<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 1, 2000
------------------
The Annual Meeting of Shareholders of Insteel Industries, Inc., will be
held on Tuesday, February 1, 2000, 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 three-year terms as set
forth in the accompanying Proxy Statement.
2. To consider amendments to the 1994 Employee Stock Option Plan which
would increase the number of shares authorized for issuance from
750,000 shares to 1,500,000 shares and make certain other revisions as
described in the Proxy Statement.
3. To transact such other business as may be brought before the meeting.
Shareholders of record at the close of business on December 1, 1999 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 27, 1999
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
27, 1999, 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 1, 2000, 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 the proposal to amend and restate the 1994 Employee Stock Option
Plan.
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 materials to their principals, and the Company will reimburse them for
their reasonable expenses in so doing.
The Board of Directors has fixed December 1, 1999 as the record date
for the determination of shareholders entitled to notice of and to vote at the
Annual Meeting. On December 1, there were 8,457,226 outstanding shares of Common
Stock of the Company, each entitled to one vote. 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. Shareholders do not have cumulative voting
rights in connection with the election of directors. The affirmative vote of a
majority of the Common Stock present in person or represented by proxy and
entitled to vote at the Annual Meeting will be required to amend and restate the
1994 Employee Stock Option Plan. Votes that are withheld and shares held by a
broker, as nominee, that are not voted in the election of directors will not be
included in determining the number of votes cast. Any shares present but not
voted (whether by abstention, broker non-vote or otherwise) will have no effect
with regard to the proposal to amend and restate the 1994 Employee Stock Option
Plan.
The presence in person or by proxy of a majority of the shares of
Common Stock outstanding on the record date constitutes a quorum for purposes of
conducting business at the Annual Meeting. Once a share is represented for any
purpose at a meeting, it is deemed present for quorum purposes for the remainder
of the meeting and for any adjourned meeting. Abstentions and shares which are
withheld as to voting with respect to one or more of the nominees for director
will be counted in determining the existence of quorum.
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 electing the nominees for
director and approval of the amendment and restatement to the 1994 Employee
Stock Option Plan.
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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.
PROPOSAL 1 - 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 each of the persons named below to
serve a three-year term expiring at the 2003 Annual Meeting of Shareholders or
until their successors are elected and qualify. The nominees presently serve as
directors of the Company. 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 2003:
H. O. Woltz III, 43, 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. Mr.
Woltz serves on the Executive Committee of the Company's Board of Directors.
Frances H. Johnson, 79, 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, 62, 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.
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DIRECTORS WHOSE TERMS EXPIRE AT THE ANNUAL MEETING OF SHAREHOLDERS IN 2002:
W. Allen Rogers, II, 53, 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, 50, has been a director of the Company's Board of
Directors since September 1998. 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 to 1992.
William J. Shields, 67, has been a director of the Company's Board of
Directors since November 1998. 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., 74, 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., which, until its acquisition in
1988 by Russell Corporation, was a publicly held corporation engaged in the
business of manufacturing and marketing knit wearing apparel and fabrics. Mr.
Woltz serves on the Executive Committee of the Company's Board of Directors.
C. Richard Vaughn, 60, 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 and President from 1970-1988 and has served as 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, 61, 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.
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PROPOSAL 2 - AMENDMENT AND RESTATEMENT OF 1994 EMPLOYEE STOCK OPTION PLAN
PURPOSE AND OPERATION OF THE 1994 EMPLOYEE STOCK OPTION PLAN
The 1994 Employee Stock Option Plan (the "Plan") was adopted effective
September 23, 1994. The Plan is proposed to be amended and restated to increase
the number of shares authorized for issuance under the Plan from 750,000 to
1,500,000 shares and to make certain other revisions, as summarized below. A
copy of the form of the Plan, as proposed to be amended and restated, is
attached to the Proxy Statement as Exhibit A.
The purpose of the Plan is to encourage and enable selected key
employees of the Company to acquire or increase their holdings of Common Stock
in order to promote a closer identification of their interests with those of
Insteel and its shareholders, thereby further stimulating efforts to enhance
Insteel's efficiency, soundness, profitability, growth and shareholder value.
This purpose is carried out by granting options to purchase shares of
Common Stock to eligible participants. Options may be incentive stock options
intended to qualify under Section 422 of the Internal Revenue Code or
nonqualified stock options. The option price of options granted under the Plan
is equal to the fair market value per share of the Common Stock on the date of
grant. Options have a term of no more than 10 years and generally vest in equal
installments over five years. Ten persons qualify as key employees at this time.
The Plan is administered by the Executive Compensation Committee (the
"Committee") of the Board. The Plan has a 10-year term unless earlier terminated
by the Board. The Plan may be amended or terminated by the Board at any time,
subject to shareholder approval in certain circumstances. As of December 1,
1999, the closing sales price of the Common Stock as reported on the New York
Stock Exchange was $8.4375.
PROPOSED AMENDMENTS TO THE PLAN
On November 22, 1999, the Board approved the amendment and restatement
of the Plan, subject to shareholder approval of the terms of the amended and
restated Plan. The amendments would increase the number of shares authorized for
issuance under the Plan from 750,000 shares to 1,500,000 shares and also make
certain other revisions, as summarized below.
As of December 1, 1999, options for an aggregate of 545,364 shares of
Common Stock had been granted under the Plan, and 194,007 shares remained
available for the grant of options under the Plan. The Plan provides that the
number of shares subject to issuance under the Plan and subject to options may
be further adjusted in the event of a change in the outstanding shares of Common
Stock as a result of a merger, reorganization, stock dividend, stock split
distributable in shares or other similar change in capital structure.
In addition to the proposed increase in shares available for issuance
under the Plan, the amendments would make certain other revisions designed to
facilitate Plan administration and further the purposes of the Plan. In
particular, the proposed amendments would:
- Authorize the Board, as well as the Committee, to administer the Plan
(collectively referred to as the "Administrator");
- Give the Administrator discretionary authority to accelerate the
exercise of options and provide that options would automatically accelerate in
the event of a "change of control" (as defined in the Plan), in addition to the
current Plan terms permitting acceleration in the event of an optionee's
termination of employment.
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- Provide that options granted on or after February 1, 2000 would
terminate immediately upon an optionee's termination of employment for "cause"
(as defined in the Plan), unless an individual option agreement provided
otherwise.
- Incorporate certain other changes designed to facilitate Plan
administration, such as (1) permitting payment of the option price and tax
withholding obligations by share withholding, as well as currently authorized
payment methods; (2) authorizing the Administrator to extend, in appropriate
circumstances, the post-termination period for exercise; (3) determining the
"fair market value" of the Common Stock based on the immediately preceding
trading date, rather than the date of grant; (4) revising the definition of "key
employee" to potentially include a greater number of employees; and (5)
authorizing the Administrator, in its discretion, to permit the transfer by gift
of non-qualified stock options.
In order for the Plan to continue to provide an incentive for qualified
individuals to serve or continue service with the Company, to more closely align
the interests of such individuals with Insteel's shareholders, and to continue
to offer a competitive stock-based compensation program, the Board believes that
the number of shares of common stock authorized for issuance should be increased
as described herein and that the other terms of the Plan, as proposed to be
amended and restated, should be approved by the shareholders. The Board believes
that the increase in authorized shares under the Plan also will afford Insteel
the flexibility to continue to have shares available for options which may be
granted as a result of future acquisitions or other business combinations.
