Any salary reduction contributions to the extent of
such excess shall be returned to the participant; provided, that in no
event shall salary reduction contributions be distributed pursuant to
this paragraph (i) to a participant who is a highly compensated
employee. Any excess with respect to such a participant shall be
disposed of in the manner described in paragraph (ii) of this Section
3.6.2.
(ii) If further reductions are necessary, then such
participant's share of the Company contribution (other than salary
reduction contributions) for the limitation year shall be reduced to
the extent of such remaining excess; provided, that any such reduction
shall be made first to such participant's share of the Company
contribution made in cash and then to such participant's share of the
Company contribution made in Company stock. The amount of the
reduction shall be reallocated among the remaining participants in the
ratio that each such participant's statutory compensation during the
limitation year in question bears to the aggregate statutory
compensation of all such participants during such limitation year and
before any salary reduction contributions or Company contributions for
such limitation year are allocated. If all of the amount of such
reduction with respect to the participant and the amount of any
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<PAGE> 36
reduction with respect to any other participant cannot be reallocated
without causing the account of each other participant to exceed the
dollar limitation or the statutory compensation limitation, then such
amount shall be credited to a separate account, designated as the
"limitation account."
(iii) The limitation account shall contain the excess
amounts of Company contributions from all limitation years. Such
excess amounts shall be allocated for each succeeding limitation year
among the accounts of participants in the ratio that each such
participant's statutory compensation for the limitation year in
question bears to the aggregate statutory compensation of all such
participants during such limitation year and before any nondeductible
employee contributions or Company contributions for such year are
allocated. The limitation account shall not share in the valuation of
the accounts and the allocation of earnings. Any earnings attributable
to the limitation account shall be treated as earnings of the trust and
allocated to the accounts as provided in Section 9. The limitation
account shall be adjusted annually for additions thereto and
distributions therefrom. if the plan is terminated, any balance in the
limitation account shall be returned to the Company.
3.6.3 If at any time a participant is a participant in the plan and
in a defined benefit plan (as defined in Section 3.6.4) of the Company, in no
event shall the sum of the defined benefit fraction (as defined in this Section
3.6.3) and the defined contribution fraction (as defined in this Section 3.6.3)
for any limitation year exceed 1.O. For purposes of this Section 3.6.3, and
except as otherwise provided in this Section 3.6, the "defined benefit
fraction" for any limitation year of a defined benefit plan shall be a fraction
the numerator of which is the projected annual benefit of the participant under
the defined benefit plan (as determined as of the close of such limitation
year), and the denominator of which is the lesser of (i) the product of 1.25
and the dollar limitation in effect for defined benefit plans for such
limitation year (referred to herein as the "defined benefit dollar
limitation"), and (ii) the product of 1.4 and 100 percent of the participant's
average annual statutory compensation for the period of 3 consecutive calendar
years (or the actual number of consecutive years of employment with the Company
if the participant was employed by the Company for less than 3 consecutive
years) which will produce the highest average (referred to herein as the
"defined benefit statutory compensation limitation"). The "defined
contribution fraction" for any limitation year of the plan shall be a fraction
the numerator of which is the sum of the annual additions to the participant's
accounts under the plan and all other defined contribution plans maintained by
the Company through the close of such limitation year, and the denominator of
which is the sum of the lesser of (A) or (B) for such limitation year and for
each prior limitation year during which the participant was an employee of the
Company (regardless of whether a plan was in existence during those years),
where (A) is the product of 1.25 and the dollar limitation in effect for such
limitation year (determined without regard to Section 415(c)(6) of the Code),
and (B) is the product of 1.4 and the statutory
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compensation limitation for the limitation year. If the limitation provided in
this Section 3.6.3 would be exceeded for any limitation year, the reduction in
the sum of the defined benefit fraction and the defined contribution fraction
necessary to comply with the limitation shall be made in the defined
contribution fraction and any reductions in the annual addition to the account
of any participant shall be made in accordance with Sections 3.6.1 and 3.6.2.
3.6.4 For the purpose of applying the rules of this Section 3.6, the
following provisions shall apply: (a) all defined benefit plans of the Company
shall be considered as a single plan, and all defined contribution plans of the
Company shall be considered as a single plan; (b) "defined contribution plan"
means a plan, including this plan, which provides for an individual account for
each participant and for benefits based solely on the amount contributed to the
participant's account and any income, expenses, gains and losses, and
forfeitures of accounts of other participants that are allocated to such
participant's account; and "defined benefit plan' means any plan that is not a
defined contribution plan; provided, that only plans described in Section
415(k)(1) of the Code shall be included within the definition of a defined
contribution plan or a defined benefit plan, as the case may be; (c) any
affiliated employer shall be considered to be the Company; provided, that for
purposes of this Section 3.6, the determination of the members of a controlled
group of employers and employers under common control pursuant to Sections
414(b) and (c) of the Code shall be made by substituting the phrase "more than
50 percent" for the phrase "at least 80 percent" where it appears in such Code
sections; (d) "projected annual benefit" shall mean the annual normal
retirement benefit payable in the form of a straight life annuity (with no
ancillary benefits) to which a participant would be entitled under the terms of
the defined benefit plan if the following factors are assumed: (i) the
participant will continue employment with the Company until he reaches social
security retirement age (or until his then current age, if he has previously
reached social security retirement age); (ii) the participant's compensation
for the limitation year will remain the same until the date the participant
attains social security retirement age; and (iii) all other relevant factors
used to determine benefits under the defined benefit plan for the limitation
year will remain constant for all future limitation years; (e) the "limitation
year" shall be the plan year; (f) "annual addition" with respect to any
limitation year means the sum of the following items allocated on behalf of a
participant: (i) Company contributions, including such contributions used to
repay an acquisition loan; (ii) all forfeitures; (iii) nondeductible employee
contributions (nondeductible employee contributions shall be considered made
with respect to a particular plan year if such contributions actually are made
by the participant during such plan year or within 30 days after the close of
such plan year); (iv) amounts allocated after March 31, 1984 to an individual
medical account, as defined in Section 415(l) of the Code, which, for any plan
year beginning on or after such date, is part of a pension or annuity plan
maintained by the Company; (v) amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years ending after such date, that
are attributable to post-retirement medical benefits allocated to the separate
account of a key employee, as defined in Section 419A(d) of the Code, under a
welfare benefit fund, as defined in Section 419(e) of the Code, maintained by
the Company; provided, that the following
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are not "annual additions": (1) transfers of funds from one qualified plan to
another; (2) rollover contributions (as defined in Sections 402(a)(5)
(effective January 1, 1993, 402 (c), 403(a)(4), 408(d)(3) and 403(b)(8) of the
Code); (3) repayments of loans made to a participant from the plan; (4)
repayments of distributions received by an employee pursuant to Section
411(a)(7)(B) of the Code; (5) repayments of distributions received by an
employee pursuant to Section 411(a)(3)(D) of the Code (mandatory
contributions); (6) employee contributions to a simplified employee pension
allowed as a deduction under Section 219(a) of the Code; and (7) deductible
employee contributions to a qualified plan; and (g) notwithstanding anything in
this Section 3.6 to the contrary, the limitations, adjustments and other
requirements prescribed in this Section 3.6 shall at all times comply with
Section 415 of the Code and the regulations thereunder.
3.6.5 If, for any limitation year, no more than one-third of the
Company contribution that is deductible as a principal or interest payment on
an acquisition loan pursuant to the provisions of Section 404(a)(9) of the Code
is allocated to the accounts of highly compensated employees, then the annual
addition for such limitation year shall not include Company contributions that
are deductible under Section 404(a)(9)(B) of the Code as interest payments on
an acquisition loan and charged against the participant's account.
3.7 General Limitations: In no event shall the Company contribute
an amount (including salary reduction contributions, Company matching
contributions and Company discretionary contributions) for any limitation year
(as defined in Section 3.6) which would cause the annual addition limitations
in Section 3.6 to be exceeded. Each contribution to the plan by the Company is
conditioned on being deductible under Section 404 of the Code for the plan year
for which such contribution is made. The initial contribution to the plan is
conditioned on the plan being qualified under Section 401(a) of the Code.
Section 4. Retirement, Termination of Service:
4.1 Normal retirement: A participant in service may retire from
service at his normal retirement date. Subject to an election made pursuant to
Section 5.1.1, the value of the participant's vested accrued benefit shall be
determined as of the adjustment date coincident with or next following the
participant's normal retirement date and shall be paid to the participant at
such time and in such manner as provided in Section 5.
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4.2 Delayed retirement: If a participant remains in service
following his normal retirement date, his delayed retirement date shall be the
date he actually terminates service for reasons other than death. Subject to
an election made pursuant to Section 5.1.1 and the provisions of Section 5.1.2,
the value of the participant's vested accrued benefit shall be determined as of
the adjustment date coincident with or next following the date the participant
terminates service and shall be paid to the participant at such time and in
such manner as provided in Section 5.
4.3 Disability retirement: If a participant in service suffers
disability, he shall retire as of the date of establishment of his disability
(the "disability retirement date"). Subject to an election made pursuant to
Section 5.1.1 and the provisions of Section 5.3.4, the value of the disabled
participant's vested accrued benefit shall be determined as of the adjustment
date coincident with or next following the disability retirement date and shall
be paid to the participant at such time and in such manner as provided in
Section 5. For purposes of the plan, "disability" means the inability, by
reason of any medically determinable physical or mental impairment that can be
expected to result in death or to be of long continued or indefinite duration,
of the participant to perform his regular duties with the Company or any other
duties which the Company is willing to assign him. The determination of the
existence or nonexistence of disability shall be made by the Committee in a
nondiscriminatory manner pursuant to an examination by a medical doctor
selected or approved by the Committee. The determination of the Committee
shall be binding and conclusive upon the Company, the participant and all other
interested persons.
4.4 Death: If a participant dies, his vested accrued benefit shall
be paid to his beneficiary pursuant to the provisions of Section 5.2.
4.5 Termination of service:
4.5.1 If a participant who is not eligible to retire shall not be in
service as of any adjustment date, his vested accrued benefit shall be
determined pursuant to Section 6 as of such adjustment date. Except as
otherwise provided in
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Sections 4.5.2, 4.5.3 and 5, such vested accrued benefit shall be held under
the plan for future payment until the earlier of his normal retirement date or
the date of his death, whereupon it shall be paid to him or his beneficiary, as
the case may be, in the same manner as if he were an active participant at the
time of his normal retirement date or death. The amount of his vested accrued
benefit which shall be held for him under this Section 4.5.1 shall be set aside
in a special account (his "deferred payment account") in which such participant
shall remain fully vested at all times. The deferred payment account shall be
adjusted as of each adjustment date as provided in Section 9 and shall be
included in his vested accrued benefit for purposes of distribution from the
plan.
4.5.2 Notwithstanding the provisions of Section 4.5.1, if the vested
accrued benefit of the participant does not exceed $3,500 as of the adjustment
date next following the date he terminates service (the "termination adjustment
date") and has never exceeded $3,500 as of the date of any prior distribution
from the plan, his vested accrued benefit as of the termination adjustment date
shall be paid to him as soon as practicable following such adjustment date.
4.5.3 Notwithstanding the provisions of Section 4.5.1, and subject to
the provisions of Section 5, a participant who does not receive a distribution
of his vested accrued benefit pursuant to Section 4.5.2, may elect to receive
his vested accrued benefit as of the termination adjustment date. The plan
administrator shall notify the participant of his rights under this Section
4.5.3 no less than 30 days and no more than 90 days prior to the termination
adjustment date. Such notification shall include a general description of the
participant's right to elect to receive his vested accrued benefit as of the
termination adjustment date and the options available to the participant with
respect to the form of payment of his vested accrued benefit. Such election
shall be submitted in writing to the Committee within the 90 day period ending
on the termination adjustment date, or, if later, on or before the 30th day
after the participant receives notice of his rights under this Section 4.5.3.
Such election shall be irrevocable on such date, except that such election shall
be disregarded if such participant shall be in service on the date payment of
such benefit is to be made. The manner of payment of the vested accrued benefit
shall be determined under Section 5.1, treating for this purpose the
termination adjustment date as if it were the normal retirement date of the
participant.
4.5.4 If a participant becomes entitled to receive a distribution of
his vested accrued benefit pursuant to Sections 4.5.2 or 4.5.3, see Section 19
for special rules that allow the participant to elect to have such distribution
transferred directly by the Trustee to the trustee or custodian of an eligible
retirement plan (as defined in Section 19.1.2). If a distribution is made
pursuant to Sections 4.5.2 or 4.5.3 to a participant before he attains age 55,
such participant shall be advised by the plan administrator that an additional
income tax may be imposed in an amount equal to 10 percent of the portion of
the amount so received which is included in his gross income for such taxable
year.
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4.5.5 If a distribution is one to which Sections 401(a)(11) and 417
of the Code do not apply, such distribution may commence less than 30 days
after the notice required under Section 1.411(a)-11(c) of the Income Tax
Regulations is given, provided that (i) the plan administrator clearly informs
the participant that the participant has a right to a period of at least 30
days after receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution option),
and (ii) the participant, after receiving the notice, affirmatively elects a
distribution.
