<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED OCTOBER 2, 1999
COMMISSION FILE NUMBER 1-9929
INSTEEL INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0674867
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1373 BOGGS DRIVE, MOUNT AIRY, NORTH CAROLINA 27030 (Address of
principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (336) 786-2141
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
COMMON STOCK (NO PAR VALUE) NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates
of the registrant as of December 13, 1999 was $62,163,416.
The number of shares outstanding of the registrant's common stock as of
December 13, 1999 was 8,457,226.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement to be delivered to
shareholders in connection with the 2000 Annual Meeting of Shareholders are
incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS.
GENERAL
Insteel Industries, Inc. ("Insteel" or "the Company") is one of the
nation's leading manufacturers of wire products. Insteel Wire Products Company
("IWP"), the Company's wholly-owned subsidiary, manufactures and markets
concrete reinforcing products, industrial wire, nails and tire bead wire for a
broad range of construction and industrial applications.
Insteel's business strategy is driven off of a return on capital
framework with the primary objective of creating economic value through the
generation of returns that exceed the Company's cost of capital. The Company
seeks to attain leadership positions in the markets that it serves through
internal growth as well as acquisitions. The Company also pursues expansion
opportunities in new and related products that leverage off of its core
competencies in the manufacture and marketing of wire products.
During 1999, the Company furthered this strategy with the completion of
two expansions in its concrete reinforcing business. In January 1999, the
Company acquired a 25% interest in Structural Reinforcement Products, Inc.
("SRP"), a manufacturer of welded wire fabric products. In April 1999, the
Company acquired the assets of the concrete reinforcing business of Northwestern
Steel and Wire Company, consisting of the inventory, property, plant and
equipment of its Hickman, Kentucky facility which manufactures welded wire
fabric products.
PRODUCTS
CONCRETE REINFORCING PRODUCTS include welded wire fabric and
prestressed concrete strand ("PC strand"). Welded wire fabric is produced as
both standard and specially engineered reinforcing products for concrete pipe
manufacturers, precasters, distributors and construction companies. PC strand is
a sophisticated reinforcing product sold to precasters and posttensioning
suppliers that is used for both pretensioned and posttensioned prestressed
concrete construction.
INDUSTRIAL WIRE PRODUCTS are primarily sold to manufacturers of springs
for bedding and furniture, appliances, display racks and a broad range of other
products. Product attributes vary with the end use and can include galvanizing
for corrosion resistance and intermediate heat-treating, in addition to
stringent tolerance requirements and mechanical properties.
BULK NAILS consist of a wide variety of products such as common nails,
finishing nails, box nails, sinkers, duplex nails and galvanized nails sold to
wholesalers and distributors primarily for construction-related applications. In
addition, the Company produces machine quality nails that are used for
industrial applications such as pallet manufacturing.
COLLATED NAILS are comprised of a broad range of brite and galvanized
collated nails that are used by a variety of pneumatic nailing tools. The
products are sold to distributors and original equipment manufacturers ("OEMs")
primarily for construction-related applications.
TIRE BEAD WIRE is a bronze-plated steel wire sold to tire manufacturers
that is used to reinforce the inside diameter of a tire and hold the tire to the
wheel.
MARKETING AND DISTRIBUTION
Insteel markets its products through sales representatives who are
employees of the Company. The Company's sales organization is aligned with its
product lines, assigned to the specific markets served. The Company's products
are sold directly to users and through numerous wholesalers, distributors and
retailers located primarily in the eastern part of the U.S. as well as portions
of the Southwest and West Coast. Insteel delivers its products by truck using
common or contract carriers.
CUSTOMERS
The Company sells its products to a broad range of customers including
OEMs, distributors, wholesalers and retailers. There were no customers that
represented 10% or more of the Company's net sales in 1999. Sealy, Inc.
accounted for approximately 11% of the Company's net sales in 1998 and 10% in
1997.
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RAW MATERIALS
The primary raw material required in the production of Insteel's wire
products is hot rolled carbon steel wire rod. The Company purchases wire rod
from both domestic and foreign suppliers. Wire rod supply was adequate during
1999 and the market was relatively stable. Worldwide demand for wire rod began
to recover as the impact of the Asian financial crisis eased and global demand
improved. Domestic wire rod producers successfully increased prices in the
Company's third quarter, and again in the fourth quarter, as they sought to
restore pricing to pre-1998 levels. In January 1999, domestic wire rod producers
initiated a Section 201 filing with the U.S. International Trade Commission
("ITC") alleging that rising import levels had resulted in serious injury to the
domestic industry. The domestic producers are pursuing trade relief on a
worldwide basis against all countries other than NAFTA nations through duties,
quotas or other measures intended to reduce import competition. In May 1999,
three ITC commissioners found that the domestic wire rod industry had not been
injured by imports. Two commissioners found that the industry had been injured
by imports, and the sixth commissioner found that the industry had not been
injured, but that a threat of injury existed. The investigation is now in the
remedy phase. Although President Clinton was scheduled to make a determination
on relief for the industry by September 27, 1999, to date, no determination has
been made. The future impact of these actions on the Company's financial results
is difficult to predict, depending upon the resolution of the trade filings
together with the Company's ability to recover any raw material price increases
in its markets.
COMPETITION
The markets in which the Company's business is conducted are highly
competitive. Insteel faces formidable competition in most of its market
segments, including competition from companies whose revenues and financial
resources are much larger than the Company's. Some of its competitors are
integrated steelmakers that produce both wire rod and wire products and offer
multiple product lines over broad geographical areas. Other competitors are
smaller independent wire mills that offer limited competition in certain
markets. Market participants compete on the basis of price, quality and service.
Selling prices tend to ultimately move with changes in raw material costs,
although spreads can widen or narrow depending upon market conditions.
Technology has become a critical factor in maintaining competitive levels of
conversion costs and quality. The Company believes that it is one of the leading
low cost producers of wire products based upon its technologically-advanced
manufacturing facilities and production capabilities. In addition, the Company
offers a broader range of products through more diverse distribution channels
than any of its competitors. The Company believes that it is well positioned to
compete favorably on the industry's critical success factors.
EMPLOYEES
As of October 2, 1999, the Company employed 1,004 people. The Company
has a collective bargaining agreement with a labor union at its Delaware plant
covering its hourly employees. The Company believes that relations with the
labor union and employees are satisfactory.
ENVIRONMENTAL MATTERS
The Company believes that it is in compliance in all material respects
with applicable environmental laws and regulations. The Company has experienced
no material difficulties in complying with legislative or regulatory standards
and believes that these standards have not materially impacted its financial
position or results of operations. Compliance with future additional
environmental requirements could necessitate capital outlays. However, the
Company does not believe that these expenditures should ultimately result in a
material adverse effect on its financial position or results of operations.
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EXECUTIVE OFFICERS OF THE COMPANY
The executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position with the Company
- ----------------------- --- -------------------------------------------------
<S> <C> <C>
Howard O. Woltz, Jr. 74 Chairman of the Board and a Director
H.O. Woltz III 43 President, Chief Executive Officer and a Director
Gary D. Kniskern 54 Vice President - Administration and Secretary
Michael C. Gazmarian 40 Chief Financial Officer and Treasurer
</TABLE>
Howard O. Woltz, Jr., has been Chairman of the Board since 1958 and has
served in various capacities for more than 41 years. He had been President of
the Company from 1958 to 1968 and from 1974 to 1989. He previously served as
Vice President, General Counsel and a director of Quality Mills, Inc., a
publicly-held manufacturer of knit apparel and fabrics, for more than 35 years
prior to its acquisition in 1988 by Russell Corporation.
H. O. Woltz III, a son of Howard O. Woltz, Jr., was elected Chief
Executive Officer in 1991 and has served in various capacities for more than 21
years. He was named President and Chief Operating Officer in 1989. He had been
Vice President of the Company since 1988 and, previously, President of
Rappahannock Wire Company, formerly a subsidiary of the Company, since 1981. Mr.
Woltz has been a director of the Company since 1986 and also serves as President
of Insteel Wire Products Company.
Gary D. Kniskern was elected Vice President - Administration in 1994
and has served in various capacities for more than 20 years. He had been
Secretary and Treasurer since 1984 and, previously, internal auditor since 1979.
Michael C. Gazmarian joined Insteel as Chief Financial Officer and was
elected Treasurer in 1994. He had been with Guardian Industries Corp., a
privately held glass manufacturer, since 1986, serving in various financial
capacities.
The executive officers listed above were elected by the Board of
Directors at its annual meeting held February 9, 1999 for a term that will
expire at the next annual meeting of the Board of Directors or until their
successors are elected and qualify. The next meeting at which officers will be
elected is scheduled for February 1, 2000.
ITEM 2. PROPERTIES.
Insteel's corporate headquarters and IWP's divisional office are
located in Mount Airy, North Carolina. IWP has nine manufacturing facilities
located in Andrews, South Carolina (2 plants); Gallatin, Tennessee (2 plants);
Dayton, Texas; Fredericksburg, Virginia; Mount Airy, North Carolina; Wilmington,
Delaware; and Hickman, Kentucky.
The Company owns all of its properties with the exception of the land
at its Wilmington facility, which is leased. The Dayton and Fredericksburg
plants are pledged as security under long-term financing agreements.
The Company considers that its properties are in good operating
condition and that its machinery and equipment have been well-maintained. The
Company's manufacturing facilities are suitable for their intended purposes and
have capacities adequate for current and projected needs for existing products.
ITEM 3. LEGAL PROCEEDINGS.
There are no material pending legal proceedings to which the Company or
any of its subsidiaries is a party or which any of their property is a subject.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS.
The Company's common stock is listed on the New York Stock Exchange
under the symbol III. At December 1, 1999, there were 683 shareholders of
record. Selected quarterly financial data appears under the caption "Financial
Information by Quarter (Unaudited)" in Item 8(b) of this report.
ITEM 6. SELECTED FINANCIAL DATA.
