<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 Section 240.14a-11(c) or
Section 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 9, 1999
------------------
The Annual Meeting of Shareholders of Insteel Industries, Inc., will be
held on Tuesday, February 9, 1999, at 10:00 A.M., at Cross Creek Country Club,
845 Greenhill Road, 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 transact such other business as may be brought before the meeting.
Shareholders of record at the close of business on December 11, 1998, 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, 1998
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 being sent to shareholders on or about December 18,
1998, in connection with the solicitation of proxies for use at the Annual
Meeting of Shareholders of Insteel Industries, Inc. ("Insteel" or the
"Company"), to be held on Tuesday, February 9, 1999, 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. The
nominees are presently serving as directors of 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 11, 1998 as the record date for
the determination of shareholders entitled to notice of and to vote at the
Annual Meeting. On December 11, 1998, 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 holding
shares in street name for their customers ("broker non-votes"), will be voted in
favor of nominees for directors.
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.
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<PAGE> 4
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. The enclosed
proxy may also confer discretionary authority to vote on any matter that is the
subject of a shareholder proposal for action at the 1999 Annual meeting which
was not submitted for inclusion in the proxy statement.
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 2002 Annual Meeting of Shareholders or until
their successors are elected and qualify. Other directors will continue in
office as indicated.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 2002:
W. Allen Rogers, II, 52, has been a director of the Company since 1986,
except for a brief time during 1997 and 1998. Mr. Rogers is the President of
Rogers & Company, Inc., an investment banking firm organized in 1998 which
specializes in mergers and acquisitions. Previously, he served as Managing
Director of KPMG BayMark Capital LLC, an investment banking firm, from August
1995 until January 1997 and of KPMG Peat Marwick LLP from January 1997 until
April 1998. Prior to August 1995, Mr. Rogers served as Senior Vice
President/Investment Banking of Interstate/Johnson Lane Corporation from 1986 to
1995 and a member of that firm's board of directors from 1990 to 1995. Mr.
Rogers serves on the Executive Compensation Committee of the Company's Board of
Directors.
Gary L. Pechota, 49, was elected a director by the Company's Board of
Directors in September 1998 to fill an existing vacancy. Mr. Pechota has served
as President, CEO and Chairman of the Board of Giant Cement Holding, Inc. since
its inception in April 1994. He has also served as President of Giant Cement
Company, a subsidiary of Giant Cement Holding, Inc., since January 1993, and as
President of Keystone Cement Company since May 1992. Prior to joining Keystone,
Mr. Pechota served as President and CEO of South Dakota Cement from 1982-1992.
William J. Shields, 66, was elected a director by the Company's Board of
Directors in November 1998 to fill an existing vacancy. Mr. Shields served as
Chairman and CEO of Co-Steel, Inc., an international steel producer and scrap
recycling company from 1995 until his retirement in June 1997. Mr. Shields
previously served as President and CEO of Co-Steel, Inc. from 1987 until 1995.
DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING OF SHAREHOLDERS IN 2001:
Howard O. Woltz, Jr., 73, father of H.O. Woltz III, 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.,
2
<PAGE> 5
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, 59, 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 on the Executive Committee and as Chairman of the Executive
Compensation Committee of the Company's Board of Directors.
Louis E. Hannen, 60, a director of the Company since 1995, served Wheat,
First Securities, Inc., in Richmond, Virginia, in various capacities from 1975
until his retirement as Senior Vice President in December of 1993. Mr. Hannen
had 30 years of experience in the securities analysis and research field,
starting with the U.S. Securities and 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, 42, a son of Howard O. Woltz, Jr., 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, 78, 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, 61, 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.
3
<PAGE> 6
PRINCIPAL SHAREHOLDERS
As of December 11, 1998, 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 securities, 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. 624,954 (2)(3) 7.4%
819 Greenhill Road
Mount Airy, NC
Frances H. Johnson 681,138 (4) 8.1%
1235 West Henderson Street
Salisbury, NC
Estate of John E. Woltz 503,479 (5) 5.9%
815 Greenhill Road
Mount Airy, NC
Johnson Concrete Company 620,263 (4) 7.2%
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 473,561 (6) 5.6%
1299 Ocean Avenue
Santa Monica, CA
Shufro, Rose & Co., LLC 444,900 (6) 5.3%
745 5th Avenue, 26th floor
New York, NY 10151-0108
</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 11, 1998, upon the exercise of stock options.