4.6 Pretermination distributions:
4.6.1 Hardship distributions: A participant may file a written
request with the Committee for a distribution from his salary reduction
contribution account because of hardship. A distribution will be on account of
hardship only if the distribution is on account of an immediate and heavy
financial need of the participant and is necessary to satisfy such financial
need. The request must specify the nature of the hardship, the total amount
requested, and the total amount of the actual expense incurred or to be incurred
on account of the hardship. Subject to the provisions of this Section 4.6, the
Committee in its discretion shall determine whether a hardship constitutes an
immediate and heavy financial need, and its decision to grant or deny a hardship
distribution shall be final. If the Committee determines that a hardship
exists, the Committee shall direct the Trustee to make a distribution to the
participant in cash from his salary reduction contribution account of the amount
approved by the Committee. The amount available for such distribution shall be
determined as of the adjustment date coincident with or next preceding receipt
by the Trustee of such direction from the Committee and shall not exceed the
amount in the participant's salary reduction contribution account as of such
adjustment date (reduced by any previous hardship distribution not reflected as
of such adjustment date), excluding income credited to such account and
supplemental Company contributions credited to such account. A distribution
will be deemed to be on account of an immediate and heavy financial need of the
participant if the distribution is for:
(i) Expenses for medical care described in Section 213(d)
of the Code previously incurred by the participant, the participant's
spouse or any dependent of the participant (as defined in Section 152
of the Code), or expenses necessary for such persons to obtain such
medical care;
(ii) Costs directly related to the purchase (excluding
mortgage payments) of a principal residence for the participant;
(iii) Payment of tuition and related educational fees for
the next 12 months of post-secondary education for the participant,
the participant's spouse or any dependent of the participant; or
35
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(iv) The need to prevent eviction of the participant from
his principal residence, or foreclosure on the mortgage of the
participant's principal residence.
A hardship distribution shall not be made in excess of the amount of the
immediate and heavy financial need of the participant. The amount of the
immediate and heavy financial need of the participant may include any amounts
necessary to pay any federal, state or local income taxes or penalties
reasonably anticipated to result from the receipt of the hardship distribution.
The following special provisions shall apply to all hardship distributions:
(a) No hardship distribution shall be made until the
participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans currently available under all
tax-qualified retirement plans of the Company;
(b) The participant's salary reduction contributions under
the plan and, except as otherwise provided in Regulation Section
1.401(k)-1(d)(2)(iv)(B)(4), all other qualified and nonqualified plans
of deferred compensation maintained by the Company, shall be suspended
for a period of 12 months following receipt of the hardship
distribution. Any election to resume salary reduction contributions
must be made in writing and delivered to the Committee at least 10 days
prior to the date as of which the participant wishes salary reduction
contributions to resume; and
(c) The participant may not make salary reduction
contributions for his taxable year immediately following the taxable
year of the hardship distribution in excess of the applicable limit
under Section 402(g) of the Code for such next taxable year, reduced
by the amount of his salary reduction contributions for the taxable
year of the hardship distribution.
(d) Any distribution made pursuant to this Section 4.6
shall be withdrawn from the participant's fund accounts (as defined in
Section 7.1.1) with respect to his salary reduction contribution
account on a pro-rata basis.
If a participant's termination of service occurs after a request for a hardship
distribution is approved in accordance with the provisions of this Section
4.6.1 but prior to distribution, such approval shall be void, and the accrued
benefit of such participant shall be payable hereunder as if such approval had
not been made. The Committee from time to time may adopt additional uniform
and nondiscriminatory policies or rules to assist in the administration of
hardship distribution requests, including, but not limited to, establishing
limits on the maximum number of hardship distributions that may be requested by
the plan participants during a plan year.
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4.6.2 Distributions after age 59 1/2: By written request to the
Committee, a participant who has attained age 59 1/2 may withdraw from his
salary reduction contribution account an amount not in excess of the balance of
such account determined as of the adjustment date coincident with or next
preceding the date of such withdrawal. The minimum amount of withdrawal under
this Section 4.6.2 shall be the lesser of: (i) $500, or (ii) the balance in the
participant's salary reduction contribution account.
Section 5. Payment of Benefits:
5.1 Payment of benefit for reasons other than death: As of the
close of business of the plan on the adjustment date coincident with or next
following the date a participant retires, or as of such later adjustment date
as the participant elects pursuant to Section 5.1.1, his vested accrued
benefit, determined as of such adjustment date, shall be paid to him in a lump
sum. The following provisions shall apply for purposes of this Section 5.1.
5.1.1 Unless a participant files an election pursuant to
this Section 5.1.1 to defer the payment of his vested accrued benefit,
such payment must be made within 60 days following the later of the
year-end adjustment date for the plan year in which the participant:
(i) attains normal retirement age, or (ii) retires or otherwise
terminates service. In the event that, within the applicable 60-day
period, the amount of the payment to be made cannot be determined or
the recipient thereof cannot be located after a reasonable effort has
been made to locate him, payment retroactive to the close of such
60-day period shall be made within 60 days after the amount has been
determined or the recipient located, whichever applies. Subject to
the provisions of Section 5.1.2, prior to the year-end adjustment date
as of which payment of a participant's vested accrued benefit is to be
made, the participant may elect to defer payment thereof to a
subsequent adjustment date, including an adjustment date following the
later of (i) or (ii) above. Such election shall be filed in writing
with the Committee prior to the year-end adjustment date as of which
payment of his vested accrued benefit otherwise would be made. Such
election may be revoked or changed as of any adjustment date between
the date filed and the adjustment date to which payment is deferred by
filing a written revocation or change with the Committee prior to the
adjustment date as of which the revocation or change is to be
effective.
5.1.2 A participant's vested accrued benefit must be
distributed or begin to be distributed no later than April 1 of the
calendar year following the year in which the participant has attained
age 70 1/2. Unless a participant who has attained age 70 1/2 files an
election pursuant to this Section 5.1.2 for his vested accrued benefit
to be distributed to him in a single lump sum payment, the amount
distributed to such participant with respect to any calendar year
(including the calendar year in which the participant attains age 70
1/2) shall be equal to the minimum distribution amount for
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such calendar year. The "minimum distribution amount" and the time
and manner of such distribution shall be determined pursuant to
Section 401(a)(9) of the Code, and the Treasury Regulations (including
Proposed Treasury Regulations) issued thereunder, which are
incorporated herein by reference. Notwithstanding the foregoing, a
participant who has attained age 70 1/2 may elect at any time to
receive his vested accrued benefit in a lump sum payment. Such
election shall specify the date as of which payment of his vested
accrued benefit is to be made (the "lump sum payment date"). Such
election shall be filed in writing with the Committee no later than 30
days prior to the lump sum payment date. Following such lump sum
distribution, the participant shall be paid the amount of any
subsequent allocation to his account as soon as practicable following
the close of the plan year in which occurs the lump sum payment date.
5.2 Payment of death benefit: On the death of a participant, the
following provisions shall apply:
5.2.1 If the participant dies before distribution of his vested
accrued benefit is made, his entire vested accrued benefit (determined after
applying Section 6) shall be distributed to his beneficiary in a lump sum as of
the adjustment date coincident with or next following the participant's date of
death.
5.2.2 A participant's beneficiary shall be his surviving spouse, if
any; provided, that if he has no surviving spouse or files a qualified election
(as defined in this Section 5.2.2) with the Committee, the participant may
designate another beneficiary (which may include more than one person, natural
or otherwise, and more than one contingent beneficiary). A "qualified election"
means a beneficiary designation by the participant on a form provided by the
Committee, which contains a consent and acknowledgment of the effect of such
consent executed by the participant's spouse and witnessed by a representative
of the Committee or a notary public. Consent of the spouse shall not be
required if the spouse cannot be located or other circumstances exist which
excuse obtaining spousal consent under applicable law or regulation. A
participant's qualified election may be revoked at any time by action of the
participant alone, in which case the participant's spouse shall be the
beneficiary. Any other change in beneficiary must be made pursuant to a new
qualified election. If a participant fails to designate a beneficiary (other
than his surviving spouse), the death benefit shall be payable to the
participant's estate. If a beneficiary is entitled to receive a payment from
the trust Fund and dies before receiving the payment due him, the payment shall
be made to the contingent beneficiary, or, if there is no contingent
beneficiary, to the estate of the beneficiary. Any beneficiary may disclaim
part or all of any benefit to which he is entitled by filing a written
disclaimer with the Committee at least 10 days before payment of such benefit is
to commence, in a form satisfactory to the Committee and shall be irrevocable
when filed. Any benefit disclaimed shall be payable as if the beneficiary who
filed the disclaimer had died on the date of such filing.
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5.3 Distribution requirements and definitions: All distributions
under Section 5 shall be determined and made in accordance with Section
401(a)(9) and 409(o) of the Code, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Treasury Regulations, which
are incorporated herein by reference. The following provisions shall apply for
purposes of the distribution requirements:
5.3.1 Notwithstanding any other provision of the plan, if
the vested accrued benefit of a participant does not exceed $3,500 as
of the adjustment date coincident with or next following his date of
retirement, then his vested accrued benefit shall be paid to him in a
lump sum as of such adjustment date without regard to any election
made by the participant or any consent of the participant.
5.3.2 If the vested accrued benefit of any individual is
being held in the trust for future payment to him, his account shall
continue to be adjusted as of each adjustment date as provided in
Section 9.
5.3.3 All rights and benefits, including elections,
provided to a participant shall be subject to the rights afforded to
an "alternate payee" under a "qualified domestic relations order" as
those terms are defined in Section 414(p) of the Code.
5.3.4 Subject to the provisions of Section 14.1, any
distribution to a participant who has a vested accrued benefit which
exceeds $3,500, or has ever exceeded $3,500 as of the date of any
prior distribution from the plan, shall require the participant's
consent if such distribution is to be made prior to the participant's
attainment of normal retirement age.
5.3.5 If a participant or his surviving spouse becomes
entitled to receive a distribution pursuant to the provisions of this
Section 5, see Section 19 for special rules that allow the participant
or his surviving spouse, as the case may be, to elect to have such
distribution transferred directly by the Trustee to the trustee or
custodian of an eligible retirement plan (as defined in Section
19.1.2).
5.4 Medium of payment; Put option; Right of first refusal;
Valuation of Company stock: All payments under the plan to a participant or his
beneficiary, the donees of either, or a person (including an estate or its
distributees) to whom the Company stock passed on account of death of the
participant or beneficiary (the "recipient") shall be subject to the following
requirements:
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5.4.1 Medium of payment: All payments under the plan shall be made
in cash unless a participant or beneficiary elects payment in Company stock or
partly in cash and partly in Company stock. Any election to receive payments
in the form of Company stock may be made only by the participant or beneficiary
in writing on a form provided by the Committee on or before the year-end
adjustment date as of which payments are to be made to the recipient. An
election shall be revocable in writing at any time up to such year-end
adjustment date, at which time such election shall be irrevocable. The number
of shares of Company stock, if any, and the amount of cash, if any,
distributable to any recipient shall be determined as of such year-end
adjustment date. Any portion of a payment that would be represented by a
fractional share shall be paid in cash irrespective of an election to receive
payment in the form of Company stock. Notwithstanding anything in this Section
5.4.1 to the contrary, the right of a participant or beneficiary to elect
payment in Company stock shall not apply to that portion of the participant's
account that he previously elected to reinvest as provided in Section 9.8.
5.4.2 Put option: If Company stock is not readily tradable on an
established market or is subject to a trading limitation when distributed, all
Company stock distributed pursuant to Sections 4 and 5 shall be subject to a
"put" option, which is exercisable by the recipient. The put option shall
provide that the recipient may sell all or any part of such Company stock to
the Company on any regular business day within one of two option periods. The
first option period shall be the 60-day period next following the date
distribution of such shares is made to the recipient. The second option
period, which shall apply if the put option is not exercised in the first
option period, shall be the 60-day period next following the year-end
adjustment date for the plan year in which distribution of such Company stock
occurred. Such put option shall be exercised by tendering the Company stock
for sale to the Company within the applicable option period in accordance with
procedures established by the Committee. The sales price for such Company
stock shall be the fair market value thereof determined pursuant to Section
5.4.4. Notwithstanding the foregoing provisions of this Section 5.4.2, the
following provisions shall apply:
(i) At the request of the Committee and with the consent
of the Company, the trust may assume the obligation of the Company to
purchase Company stock pursuant to the exercise of any put option.
(ii) The sales price for Company stock sold to the trust
or Company shall be paid in a lump sum within 30 days after exercise
of the put option; provided, that if the accrued benefit of a
participant is distributed as part of a total distribution (as defined
in Section 409(h)(5) of the Code), such sales price, at the option of
the party repurchasing the Company stock, may be paid in equal (or
substantially equal) monthly, quarterly or annual installments for a
period beginning not later than 30 days after the exercise of the put
option and not exceeding 5 years. Any deferred portion of the sales
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price shall bear a reasonable rate of interest and be adequately
secured.