NEW PLAN BENEFITS
The amount of compensation that will be paid pursuant to the grant of
awards under the Plan in the current year to the following persons is not yet
determinable due to vesting and other requirements. However, the following table
sets forth the number of options that were granted in Fiscal 1999 under the Plan
to each of the following:
1994 EMPLOYEE STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION WITH THE COMPANY DOLLAR VALUE($)(1) NUMBER OF SHARES
---------------------------------- ------------------ ----------------
<S> <C> <C>
Howard O. Woltz, Jr., Chairman of the Board $ 28,387 21,125
H. O. Woltz, III, President and Chief Executive Officer 42,371 35,067
Gary D. Kniskern, Vice President-Administration and Secretary 21,315 16,172
Michael C. Gazmarian, Chief Financial Officer and Treasurer 23,156 18,907
Executive Officers as a Group 115,229 91,271
All Employees as a Group 182,957 180,687
</TABLE>
(1) The dollar value is based on the difference between the option price of
options granted to such individuals and the closing sales price of the Common
Stock on the New York Stock Exchange on October 1, 1999 ($9.00).
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following summary generally describes the principal federal (and
not state and local) income tax consequences of awards granted under the Plan.
The summary is general in nature and is not intended to cover all tax
consequences that may apply to a particular participant or to Insteel. The
provisions of the Internal Revenue Code and related regulations are complicated
and their impact in any one case may depend upon the particular circumstances.
Incentive Stock Options. Incentive stock options granted under the Plan
are intended to qualify as incentive stock options under Section 422 of the
Internal Revenue Code. Pursuant to Section 422, the grant and exercise of an
incentive stock option will generally not result in taxable income to the
optionee (with the possible exception of alternative minimum tax liability) if
(1) the optionee does not dispose of shares received upon exercise of such
option less than one year after the date of exercise and two years after the
date of grant, and (2) the optionee has continuously been an employee of Insteel
or a related corporation from the date of grant to three months before the date
of exercise (or 12 months in the event of death or disability). The Company is
not entitled to a deduction for income tax purposes in connection with the
exercise of an incentive stock option. Upon the disposition of shares acquired
pursuant to exercise of an incentive stock option, the optionee will be taxed on
the amount by which the amount realized upon such disposition exceeds the option
price, and such amount will be treated as long-term capital gain or loss. If the
holding period requirements for incentive stock option treatment described above
are not met, the option will be treated as a nonqualified stock option.
Pursuant to the Code and the Plan, in no event can there first become
exercisable by an optionee in any one calendar year incentive stock options
granted by Insteel or any related corporation with respect to shares having an
aggregate fair market value (determined at the time an option is granted)
greater than $100,000. To the extent an incentive stock option exceeds the
foregoing limitation, it will be treated as a nonqualified stock option. In
addition, no incentive stock option may be granted to an individual who owns,
immediately before the time that the option is granted, stock possessing more
than 10% of the total combined voting power of all classes of stock of Insteel
or a related corporation (unless certain requirements are met, including an
option price greater than or equal to 110% of the fair market value of the
shares and an option period of five years or less).
Nonqualified Stock Options. If an optionee receives a nonqualified
stock option, the difference between the market value of the stock on the date
of exercise and the option price will constitute taxable ordinary income to the
optionee on the date of exercise. Insteel will be entitled to a deduction in the
same year in an amount equal to the income taxable to the optionee. The
optionee's basis in shares of the Common Stock acquired upon exercise of an
option will equal the option price plus the amount of income taxable at the time
of exercise. Any subsequent disposition of the stock by the optionee will be
taxed as a capital gain or loss to the optionee, and will be long-term capital
gain or loss if the optionee has held the stock for more than one year at the
time of sale.
Pursuant to the terms of the Plan, the Company will require any
recipient of shares of Common Stock pursuant to exercise of an option to pay the
Company the amount of any tax or other amount required by any governmental
authority to be withheld and paid over by the corporation to such authority for
the account of such recipient.
The Board of Directors recommends that the shareholders vote FOR the
proposal to amend the Plan.
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PRINCIPAL SHAREHOLDERS
As of December 1, 1999, to the knowledge of management, the only
persons beneficially owning more than five percent (5%) of the Company's Common
Stock, its only class of voting securities, are as follows:
Amount and Nature of Percent of
Name and Address of Beneficial Owner Beneficial Ownership(1) Class
- ------------------------------------ ----------------------- ----------
Howard O. Woltz, Jr. 648,668 (2)(3) 7.6%
819 Greenhill Road
Mount Airy, NC
Frances H. Johnson 684,163 (4) 8.1%
1235 West Henderson Street
Salisbury, NC
Johnson Concrete Company 620,263 (4) 7.2%
P. O. Box 1037
Salisbury, NC
Franklin Advisory Services, Inc. 827,000 (5) 9.8%
777 Mariners Island Boulevard
San Mateo, CA
Dimensional Fund Advisors 531,161 (5) 6.3%
1299 Ocean Avenue
Santa Monica, CA
Artisan Partners L. P. 611,200 (5) 7.2%
Shufro, Rose & Co., LLC 441,100 5.2%
745 5th Avenue, 26th floor
New York, NY 10151-0108
Heartland Advisors, Inc. 423,700 (5) 5.0%
790 North Milwaukee Street
Milwaukee, WI 53202
- -------------------------------------
(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 1, 1999 upon the exercise of stock options, and with
respect to Mr. Woltz, Jr only, pursuant to stock distribution under the
Company's Return on Capital Incentive Compensation Plan.
(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 36,228
shares obtainable by Mr. Woltz within 60 days of December 1, 1999 upon
the exercise of stock options and 4,008 shares obtainable by Mr. Woltz
within 60 days of December 1, 1999 pursuant to stock distribution under
the Company's Return on Capital Incentive Compensation Plan.
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(3) Includes 97,136 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,
Mrs. Johnson 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 above include 10,000 shares obtainable by Mrs. Johnson
within 60 days of December 1, 1999 upon the exercise of stock options.
(5) Updated as of November 13, 1999.
SECURITY OWNERSHIP OF MANAGEMENT
As of December 1, 1999, directors, nominees for director and executive
officers of the Company beneficially own shares of the Company's Common Stock as
follows:
Amount and Nature of Beneficial Percent of
Name of Individual or Group Ownership(1) Class
- --------------------------- ------------------------------- ----------
Louis E. Hannen 42,385 Less than 1%
Frances H. Johnson See "Principal Shareholders."
Charles B. Newsome 47,349 Less than 1%
Gary L. Pechota 7,025 Less than 1%
W. Allen Rogers, II 17,023 Less than 1%
William J. Shields 5,025 Less than 1%
C. Richard Vaughn 20,130 Less than 1%
Howard O. Woltz, Jr. See "Principal Shareholders."
H. O. Woltz III 297,847 3.5%
Gary D. Kniskern 41,109 Less than 1%
Michael C. Gazmarian 59,650 Less than 1%
All directors, and executive 1,870,374 21.5%
officers of the Company as a
group (a total of 11 persons)
- --------------------------------------
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(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 1, 1999, upon the
exercise of stock options as follows: Mr. Hannen, 29,965 shares; Ms.
Johnson, 10,000 shares; Mr. Newsome, 10,000 shares; Mr. Pechota, 4,000
shares; Mr. Rogers, 10,000 shares; Mr. Shields, 4,000 shares; Mr. Vaughn,
10,000 shares, Mr. Woltz, Jr., 36,228 shares; Mr. Woltz III, 48,455 shares;
Mr. Kniskern, 30,452 shares; and Mr. Gazmarian, 51,882 shares. The numbers
shown also include shares obtainable within 60 days of December 1, 1999
pursuant to distribution in Common Stock made under the Company's Return on
Capital Incentive Compensation Plan as follows: Mr. Woltz, Jr., 4,008
shares; Mr. Woltz III, 7,648 shares; Mr. Kniskern, 3,541 shares and Mr.