2) The shares shown as being beneficially owned by Howard O. Woltz, Jr.,
include 72,919 shares (less than 1%) held by a trust of which Mr. Woltz and
a bank are trustees. The trustees share voting and investment power with
respect to such shares.The shares shown above include 24,392 shares
obtainable by Mr. Woltz within 60 days of December 11, 1998 upon the
exercise of stock options.
3) Includes 94,424 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. The shares shown
4
<PAGE> 7
above include 8,000 shares obtainable by Mrs. Johnson within 60 days of
December 11, 1998 upon the exercise of stock options.
5) The Estate of John E. Woltz currently holds the 495,479 shares owned by Mr.
Woltz at the time of his death on April 7, 1998. The shares shown above
include 8,000 shares obtainable by the Estate of John E. Woltz within 60
days of December 11, 1998 upon exercise of stock options.
6) Updated as of December 12, 1998.
SECURITY OWNERSHIP OF MANAGEMENT
As of December 11, 1998, 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 Percent of
Name of Individual or Group Beneficial Ownership (1) Class
- --------------------------- ------------------------ ----------
<S> <C> <C>
Louis E. Hannen 39,360 Less than
1%
Frances H. Johnson See "Principal
Shareholders."
Charles B. Newsome 44,324 Less than
1%
Gary L. Pechota 4,000 Less than
1%
W. Allen Rogers, II 13,998 Less than
1%
William J. Shields 2,000 Less than
1%
C. Richard Vaughn 17,105 Less than
1%
Howard O. Woltz, Jr. See "Principal
Shareholders."
H. O. Woltz III 269,050 3.2%
Gary D. Kniskern 26,993 Less than
1%
Michael C. Gazmarian 45,200 Less than
1%
All directors, nominees for director 1,722,862 20.1%
and executive officers of the Company
as a group (a total of 11 persons)
</TABLE>
5
<PAGE> 8
- --------------------------------------
(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 11, 1998, upon the
exercise of stock options as follows: Mr. Hannen, 27,965 shares; Ms.
Johnson, 8,000 shares; Mr. Newsome, 8,000 shares; Mr. Pechota, 2,000
shares; Mr. Rogers, 8,000 shares; Mr. Shields, 2,000 shares; Mr. Vaughn,
8,000 shares, Mr. Woltz, Jr., 24,392 shares; Mr. Woltz III, 30,962 shares;
Mr. Kniskern, 21,068 shares; and Mr. Gazmarian, 41,700 shares. The numbers
shown also include shares allocated to participants in the Company's
Retirement Savings Plan under its matching provisions as follows: Mr.
Woltz, Jr., 151 shares; Mr. Woltz III, 1,223 shares; and, Mr. Kniskern, 907
shares.
EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION COMMITTEE REPORT
The Company's executive compensation program consists of two principal
components: base salaries and performance-based compensation. The Executive
Compensation Committee (the "Committee") believes that the executive
compensation program should be weighed heavily toward performance-based
compensation. Therefore, the executive compensation program establishes
conservative base salaries and provides for performance compensation awards
which may be earned under the Return on Capital Incentive Compensation Plan and
stock options plans. The Company believes its Return on Capital Incentive
Compensation Plan and its incentive stock option plans fulfill the
performance-based compensation objective.
Base Salaries
The Committee uses several studies to evaluate executive compensation.
Using the composite average compensation level for Insteel's industry as a
benchmark, the Committee feels that it is prudent for the Company to target its
compensation levels at between 70 % and 80% of the composite average as
determined from the studies. 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, 1997, 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,
$133,000; and Gary D. Kniskern, Vice President-Administration and Secretary,
$120,000. These recommendations represent no change for Messrs Woltz, Jr. and
Woltz III, a 19% increase for Mr. Gazmarian and a 5% increase for Mr. Kniskern.