FINANCIAL HIGHLIGHTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------------------------------------
SEPTEMBER 30,
OCTOBER 2, OCTOBER 3, --------------------------------------------
1999 1998 1997 1996 1995
--------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 270,992 $ 266,147 $ 262,325 $ 264,382 $ 258,582
Earnings from continuing operations
before extraordinary loss 9,986 328 2,536 5,237 5,344
Net earnings (loss) 9,986 (80) (341) 4,243 6,336
Earnings per share from continuing
operations before extraordinary
loss (basic and diluted) 1.18 0.04 0.03 0.62 0.64
Net earnings (loss) per share
(basic and diluted) 1.18 (0.01) (0.04) 0.50 0.76
Cash dividends per share 0.24 0.24 0.24 0.24 0.24
Total assets 167,896 147,131 171,476 146,122 148,920
Long-term debt 46,197 35,743 49,673 29,655 21,451
Shareholders' equity 77,329 69,260 71,322 73,677 71,212
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
STATEMENTS OF EARNINGS - SELECTED DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 CHANGE 1998 CHANGE 1997
---------- ------ ---------- ------ -------------
<S> <C> <C> <C> <C> <C>
Net sales $270,992 2% $266,147 1% $262,325
Gross profit 35,647 167% 13,353 (29%) 18,852
Percentage of net sales 13.2% 5.0% 7.2%
Selling, general and administrative expense $ 17,429 30% $ 13,410 8% $ 12,395
Percentage of net sales 6.4% 5.0% 4.7%
Operating income (loss) 18,218 N/M (57) N/M 6,457
Percentage of net sales 6.7% - 2.5%
Interest expense $ 2,482 (35%) $ 3,810 67% $ 2,276
Percentage of net sales 0.9% 1.4% 0.9%
Effective income tax rate 36.3% 35.4% 36.4%
Earnings from continuing operations $ 9,986 N/M $ 328 (87%) $ 2,536
Percentage of net sales 3.7% 0.1% 1.0%
</TABLE>
1999 COMPARED WITH 1998
Net sales rose 2% to $271.0 million in 1999 from $266.1 million in
1998. The growth in sales was in spite of the sale of the Company's agricultural
fencing product line in February 1998, which reduced current year sales relative
to the prior year. On a comparable basis, sales rose 4% for the year. Sales of
concrete reinforcing products increased 20% for the year as a result of strong
construction markets together with the additional manufacturing capacity
provided by the Company's supply agreement with SRP and its acquisition of a
competitor's concrete reinforcing business. Sales of tire bead wire steadily
increased during the year as the Company continued to gain customer acceptance
and further its market penetration. Industrial wire sales declined for the year
primarily due to a significant increase in the proportion of wire consumed
internally by downstream value-added processes to manufacture other products.
Gross margins increased to 13.2% of sales in 1999 from 5.0% in 1998.
The margin improvement was primarily generated by the Company's recent
expansions together with strong market conditions and widening spreads between
selling values and raw material costs for certain product lines. Gross margins
were also favorably impacted by higher operating volumes and lower per-unit
manufacturing costs.
Selling, general and administrative expense ("SG&A expense") rose 30%,
increasing to 6.4% of sales in 1999 from 5.0% in 1998. The increase in SG&A
expense was primarily due to higher employee incentive plan and profit-sharing
expenses resulting from the significant improvement in the Company's financial
results together with legal fees associated with employment-related issues.
Interest expense fell sharply in 1999 compared with 1998 due to a
decrease in average borrowing levels and lower interest rates on the Company's
revolving credit facility. The reduction in debt was primarily due to the
significant improvement in the Company's earnings relative to the year-ago loss.
During 1998, the Company sold the inventory and equipment related to
its agricultural fencing product line. The Company's 1998 financial results
reflect a pre-tax gain of $3.4 million, or 26 cents per share after-tax, on the
sale of the assets in other income, net of a provision for the estimated
transition-related costs. Under the terms of the sale, the Company agreed to
manufacture fencing products for the buyer until the equipment was relocated to
the buyer's facilities. The Company ceased the remainder of its agricultural
fencing activities in October 1998.
The Company terminated one of its pension plans during 1998,
recognizing a pre-tax gain of $1.2 million, or 7 cents per share after-tax, in
other income for the curtailment of plan benefits and settlements that had been
made to date. The Company completed the settlement of the plan in September
1999.
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Also in 1998, the Company retired its $10.0 million 8.25% senior
secured notes, funding the prepayment under its unsecured revolving credit
facility. The Company's financial results reflect an extraordinary loss of
$408,000 after income taxes, or approximately 5 cents per share, related to the
early extinguishment of debt.
1998 COMPARED WITH 1997
Net sales rose 1% to $266.1 million in 1998 from $262.3 million in
1997. The growth in sales was in spite of the sale of the Company's agricultural
fencing product line, which reduced current year sales relative to the prior
year. Excluding sales of agricultural fencing products, sales increased 8%.
Sales of bulk nails rose sharply in 1998 as shipments reached a new record high
while industrial wire sales were flat. Sales of concrete reinforcing products
increased 7% primarily as a result of higher shipments of welded wire fabric.
Tire bead wire sales gradually increased during the year as the Company obtained
customer approval on certain products and began to achieve consistent shipment
levels.
Gross margins fell to 5.0% of sales in 1998 from 7.2% in 1997. The
reduction in margins was primarily caused by a narrowing in spreads between
selling values and raw material costs in certain products and markets together
with low operating volumes at the Company's recent expansions. The Virginia
manufacturing facility continued to operate at a significant loss as revenues
remained well below the levels required to cover the costs necessary to support
the anticipated ramp-up of the tire bead wire business. The Company's other
recent expansion, collated nails, also operated at a loss due to insufficient
sales volume and pricing pressure resulting from increased import competition.
SG&A expense rose 8%, increasing to 5.0% of sales in 1998 from 4.7% in
1997. The increase in SG&A expense was primarily due to higher selling expenses
to support the new businesses, rising employee benefit costs and expenditures
related to the upgrade of the Company's management information system. These
increases were partially offset by a decline in employee incentive plan and
profit-sharing expenses.
Interest expense rose sharply in 1998 compared with 1997 due to higher
average borrowing levels on the Company's revolving credit facility. The
increase in debt was primarily related to higher average inventory levels
together with capital expenditures for the tire bead wire expansion.
During 1998, the Company sold the inventory and equipment related to
its agricultural fencing product line. The Company's financial results reflect a
pre-tax gain of $3.4 million, or 26 cents per share after-tax, on the sale of
the assets in other income, net of a provision for the estimated
transition-related costs. Under the terms of the sale, the Company agreed to
manufacture fencing products for the buyer until the equipment was relocated to
the buyer's facilities. The Company ceased the remainder of its agricultural
fencing activities in October 1998.
The Company terminated one of its pension plans during 1998,
recognizing a pre-tax gain of $1.2 million, or 7 cents per share after-tax, in
other income for the curtailment of plan benefits and settlements that had been
made to date.
Also in 1998, the Company retired its $10.0 million 8.25% senior
secured notes, funding the prepayment under its unsecured revolving credit
facility. The Company's financial results reflect an extraordinary loss of
$408,000 after income taxes, or approximately 5 cents per share, related to the
early extinguishment of debt.
The Company's 1997 financial statements reflect the disposal of its
Insteel Construction Systems division ("ICS") and the reclassification of the
segment as discontinued operations. ICS manufactured and marketed the Insteel
3-D(R) building panel. The Company recorded a provision of $2.2 million for the
estimated loss on disposal of ICS (net of a $1.2 million tax benefit) which
included a $400,000 provision for anticipated operating losses prior to
disposal.
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LIQUIDITY AND CAPITAL RESOURCES
SELECTED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
---------- ---------- -------------
<S> <C> <C> <C>
Net cash provided by continuing operating activities $ 13,708 $ 14,517 $ 7,277
Net cash provided by (used for) investing activities (21,840) 2,372 (26,438)
Net cash provided by (used for) financing activities 8,537 (17,912) 17,717
Working capital 35,633 26,307 36,687
Turnover ratios: (1)
Working capital (2) 8.9 8.9 8.2
Receivables 9.1 8.9 8.2
Inventories 7.0 6.7 6.4
Total debt $ 46,817 $ 36,363 $ 52,293
Percentage of total capitalization 38% 34% 42%
Shareholders' equity $ 77,329 $ 69,260 $ 71,322
Percentage of total capitalization 62% 66% 58%
Total capital $ 124,146 $105,623 $ 123,615
</TABLE>
1 Based upon average year-end balances
2 Excluding cash and cash equivalents and net assets of discontinued operations
Continuing operating activities generated $13.7 million of cash in 1999
compared with $14.5 million and $7.3 million in 1998 and 1997, respectively. The
fluctuations were primarily due to changes in the Company's financial results
and inventory levels. In 1999, cash generated from continuing operating
activities was favorably impacted by the improvement in the Company's financial
results in comparison to 1998 and 1997. The increase in earnings was partially
offset by a planned build in inventories in anticipation of rising raw material
prices and the potential unfavorable impact of trade actions filed by domestic
rod producers. In 1998, inventories decreased due to a substantial reduction in
raw material inventories together with the sale of finished goods inventories
associated with the agricultural fencing product line. Cash generated from the
inventory reduction was partially offset by a decline in accounts payable
related to lower raw material purchases. In 1997, inventories were increased in
anticipation of rising raw material prices together with potential supply
disruptions resulting from labor contract negotiations at two major rod
producers. Accounts payable increased as a result of the higher purchase volumes
required to build inventories.
Investing activities consumed $21.8 million and $26.4 million in 1999
and 1997, respectively, while providing $2.4 million in 1998. In 1999, investing
activities reflect a total of $6.6 million relating to the investment in SRP and
$8.4 million for the acquisition of a concrete reinforcing business. Capital
expenditures amounted to $7.3 million, $6.7 million and $27.1 million in 1999,
1998 and 1997, respectively, primarily related to the tire bead wire and PC
strand expansions. In 1998, proceeds primarily generated from the sale of the
Company's agricultural fencing equipment exceeded capital expenditures.
Financing activities provided $8.5 million and $17.7 million of cash in
1999 and 1997, respectively, while using $17.9 million in 1998. The increase in
financing requirements in 1999 was primarily related to the investment in SRP
and the acquisition of a concrete reinforcing business. During 1998, cash
generated from the sharp reduction in inventories and the sale of assets related
to the agricultural fencing product line was used to pay down debt. The increase
in debt in 1997 was primarily related to funding the capital expenditures for
the tire bead wire expansion together with the increase in inventories.
The financial position of the Company remains strong. The Company's
debt to capital ratio increased to 38% at October 2, 1999 compared with 34% and
42% at October 3, 1998 and September 30, 1997 respectively. The increase in debt
was primarily due to the investment in SRP and the acquisition of a concrete
reinforcing business. During 1999, the Company's revolving credit facility was
amended, increasing the maximum availability to $60.0 million through November
2000. At October 2, 1999, approximately $17.1 million was available under the
facility.
In November 1999, the Company entered into a definitive agreement to
acquire all of the outstanding stock of Florida Wire and Cable, Inc. for $68.5
million subject to a purchase price adjustment to be determined based upon the
closing balance sheet. The Company plans to finance the acquisition with funding
provided by a $150.0 million senior secured credit facility
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that it expects to enter into with a group of banks. The additional funding
available under the credit facility will be used to refinance the Company's
existing indebtedness and fund other ongoing requirements following the
completion of the transaction. The Company expects to complete the closing of
the credit facility and acquisition in January 2000.
YEAR 2000
The "Year 2000" issue refers to older computer systems and other
equipment operating on software that uses only two digits to represent the year,
rather than four digits. As a result, these older systems and equipment may not
process information or otherwise function properly when using the year "2000",
since that year will be indistinguishable from the year "1900".
The Company has initiated a Year 2000 program to assess and develop
plans to resolve the issue both internally and externally. During 1996, the
Company began a plan to upgrade its business and operating systems to Year 2000
compliant software. In addition to addressing the Year 2000 issue, the systems
upgrade is expected to enhance the performance of the Company's customer
service, manufacturing and administrative processes. Implementation of the
upgrade began in 1997 with the initial testing of the system on a limited basis
prior to converting all of the Company's locations. The Company completed the
implementation in September 1999.
In order to identify Year 2000 problems at key suppliers and customers,
the Company initiated external surveys to assess their level of compliance. The
Company has received responses back from substantially all of its critical
suppliers indicating that they were either already in compliance or planned on
being in compliance by December 31, 1999. Alternative suppliers have been
identified and evaluated for those vendors who have indicated that they are not
currently in compliance.
