<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. ___)
Filed by Registrant [ X ]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
INSTEEL INDUSTRIES, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as specified in its charter)
- -------------------------------------------------------------------------------
(Name of person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of class of securities to which transaction applies: _____
(2) Aggregate number of securities to which transaction applies:_____
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule
0-11:_____
(4) Proposed maximum aggregate value of transaction:_____
(5) Total fee paid: _________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: _____
(2) Form, Schedule or Registration Statement No.:_____
(3) Filing Party:_____
(4) Date Filed:_____
<PAGE> 2
INSTEEL INDUSTRIES, INC.
1373 Boggs Drive
Mount Airy, North Carolina 27030
----------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
February 3, 1998
------------------
The Annual Meeting of Shareholders of Insteel Industries, Inc., will
be held on Tuesday, February 3, 1998, at 10:00 A.M., at the Insteel Industries,
Inc., Corporate Office, 1373 Boggs Drive, Mount Airy, North Carolina, for the
following purposes:
1. To elect three directors of the Company for a three-year term as set
forth in the accompanying Proxy Statement.
2. To approve issuance of shares of the Company's Common Stock to certain
employees of the Company as partial payment of bonuses under the
Company's Return on Capital Incentive Compensation Plan.
3. To approve issuance of shares of the Company's Common Stock to
nonemployee directors as partial payment of their annual retainer fee
under the Company's Director Compensation Plan.
4. To transact such other business as may be brought before the meeting.
Shareholders of record at the close of business on December 2, 1997,
are entitled to notice of and to vote at the meeting.
By Order of the Board of Directors
Gary D. Kniskern
Secretary
Mount Airy, North Carolina
December 18, 1997
IF YOU DO NOT INTEND TO BE PRESENT AT THE MEETING, PLEASE SIGN, DATE AND RETURN
THE ACCOMPANYING PROXY PROMPTLY, SO THAT YOUR SHARES OF COMMON STOCK MAY BE
REPRESENTED AND VOTED AT THE MEETING. A RETURN ENVELOPE IS ENCLOSED FOR YOUR
CONVENIENCE.
<PAGE> 3
INSTEEL INDUSTRIES, INC.
1373 Boggs Drive
Mount Airy, North Carolina 27030
----------------------
PROXY STATEMENT
----------------------
This Proxy Statement is first being sent to shareholders on
or about December 18, 1997, in connection with the solicitation of
Proxies for use at the Annual Meeting of Shareholders of Insteel
Industries, Inc. (the "Company"), to be held on Tuesday, February 3,
1998, and at any adjournment thereof.
If no choice is specified, the accompanying Proxy will be
voted in favor of the three nominees named below to serve as directors
of the Company and in favor of Proposals 2 and 3 regarding the
issuance of Common Stock pursuant to certain plans of the Company. The
nominees are presently serving as directors of the Company.
ELECTION OF DIRECTORS
The Company's Bylaws provide that the number of directors, as
determined from time to time by the Board of Directors, shall be not
less than nine nor more than fifteen. The Board of Directors has fixed
the number of directors at nine. The Bylaws further provide that
directors shall be divided into three classes serving staggered
three-year terms, with each class to be as nearly equal in number as
possible.
The Board of Directors has nominated the persons named below
to serve a three-year term expiring at the 2001 Annual Meeting of
Shareholders or until their successors are elected and qualify. Other
directors will continue in office as indicated. Assuming the election
of the three directors nominated herein, there will be two vacancies
on the Board for directors whose terms expire in 1999. The Board of
Directors will fill those vacancies at such time as it can identify
qualified nominees.
It is not contemplated that any of the nominees will be
unable or unwilling for good cause to serve; but, if that should
occur, it is the intention of the agents named in the Proxy to vote
for election of such other person or persons to the office of director
as the Board of Directors may recommend.
NOMINEES TO SERVE UNTIL THE ANNUAL MEETING OF SHAREHOLDERS IN 2001:
Howard O. Woltz, Jr., 72, has been employed by the Company and its
predecessors in various capacities for more than 40 years and has been a
director and Chairman of the Board since 1958 and was President from 1958 to
1968 and from 1974 to 1989. A licensed attorney, Mr. Woltz also served as a
Vice President (1950-1988), General Counsel (1951-1988) and a director
(1951-1988) of Quality Mills, Inc., which, until its acquisition on December 6,
1988, by Russell Corporation, was a publicly held corporation engaged in the
business of manufacturing and marketing knit wearing apparel and fabrics.
C. Richard Vaughn, 58, a director of the Company since 1991, has been
employed since 1967 by John S. Clark Company, Inc., a general building
contracting company. Mr. Vaughn served as Vice President of John S. Clark from
1967-1970, President from 1970-1988 and Chairman of the Board and CEO from 1988
to the present. He also is Chairman of Riverside Building Supply, Inc. Mr.
Vaughn serves as Chairman of the Executive Compensation Committee of the
Company's Board of Directors.
Louis E. Hannen, 59, a director of the Company since 1995, served
Wheat, First Securities, Inc., in Richmond, Virginia, in various capacities
from 1975 until his retirement in December of 1993 at which time he was Senior
Vice President. Mr. Hannen had 30 years of experience in the securities
analysis and research field, starting with the U.S. Securities and
1
<PAGE> 4
Exchange Commission in 1963. Mr. Hannen then worked for Craigie and Company in
Richmond (1965-1970) and Legg Mason Wood Walker, Inc. in Baltimore (1970-1975)
before joining Wheat, First Securities. Mr. Hannen serves as Chairman of the
Audit Committee of the Company's Board of Directors.
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING OF SHAREHOLDERS IN 2000:
H. O. Woltz III, 41, a son of Howard O. Woltz, Jr., and a nephew of
John E. Woltz, has been employed by the Company and its subsidiaries in various
capacities since 1978, and has been a director of the Company since 1986. From
1981 until August 1989, he served as President of Rappahannock Wire Company, a
subsidiary of the Company. He served as Vice President of the Company from
September 1988 to August 1989, when he was elected President and Chief
Operating Officer. He was elected Chief Executive Officer in February 1991. Mr.
Woltz also serves as President of Insteel Wire Products Company, the Company's
operating subsidiary.
Frances H. Johnson, 77, has been a director of the Company since 1982.
She and members of her family have been investors in and have served as
directors of the Company and its predecessors since 1958. She and members of
her family own and manage Johnson Concrete Company, Salisbury, North Carolina
(a manufacturer of concrete block and pipe), of which she is President;
Carolina Stalite Company (a manufacturer of expanded slate), of which she is
managing partner; and B.V. Hedrick Gravel & Sand Co. (a producer of gravel,
sand and crushed stone), of which she is a director.
Charles B. Newsome, 60, has been a director of the Company since 1982.
He is Executive Vice President and General Manager of Johnson Concrete Company
and General Manager of Carolina Stalite Company, with which he has been
affiliated for more than 20 years. Mr. Newsome serves on the Audit Committee of
the Company's Board of Directors.
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING OF SHAREHOLDERS IN 1999:
John E. Woltz, 71, a brother of Howard O. Woltz, Jr., has been a
director of the Company since 1958. Mr. Woltz served as Director (1950-1988),
Chairman of the Board (1975-1988), President (1958-1984) and Chief Executive
Officer (1984-1988) of Quality Mills, Inc., which, until its acquisition on
December 6, 1988, by Russell Corporation, was a publicly held corporation
engaged in the business of manufacturing and marketing knit wearing apparel and
fabrics. He is currently retired. Mr. Woltz serves on the Executive
Compensation Committee of the Company's Board of Directors.
2
<PAGE> 5
PRINCIPAL SHAREHOLDERS
As of December 2, 1997, to the knowledge of management, the only
persons owning beneficially more than five percent (5%) of the Company's Common
Stock, its only class of voting security, are as follows:
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership (1) Class
- -------------------------------------------- ----------------------------- -----------
<S> <C> <C>
Howard O. Woltz, Jr. 721,428 (2)(3) 8.5%
819 Greenhill Road
Mount Airy, NC
Frances H. Johnson 685,803 (4) 8.1%
1235 West Henderson Street
Salisbury, NC
John E. Woltz 647,740 (2)(5) 7.7%
815 Greenhill Road
Mount Airy, NC
Johnson Concrete Company 620,263 (4) 7.3%
P. O. Box 1037
Salisbury, NC
840,000 (6) 9.9%
Franklin Advisory Services, Inc.
777 Mariners Island Boulevard
San Mateo, CA
Dimensional Fund Advisors 461,361 (7) 5.5%
1299 Ocean Avenue
Santa Monica, CA
</TABLE>
- -------------------------------------
(1) Except as otherwise indicated, each shareholder has sole voting and
sole investment power with respect to the shares beneficially owned by
such shareholder. The numbers shown include shares obtainable within
60 days of December 2, 1997, upon the exercise of stock options.
(2) The shares shown as being beneficially owned by John E. Woltz and
Howard O. Woltz, Jr., include 145,845 shares (1.7%) held by two trusts
of which they and a bank are trustees. The trustees share voting and
investment power with respect to such shares.
(3) Includes 114,968 shares owned by the wife of Howard O. Woltz, Jr.,
beneficial ownership of which is disclaimed.
(4) Johnson Concrete Company owns of record 620,263 shares of the
Company's Common Stock. These shares are beneficially owned by Frances
H. Johnson, who is President of Johnson Concrete Company, and as such,
has voting and dispositive power over the shares of the Company's
Common Stock owned of record by such company. Johnson Concrete Company
is owned by Mrs. Johnson and her three children.
(5) Includes 7,751 shares owned by the wife of John E. Woltz, beneficial
ownership of which is disclaimed.
(6) Updated as of December 2, 1997, with information provided by the named
beneficial owner.
(7) Updated as of September 30, 1997, with information provided by the
named beneficial owner.
3
<PAGE> 6
SECURITY OWNERSHIP OF MANAGEMENT
As of December 2, 1997, directors, nominees for director and executive
officers of the Company beneficially own shares of the Company's Common Stock as
follows:
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Percent of
Name of Individual or Group Ownership (1) Class
- ---------------------------------------------- --------------------------------- ------------
<S> <C> <C>
Thomas C. Cumby 27,649 Less than 1%
Louis E. Hannen 25,774 Less than 1%
Frances H. Johnson See "Principal
Shareholders."