Annual Incentive Compensation
Executive officers participate in the subsidiary's 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.
The Return on Capital Compensation Plan is 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, the plan was in effect
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<PAGE> 9
only for a certain group of top 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 had previously participated.
Under the provisions of the plan, Target Return on Capital ("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 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 deferred or "banked" for future
distribution. If less than the Target Bonus is earned, the entire balance is
paid out.
Under current policy, 50% of any distribution will be made in the form of
Common Stock of the Company, with the remaining portion paid in cash. The
Company may elect to alter the percentages of the award payable in stock and
cash in the future. No amounts were distributed under the plan for fiscal 1998
to executive officers of the Company as reflected in the Summary Compensation
Table, above. Distributions are made in December of each year.
Long-Term Incentive Compensation (Stock Options)
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 220,463 shares of Common Stock were
granted during fiscal 1998, all at fair market value on the date of grant. As of
December 11, 1998, there are options to purchase 431,686 shares outstanding at
an average exercise price of $6.54 per share. The shares issuable under the plan
have been registered with the Securities and Exchange Commission.
At the 1995 annual Board of 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 receive regular grants of stock options.
During 1997, the Committee approved increasing annual stock option grants to
executive officers to permit the grant of options with a fair market value on
the date of the grant equal to one times their annual salary. During 1998,
executive officers received option grants for shares of the Company's Common
Stock as follows: Howard O. Woltz, Jr., 17,066 shares at a per share price of
$4.6875, and 12,549 shares at a per share price of $6.375; H. O. Woltz, III,
25,920 shares at a per share price of $4.6875, and 19,058 shares at a per share
price of $6.375; Michael C. Gazmarian, 14,186 shares at a per share price of
$4.6875, and 10,431 shares at a per share price of $6.375 and Gary D. Kniskern,
12,800 shares at a per share price of $4.6875, and 9,411 shares at a per share
price of $6.375. These stock option grants are also reflected in the Option
Grants table.
Specifics of 1998 CEO Compensation
During fiscal 1998, the compensation of the Chief Executive Officer, H. O.
Woltz, III, consisted of a base salary of $243,000. This salary is based on the
target of between 70 and 80 % of the composite average of chief executive
officers in the Company's industry.
In fiscal 1998, Mr. Woltz received no payment from the Return on Capital
Incentive Compensation Plan as targeted levels of return on equity did not reach
the minimum requirement for distribution of benefits under the plan.
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<PAGE> 10
Mr. Woltz received a grant of stock options for 44,978 shares of the
Company's Common Stock during fiscal 1998 under the 1994 Employee Stock Option
Plan. These options are part of the annual grant to executive officers with a
value on the date of grant equal to one times his annual salary.
Policy with Respect to the $1 Million Deductible Limit
Section 162(m) of the Internal Revenue Code (the "Code") generally limits
amounts that can be deducted for compensation paid to certain 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 continue to monitor the
applicability of Section 162(m) to the Company's compensation program.
Executive Compensation Committee
C. Richard Vaughn
W. Allen Rogers, II
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Executive Compensation Committee is comprised of C. Richard Vaughn,
Chairman, and W. Allen Rogers, II. 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 1998 amounted to $93,000 and were final payments on the Fredericksburg
facility. The Company believes that the terms of all transactions with John S.
Clark Company, Inc. are no less favorable to the Company than transactions with
unaffiliated entities.
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<PAGE> 11
SUMMARY COMPENSATION TABLE
The table below provides information regarding the cash compensation paid
by the Company for services in all capacities during the years ended October 3,
1998 and September 30, 1997 and 1996 to all executive officers of the Company:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------------------------------
Long-Term All Other
Annual Compensation Compensation
Compensation Awards ($) (1)
Name and Principal Position Fiscal Year ---------------------------------
Salary Bonus Securities
($) ($) Underlying
Options (#)
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Howard O. Woltz, Jr. 1998 160,000 - 29,615 4,666
Chairman of the Board 1997 160,000 - 13,317 4,239
1996 130,172 - 7,079 3,834
H. O. Woltz III 1998 243,000 - 44,978 301
President and Chief Executive 1997 243,000 - 18,805 265
Officer 1996 204,080 - 7,079 243
Gary D. Kniskern 1998 120,000 - 22,211 625
Vice President-Administration and 1997 114,000 - 10,276 544
Secretary 1996 107,900 - 7,079 504
Michael C. Gazmarian 1998 133,000 - 24,617 265
Chief Financial Officer and Treasurer 1997 112,000 - 10,143 220
1996 95,000 - 7,079 207
- --------------------------------------------------------------------------------------------------------
</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.