The Company also reviewed embedded software in its equipment and
facilities to identify potential Year 2000 issues. Equipment manufacturers were
requested to certify their compliance and assist the Company in developing
solutions in situations where they were not in compliance. As of October 2,
1999, substantially all of the Company's critical manufacturing equipment had
been certified by vendors as being Year 2000 compliant.
In addition to mitigating Year 2000 disturbances, the Company has
identified potential risks and is in the process of finalizing a detailed
contingency plan for each location. These plans will list the steps that are
necessary to sufficiently protect the assets at each location and to minimize
the disruption of Company operations. Such contingency plans will be finalized
and in place by December 31, 1999.
While reasonable actions have been taken to address the Year 2000
problem and will continue to be taken in the future to mitigate such disruption,
the magnitude of all Year 2000 disturbances cannot be predicted. Failure to
complete these programs as planned could result in the corruption of data,
hardware or equipment failures or the inability to manufacture products or
conduct other business activities, all of which could have a material impact on
the Company's business, consolidated financial position or results of
operations. Management believes that past or expected future capital
requirements related to Year 2000 compliance issues will not have a material
impact on its consolidated financial position or results of operations.
OUTLOOK
The Company's operating results are impacted by seasonal factors,
particularly in the first quarter of the fiscal year, which has historically
represented the lowest quarterly sales volume. Shipments typically increase in
the second quarter and reach a high point in the third or fourth quarter,
reflecting the buying patterns of the Company's customers.
Market conditions for the Company's primary raw material, hot-rolled
carbon steel wire rod, were relatively stable in 1999. Worldwide demand for wire
rod began to recover as the impact of the Asian financial crisis eased and
global demand improved. Domestic wire rod producers successfully increased
prices in the Company's third quarter, and again in the fourth quarter, as they
sought to restore pricing to pre-1998 levels. In January 1999, domestic wire rod
producers initiated a Section 201 filing with the U.S. ITC alleging that rising
import levels had resulted in serious injury to the domestic industry. The
domestic producers are pursuing trade relief on a worldwide basis against all
countries other than NAFTA nations through duties, quotas or other measures
intended to reduce import competition. In May 1999, three ITC commissioners
found that the domestic wire rod industry had not been injured by imports. Two
commissioners found that the industry had been injured by imports, and the sixth
commissioner found that the industry had not been injured, but that a threat of
injury existed. The investigation is now in the remedy phase. Although President
Clinton was scheduled to make a determination on relief for the industry by
September 27, 1999, to date, no determination has been made. The future impact
of these actions on the Company's
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financial results is difficult to predict, depending upon the resolution of the
trade filings together with the Company's ability to recover any raw material
price increases in its markets. The Company has built inventory during its third
and fourth quarters in anticipation of the potential unfavorable impact of a
negative outcome.
The Company expects that the recently enacted federal highway spending
legislation ("TEA-21") will have a favorable impact on the demand for its
concrete reinforcing products. As customer requirements rise, the Company
expects to gradually increase the operating volumes of its recently expanded PC
strand manufacturing facility to its full capacity. During 1999, sales of the
Company's most recent product addition, tire bead wire, steadily increased as
the Company continued to gain customer acceptance and further its market
penetration. The Company is currently incurring substantially all of the
anticipated operating costs required to support its new business, therefore, the
incremental impact of the projected increases in sales is expected to have a
significant favorable impact on its financial performance.
The Company's business strategy continues to be focused on: (1)
expansion opportunities in existing businesses as well as in related products
that leverage off of the Company's core competencies in the manufacture and
marketing of wire products and (2) continued improvement in the financial
performance of the Company's traditional businesses.
FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements that reflect
management's current assumptions and estimates of future performance and
economic conditions. Such statements are made in reliance upon the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are subject to various risks and uncertainties that
could cause actual results to differ materially from those projected, stated or
implied by the statements. Such risks and uncertainties include, but are not
limited to, general economic conditions in the markets in which the Company
operates; unanticipated changes in customer demand, order patterns and inventory
levels; fluctuations in the cost and availability of the Company's primary raw
material, hot rolled steel wire rod; the Company's ability to raise selling
prices in order to recover increases in wire rod prices; the impact of the
resolution of the Section 201 filing with the U.S. ITC on the cost and
availability of wire rod; legal, environmental or regulatory developments that
significantly impact the Company's operating costs; increased demand for the
Company's concrete reinforcing products resulting from increased federal funding
levels provided for in the TEA-21 highway spending legislation; the financial
impact of the acquisition of the 25% interest in SRP and the Hickman, Kentucky
manufacturing facility; the success of the Company's new product initiatives,
including the PC strand, collated nail and tire bead wire expansions; the
inability of the Company to expedite the qualification process with prospective
customers for tire bead wire; the failure of the Company to receive regular and
substantial orders for its new products; the impact of the Year 2000 issue; and
the Company's ability to successfully integrate Florida Wire and Cable, Inc.,
assuming that the transaction is consummated.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
(A) FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Consolidated Balance Sheets as of October 2, 1999 and October 3, 1998 12
Consolidated Statements of Earnings for the three years ended October 2, 1999,
October 3, 1998 and September 30, 1997 13
Consolidated Statements of Shareholders' Equity for the three years ended
October 2, 1999, October 3, 1998 and September 30, 1997 14
Consolidated Statements of Cash Flows for the three years ended October 2, 1999,
October 3, 1998 and September 30, 1997 15
Notes to Consolidated Financial Statements 16
Report of Independent Public Accountants 26
Schedule II - Valuation and Qualifying Accounts for the three years ended
October 2, 1999, October 3, 1998 and September 30, 1997 27
Report of Independent Public Accountants on Schedule 28
</TABLE>
10
<PAGE> 11
(B) SUPPLEMENTARY DATA
Selected quarterly financial data is as follows:
FINANCIAL DATA BY QUARTER (UNAUDITED)
(IN THOUSANDS, EXCEPT FOR PER SHARE AND PRICE DATA)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------
JANUARY 2 APRIL 3 JULY 3 OCTOBER 2
--------- --------- -------- ----------
<S> <C> <C> <C> <C>
1999
OPERATING RESULTS
Net sales $ 62,267 $ 66,162 $ 72,676 $ 69,887
Gross profit 6,566 9,204 10,729 9,148
Net earnings 1,524 2,517 3,388 2,557
PER SHARE DATA (BASIC AND DILUTED)
Net earnings 0.18 0.30 0.40 0.30
Cash dividends 0.06 0.06 0.06 0.06
Stock prices
High 6.38 7.13 9.63 9.88
Low 3.88 4.88 5.75 8.38
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------
DECEMBER 27 MARCH 28 JUNE 27 OCTOBER 3
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
1998
OPERATING RESULTS
Net sales $ 59,919 $ 62,996 $ 69,275 $ 73,957
Gross profit 1,475 1,327 4,017 6,534
Earnings (loss) before extraordinary item (1,687) (379) 5 2,389
Extraordinary loss - (408) - -
Net earnings (loss) (1,687) (787) 5 2,389
PER SHARE DATA (BASIC AND DILUTED)
Earnings (loss) before extraordinary item (0.20) (0.04) - 0.28
Extraordinary loss - (0.05) - -
Net earnings (loss) (0.20) (0.09) - 0.28
Cash dividends 0.06 0.06 0.06 0.06
Stock prices
High 8.63 7.81 8.44 6.69
Low 6.25 6.19 6.13 4.50
</TABLE>
11
<PAGE> 12
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 2, OCTOBER 3,
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 827 $ 422
Accounts receivable, net 31,054 28,687
Inventories 36,360 30,566
Prepaid expenses and other 3,012 2,023
-------- --------
Total current assets 71,253 61,698
Property, plant and equipment, net 85,529 80,350
Other assets 11,114 5,083
-------- --------
Total assets $167,896 $147,131
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 25,035 $ 28,758
Accrued expenses 9,965 6,013
Current portion of long-term debt 620 620
-------- --------
Total current liabilities 35,620 35,391
Long-term debt 46,197 35,743
Deferred income taxes 7,734 5,726
Other liabilities 1,016 1,011
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value
Authorized shares: 1,000
None issued - -
Common stock, $2 stated value
Authorized shares: 20,000
Issued and outstanding shares: 1999 8,457; 1998 8,443 16,914 16,885
Additional paid-in capital 38,314 38,232
Retained earnings 22,101 14,143
-------- --------
Total shareholders' equity 77,329 69,260
-------- --------
Total liabilities and shareholders' equity $167,896 $147,131
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE> 13
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT FOR PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
---------- ---------- -------------
<S> <C> <C> <C>
Net sales $270,992 $ 266,147 $ 262,325
Cost of sales 235,345 252,794 243,473
-------- --------- ---------
Gross profit 35,647 13,353 18,852
Selling, general and administrative expense 17,429 13,410 12,395
-------- --------- ---------
Operating income (loss) 18,218 (57) 6,457
Interest expense 2,482 3,810 2,276
Other expense (income) 59 (4,375) 193
Earnings from continuing operations before income taxes 15,677 508 3,988
Provision for income taxes 5,691 180 1,452
-------- --------- ---------
Earnings from continuing operations before extraordinary item 9,986 328 2,536
Discontinued operations:
Loss from operations of Insteel Construction Systems net of
income tax benefits of - (693)
Loss on disposal of Insteel Construction Systems, including
provision of $400 for operating losses during phase-out
period (net of income tax benefit of $1,245) - - (2,184)
-------- --------- ---------
Loss from discontinued operations - - (2,184)
-------- --------- ---------
Earnings (loss) before extraordinary item 9,986 328 (341)
Extraordinary loss on early extinguishment of debt
(net of income tax benefit of $224) - (408) -
-------- --------- ---------
Net earnings (loss) $ 9,986 $ (80) $ (341)
======== ========= =========
Per share (basic and diluted):
Earnings from continuing operations $ 1.18 $ 0.04 $ 0.30
Loss from discontinued operations - - (0.34)
Extraordinary loss - (0.05) -
-------- --------- ---------
Net earnings (loss) $ 1.18 $ (0.01) $ (0.04)
======== ========= =========
Cash dividends per share $ 0.24 $ 0.24 $ 0.24
======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
13
<PAGE> 14
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
---------- ---------- -------------
<S> <C> <C> <C>
COMMON STOCK:
Balance, beginning of year $ 16,885 $ 16,873 $ 16,871
Stock options exercised 29 12 2
-------- -------- --------
Balance, end of year $ 16,914 $ 16,885 $ 16,873
======== ======== ========
ADDITIONAL PAID-IN CAPITAL:
Balance, beginning of year $ 38,232 $ 38,200 $ 38,192
Stock options exercised 82 32 8
-------- -------- --------
Balance, end of year $ 38,314 $ 38,232 $ 38,200
======== ======== ========
RETAINED EARNINGS:
Balance, beginning of year $ 14,143 $ 16,249 $ 18,614
Cash dividends declared (2,028) (2,026) (2,024)
Net earnings (loss) 9,986 (80) (341)
-------- -------- --------
Balance, end of year $ 22,101 $ 14,143 $ 16,249
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
14
<PAGE> 15
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
--------- ---------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
Net earnings (loss) $ 9,986 $ (80) $ (341)
Adjustments to reconcile net earnings (loss) to net cash
provided by continuing operating activities:
Depreciation and amortization 8,908 8,738 8,224
Extraordinary loss - 408 -
Gain on sale of assets (75) (4,575) -
Loss from discontinued operations - - 2,877
Net changes in assets and liabilities:
Accounts receivable, net (2,338) 2,365 1,347
Inventories (4,168) 13,898 (12,758)
Accounts payable and accrued expenses 217 (6,083) 7,924
Other changes 1,178 (154) 4
--------- --------- ---------
Total adjustments 3,722 14,597 7,618
--------- --------- ---------
Net cash provided by continuing operating activities 13,708 14,517 7,277
--------- --------- ---------
CASH FLOWS FROM DISCONTINUED OPERATING ACTIVITIES:
Net cash provided by discontinued operating activities - 366 1,100
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,344) (6,708) (27,076)
Acquisition of business (8,397) - -
Equity investments (3,250) - -
Purchases of short-term investments (1,875) - -
Proceeds from (issuance of) notes receivable (1,290) 222 638
Proceeds from sale of property, plant and equipment 316 8,858 -
--------- --------- ---------
Net cash provided by (used for) investing activities (21,840) 2,372 (26,438)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt 106,435 107,132 115,256
Principal payments on long-term debt (95,981) (123,062) (95,525)
Proceeds from exercise of stock options 111 44 10
Cash dividends paid (2,028) (2,026) (2,024)
--------- --------- ---------
Net cash provided by (used for) financing activities 8,537 (17,912) 17,717
--------- --------- ---------
Net increase (decrease) in cash 405 (657) (344)
Cash and cash equivalents at beginning of year 422 1,079 1,423
--------- --------- ---------
Cash and cash equivalents at end of year $ 827 $ 422 $ 1,079
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 1,947 $ 4,843 $ 2,023
Income taxes 3,723 596 896
</TABLE>
See accompanying notes to consolidated financial statements.