Charles B. Newsome 48,989 Less than 1%
C. Richard Vaughn 21,770 Less than 1%
Howard O. Woltz, Jr. See "Principal
Shareholders."
H. O. Woltz III 239,797 2.8%
John E. Woltz See "Principal
Shareholders."
Gary D. Kniskern 26,753 Less than
1%
Michael C. Gazmarian 25,761 Less than
1%
All directors, nominees for director and executive 2,325,619 27.0%
officers of the Company as a group (a total of 10
persons)
</TABLE>
- --------------------------------------
(1) Except as otherwise indicated, each director, nominee for director and
executive officer has sole voting and sole investment power with
respect to the shares beneficially owned by such shareholder. The
numbers shown include shares obtainable within 60 days of December 2,
1997, upon the exercise of stock options.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION COMMITTEE REPORT
The Executive Compensation Committee of the Board of Directors (the
"Committee") administers the Company's executive compensation program and works
with management in developing and implementing new programs as well as making
appropriate changes to existing programs. The Company's existing executive
compensation program is comprised of the following elements:
1. Base salaries
2. Annual incentive plan
3. Long-term incentive plan (stock options)
4
<PAGE> 7
Base Salaries
During 1996, the Committee obtained several studies concerning
executive compensation. Because adjustments to compensation for the past two
years have been moderate or nonexistent, the Committee concluded that
compensation levels for the Company's executive officers are lower than they
reasonably should be. Using the composite average compensation level for the
Company's industry as a benchmark, the Committee feels that it is prudent for
the Company to target its compensation levels at between 70 percent and 80
percent of the composite average as determined from the studies. Last year, at
the request of the Chairman, his salary was reduced. However, the Committee
believes it to be in the best interest of the Company for the Chairman's salary
to be set at a level that reflects the experience and value to the Company that
this position represents. The Committee made these recommendations to encourage
performance and to maintain competitive compensation. The Committee believes
this program will allow the Company to retain key executives and to compete
effectively for executive management expertise.
For the fiscal year beginning October 1, 1996, the Committee
recommended, and the Board of Directors approved, compensation levels as
follows: Howard O. Woltz, Jr., Chairman of the Board, $160,000; H.O. Woltz III,
President and CEO, $243,000; Michael C. Gazmarian, Chief Financial Officer and
Treasurer, $112,000; Gary D. Kniskern, Vice President-Administration and
Secretary, $114,000.
Annual Incentive Compensation
During 1997, the Committee approved action to discontinue the annual
bonus plan under which executive officers received a percentage of their salary
as a cash bonus after return on equity exceeded a certain level. The Committee
approved including executive officers in the Return on Capital Incentive
Compensation Plan that is in effect for the top management group of Insteel
Wire Products Company, the Company's manufacturing subsidiary. Under the Return
on Capital plan, the Company's executive officers are eligible to earn a target
bonus that is based on the attainment of certain targeted levels of return on
capital. The executive officers will have a target bonus of 30% of base salary.
Subject to approval by the shareholders of Proposal 2, fifty percent of any
distribution will be made in the form of Common Stock of the Company with the
remaining portion paid in cash. See "PROPOSAL TO APPROVE ISSUANCE OF STOCK UDER
THE COMPANY'S RETURN ON CAPITAL INCENTIVE COMPENSATION PLAN," below.
Long-term Incentive Plan (Stock Options)
At the 1995 annual director's meeting, the Committee recommended and
the Board of Directors approved a program under the 1994 Employee Stock Option
Plan of Insteel Industries, Inc. for top level management personnel, which
includes executive officers, to issue regular grants of stock options. Under
the plan, executive officers would receive stock options with market value of
$50,000 annually in semi-annual installments in February and August. During
1997, the Committee approved increasing annual stock option grants to executive
officers to 100% of base salary from the $50,000 level previously in effect.
During 1997, executive officers received option grants for shares of the
Company's Common Stock as follows: Howard O. Woltz, Jr., 13,317 shares; H.O.
Woltz III, 18,805 shares; Michael C. Gazmarian, 10,143 shares; Gary D.
Kniskern, 10,276 shares.
The Committee believes that the executive compensation program should
be weighted heavily toward performance-based awards, with conservative base
salaries. The Company believes its Return on Capital Incentive Compensation
Plan and its incentive stock option plans fulfill this objective.
Specifics of 1997 CEO Compensation
During fiscal 1997, the compensation of the Chief Executive Officer,
H. O. Woltz III, consisted of the following:
Base salary of $243,000.
5
<PAGE> 8
In 1997, Mr. Woltz received no payment from the previous annual
incentive plan as return on equity did not reach the minimum requirement for
the plan.
Mr. Woltz received a grant of stock options for 18,805 shares of the
Company's Common Stock during fiscal 1997. Policy with Respect to the $1
Million Deductible Limit
During 1993, Section 162(m) was added to the Internal Revenue Code
(the "Code") that generally limits amounts that can be deducted for
compensation paid to executives to $1 million, unless certain requirements are
met. No executive receives compensation in excess of $1 million; and therefore,
there are no compensation amounts that are nondeductible at present. The
Committee will monitor the applicability of this section of Code to the
Company's compensation program.
Executive Compensation Committee
C. Richard Vaughn
John E. Woltz
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee is comprised of C. Richard
Vaughn, Chairman, and John E. Woltz. C. Richard Vaughn is Chairman of the Board
of John S. Clark Company, Inc. ("Clark"), a general building contractor located
in Mount Airy, North Carolina, and doing business throughout the southeastern
United States. During fiscal 1997, Clark completed construction of an addition
to the Company's manufacturing facility located in Fredericksburg, Virginia, to
allow the plant to manufacture tire bead wire. Payments made to Clark during
fiscal 1997 amounted to $5,904,000. In the past, Clark has built manufacturing
facilities and offices for the Company as well as several additions and
renovations.
SUMMARY COMPENSATION TABLE
The table below provides information regarding the cash compensation
paid by the Company for services in all capacities during the years ended
September 30, 1997, 1996 and 1995 to all executive officers of the Company:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- ---------------------------------------------------------------------------------------------------------------------------
Long-Term All Other Compensation
Annual Compensation ($) (1)
Compensation Awards
-----------------------------------------
Name and Principal Position Fiscal Year Salary Bonus Securities
($) ($) Underlying Options
(#)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Howard O. Woltz, Jr. 1997 160,000 - 13,317 4,239
Chairman of the Board ----------------------------------------------------------------------------------
1996 130,172 - 7,079 3,834
----------------------------------------------------------------------------------
1995 164,080 - 6,508 3,451
- ---------------------------------------------------------------------------------------------------------------------------
H. O. Woltz III 1997 243,000 - 18,805 265
President and Chief Executive Officer ----------------------------------------------------------------------------------
1996 204,080 - 7,079 243
----------------------------------------------------------------------------------
1995 204,080 - 6,508 225
- ---------------------------------------------------------------------------------------------------------------------------
Gary D. Kniskern 1997 114,000 - 10,276 544
Vice President-Administration and ----------------------------------------------------------------------------------
Secretary 1996 107,900 - 7,079 504
----------------------------------------------------------------------------------
1995 106,080 - 6,508 481
- ---------------------------------------------------------------------------------------------------------------------------
Michael C. Gazmarian 1997 112,000 - 10,143 220
Chief Financial Officer and Treasurer ----------------------------------------------------------------------------------
1996 95,000 - 7,079 207
----------------------------------------------------------------------------------
1995 87,083 - 6,508 198
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the current dollar value of the benefit to the executive
officer of the remainder of the premium paid by the Company during the
fiscal year under its Split-Dollar Life Insurance Plan.
6
<PAGE> 9
STOCK OPTION GRANTS
The table below provides information regarding stock options granted
to executive officers of the Company during fiscal 1997:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Individual Grants Potential Realizable Value at
- ---------------------------------------------------------------------------------------- Assumed Annual Rates of Stock
Price Appreciation for
Option Term
-------------------------------
Name Number of Percent of Exercise or Expiration
Securities Total Options Base Price Date
Underlying Granted to ($/Share)
Options Employees in
Granted Fiscal Year 5% ($) 10% ($)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Howard O. Woltz, Jr. 2,739 3.0% $ 9.125 02/03/07 $15,718 $ 39,833
--------------------------------------------------------------------------------------------------
10,578 11.5% $7.5625 08/11/07 $50,292 $127,439
- -------------------------------------------------------------------------------------------------------------------------
H.O. Woltz III 2,739 3.0% $ 9.125 02/03/07 $15,718 $ 39,833
--------------------------------------------------------------------------------------------------
16,066 17.4% $7.5625 08/11/07 $76,384 $193,556
- -------------------------------------------------------------------------------------------------------------------------
Gary D. Kniskern 2,739 3.0% $ 9.125 02/03/07 $15,718 $ 39,833
--------------------------------------------------------------------------------------------------
7,537 8.2% $7.5625 08/11/07 $35,834 $ 90,802
- -------------------------------------------------------------------------------------------------------------------------
Michael C. Gazmarian 2,739 3.0% $ 9.125 02/03/07 $15,718 $ 39,833
--------------------------------------------------------------------------------------------------
7,404 8.0% $7.5625 08/11/07 $35,201 $ 89,200
=========================================================================================================================
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The table below provides information regarding stock options exercised
during fiscal 1997 and the value of options outstanding at September 30, 1997,
for all executive officers of the Company:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
<TABLE>
<CAPTION>
===============================================================================================================================
Name Shares Value Number of Securities Underlying Value of Unexercised in-the-Money
Acquired on Realized Unexercised Options at Fiscal Options at Fiscal Year-End ($)
Exercise ($) Year-End (#)
(#) ----------------------------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Howard O. Woltz, Jr. - - 18,996 19,908 $4,265 $7,557
- -------------------------------------------------------------------------------------------------------------------------------
H.O. Woltz III - - 20,094 24,298 $4,676 $9,203
- -------------------------------------------------------------------------------------------------------------------------------
Gary D. Kniskern - - 18,388 17,475 $4,037 $6,644
- -------------------------------------------------------------------------------------------------------------------------------
Michael C. Gazmarian - - 24,761 18,969 $4,026 $6,605
===============================================================================================================================
</TABLE>
PENSION PLAN
The Company has a pension plan for all of its employees hired before
April 1, 1996. Normal retirement is at age 65. Early retirement is available
anytime after age 55 with a minimum of 15 years of service. Annual retirement
benefits are equal to 0.6% of the participant's final average compensation for
each year of creditable service, plus 0.55% of the participant's final average
compensation in excess of current year's covered compensation up to 35 years.