9
<PAGE> 12
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The table below provides information regarding stock options granted to
executive officers of the Company during fiscal 1998:
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR (1)
- ------------------------------------------------------------------------------------------------------------------------
Individual Grants Potential Realizable Value
- ----------------------------------------------------------------------------------------- at Assumed Annual Rates of
Name Number of Percent of Total Exercise or Expiration Stock Price Appreciation
Securities Options Granted Base Price Date for Option Term
Underlying to Employees in ($/Share) ---------------------------
Options Granted Fiscal Year 5% ($) 10% ($)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
12,549 5.7% $6.375 02/03/08 50,311 127,499
Howard O. Woltz, Jr. ---------------------------------------------------------------------------------------------
17,066 7.7% $4.6875 08/11/08 50,309 127,494
- -----------------------------------------------------------------------------------------------------------------------
19,058 8.6% $6.375 02/03/08 76,407 193,631
H. O. Woltz III ---------------------------------------------------------------------------------------------
25,920 11.7% $4.6875 08/11/08 76,410 193,636
- -----------------------------------------------------------------------------------------------------------------------
9,411 4.3$ $6.375 02/03/08 37,730 95,616
Gary D. Kniskern ---------------------------------------------------------------------------------------------
12,800 5.8% $4.6875 08/11/08 37,733 95,624
- -----------------------------------------------------------------------------------------------------------------------
10,431 4.7% $6.375 02/03/08 41,820 105,980
Michael C. Gazmarian ---------------------------------------------------------------------------------------------
14,186 6.4% $4.6875 08/11/08 41,819 105,978
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Options are granted at fair market value and become exercisable in five
equal annual installments beginning on the date of grant.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUE
The table below provides information regarding stock options exercised during
fiscal 1998 and the value of options outstanding at October 3, 1998, for all
executive officers of the Company:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Shares Number of Securities Value of Unexercised in-the-
Acquired Value Underlying Unexercised Money Options at Fiscal
Name on Realized Options at Fiscal Year-End (#) Year-End ($)
Exercise ($) --------------------------------------------------------------------
(#) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Howard O. Woltz, Jr. - - 32,699 35,820 427 1,707
H. O. Woltz III - - 37,968 51,402 648 2,592
Gary D. Kniskern - - 30,003 28,071 320 1,280
Michael C. Gazmarian - - 38,431 29,916 354 1,419
</TABLE>
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<PAGE> 13
PENSION PLAN
The Company has a pension plan, the Insteel 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 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. Final average
compensation is the participant's average eligible compensation for the five
highest consecutive plan years within the last 10 plan years during which the
participant worked as an employee up to July 11, 1998, when compensation taken
into account under the plan was suspended. Eligible compensation is defined in
the plan document. Retirement benefits are paid in either monthly installments
or a lump sum at the employee's election. Several monthly options are available.