15
<PAGE> 16
INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 30, 1997
(Amounts in thousands, except for per share data)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR. Effective October 1, 1997, the Company adopted a 52 or 53
week fiscal year ending on the Saturday nearest the last day of September in
each year. Prior to fiscal 1998, the Company's fiscal year was the 12-month
period ending September 30. All references to years relate to fiscal years
rather than calendar years.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant
intercompany balances and transactions have been eliminated.
USE OF ESTIMATES. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
CASH EQUIVALENTS. The Company considers all highly liquid investments
purchased with original maturities of three months or less to be cash
equivalents.
REVENUE RECOGNITION. Revenue is recognized when the related products
are shipped.
INVENTORIES. Inventories are valued at the lower of average cost (which
approximates computation on a first-in, first-out basis) or market (net
realizable value or replacement cost).
PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated
at cost. Depreciation is computed for financial reporting purposes principally
by use of the straight-line method over the following estimated useful lives:
machinery and equipment, 3 - 15 years; buildings, 10 - 30 years; land
improvements, 5 - 15 years. Capitalized software is amortized over the shorter
of the estimated useful life or 5 years. No interest costs were capitalized in
1999 or 1998. Capitalized interest costs were $492 in 1997.
OTHER ASSETS. Other assets consist principally of investments in
affiliated companies, long-term notes receivable, the cash surrender value of
life insurance policies and various intangible assets. Investments in affiliated
companies are accounted for using the equity method. Intangible assets are
amortized on a straight-line basis over the expected periods to be benefited.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amounts for cash and
cash equivalents, accounts and notes receivable, accounts payable and other
accrued liabilities approximate fair value because of their short maturities.
The estimated fair value of long-term debt is primarily based upon quoted market
prices as well as borrowing rates currently available to the Company for bank
loans with similar terms and maturities. The carrying amount of long-term debt
approximates its estimated fair value.
INCOME TAXES. Income tax expense is based on pretax financial
accounting income. Deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between the tax bases of
assets and liabilities and their reported amounts.
EARNINGS PER SHARE. The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128 "Earnings Per Share" in 1998. SFAS No. 128
replaces the primary and fully diluted earnings per share ("EPS") computations
with basic and diluted EPS. Basic EPS are computed by dividing net earnings by
the weighted average number of common shares outstanding during the period.
Diluted EPS are computed by dividing net earnings by the weighted average number
of common shares and other dilutive equity securities outstanding during the
period. Securities that have the effect of increasing EPS are considered to be
antidilutive and are not included in the computation of diluted EPS.
16
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except for per share data)
(2) EXTRAORDINARY LOSS - EARLY EXTINGUISHMENT OF DEBT
In 1998, the Company retired its $10.0 million 8.25% senior secured
notes due 2002, funding the prepayment under its unsecured revolving credit
facility. The Company recorded an extraordinary loss of $408 after income taxes,
or approximately 5 cents per share, related to the redemption premium and
write-off of deferred financing costs.
(3) DISCONTINUED OPERATIONS
In 1997, the Company sold the assets of its Insteel Construction
Systems division ("ICS"), which manufactured and marketed the Insteel 3-D(R)
building panel. ICS has been classified as a discontinued operation in the
accompanying financial statements in accordance with Accounting Principles Board
("APB") Opinion No. 30. The Company recorded a provision of $2,184 for the
estimated loss on disposal of ICS (net of a $1,245 tax benefit) which included a
$400 provision for anticipated operating losses prior to disposal.
The operating results of the discontinued ICS division are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
----------- ---------- -------------
<S> <C> <C> <C>
Net sales $ - $ - $ 580
Cost of sales - - 743
----------- ---------- -------
Gross loss - - (163)
Selling, general and administrative expense - - 720
----------- ---------- -------
Operating loss - - (883)
Interest expense - - 82
Other expense - - 123
----------- ---------- -------
Loss from operations of Insteel
Construction Systems before income taxes - - (1,088)
Benefit for income taxes - - (395)
=========== ========== =======
Loss from operations of Insteel
Construction Systems $ - $ - $ (693)
=========== ========== =======
</TABLE>
(4) INVESTMENT IN STRUCTURAL REINFORCEMENT PRODUCTS
In January 1999, the Company acquired a 25% interest in Structural
Reinforcement Products, Inc. ("SRP"), a manufacturer of welded wire fabric
products for the construction industry. Under the terms of the purchase
agreement, the Company acquired 25% of the common stock in SRP for $3.3 million.
In addition, the Company provided SRP with $1.5 million of debt financing and
$1.9 million of collateral to support its existing credit facility in assuming a
proportionate share of SRP's debt-related obligations. The Company may be
obligated to increase its investment for its equity position by up to $500
depending upon SRP's future financial performance.
The Company is accounting for its investment in SRP on an equity basis
and, accordingly, is including its share of SRP's earnings in its consolidated
earnings. In 1999, the Company recorded an equity loss of $149 in other expense
on its consolidated statement of earnings.
(5) ACQUISITION OF CONCRETE REINFORCING BUSINESS
In April 1999, the Company acquired the assets of the concrete
reinforcing business of Northwestern Steel and Wire Company ("Northwestern").
Under the terms of the purchase agreement, the Company acquired the inventory,
property, plant and equipment of Northwestern's Hickman, Kentucky facility for
approximately $8.4 million. In addition, the companies entered into a three-year
agreement under which Northwestern will supply Insteel with a portion of its raw
material requirements.
17
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except for per share data)
(6) DEBT AND CREDIT FACILITIES
Long-term debt, due dates and interest rates are as follows:
<TABLE>
<CAPTION>
OCTOBER 2, OCTOBER 3,
1999 1998
---------- ----------
<S> <C> <C>
Revolving credit agreement; expires November 2000 at variable
interest rate (5.76% at October 2, 1999 and 7.53% at October 3,
1998) $42,897 $31,823
Industrial revenue refunding bonds; due dates through 2005 at
7.20% - 7.75% 1,960 2,240
Industrial development revenue refunding bonds; due dates
through 2003 at variable interest rate (3.90% at October 2, 1999
and 3.80% at October 3, 1998) 1,360 1,700
Mortgage note 600 600
------- -------
Total long-term debt 46,817 36,363
Less current maturities 620 620
======= =======
Long-term debt, excluding current maturities $46,197 $35,743
======= =======
</TABLE>
During 1999, the Company's unsecured revolving credit facility was
amended, increasing the maximum availability on its line of credit to $60.0
million through November 2000. Borrowings under the line of credit bear interest
at a variable rate based on LIBOR and a commitment fee is payable on the unused
portion. The interest spread over LIBOR and unused commitment fee are adjusted
quarterly based on the Company's ratio of debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA"). At October 2, 1999,
approximately $17.1 million was available under the facility.
The revolving credit facility and certain other debt agreements contain
restrictive covenants which, among other restrictions, limit the amount of
additional debt relative to total capitalization and EBITDA and require tangible
net worth to be maintained at or above specified amounts. At October 2, 1999,
the Company was in compliance with all of the restrictive covenants. Property,
plant and equipment with an aggregate carrying value of $24,937 is pledged as
collateral under the Company's debt agreements.
Aggregate maturities of long-term debt for the next five years are as
follows: 2000, $620; 2001, $43,237; 2002, $340; 2003, $1,180; 2004, $0.
(7) SHAREHOLDERS' EQUITY
Shares of common stock outstanding are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
---------- --------- ------------
<S> <C> <C> <C>
Balance, beginning of year 8,443 8,437 8,435
Stock options exercised 14 6 2
===== ===== =====
Balance, end of year 8,457 8,443 8,437
===== ===== =====
</TABLE>
(8) STOCK OPTION PLANS
The Company has stock option plans under which employees and directors
may be granted options to purchase shares of common stock at the fair market
value on the date of the grant. Options granted under the 1985 employee and 1990
director stock option plans vest over five years and expire five years from the
date of the grant. By action of the Board of Directors in 1994, no further
options may be granted under these plans. Options granted under the 1994
employee and director stock option plans vest over five years and expire ten
years from the date of the grant.
18
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except for per share data)
A summary of stock option activity follows:
<TABLE>
<CAPTION>
EXERCISE PRICE PER SHARE
----------------------------------------------
OPTIONS WEIGHTED
OUTSTANDING RANGE AVERAGE
------------ -------------------------- -----------
<S> <C> <C> <C> <C>
Balance, September 30, 1996 446 $ 6.88 - $ 10.68 $ 8.88
Granted 106 7.56 - 9.13 8.14
Exercised (13) 8.57 - 8.57 8.57
Cancelled (35) 7.00 - 10.44 9.31
-----------
Balance, September 30, 1997 504 6.88 - 10.68 8.71
Granted 232 4.69 - 7.31 5.49
Exercised (6) 7.00 - 7.88 7.43
Cancelled (104) 6.38 - 10.68 9.41
-----------
Balance, October 3, 1998 626 4.69 - 10.44 7.41
Granted 229 4.75 - 9.19 7.61
Exercised (14) 4.69 - 8.94 7.58
Cancelled (217) 4.69 - 10.44 8.85
===========
Balance, October 2, 1999 624 4.69 - 9.19 6.98
===========
</TABLE>
The weighted average characteristics of outstanding stock options at
October 2, 1999 for various price ranges are as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS EXERCISABLE OPTIONS
----------------------------------------------- ----------------------------
WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF EXERCISE PRICES SHARES LIFE (YEARS) PRICE SHARES PRICE
---------------------------- ----------- ------------ ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
$ 4.69 - $ 5.38 128 8.9 $ 4.80 54 $ 4.82
5.50 - 6.56 164 8.9 6.47 64 6.44
7.00 - 7.56 150 6.6 7.31 116 7.28
7.88 - 9.13 112 5.9 8.38 100 8.32
9.19 - 9.19 70 9.8 9.19 14 9.19
</TABLE>
At October 2, 1999, 335 shares were available for future grants under
the plans. Options exercisable were 348 at October 2, 1999 and 374 at October 3,
1998. The weighted average exercise price for these shares was $7.12 for 1999
and $8.28 for 1998.