Covered Compensation is derived from the Covered Compensation Table and is
updated each year for increases in the Social Security taxable wage base. The
plan was amended in 1997 to give active participants an additional 1/6 of a
year credit for each creditable year of service as of September 30, 1997.
Additional years of service will not accrue after that date, although
compensation after October 1, 1997, will be considered for pension purposes.
Final average compensation is the participant's average compensation for the
five highest
7
<PAGE> 10
consecutive plan years within the last 10 plan years during which the
participant worked as an employee. Eligible compensation is defined in the plan
document. Retirement benefits are paid in monthly installments under several
options that are available at the employee's election. Lump-sum benefits are
available subject to restrictions specified in the plan. Messrs. Kniskern,
Gazmarian and H. O. Woltz III are members of the Benefits Committee.
The following table presents estimated annual benefits payable from
the plan upon normal or delayed retirement to persons in specified remuneration
and years of credited service classifications. The amounts shown assume the
current maximum Social Security benefit and that an election has been made for
benefits to be payable for the employee's life only.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
Remuneration ($)
15 20 25 30 35
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
125,000 22,343 29,786 37,242 44,685 44,685
- ------------------------------------------------------------------------------------------------------------------
150,000 27,374 36,493 45,628 54,748 54,748
- ------------------------------------------------------------------------------------------------------------------
175,000 29,386 39,176 48,983 58,773 58,773
- ------------------------------------------------------------------------------------------------------------------
200,000 29,386 39,176 48,983 58,773 58,773
- ------------------------------------------------------------------------------------------------------------------
225,000 29,386 39,176 48,983 58,773 58,773
- ------------------------------------------------------------------------------------------------------------------
250,000 29,386 39,176 48,983 58,773 58,773
</TABLE>
(A) Compensation covered by the plan
Annual compensation used in the determination of the benefits in the
above Pension Plan Table is limited to $160,000. This is the amount
approved by the Secretary of the Treasury for 1997.
(B) Years of credited service: Howard O. Woltz, Jr. 35 years
H. O. Woltz III 18 years
Gary D. Kniskern 17 years
(C) Benefits are computed as a straight-life annuity. Benefits are equal
to 0.6% of compensation for each year of creditable service, plus
0.55% of compensation in excess of the current year's covered
compensation for each year of creditable service not to exceed 35
years. The current year's covered compensation amount is derived from
the Covered Compensation Table and is updated each year for increases
in the Social Security taxable wage base. The amount used in
calculating the benefits in the Pension Plan Table above is $29,232.
This assumes a participant born in 1932 who is retiring at age 65 in
1997.
RETIREMENT SAVING PLAN
The Board of Directors adopted, effective May 1, 1996, the Retirement
Savings Plan of Insteel Industries, Inc. The plan is an amendment and
restatement of the Employee Stock Ownership Plan of Insteel Industries, Inc.,
which was adopted effective October 1, 1988. The plan is a stock bonus plan
which allows pre-tax employee contributions and is intended to be qualified
within the meaning of Sections 401(a) and 401(k) of the Internal Revenue Code.
The plan has two purposes. The first purpose of the plan is to allow
eligible employees to defer up to ten percent of their compensation before
income taxes. The second purpose of the plan is to enable eligible employees to
acquire a stock ownership interest in the Company, thereby permitting such
employees to share in the growth and prosperity of the Company and providing
such employees with an opportunity to accumulate capital for their future
economic security. Eligible employees may enroll on the April 1 or October 1
following 90 days of service with the Company.
Contributions to the plan are made by employee salary deferrals and by
the Company, as determined by the Board of Directors. During fiscal 1997, the
Company made contributions totaling $85,010. In August 1990, the Board of
Directors authorized the Company to lend the plan $500,000 to purchase Company
stock which, according to the plan, is held in a suspense account and allocated
to the participants as the loan is repaid.
8
<PAGE> 11
The assets of the plan are held in a trust created under the plan.
Effective as of May 1, 1996, the trustee is Marshall & Ilsley Trust Company.
Prior to May 1, 1996, the trustees were H. O. Woltz III, Gary D. Kniskern and
Michael C. Gazmarian. The Trustee invests employee contributions in several
mutual fund options as directed by the employee. The trustee will invest
Company contributions primarily in Company stock through the repayment of the
ESOP loan, but it may select other investments as well. Purchases of Company
stock can be made from the Company, in the open market or in private
transactions, but the price paid cannot exceed the fair market value thereof on
the purchase date. Employees may elect to keep the Company's Common Stock in
their Company account or to reinvest Company contributions in one or more
mutual funds available in the plan.
Shortly after the end of each fiscal year, September 30, the assets of
the trust are valued, and the released shares are allocated to the participants
employed at the end of the fiscal year. Such allocation is made based on the
percentage that a participant's eligible compensation bears to the eligible
compensation of all participants for the year. Allocations thus made, both
shares of Company stock and other investments, become immediately vested in
participants' accounts for payment upon retirement, death, termination of
employment and, in some cases, disability.
Benefits are paid as soon as practicable following the qualifying
event. An election to delay payment may be made in certain instances. The
participant may elect a lump sum cash payment, or whole shares of Company stock
with the balance paid in cash. The benefit amount is determined by the value of
trust assets at the time of the distribution.
Unallocated shares of Company stock and allocated shares, not voted by
the participants, are voted by the Trustee. The Trustee may buy or sell shares
owned by the trust. Additional shares acquired as well as the proceeds from
shares sold are allocated to participants' accounts as of each September 30. On
September 30, 1997, the trust owned 77,065 shares of unallocated Company stock.
The beneficial ownership of Company stock shown elsewhere in this proxy
statement does not include shares allocated to the following accounts: H. O.
Woltz III (636 shares), Gary D. Kniskern (464 shares), Michael C. Gazmarian (41
shares), and Howard O. Woltz, Jr. (92 shares). Having reached the mandatory
distribution age of 70, Howard O. Woltz, Jr. received the balance of his
allocated shares but continues to receive an allocation the same as other
active participants.
The Board of Directors may amend or terminate the plan at any time, in
which case participant accounts would remain fully vested. Day-to-day
administration of the plan is the responsibility of the Company's Benefits
Committee, the members of which are H.O. Woltz III, Gary D. Kniskern and
Michael C. Gazmarian.
SUPPLEMENTAL RETIREMENT PLAN
In December of 1984, the Company established a supplemental retirement
plan for key employees selected by the Board of Directors, including the
executive officers identified in the Summary Compensation Table above that were
employed at that time. Under the plan, participants (or, in the event of death,
their designated beneficiaries) are entitled to cash benefits upon retirement
at age 65, payable annually for 15 years. The benefits were fixed at adoption
of the plan based on the value of life insurance policies purchased and
calculated as of each participant's 65th birthday. Benefits are payable if the
participant is still an employee of the Company at age 65, upon his death, or
in other circumstances that the Benefits Committee deems appropriate. Benefit
payments will be reimbursed to the Company out of proceeds of the policy at the
participant's death. Assuming retirement at age 65, the persons named in the
table above would receive the following annual retirement benefits under the
plan for 15 years: Howard O. Woltz, Jr. ($8,802), H. O. Woltz III ($221,523)
and Gary D. Kniskern ($42,455).
RETURN ON CAPITAL INCENTIVE COMPENSATION PLAN
The Company has in effect an incentive bonus plan that is based on
attainment of certain targeted levels of return on capital and key performance
measurements. Prior to fiscal 1997, this Return on Capital Plan ("ROC") was in
effect only for a certain group of top operating management. During 1997, the
Executive Compensation Committee of the Board of Directors recommended, and the
Board approved, the substitution of this incentive plan for the bonus plan in
which executive officers of the Company previously participated.
Under the provisions of the plan, Target ROC is set annually by a
formula defined in the plan. ROC is the operating profit remaining after taxes
have been paid and the Company has achieved a return on the capital. Target
Bonus for the executive officers is 30% of base compensation if Target ROC is
met. Target Bonus for other participants varies. If Target
9
<PAGE> 12
Bonus is exceeded, the Target Bonus plus one-third of the excess over the
Target Bonus is paid out; the balance earned for that year is "banked" for
future distribution. If less than the Target Bonus is earned, the entire
balance is paid out.
No amounts were distributed under the plan for fiscal 1997 to
executive officers of the Company as reflected in the Summary Compensation
Table, above. Distributions are made in December of each year. Under a proposal
being submitted to shareholders at the 1998 Annual Meeting of Shareholders,
executive officers would be paid half of any distribution in stock with the
other half being paid out in cash. This proposal is discussed further under
PROPOSAL TO APPROVE ISSUANCE OF STOCK UNDER THE COMPANY'S RETURN ON CAPITAL
INCENTIVE COMPENSATION PLAN, below.
EMPLOYEE STOCK OPTION PLANS
The 1985 Insteel Industries, Inc. Employee Incentive Stock Option Plan
covers 684,905 shares of the Company's Common Stock for the benefit of key
employees. No options of Common Stock were granted under this plan during
fiscal 1997. As of December 2, 1997, there are options outstanding covering
157,930 shares of Common Stock at an average exercise price of $10.19 per
share. By action taken by the Board of Directors on September 23, 1994, no
further options may be granted under the plan, but options previously granted
will remain until they are exercised or expire. The stock option plan has been
registered with the Securities and Exchange Commission.
The 1994 Employee Stock Option Plan of Insteel Industries, Inc. covers
750,000 shares of Common Stock that have been reserved for the benefit of key
management employees of the Company for issuance upon the exercise of options
granted under the plan. Options to purchase 92,101 shares of Common Stock were
granted during fiscal 1997. As of December 2, 1997, there are options to
purchase 244,062 shares outstanding at an average exercise price of $7.6519 per
share. Benefits that may be granted under the plan to persons who are executive
officers of the Company cannot be ascertained in advance. The plan has been
registered with the Securities and Exchange Commission.