(iii) Either option period shall be extended by any time
within such option period during which a recipient is unable to
exercise the put option because the Company is prohibited by
applicable federal or state law from fulfilling its obligations
hereunder.
(iv) If Company stock that is readily tradable on an
established market without restrictions when distributed ceases to be
readily tradable after distribution and within the applicable option
period, the Company stock shall be subject to the put option for the
remainder of the applicable option period. The Company must notify
the recipient of such Company stock in writing on or before the 10th
day after the date Company stock ceases to be readily tradable on an
established market. The number of days between the 10th day and the
date on which notice actually is given, if later than the 10th day,
shall be added to the duration of the applicable option period. The
notice shall inform the recipient of the terms of the put option.
For purposes of this Section 5.4.2, the term "trading limitation" refers to a
restriction on a security under any federal or state securities law, any
regulation thereunder, or an agreement (other than a right of first refusal
described in Section 5.4.3) affecting the security which would make the
security not as readily tradable as a security not subject to such restriction.
5.4.3 Right of first refusal: If any recipient shall desire to sell,
transfer (by gift or otherwise), encumber or otherwise dispose of any Company
stock during his lifetime, and the Company stock is not then readily tradable
on an established market, the recipient shall first offer in writing to the
Committee to sell all of such stock to the trust. The Committee shall
communicate such offer to the Trustee and the Company. If the Committee
desires for the trust to purchase all or a part of such stock, it shall direct
the Trustee to carry out such purchase for the trust. If the trust does not
purchase all of such stock within 14 days after receipt of such offer, the
Company may purchase all or a part of such stock not so purchased within such
14-day period. If the Company does not purchase all of the stock within such
time period, the stock not so purchased may be sold, transferred, encumbered or
otherwise disposed of free from the restrictions of this Section 5.4.3 for 30
days following the close of the 14-day period. After the close of such 30-day
period, the restrictions of this Section 5.4.3 again shall apply to any of the
Company stock not so sold, transferred, encumbered or otherwise disposed of.
If any Company stock is encumbered or otherwise disposed of for a temporary
period, and the recipient of such stock under the plan receives all or a
portion of such stock back at or after the close of such temporary period, such
stock again shall be subject to the restrictions of this Section 5.4.3. The
purchase price of each share of Company stock purchased hereunder shall be the
fair market value thereof as determined by the Committee
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pursuant to Section 5.4.4 but in no event less than the amount of any good
faith (as determined by the Committee) and then outstanding offer received by
the recipient desiring to dispose of the stock (other than an offer made by the
Company or the Trustee). The purchase price of any Company stock purchased in
accordance with this Section 5.4.3 shall be paid in full in cash at the time of
the closing. The closing shall take place at such time and place agreed upon
between the Committee and the recipient, but not later than 10 days after the
Company or the Trustee notify such recipient of the exercise of the right of
first refusal. At the closing, the recipient shall deliver certificates
representing the offered Company stock duly endorsed in blank for transfer, or
with stock powers duly executed in blank with all required transfer tax stamps
attached or provided for, and the Company or the Trustee shall deliver the
purchase price. Shares of Company stock which are readily tradeable on an
established market at the time the right of first refusal may be exercised by
the Company and the Trustee shall not be subject to the provisions of this
Section 5.4.3.
5.4.4 Valuation of Company stock: Subject to the provisions of
Section 5.4.3, all purchases of Company stock by the trust shall be made at a
price not in excess of fair market value. All sales of Company stock by the
trust shall be made at a price not less than fair market value. Any sale of
Company stock to a disqualified person (as defined in Section 4975(e)(2) of the
Code) or a party-in-interest (as defined in Section 3(14) of ERISA) shall
conform to the requirements of Section 408(e) of ERISA. For all purposes of
the plan, the fair market value of Company stock shall be determined by the
Committee in good faith. If there is a generally recognized market for Company
stock, the fair market value shall be either (i) the price of the Company stock
prevailing on a national securities exchange which is registered under Section
6 of the Securities Exchange Act of 1934; or (ii) if the Company stock is not
traded on such an exchange, a price not less favorable to the plan than the
offering price for the Company stock established by the current bid and asked
prices quoted by persons independent of the Company and any party-in-interest
or disqualified person. If there is no generally recognized market for Company
stock, the determination of fair market value by the Committee shall be based
on a valuation by an independent appraiser appointed by the Committee. Such
appraiser must meet the requirements of the regulations prescribed under
Section 401(a)(28)(C) of the Code, or, in the absence of such regulations,
requirements similar to the requirements of the regulations prescribed under
Section 170(a)(1) of the Code. In the case of a transaction between the plan
and a disqualified person or a party-in-interest, fair market value shall be
determined as of the date of the transaction. For all other purposes, fair
market value shall be determined as of the year-end adjustment date coincident
with or next preceding the date of the transaction.
5.4.5 Continuation of rights or put option: The rights and put
option provided in this Section 5 shall be nonterminable and continue to apply
to Company stock purchased with the proceeds of an acquisition loan or
distributed under the plan notwithstanding repayment of an acquisition loan or
any amendment or termination of the plan that causes the plan to cease to be an
employee stock ownership plan within the meaning of Section 4975(e)(7) of the
Code.
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\
5.5 Legend: If recommended by legal counsel for the Company,
certificates representing ownership of Company stock distributed from the plan
shall bear an appropriate legend approved by such counsel to ensure that
Company stock is issued in compliance with all applicable federal and state
securities laws.
5.6 Directions: The Committee shall notify the Trustee of a
participant's retirement, death or termination of service and shall direct the
Trustee to make a distribution to the person or persons entitled thereto from
the trust at such time and in such manner as required by the provisions of
Sections 4 and 5.
Section 6. Vesting:
The accrued benefit of each participant shall be fully vested
at all times.
Section 7. Acquisition Loans:
At the direction of the Committee, the Trustee from time to
time shall obtain acquisition loans to finance the acquisition of Company
stock or repay a prior acquisition loan, subject to the following provisions:
7.1 Terms: An acquisition loan shall be arranged
primarily in the interest of the participants and their beneficiaries, and the
terms thereof at the time of the loan shall be at least as favorable to the
trust as the terms of a comparable loan resulting from arm's length
negotiations between independent parties. The interest rate of the loan may
not exceed a reasonable rate of interest, and the loan shall be for a specific
term. The number of years to maturity under the loan must be definitely
ascertainable at all times.
7.2 Use of proceeds: Within a reasonable time following
receipt of the proceeds of an acquisition loan by the trust, but in no event
later than 60 days after the receipt thereof, such proceeds shall be used for
one or more of the following purposes: (i) to acquire Company stock;
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(ii) to repay the loan; or (iii) to repay a prior acquisition loan which was
made in compliance with the requirements of this Section 7. Financed shares
shall be credited to the suspense account pending the release and allocation of
such shares to the Company stock accounts of participants as the acquisition
loan is repaid.
7.3 Collateral: An acquisition loan shall be without
recourse to the trust. The only assets of the trust that may be given as
collateral for an acquisition loan are the financed shares acquired with the
proceeds of the loan or a prior acquisition loan which was repaid with the
proceeds of the current acquisition loan. Any pledge of financed shares must
provide for the release of such shares in the manner described in Section 7.6
as payments on the acquisition loan are made by the Trustee. Except as
otherwise provided in Section 18, any such released shares shall be allocated
to the Company stock accounts of participants as provided in Sections 7.8 and
9.2.
7.4 Available assets; Payments: No person entitled to
payments with respect to an acquisition loan shall have any right to assets of
the trust except for: (i) collateral given for the loan; (ii) contributions
(other than in the form of Company stock) made by the Company to meet the
obligation to repay the loan and any investments purchased with such
contributions; (iii) trust earnings attributable to amounts specified in (i)
and (ii) immediately preceding; and (iv) subject to the provisions of Section
9.3, cash dividends attributable to allocated or unallocated Company stock.
Payments made with respect to an acquisition loan by the trust during any plan
year may not exceed the aggregate of the amounts specified in (ii), (iii) and
(iv) of this Section 7.4 for all plan years decreased by the aggregate of such
payments for all prior plan years. All Company contributions (other than in
the form of Company stock) made during the plan year in which an acquisition
loan is made (whether before or after the date the proceeds of the loan are
received) and thereafter until the acquisition loan is repaid in full, without
regard to whether any such Company contributions have
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been allocated to the general accounts of participants, shall be available to
meet obligations under the acquisition loan as such obligations accrue, or
prior to the time such obligations accrue, unless otherwise provided by the
Company at the time any such contributions are made. All trust earnings
attributable to investment of Company contributions, without regard to whether
any Company contributions and earnings have been allocated to the general
accounts of participants, and, subject to the provisions of Section 9.3, all
cash dividends attributable to allocated and unallocated Company stock likewise
shall be available for such purpose. The Trustee shall account separately for
the amounts specified in (ii) and (iii) of this Section 7.4 until the
acquisition loan is repaid.
7.5 Default: In the event of a default by the trust with
respect to an acquisition loan, the value of assets of the trust transferred in
satisfaction of the loan may not exceed the amount of the loan (including
accrued and unpaid interest) with respect to which such default occurred. In
the event the lender is a disqualified person or party-in-interest, a transfer
of trust assets upon default may occur only in the event of failure of the
trust to meet the payment schedule of the loan and only to the extent thereof.
No transfer to a guarantor of a loan may be made pursuant to this Section 7.5.
7.6 Suspense account; Release of shares: Any financed
shares (whether or not used as collateral for an acquisition loan) or other
Company stock used as collateral for an acquisition loan shall be held in the
suspense account pending release and allocation of such shares to the Company
stock accounts of participants as provided in this Section 7.6. The release and
allocation thereof shall be determined by the Committee in the following
manner:
7.6.1 If the terms of acquisition loan provide for annual
payments of principal and interest at a cumulative rate not less rapid
at any time than level annual payments of principal and interest over
10 years, then for each plan year during the duration of the loan the
number of shares of Company stock released from the suspense account
shall equal the number of financed shares held immediately before
release in the current plan year multiplied by a fraction. The
numerator of the fraction shall be the principal paid in such plan
year, and the denominator shall be the sum of the numerator plus the
principal to be paid for all future years. Such
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years shall be determined without taking into account any possible
extension or renewal period. For purposes of the above calculation,
interest included in any payment shall be disregarded only to the
extent that it would be determined to be interest under standard loan
amortization tables.
7.6.2 If the terms of the acquisition loan do not comply
with Section 7.6.1, then for each plan year during the duration of
the acquisition loan the number of shares of Company stock released
from the suspense account shall equal the number of financed shares
held immediately before release for the current plan year multiplied
by a fraction. The numerator of the fraction shall be the sum of
principal and interest paid in such plan year, and the denominator
shall be the sum of the numerator plus the principal and interest to
be paid for all future years. Such years shall be determined without
taking into account any possible extension or renewal period. If
interest on any acquisition loan is variable, the interest to be paid
in future years shall be computed by using the interest rate
applicable as of the end of the current plan year. If an acquisition
loan with terms initially complying with Section 7.6.1 later ceases to
comply by reason of a renewal, extension or refinancing of the
acquisition loan, then this Section 7.6.2 shall be applied in
determining the shares released upon payment of any principal or
interest after such date.
If the shares of Company stock held in the suspense account include more than
one class of stock, the number of shares of each class to be released for a
plan year must be determined by applying the same fraction to each class.
Subject to the provisions of Sections 9.3.2 and 18, shares of Company stock
released from the suspense account shall be allocated as of the year-end
adjustment date coincident with or next following such release to the Company
stock accounts of active participants in accordance with the provisions of
Section 3.2.1 with respect to shares released on account of Company matching
contributions and Section 3.5 with respect to shares released on account of
Company discretionary contributions.
7.7 Obligations of the Trustee: The Trustee shall make
payments of principal and interest on an acquisition loan from time to time as
directed by the Committee. Such payments shall be made only from the
following: (a) Company matching contributions or Company discretionary
contributions to the trust made to meet the plan's obligation under an
acquisition loan (other than contributions of Company stock), any cash
dividends on Company stock held as collateral
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for an acquisition loan, and any investments purchased with such contributions
(received both during or prior to the plan year); (b) the proceeds of a
subsequent acquisition loan made to repay a prior acquisition loan; (c) if
there occurs a default under the terms of the acquisition loan, or upon the
sale of Company stock pursuant to a tender offer or cash merger, or upon the
occurrence of such other similar events, the proceeds of the sale of any
Company stock held as collateral for an acquisition loan; and (d) subject to
the provisions of Section 9.3, cash dividends attributable to allocated and
unallocated Company stock. Such contributions and earnings shall be accounted
for separately by the Trustee until the acquisition loan is repaid.