The Company has elected to follow APB No. 25, "Accounting for Stock
Issued to Employees" in accounting for its stock option plans. APB No. 25
specifies that no compensation expense is recognized when the exercise price of
the stock options equals the market value of the underlying stock at the grant
date, as in the case of options granted under the Company's plans. SFAS No. 123,
"Accounting for Stock-Based Compensation," specifies the use of certain option
valuation models to calculate estimated compensation expense to be reflected in
pro forma net earnings and net earnings per share. The Company's pro forma
information is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
-------------- -------------- ---------------
<S> <C> <C> <C>
Net earnings (loss) as reported under:
APB No. 25 $ 9,986 $ (80) $ (341)
SFAS No. 123 9,763 (224) (445)
Basic net earnings (loss) per share as reported under:
APB No. 25 1.18 (0.01) (0.04)
SFAS No. 123 1.16 (0.03) (0.05)
</TABLE>
19
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except for per share data)
The fair value of the options at the date of grant were estimated using
the Black-Scholes option-pricing model based on the following weighted average
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
------------ ------------ ---------------
<S> <C> <C> <C>
Expected life (in years) 5.0 5.0 5.0
Risk-free interest rate 5.4% 5.5% 6.3%
Expected volatility 0.40 0.30 0.30
Expected dividend yield 3.0% 3.0% 3.0%
</TABLE>
The weighted average estimated fair values of options granted during
1999, 1998 and 1997 were $2.75, $1.61 and $2.48 per share, respectively.
The above pro forma disclosures of applying SFAS No. 123 are not likely
to be representative of the effects on net earnings and net earnings per share
in future years, because they do not take into consideration pro forma
compensation expense related to grants made prior to 1996.
(9) INCOME TAXES
The provision for income taxes for continuing operations consists of:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
----------- ----------- -------------
<S> <C> <C> <C>
CURRENT:
Federal $ 3,488 $ 373 $ 1,673
State 471 (5) 112
----------- ----------- -------------
3,959 368 1,785
DEFERRED:
Federal $ 1,569 $ 10 (522)
State 163 (198) 189
----------- ----------- -------------
1,732 (188) (333)
----------- ----------- -------------
Provision for income taxes $ 5,691 $ 180 $ 1,452
=========== =========== =============
</TABLE>
The provision for income taxes for continuing operations differs from
the amount computed by applying the federal statutory rate to the Company's
earnings from continuing operations before taxes as a result of the following
differences:
<TABLE>
<CAPTION>
YEAR ENDED
----------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
------------ ----------- -------------
<S> <C> <C> <C>
Provision for income taxes at statutory rate $ 5,409 $ 173 $ 1,356
State income taxes, net of federal income
tax benefit 308 (3) 74
Other, net (26) 10 22
=========== ========== =========
Provision for income taxes $ 5,691 $ 180 $ 1,452
=========== ========== =========
</TABLE>
20
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except for per share data)
Deferred tax assets and liabilities are recognized for the differences
between the tax basis of assets and liabilities and their reported financial
statement amounts. Significant components of deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
OCTOBER 2, OCTOBER 3,
1999 1998
---------- ----------
<S> <C> <C>
DEFERRED TAX ASSETS:
Accrued expenses or asset reserves for financial statements not
yet deductible for tax purposes $ 3,493 $ 2,826
Alternative minimum tax credit carryforwards 516 1,788
------- -------
Gross deferred tax assets 4,009 4,614
DEFERRED TAX LIABILITIES:
Plant and equipment principally due to differences in
depreciation and capitalized interest (9,426) (8,290)
Other reserves (399) (557)
Prepaid expenses for financial statements that were deducted for
tax purposes (149) -
------- -------
Gross deferred tax liabilities (9,974) (8,847)
------- -------
Net deferred tax liability $(5,965) $(4,233)
======= =======
</TABLE>
(10) EMPLOYEE BENEFIT PLANS
RETIREMENT PLANS. The Company has one defined benefit pension plan, the
Insteel Wire Products Company Retirement Income Plan for Hourly Employees,
Wilmington, Delaware, ("the Delaware Plan"). The Delaware Plan provides benefits
for eligible employees based primarily upon years of service and compensation
levels. The Company's funding policy is to contribute amounts at least equal to
those required by law.
Prior to September 1999, the Company had another defined benefit
pension plan, the Pension Plan of Insteel Industries, Inc. ("the Insteel Plan").
In October 1997, the Company froze all benefit accruals for additional years of
credited service for plan participants. In August 1998, the Company terminated
the plan, recognizing a gain based upon the curtailment of plan benefits and
settlements that had been made to date. The Company recorded a $1.2 million gain
in other income relating to the plan termination. The settlement of the plan was
completed in September 1999 and $401 was recorded as a settlement loss.
The following table provides a reconciliation of the projected benefit
obligation, a reconciliation of plan assets, the funded status of the plans, and
the amounts recognized in the Company's consolidated balance sheets at October
2, 1999 and October 3, 1998:
21
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except for per share data)
<TABLE>
<CAPTION>
INSTEEL PLAN DELAWARE PLAN
YEAR ENDED YEAR ENDED
------------------------ -------------------------
OCTOBER 2, OCTOBER 3, OCTOBER 2, OCTOBER 3,
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year $(4,960) $(10,222) $(3,728) $(3,001)
Service cost - - (97) (93)
Interest cost (316) (722) (240) (225)
Actuarial loss (52) (3,663) (30) (514)
Effect of settlement 5,328 5,620 - -
Effect of curtailment - 3,796 - -
Benefits paid - 231 156 105
------- -------- ------- -------
Benefit obligation at end of year $ - $ (4,960) $(3,939) $(3,728)
======= ======== ======= =======
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year $ 5,168 $ 9,873 $ 2,806 $ 3,235
Change in assets from disclosure to beginning of year (216) 343 - 121
Actual return on plan assets 312 776 398 (445)
Employer contributions 64 - 32 -
Effect of settlement (5,328) (5,593) - -
Benefits paid - (231) (156) (105)
------- -------- ------- -------
Fair value of plan assets at end of year $ - $ 5,168 $ 3,080 $ 2,806
======= ======== ======= =======
RECONCILIATION OF FUNDED STATUS TO NET AMOUNT RECOGNIZED:
Funded status $ - $ 208 $ (859) $ (922)
Unrecognized net loss - 97 (30) (45)
Unrecognized prior service cost - - 12 15
Unrecognized transition obligation (asset) - (97) 18 30
------- -------- ------- -------
Net amount recognized $ - $ 208 $ (859) $ (922)
======= ======== ======= =======
AMOUNTS RECOGNIZED IN THE CONSOLIDATED BALANCE SHEET CONSIST OF:
Prepaid benefit cost $ - $ 208 $ - $ -
Accrued benefit liability - - (859) (922)
Intangible asset - - - -
Accumulated other comprehensive loss - - - -
------- -------- ------- -------
Net amount recognized $ - $ 208 $ (859) $ (922)
======= ======== ======= =======
</TABLE>
Net periodic pension cost includes the following components:
<TABLE>
<CAPTION>
INSTEEL PLAN DELAWARE PLAN
YEAR ENDED YEAR ENDED
------------------------------------------ --------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30, OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1998 1999 1998 1998
---------- ---------- ------------- ---------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC PENSION COST:
Service cost $ - $ - $ 555 $ 97 $ 93 $ 106
Interest cost 316 722 654 240 225 205
Actual return on plan assets (312) (776) (664) (398) 445 (200)
Deferred asset loss (94) (6) - 178 (708) -
Amortization of prior service cost - 25 (33) 3 3 3
Amortization of transition asset (49) (79) (80) 12 11 12
Recognized net actuarial loss 10 (103) - 52 (2) -
Curtailment gain - (1,200) - - - -
Settlement loss 401 - - - - -
----- ------- ----- ----- ----- -----
Net periodic pension cost $ 272 $(1,417) $ 432 $ 184 $ 67 $ 126
===== ======= ===== ===== ===== =====
</TABLE>
22
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except for per share data)
The weighted average assumptions used for the calculations for both
plans are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
---------- ---------- -------------
<S> <C> <C> <C>
Assumptions at year-end:
Discount rate 5.9%-6.5% 5.9% - 6.5% 7.5%
Rate of increase in compensation levels N/A 5.0% 5.0%
Expected long-term rate of return on assets 8.0% 8.0% 8.0%
</TABLE>
PROFIT-SHARING AND INCENTIVE PLANS. The Company has a profit-sharing
plan and various incentive plans covering substantially all hourly and salary
employees. Profit-sharing and incentive plan expense was $3,955 in 1999, $826 in
1998 and $993 in 1997.
RETIREMENT SAVINGS PLAN. In 1996, the Company adopted the Retirement
Savings Plan of Insteel Industries, Inc. ("the Plan") to provide retirement
benefits and stock ownership for its employees. The Plan is an amendment and
restatement of the Company's Employee Stock Ownership Plan ("ESOP"). As allowed
under Sections 401(a) and 401(k) of the Internal Revenue Code, the Plan is a
stock bonus plan that provides tax-deferred salary deductions for eligible
employees.
Employees may contribute up to 15% of their annual compensation to the
Plan, limited to a maximum annual amount as set periodically by the Internal
Revenue Code. For 1999, the Company provided a matching contribution of 50% of
the first 5% of employee compensation paid to the Plan. In addition, the Plan
allows for discretionary contributions to be made by the Company as determined
by the Board of Directors. Such contributions to the Plan are allocated among
eligible participants in the proportion of their compensation to the total
compensation of all participants. Company contributions to the Plan were $405 in
1999, $496 in 1998 and $85 in 1997.
MANAGEMENT SECURITY PROGRAM. The Company has a management security
program for certain employees. Under the program, participants are entitled to
cash benefits upon retirement at age 65, payable annually for 15 years. The
program is funded by life insurance policies on the participants purchased by
the Company. Management security program expense was $52 in 1999, $37 in 1998
and $84 in 1997.
VEBA. The Company has a Voluntary Employee Beneficiary Association
("VEBA"). Under the plan, both employees and the Company may make contributions
to pay for medical benefits. Company contributions to the VEBA were $410 in
1999, $0 in 1998 and $350 in 1997.
(11) COMMITMENTS AND CONTINGENCIES
LEASES. The Company leases a portion of its property, plant and
equipment under operating leases that expire at various dates through 2026.