DIRECTOR STOCK OPTION PLANS
The 1990 Director Stock Option Plan of Insteel Industries, Inc. covers
133,100 shares of the Company's Common Stock for the benefit of non-employee
directors of the Company. As of December 2, 1997, there are options outstanding
covering 39,990 shares of Common Stock at an average exercise price of $10.4375
per share. The options are exercisable over five years in increments of 20% per
year, beginning with the date of grant. Optionees are John E. Woltz, Thomas J.
Cumby, Frances H. Johnson, Charles B. Newsome, W. Allen Rogers, II and C.
Richard Vaughn (each with 6,665 shares exercisable at an exercise price of
$10.4375 per share). During fiscal 1995, John E. Woltz, Frances H. Johnson,
Charles B. Newsome and W. Allen Rogers each surrendered options to purchase
13,310 shares of Common Stock at an exercise price of $6.0105 and received
3,151 shares of Common Stock and cash as payment of an amount equal to the
difference between the option price and the fair market value of the shares
subject to the option on the date of surrender. During fiscal 1997, C. Richard
Vaughn surrendered options to purchase 13,310 shares of Common Stock at an
exercise price of $8.5744 and received 1,136 shares of Common Stock and cash as
payment of an amount equal to the difference between the option price and the
fair market value of the shares subject to the option on the date of surrender.
By action taken by the Board of Directors on September 23, 1994, no further
options may be granted under the plan, but options previously granted will
remain until they are exercised or expire. The stock option plan has been
registered with the Securities and Exchange Commission.
The 1994 Director Stock Option Plan of Insteel Industries, Inc. covers
200,000 shares of Common Stock for the benefit of nonemployee directors of the
Company for issuance upon the exercise of options granted under the plan. The
plan provides that, following the close of business of the Company on the date
of each annual meeting of shareholders, beginning in 1995, each nonemployee
director will receive an option to purchase 2,000 shares of the Company's
Common Stock exercisable at the fair market value of the Common Stock on the
date of grant. During fiscal 1997, options to purchase 2,000 shares at an
exercise price of $9.125 were granted to each nonemployee director of the
Company. Under the plan, each nonemployee director, will receive options to
purchase 2,000 shares of the Company's Common Stock at the close of business on
February 3, 1998. The options will be exercisable at the per share fair market
value of the Common Stock on that date. The plan has been registered with the
Securities and Exchange Commission. The nonemployee directors anticipated to be
eligible under the plan and the benefits to be received are as follows:
10
<PAGE> 13
<TABLE>
<CAPTION>
-----------------------------------------------------------
Dollar Value Number of
Name ($) (1) Shares
-----------------------------------------------------------
<S> <C> <C>
Louis E. Hannen 14,750 2,000
-----------------------------------------------------------
Frances H. Johnson 14,750 2,000
-----------------------------------------------------------
C. Richard Vaughn 14,750 2,000
-----------------------------------------------------------
Charles B. Newsome 14,750 2,000
-----------------------------------------------------------
John E. Woltz 14,750 2,000
-----------------------------------------------------------
$73,750 10,000
-----------------------------------------------------------
</TABLE>
(1) Based on the closing price of the Company's Common Stock on
December 2, 1997.
On February 7, 1995, the Board of Directors of the Company adopted a
nonqualified stock option plan for the benefit of Louis E. Hannen, a newly
elected director. Under the plan, Mr. Hannen was granted an option to purchase
19,965 shares of the Company's Common Stock at the exercise price of $7.875.
The options vest 20% per year beginning February 7, 1995, and the options
expire February 7, 2005. The plan is not registered with the Securities and
Exchange Commission.
REMUNERATION OF DIRECTORS
Each of the Company's nonemployee directors receives an annual
director's fee of $4,800 plus reimbursement of expenses incurred as a director.
See "PROPOSAL TO APPROVE ISSUANCE OF STOCK UNDER THE COMPANY'S DIRECTOR
COMPENSATION PLAN," below, regarding proposed changes to the annual retainer
award program for nonemployee directors. Directors who are also employees
receive no such fees. Members of the Audit and Executive Compensation
Committees receive a fee of $300 for each meeting of the Committee. Nonemployee
directors are eligible to receive stock options under the Director Stock Option
Plan.
PROPOSAL TO APPROVE ISSUANCE OF
STOCK UNDER THE COMPANY'S
RETURN ON CAPITAL INCENTIVE COMPENSATION PLAN
The Board of Directors has approved, subject, in part, to shareholder
approval, that the following program concerning payments made under the
Company's Return on Capital Incentive Compensation Plan be adopted, effective
February 3, 1998.
PURPOSE OF THE PLAN
The purpose of the Return on Capital Incentive Compensation Plan is to
encourage sustained shareholder value creation by establishing a direct link
between Return on Capital ("ROC") achieved and incentive compensation payments
to management.
RETURN ON CAPITAL
ROC for the Company means the amount obtained by subtracting (1) a
capital charge computed by multiplying invested capital for such year by the
weighted average cost of capital from (2) net operating profit after tax for
such year. A Target ROC is set, and each year an expected improvement factor
raises the Target ROC. Achieving Target ROC is required to earn the Target
Bonus. A leverage factor is applied to Target ROC to establish a target to earn
two times Target Bonus.
TARGET BONUS
At the time a participant commences participation in the plan, there
is established a Target Bonus Percent which is the percent of base salary
earned if Actual ROC equals Target ROC.
PAYMENTS
Target Bonuses are calculated as soon after the fiscal year ends as
possible, and payments are made during the month of December. If more than
Target Bonus is earned in any one year, part of the excess over the Target
Bonus is paid out and part
11
<PAGE> 14
is credited to a Bonus Bank. Each year, a portion of the amount in the Bonus
Bank will be paid out. If less than the Target Bonus is earned in a succeeding
year, a greater portion of the Bonus Bank will be paid out up to the Target
Bonus amount. The Bonus Bank is a tool used to equalize distributions under the
plan.
PARTICIPATION
The top management group of the Company are participants in the plan.
The plan was established in 1995, but executive officers of the Company began
participating for fiscal 1997.
SHAREHOLDER APPROVAL FOR STOCK ISSUANCE
The Board of Directors recommends that the Company's shareholders
approve the issuance of shares of the Company's Common Stock to executive
officers in payment of 50% of the ROC incentive payment as described above. The
Board of Directors has reserved 100,000 shares of Common Stock for issuance
under the plan.
The shares would be newly issued shares and would, therefore, be
restricted as to transferability under applicable securities laws and
regulations, specifically Rule 144 adopted under the Securities Act of 1933, as
amended. Under that Rule, persons holding restricted stock may not sell the
restricted shares in public trading markets for a period of one year after
issuance. Thereafter, the shares may be sold in limited amounts, provided that
the Company is current with its periodic reporting filings with the Securities
and Exchange Commission, and, provided further, that the executive officer
complies with certain other regulatory matters in connection with the sale.
Executive officers of the Company, as "affiliates" of the Company, are subject
to Rule 144 with respect to all shares that they own, regardless of how the
shares were acquired, so the application of Rule 144 to the incentive shares
will not add restrictions that do not already apply, as long as an individual
receiving such shares remains an affiliate of the Company.
Assuming that the shareholders approve this plan, assuming Target ROC
is achieved for fiscal 1998, and assuming the market value of the shares at the
calculation date is $8.00 per share, the following table sets forth the number
of shares and the dollar value of such shares for each executive officer:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------
Name and Position Dollar Value Number of Shares
- -------------------------------------------------------------------------------------------------
<S> <C> <C>
Howard Woltz, Jr., Chairman of the Board $24,000 3,000
- -------------------------------------------------------------------------------------------------
H.O. Woltz III, President and CEO $36,450 4,556
- -------------------------------------------------------------------------------------------------
Gary D. Kniskern, VP-Administration; Secretary $18,000 2,250
- -------------------------------------------------------------------------------------------------
Michael C. Gazmarian, Treasurer; Chief Financial Officer $19,950 2,493
- -------------------------------------------------------------------------------------------------
</TABLE>
The value represented by the shares thus issued would be taxable to
the persons receiving them as compensation income.
RECOMMENDATION
The Board of Directors recommends that shareholders approve this plan.
It believes that stock ownership by executive officers should be encouraged.
The plan, coupled with the employee stock option plans described elsewhere in
this Proxy Statement, will increase ownership of the Company's stock by
executive officers and will reward them when increased shareholder value is
achieved with potential increased market value.
The plan will not be registered with the Securities and Exchange
Commission. The shares covered by the plan will be listed on the New York Stock
Exchange subject to notice of issuance in accordance with the plan. Since the
shares will be issued as partial compensation, they will be fully paid when
issued.
The favorable vote of a majority of the shares of the Company's Common
Stock present or represented at the meeting and entitled to vote is required
for approval of the issuance of stock under the Return on Capital Incentive
Compensation Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ISSUANCE OF
SHARES OF THE COMPANY'S COMMON STOCK IN ACCORDANCE WITH THE RETURN ON CAPITAL
INCENTIVE COMPENSATION PLAN, AS DESCRIBED ABOVE.
12
<PAGE> 15
PROPOSAL TO APPROVE ISSUANCE OF STOCK UNDER
THE COMPANY'S DIRECTOR COMPENSATION PLAN
The Board of Directors has approved, subject, in part, to shareholder
approval, that the Insteel Industries, Inc. Director Compensation Plan be
adopted, effective February 3, 1998. The plan provides for the remuneration of
nonemployee directors for their service on the Board, as summarized below.
ANNUAL RETAINER AWARD
Under the plan, an annual retainer award will be paid to nonemployee
directors for service on the Board of Directors. The amount of the annual
retainer award for each director will be determined before (or as soon as
practicable following) the start of the retainer year by the Board (subject to
certain limitations, discussed below), and the amount of annual retainer awards
may vary from year to year. The retainer year will begin on the date of the
Annual Meeting of Shareholders at which directors are elected and end on the
date of the next following Annual Meeting of Shareholders at which directors
are elected. The retainer award may be paid in cash or in shares of Common
Stock of the Company, or a combination of cash and Common Stock, as determined
by the Board.