7.8 Obligations of the Company: The Company shall
contribute in cash to the trust as and when needed sufficient amounts to enable
the trust to pay in full when due any principal and interest payments on any
acquisition loan not payable from other sources permitted by the plan. Such
contributions may be made either as Company matching contributions or Company
discretionary contributions or both. If such contributions are insufficient by
reason of the provisions of Section 3.6 to enable the trust to pay principal
and interest on such acquisition loan when due, then upon the Trustee's request
the Company may:
(a) Make a loan to the trust as described in Treasury
Regulation Section 54.4975-7(b)(4)(iii) in a sufficient amount to
meet such principal and interest payments. Such new loan shall meet
all requirements for an acquisition loan as described in this Section
7 and be subordinated to any prior acquisition loan then outstanding.
Company stock released as a result of application of such new loan to
payment of the prior acquisition loan shall be pledged as collateral
to secure the new acquisition loan. Such Company stock shall be
released and allocated to the Company stock accounts of participants
in accordance with Section 7.6;
(b) Purchase any Company stock pledged as collateral in
an amount necessary to provide the Trustee with sufficient funds to
meet the principal and interest payments. Any such sale by the trust
shall meet the requirements of Section 408(e) of ERISA; or
(c) Any combination of the foregoing.
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In applying (a), (b) or (c) immediately preceding, the Company shall not fail
to do or cause to be done any act or thing which would result in a
disqualification of the plan as an employee stock ownership plan under the
Code.
7.9 Restrictions on Company stock: Notwithstanding
repayment of an acquisition loan or any amendment or termination of the plan
that causes it to cease to be a leveraged employee stock ownership plan within
the meaning of Section 4975(e)(7) of the Code, no Company stock acquired with
the proceeds of an acquisition loan shall be subject to a put, call or other
option, or buy-sell or similar arrangement while such stock is held by and when
distributed from the plan, except as provided in Sections 5.4.1 and 5.4.2.
Section 8. Voting and Tendering of Company Stock:
8.1 Voting: The following provisions shall apply with
respect to the voting of Company stock held by the trust:
8.1.1 Class of securities: Subject to the provisions of
Section 8.1.2, if, as of any record date with respect to Company
stock, the Company stock is a registration-type class of securities
(as defined in this Section 8.1.1), each participant and beneficiary
shall be entitled to direct the Trustee with respect to any corporate
matter that involves voting the Company stock allocated to his Company
stock account as of such record date. If the Company stock is not a
registration-type class of securities on the record date, subject to
the provisions of Section 8.1.2, each participant and beneficiary will
generally have no right to direct the Trustee as to the manner in
which shares of Company stock allocated to his Company stock account
will be voted. However, if, as of such record date, the Company stock
is not readily tradeable on an established market and more than 10
percent of the fair market value of the assets of the trust
constitutes securities (including Company stock) issued by the
Company, each participant and beneficiary shall be entitled to direct
the Trustee with respect to any corporate matter that involves the
voting of such Company stock with respect to the approval or
disapproval of any corporate merger or consolidation,
recapitalization, reclassification, liquidation, dissolution, sale of
substantially all of the assets of a trade or business, or such
similar transaction as the Secretary of the Treasury may prescribe by
regulation. For purposes of this Section 8, the term
registration-type class of securities means a class of securities
required to be registered under Section 12 of the Securities Exchange
Act of 1934 or that would be required to be registered except for the
exemption from registration provided in Section 12(g)(2)(H) of such
Act.
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8.1.2 Securities acquisition loan: Notwithstanding the provisions of
Section 8.1.1, if the trust has obtained a securities acquisition loan on or
before any record date with respect to Company stock, each participant and
beneficiary shall be entitled to direct the Trustee with respect to any
corporate matter that involves voting the Company stock acquired with the
securities acquisition loan and allocated to his Company stock account as of
such record date (without regard to whether or not such Company stock is a
registration-type class of securities). Company stock that was not acquired
with the securities acquisition loan shall be voted in accordance with the
provisions of Sections 8.1.1 and 8.1.3. For purposes of this Section 8.1.2,
the term "securities acquisition loan" means an acquisition loan described in
Section 133 of the Code that was obtained by the trust after July 10, 1989
(other than an acquisition loan which was obtained to refinance a pre-July 10,
1989 acquisition loan or pursuant to a binding commitment in effect on or
before such date, provided that the requirements of Section 7301(f)(2)-(6) of
the Revenue Reconciliation Act of 1989 are satisfied with respect to such
acquisition loan).
8.1.3 Trustee responsibilities: Except as otherwise provided in
Sections 8.1.1 and 8.1.2, the Trustee shall vote the Company stock held by the
trust on the record date as directed by the Committee; provided, however, if
following such Committee direction would result in a violation of ERISA, the
Trustee may disregard the Committee's direction and vote such Company Stock in
its sole discretion and in accordance with ERISA.
8.1.4 Voting instructions from participants: If participants and
beneficiaries are entitled to direct the Trustee in voting Company stock
pursuant to Section 8.1.1 or 8.1.2, the Trustee shall vote such Company stock
in accordance with the timely instructions of the respective participants and
beneficiaries. The Trustee shall be responsible for soliciting and tabulating
such votes. Prior to the voting of Company stock, the Committee shall
distribute to each participant and beneficiary the same information concerning
the vote as is furnished by the Company to its shareholders. If the Company
does not furnish any such information at least 20 days (10 days effective with
respect to shareholders meetings held after July 1, 1990) prior to the
shareholders meeting, the Committee shall as soon as practicable provide each
participant and beneficiary with an explanation of those matters that to the
best knowledge of the Committee are to be presented at such meeting for action
by shareholders and are subject to direction by the participant or beneficiary
and an appropriate form on which the participant or beneficiary may direct
voting on such matters. If the Trustee does not receive participant or
beneficiary instructions with respect to any Company stock or such instructions
are not timely received, such stock shall be voted by the Trustee in accordance
with Section 8.1.3, above. Instructions received from participants and
beneficiaries by the Trustee shall be held in the strictest confidence and
shall not be divulged or released to any person, including the Committee, or
the officers, directors or employees of the Company.
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8.2 Tendering: The following rules shall apply in the
event a tender offer or exchange offer, including but not limited to a tender
offer or exchange offer within the meaning of the Securities Exchange Act of
1934, as from time to time amended and in effect (a "tender offer") for the
Company stock held by the trust is commenced by a person or persons:
8.2.1 Independent record keeper; Trustee responsibilities:
In the event a tender offer for the Company stock held by the trust is
commenced, the functions under the plan applicable to participation of
such Company stock in the tender offer shall be undertaken by the
independent record keeper appointed by the Committee at the time the
tender offer is commenced, and the Committee shall not undertake any
record keeping function under the plan that would serve to violate the
confidentiality of any directions given by the participants or
beneficiaries in connection with the tender offer. The independent
record keeper shall use its best efforts to timely distribute or cause
to be distributed to each participant and beneficiary such information
as is being distributed to other shareholders of the Company in
connection with the tender offer. The Trustee shall have no
discretion or authority to sell, exchange or transfer any of the
Company stock held by the trust pursuant to such tender offer except
to the extent, and only to the extent, that the Trustee is timely
directed to do so in writing as follows:
(i) Each participant and beneficiary shall be
entitled to direct the independent record keeper with respect
to the sale, exchange or transfer of the Company stock
allocated to his Company stock account. The independent
record keeper shall then instruct the Trustee as to the number
of shares to be tendered, in accordance with the above
directions. The Committee shall instruct the Trustee to
follow the directions of the independent record keeper
pursuant to the terms of the tender offer. Instructions
received from participants and beneficiaries by the
independent record keeper shall be held in the strictest
confidence and shall not be divulged or released to any person
including the Committee, or the officers, directors or
employees of the Company.
(ii) The independent record keeper shall instruct
the Committee and the Trustee as to the number of shares for
which it did not receive any instructions or instructions were
not timely received. The Trustee shall tender or not tender
such shares of Company stock and any shares of Company stock
that have not been allocated to participants' accounts as
determined by the Trustee in its own discretion and in
accordance with ERISA.
8.2.2 Records: Following any tender offer that has resulted
in the sale or exchange or any shares of Company stock held by the
trust, the independent record
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keeper to which responsibility has been transferred shall continue to
maintain on a confidential basis a record of the Company stock account
of each participant or beneficiary to whose account shares of Company
stock were allocated at any time during such offer, until complete
distribution of such Company stock accounts. The record keeper shall
keep confidential any instructions that it may receive from
participants or beneficiaries relating to the tender offer.
Section 9. Accounts of Participants:
The Committee shall keep a Company stock account and a general
account to reflect the investment of the assets of the account of each
participant. The assets of the general accounts and any unallocated assets
other than Company stock (or rights attached thereto) are referred to herein as
the "general fund," and shall be invested as directed by the participant in
accordance with Section 9.8. The Committee shall keep records from which can be
determined the portion of each general account that at any time is available to
meet obligations under an acquisition loan in accordance with Section 7 and the
portion not so available. The Committee also shall keep a limitation account
and a deferred payment account if such accounts are required pursuant to
Sections 3.6 and 4.5.1. Assets of the trust under the plan shall be valued at
fair market value as of each adjustment date. In no event may salary reduction
contributions be invested in the Company stock account.
9.1 General accounts: Subject to the provisions of
Section 7, as of each adjustment date the amount in each participant's general
account as of the preceding adjustment date (the 'basic credit") shall be
adjusted in the following order:
9.1.1 There shall be debited (i) the distributions made from
the general account since the next preceding adjustment date to or for
the benefit of the participant, and (ii) the cash applied since the
next preceding adjustment date to the purchase of Company stock for
the Company stock account of the participant.
9.1.2 There shall be credited (i) cash dividends payable
with respect to Company stock then allocated to the Company stock
account of the participant to the extent such dividends are not
distributed to participants or applied to pay principal or interest on
an acquisition loan pursuant to Section 9.3, and (ii) the cash
proceeds
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from the sale of any Company stock then allocated to the Company stock
account of the participant.
9.1.3 There shall be credited or debited that portion of
the net income or net loss of the general fund since the next
preceding adjustment date that the basic credit bears to the total of
all the basic credits so adjusted. The net income or net loss of the
general fund shall be ascertained by the Trustee and means the profits
and income actually realized and received, less the losses and
expenses actually incurred and paid, plus any net increase or minus
any net decrease in the fair market value of the assets of the general
fund not actually realized and received or incurred and paid. Net
income or net loss of the general fund shall not include Company
contributions or any increase or decrease in the fair market value of
Company stock. The determination of the net income or net loss of the
general fund shall not take into account any interest paid by the
trust on an acquisition loan. In ascertaining fair market value, the
expenses of liquidation shall not be taken into account.
9.1.4 There shall be credited that portion of the balance
of the Company contribution (other than contributions of Company
stock) for the current plan year allocated to the participant as
provided in Section 3.2 or Section 3.5.
9.1.5 There shall be debited the amount (if any) of the
participant's share of any cash applied to the payment of principal
and interest on an acquisition loan provided that only that portion of
the participant's general account which is available to meet
obligations under an acquisition loan shall be used to pay principal
or interest on an acquisition loan.
9.2 Company stock accounts: Subject to the provisions of
Section 7, as of each adjustment date, the Company stock account of
each participant shall be adjusted in the following order:
9.2.1 There shall be debited any Company stock distributed
or sold from the Company stock account since the preceding adjustment
date.
9.2.2 There shall be credited any Company stock purchased
with cash expended from the participant's general account, any stock
dividends on Company stock allocated to the participant's Company
stock account, and any additional shares of Company stock issued in
connection with a stock split or similar transaction since the
preceding adjustment date with respect to Company stock allocated to
the participant's Company stock account.
9.2.3 There shall be credited or debited that portion of
the net income or net loss of the Company stock fund since the next
preceding adjustment date that the basic credit bears to the total of
all the basic credits so adjusted. The net income or net loss of the
Company stock fund shall be ascertained by the Trustee and means the
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profits and income actually realized and received, less the losses and
expenses actually incurred and paid, plus any net increase or minus
any net decrease in the fair market value of the assets of the Company
stock fund not actually realized and received or incurred and paid.
Any cash dividends on unallocated Company stock and trust earnings
attributable to the investment of financed shares, to the extent any
such dividends and trust earnings are not applied to pay principal or
interest on an acquisition loan pursuant to Section 9.3, shall be
included as net income of the Company stock fund. In ascertaining
fair market value, the expenses of liquidation shall not be taken into
account.
9.2.4 There shall be credited any Company stock (including
fractional shares) contributed by the Company for the current plan
year and allocated to the participant as provided in Section 3.2.1 or
Section 3.5.
9.2.5 There shall be credited any Company stock released
from the suspense account and allocated with respect to the current
plan year to the Company stock account of the participant in
accordance with Sections 7.6 and 9.3, and any rights, warrants or
options allocated to the Company stock account of the participant in
accordance with Section 9.4.
9.3 Cash dividends: The Committee in its discretion may
direct that cash dividends on shares of Company stock allocated to the Company
stock account of a participant shall be distributed or applied as follows:
9.3.1 Paid by the Company directly to the participant; or
9.3.2 Paid by the Company to the Trustee and either:
(i) Paid by the Trustee to the participant within
90 days after the close of the plan year in which the
dividends are received by the Trustee;
(ii) Allocated to the general account of the
participant pursuant to Section 9.1.2; or
(iii) Applied by the Trustee to pay principal or
interest on any then outstanding acquisition loan.