During the current fiscal year, the plan was amended to remove the
limitation on lump sum distributions. Retirees and vested terminated
participants were given the option of taking the present value of their accrued
benefit in a lump sum or to continue receiving a monthly annuity. An annuity
contract was purchased for those electing to receive a monthly annuity. The
Insteel Pension Plan was formally terminated as of the close of business on
August 20, 1998, at which time, each individual having a benefit under the plan
became fully vested, as specified in the plan document. Actively employed
participants who were former participants in the Forbes Steel & Wire Corporation
"Canonsburg Plan" or "Forbes Salaried Plan" with 24 or more years of service
became eligible to receive their vested accrued benefit under this Plan pursuant
to the "30 and out" provision (a provision whereby an employee could receive the
full amount of their accrued benefit after 30 years of service). Plan assets
were converted to cash and invested in money market funds, with the exception of
26,620 shares of Company stock, which will also be converted to cash prior to
the final distribution date. In order to facilitate the calculation and
distribution of plan assets, the "stability period" was changed from one month
to the plan year. The "applicable interest rate" was changed to the fifth full
calendar month preceding the first day of the plan year. Distribution of the
assets is expected to take place the last week of September 1999 or the first
week of October 1999. Participants and spouses may elect to receive a lump sum
payment or payments in the form of a monthly annuity. Lump sums may be rolled
into another qualified plan, such as a 401(k) plan, or paid directly to the
participant (net of mandatory tax withholding). Annuity contracts will be
purchased for those electing one of the monthly annuity options. Prior to the
distribution of assets, the Company shall contribute to the plan the amount
necessary, if any, to ensure that the plan has sufficient assets to satisfy all
benefit liabilities, in accordance with the terms of the plan and applicable
laws. Excess assets, if any, shall be allocated among actively employed plan
participants. Although it is not anticipated, the Pension Committee has the
option of delaying the distribution of plan assets.
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.
11
<PAGE> 14
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Remuneration ($) Years of Service (including additional 1/6 of a year credit)
<S> <C> <C> <C> <C> <C>
15 20 25 30 35
125,000 22,160 29,543 36,938 44,321 44,321
150,000 27,192 36,250 45,324 54,383 54,383
175,000 29,204 38,933 48,679 58,408 58,408
200,000 29,204 38,933 48,679 58,408 58,408
225,000 29,204 38,933 48,679 58,408 58,408
250,000 29,204 38,933 48,679 58,408 58,408
</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 1998.
(B) Years of credited service (including additional 1/6 of a year credit):
<TABLE>
<S> <C>
Howard O. Woltz, Jr. 35 years
H. O. Woltz III 21 years
Gary D. Kniskern 18.93 years
</TABLE>
During the current year Mr. Woltz received a total distribution of
$536,503.64 from the plan which was the present value of his pension.
(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 $31,128.
This assumes a participant born in 1933 who is retiring at age 65 in
1998.
REMUNERATION OF DIRECTORS
Annual Retainer Awards and Meeting Fees: Each of the Company's nonemployee
directors receives an annual retainer award plus reimbursement of expenses
incurred as a director. Under a proposal adopted at the 1998 Annual Meeting of
Shareholders, the amount of the annual retainer award for each year will be
determined by the Board before the start of the retainer year. The retainer year
begins on the date of the Annual Meeting of Shareholders at which directors are
elected and ends 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 and the designated stock
portion of the retainer
12
<PAGE> 15
will be paid at the annual meeting of the Board of Directors following the
Annual Meeting of Shareholders at which directors are elected. The annual
retainer award paid for 1998 to each nonemployee director was $4,800 which was
paid in cash only. 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 1994 Director Stock Option Plan
(discussed below).
Director Stock Option Plans: The 1994 Director Stock Option Plan of Insteel
Industries, Inc. permits the issuance of up to 200,000 shares of Common Stock
pursuant to the grant of stock options to nonemployee directors of the Company.
The plan provides that, following the close of business of the Company on the
date of each annual meeting of shareholders, 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.
The plan also authorizes the board to grant options to nonemployee directors who
are appointed or elected to the Board at a time other than at the annual
meeting. These options are subject to the same general terms and conditions as
options granted following the annual meeting. During fiscal 1998, options to
purchase 2,000 shares at an exercise price of $6.375 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 9, 1999. The options are exercisable at the
per share fair market value of the Common Stock on that date. The shares
issuable under the plan have been registered with the Securities and Exchange
Commission.
The 1990 Director Stock Option Plan of Insteel Industries, Inc. provides
for the issuance of up to 26,660 shares of the Company's Common Stock pursuant
to the grant of stock options to nonemployee directors of the Company. As of
December 11, 1998, options covering 26,660 shares of Common Stock were
outstanding at an average exercise price of $10.44 per share. The options are
exercisable over five years in increments of 20% per year, beginning with the
date of grant. 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 in effect until they are exercised or expire. The shares issuable
under the plan have been registered with the Securities and Exchange Commission.