The designated cash portion of the retainer will be paid in equal
quarterly installments on or about March 31, June 30, September 30 and December
31. The designated stock portion of the retainer will be paid at the annual
meeting of the Board of Directors following the Annual Meeting of Shareholders
at which directors are elected. Each director's annual stock award will equal
the number of shares of Common Stock that have a fair market value equal (or as
close as possible) to the dollar value of the annual retainer award that has
been denominated in Common Stock. The fair market value will be determined as
of the close of business on the last trading day of the previous calendar year.
Nonemployee directors who are elected or appointed during a retainer year will
also be eligible for annual retainer awards as determined in the Board's
discretion, subject to plan terms. Unless otherwise provided by the Board in
connection with a grant of an award, each annual retainer award granted under
the plan shall be fully vested as of the date of grant of the award, except
that no director shall be entitled to any cash award quarterly installment
payable after the effective date of his or her resignation or removal as a
director.
The Board has determined that the annual retainer award for each
nonemployee director for the retainer year commencing at the 1998 Annual
Meeting of Shareholders will be $4,800 and that this amount will be payable in
cash only (subject to adjustment by the Board in accordance with the plan).
Pursuant to the plan, the Board has authority to increase or otherwise adjust
the amount of an annual retainer award, including the amounts of each award
payable in cash and in stock, from year to year, subject, however, to the
limitation that no more than 50,000 newly issued shares will be available for
distribution under the plan. Shares distributed under the plan may be such
newly issued shares or shares acquired by open market or private purchases.
ADMINISTRATION
The plan will be administered by the Board of Directors, or upon its
delegation, by the Executive Committee of the Board. The plan may be amended,
suspended or terminated at any time by the Board, provided that (i) the consent
of a participant is necessary if any such action would adversely affect the
director's rights with respect to awards or fees previously earned, and (ii)
shareholder approval is required of an amendment only if required by applicable
laws, rules or regulations.
EFFECT ON DIRECTORS STOCK OPTION PLAN
Stock Options will continue to be granted to nonemployee directors as
specified in the 1994 Directors Stock Option Plan of Insteel Industries, Inc.
Under this plan, non-employee directors annually receive options to purchase
2,000 shares of Common Stock of the Company.
RESTRICTED STATUS OF SHARES
Resale by the directors of the shares distributed to them under the
plan will be subject to Rule 144 under the Securities Act of 1933, as amended.
Under that Rule, directors holding shares issued pursuant to the plan may not
resell such shares on the open market for a period of one year after issuance,
unless the issuance of the shares under the plan is registered by the Company
with the Securities and Exchange Commission. After such one-year period, the
shares may be sold, as long as the Company is current with its periodic
reporting filings with the Commission and the director complies with certain
other regulatory matters in connection with the sale. If the issuance of the
shares under the plan is registered with the Commission, directors of the
Company, as
13
<PAGE> 16
"affiliates" of the Company, will nevertheless be required to comply with Rule
144 in connection with any resale of such shares, except that the one-year
holding period requirement of the Rule will not apply.
SHAREHOLDER APPROVAL FOR STOCK ISSUANCE
The rules of the New York Stock Exchange, on which the shares of
Common Stock are listed, require shareholder approval of the issuance of Common
Stock under the Plan. The Board of Directors believes that stock ownership by
directors should be encouraged and that it is in the best interests of the
Company to establish director compensation programs that are competitive with
other companies in order to attract the most qualified individuals for service
on the Board. For these reasons, the Board recommends that shareholders approve
this plan. The plan, coupled with the director stock option plans described
elsewhere in this Proxy Statement, will increase ownership of the Company's
stock by nonemployee directors, will enhance their interest in the affairs of
the Company and will reward their service with potential increased value.
The shares covered by the plan will be listed on the New York Stock
Exchange subject to notice of issuance in accordance with the plan. Since the
shares will be issued as partial compensation, they will be fully paid when
issued.
RECOMMENDATION
The favorable vote of a majority of the shares of the Company's
Common Stock present or represented at the meeting and entitled to vote is
required for approval of the issuance of stock under the Director Compensation
Plan. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ISSUANCE OF SHARES OF THE
COMPANY'S COMMON STOCK IN ACCORDANCE WITH THE DIRECTOR COMPENSATION PLAN, AS
DESCRIBED ABOVE.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Howard O. Woltz, Jr., Chairman of the Company, is a shareholder in ICS
3-D Panel Works, Inc. ("ICSPW"). In May 1997, the Company sold its ICS division
to ICSPW, a new corporation organized by the division's management group. Prior
to the sale, the Audit Committee of the Company's Board of Directors reviewed
the terms of the proposed transaction focusing particularly on the
participation of Mr. Woltz as an investor. Based upon the continuing operating
losses of ICS and the prospective benefit to the Company from the sale of the
division, the Audit Committee concluded that (1) Mr. Woltz' participation was
essential to the transaction and beneficial to the Company and (2) approval of
the transaction was in the best interests of the Company. Based upon the Audit
Committee's recommendation, the Board of Directors approved the transaction.
C. Richard Vaughn, a director, is Chairman of the Board of John S.
Clark Company, Inc. ("Clark"), a general building contractor located in Mount
Airy, North Carolina, and doing business throughout the southeastern United
States. During fiscal 1997, Clark completed construction of an addition to the
Company's manufacturing facility located in Fredericksburg, Virginia, to allow
the plant to manufacture tire bead wire. Payments made to Clark during fiscal
1997 amounted to $5,904,000. In the past Clark has built manufacturing
facilities and offices for the Company as well as several additions and
renovations.
Management believes that amounts paid by the Company in connection
with the transactions described above are reasonable and no less favorable to
the Company than would have been paid pursuant to arms' length transactions
with unaffiliated parties. Transactions in the future between the Company and
its officers, directors, principal shareholders, or affiliates of any of them,
will be on terms no less favorable to the Company than could be obtained from
unaffiliated parties.
14
<PAGE> 17
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return
on the Company's Common Stock, based on the market price of the Common Stock
and assuming reinvestment of dividends, with the cumulative total return of
companies on the Standard & Poor's 500 Index and the Standard & Poor's
Manufacturing (Diversified Industrial) Index. The indices are included for
comparison purposes only and do not necessarily reflect management's opinion
that these indices are appropriate measures of the relative performance of the
Company's Common Stock. The graph is not intended to forecast or be indicative
of the future performance of the Company's Common Stock.
The performance graph shall not be deemed incorporated by reference in
any filing made under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, and shall not otherwise be deemed filed under
such Acts.
RESEARCH Total Return - Data Summary
<TABLE>
<CAPTION>
Cumulative Total Return
-----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
9/92 9/93 9/94 9/95 9/96 9/97
INSTEEL INDS INC III 100 107 99 87 83 102
S&P 500 1500 100 113 117 152 183 257
S&P MANUFACTURING (DIVERSIFIED) IMNV 100 119 132 175 226 315
</TABLE>
15
<PAGE> 18
CORPORATE GOVERNANCE
The Company's Board of Directors held four meetings during fiscal
1997. Due to illness, John Woltz and Frances Johnson attended less that 75% of
the meetings of the Board of Directors and committees on which they serve. All
other directors attended at least 75% of the meetings of the Board of Directors
and of all committees on which they serve.
The Company's Board of Directors does not have a nominating committee.
The full Board of Directors performs the functions that a nominating committee
might provide.
There is an Executive Committee comprised of Howard O. Woltz, Jr.
(Chairman) and H.O. Woltz III. The Executive Committee, which did not meet
during fiscal 1997, may exercise generally the power and authority of the Board
of Directors during intervals between meetings of the Board of Directors.
There is an Audit Committee, comprised of Louis E. Hannen (Chairman)
and Charles B. Newsome. The Audit Committee, which met once during fiscal 1997,
recommends to the Board of Directors the selection of independent auditors and
approves the nature and scope of services performed by such auditors and
reviews the range of fees for such services. This Committee confers with the
independent auditors to review the results of the audit and to review the
adequacy of the Company's internal auditing, accounting and financial controls.
The Committee also assists the Board of Directors with respect to the corporate
reporting practices of the Company.
There is an Executive Compensation Committee comprised of C. Richard
Vaughn (Chairman) and John E. Woltz. See "Executive Compensation - Executive
Compensation Committee Report," above. The Executive Compensation Committee met
once during fiscal 1997.
INDEPENDENT AUDITORS
Arthur Andersen LLP has served as the Company's independent auditors
since 1996. Management is aware of no direct financial interest or any material
indirect financial interest existing between the Company and its auditors.
The Company's independent auditors are selected annually by the Board
of Directors upon recommendation of the Audit Committee. A representative from
Arthur Andersen LLP is expected to be present at the Annual Meeting of
Shareholders with the opportunity to make a statement if he desires to do so
and to answer any questions that concern the firm's work for the Company.
GENERAL
The accompanying Proxy is solicited by and on behalf of the Board of
Directors of the Company, and the entire cost of such solicitation will be
borne by the Company. In addition to solicitation by mail, arrangements will be
made with brokerage houses and other custodians, nominees and fiduciaries to
send proxy material to their principals, and the Company will reimburse them
for their reasonable expenses in so doing.
The Board of Directors has fixed December 2, 1997, as the record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting. On December 2, 1997, there were 8,442,512 outstanding shares of
Common Stock of the Company, each entitled to one vote. According to the laws
of North Carolina, under which the Company is incorporated, shareholders do not
have cumulative voting rights in connection with the election of directors as
long as the Company has securities registered under the Securities Exchange Act
of 1934 at the record date for determining shareholders eligible to vote at the
meeting. Directors are elected by a plurality of the votes cast by the shares
entitled to vote in the election at a meeting at which a quorum is present.
With regard to the election of directors, votes may be cast in favor or
withheld. Votes that are withheld will be excluded entirely from the vote and
will have no effect, although they will be counted for purposes of establishing
the presence of a quorum. Under the rules of the New York Stock Exchange, Inc.,
brokers who hold shares in street name for customers have authority to vote on
certain items when they have not received instructions from beneficial owners.
Brokers that do not receive instructions are entitled to vote on the election
of directors.