Notwithstanding the provisions of Section 7.6, the Company
stock to be released from the suspense account as a result of
such payment shall be allocated to participants' Company stock
accounts as follows:
(A) First, there shall be allocated to
each participant's Company stock account that number
of shares of Company stock so released which equals
the
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amount of the cash dividends payable with respect to
each such participant divided by the fair market
value per share of the Company stock as of the
year-end adjustment date coincident with or next
preceding the dividend payment date; and
(B) Second, the balance of the shares of
Company stock so released, if any, shall be allocated
among the participants' Company stock accounts in
accordance with the provisions of Section 7.6.
Cash dividends on Company stock not allocated to Company stock accounts shall
be applied, as directed by the Committee, to pay principal or interest on an
acquisition loan used to acquire such unallocated Company stock, or retained in
the trust fund as income of the Company stock fund and allocated to the Company
stock accounts of participants pursuant to Section 9.2.3. Cash dividends on
unallocated Company stock applied to pay principal or interest on an
acquisition loan shall be in lieu of Company contributions made to meet the
plan's obligation under an acquisition loan, and any shares released as a
result of such application shall be allocated to the Company stock accounts of
participants in accordance with the provision of Section 7.6. Notwithstanding
the provisions of this Section 9.3, cash dividends on Company stock acquired
after August 4, 1989 may only be applied to pay principal or interest on an
acquisition loan used to acquire such Company stock. All directions by the
Committee in this Section 9.3 shall be filed with the Company and the Trustee
at least 10 days before the payment date of the first cash dividend to which
the direction relates. Notwithstanding the provisions of Section 9.1.2, any
payment of cash dividends held in the trust fund pending distribution to
participants or application to the payment of an acquisition loan shall be held
in the general fund but shall not be allocated to the general accounts of
participants. Any net income or net loss on such cash dividends shall be
allocated to participants pursuant to Section 9.1.3.
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9.4 Rights, warrants and options: Rights, warrants and
options to acquire Company stock distributed with respect to allocated Company
stock of a participant shall be credited to his Company stock account and
exercised, sold or retained in such account as directed by the Committee. The
Company stock received in connection with the exercise of a right, warrant or
option shall be allocated to his Company stock account, and the amount expended
in connection with such exercise shall be debited from his general account,
pursuant to Sections 9.1 and 9.2. If any such right, warrant or option is sold,
the proceeds of sale shall be treated as a cash dividend received with respect
to Company stock allocated to a participant's Company stock account. Rights,
warrants and options to acquire Company stock with respect to unallocated
Company stock shall be net income of the general fund and shall be exercised as
directed by the Committee. If any such rights, warrants or options are sold
prior to allocation thereof to the Company stock account of a participant, the
proceeds from such sale shall be net income of the general fund.
9.5 Persons in pay status: If the account of a
participant or beneficiary (a "person in pay status") is distributable, such
account shall be further adjusted as of the applicable year-end adjustment
date, after applying the provisions of Sections 9.1 through 9.4, to the extent
necessary to reflect the medium of payment of his account determined pursuant
to Section 5.4, as follows:
9.5.1 To the extent additional Company stock is required to
be allocated to his Company stock account, shares shall be withdrawn
from the Company stock accounts of participants other than persons in
pay status. The number of shares withdrawn from the Company stock
account of each such participant shall bear the same proportion to the
total withdrawn with respect to all such participants as the number of
shares of Company stock allocated to each such participant's account
as of such adjustment date bears to the total number of shares of
Company stock then allocated to the accounts of such participants. If
Company stock is withdrawn from the Company stock account of a
participant pursuant to this Section 9.5.1, the fair market value as
of such adjustment date of the shares so withdrawn shall be credited
to such participant's general account, and the general account of the
person in pay status shall be debited by the fair market value of such
shares.
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9.5.2 To the extent that Company stock is required to be
withdrawn from his Company stock account, shares shall be withdrawn
therefrom and allocated to the Company stock accounts of participants
other than persons in pay status. The number of shares allocated to
the Company stock account of each such participant shall bear the same
proportion to the total reallocated with respect to all such
participants as the value of his general account as of such adjustment
date bears to the total value of all general accounts of such
participants. Shares of Company stock shall be withdrawn from the
Company stock account of the person in pay status in inverse order
from the order in which such shares previously were credited to such
Company stock account. If Company stock is allocated to the Company
stock accounts of participants pursuant to this Section 9.5.2, the
fair market value as of such adjustment date of the shares allocated
shall be debited to such participant's general account, and the
general account of the person in pay status shall be credited with an
amount equal to the fair market value of such shares.
9.6 Allocations following certain sale transactions:
Notwithstanding any other provision of this Section 9, in the event of the sale
of Company stock to the plan in a transaction described in Section 1042 of the
Code, no portion of the Company stock purchased by the trust in such
transaction shall be allocated during the nonallocation period (as defined in
Section 9.6) to or for the benefit of any participant who is: (i) the seller of
such Company stock; (ii) a member of the family of the seller of such Company
stock (as defined in Section 267(c)(4) of the Code); or (iii) any other person
who owns (after application of Section 318(a) of the Code) more than 25 percent
in value of any class of outstanding employer securities of the Company (within
the meaning of Section 409(l) of the Code). For purposes of this Section 9.6,
"nonallocation period" means the period beginning on the date of a sale of
Company stock described in this Section 9.6 and ending on the later of: (i) the
date which is 10 years after the date of such sale; or (ii) the date of the
allocation attributable to the final payment of any acquisition loan incurred
in connection with such sale. The restrictions of this Section 9.6 shall at
all times be construed and enforced in accordance with the requirements of
Section 409(n) of the Code and the Treasury Regulations thereunder.
9.7 Accounting for allocations: Accounting procedures for
the purpose of making the allocations, valuations and adjustments to
participants' accounts as provided in this
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Section 9 shall be adopted by the Committee. Except as provided in Treasury
Regulation Section 54.4975-11(d), Company stock acquired by the plan shall be
accounted for as provided under Section 1.402(a)-1(b)(2)(ii) of the Treasury
Regulations and allocations of Company stock shall be made separately for each
class of stock. The Committee shall keep adequate records of the cost basis of
all shares of Company stock allocated to each participant's Company stock
account. The Committee shall keep separate records of financed shares and
Company contributions (and any earnings thereon) made for the purpose of
enabling the trust to repay an acquisition loan. From time to time, the
Committee may modify the accounting procedures for the purpose of achieving
equitable and nondiscriminatory allocations among the accounts of participants
in accordance with the general concepts of the plan and the provisions of this
Section 9. Annual valuations of trust assets shall be made at fair market
value.
9.8 Participant directed investments: Notwithstanding any
other provision of the plan, each participant may direct the
Trustee as to the investment or reinvestment of his general account and
contributions allocated to the general account made with respect to
him, subject to the following provisions:
9.8.1 A participant shall be entitled to direct the Trustee as
to the investment of contributions made on his behalf and the
amount credited to his general account among such investment funds as
are permitted from time to time by the Committee. Such funds shall be
referred to herein singly as a "directed investment fund" and
collectively as "directed investment funds." The Committee shall keep
accounts subsidiary to each of his separate accounts described in
Section 2.1 with respect to the amount to his credit in each directed
investment fund (the "fund accounts").
9.8.2 A participant may direct investment of any contribution
allocable to his general account among the directed investment
funds in whole multiples of one percent. Such designation shall remain
in effect unless the participant elects a different investment
direction. If for any reason a participant fails to direct the
investment of the entire contribution allocable to him as of any
adjustment date, the contribution for which no direction is made shall
be invested as directed by the Committee.
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9.8.3 A participant may reallocate the amount credited to
his general account or each of his fund accounts, among the directed
investment funds in whole multiples of one percent. In no
event may a participant direct that the amount to his credit in the
general account be invested in the Company stock account.
9.8.4 All investment directions by a participant shall be
made according to such procedures as directed from time to time
by the Committee. The Committee shall notify the Trustee of all
directions made in accordance with this Section 9.8 as soon as
practicable following their receipt.
9.8.5 Distributions from a participant's general account, any
forfeitures allocated thereto, and any amounts forfeited by such
participant due to a termination of service shall be allocated by
the Trustee among the appropriate directed investment funds in the same
manner as any Company contribution would be allocable among such fund
accounts.
9.8.6 The Committee may establish any rules or by-laws
necessary to implement the provisions of this Section 9.8. The
Trustee shall have and may exercise all powers necessary or advisable
in order to implement the provisions of this Section 9.8. If the
Trustee cannot transfer funds among the directed investment funds on an
adjustment date as provided in this Section 9.8, the Trustee shall
effect such transfer as soon as possible thereafter.
9.9 Diversification: Notwithstanding any other provision
of the plan or trust to the contrary, each participant (including a
participant separated from service) who has an amount credited to a Company
stock account (a "qualified participant") may elect to direct the investment
among the directed investment funds provided under Section 9.8 of not more than
50 percent (in whole multiples of one percent) of the total number of shares of
Company stock that have ever been allocated to his Company stock account, less
the Company stock previously subject to an election under this Section 9.9;
provided, that effective on and after October 1, 1996, "50 percent" shall be
increased to "100 percent." Such election shall be made in the form and at
such time as is provided by the Committee. The Committee shall direct the
Trustee to transfer the portion or all of the Company stock account of a
qualified participant subject to a valid election and invest such portion among
the directed investment funds in accordance with such election as soon as
possible after receipt of such election.
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Section 10. Administration by Committee:
10.1 Membership of Committee: The Committee shall consist
of not less than 3 nor more than 5 individuals appointed by the Board to serve
at the pleasure of the Board. Any member of the Committee may resign, and his
successor, if any, shall be appointed by the Board. The Committee shall be
responsible for the general administration and interpretation of the plan and
for carrying out its provisions except to the extent all or any of such
obligations specifically are imposed on the Trustee or the Board. The Chairman
of the Committee shall be the plan administrator. The plan administrator and
the Trustee each shall be an agent for service of legal process on the plan.
10.2 Committee officers; Subcommittee: The members of the
Committee shall elect a chairman and may elect an acting chairman. They also
shall elect a secretary and may elect an acting secretary, either of whom may
but need not be a member of the Committee. The Committee may appoint from its
membership such subcommittees with such powers as the Committee determines and
may authorize one or more of its members or any agent to execute or deliver any
instrument or make any payment on behalf of the Committee.
10.3 Committee meetings: The Committee shall hold such
meetings upon such notice, at such places, and at such intervals as it from
time to time determines. Notice of meetings shall not be required if waived in
writing by all members of the Committee at the time in office or if all such
members are present at the meeting.
10.4 Transaction of business: A majority of the members of
the Committee at the time in office shall constitute a quorum for the
transaction of business. All resolutions or other actions taken by the
Committee at any meeting shall be by vote of a majority of those present and
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entitled to vote at any such meeting. Resolutions may be adopted or other
action taken without a meeting upon written consent thereto signed by all
members of the Committee.
10.5 Committee records: The Committee shall maintain full
and complete records of its deliberations and decisions. The minutes of its
proceedings shall be conclusive proof of the facts of the operation of the
plan. The records of the Committee shall contain all relevant data pertaining
to individual participants and their rights under the plan and in the trust
fund.
10.6 Establishment of rules: Subject to the limitations of
the plan and ERISA, the Committee from time to time may establish rules or
bylaws for the administration of the plan and the transaction of its business.
10.7 Conflicts of interest: No individual member of the
Committee shall have any right to vote or decide on any matter relating solely
to himself or any of his rights or benefits under the plan (except that such
member may sign unanimous written consent to resolutions adopted or other
action taken without a meeting), except for elections as to payment of benefits
pursuant to Sections 4 and 5, and diversification elections pursuant to Section
9.8.
10.8 Correction of errors: The Committee may correct
errors and, so far as practicable, may adjust any benefit or credit or payment
accordingly. The Committee in its discretion may waive any notice requirement
in the plan; provided that a waiver of a requirement to notify the Trustee
shall be made only with the consent of the Trustee. A waiver of a notice in
one or more cases shall not be a waiver of notice in any other case. Any power
or authority the Committee has discretion to exercise under the plan shall be
exercised in a nondiscriminatory manner.
10.9 Authority to interpret plan: Subject to objective
plan terms and the claims procedure set forth in Section 16, the Committee and
the plan administrator shall have the duty and
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discretionary authority to interpret and construe the provisions of the plan
and decide any dispute which may arise regarding the rights of participants
hereunder, including the discretionary authority to interpret the plan and to
make determinations as to eligibility for participation and benefits under the
plan. Interpretations and determinations by the Committee and plan
administrator shall apply uniformly to all persons similarly situated and shall
be binding and conclusive upon all interested persons. Such interpretations
and determinations shall only be set aside if the Committee and the plan
administrator are found to have acted arbitrarily and capriciously in
interpreting and construing the provisions of the plan.