Under most lease agreements, the Company pays insurance, taxes and maintenance.
Rental expense for operating leases was $643 in 1999, $932 in 1998 and $1,068 in
1997. Minimum rental commitments under all non-cancelable leases with an initial
term in excess of one year are payable as follows: 2000, $298; 2001, $199; 2002,
$148; 2003; $51; 2004, $42; beyond, $544.
LEGAL PROCEEDINGS. The Company is involved in lawsuits, claims,
investigations and proceedings, including commercial, environmental and
employment matters, which arise in the ordinary course of business. Management
does not expect that the ultimate costs to resolve these matters will have a
material adverse effect on the Company's consolidated financial position,
results of operations or cash flows.
23
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except for per share data)
(12) EARNINGS PER SHARE
The reconciliation of basic and diluted EPS as required under SFAS No.
128 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
---------- ---------- -------------
<S> <C> <C> <C>
Earnings from continuing operations $9,986 $ 328 $ 2,536
Loss from discontinued operations - - (2,877)
Extraordinary loss - (408) -
====== ======= =======
Net earnings (loss) $9,986 $ (80) $ (341)
====== ======= =======
Weighted average shares outstanding:
Weighted average shares outstanding (basic) 8,449 8,442 8,436
Dilutive effect of stock options 38 - -
------ ------- -------
Weighted average shares outstanding (diluted) 8,487 8,442 8,436
====== ======= =======
Earnings (loss) per share (basic and diluted):
Earnings from continuing operations $ 1.18 $ 0.04 $ 0.30
Loss from discontinued operations - - (0.34)
Extraordinary loss - (0.05) -
------ ------- -------
Net earnings (loss) $ 1.18 $ (0.01) $ (0.04)
====== ======= =======
</TABLE>
Options to purchase 273 shares in 1999, 523 shares in 1998 and 463
shares in 1997 were antidilutive and were not included in the diluted EPS
computation.
(13) BUSINESS SEGMENT INFORMATION
During 1999, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131, which is based
on the management approach to segment reporting, establishes requirements to
report selected information about operating segments and related disclosures
about products and services, major customers and geographic areas. The adoption
of SFAS No. 131 did not affect the Company's financial position, results of
operations or financial statement disclosures as the Company operates
exclusively in the wire products industry and currently reports as a single
industry segment.
There were no customers that accounted for 10% or more of the Company's
net sales in 1999. One customer accounted for 11% of the Company's net sales in
1998 and 10% in 1997.
(14) RELATED PARTY TRANSACTIONS
Howard O. Woltz, Jr., Chairman of the Company, is a shareholder in ICS
3-D Panel Works, Inc. ("ICSPW"). As discussed in Note 3, in 1997, the Company
sold its ICS division to ICSPW, a new corporation organized by the division's
management group. Prior to the sale, the Audit Committee of the Company's Board
of Directors reviewed the terms of the proposed transaction focusing
particularly on the participation of Mr. Woltz as an investor. Based upon the
continuing operating losses of ICS and the prospective benefit to the Company
from the sale of the division, the Audit Committee concluded that (1) Mr. Woltz'
participation was essential to the transaction and beneficial to the Company and
(2) approval of the transaction was in the best interests of the Company. Based
upon the Audit Committee's recommendation, the Board of Directors approved the
transaction.
In September 1998, the Company entered into a Conversion Agreement with
SRP, an affiliated company, whereby SRP will produce welded wire fabric for the
Company for a specified conversion fee. In 1999, the Company paid SRP
approximately $1.6 million for the services provided under this agreement.
24
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except for per share data)
(15) SUBSEQUENT EVENT
In November 1999, the Company entered into a definitive agreement to
acquire Florida Wire and Cable, Inc. ("FWC") from GS Technologies Operating Co.,
Inc., a subsidiary of GS Industries, Inc. ("GSI"). Under the terms of the
definitive agreement, the Company will purchase all of the outstanding stock of
FWC for $68.5 million subject to a purchase price adjustment to be determined
based upon the closing balance sheet. The Company plans to finance the
acquisition with funding provided by a $150.0 million senior secured credit
facility that it expects to enter into with a group of banks. The additional
funding available under the credit facility will be used to refinance the
Company's existing indebtedness and fund other ongoing requirements following
the completion of the transaction. The Company expects to complete the closing
of the credit facility and acquisition in January 2000. In addition, GSI and the
Company will enter into a five-year agreement under which GSI will supply FWC
with a portion of its raw material requirements.
(16) OTHER FINANCIAL DATA
Balance sheet information:
<TABLE>
<CAPTION>
October 2, October 3,
1999 1998
---------- ---------
<S> <C> <C>
Accounts receivable, net:
Accounts receivable $ 31,429 $ 28,912
Less allowance for doubtful accounts (375) (225)
========= =========
Total $ 31,054 $ 28,687
========= =========
Inventories:
Raw materials $ 20,414 $ 15,514
Supplies 2,601 2,242
Work in process 1,578 1,525
Finished goods 11,767 11,285
========= =========
Total $ 36,360 $ 30,566
========= =========
Property, plant and equipment, net:
Land and land improvements $ 5,360 $ 5,140
Buildings 38,741 36,225
Machinery and equipment 102,829 95,372
Construction in progress 3,021 1,660
--------- ---------
149,951 138,397
Less accumulated depreciation (64,422) (58,047)
========= =========
Total $ 85,529 $ 80,350
========= =========
</TABLE>
25
<PAGE> 26
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Insteel Industries, Inc.:
We have audited the accompanying consolidated balance sheets of Insteel
Industries, Inc. and subsidiaries as of October 2, 1999 and October 3, 1998 and
the related consolidated statements of earnings, shareholders' equity, and cash
flows for the three years ended October 2, 1999, October 3, 1998 and September
30, 1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Insteel Industries,
Inc. and subsidiaries as of October 2, 1999 and October 3, 1998, and the results
of their operations and their cash flows for the three years ended October 2,
1999, October 3, 1998 and September 30, 1997 in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
October 15, 1999.
26
<PAGE> 27
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED OCTOBER 2, 1999, OCTOBER 3, 1998 AND SEPTEMBER 30, 1997
ALLOWANCE FOR DOUBTFUL ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------------------------------
OCTOBER 2, OCTOBER 3, SEPTEMBER 30,
1999 1998 1997
------------- ----------- ------------
<S> <C> <C> <C>
Balance, beginning of year $ 225 $ 242 $ 240
Additions charged to earnings 150 19 18
Accounts written off - (36) (16)
============= =========== ============
Balance, end of year $ 375 $ 225 $ 242
============= =========== ============
</TABLE>
27
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To the Board of Directors and Shareholders
Insteel Industries, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated balance sheets of Insteel Industries, Inc. and subsidiaries as of
October 2, 1999 and October 3, 1998, and the related consolidated statements of
earnings, shareholders' equity, and cash flows for the three years ended October
2, 1999, October 3, 1998 and September 30, 1997, and have issued our report
thereon dated October 15, 1999. Our audits were made for the purpose of forming
an opinion on those statements taken as a whole. The schedule listed in Item
14(a)(2) of this Form 10-K is the responsibility of the Company's management and
is presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. The
information included in this schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
October 15, 1999.
28
<PAGE> 29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information with respect to directors and nominees required for
this item appears under the caption "Election of Directors" in the Company's
Proxy Statement for the 2000 Annual Meeting of Shareholders and is herein
incorporated by reference.
Information on executive officers appears under the caption "Executive
Officers of the Company" in Item 1 of this report.
ITEM 11. EXECUTIVE COMPENSATION.
The information required for this item appears under the caption
"Executive Compensation"?in the Company's Proxy Statement for the 2000 Annual
Meeting of Shareholders and is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required for this item appears under the captions
"Principal Shareholders" and "Security Ownership of Management" in the Company's
Proxy Statement for the 2000 Annual Meeting of Shareholders and is herein
incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required for this item appears under the captions
"Executive Compensation - Compensation Committee Interlocks and Insider
Participation" and "Transactions with Management and Others" in the Company's
Proxy Statement for the 2000 Annual Meeting of Shareholders and is herein
incorporated by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(A)(1) FINANCIAL STATEMENTS
The financial statements as set forth under Item 8 are filed as part of
this report.
(A)(2) FINANCIAL STATEMENT SCHEDULES
Supplemental Schedule II - Valuation and Qualifying Accounts appears on
page 27 of this report.
All other schedules have been omitted because they are either not
required or not applicable.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended October 2,
1999.
(C) EXHIBITS See exhibit index on page 31.
(D) FINANCIAL STATEMENT SCHEDULES See Item 14 (a)(2) above.
29
<PAGE> 30
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
INSTEEL INDUSTRIES, INC.
Dated: December 15, 1999 By: H. O. WOLTZ III
-----------------------
H. O. WOLTZ III
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed on December X, 1999 below by the following persons
on behalf of the registrant and in the capacities indicated:
Name and Signature Position(s)
- ----------------------------- -------------------------------------------
HOWARD O. WOLTZ, JR. Chairman of the Board
- -------------------------
HOWARD O. WOLTZ, JR.
H. O. WOLTZ III President, Chief Executive Officer and a
- ------------------------- Director
H. O. WOLTZ III
MICHAEL C. GAZMARIAN Chief Financial Officer and Treasurer
- ------------------------- (Principal Financial and Accounting Officer)
MICHAEL C. GAZMARIAN
LOUIS E. HANNEN Director
- -------------------------
LOUIS E. HANNEN
FRANCES H. JOHNSON Director
- -------------------------
FRANCES H. JOHNSON
CHARLES B. NEWSOME Director
- -------------------------
CHARLES B. NEWSOME
GARY L. PECHOTA Director
- -------------------------
GARY L. PECHOTA
W. ALLEN ROGERS II Director
- -------------------------
W. ALLEN ROGERS II
WILLIAM J. SHIELDS Director
- -------------------------
WILLIAM J. SHIELDS
C. RICHARD VAUGHN Director
- -------------------------
C. RICHARD VAUGHN
30
<PAGE> 31
EXHIBIT INDEX
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED
OCTOBER 2, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C>
3- ARTICLES OF INCORPORATION AND BYLAWS
3.1 Restated articles of incorporation of the
Company, as amended (incorporated by reference to
Exhibit 3.1 to the Company's Current Report on
Form 8-K, dated May 3, 1988).
3.2 Bylaws of the Company (as last amended April 26,
1999) (incorporated by reference to the exhibit
of the same number contained in the Company's
Quarterly Report on Form 10-Q for the quarter
ended April 3, 1999).
3.3 Articles of Amendment to the restated articles of
incorporation of the Company (incorporated by
reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended April 3, 1999).
4- INSTRUMENTS DEFINING THE RIGHTS OF SECURITY
HOLDERS, INCLUDING INDENTURES
4.2 Articles IV and VI of the Company's restated
articles of incorporation, which are incorporated
herein by reference to Exhibit 3.3.
4.3 Article 2, Section 8, of the registrant's bylaws,
which is incorporated herein by reference to
Exhibit 3.2.
4.4 Rights Agreement dated April 27, 1999 between
Insteel Industries, Inc. and First Union National
Bank (incorporated by reference to Exhibit 99.1
to the Company's Registration Statement on Form
8-A filed with the Securities and Exchange
Commission on May 7, 1999).