Where a choice is specified on any Proxy as to the vote on any matter
to come before the meeting, the Proxy will be voted in accordance with such
specification. If no specification is made but the Proxy is properly signed,
the shares represented thereby will be voted in favor of each proposal. Such
proxies, whether submitted by shareholders of record or by brokers
16
<PAGE> 19
holding shares in street name for their customers ("broker non-votes"), will be
voted in favor of nominees for directors. Broker non-votes will not be counted
either way in voting on Proposal No. 2 and Proposal No. 3 (where direction of
beneficial owners is required) and, therefore, will have the effect of negative
votes.
Any shareholder submitting the accompanying Proxy has the right to
revoke it by submitting a later dated proxy or by notifying the Secretary of
the Company in writing at any time prior to the voting of the Proxy. A Proxy is
suspended if the person giving the Proxy attends the meeting and elects to vote
in person.
Management is not aware that any matters, other than the matters
specified above, will be presented for action at the meeting, but, if any other
matters do properly come before the meeting, the persons named as agents in the
Proxy will vote upon such matters in accordance with their best judgment.
DEADLINE FOR SHAREHOLDERS' PROPOSALS
Any shareholder desiring to present a proposal for action at the
Company's 1999 Annual Meeting must deliver the proposal to the Company at its
principal executive offices no later than September 30, 1998.
By Order of the Board of Directors
Gary D. Kniskern
Secretary
Mount Airy, North Carolina
December 18, 1997
17
<PAGE> 20
INSTEEL INDUSTRIES INC. RETURN ON CAPITAL INCENTIVE COMPENSATION
PLAN FOR KEY MEMBERS OF MANAGEMENT
1. Statement of Purpose
The purpose of the Insteel Industries Inc. Return on Capital Incentive
Compensation Plan For Key Members Of Management (the "Plan) is to encourage the
creation of shareholder value by establishing a direct link between the Return
on Capital (ROC) achieved and management's incentive compensation.
The Participants contribute to the success of Insteel Industries Inc. (the
"Company") through their ability and commitment to the Company. The Company
desires to receive the benefits derived from the services of the Participants,
to identify the continued interests of the Participants with the future success
of the Company, and to provide an incentive compensation plan that encourages
sustained achievement of the Company's objective to maximize shareholder
wealth.
2. Definitions
2.1. Bonus Award
"Bonus Award" means the dollar amount which results from the
multiplication of the Bonus Percent for the year, by the Participant's
Base Salary for the same year.
2.2. Bonus Percent
"Bonus Percent" means the percentage amount which results from the
multiplication of the Participant's Target Bonus Percent for the Year,
by the Performance Factor for the same Year.
2.3. Bonus Bank
"Bonus Bank" means the accrual account maintained by the Company for
each Participant, into which either (i) the excess, for any Year, of
any Bonus Award above One-Third of the Participant's Target Bonus
Amount is credited; or (ii) the deficiency, for any Year, of any Award
below zero (0) is debited; and/or (iii) the Bonus Bank Distribution,
for any Year, as calculated in accordance with Section 5.3 is debited.
Such account, for book accounting purposes, shall be accrued in
accordance with generally accepted accounting principles. The Company
does not and will not transfer cash into such accounts and the
accounts exist only as bookkeeping records to evidence the Company's
obligation to pay these amounts according to the Plan. No interest is
credited on amounts in the Bonus Bank, and the individual's Bonus Bank
balance shall never be less than zero (0). Participants are never
vested in amounts in the Bonus Bank, and such amounts are not earned
until the respective Distribution Date.
2.4. Base Salary
"Base Salary" means the Participant's actual base salary compensation
earned during the Year; or partial Year, in the event of death,
Disability or Retirement during the year; excluding incentive
payments, salary continuation, and other payments which are not, in
the sole determination of the Committee, actual base salary.
<PAGE> 21
2.5. Beneficiary
"Beneficiary" means the person or persons designated as such in
accordance with Section 6.
2.6. c*
"c*" also referred to as the "Weighted Average Cost of Capital," means
the Company's weighted average cost of debt and equity expressed as a
percent. It represents the Company's minimum required rate of return
on capital, as established by management. It shall be a rate rounded
to the nearest whole percent.
2.7. Committee
"Committee" means the Executive Compensation Committee.
2.8. Disability
"Disability" means a bodily injury or diseases as determined by the
Committee, that totally and continuously prevents the Participant, for
at least six (6) consecutive months, from engaging in an "occupation"
for pay or profit. During the first twenty-four (24) months of total
disability, "occupation" means the Participant's regular occupation.
After that period, "occupation" means any occupation for which the
Participant is reasonably fitted, based upon the Participant's
education, training or experience as determined by the Committee.
2.9. Distribution
"Distribution" means the cash payment and/or deferral amount resulting
from a Bonus Award or from a Bonus Bank or from a combination thereof.
2.10. Distribution Date
"Distribution Date" means the date on which the Employer makes
Distributions of Participant Awards and/or Distributions from the
Participants' Bonus Banks. The Distribution Date shall be once each
Year and no later than December 15 of the Year following the Year for
which an Award was calculated.
2.11. Effective Date
"Effective Date" means October 1, 1996, the date on which the Plan
commences.
2.12. Eligible Employee
"Eligible Employee" means a regular, exempt, salaried employee of the
Company who may be selected by management and recommended to the
Executive Compensation Committee for participation.
2.13. Employer
"Employer" (also referred to as the "Company") means Insteel
Industries Inc. and its wholly owned subsidiaries.
2.14. Executive Compensation Committee
"Executive Compensation Committee" (also referred to as the
"Committee") means the Executive Compensation
<PAGE> 22
Committee of the Board of Directors of Insteel Industries Inc., which
administers the Plan.
2.15. Expected Improvement Factor
The annual increase in SV, above the average of the prior year's
actual and target SV, required to produce a Performance Factor of 1.00
or the Target Bonus Percent.
2.16. Invested Capital
"Invested Capital" means total assets less non-interest bearing
current liabilities, and for the Year represents the average of each
of twelve (12) month end amounts.
2.17. Leverage Factor
"Leverage Factor" determines the sensitivity of the Bonus Award to
performance - the slope of the SV-Bonus Award Line.
2.18. Net Operating Profit After Tax
"Net Operating Profit After Tax" (also referred to as "NOPAT") means
operating income before financing costs and income taxes reduced by
income taxes which are computed by applying a statistical tax rate
appropriate to the jurisdiction(s) in which the Company operates. The
total Awards for all the incentive plans other than this Plan are
charged to operating income of the Company prior to the computation of
NOPAT.
2.19. Participant
"Participant" means an Eligible Employee who has been recommended for
participation in the Plan by management and approved by the Committee.
Designation as a Participant must be renewed annually.
2.20. Performance Factor
"Performance Factor" means that number described in Section 4.2 which
is multiplied by a Participant's Target Bonus Percent to arrive at
such Participant's Bonus Percent.
2.21. Plan
"Plan" means this 1995 Return on Capital Incentive Compensation Plan
for Key Members of Management, as it may be hereafter amended.
2.22. Retirement
"Retirement" means termination of employment by a Participant for
whatever reason other than death or Disability after attainment of age
fifty-five (55), or, if prior to having attained age fifty-five (55),
only after having obtained prior permission of the Committee. A
Participant who has experienced a Retirement as defined herein shall
be termed a "Retiree."
2.23. Shareholder Value
"Shareholder Value," also referred to as "SV," for the Company means
the amount obtained by subtracting (i) a capital charge computed by
multiplying Invested Capital for such year by c*, from(ii) Net
Operating Profit After Tax for such year, or as follows: SV = Net
Operating Profit After Tax - (Invested Capital x c*)
<PAGE> 23
2.24. Target SV
"Target SV" means that SV amount, whether positive, negative or zero
(0), which, if attained, produces a Performance Factor of one (1.000).
For any one Year, Target SV shall equal the sum of (i) the average of
prior Year's Target SV, and the prior Year's Actual SV and (ii)the
Expected Improvement Factor.
2.25. Target Bonus Amount
"Target Bonus Amount" means that dollar amount earned that results
from multiplying the Target Bonus Percent for the year by the
Participant's Base Salary for the same year.
2.26. Target Bonus Percent
"Target Bonus Percent" means Percent of Base Salary earned if actual
SV equals Target SV.
2.27. Year
"Year" means the fiscal year in respect of which performance is
measured under the Plan.
2.28. Administration of the Plan
The Executive Compensation Committee shall be the sole administrator
of the Plan. The Committee shall have full power to formulate
additional details and regulations and make interpretations for
carrying out the Plan. The Committee shall also be empowered to make
any and all of the determinations not herein specifically authorized
which may be necessary or desirable for the effective administration
of the Plan. Any decision or interpretation of any provision of this
Plan adopted by the Committee shall be final and conclusive.
3. Targets
3.1. Establishment of Target Bonus Percent
At the time a Participant commences participation in the Plan, there
shall be established for such Participant a Target Bonus Percent. The
Target Bonus Percent for such Participant for any future Year(s) may
be increased, decreased or left unchanged from the prior Year.
Following the end of each Year, the Target Bonus Percent for that Year
will be multiplied by the Base Salary of such Participant for that
Year to arrive at the Target Bonus Amount for such Participant. The
Target Bonus Amount will then be multiplied by the Performance Factor
for that Year to arrive at the amount of the Bonus Award, if any, and
the amount of the credit or debit to the Participant's Bonus Bank, if
any.
4. Calculation of the Performance Factors, Awards, Bonus Banks and Distributions
4.1. Timing of the Calculation
The calculations necessary to obtain the Performance Factor for the
Year most recently ended shall be made no later than December 15 of
the subsequent fiscal year. Such calculation shall be carried out in
accordance with this Section.
<PAGE> 24
4.2. Calculation of the Performance Factor
The Performance Factor for the Year corresponds with the difference
between the Actual SV and Target SV in relation to the leverage factor
where such difference is calculated by subtracting (i) the Target SV
from (ii) the Actual SV for the Year.
The Performance Factor shall be multiplied by the Participant's Target
Bonus Amount to arrive at such Participant's Award and Bonus Bank
credits or debits, if any, for such Year.
4.3. Calculation of Distributions
If the Performance Factor for the Year is greater than one, then the
Participant's Award Distribution for that Year's performance shall
equal the target bonus amount plus one-third of the Bonus Bank
balance. In addition, the Participant's Bonus Bank shall be credited
with an amount calculated consistent with Section 4.4.