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 shares issuable under the plan are not registered with the
Securities and Exchange Commission.
13
<PAGE> 16
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.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
AMONG INSTEEL INDUSTRIES, INC., THE S&P 500 INDEX
AND THE S&P MANUFACTURING (DIVERSIFIED) INDEX
[GRAPH]
<TABLE>
<CAPTION>
CUMULATIVE TOTAL RETURN
----------------------------------------------------
9/93 9/94 9/95 9/96 9/97 9/98
<S> <C> <C> <C> <C> <C> <C>
INSTEEL INDUSTRIES, INC. 100.00 92.93 81.79 77.44 95.59 60.18
S&P 500 100.00 103.69 134.53 161.89 227.37 247.93
S&P MANUFACTURING
(DIVERSIFIED) 100.00 111.12 148.00 190.66 265.41 239.30
</TABLE>
14
<PAGE> 17
TRANSACTIONS WITH MANAGEMENT AND OTHERS
In May 1997, the Company sold the assets of its ICS ("Insteel Construction
Systems") division to ICS 3-D Panel Works, Inc. ("ICSPW"), a new corporation
organized by the division's management group, for a purchase price of
$1,160,833, consisting of a 10% promissory note in the amount of $955,305 due
May 30, 2002, payable in installments of $10,000 per month for the first year,
$15,000 per month for the second year, and $20,000 per month for the third
through the fifth years. In connection with the sale, the Company entered into a
15-year lease with ICPSW of the Georgia facility previously occupied by the ICS
division, which provided for lease payments of $13,661 per month. Howard O.
Woltz, Jr., Chairman of the Company, is a principal shareholder and member of
the board of directors of ICSPW. Prior to the sale, the Audit Committee of the
Company's Board of Directors reviewed the terms of the proposed transaction,
focusing in particular on the participation of Mr. Woltz as an investor in and
director of ICSPW. Based upon the continuing operating losses of ICS and the
prospective financial benefit to the Company from the sale of the division, the
Audit Committee concluded that (1) Mr. Woltz's participation was essential to
the transaction and would be 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. In
November 1998, ICSPW, citing slow cash flow, requested a six-month deferral of
both the note and lease payments. The deferred amount includes interest on the
deferred portion of the note accruing from the date of issuance and interest on
the deferred lease payments accruing at a rate of 10% per year from the original
due dates of each lease payment. The deferred amount, which will continue to
accrue interest until paid in full, would become due at the end of the
applicable scheduled payment period. The Audit Committee agreed to the request
after concluding that deferral of the note and lease payments would benefit the
Company by enhancing ICSPW's long-term prospects for discharging its obligations
under the note and the lease. As of December 1, 1998, unpaid principal on the
promissory note was $880,666. The largest aggregate amount of indebtedness under
the promissory note since the beginning of the Company's last fiscal year was
$942,965.
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 1998
amounted to $93,000 ($5,904,000 for fiscal 1997). In the past Clark has built
manufacturing facilities and offices for the Company as well as several
additions and renovations.
Frances H. Johnson, a director, is President, and along with her family,
owners of Johnson Concrete Company. Charles B. Newsome, a director, is Executive
Vice President and General Manager of Johnson Concrete Company. During fiscal
1998, Johnson Concrete purchased materials from the Company valued at $207,903
($160,307 for fiscal 1997) for use or resale in their normal course of business.
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.
CORPORATE GOVERNANCE
The Company's Board of Directors held seven meetings during fiscal 1998.
Due to illness, Frances Johnson attended less that 75% of the meetings of the
Board of Directors. Each other director attended at least 75% of the meetings of
the Board of Directors and of all committees on which such director served.
15
<PAGE> 18
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.