Gazmarian, 4,268 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 three
principal components: base salaries, annual performance-based compensation as
determined through the Company's Return on Capital Incentive Plan, and long-term
incentives provided through the Company's 1994 Employee Stock Option Plan. The
Company's Board of Directors believes that the executive compensation program
should be weighted heavily toward performance-based compensation. The Company
believes its policy with respect to base salaries, in combination with its
Return on Capital Incentive Compensation Plan and the 1994 Employee Stock Option
Plan, fulfills the performance-based compensation objective.
Base Salaries
The Committee annually reviews various compensation studies and
surveys as well as proxy statements of other public companies to establish base
salaries. The Company's policy in recent years has been to set base compensation
for top management at 70% to 80% of median compensation for similar positions in
similar industries. In order to continue to attract and retain accomplished
management with the requisite experience to lead the Company, the Committee
believes it is necessary to adjust its base salary target closer to the median
for similar positions in similar industries. The Committee believes that this
policy will enable the Company to recruit new members of management as
necessary, retain existing management personnel and avoid administrative
disruptions related to compensation inequities that arise when new management
employees are recruited.
With the preceding views in mind, the Committee recommended, and the
Board of Directors approved, increases in compensation levels effective February
7, 1999 for the Company's executive officers, including the executives named in
the Summary Compensation Table below, to the following levels: Howard O. Woltz,
Jr., Chairman of the Board, $161,740; H.O. Woltz III, President and CEO,
$301,740; Michael C. Gazmarian, Chief Financial Officer and Treasurer, $160,510;
and Gary D. Kniskern, Vice President - Administration and Secretary, $126,740.
These recommendations represent a 1% increase for Mr. Woltz, Jr., a 24% increase
for Mr. Woltz III, a 21% increase for Mr. Gazmarian, and a 6% increase for Mr.
Kniskern. Base salaries paid in fiscal 1999 prior to the February 7, 1999
increase were paid at the lower rates in effect prior to that time.
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Annual Incentive Compensation
Executive officers participate in the Company's Return on
Capital Incentive Compensation Plan that became effective in 1995. The Plan is
an incentive bonus plan with bonuses based primarily on improvements in the
Company's return on average capital after giving effect to the Company's cost of
capital. 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 giving effect to the Company's cost of capital and after taxes
have been paid.
The Target Bonus for executive officers of the Company was established
at 30% of base compensation under the original terms of the Plan. If the
Company's financial performance exceeds the formula based Target Return on
Capital, incentive compensation in excess of the Target Bonus may be earned. In
the event that incentive compensation in excess of the Target Bonus is earned in
a year, the payment to an executive is equal to 100% of his Target Bonus plus
one third of the amount earned in excess of the Target Bonus. The balance of the
incentive earned in the year is deferred, or "banked," for potential
distribution in the future, depending on the future financial performance of the
Company. The deferred amounts are "at risk" and the bank balance will decline if
future performance falls below levels prescribed by the Plan. If the financial
performance of the Company results in a bonus of less than the Target Bonus, but
greater than zero, "banked" amounts that are deferred from prior years may be
drawn down to supplement the incentive payment for the year. In such case, the
total incentive payment to the executive would not exceed his Target Bonus. If
the financial performance of the Company results in a negative bonus for the
year, deferred amounts that were "banked" in prior years will be reduced. The
deferred portion cannot be reduced below zero, but the entire deferred balance
remains "at risk" based on the future financial performance of the Company.
Prior to February 1999, the Target Bonus for executive officers of the
Company was 30% of base salary, and the Target Bonus for other management
employees at the corporate level was 20% to 30% of base salary. Members of the
Company's business unit management team who are responsible for performance in
certain of the Company's markets and who are compensated for incentive purposes
based on the performance of their respective business units participated in the
Plan with a Target Bonus of 25% of base salary. Based on disparate financial
performance between the business units, the Company has in recent years faced
the prospect that management employees at the business unit level would
consistently earn bonuses at levels higher than corporate management employees.
Although the Committee believes it is not inappropriate for this result to occur
under certain circumstances, the Committee determined that the Target Bonus
percentage in effect at that time would potentially serve as a disincentive for
the Company's management employees to seek positions of responsibility at the
corporate level. Accordingly, the Committee and the Board approved adjustments
to the Target Bonus levels in 1999 for the corporate office management
employees, including the executive officers of the Company. The revised Target
Bonus level for corporate level management employees who are not executive
officers of the Company is 35% of base salary and the revised Target Bonus level
for executive officers of the Company is 50% of base salary. The Committee
believes that the revised levels of Target Bonus are reasonable when compared to
the practices of other companies and that the modification was appropriate to
provide meaningful incentive compensation opportunities for management. The
corporate management employees who participate in the Plan, including the
executive officers of the Company, will continue to earn incentive compensation,
if any, based on the consolidated financial results of the Company.
Under current policy, 50% of any distribution to executive officers
will be paid in the form of Common Stock of the Company, with the remaining
portion paid in cash. The shares that will be distributed in 1999 were purchased
by the Company in open market transactions during fiscal 1999. The Company may
elect to alter the percentages of the award payable in stock and cash in the
future. Amounts earned under the plan by the named executive officers for fiscal
1999, as reflected in the Summary Compensation Table below, are: Howard O.
Woltz, Jr., $143,592; H. O. Woltz III, $250,631; Michael C. Gazmarian, $134,431;
and Gary Kniskern, $110,901. Distributions are made in December of each year.
10
<PAGE> 13
Long-Term Incentive Compensation (Stock Options)
The Company's 1994 Employee Stock Option Plan currently authorizes the
issuance of up to 750,000 shares of Common Stock that have been reserved for the
benefit of key management employees of the Company upon the exercise of options
granted under the plan. Options to purchase 211,475 shares of Common Stock were
granted during fiscal 1999. As of December 1, 1999, options to purchase an
aggregate of 545,364 shares were outstanding at an average exercise price of
$6.92 per share. The shares issuable under the plan have been registered with
the Securities and Exchange Commission (the "SEC"). The Company has proposed to
increase the number of shares authorized for issuance under the plan from
750,000 shares to 1,500,000 shares and to make certain other plan amendments.
See "Proposal 2 - - Amendment and Restatement of 1994 Employee Stock Option
Plan" above.
Under the 1994 Employee Stock Option Plan, as recommended by the
Committee and approved by the Board of Directors, top level management
personnel, which includes executive officers, receive semi-annual grants of
stock options. For fiscal 1999, the Committee approved the grant of stock
options to executive officers equal to such number of shares as may be obtained
by dividing each officer's annual salary by the fair market value of the Common
Stock on the date of grant. Options are granted at an option price equal to fair
market value on the date of grant and vest in installments over five years.
During 1999, executive officers were granted options as follows: Howard O.
Woltz, Jr., 12,323 shares at a per share price of $6.5625, and 8,802 shares at a
per share price of $9.1875; H. O. Woltz, III, 18,646 shares at a per share price
of $6.5625, and 16,421 shares at a per share price of $9.1875; Michael C.
Gazmarian, 10,172 shares at a per share price of $6.5625, and 8,735 shares at a
per share price of $9.1875 and Gary D. Kniskern, 9,275 shares at a per share
price of $6.5265, and 6,897 shares at a per share price of $9.1875. These stock
option grants are also reflected in the Option Grants table, below
1999 CEO Compensation
During fiscal 1999, the Chief Executive Officer, H. O. Woltz, III, was
paid $282,223. In February 1999, the base salary of the Chief Executive Officer
was changed from $244,740 to $301,740 as a result of the Company's modification
to its base salary policy, as described in the section above entitled "Base
Salaries."