* 4.13 Loan Agreement dated as of September 1,
1988, between Liberty County Industrial
Development Corporation ("Issuer") and Insteel
Industries, Inc. pursuant to which the Issuer
agreed to loan the proceeds from its $3,400,000
Industrial Development Revenue Refunding Bonds,
Series 1988 (Insteel Industries, Inc. Project)
(the "Bonds") to the Company and the Company
agreed to repay such loan to the Issuer.
* 4.14 Promissory Note dated October 26, 1988 and
issued by the Company to the Issuer in the
principal amount of $3,400,000, which note
evidences the loan from the Issuer to the Company
under the Loan Agreement (Exhibit 4.13).
* 4.15 Purchase Contract dated October 26, 1988,
among the Issuer, the Company, Texas Department
of Commerce and Federated Tax-Free Trust
("Purchaser") pursuant to which the Purchaser
agreed to purchase the Bonds issued by the
Issuer.
* 4.16 Letter of Credit and Reimbursement Agreement
dated as of September 1, 1988, by and between the
Company and First Union National Bank of North
Carolina ("Bank") pursuant to which the Bank
agreed to issue its Letter of Credit to secure
payment of the Bonds and the Company agreed to
reimburse the Bank for any and all drawings made
under the Letter of Credit.
# 4.24 Indenture of Trust between Industrial
Development Authority of the City of
Fredericksburg, Virginia and Crestar Bank as
Trustee, dated as of September 1, 1990, relating
to $4,205,000 Industrial Development Authority of
the City of Fredericksburg, Virginia Industrial
Development First Mortgage Revenue Refunding
Bonds (Insteel Industries, Inc./Rappahannock Wire
Company Project) Series of 1990.
# 4.25 Refunding Agreement between Industrial
Development Authority of the City of
Fredericksburg, Virginia ("Issuer") and Insteel
Industries, Inc., and Rappahannock Wire Company
(since renamed Insteel Wire Products Company)
(together, the "Companies"), dated as of
September 1, 1990 pursuant to which the Issuer
agreed to loan the proceeds from its $4,205,000
Industrial Development First Mortgage Revenue
Refunding Bonds (Insteel Industries,
Inc./Rappahannock Wire Company Project), Series
of 1990 to the Companies and the Companies
agreed to repay such loan to the Issuer.
## 4.41 Amended and Restated Credit Agreement
between First Union National Bank of North
Carolina and Insteel Industries, Inc. dated
January 26, 1996 providing for a $35,000,000
revolving line of credit and a $17,500,000 letter
of credit and banker's acceptance facility.
*** 4.42 First Amendment dated April 11, 1997 to Amended
and Restated Credit Agreement between First
Union National Bank of North Carolina and
Insteel Industries, Inc. dated January 26, 1996.
</TABLE>
31
<PAGE> 32
EXHIBIT INDEX, CONTINUED
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED
OCTOBER 2, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------ -----------
<S> <C> <C> <C>
*** 4.43 Second Amendment dated April 30, 1997 to Amended and
Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
+++ 4.44 Third Amendment dated November 17, 1997 to Amended
and Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
### 4.45 Fourth Amendment dated January 6, 1998 to Amended
and Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
### 4.46 Fifth Amendment dated March 27, 1998 to Amended and
Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
### 4.47 Sixth Amendment dated August 7, 1998 to Amended and
Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
### 4.48 Seventh Amendment dated October 27, 1998 to Amended
and Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
4.49 Eighth Amendment dated April 6, 1999 to Amended and
Restated Credit Agreement between First Union
National Bank of North Carolina and Insteel
Industries, Inc. dated January 26, 1996.
UNDERTAKING: The Company agrees to file upon request
of the Commission any instrument with respect to
long-term debt not registered for which the total
amount authorized does not exceed 10% of the total
assets of the Company and its subsidiaries on a
consolidated basis.
10- MATERIAL CONTRACTS
------------------
+ 10.5 Employee Stock Ownership Plan of Insteel Industries,
Inc., including Employee Stock Ownership Plan Trust
Agreement.
10.6 1990 Director Stock Option Plan of Insteel
Industries, Inc. (incorporated by reference to the
exhibit of the same number contained in the
Company's Annual Report on Form 10-K for the year
ended September 30, 1991).
** 10.7 Profit Sharing Plan of Insteel Wire Products
Company.
** 10.8 Profit Sharing Plan of Insteel Industries, Inc.
++ 10.9 1994 Employee Stock Option Plan of Insteel
Industries, Inc.
10.11 Nonqualified Stock Option Plan (incorporated by
reference to the exhibit of the same number
contained in the Company's Annual Report on Form
10-K for the year ended September 30, 1995).
### 10.12 1994 Director Stock Option Plan of Insteel
Industries, Inc. as Amended and Restated Effective
as of April 28, 1998.
+++ 10.21 Insteel Industries, Inc. Return on Capital Incentive
Compensation Plan for Key Members of Management
+++ 10.22 1997 Declaration of Amendment to Insteel Industries,
Inc. Return on Capital Incentive Compensation Plan
for Key Members of Management
+++ 10.30 Insteel Industries, Inc. Director Compensation Plan
10.50 Stock Purchase Agreement dated January 15, 1999
between H.A. Schlatter, Quilni B.V., Structural
Reinforcement Products, Inc. and Insteel Industries,
Inc.
10.51 Asset Purchase Agreement dated April 6, 1999 between
Insteel Industries, Inc. and Northwestern Steel and
Wire Company and Northwestern Steel and Wire Company
- Kentucky.
</TABLE>
32
<PAGE> 33
EXHIBIT INDEX, CONTINUED
TO
ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED
OCTOBER 2, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C> <C>
21- List of Subsidiaries of Insteel Industries, Inc., at
October 2, 1999.
23- Consents of Experts and Counsel: Independent Auditors'
Consent.
23.1 Consent of Arthur Andersen LLP
27- Financial Data Schedule (for SEC use only)
* Incorporated by reference to the exhibit of the same number
contained in the Company's Annual Report on Form 10-K for
the year ended September 30, 1988.
+ Incorporated by reference to the exhibit of the same number
contained in the Company's Annual Report on Form 10-K for
the year ended September 30, 1989.
# Incorporated by reference to the exhibit of the same number
contained in the Company's Annual Report on Form 10-K for
the year ended September 30, 1990.
** Incorporated by reference to the exhibit of the same number
contained in the Company's Annual Report on Form 10-K for
the year ended September 30, 1993.
++ Incorporated by reference to the exhibit of the same number
contained in the Company's Annual Report on Form 10-K for
the year ended September 30, 1994.
## Incorporated by reference to the exhibit of the same number
contained in the Company's Annual Report on Form 10-K for
the year ended September 30, 1996.
*** Incorporated by reference to the exhibit of the same number
contained in the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1997.
+++ Incorporated by reference to the exhibit of the same number
contained in the Company's Annual Report on Form 10-K for
the year ended September 30, 1997.
### Incorporated by reference to the exhibit of the same number
contained in the Company's Annual Report on Form 10-K for
the year ended October 3, 1998.
</TABLE>
33
<PAGE> 1
EXHIBIT 4.49
CONSENT AND EIGHTH AMENDMENT TO
AMENDED AND RESTATED CREDIT AGREEMENT
THIS CONSENT AND EIGHTH AMENDMENT TO AMENDED AND RESTATED CREDIT AGREEMENT
(the "Amendment"), dated this 6th day of April, 1999, is made by and between
INSTEEL INDUSTRIES, INC., a North Carolina corporation (the "Borrower"), and
FIRST UNION NATIONAL BANK, a national banking association (the "Bank"), and
amends the Amended and Restated Credit Agreement, dated January 26, 1996, as
amended by First Amendment thereto, dated April 11, 1997, by Second Amendment
thereto, dated as of April 30, 1997, by Third Amendment thereto, dated November
17, 1997, by Fourth Amendment thereto, dated January 6, 1998, by Fifth Amendment
thereto, dated as of March 27, 1998, by Sixth Amendment thereto, dated August 7,
1998, and by Seventh Amendment thereto, dated October 27, 1999 (the Amended and
Restated Credit Agreement, as amended, modified, restated or supplemented from
time to time, being hereinafter referred to as the "Credit Agreement"). All
capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Credit Agreement.
RECITALS
A. Pursuant to the Credit Agreement, the Bank has made available to the
Borrower a Revolving Line of Credit in the amount of $55,000,000 and a Letter of
Credit Facility in the amount of $5,000,000.
B. Borrower has requested that the Bank (i) increase the Revolving Line of
Credit Commitment from $55,000,000 to $60,000,000, and (ii) consent to the
purchase by Borrower of substantially all of the Property from Northwestern
Steel and Wire Company ("Northwestern") used in or relating to the steel and
wire manufacturing business of Northwestern located in Hickman, Kentucky.
C. The Bank has agreed to such requests and the Borrower and the Bank have
therefore agreed to amend the Credit Agreement as set forth herein.
STATEMENT OF AGREEMENT
NOW, THEREFORE, for and in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
expressly acknowledged, the Borrower and the Bank hereby agree as follows:
ARTICLE I
AMENDMENTS TO CREDIT AGREEMENT
The Credit Agreement is amended as follows:
1.1 Defined Terms. Section 1.1 of the Credit Agreement is amended as
follows:
<PAGE> 2
(a) The following definition is added in the appropriate alphabetical
sequence:
"Acquisition Closing Date" shall mean the date on which all of the
conditions precedent to the consummation of the transactions contemplated by
that certain Asset Purchase Agreement, dated April 6, 1999, between Northwestern
Steel and Wire Company ("Northwestern"), as seller, and Borrower, as buyer, are
satisfied and Borrower purchases substantially all of the Property of
Northwestern used in or relating to Northwestern's welded wire mesh
manufacturing business located in Hickman, Kentucky, all as more particularly
set forth in such Asset Purchase Agreement."
(b) The definition of "Revolving Line of Credit Commitment" is amended in
its entirety to read as follows:
"Revolving Line of Credit Commitment" shall mean, on and after the
Acquisition Closing Date, $60,000,000."
ARTICLE II
REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Bank that:
2.1 Acknowledgment of Obligations. As of the close of business on March
31, 1999, the aggregate principal amount of Revolving Loans owing by the
Borrower was in the sum of $38,869,000, the aggregate amount of Letter of Credit
Obligations owing by the Borrower was in the sum of $2,565,679.95, and the
aggregate amount of Bankers' Acceptance Obligations owing by the Borrower was in
the sum of $-0-, and that all such Obligations are due and owing by the Borrower
to the Bank without any defense, deduction, offset or counterclaim of any
nature.
2.2 Compliance With the Credit Agreement. As of the execution of this
Amendment, the Borrower is in compliance in all material respects with all of
the terms and provisions set forth in the Loan Documents to be observed or
performed by the Borrower, except where the failure of the Borrower to comply
has been waived in writing by the Bank.
2.3 Representations in Credit Agreement. The representations and
warranties of the Borrower set forth in the Credit Agreement are true and
correct in all material respects.