10.10 Third party advisors: The Committee may engage an
attorney, accountant, qualified appraiser or any other technical advisor on
matters regarding the operation of the plan and to perform such other duties as
may be required in connection therewith. The Committee may employ such
clerical and related personnel as it deems requisite or desirable in carrying
out the provisions of the plan. From time to time, but no less frequently than
annually, the Committee shall review the financial condition of the plan and
determine the financial and liquidity needs of the plan as required by ERISA.
The Committee shall communicate such needs to the Company and to the Trustee so
that the funding policy and investment policy may be coordinated appropriately
to meet such needs.
10.11 Compensation of members: No member of the Committee
shall receive any fee or compensation for his services as such.
10.12 Committee expenses: The Committee shall be entitled
to reimbursement out of the trust fund for its reasonable expenses properly and
actually incurred in the performance of its duties in the administration of the
plan; provided, that the Company, in the discretion of the Board, may pay such
expenses.
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10.13 Indemnification of Committee: To the maximum extent
permitted by ERISA, no member of the Committee shall be personally liable by
reason of any contract or other instrument executed by him or on his behalf as
a member of the Committee or for any mistake of judgment made in good faith.
The Company 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 Company's assets), each member of the Committee and each other
officer, employee or director of the Company to whom any duty or power relating
to the administration or interpretation of the plan shall 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 plan, unless
arising out of such person's own fraud, bad faith, willful misconduct or gross
negligence.
Section 11. Management of Funds and Amendment of Plan:
11.1 Trust fund; Investment purpose: All assets of the
plan shall be held in the trust for the exclusive benefit of participants and
their beneficiaries. Such assets shall be administered as a trust fund to
provide for the payment of benefits as provided in the plan to participants or
their successors in interest out of the income and principal of the trust. The
plan is a stock bonus plan intended to be qualified within the meaning of
Section 401(a) of the Code. The plan also is a cash or deferred arrangement
described in Section 401(k) of the Code and an employee stock ownership plan
described in Section 4975(e)(7) of the Code designed to invest a portion of the
trust's assets primarily in Company stock. See Section 7 of the plan and
Section 2.3 of the trust agreement for provisions relating to the purchase and
sale of Company stock by the trust.
11.2 Fiduciary duties: All fiduciaries with respect to the
plan (as defined in ERISA) shall discharge their duties as such solely in the
interest of the participants and their
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successors in interest and (i) for the exclusive purposes of providing benefits
to participants and their successors in interest and defraying reasonable
expenses of administering the plan as provided in Section 10.12 of the plan
and Section 2.8 of the trust agreement, (ii) with the care, skill, prudence and
diligence under the circumstances then prevailing that a prudent person acting
in a like capacity and familiar with such matters would use in the conduct of
an enterprise of like character and with like aims, and (iii) in accordance
with the plan and trust agreement, except to the extent such documents are
inconsistent with the then applicable federal laws relating to fiduciary
responsibility. The trust fund shall be used for the exclusive benefit of
participants and their beneficiaries and to pay administrative expenses of the
plan and trust to the extent not paid by the Company. No portion of the trust
fund ever shall revert or inure to the benefit of the Company (except as
otherwise provided in Sections 11 and 3.3.2(iv)). Notwithstanding the
foregoing provisions of this Section 11.2, the following provisions apply:
11.2.1 If the plan receives an adverse determination with
respect to the initial qualification of the plan under Section 401(a)
of the Code, on written request of the Company, the Trustee shall
return to the Company the amount of such contribution (increased by
earnings attributable thereto and reduced by losses attributable
thereto) within one year after the date that qualification of the plan
is denied; provided, that the application for the determination is
made by the time prescribed by law for filing the Company's federal
income tax return for the taxable year in which the plan is adopted or
such later date as the Secretary of the Treasury may prescribe;
11.2.2 On written request of the Company, the Trustee shall
return a contribution to the extent the deduction is disallowed
under Section 404 of the Code (reduced by losses attributable thereto,
but not increased by earnings attributable thereto) to the Company
within one year after the date the deduction is disallowed; and
11.2.3 If a contribution or any portion thereof is made by
the Company by a mistake of fact, on written request of the Company,
the Trustee shall return the contribution or such portion (reduced by
losses attributable thereto, but not increased by earnings
attributable thereto) to the Company within one year after the date of
payment to the Trustee.
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11.3 Authority to amend: The Board, acting on behalf of
the Company, shall have the right, subject to the provisions of any outstanding
debt or acquisition loan, at any time and from time to time to amend or
terminate the plan and trust, including the trust agreement entered into under
the plan; provided, that no such amendment may alter the duties,
responsibilities or liabilities of the Trustee unless the Trustee consents
thereto in writing. No amendment to the plan shall be effective to the extent
it has the effect of reducing a participant's accrued benefit. For purposes of
this Section 11.3, a plan amendment that has the effect of decreasing a
participant's accrued benefit or eliminating an optional form of benefit with
respect to benefits attributable to service before the amendment shall be
treated as reducing an accrued benefit. Furthermore, if the vesting schedule
of the plan is amended, in the case of an employee who is a participant as of
the later of the date such amendment is adopted or the date it becomes
effective the vested percentage (determined as of such date) of such employee's
right to his Company derived accrued benefit shall not be less than his vested
percentage computed under Section 6 of the plan without regard to such
amendment. See Section 14 for provisions regarding termination of the plan.
11.4 Trust agreement: The Company and the Trustee shall
enter an appropriate trust agreement for the administration of the trust under
the plan. The trust agreement shall contain such powers and reservations as to
investment, reinvestment, control and disbursement of the funds of the trust,
and such other provisions not inconsistent with the provisions of the plan and
its nature and purposes, as shall be agreed on and set forth therein. Such
agreement shall provide that the Board may remove the Trustee at any time upon
reasonable notice, that the Trustee may resign at any time upon reasonable
notice, and on such removal or resignation the Board shall designate one or
more successor Trustee.
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11.5 Requirements of writing: All requests, directions,
requisitions and instructions of the Committee to the Trustee shall be in
writing and signed by such person or persons as shall be designated by the
Committee.
Section 12. Allocation of Responsibilities Among Named
Fiduciaries:
12.1 Duties of named fiduciaries: The named fiduciaries
with respect to the plan and the fiduciary duties and other responsibilities
allocated to each, which shall be carried out in accordance with the other
applicable terms and provisions of the plan, shall be as follows:
12.1.1 Board:
(i) To amend the plan, subject to the provisions
of any outstanding debt or acquisition loan;
(ii) To appoint and remove members of the
Committee;
(iii) To appoint and remove the Trustee under the
plan;
(iv) To determine the amount to be contributed to
the plan each year by the Company; and
(v) To terminate the plan, subject to the
provisions of any outstanding debt or acquisition loan.
12.1.2 Committee:
(i) To interpret the provisions of the plan and
determine the rights of participants under the plan, except to
the extent otherwise provided in Section 16 relating to the
claims procedure;
(ii) To administer the plan in accordance with its
terms, except to the extent powers to administer the plan
specifically are delegated to another named fiduciary or other
person or persons as provided in the plan;
(iii) To account for the interests of participants
in the plan;
(iv) To direct the Trustee to incur acquisition
loans to finance the acquisition of Company stock or repay a
prior acquisition loan to the extent provided in Section 7 of
the plan and Section 2.4 of the trust agreement;
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(v) To direct the Trustee in the voting and
tendering of Company stock held by the trust to the extent
provided in Section 8 of the plan and Section 2.3 of the trust
agreement;
(vi) To direct the Trustee in the purchase and
sale of Company stock for the trust, subject to the provisions
of Section 2.3 of the trust agreement;
(vii) To direct the Trustee in the distribution of
trust assets; and
(viii) To determine the fair market value of Company
stock and to appoint an independent appraiser as provided in
Section 5.4.4.
12.1.3 Plan Administrator:
(i) To file such reports as may be required to the
United States Department of Labor, the Internal Revenue Service
and any other government agency to which reports may be
required to be submitted from time to time;
(ii) To comply with requirements of the law for
disclosure of plan provisions and other information relating to
the Plan to participants and other interested parties; and
(iii) To administer the claims procedure to the
extent provided in Section 16.
12.1.4 Trustee:
(i) To invest and reinvest trust assets, subject
to the requirements of the plan and trust agreement with
respect to investing in Company stock;
(ii) To make distributions to plan participants as
directed by the Committee;
(iii) To render annual accountings to the Company as
provided in Section 3 of the trust agreement;
(iv) To incur and to repay acquisition loans in
accordance with Section 7 of the plan and Section 2.4 of the
trust agreement;
(v) To vote and tender the Company stock held by
the trust in accordance with Section 8 of the plan and Section
2.3 of the trust agreement; and
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(vi) Otherwise to hold, administer and control the
assets of the trust as provided in the plan and trust
agreement.
12.2 Co-fiduciary liability: Except as otherwise provided
in ERISA, a named fiduciary shall not be responsible or liable for any act or
omission of another named fiduciary with respect to fiduciary responsibilities
allocated to such other named fiduciaries. A named fiduciary of the plan shall
be responsible and liable only for its own acts or omissions with respect to
fiduciary duties specifically allocated to it and designated as its
responsibility.
Section 13. Benefits Not Assignable; Facility of Payments:
13.1 Benefits not assignable: No portion of the accrued
benefit of any participant shall be subject in any manner to anticipation,
alienation, sale, transfer, assignment, pledge, encumbrance or charge. Any
attempt so to anticipate, alienate, sell, transfer, assign, pledge, encumber or
charge the same shall be void. No portion of such accrued benefit shall be
payable in any manner to any assignee, receiver or trustee, liable for a
participant's debts, contracts, liabilities, engagements or torts, or subject
to any legal process to levy upon or attach. This Section 13 shall not apply
to the creation, assignment or recognition of a right to any benefit payable
with respect to a participant pursuant to a qualified domestic relations order,
as defined in Section 414(p) of the Code, or any domestic relations order
entered into before January 1, 1985.
13.2 Payments to minors and others: If any individual
entitled to receive a payment under the plan shall be physically, mentally or
legally incapable of receiving or acknowledging receipt of such payment, the
Committee, upon the receipt of satisfactory evidence of his incapacity and
satisfactory evidence that another person or institution is maintaining him and
that no guardian or committee has been appointed for him, may cause the payment
otherwise payable to him to be made to such person or institution so
maintaining him. Payment to such person or
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institution shall be in full satisfaction of all claims by or through the
participant to the extent of the amount thereof.
Section 14. Termination of Plan and Trust, Merger or Consolidation of
Plan:
14.1 Complete termination: In the event of termination of the plan,
subject to the provisions of Section 7.8, all Company contributions shall cease
and no additional participants shall enter the plan. The assets under the plan
shall remain fully vested (that is, nonforfeitable) in the participants,
beneficiaries or other successors in interest, as their interests may appear.
The vested benefit of each such individual shall be held in the plan for
distribution in accordance with the provisions of Sections 4 and 5; provided,
that the Committee in its discretion may provide for liquidation of the trust
and distribution to the participants of their vested accrued benefits in cash
or Company stock, as provided in Section 5. If upon termination the plan does
not offer an annuity option (purchased from a commercial provider) and neither
the Company nor any affiliated employer maintains another defined contribution
plan (other than an employee stock ownership plan as defined in Section
4975(e)(7) of the Code), the participant's accrued benefit may, without the
participant's consent, be distributed to the participant. However, if the
Company or any affiliated employer maintains another defined contribution plan
(other than an employee stock ownership plan as defined in Section 4975(e)(7)
of the Code), the participant's accrued benefit may, without the participant's
consent, be transferred to such other plan if the participant does not consent
to an immediate distribution. For purposes of the plan, a termination of
Company contributions or a suspension or reduction of such contributions
amounting in effect to a termination of contributions shall be a termination of
the plan. See Section 11.3 for provisions regarding the Board's authority to
terminate the plan.
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14.2 Partial termination: In the event of a partial
termination of the plan, the provisions of Section 14.1 regarding a complete
termination shall apply in determining interests and rights of the participants
and their beneficiaries with respect to whom the partial termination occurs and
to the portion of the trust fund allocable to such participants and
beneficiaries.
14.3 Merger or consolidation: In the event of any merger
or consolidation of the plan with any other plan, or a transfer of assets or
liabilities of the plan to any other plan (which merged, consolidated or
transferee plan is referred to in this Section 14.3 as the "successor plan"),
the amount each participant would receive if the successor plan (and this plan,
if he has any interest remaining therein) were terminated immediately after the
merger, consolidation or transfer shall be equal to or greater than the amount
he would have received if this plan (and the successor plan, if he had any
interest therein immediately prior to the merger, consolidation or transfer)
were terminated immediately preceding the merger, consolidation or transfer.
14.4 Protection of benefits: No termination, partial
termination, merger or consolidation, or transfer of assets of the plan shall
reduce a participant's accrued benefit or eliminate an optional form of
distribution. For purposes of this Section 14.4, a termination, partial
termination, merger or consolidation, or transfer of assets of the plan that
has the effect of decreasing a participant's accrued benefit or eliminating an
optional form of benefit with respect to benefits attributable to service
before the amendment shall be treated as reducing an accrued benefit.