In fiscal 1999 Mr. Woltz received no distributions under the Return on
Capital Incentive Compensation Plan. However, Mr. Woltz earned a bonus pursuant
to the plan's terms during fiscal year 1999 of $250,631, payable in December
1999. See "Annual Executive Compensation," above.
Mr. Woltz received a grant of stock options for 35,067 shares of the
Company's Common Stock during fiscal 1999 under the 1994 Employee Stock Option
Plan. These options were granted under the Company's policy of awarding annual
grants to executive officers with a value on the date of grant equal to one
times such officer's annual salary. Such options are granted at an option price
equal to the fair market value on the date of grant. See "Long-Term Incentive
Compensation (Stock Options)," above.
11
<PAGE> 14
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 $1,000,000 unless certain requirements are met. No executive officer receives
compensation in excess of $1,000,000 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
C. Richard Vaughn, a member of the Executive Compensation Committee, is
Chairman of the Board of John S. Clark Company, Inc. ("Clark"), a general
building contractor located in Mount Airy, North Carolina. During the last
fiscal year, the Company made certain payments to Clark for miscellaneous
consulting and construction projects entered into in the normal course of
business. The aggregate amount of such payments to Clark did not exceed $60,000.
The Company believes that the terms of all transactions with Clark were no less
favorable to the Company than transactions with unaffiliated entities.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires Insteel's
directors and officers to report their beneficial ownership of the Common Stock
and any changes in that ownership to the SEC. Specific dates for such reporting
have been established by the SEC and the Company is required to report in its
proxy statement any failure to file by the established dates during the last
fiscal year. To Insteel's knowledge, all of these filing requirements were
satisfied by the Company's directors and officers during the last fiscal year.
In making this statement, Insteel has relied on the written representations of
its incumbent directors and officers and copies of the reports that have been
filed with the SEC.
12
<PAGE> 15
SUMMARY COMPENSATION TABLE
The table below provides information regarding the cash compensation
paid by the Company to the named executive officers for services of such persons
in all capacities during the fiscal years ended October 2, 1999, October 3, 1998
and September 30, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------
Long-Term
Compensation
Annual Compensation Awards
------------------- Securities All Other
Salary Bonus($) Underlying Compensation
Name and Principal Position Fiscal Year ($) (1) Options(#) ($)(2)
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Howard O. Woltz, Jr. 1999 161,740 143,592 21,125 4,068
Chairman of the Board 1998 160,000 - 29,615 4,666
1997 160,000 - 13,317 4,239
H. O. Woltz III 1999 282,223 250,631 35,067 4,302
President and Chief Executive 1998 243,000 - 44,978 301
Officer 1997 243,000 - 18,805 265
Gary D. Kniskern 1999 125,525 110,901 16,172 3,734
Vice President-Administration 1998 120,000 - 22,211 625
and Secretary 1997 114,000 - 10,276 544
Michael C. Gazmarian 1999 166,422 134,431 18,907 4,044
Chief Financial Officer and 1998 133,000 - 24,617 265
Treasurer 1997 112,000 - 10,143 220
</TABLE>
(1) Bonus includes total amount earned based on performance for fiscal year
1999. Under the terms of the Return on Capital Incentive Compensation
Plan, additional amounts may be distributed in the future, depending on
the financial performance of the Company in subsequent years. See "
Executive Compensation - - Executive Compensation Committee Report,"
above.
(2) Represents the current dollar value of the benefit to the named
executive officers of the remainder of the premiums paid by the Company
during the fiscal year under its Split-Dollar Life Insurance Plan, as
follows: Mr. Woltz, Jr. $4,068; Mr. Woltz III, $301; Mr. Kinskern,
$625; and Mr. Gazmarian, $270 Also includes the amount of Company
matching funds paid into the Company's Retirement Savings Plan on
behalf of the named executive officers, as follows: as follows: Mr.
Woltz, Jr. $0; Mr. Woltz III, $4,000; Mr. Kinskern, $3,109; and Mr.
Gazmarian, $3,774.
13
<PAGE> 16
STOCK OPTION GRANTS IN LAST FISCAL YEAR
The table below provides information regarding stock options granted to the
named executive officers of the Company during fiscal 1999:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
- --------------------------------------------------------------------------Potential Realized Value
Number of at Assumed Annual
Securities Percent of Rates of Stock Price
Underlying Total Options Appreciation for Option
Options Granted to Exercise or Term
Granted (#) Employees in Base Price Expiration ------------------------
Name (1) Fiscal Year ($/Share) Date 5%($)(2) 10%($)(2)
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Howard O. Woltz, Jr. 12,323 5.7% $6.5625 02/08/09 50,858 128,885
8,802 4.04% $9.1875 07/26/09 50,857 128,883
H. O. Woltz III 18,646 8.6% $6.5625 02/09/09 76,954 195,107
16,424 7.6% $9.1875 07/26/09 94,880 240,444
Gary D. Kniskern 9,275 4.3% $6.5625 02/09/09 38,279 97,007
6,897 3.2% $9.1875 07/26/09 39,850 100,989
Michael C. Gazmarian 10,172 4.7% $6.5625 02/09/09 41,981 106,388
8,735 4.0% $9.1875 07/26/09 50,470 127,902
</TABLE>
(1) Options are granted at fair market value and become exercisable in five
equal annual installments beginning on the date of grant.
(2) The dollar amounts under these columns represent the potential realizable
value of each grant of option assuming that the market price of the Common
Stock appreciates in value from the date of grant at the 5% and 10% annual
rates prescribed by the SEC and therefore are not intended to forecast
possible future appreciation, if any, of the price of the Common Stock.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The table below provides information regarding stock options exercised during
fiscal 1999 and the value of options outstanding at October 2,1999 for all
executive officers of the Company:
14
<PAGE> 17
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Shares Number of Securities Value of Unexercised in-the-
Acquired Underlying Unexercised Money Options at Fiscal
on Value Options at Fiscal Year-End (#) Year-End ($)(1)
Exercise Realized --------------------------------------------------------------------
Name (#) ($) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Howard O. Woltz, Jr. - - 36,228 41,416 77,284 96,787
H. O. Woltz III - - 48,455 63,982 107,210 145,433
Gary D. Kniskern - - 30,452 31,794 62,526 73,111
Michael C. Gazmarian - - 51,882 35,372 76,308 79,978
</TABLE>
(1) The dollar value is calculated by determining the difference between the
fair market value per share of the Common Stock on October 1, 1999 and the
option price per share.
PENSION PLAN
The Insteel Pension Plan was terminated on August 20, 1998, at which
time each participant having a benefit under the plan became fully vested, as
specified in the plan. During fiscal 1998, plan assets were converted to cash
and invested in money market funds, with the exception of 26,620 shares of
Company stock, which were converted to cash in August 1999. Participants and
spouses were given the opportunity to elect to receive a lump sum payment or a
monthly annuity. Lump sums could be paid to the participant (net of mandatory
tax withholdings) or rolled into another qualified plan, such as an Individual
Retirement Account or Insteel's 401(k) plan. Annuity contracts were purchased
for those electing monthly annuities. Final distribution of plan assets took
place in September 1999. Prior to the distribution of assets, the Company made a
net contribution to the plan of $63,428, the amount necessary to satisfy all
benefit liabilities, in accordance with the terms of the plan and applicable
laws.
The following table presents estimated annual benefits paid from the
plan upon normal or delayed retirement to persons in specified remuneration and
years of credited service classifications. The amounts shown assume the current
maximum Social Security benefit and that an election has been made for benefits
to be payable for the employee's life only.