The Company's Board of Directors includes an Executive Committee, comprised
of Howard O. Woltz, Jr. (Chairman), H.O. Woltz III, and C. Richard Vaughn. The
Executive Committee, which did not meet during fiscal 1998, may exercise
generally the power and authority of the Board of Directors during intervals
between meetings of the Board of Directors.
The Board of Directors also includes an Audit Committee, comprised of Louis
E. Hannen (Chairman) and Charles B. Newsome. The Audit Committee, which met once
during fiscal 1998, 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.
The Executive Compensation Committee of the Board makes salary
recommendations to the Board for executive officers and administers the employee
stock option plans. This committee is comprised of C. Richard Vaughn (Chairman)
and W. Allen Rogers, II. See "Executive Compensation - Executive Compensation
Committee Report," above. The Executive Compensation Committee met once during
fiscal 1998.
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 it desires to do so and
to respond to appropriate questions.
DEADLINE FOR SHAREHOLDERS' PROPOSALS
Any shareholder desiring to present a proposal to be included in the proxy
statement for action at the Company's 2000 Annual Meeting must deliver the
proposal to the Company at its principal executive offices no later than August
20, 1999. Further, shareholder proposals which are not intended to be included
in the proxy materials for the Company's 2000 Annual Meeting must be submitted
to the Company no later than November 3, 1999 and must be made in accordance
with established procedures.
By Order of the Board of Directors
Gary D. Kniskern
Secretary
Mount Airy, North Carolina
December 18, 1998
16
<PAGE> 19
APPENDIX A
PROXY
INSTEEL INDUSTRIES, INC.
1373 Boggs Drive - Mount Airy, North Carolina 27030
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
February 9, 1999
This proxy is solicited on behalf of the Board of Directors and will be voted in
accordance with the specifications made. Howard O. Woltz, Jr. and H.O. Woltz
III, and each of them, are hereby appointed as agents and proxies of the
undersigned, with full power of substitution, to vote all of the shares of
Common Stock held by the undersigned at the Annual Meeting of Shareholders to be
held on Tuesday February 9, 1999, and at any adjournment thereof, as follows:
(1) ELECTION OF THREE DIRECTORS
Nominees: W. Allen Rogers, II, Gary L. Pechota, William J. Shields
[ ] VOTE FOR all nominees listed (except as marked to the contrary).
INSTRUCTION: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name
[ ] WITHHOLD AUTHORITY to vote for all nominees listed.
(2) To vote, in the discretion of said agents, upon such other business as may
properly come before the meeting of any adjournment thereof.
Please sign and return in the enclosed postage-paid envelope. See other side.
(continued and to be signed on reverse side)
<PAGE> 20
(continued form other side)
The shares of Common Stock represented by this proxy will be voted as specified.
If no choice is specified, the proxy will be voted FOR the election of all
nominees for director.
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.
<PAGE> 21
APPENDIX B
PROXY
INSTEEL INDUSTRIES, INC.
RETIREMENT SAVINGS PLAN
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
February 9, 1999
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED IN
ACCORDANCE WITH THE SPECIFICATIONS MADE. Marshall & Ilsley Trust Company is
hereby appointed as agent and proxy of the undersigned to vote all of the shares
of Common Stock held by the undersigned at the Annual Meeting of Shareholders to
be held on Tuesday, February 9, 1999, and at any adjournment thereof, as
follows:
(1) ELECTION OF THREE DIRECTORS
[ ] VOTE FOR all nominees listed
(except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all
nominees listed.
Nominees: W. Allen Rogers, II, Gary L. Pechota, William J. Shields
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name
(2) To vote, in the discretion of said agents, upon such other business as may
properly come before the meeting or any adjournment thereof.
PLEASE SIGN AND RETURN IN THE ENCLOSED POSTAGE-PAID ENVELOPE. SEE OTHER SIDE.
(CONTINUED AND TO BE SIGNED ON REVERSE SIDE)
<PAGE> 22
(CONTINUED FROM OTHER SIDE)
THE SHARES OF COMMON STOCK REPRESENTED BY THIS PROXY WILL BE VOTED AS SPECIFIED.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED FOR THE ELECTION OF ALL
NOMINEES FOR DIRECTOR.
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.