SECTION 15. Communication to Employees:
The Company shall communicate the principal terms of the plan
to the participants and beneficiaries in accordance with the requirements of
ERISA. The Company shall make available for inspection by participants and
their beneficiaries during reasonable hours, at the principal office
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of the Company and such other places as may be required by ERISA, a copy of the
plan, trust agreement and such other documents as may be required by ERISA.
Section 16. Claims Procedure:
The following claims procedure shall apply with respect to the
plan:
16.1 Filing of a claim for benefits: If a participant or
beneficiary (the "claimant") believes he is entitled to benefits under the
plan that are not being paid to him or accrued for his benefit, he may file a
written claim therefor with the plan administrator. If the plan administrator
is the claimant, all actions required to be taken by the plan administrator
pursuant to this Section 16 shall be taken instead by another member of the
Committee designated by the Committee.
16.2 Notification to claimant of decision: Within 90 days
after receipt of a claim by the plan administrator, or within 180 days if
special circumstances require an extension of time, the plan administrator
shall notify the claimant of his decision with regard to the claim. In the
event of special circumstances requiring an extension of time, a written notice
of the extension shall be furnished to the claimant prior to commencement of
the extension, setting forth the special circumstances and the date by which
the decision will be furnished. If such claim is wholly or partially denied,
notice thereof shall be in writing 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 plan provisions on
which the denial is based; (iii) a description of any additional material or
information necessary for the claimant to perfect the claim and an explanation
of why such material or information is necessary; and (iv) an explanation of
the procedure for review of the denial. If the plan administrator fails to
notify the claimant of the decision in timely manner, the claim shall be deemed
denied as of the close of the initial 90-day period (or of the extension
period, if applicable).
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16.3 Procedure for review: Within 60 days following
receipt by the claimant of notice denying his claim in whole or in part, or, if
such notice is not given, within 60 days following the latest date on which
such notice timely could have been given, the claimant may appeal denial of the
claim by filing a written application for review with the Committee. Following
such request for review, the Committee shall fully and fairly review the
decision denying the claim. Prior to the decision of the Committee, the
claimant shall be given an opportunity to review pertinent documents and submit
issues and comments in writing.
16.4 Decision on review: The decision on review of a claim
denied in whole or in part by the plan administrator shall be made in the
following manner:
16.4.1 Within 60 days following receipt by the Committee of
the request for review, or within 120 days if special circumstances
require an extension of time, the Committee shall notify the claimant
in writing of its decision with regard to the claim. In the event of
special circumstances requiring an extension of time, written notice
of the extension shall be furnished to the claimant prior to the
commencement of the extension. If the decision on review is not
furnished in a timely manner, the claim shall be deemed denied as of
the close of the initial 60-day period (or of the extension period, if
applicable).
16.4.2 The decision on review of a claim that is denied in
whole or in part shall set forth specific reasons for the decision
written in a manner calculated to be understood by the claimant and
shall cite the pertinent plan provisions on which the decision is
based.
16.4.3 The decision of the Committee shall be final and
conclusive.
16.5 Action by authorized representative of claimant: All
actions set forth in this Section 16 to be taken by the claimant may be taken
by a representative of the claimant duly authorized by him to act on his behalf
on such matters. The plan administrator and the Committee may require such
evidence as either reasonably deems necessary or advisable of the authority of
any such representative to act.
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Section 17. Parties to the Plan:
As of the date set forth below, the following employers, in
addition to Insteel Industries, Inc., became parties to the plan:
<TABLE>
<CAPTION>
Employer Date
<S> <C>
Insteel Wire Products Company (formerly
Rappahannock Wire Company) 10-1-88
</TABLE>
Any other affiliated employer that desires to become a party to the plan and
trust agreement may do so by separate written agreement with Insteel
Industries, Inc. and the Trustee. Certain affiliated employers that no longer
have a separate existence were parties to the predecessor plan. Specifically,
(i) effective as of March 31, 1992, Federal Nail Manufacturing Company, Inc.
was merged into Insteel Industries, Inc.; (ii) effective as of September 30,
1993, Intersteel Corporation, Expo Wire Company and Forbes Steel and Wire
Corporation were merged into Insteel Wire Products Company, which is a party to
the plan, and (iii) effective as of March 31, 1995, Insteel Construction
Systems, Inc. was merged into Insteel Wire Products Company. The provisions of
this Section 17 shall apply to all parties to the plan except as otherwise
expressly provided herein or in such separate agreement.
17.1 Single plan: As used in the plan and in the trust
agreement, except as otherwise specifically set forth herein, the term
"Company" shall mean each party to the plan and trust agreement. The plan and
trust agreement shall apply as a single plan with respect to all parties as if
there were only one employer-party. Service for purposes of the plan shall be
interchangeable among employer-parties to the plan and shall not be deemed to
be interrupted or terminated by the transfer at any time of an employee from
the service of one employer-party to the service of another employer-party.
Except to the extent otherwise specifically provided in the plan, service with
any employer-party prior to the earlier of (i) the date such party became an
affiliated employer, or (ii)
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the date such employer-party became a party to the plan, shall be disregarded
for all purposes of the plan.
17.2 Committee appointment: The Committee as designated by
the Board of Directors of Insteel Industries, Inc. shall be the Committee with
respect to all other employers which are or may be parties to the plan.
17.3 Authority to amend: Notwithstanding any other
provisions of the plan, the Board of Directors of Insteel Industries, Inc.
shall have authority to amend the plan and trust agreement as applied to
Insteel Industries, Inc. and each other party to the plan, and the proper
officers of each party to the plan shall be authorized to execute all documents
and take all other actions as shall be deemed necessary or advisable to
effectuate and carry out any such amendment as applied to such party. The plan
as applied to each employer-party may be terminated only by the Board of
Directors of each such employer-party.
Section 18. Special Top-Heavy Provisions:
The following provisions shall apply and supersede any
conflicting provision in the plan with respect to any plan year in which the
plan is determined to be top-heavy (as described in Section 18.1.5):
18.1 Definitions: The following definitions shall apply
for purposes of this Section 18:
18.1.1 "Determination date" means the last day of the
preceding plan year, or in the case of the first plan year, the last
day of such plan year.
18.1.2 "Key employee" means any employee or former
employee (and any beneficiary of such employee) who at any time during
the determination period is an officer of the Company if such
individual's annual statutory compensation exceeds 50 percent of the
dollar limitation under Section 415(b)(1)(A) of the Code; an owner (or
considered an owner under Section 318 of the Code) of one of the 10
largest interests in the Company if such individual's statutory
compensation exceeds 100 percent of the dollar limitation under Section
415(c)(1)(A) of the Code; a 5 percent
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owner of the Company; or a one percent owner of the Company who has an
annual statutory compensation of more than $150,000. Annual statutory
compensation means statutory compensation as defined in Section 2.30,
increased by any amounts which are excludable from the employee's gross
income under Section 125, 402(a)(8) (effective January 1, 1993,
402(e)(3)), 402(h) or 403(b) of the Code. The determination period
shall be the plan year containing the determination date and the
preceding 4 plan years. The determination of who is a key employee
shall be made in accordance with Section 416(i)(1) of the Code.
"Non-key employee" means any employee or former employee who is not a
key employee.
18.1.3 "Permissive aggregation group" means the required
aggregation group and any other plan or plans of the Company which,
when considered as a group with the required aggregation group, would
continue to satisfy the requirements of Sections 401(a)(4) and 410 of
the Code.
18.1.4 "Required aggregation group" means (a) each qualified
plan of the Company in which at least one key employee participates or
participated at any time during the determination period (regardless of
whether the plan has terminated), and (b) any other qualified plan of
the Company that enables a plan described in (a) to meet the
requirements of Sections 401(a)(4) or 410 of the Code.
18.1.5 "Top-heavy plan" means, for any plan year beginning
after December 31, 1983, the plan if any of the following conditions
exists:
(i) The top-heavy ratio for the plan exceeds 60
percent, and the plan is not part of any required aggregation
group or permissive aggregation group.
(ii) The plan is a part of a required aggregation
group but not part of a permissive aggregation group, and the
top-heavy ratio for such group exceeds 60 percent.
(iii) The plan is a part of a required aggregation
group and part of a permissive aggregation group, and the
top-heavy ratio for the permissive aggregation group exceeds 60
percent.
18.1.6 "Top-heavy ratio" means the following:
(i) If the Company maintains one or more defined
contribution plans (including any simplified employee pension
plan) and has not maintained any defined benefit plan which
during the 5-year period ending on the determination date(s)
has or has had accrued benefits, the top-heavy ratio for the
plan alone or for the required or permissive aggregation
group, as appropriate, shall be a fraction the numerator of
which is the sum of the account balances of all key employees
as of the determination date(s), including any part
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of any account balance distributed in the 5-year period ending
on the determination date(s), and the denominator of which is
the sum of all account balances including any part of any
account balance distributed in the 5-year period ending on the
determination date(s), both computed in accordance with Section
416 of the Code. Both the numerator and denominator of the
top-heavy ratio shall be increased to reflect any contribution
not actually made as of the determination date but which is
required to be taken into account on such date under Section
416 of the Code.
(ii) If the Company maintains one or more defined
contribution plans (including any simplified employee pension
plan) and maintains or has maintained one or more defined
benefit plans which during the 5-year period ending on the
determination date(s) has or has had any accrued benefits, the
top-heavy ratio for any required or permissive aggregation
group, as appropriate, shall be a fraction the numerator of
which is the sum of account balances under the aggregated
defined contribution plan or plans for all key employees,
determined in accordance with paragraph (i) above, and the
present value of accrued benefits under the aggregated defined
benefit plan or plans for all key employees as of the
determination date(s), and the denominator of which is the sum
of the account balances under the aggregated defined
contribution plan or plans for all participants, determined in
accordance with paragraph (i) above, and the present value of
accrued benefits under the defined benefit plan or plans for
all participants as of the determination date(s), all
determined in accordance with Section 416 of the Code. The
accrued benefits under a defined benefit plan in both the
numerator and denominator of the top-heavy ratio shall be
increased for any distribution of an accrued benefit made in
the 5-year period ending on the determination date.
(iii) For purposes of paragraphs (i) and (ii) above,
the value of account balances and the present value of accrued
benefits shall be determined as of the most recent valuation
date that falls within or ends with the 12-month period ending
on the determination date, except as provided in Section 416 of
the Code for the first and second plan years of a defined
benefit plan. The present value of accrued benefits shall be
determined with reference to the actuarial assumptions for the
defined benefit plans under which such accrued benefits are
held, and as if the participant voluntarily terminated service
as of such valuation date. The account balances and accrued
benefits of a participant who (a) is not a key employee but was
a key employee in a prior year, or (b) is not credited with at
least one hour of service with any employer maintaining the
plan at any time during the 5-year period ending on the
determination date shall be
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disregarded. Calculation of the top-heavy ratio and the extent
to which distributions, rollovers, and transfers are taken into
account shall be made in accordance with Section 416 of the
Code. Deductible employee contributions shall not be taken
into account for purposes of computing the top-heavy ratio.
When aggregating plans, the value of account balances and
accrued benefits shall be calculated with reference to
determination dates that fall within the same calendar year.
The accrued benefit of a participant other than a key employee
shall be determined under (1) the method, if any, that
uniformly applies for accrual purposes under all defined
benefit plans maintained by the Company, or (2) if there is no
such method, as if such benefit accrued not more rapidly than
the slowest accrual rate permitted under the fractional rule of
Section 411(b)(1)(C) of the Code.
18.1.7 "Valuation date" means the year-end adjustment date
as defined in Section 2.49.
18.2 Top-heavy requirements: Notwithstanding any other
provision of the plan, the plan must satisfy the following requirements for any
plan year in which it is a top-heavy plan:
18.2.1 Minimum allocation requirements: Except as otherwise
provided in (a) and (b) below, the Company contributions and
forfeitures allocated on behalf of any participant who is not a key
employee shall not be less than the lesser of 3 percent of such
participant's statutory compensation or, if the Company has no defined
benefit plan that designates this plan to satisfy Section 416 of the
Code, the largest percentage of Company contributions allocated on
behalf of any key employee for the year. The minimum allocation shall
be determined without regard to any social security contribution. The
minimum allocation shall be made even though, under other plan
provisions, the participant otherwise is not entitled to receive an
allocation or would receive a lesser allocation for the year, because
of (i) the participant's failure to complete 1,000 hours of service
(or any equivalent provided in the plan); (ii) the participant's
failure to make mandatory employee contributions to the plan; or (iii)
compensation less than a stated amount. The provisions of this
Section 18.2.1 shall not apply to: (a) any participant who was not
employed by the Company on the last day of the plan year; or (b) any
participant to the extent such participant is covered under any other
plan or plans of the Company that provide that the minimum allocation
or benefit requirement applicable to top-heavy plans shall be met in
the other plan or plans. The minimum allocation required (to the
extent required to be nonforfeitable under Section 416(b) of the Code)
shall not be forfeitable under Section 411(a)(3)(B) or 411
(a)(3)(D) of the Code. Notwithstanding the foregoing, if the Company
maintains any other defined contribution plan, the Company shall
provide a minimum allocation under one such plan equal to 3 percent of
statutory compensation for each non-key employee who is entitled to a
minimum allocation under each of the plans.