PENSION PLAN TABLE
Remuneration($) Years of Service (including additional 1/6 of a year credit)
- --------------- ------------------------------------------------------------
15 20 25 30 35
150,000 27,017 36,018 45,034 54,034 54,034
200,000 29,030 38,701 48,388 58,059 58,059
250,000 29,030 38,701 48,388 58,059 58,059
300,000 29,030 38,701 48,388 58,059 58,059
350,000 29,030 38,071 43,388 58,059 58,059
15
<PAGE> 18
(A) Compensation covered by the plan
Annual compensation used in the determination of the benefits
in the above Pension Plan Table was limited to $300,000.
(B) Years of credited service are as follows:
H. O. Woltz III 21 years
Gary D. Kniskern 20 years
During the fiscal 1999, H. O. Woltz III received $81,000 and
Gary D. Kniskern received $95,092, representing total
distributions of their pension benefits under the plan. Howard
O. Woltz Jr. was paid the balance of his pension benefit
during the prior fiscal year.
(C) Benefits were computed as a straight-life annuity, 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 $32,940. This assumes a
participant born in 1934 who is retiring at age 65 in 1999.
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 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 1999 to each nonemployee director
was $10,000, 50% of which was paid in Common Stock and 50% of which was paid in
cash. Nonemployee members of the Audit and Executive Compensation Committees
receive a fee of $500 for each meeting of the respective committee. Nonemployee
directors are eligible to receive stock options under the 1994 Director Stock
Option Plan (discussed below).
Director Stock Option Plans: The Company's 1994 Director Stock Option Plan
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. These options vest
in full at the time 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 1999, options to purchase 2,000 shares at an exercise price of
$6.5625 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 1, 2000. The
option price is equal to the fair market value per
16
<PAGE> 19
share of the Common Stock on the date of grant. The shares issuable under the
plan have been registered with the SEC.
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 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 SEC.
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 or the Securities Exchange Act
of 1934, 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
Cumulative Total Return
----------------------------------------
9/94 9/95 9/96 9/97 10/98 9/99
---- ---- ---- ---- ----- ----
INSTEEL INDUSTRIES, INC. 100 88 83 103 64 125
S&P 500 100 130 156 219 212 306
S&P MANUFACTURING (DIVERSIFIED) 100 133 172 239 223 338
* 100 INVESTED ON 9/30/94 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING SEPTEMBER 30.
17
<PAGE> 20
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 ICSPW 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, a six-month deferral of both the note and lease payments was
granted due to ICSPW's slow cash flow. In May 1999, the Company determined that
deferral of the payments should be continued. 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, is scheduled to become due
at the end of the applicable scheduled payment period. The Company agreed to the
extension of the deferral after consideration of a number of factors, including
(1) that deferral of the note and lease payments may benefit the Company by
enhancing ICSPW's long-term prospects for discharging its obligations under the
note and the lease; (2) the fully secured nature of the obligation; and (3)
CSPW's representations that ICSPW is contemplating a restructuring that would
allow payment of the debt in full. As of December 1, 1999, unpaid principal on
the promissory note was $895,798. The largest aggregate amount of indebtedness
under the promissory note since the beginning of the Company's last fiscal year
was $986,072.
Frances H. Johnson, a director, is President, and along with her
family, owner of Johnson Concrete Company. Charles B. Newsome, a director, is
Executive Vice President and General Manager of Johnson Concrete Company. During
fiscal 1999, Johnson Concrete purchased materials from the Company valued at
$234,856 ($207,903 for fiscal 1998) 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 five meetings during fiscal 1999.
All directors attended at least 75% of the meetings of the Board of Directors
and of all committees on which such director served.
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. See "Deadline for Shareholder Proposals," below.
18
<PAGE> 21
The Board of Directors includes an Audit Committee, comprised of Louis
E. Hannen (Chairman) and Charles B. Newsome. The Audit Committee, which met once
during fiscal 1999, 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 program. 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
three times during fiscal 1999.
INDEPENDENT AUDITORS
Arthur Andersen LLP has served as the Company's independent auditors
since 1996 and has been approved to serve for fiscal 2000. 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 SHAREHOLDER PROPOSALS
Any shareholder desiring to present a proposal to be included in the
proxy statement for action at the Company's 2001 Annual Meeting must deliver the
proposal to the Company at its principal executive offices no later than August
29, 2000. Any shareholder desiring to present a proposal which is not intended
to be included in the proxy materials for the Company's 2001 Annual Meeting must
deliver the proposal to the Company at its principal executive offices no later
than September 28, 2000. The Company's Bylaws contain procedures that
shareholders must follow in order to present business at an annual meeting of
shareholders. A shareholder may obtain a copy of these procedures from the
Company's Secretary.
By Order of the Board of Directors
Gary D. Kniskern
Secretary
Mount Airy, North Carolina
December 27, 1999
19
<PAGE> 22
[This page left blank intentionally]
20
<PAGE> 23
Exhibit A
1994 EMPLOYEE STOCK OPTION PLAN
OF
INSTEEL INDUSTRIES, INC.
(AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 1, 2000)
<PAGE> 24
1994 EMPLOYEE STOCK OPTION PLAN OF
INSTEEL INDUSTRIES, INC.
(AS AMENDED AND RESTATED EFFECTIVE FEBRUARY 1, 2000)
1. Purpose.
The purpose of the 1994 Employee Stock Option Plan of Insteel
Industries, Inc., as amended and restated (the "Plan"), is to encourage and
enable selected key employees of Insteel Industries, Inc. (the "Corporation") to
acquire or to increase their holdings of common stock of the Corporation (the
"Common Stock") in order to promote a closer identification of their interests
with those of the Corporation and its shareholders, thereby further stimulating
their efforts to enhance the efficiency, soundness, profitability, growth and
shareholder value of the Corporation. This purpose will be carried out through
the granting of incentive stock options ("Incentive Options") and nonqualified
stock options ("Nonqualified Options"). Incentive Options and Nonqualified
Options shall be referred to herein collectively as "Options."
2. Administration of the Plan.
(a) The Plan shall be administered by the Board of Directors of the
Corporation (the "Board" or the "Board of Directors") or, upon its delegation,
by the Executive Compensation Committee of the Board (the "Committee"). Unless
the Board determines otherwise, the Committee shall be comprised solely of
"non-employee directors," as such term is defined in Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or as may
otherwise be permitted under Rule 16b-3. For the purposes herein, the term
"Administrator" shall refer to the Board, and, upon its delegation to the
Committee of all or part of its authority to administer the Plan, to the
Committee.
(b) Any action of the Administrator may be taken by a written
instrument signed by all of the members of the Administrator and any action so
taken by written consent shall be as fully effective as if it had been taken by
a majority of the members at a meeting duly held and called. Subject to the
provisions of the Plan, the Committee shall have full and final authority, in
its discretion, to take any action with respect to the Plan including, without
limitation, the following: (i) to determine the individuals to receive Options,
the nature of each Option as an Incentive Option or a Nonqualified Option, the
times when Options shall be granted, the number of shares to be subject to each
Option, the Option Price (determined in accordance with Section 6), the Option
Period (determined in accordance with Section 7), the time or times when each
Option shall be exercisable, and all related terms conditions, restrictions and
limitations; (ii) to prescribe the form or forms of the agreements evidencing
any Options granted under the Plan; (iii) to establish, amend and rescind rules
and regulations for the administration of the Plan; and (iv) to construe and
interpret the Plan, the rules and regulations, and the agreements evidencing
Options granted under the Plan, and to make all other determinations deemed
necessary or advisable for administering the Plan. The Administrator also shall
have authority, in its discretion, to accelerate the date that any Option which
was not otherwise exercisable or vested shall become exercisable or vested in
whole or in part without any obligation to accelerate such date with respect to
any other Option granted to any recipient.