If the Performance Factor for the Year is greater than zero (0) but
less than or equal to the Participant's Target Bonus Amount, then that
Performance Factor shall be multiplied by each Participant's Target
Bonus Amount and the result shall be each Participant's Award
Distribution for that Year's performance. In addition, if at the
beginning of the Year the Participant had a Bonus Bank balance
resulting from prior Years' performance of that Participating Unit, an
additional Distribution will be made from the Participant's Bonus Bank
in an amount which represents the lesser of (i) One-Third of the
Participant's Bonus Bank balance at the beginning of the Year or (ii)
an amount which when combined with the Award Distribution for that
Year's performance equals the Participant's Target Bonus Amount.
If the Performance Factor for the Year is zero (0), then the
Participant's Award Distribution for that Year's performance shall be
zero (0). However, if at the beginning of the Year, the Participant
had a Bonus Bank balance resulting from prior Years' performance, a
Distribution will be made from the Participant's Bonus Bank in an
amount which represents the lesser of (i) One-Third of the
Participant's Bonus Bank balance at the beginning of the Year or (ii)
an amount which equals the Participant's Target Bonus Amount.
If the Performance Factor for the Year is less than zero (0), then the
Participant's Award Distribution for that Year's performance shall be
zero (0). However, if subsequent to the completion of the calculation
described in Section 4.4, the Participant has a Bonus Bank balance
resulting from prior Years' performance, a Distribution will be made
from the Participant's Bonus Bank in an amount which represents the
lesser of (i) One-Third of the Participant's Bonus Bank balance
following the debit calculated consistent with Section 4.4 or (ii) an
amount which equals the Participant's Target Bonus Amount.
In the event the Target Bonus Percent of a Participant who is an
active employee is changed to zero (0) and such Participant's Bonus
Bank balance is greater than zero (0), then the Target Bonus Amount to
be used for Bonus Bank Distributions shall be that Target Bonus Amount
of such Participant for the Year immediately prior to the Year of such
change.
<PAGE> 25
4.4. Calculation of the Credits and Debits to Participant's Bonus Bank
Accounts
If the Performance Factor for the Year is greater than one (1) for any
respective Participant, then a credit to the Participant's respective
Bonus Bank will be made for Two-Thirds of that amount by which the
product obtained by multiplying, (i) the Performance Factor for such
Year times (ii) the Participant's Target Bonus Amount, exceeds the
Participant's Target Bonus Amount. Credits to the Bonus Bank do not
qualify as Distributions for the purpose of any deferred compensation
plan(s) maintained by the Company.
If the Performance Factor for the Year is less than zero (0) for any
respective Participation Basis, then a debit to the Participant's
respective Bonus Bank will be made in an amount equal to the product
obtained by multiplying, (i) the Performance Factor for such Year by
(ii) the Participant's Target Bonus Amount; however, in no event shall
a Participant's Bonus Bank ever be reduced to less than zero (0).
4.5. Calculation of Award Distributions and Credits and Debits to
Participants' Bonus Banks When a Participant Has Multiple
Participation Bases
In the event a Participant has been assigned multiple Participation
Bases for a Year, then Awards, Bonus Banks, Performance Factors and
Target Bonus Amounts shall be calculated separately and independently
for each Participation Basis of such Participant.
Bonus Banks shall be maintained separately for credits and debits from
each Participation Basis. Debits from one Participation Basis may not
be charged against a Bonus Bank of another Participation Basis.
4.6. Changes in Participation Basis During the Year
In the event a Participant experiences a change in Participation Basis
during a Year, then Awards, Bonus Banks, Performance Factors and
Target Bonus Amounts shall be calculated separately and independently
for each Participation Basis of such Participant using those portions
of the Participant's Base Salary actually paid for service while
included in each separate Participation Basis.
Bonus Banks shall be maintained separately for credits and debits from
each Participation Basis. Debits from one Participation Basis may not
be charged against a Bonus Bank of another Participation Basis.
Distribution(s) from the Bonus Bank for an individual who experiences
a change in Participation Basis will be the same as such
Distribution(s) would have been had there been no change in Base
Salary, Target Bonus Amount or Participation Basis, and such
Distribution(s) from more than one Participation Basis shall be made
by applying Sections 4.3 and 4.4 separately and independently to each
such Participation Basis.
4.7. Changes in Target Bonus Percent During the Year
In the event a Participant experiences a change in Target Incentive
<PAGE> 26
Percent without experiencing a change in Participation Basis during a
Year, then Award calculations and Bonus Bank adjustments will be made
separately using those portions of the Participant's Base Salary
actually paid for service while participating at each separate Target
Bonus Percent.
Separate Bonus Bank accounts shall not be maintained because Of
changes in a Participant's Target Bonus Percent. Total Bonus Bank
Distributions of such Participant may not exceed such Participant's
Target Bonus Amount subsequent to the change. In the event the new
Target Bonus Percent is zero (0), then the Target Bonus Amount to be
used for Bonus Bank Distributions shall be that Target Bonus Amount of
the Year immediately prior to the Year of such change.
4.8. Taxes: Withholding
To the extent required by law, the Company shall withhold from all
cash Distributions made hereunder any amount required to be withheld
by the federal and any state, provincial or local government.
5. Distributions Following Termination
5.1. Eligibility
A Participant who terminates prior to September 30 of a Year shall not
be eligible for any Distribution for such Year or any future
Distributions, unless such termination is by reason of Retirement,
death or Disability.
5.2. Distributions for the Year of Retirement, Disability
Distributions for a Participant for the Year of such Participant's
Retirement, death or Disability shall be on the same basis as for all
Other Participants.
5.3. Bonus Bank Distributions the Year Following the Year of
Retirement, Death or Disability
Bonus Bank Distributions to a Participant in the Year immediately
following the Year of such Participant's Retirement, death or
Disability shall be calculated in the same way as for all other
Participants, except that no adjustments for performance achieved
beyond the year of death or Disability shall be allowed in the case of
Participants who have experienced a termination by reason of death or
Disability. Adjustments to the Bonus Bank for individuals who have
experienced a Retirement will be the same as for all other
Participants for the Year of Retirement. Bonus Bank adjustments, if
any, for the Year immediately subsequent to the Year of Retirement for
such Participants may only be negative, and then only if the Actual
ROC is such that the Performance Factor for the Year subsequent to
Retirement is negative. Such calculations will be based upon the
Participant's Target Bonus Amount for the twelve months immediately
preceding retirement.
Complete Distribution of Bonus Banks of individuals who have
experienced a termination by reason of Retirement, death or Disability
shall be accomplished no later than the Distribution Date for the Year
following the Year of Retirement, death or Disability, even though
<PAGE> 27
such Distribution may exceed twice the terminated Participant's Target
Incentive Amount.
6. Beneficiary Designation
The Participant shall have the right, at any time and from time to
time, to designate and/or change or cancel any person/persons or
entity as to his Beneficiary (both principal and contingent) to whom
Distribution of Award(s) and/or Bonus Bank(s) under this Plan shall be
made in the event of such Participant's death prior to a Distribution.
Any Beneficiary change or cancellation shall become effective only
when filed in writing with the Committee during the Participant's
lifetime on a form provided by or otherwise acceptable to the Company.
The filing of a new Beneficiary designation form will cancel all
Beneficiary designations previously filed. Any finalized divorce of a
Participant subsequent to the date of filing of a Beneficiary
designation form shall revoke any prior designation of the divorced
spouse as a Beneficiary. The spouse of a Participant domiciled in a
community property jurisdiction shall be required to join in any
designation of Beneficiary other than the spouse in order for the
Beneficiary designation to be effective.
If a Participant fails to designate a Beneficiary as provided above,
or, if such Beneficiary designation is revoked by divorce, or
otherwise, without execution of a new designation, or if all
designated Beneficiaries predecease the Participant, then the
Distribution shall be made to the Participant's estate.
7. Miscellaneous
7.1. Unsecured General Creditor
Participants and their beneficiaries, heirs, successors and assigns
shall have no legal or equitable rights, interests, or other claim in
any property or assets of the Employer. Any and all assets shall
remain general, unpledged, unrestricted assets of the Employer. The
Company's obligation under the Plan shall be that of an unfunded and
unsecured promise to pay money in the future, and there shall be no
obligation to establish any fund, any security or any otherwise
restricted asset, in order to provide for the payment of amounts under
the Plan.
7.2. Obligations To The Employer
If a Participant becomes entitled to a Distribution under the Plan,
and, if, at the time of the Distribution, such Participant has
outstanding any debt, obligation or other liability representing an
amount owed to the Employer, then the Employer may offset such amounts
owing to it or any affiliate against the amount of any Distribution.
Such determination shall be made by the Committee. Any election by the
Committee not to reduce any Distribution shall not constitute a waiver
of any claim for any outstanding debt, obligation, or other liability
representing an amount owed to the Employer.
7.3. Nonassignability
Neither a Participant nor any other person shall have any right to
commute, sell, assign, transfer, pledge, anticipate, mortgage or
<PAGE> 28
otherwise encumber, transfer, hypothecate or convey in advance of
actual receipt the amounts, if any, payable hereunder, or any part
thereof, which are, and all rights to which are, expressly declared to
be unassignable and nontransferable. No part of an Award and/or Bonus
Bank, prior to actual Distribution, shall be subject to seizure or
sequestration for the payment of any debts, Judgements, alimony or
separate maintenance owed by a Participant or any other person, nor
shall it be transferable by operation of law in the event of the
Participant's or any other persons bankruptcy or insolvency.
7.4. Employment or Future Eligibility to Participate Not Guaranteed
Nothing contained in this Plan nor any action taken hereunder shall be
construed as a contract of employment or as giving any Eligible
Employee or any Participant or any former Participant any right to be
retained in the employ of the Employer. Designation as an Eligible
Employee or as a Participant is on a year-by-year basis and may or may
not be renewed for any employment years not yet commenced.
7.5. Gender, Singular and Plural
All pronouns and any variations thereof shall be deemed to refer to
the masculine, feminine, or neuter, as the identity of the person or
persons may require. As the context may require, the singular may be
read as the plural and the plural as the singular.