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18.2.2 Minimum vesting requirements: For any plan year in
which this plan is top-heavy, a participant's account shall remain
fully vested.
18.3 Adjustments to Limitations on Allocations:
Notwithstanding the provisions of Section 3.3.3, if, during any limitation year
in which this plan is top-heavy, a participant is a participant in the plan and
in a defined benefit plan of the Company, the denominator of the participant's
defined contribution fraction and defined benefit fraction shall be determined
by substituting "1.0" for "l.25" each place that it appears in Section 3.3.3.
The provisions of this Section 18.3 shall not apply, however, if the plan would
not be top-heavy for such limitation year if "90 percent" were substituted for
"60 percent" each place that it appears in Section 18.1.5 and the defined
benefit plan of the Company provides to each such participant who is a non-key
employee the extra minimum benefit required by Section 416(h)(2)(A)(1) of the
Code.
Section 19. Portability of Participant Accounts:
This Section 19 applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the plan to the contrary
that would otherwise limit a distributee's election under this Section 19, a
distributee may elect, at the time and in the manner prescribed by the plan
administrator, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a
direct rollover.
19.1 Definitions: The following definitions shall apply
for purposes of this Section 19:
19.1.1. "Eligible rollover distribution" means any
distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not
include: any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint lives
(or joint life expectancies) of the distributee and the distributee's
designated beneficiary, or for a specified period of ten years or
more; any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code; and the portion of any
distribution that is not
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includible in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
19.1.2. "Eligible retirement plan" means an individual
retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the Code,
an annuity plan described in Section 403(a) of the Code, or a
qualified trust described in Section 401(a) of the Code, that accepts
the distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving spouse, an
eligible retirement plan is an individual retirement account or
individual retirement annuity.
19.1.3. "Distributee" means an employee or former employee.
In addition, the employee's or former employee's surviving spouse and
the employee's or former employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations order, as defined
in Section 414(p) of the Code, are distributees with regard to the
interest of the spouse or former spouse.
19.1.4. "Direct rollover" means a payment by the plan to the
eligible retirement plan specified by the distributee.
19.2 Construction: Notwithstanding anything contained in
this Section 19 to the contrary, the provisions of this Section 19 shall at all
times be construed and enforced according to the requirements of Section
401(a)(31) of the Code and the Treasury Regulations thereunder, as the same may
be amended from time to time.
Section 20. Rollovers:
An eligible employee who receives a distribution of all or
part of his interest from another retirement plan (including another plan
maintained by the Company) which is qualified under Section 401(a) of the Code
on the date of distribution may, with the written consent of the Committee in
accordance with procedures adopted by the Committee, transfer all or a part of
such distribution to the Trustee under this plan. The amount so transferred
may include cash or other types of property. In applying the provisions of
this Section 20, the following provisions shall apply:
20.1 Timing: The transfer to the Trustee must occur on or
before 60 days following receipt by the employee of such distribution. If such
distribution previously was deposited in an
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individual retirement account or individual retirement annuity as defined in
Section 408 of the Code, the transfer must occur on or before 60 days following
receipt by the employee of all or any portion of the balance to his credit
under such individual retirement account or individual retirement annuity.
20.2 Eligibility: The distribution made to the employee
must be an eligible rollover distribution within the meaning of Section
402(c)(4) of the Code.
20.3 Maximum amount: The amount transferred to the Trustee
shall not exceed the amount that would otherwise be includible in the gross
income of the participant if not transferred as provided in this Section 20.
20.4 Accounting: The amount transferred to the Trustee
shall be credited to the participant's rollover account. The assets in the
rollover account shall be administered by the Trustee in the same manner as
other trust assets. Except as otherwise provided in this Section 20, assets of
the rollover account may be commingled for investment with other assets of the
general fund; provided, that with respect to a rollover contribution made other
than on an adjustment date, such contribution shall not be commingled until
immediately following the next adjustment date, and for the period preceding
such adjustment date, the employee's rollover account shall be adjusted under
Section 9 as if such account constituted the entire general fund.
20.5 Transfers prior to becoming a participant: If an
eligible employee who makes such a transfer has not completed the participation
requirements of Section 2.34, his rollover account shall represent his sole
interest in the plan until he becomes a participant.
20.6 Impermissible rollovers: Notwithstanding any
provisions of this Section 20 to the contrary, the Committee shall not permit
nor the Trustee accept any direct or indirect transfers (as that term is
defined and interpreted under Section 401(a)(11) of the Code and the
regulations thereunder) from a defined benefit plan, money purchase plan
(including a target benefit
79
<PAGE> 86
plan), stock bonus or profit-sharing plan which would otherwise have provided
for a life annuity form of payment to the employee.
Section 21. Miscellaneous Provisions:
21.1 Notices: Each participant who is not in service and
each beneficiary shall be responsible for furnishing the plan administrator
with his current address for mailing notices, reports and benefit payments.
Any notice required or permitted to be given to such participant or beneficiary
shall be deemed given if directed to such address and mailed by first class
mail. If any check mailed to such address is returned as undeliverable to the
addressee, mailing of checks shall be suspended until the participant or
beneficiary furnishes the proper address. This provision shall not require the
mailing of any notice or notification otherwise permitted to be given by
posting or other publication.
21.2 Lost distributees: A benefit shall be deemed
forfeited if the plan administrator is unable after a reasonable period of time
to locate the participant or beneficiary to whom payment is due; provided, that
such benefit shall be reinstated if a claim is made by or on behalf of the
participant or beneficiary for the forfeited benefit. The amount of any such
forfeiture shall be reallocated to participants as provided in Section 9.
21.3 Reliance on data: The Company, Committee, Trustee and
plan administrator may rely on any data provided by a participant or
beneficiary, including representations as to age, health and marital status.
Such representations shall be binding on any party seeking to claim a benefit
through a participant, and the Company, Committee, Trustee and plan
administrator shall have no obligation to inquire into the accuracy of any
representation made at any time by a participant or beneficiary.
21.4 Bonding: Each fiduciary, except a bank or an
insurance company, shall be bonded for each plan year to the extent required by
ERISA. The bond shall provide protection to
80
<PAGE> 87
the plan against any loss by reason of acts of fraud or dishonesty by the
fiduciary alone or in connivance with others. The cost of the bond shall be an
expense of the trust and shall be paid by the Trustee, subject to the
provisions of Section 10.12 of the plan and Section 2.8 of the trust agreement.
21.5 Receipt and release for payments: Each participant by
participating in the plan conclusively shall be deemed to agree to look solely
to the assets held under the trust for payment of any benefit to which such
participant may be entitled by reason of such participation. Any payment made
from the plan to or with respect to any participant or beneficiary, or pursuant
to a disclaimer by a beneficiary, shall be in full satisfaction of all claims
hereunder against the plan, Company and all fiduciaries with respect to the
plan to the extent of such payment. As a condition precedent to payment, the
recipient of any payment from the plan may be required by the Committee, to
execute a receipt and release with respect thereto in such form as is
acceptable to the Committee.
21.6 No guarantee: Except with respect to the Company's
guarantee of an acquisition loan, the Trustee, Committee and Company do not in
any way guarantee the trust fund from loss or depreciation, nor do they
guarantee the payment of any money or other assets from the trust fund that may
be or become due to any person. Nothing herein contained shall give any
participant or beneficiary an interest in any specific part of the trust fund,
except for an interest in Company stock allocated to the Company stock account
of a participant, or any other interest except the right to receive benefits
from the trust fund in accordance with the provision of the plan and trust.
21.7 Headings: The headings and sub headings of the plan
are inserted for convenience of reference and shall be ignored in any
construction of the provisions hereof.
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<PAGE> 88
21.8 Continuation of employment: The establishment of the
plan shall not confer any legal or other right on any employee or any person
for continuation of employment, nor shall it interfere with the right of the
Company to discharge any employee or deal with him without regard to the effect
thereof under the plan.
21.9 Federal and state securities law compliance:
21.9.1 If so directed by the Committee, each participant or
beneficiary shall, prior to the transfer of Company stock to such
participant or beneficiary, execute and deliver an agreement
acceptable to the Committee certifying his intent to hold such stock
for investment and containing such other representations and
agreements relating to the Company stock as the Committee reasonably
may request.
21.9.2 The Committee shall take all necessary steps to
comply with applicable registration or other requirements of federal
or state securities laws from which no exemption is available.
21.10 Construction: The provisions of the plan shall be
construed and enforced according to the laws of the State of North Carolina,
except to the extent such laws are superseded by the provisions of ERISA.
IN WITNESS WHEREOF, the Insteel Industries, Inc. Retirement
Savings Plan is, by authority of the Board of Directors of the Company,
executed in behalf of the Company, as of the 30th day of April, 1996.
INSTEEL INDUSTRIES, INC.
By: /s/ H. O. Woltz III
-----------------------
President
Attest:
/s/ Gary D. Kniskern
- ------------------------
Secretary
[Corporate Seal]
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<PAGE> 89
INSTEEL WIRE PRODUCTS COMPANY,
(formerly Rappahannock Wire Company)
By: /s/ H. O. Woltz III
-------------------------------
President
Attest:
Gary D. Kniskern
- -------------------------
Secretary
[Corporate Seal]
83
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF INSTEEL INDUSTRIES, INC.
The following is a list of subsidiaries of the Company as of September 30,
1996, each of which is wholly owned by the Company:
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION
- -------------------------------------- ------------------------------
<S> <C>
Insteel Wire Products Company North Carolina
Intercontinental Metals Corporation North Carolina
</TABLE>
194
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP
The Board of Directors and Shareholders
Insteel Industries, Inc.:
We consent to incorporation by reference in the registration statements on
Forms S-8 (Nos. 33-01032, 33-40410, 33-35316, 33-61887, and 33-61889) of
Insteel Industries, Inc. of our report dated October 18, 1996, relating to the
consolidated balance sheet of Insteel Industries, Inc. and subsidiaries as of
September 30, 1996, and the related consolidated statements of earnings,
shareholders' equity and cash flows and related schedule for the year then
ended which report appears in the September 30, 1996 annual report on Form 10-K
of Insteel Industries, Inc. It should be noted that we have not audited any
financial statements of the Company subsequent to September 30, 1996 or
performed any audit procedures subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina,
December 9, 1996.
195
<PAGE> 1
EXHIBIT 23.2
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors and Shareholders
Insteel Industries, Inc.:
We consent to incorporation by reference in the registration statements on
Forms S-8 (Nos. 33-01032, 33-40410, 33-35316, 33-61887, and 33-61889) of
Insteel Industries, Inc. of our report dated October 24, 1995, relating to the
consolidated balance sheet of Insteel Industries, Inc. and subsidiaries as of
September 30, 1995, and the related consolidated statements of earnings,
shareholders' equity and cash flows and related schedule for the year then
ended which report appears in the September 30, 1996 annual report on Form 10-K
of Insteel Industries, Inc.
KPMG PEAT MARWICK LLP
Charlotte, North Carolina
December 9, 1996
196
<PAGE> 1
EXHIBIT 23.3
CONSENT OF DELOITTE & TOUCHE LLP
To The Board of Directors and Shareholders
Insteel Industries, Inc.
We consent to incorporation by reference in the Registration Statements on Form
S-8 (Nos. 33-01032, 33-40410, 33-35316, 33-61887 and 33-61889) of Insteel
Industries, Inc. of our report dated October 28, 1994, relating to the
consolidated statements of earnings, shareholders' equity, and cash flows and
related schedule of Insteel Industries, Inc. and subsidiaries for the year
ended September 30, 1994 which report appears in the Annual Report on Form 10-K
of Insteel Industries, Inc. for the year ended September 30, 1996.
DELOITTE & TOUCHE LLP
Charlotte, North Carolina
December 9, 1996
197
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K OF
INSTEEL INDUSTRIES, INC. FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> SEP-30-1996
<CASH> 1,423
<SECURITIES> 0
<RECEIVABLES> 34,427
<ALLOWANCES> 555
<INVENTORY> 31,845
<CURRENT-ASSETS> 68,833
<PP&E> 122,712
<DEPRECIATION> 51,640
<TOTAL-ASSETS> 145,663
<CURRENT-LIABILITIES> 35,185
<BONDS> 0
0
0
<COMMON> 16,871
<OTHER-SE> 56,806
<TOTAL-LIABILITY-AND-EQUITY> 145,663
<SALES> 266,770
<TOTAL-REVENUES> 266,770
<CGS> 244,405
<TOTAL-COSTS> 244,405
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,273
<INCOME-PRETAX> 6,569
<INCOME-TAX> 2,326
<INCOME-CONTINUING> 4,243
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,243
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