<PAGE> 25
3. Effective Date; Term of the Plan.
The effective date of the Plan shall be September 23, 1994. The Plan
was amended and restated effective February 1, 2000. Options may be granted
under the Plan on or after the effective date, but not after September 22, 2004.
4. Shares of Common Stock Subject to the Plan.
The number of shares of Common Stock that may be issued pursuant to
Options shall not exceed in the aggregate 1,500,000 shares of authorized but
unissued Common Stock. The Corporation hereby reserves sufficient authorized
shares to provide for the exercise of such Options. Any shares subject to an
Option which, for any reason, expires or is terminated unexercised as to such
shares may again be subjected to an Option granted under the Plan. If the option
price of an Option is satisfied by tendering shares of Common Stock, only the
number of shares issued net of the shares of Common Stock tendered shall be
deemed issued for purposes of determining the maximum number of shares of Common
Stock available for issuance under the Plan. If there is any change in the
shares of Common Stock because of a merger, consolidation or reorganization
involving the Corporation or a related corporation, or if the Corporation
declares a stock dividend or stock split distributable in shares of Common
Stock, or if there is a change in the capital structure of the Corporation or a
related corporation affecting the Common Stock, the number of shares of Common
Stock reserved for issuance under the Plan shall be correspondingly adjusted,
and the Administrator shall make such adjustments to Options or to any
provisions of this Plan as the Administrator deems equitable to prevent dilution
or enlargement of Options.
5. Eligibility.
An Option may be granted only to an individual who satisfies the
following eligibility requirements on the date the Option is granted:
(a) The individual is a key employee of the Corporation or a related
corporation. For this purpose, an individual shall be considered to be an
"employee" only if there exists between the individual and the Corporation or a
related corporation the legal and bona fide relationship of employer and
employee. In determining whether such a relationship exists, the regulations of
the United States Treasury Department relating to the determination of the
employment relationship for the purpose of collection of income tax on wages at
the source shall be applied. Also for this purpose, a "key employee" shall mean
an employee of the Corporation or a related corporation whom the Administrator
determines qualifies as a key employee based on the nature and extent of such
employee's duties, responsibilities, personal capabilities, performance,
potential or any combination of such factors.
(b) With respect to the grant of an Incentive Option, the individual
does not own, immediately before the time that the Incentive Option is granted,
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Corporation or a related corporation; provided,
that an individual owning more than ten percent (10%) of the total combined
voting power of all classes of stock of the Corporation or a related corporation
may be granted an Incentive Option if the price at which such Option may be
exercised is greater than or equal to 110 percent of the fair market value of
the shares on the date the Option is granted and the period of the Option does
not exceed five years. For this purpose, an individual will be deemed to
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own stock which is attributed to him under Section 424(d) of the Internal
Revenue Code of 1986, as amended (the "Code").
(c) The individual, being otherwise eligible under this Section 5, is
selected by the Administrator as an individual to whom an Option shall be
granted (an "Optionee").
6. Grant of Options; Option Price.
Subject to the limitations of the Plan, the Administrator may in its
sole and absolute discretion grant Options to such eligible individuals, in such
numbers, upon such terms and conditions and at such times as the Administrator
shall determine. Both Incentive Options and Nonqualified Options may be granted
under the Plan. To the extent that an Option is designated as an Incentive
Option but does not qualify as such under Section 422 of the Code, the Option
(or portion thereof) shall be treated as a Nonqualified Option. In addition, the
following provisions shall apply with respect to Options:
(a) Option Price. The price per share of Common Stock at which an
Option may be exercised (the "Option Price") shall be no less than the fair
market value per share of the Common Stock on the date the Option is granted, as
established by the Administrator and set forth in the terms of the agreement
granting the agreement (as provided in Section 10).
(i) For the purposes of the Plan, the fair market value per
share of the Common Stock shall be established in good faith by the
Administrator and, except as may otherwise be determined by the
Administrator, the fair market value shall be determined in accordance
with the following provisions: (A) if the shares of Common Stock are
listed for trading on the New York Stock Exchange or the American Stock
Exchange, the fair market value shall be the closing sales price per
share of the shares on the New York Stock Exchange or the American
Stock Exchange (as applicable) on the date immediately preceding the
date the Option is granted, or, if there is no transaction on such
date, then on the trading date nearest preceding the date the Option is
granted for which closing price information is available, and, provided
further, if the shares are quoted on the Nasdaq National Market or the
Nasdaq SmallCap Market of the Nasdaq Stock Market but are not listed
for trading on the New York Stock Exchange or the American Stock
Exchange, the fair market value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on
such system on the date immediately preceding the date the Option is
granted for which such information is available; or (B) if the shares
of Common Stock are not listed or reported in any of the foregoing,
then the fair market value shall be determined by the Administrator in
accordance with the applicable provisions of Section 20.2031-2 of the
Federal Estate Tax Regulations, or in any other manner consistent with
the Code and accompanying regulations.
(ii) In no event shall there first become exercisable by the
Optionee in any one calendar year incentive stock options granted by
the Corporation or any related corporation with respect to shares of
Common Stock having an aggregate fair market value (determined at the
time an option is granted) greater than $100,000.
(b) Date of Grant. An Incentive Option shall be considered to be
granted on the date that the Administrator acts to grant the Option, or on any
later date specified by the Administrator as the effective date of the Option. A
Nonqualified Option shall be considered to be granted on the date the
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Administrator acts to grant the Option or any other date specified by the
Administrator as the date of grant of the Option.
7. Option Period and Limitations on the Right to Exercise Options.
(a) The period during which an Option may be exercised (the "Option
Period") shall be determined by the Administrator when the Option is granted and
shall extend from the date on which the Option is granted to a date not more
than ten years from the date on which the Option is granted. Subject to the
restriction contained in the preceding sentence and as otherwise provided in
this Plan, an Option shall be exercisable on such date or dates, during such
period, for such number of shares, and subject to such conditions as shall be
determined by the Administrator and set forth in the agreement evidencing such
Option, subject to the discretion of the Administrator to accelerate the time or
times when Options may be exercised. Any Option or portion thereof not exercised
before the expiration of the Option Period shall terminate.
(b) An Option may be exercised by giving written notice to the
Administrator or its designee at such time and place as the Administrator shall
direct. Such notice shall specify the number of shares to be purchased pursuant
to an Option and the aggregate purchase price to be paid therefor, and shall be
accompanied by the payment of such purchase price. Such payment shall be in the
form of (i) cash; (ii) shares of Common Stock owned by the Optionee at the time
of exercise and acceptable to the Administrator; or (iii) in any combination
thereof; provided, that the Administrator may, in its sole and absolute
discretion and subject to such terms and conditions as it deems appropriate,
also permit all or a portion of the purchase price to be paid (A) with funds
borrowed from the Corporation pursuant to Section 7(f); (B) with respect to
Options granted on or after February 1, 2000, shares of Common Stock withheld
upon exercise; (C) by delivery of written notice of exercise to the Corporation
and delivery to a broker of written notice of exercise and irrevocable
instructions to promptly deliver to the Corporation the amount of sale or loan
proceeds to pay the Option Price; or (D) by a combination of such methods.
Shares tendered or withheld in payment on the exercise of an Option shall be
valued at their fair market value on the date of exercise, which shall be
determined in good faith by the Administrator in accordance with Section 6(a)(i)
herein.
(c) No Option shall be exercised unless the Optionee, at the time of
exercise, shall have been an employee continuously since the date the Option was
granted, subject to the following:
(i) An Option shall not be affected by any change in the
terms, conditions or status of the Optionee's employment, provided that
the Optionee continues to be an employee of the Corporation or a
related corporation.