7.6. Captions
The captions to the articles, sections, and paragraphs of this Plan
are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
7.7. Applicable Law
This Plan shall be governed and construed in accordance with the laws
of the State of North Carolina.
7.8. Validity
In the event any provision of the Plan is held invalid, void, or
unenforceable, the same shall not affect, in any respect whatsoever,
the validity of any other provision of the Plan.
7.9. Notice
Any notice or filing required or permitted to be given to the
Committee shall be sufficient if in writing and hand delivered, or
sent by registered or certified mail, to the principal office of the
Company, directed to the attention of the President and CEO of the
Company. Such notice shall be deemed given as of the date of delivery
or, if delivery is made by mail, as of the date shown on the postmark
on the receipt for registration or certification.
8. Amendment and Termination of the Plan
8.1. Amendment
The Committee may at any time amend the Plan in whole or in part
provided, however, that no amendment shall be effective to affect the
Participant's right to designate a beneficiary.
<PAGE> 29
8.2. Termination of the Plan
a. Employer's Right to Terminate. The Committee may at any time
terminate the Plan as to prospective earning of Awards, if it
determines in good faith that the continuation of the Plan is not
in the best interest of the Company and its shareholders. No such
termination of the Plan shall reduce any Distribution already
made.
b. Payments Upon Termination of the Plan. Upon any termination of
the Plan under this Section, Awards for future years shall not be
made. With respect to the Year in which such termination takes
place, the employer will pay to each Participant the Participant's
Award for such Year or partial Year, less any applicable taxes on
the 15th day of December in the fiscal year following the year of
termination of the Plan. Bonus Bank Distributions shall be made in
their entirety to the Participants on the 15th day of December in
the fiscal year Following the year of termination of the Plan,
notwithstanding that such final Distribution may be in excess of
twice a Participant's Target Bonus Amount.
IN WITNESS WHEREOF, this Insteel Industries, Inc.
Return on Capital Incentive Plan has been executed in behalf of the Company
effective as of the _____________ day of ____________________, 199___.
INSTEEL INDUSTRIES, INC.
-------------------------
H.O. Woltz III
President
Attest:
- --------------------------------
Gary D. Kniskern, Secretary
<PAGE> 30
INSTEEL INDUSTRIES, INC.
1997 DECLARATION OF AMENDMENT TO
INSTEEL INDUSTRIES, INC.
RETURN ON CAPITAL INCENTIVE COMPENSATION PLAN
FOR KEY MEMBERS OF MANAGEMENT
THIS DECLARATION OF AMENDMENT, made this _____ day of ______________
__________________, 199__, by INSTEEL INDUSTRIES, INC., a North Carolina
corporation (the "Corporation"), to the Insteel Industries, Inc. Return on
Capital Incentive Compensation Plan for Key Members of Management (the "Plan").
R E C I T A L S:
WHEREAS, the Corporation has established the Plan, the purposes of
which include improving the association between shareholder value of the
Corporation and incentive compensation paid to selected members of management
of the Corporation; and
WHEREAS, to accomplish the Plan's purposes, the Plan currently
provides for the distribution of cash payments or deferral amounts, or both,
from bonus awards and individual bonus accrual accounts to those Plan
participants who qualify for such distributions; and
WHEREAS, the Corporation has determined that the purposes of the Plan
would be better served if the Plan provided for distributions in the form of
cash or shares of the common stock (the "Common Stock") of the Corporation, or
both, as determined in accordance with Plan terms by the Executive Compensation
Committee (the "Committee") of the Board of Directors of the Corporation; and
WHEREAS, the Corporation has reserved 100,000 shares of Common Stock
for distribution pursuant to the Plan; and
WHEREAS, the Committee has authority to administer and amend the Plan;
NOW, THEREFORE, IT IS DECLARED, that, effective as of ______________
___, 19__, the Plan shall be amended as follows:
1. The Plan is hereby amended to add new Section 2.7.1
immediately following Section 2.7, as follows:
"2.7.1. Common Stock. "Common Stock" means the common stock of
the Company."
-1-
<PAGE> 31
2. Section 2.9 of the Plan shall be deleted in its
entirety and the following shall be inserted in lieu thereof:
"2.9. Distribution. Distribution means the payment
in cash or shares of the Common Stock and/or the deferral
amount payable in cash or shares of Common Stock resulting
from a Bonus Award or a Bonus Bank or from a combination
thereof."
3. The Plan is hereby amended to add a new Section
2.16.1 immediately following Section 2.17, as follows:
"2.16.1 Fair Market Value. The "Fair Market Value"
per share of the Common Stock shall be determined in good
faith by the Committee in accordance with the following
provisions: (i) if the shares of Common Stock are listed for
trading on the New York Stock Exchange or the American Stock
Exchange or included in the Nasdaq National Market, the Fair
Market Value shall be the closing sales price of the shares
on the New York Stock Exchange or the American Stock Exchange
or as reported in the Nasdaq National Market (as applicable)
on the date immediately preceding the date as of which the
valuation is being made, or if there is no transaction on
such date, then on the trading date nearest preceding such
date for which closing price information is available and,
provided further, if the shares are quoted on the Nasdaq
national market, the Fair Market Value shall be the mean
between the high bid and low asked quotations in the Nasdaq
stock market on the date immediately preceding the date as of
which the valuation is being made; or (ii) if the shares of
Common Stock are not listed or reported in any of the
foregoing, then Fair Market Value shall be determined by the
Committee in accordance with the applicable provisions of
Section 20.2031-2 of the Federal Estate Tax Regulations, or
in any other manner consistent with the Internal Revenue Code
of 1986, as amended, and accompanying regulations."
4. The Plan is hereby amended to add a Section 5.4 immediately
following Section 5.3:
"5.4 Form of Distributions.
(i) The Committee shall have sole discretion to
determine whether distributions which are otherwise due and
payable shall be paid in cash or shares of Common Stock and
to determine whether such distributions shall be paid on a
current basis or on a deferred or installment basis (subject
to the provisions of Section 4.7 herein). The Committee shall
also have sole discretion to determine whether, and to what
extent, interest shall accrue on distributions that are paid
on a deferred or installment basis.
(ii) Distributions that are made in the form of
Common Stock shall be valued so that the Fair Market Value of
such shares of Common Stock equals that portion of the dollar
value of the participant's Bonus Award or
-2-
<PAGE> 32
Bonus Bank which the Committee has determined shall be paid in
Common Stock. Valuation of the Common Stock shall be made on
the first trading day in December of each year. Certificates
for shares of Common Stock which are due and distributable to
a participant shall be issued to the participant (or his
beneficiary) as soon as practicable following the date such
distributions are due.
(iii) The distribution of shares of Common Stock
shall be subject to all applicable laws, rules and
regulations, and to such approval by any governmental or
other agencies, as may be required. No shares of Common Stock
shall be issued or distributed under the Plan unless and
until all legal requirements applicable to such issuance or
distribution have, in the opinion of counsel to the Company,
been complied with. In connection with any such issuance,
distribution or transfer, the person acquiring shares of
Common Stock shall, if requested by the Company, give
assurances satisfactory to the Company in respect to such
matters as the Company may deem desirable to assure
compliance with all applicable legal requirements.
(iv) To the extent required pursuant to Rule
16b-3 adopted under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or any successor statute or
rule, distributions in the form of Common Stock to persons
subject to Section 16 of the Exchange Act may not be disposed
of for a period of six months from the date of distribution
of such shares of Common Stock."
5. The following sentence shall be added to Section 7.1
after the last sentence of such section, with the remainder of Section 7.1
being unchanged:
"Notwithstanding the foregoing, the Company may elect to
segregate assets in a trust or otherwise for the purpose of
making payments under the Plan, but such assets shall remain
subject to the claims of creditors of the Company and
participants shall have no interest in or claim against such
assets as beneficiaries or otherwise."
-3-
<PAGE> 33
IN WITNESS WHEREOF, this Declaration of Amendment is executed on
behalf of Insteel Industries, Inc. as of the day and year first above written.
INSTEEL INDUSTRIES, INC.
By:
--------------------------------------
[PRESIDENT AND CHIEF EXECUTIVE OFFICER]
ATTEST:
Secretary
[Corporate Seal]
-4-
<PAGE> 34
APPENDIX
PROXY
INSTEEL INDUSTRIES, INC.
1373 Boggs Drive - Mount Airy, North Carolina 27030
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
February 3, 1998
Howard O. Woltz, Jr. and H. O. Woltz III, and each of them, are appointed as
agents of the undersigned to vote as proxies for the undersigned, with full
power of substitution, at the Annual Meeting of Shareholders to be held on
Tuesday, February 3, 1998, and at any adjournment thereof, as follows:
<TABLE>
<S> <C>
(1) ELECTION OF THREE DIRECTORS [ ] WITHOLD AUTHORITY to vote for all
[ ] VOTE FOR all nominees listed below nominees listed below
(except as marked to the contrary)
</TABLE>
Nominees: Howard O. Woltz, Jr., C. Richard Vaughn, Louis E. Hannen
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name
(2) To approve issuance of shares of the Company's Common Stock to certain
employees of the Company as partial payment of bonuses under the Company's
Return on Capital Incentive Compensation Plan.
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
PLEASE SIGN AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SEE OTHER SIDE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 35
(CONTINUED FROM OTHER SIDE)
(3) To approve issuance of shares of the Company's Common Stock to
nonemployee directors as partial payment of their annual retainer
fee under the Company's Director Compensation Plan.
[ ] VOTE FOR [ ] VOTE AGAINST [ ] ABSTAIN
(4) To vote, in the discretion of said agents, upon such other business
as may properly come before the meeting.
This proxy is solicited on behalf of the Board of Directors and will be voted
in accordance with the specifications made. IF NO CHOICE IS INDICATED ABOVE
WITH RESPECT TO ANY MATTER WHERE A BALLOT IS PROVIDED, THE PROXY WILL BE VOTED
FOR SUCH MATTER.
Dated
--------------------------- -----------------------------
-----------------------------
-----------------------------
SIGNATURES
NOTE: Please date and sign
exactly as the name appears
hereon. If stock is registered
in more than one name, each
holder should sign.
IMPORTANT! PLEASE SIGN, DATE AND RETURN PROMPTLY.