(ii) The employment relationship of an Optionee may, in the
discretion of the Administrator, be treated as continuing intact for
any period that the Optionee is on military or sick leave or other bona
fide leave of absence, provided that the period of such leave does not
exceed 90 days, and in any event shall be treated as continuing during
such period as the Optionee's right to reemployment is guaranteed
either by statute or by contract. The employment relationship of an
Optionee may, in the discretion of the Administrator, also be treated
as continuing intact while the Optionee is not in active service
because of disability; provided, that shares acquired by the Optionee
pursuant to exercise of an Incentive Option shall be subject to
Sections 421 and 422 of the Code only if and to the extent that such
exercise occurs within twelve months less one day following the date
the Optionee's employment is considered to be terminated because of
such disability under Section 422. For
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purposes of this subparagraph (c)(ii), "disability" shall mean the
inability of the Optionee to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment
which can be expected to result in death, or which has lasted or can be
expected to last for a continuous period of not less than twelve
months. The Administrator shall determine whether an Optionee is
disabled within the meaning of the Plan, and, if applicable, the date
of a participant's termination of employment for any reason (the
"termination date").
(iii) Unless an individual agreement provides otherwise, if
the employment of an Optionee is terminated because of death or
disability, the Option may be exercised following such termination only
to the extent determined by the Administrator in its discretion;
provided that such discretion may include a decision to accelerate the
date for exercising all or any part of the Option which was not
otherwise exercisable on the termination date. In any event, the Option
must be exercised, if at all, prior to the earlier of: (A) the first
anniversary of the Optionee's termination date, or (B) the close of the
Option Period. In the event of the Optionee's death, such Option shall
be exercisable by such person or persons as shall have acquired the
right to exercise the Option by will or by the laws of intestate
succession.
(iv) Unless an individual agreement provides otherwise, if the
employment of an Optionee is terminated for any reason other than
death, disability or, with respect to Options granted on or after
February 1, 2000, for "cause" (as such term is defined in Section
7(c)(v)), his Option may be exercised only to the extent determined by
the Administrator in its discretion; provided, that such discretion may
include a decision to accelerate the date of exercising all or any part
of the Option which was not otherwise exercisable on the Optionee's
termination date. In any event, the Option must be exercised, if at
all, prior to the earlier of: (A) 90 days following the Optionee's
termination date, or (B) the close of the Option Period.
(v) With respect to Options granted on or after February 1,
2000, unless an individual agreement provides otherwise, if the
employment of an Optionee is terminated for "cause," his Option shall
terminate and no longer exercisable as of the Optionee's termination
date. For purposes of this Section 7(c), an Optionee's termination
shall be for "cause" if such termination results from the Optionee's
(W) termination for "cause" under the terms of the Optionee's
employment or other agreement with the Corporation, if any; (X)
dishonesty or conviction of a crime; (Y) failure to perform his duties
to the satisfaction of the Corporation; or (Z) engaging in conduct that
could be materially damaging to the Corporation without a reasonable
good faith belief that such conduct was in the best interest of the
Corporation. The determination of "cause" shall be made by the
Administrator and its determination shall be final and conclusive.
(d) An Optionee or his legal representative, legatees or distributees
shall not be deemed to be the holder of any shares subject to an Option and
shall not have any rights as a shareholder unless and until certificates for
such shares are issued to him or them under the Plan. A certificate or
certificates for shares of Common Stock acquired upon exercise of an Option
shall be issued in the name of the Optionee (or his beneficiary) and distributed
to the Optionee (or his beneficiary) as soon as practicable following receipt of
proper notice of exercise and payment of the Option Price.
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<PAGE> 29
(e) Nothing in the Plan shall confer upon the Optionee any right to
continue in the employment or service of the Corporation or a related
corporation, or to interfere in any way with the right of the Corporation or a
related corporation to terminate the Optionee's employment or service at any
time.
(f) If an Optionee shall exercise an Option with funds borrowed from
the Corporation, the Optionee shall execute a promissory note in favor of the
Corporation for the amount of the Option Price borrowed. The promissory note
shall provide for such repayment terms as the Administrator in its discretion
shall establish; provided, that the rate of interest in effect under the
promissory note shall equal or exceed the rate necessary to prevent application
of the unstated interest rules under Section 483 of the Code. In addition, the
Optionee shall execute an agreement assigning to the Corporation as security for
the promissory note the shares acquired pursuant to the Option. The security
agreement shall provide for the shares to be held by the Administrator until the
promissory note is repaid in full; provided, that if Optionee shall not have
repaid the promissory note in full at the time of his termination of employment
with the Corporation, or if he shall otherwise be in default under the terms of
such promissory note, the Administrator shall retain the number of shares needed
to repay the outstanding balance on such note, and shall deliver a certificate
for the remaining shares held by the Administrator to the Optionee.
8. Nontransferability of Options.
(a) Incentive Options shall not be transferable other than by will or
the laws of intestate succession. Nonqualified Options shall not be transferable
other than by will or the laws of intestate succession, except as may be
permitted by the Administrator in its sole discretion in a manner consistent
with the registration provisions of the Securities Act of 1933, as amended (the
"Securities Act"). Except as may be permitted by the preceding sentence, an
Option shall be exercisable during the Optionee's lifetime only by him or by his
guardian or legal representative.
(b) If an Optionee is subject to Section 16 of the Act, shares of
Common Stock acquired upon exercise of an Option may not, without the consent of
the Administrator, be disposed of by the Optionee until the expiration of six
months after the date the Option was granted.
9. Certain Definitions.
For purposes of the Plan, the following terms shall have the meaning
indicated:
(a) "Related corporation" means any parent, subsidiary or predecessor
of the Corporation.
(b) "Parent" or "parent corporation" shall mean any corporation (other
than the Corporation) in an unbroken chain of corporations ending with the
Corporation if, at the time as of which a determination is being made, each
corporation other than the Corporation owns stock possessing fifty percent or
more of the total combined voting power of all classes of stock in another
corporation in the chain.
(c) "Subsidiary" or "subsidiary corporation" means any corporation
(other than the Corporation) in an unbroken chain of corporations beginning with
the Corporation if, at the time as of which a determination is being made, each
corporation other than the last corporation in the
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<PAGE> 30
unbroken chain owns stock possessing fifty percent or more of the total combined
voting power of all classes of stock in another corporation in the chain.
(d) "Predecessor" or "predecessor corporation" means a corporation
which was a party to a transaction described in Section 424(a) of the Code (or
which would be so described if a substitution or assumption under that section
had occurred) with the Corporation, or a corporation which is a parent or
subsidiary of the Corporation, or a predecessor of any such corporation.
(e) In general, terms used in the Plan shall, where appropriate, be
given the meaning ascribed to them under the provisions of the Code applicable
to incentive stock options.
10. Stock Option Agreement.
The grant of any Option under the Plan shall be evidenced by the
execution of an agreement (an "Agreement") between the Corporation and the
Optionee. Such Agreement shall set forth the date of grant of the Option, the
Option Price, and the time or times when and the conditions upon the happening
of which the Option shall become exercisable. Such Agreement shall also set
forth the restrictions, if any, with respect to which the shares to be purchased
thereunder shall be subject, and such other terms and conditions as the
Administrator shall determine which are consistent with the provisions of the
Plan and applicable law and regulations.
11. Restrictions on Shares.
The Administrator may impose such restrictions on any shares issued
pursuant to the exercise of Options granted hereunder as it may deem advisable,
including without limitation restrictions under the Securities Act, under the
requirements of the New York Stock Exchange and under any Blue Sky or securities
laws applicable to such shares. Notwithstanding any other Plan provision to the
contrary, the Corporation shall not be obligated to issue, deliver or transfer
shares of Common Stock under the Plan, or take any other action, unless such
issuance, delivery, transfer or other action is in compliance with all
applicable laws, rules and regulations (including but not limited to the
requirements of the Securities Act). The Administrator may cause a restrictive
legend to be placed on any certificate issued pursuant to the exercise of an
Option granted hereunder in such form as may be prescribed from time to time by
applicable laws and regulations or as may be advised by legal counsel.
12. Amendment and Termination.
The Plan and any Option granted under the Plan may be amended or
terminated at any time by the Board of Directors of the Corporation; provided,
that (i) approval of an amendment to the Plan by the shareholders of the
Corporation shall be required to the extent, if any, that shareholder approval
of such amendment is required by applicable law, rule or regulation; and (ii)
such amendment or termination of an Option shall not, without the consent of a
recipient of an Option, adversely affect the rights of the recipient with
respect to an outstanding Option.
13. Withholding.
The Corporation shall withhold all required local, state and federal
taxes from any amount payable in cash with respect to an Option. The Corporation
shall require any recipient of an Option payable in shares of the Common Stock
to pay to the Corporation in cash the amount of any tax or
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<PAGE> 31
other amount required by any governmental authority to be withheld and paid over
by the Corporation to such authority for the account of such recipient.
Notwithstanding the foregoing, with respect to Options granted on or after
February 1, 2000, the Corporation may establish procedures to permit a recipient
to satisfy such obligation in whole or in part, and any other local, state or
federal income tax obligations relating to such an Option, by electing (the
"election") to have the Corporation withhold shares of Common Stock from the
shares to which the recipient is entitled. The number of shares to be withheld
shall have a fair market value as of the date that the amount of tax to be
withheld is determined as nearly equal as possible to (but not exceeding) the
amount of such obligations being satisfied. Each election must be made in
writing to the Administrator in accordance with election procedures established
by the Administrator.
14. Predecessor Plan.
As of the effective date of the Plan, no further options shall be
granted under the 1985 Insteel Industries, Inc. Employee Incentive Stock Option
Plan, as amended (the "Predecessor Plan"). The Predecessor Plan shall continue
in effect and shall be applicable with respect to all options granted prior to
the effective date under the Predecessor Plan.
15. Section 16(b) Compliance.
It is the intention of the Corporation that the Plan shall comply in
all respects with Rule 16b-3 under the Act, and, if any Plan provision is later
found not to be in compliance with Section 16 of the Act, the provision shall be
deemed null and void, and in all events the Plan shall be construed in favor of
it meeting the requirements of Rule 16b-3 (or successor rules applicable to the
Plan). Notwithstanding anything in the Plan to the contrary, the Administrator,
in its sole and absolute discretion, may bifurcate the Plan so as to restrict,
limit or condition the use of any provision of the Plan to participants who are
officers or Directors subject to Section 16 of the Act without so restricting,
limiting or conditioning the Plan with respect to other participants.
16. Applicable Law.
Except as otherwise provided herein, the Plan shall be construed and
enforced according to the laws of the State of North Carolina.
17. Change of Control.
(a) Notwithstanding any other provision of the Plan to the contrary, in
the event of a change of control (as defined in Section 17(c) herein), all
options outstanding as of the date of such change of control shall become fully
exercisable, whether or not then otherwise exercisable.
(b) Notwithstanding the foregoing, in the event of a merger, share
exchange, reorganization or other business combination affecting the Corporation
or a related corporation, the Administrator may, in its sole and absolute
discretion, determine that any or all options granted pursuant to the Plan shall
not vest or become exercisable on an accelerated basis, if the Corporation or
the board of directors of the surviving or acquiring corporation, as the case
may be, shall have taken such action, including but not limited to the
assumption of options granted under the Plan or the grant of substitute awards
(in either case, with substantially similar terms as options granted under the
Plan), as in the opinion of the Administrator is equitable or appropriate to
protect the rights and interests of participants under the Plan. For the
purposes herein, if the Committee is acting as the
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<PAGE> 32
Administrator authorized to make the determinations provided for in this Section
17(b), the Committee shall be appointed by the Board of Directors, two-thirds of
the members of which shall have been directors of the Corporation prior to the
merger, share exchange, reorganization or other business combinations affecting
the Corporation or a related corporation.
(c) For the purposes herein, a "change of control" shall be deemed to
have occurred on the earliest of the following dates:
(i) The date any entity or person shall have become the
beneficial owner of, or shall have obtained voting control over, thirty
percent (30%) or more of the outstanding Common Stock of the
Corporation;
(ii) The date the shareholders of the Corporation approve a
definitive agreement (A) to merge or consolidate the Corporation with
or into another corporation, in which the Corporation is not the
continuing or surviving corporation or pursuant to which any shares of
Common Stock of the Corporation would be converted into cash,
securities or other property of another corporation, other than a
merger or consolidation of the Corporation in which holders of Common
Stock immediately prior to the merger or consolidation have the same
proportionate ownership of Common Stock of the surviving corporation
immediately after the merger as immediately before, or (B) to sell or
otherwise dispose of all or substantially all the assets of the
Corporation; or
(iii) The date there shall have been a change in a majority of
the Board of Directors of the Corporation within a 12-month period
unless the nomination for election by the Corporation's shareholders of
each new director was approved by the vote of two-thirds of the
directors then still in office who were in office at the beginning of
the 12-month period.
(For purposes herein, the term "person" shall mean any individual,
corporation, partnership, group, association or other person, as such
term is defined in Section 13(d)(3) or Section 14(d)(2) of the Exchange
Act, other than the Corporation, a subsidiary of the Corporation or any
employee benefit plan(s) sponsored or maintained by the Corporation or
any subsidiary thereof, and the term "beneficial owner" shall have the
meaning given the term in Rule 13d-3 under the Exchange Act.)
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<PAGE> 33
IN WITNESS WHEREOF, this Employee Stock Option Plan, as amended and
restated, has been executed in behalf of the Corporation as of the 1st day of
February, 2000.
INSTEEL INDUSTRIES, INC.
By:
--------------------------------------
Chief Executive Officer
Attest:
- ---------------------------------
Secretary
[Corporate Seal]
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<PAGE> 34
PROXY
INSTEEL INDUSTRIES, INC.
1373 Boggs Drive - Mount Airy, North Carolina 27030
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
February 1, 2000
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 1, 2000, and at any adjournment thereof, as follows:
(1) ELECTION OF THREE DIRECTORS
[ ] VOTE FOR all nominees listed [ ] WITHHOLD AUTHORITY to vote for all
(except as marked to the nominees listed.
contrary).
Nominees: H.O. Woltz III, Frances H. Johnson, Charles B. Newsome
INSTRUCTION: To withhold authority to vote for any individual nominee, strike a
line through the nominee's name
(2) Approval of the proposal to amend and restate the 1994 Employee Stock Option
Plan to increase the number of shares authorized for issuance under the plan
and make certain other revisions as described in the Proxy Statement
enclosed herewith.
[ ] VOTE FOR PROPOSAL [ ] VOTE AGAINST PROPOSAL [ ] 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)
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 AND FOR THE PROPOSAL TO AMEND AND RESTATE THE 1994
EMPLOYEE STOCK OPTION PLAN. IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE
ANNUAL MEETING OR ANY ADJOURNMENT THEREOF, THIS PROXY WILL BE VOTED IN THE
DISCRETION OF THE AGENTS APPOINTED HEREIN.
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.