2.4 No Event of Default. No Default or Event of Default exists.
2
<PAGE> 3
ARTICLE III
CONSENT
3.1 Consent to Acquisition. In accordance with the terms and provisions of
the Loan Agreement; Bank hereby consents to the purchase ("Acquisition") by
Borrower of substantially all of the Property of Northwestern used in or
relating to Northwestern's welded wire mesh manufacturing business located in
Hickman, Kentucky, pursuant to the terms and conditions of that certain Asset
Purchase Agreement, dated April 6, 1999 ("Purchase Agreement"), it being
understood and agreed that such consent is in all respects subject to, and
conditioned upon, the satisfaction of each of the following terms and
conditions:
(a) The Acquisition shall occur no later than May 1, 1999;
(b) Immediately before and after giving effect to such Acquisition,
no Default or Event of Default (excluding any Default or Event of Default
occurring solely out of the transactions contemplated by the Acquisition) shall
have occurred and be continuing;
(c) Bank shall have received a copy of the final draft of the
Purchase Agreement, and all exhibits and schedules thereto, which shall be in
form and substance satisfactory to Bank and its counsel, and within five (5)
Business Days following the consummation of the Acquisition, Bank shall have
received the Purchase Agreement, duly executed by Borrower and Northwestern, and
all exhibits and schedules thereto;
(d) Bank shall have received copies of the corporate resolutions
adopted by the boards of directors and shareholders of Northwestern and
Borrower, in each case if resolutions of shareholders are required by applicable
law, as to their respective corporate authority to enter into the Purchase
Agreement and to consummate the transactions contemplated thereby, all in form
and substance satisfactory to Bank and its counsel;
(e) Bank shall have received copies of all bills of sales, deeds,
assignments and other transfer and assumption documents as Bank and its counsel
may request, relating to the Acquisition and the ownership of the assets and
Property to be purchased by Borrower from Northwestern;
(f) Bank shall have received such other documents, instruments and
agreements as it or its counsel may reasonable request in connection with the
foregoing matters.
3
<PAGE> 4
ARTICLE IV
MODIFICATION OF LOAN DOCUMENTS
4.1 Loan Documents. Any individual or collective reference to any of the
Loan Documents shall hereafter mean such Loan Document as amended by this
Amendment, and as further amended, restated, supplemented or modified from time
to time, including, without limitation, all references to the Credit Agreement,
which shall mean the Credit Agreement as amended hereby and as further amended
from time to time.
ARTICLE V
GENERAL
5.1 Full Force and Effect. Except as expressly amended hereby, the Credit
Agreement and the other Loan Documents shall continue in full force and effect
in accordance with the provisions thereof. As used in the Credit Agreement and
the other Loan Documents, "hereinafter", "hereto", "hereof", or words of similar
import, shall mean the Credit Agreement or the other Loan Documents, as the case
may be, as amended by this Amendment.
5.2 Applicable Law. This Amendment shall be governed by and construed in
accordance with the internal laws and judicial decisions of the State of North
Carolina.
5.3 Headings. The headings of this Amendment are for the purpose of
reference only and shall not effect the construction of this Amendment.
5.4 Counterparts. This Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but all of which, taken
together, shall constitute one and the same instrument.
5.5 Waiver of Jury Trial. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, THE BORROWER AND THE BANK EACH WAIVE THE RIGHT TO A JURY TRIAL IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AMENDMENT, THE CREDIT
AGREEMENT OR THE OTHER LOAN DOCUMENTS.
4
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed and delivered under seal by their duly authorized officers to be
effective as of the date first above written.
ATTEST: INSTEEL INDUSTRIES, INC.
[SEAL] By: /s/
------------------------------------
Title: Chief Financial Officer
and Treasurer
-----------------------------
FIRST UNION NATIONAL BANK
By: /s/
------------------------------------
Title: Vice President
-----------------------------
5
<PAGE> 1
EXHIBIT 10.50
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement dated as of the 15th day of January, 1999 by
and among H.A. Schlatter AG, a Swiss corporation, with its principal place of
business at Brandstrasse 24, CH-8952 Schlieren, Switzerland ("HAS"), Quilni
B.V., a Dutch corporation and a wholly owned subsidiary of HAS, with its
principal place of business at Strawinskylaan 3105, Postbos 1469, NL - 1000 BL
Amsterdam, The Netherlands ("Quilni"), Structural Reinforcement Products, Inc.
a Delaware corporation, with its principal place of business at Forest Road,
Hazleton, PA 18201 ("SRP") (HAS, Quilni and SRP, collectively "Sellers"), and
Insteel Industries, Inc., a North Carolina corporation, with its headquarters
at 1373 Boggs Drive, Mount Airy, NC 27030 ("Insteel" or "Buyer").
WITNESSETH:
WHEREAS: Insteel and SRP both participate in the structural and building
mesh market in the United States;
WHEREAS: Insteel and SRP wish to develop the structural mesh market; and
WHEREAS: Insteel wishes to purchase an equity interest in SRP to
facilitate the expansion of SRP's business and to participate in the benefits
of such expansion;
<PAGE> 2
NOW THEREFORE, based on the premises and mutual covenants below, the
parties agree as follows:
1. Insteel's Purchase of Equity Interest in SRP.
1.1 Purchase. Subject to the terms and conditions of this Agreement,
Insteel agrees to acquire a 25% interest in SRP from Quilni, the owner of all
of the authorized, issued and outstanding common stock of SRP for three million
two hundred fifty thousand US dollars ($3,250,000.00). At closing, Quilni shall
transfer to Insteel seven hundred fifty (750) shares of the common stock of
SRP, par value US $15.00, and deliver a certificate representing said ownership
interest in SRP to Insteel (the "Shares"). Contemporaneous with the closing,
Insteel shall wire transfer the aforesaid consideration to the account of
Quilni or to an account designated by Quilni.
1.2 Adjustments to Price. The price of Insteel's equity investment in
SRP shall be increased if SRP attains operating profit levels set forth in this
paragraph. If in fiscal year 1999, SRP attains an operating profit of two
million eight hundred thousand U.S. dollars ($2,800,000.00), then Insteel prior
to March 1, 2000, shall wire transfer to the account of Quilni set forth in
paragraph 1.1 an additional five hundred thousand U.S. dollars ($500,000.00).
If in fiscal year 2000 SRP attains an operating profit of four million two
hundred fifty thousand U.S. dollars ($4,250,000.00), then Insteel prior to
2
<PAGE> 3
March 1, 2001, shall wire transfer to the account of Quilni set forth in
paragraph 1.1 an additional five hundred thousand U.S. dollars ($500,000.00).
SRP's fiscal year ends on December 31. Insteel's failure to make the required
payments in the event the above specified profit levels are attained shall be a
material breach of this Agreement. If the stated operating profit thresholds
are not achieved in 1999 and 2000, no additional consideration will be required
of Insteel for the purchase of its equity interest in SRP. For the purpose of
this Section, "operating profit" means the operating profit of SRP as set forth
in the financial statements of SRP for the applicable year, which statements
must be audited by SRP's independent public accounting firm and accompanied by
a report of such firm certifying that the financial statements are in
conformity with GAAP and containing no material qualification. Notwithstanding
the due dates for Insteel's additional investments set forth above, Insteel
shall not be required to make the additional payments earlier than 10 business
days after receipt of such financial statements.
1.3 Closing. Closing of this transaction (the "Closing") shall take
place via Federal Express on or before January 15, 1999 (the "Closing Date").
3
<PAGE> 4
2. Post-Closing Undertakings.
2.1 Put/Call Rights. As used herein: (1) "Exercise Period" shall mean that
period of time commencing two years from the Closing Date and continuing until
the earlier of: (A) the date Insteel shall have acquired by purchase ownership
of more than twenty-five percent (25%) of the outstanding shares of the voting
stock of SRP; or (B) four years from the Closing Date; (2) "Subordinated Note"
shall mean that certain Subordinated Promissory Note, dated as of January 15,
1999, from SRP payable to Insteel in the original, aggregate principal amount of
One Million Five Hundred Thousand and 00/100 U.S. Dollars ($1,500,000.00); and
(3) "Pledged CD" shall mean a Certificate of Deposit in the amount of One
Million Eight Hundred Seventy-Five Thousand and 00/100 U.S. Dollars
($1,875,000.00) pledged by Insteel in favor of PNC Bank pursuant to Insteel's
obligation under Section 3.1 of this Agreement.
(a) Insteel's Put. Quilni agrees to purchase the Shares from Insteel and
HAS agrees to acquire the Subordinated Note by assignment from Insteel and to
provide a substitute CD for the Pledged CD from Insteel, at Insteel's option,
exercised by written notice to Quilni and HAS at any time during the Exercise
Period. Insteel shall have the right to put the Shares to Quilni and HAS for a
price equal to Insteel's aggregate cost for the Shares, as determined in
accordance with Paragraph 1 hereof (the "Shares Price").
4
<PAGE> 5
(b) Exercise of Insteel's Put. Insteel shall evidence the exercise of
its right to put the Shares to Quilni pursuant to Paragraph 2.1(a) hereinabove
by sending a written notice to HAS, Quilni and SRP indicating that Insteel has
elected to put the Shares to Quilni. Such notice shall be made by certified
mail, postage prepaid, return receipt requested, or delivered against receipt
by hand. Upon receipt of said notice, Insteel, HAS, Quilni and SRP shall have
120 days from the date of said notice to take and complete each of the
following actions:
(i) Insteel shall deliver the Shares to Quilni, free and clear of all
liens, pledges, security interests, options and other restrictions
and endorsed in blank. Upon Insteel's delivery of the Shares to
Quilni, Quilni or HAS shall remit to Insteel the Shares Price by
wire transfer to an account designated by Insteel;
(ii) Insteel shall assign the Subordinated Note, together with any and all
other borrowed money indebtedness of SRP from Insteel, and documents
evidencing the same (collectively, the "Debts"), to HAS pursuant to
the terms of the Debts, and Insteel and HAS shall execute an
Assignment and Acceptance Agreement substantially in the form
attached hereto as Exhibit B (the "Assignment"), and incorporated
herein by this reference. Upon delivery of the assigned Debts and the
Assignment to HAS, HAS shall remit to Insteel an amount equal to the
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<PAGE> 6
principal balance of the Debts, together with all interest accrued thereon
to date, by wire transfer to an account designated by Insteel; and
(iii) HAS shall substitute, or cause to be substituted, a certificate of
deposit in the amount of the Pledged CD, or such other sum representing
twenty-five percent (25%) of the collateral required from time to time to be
pledged to PNC Bank by SRP and HAS pursuant to that certain Revolving Credit and
Security Agreement dated August 31, 1998 among SRP, HAS and PNC Bank and that
certain Loan and Security Agreement between PNC Bank and SRP dated November 3,
1995 (the "Collateral"), which shall be pledged by HAS in favor of PNC Bank in
place of the Collateral pledged by Insteel in favor of PNC Bank pursuant to
Paragraph 3.1 below, at which time Insteel shall immediately withdraw the
Collateral pledged by Insteel pursuant to this Agreement.
(c) Quilni's Call. During the Exercise Period, Quilni shall have the right
to call the Shares from Insteel in exchange for the Shares Price.
6
<PAGE> 7
(d) Exercise of Quilni's Call. Quilni shall evidence the exercise of its
right to call the Shares from Insteel pursuant to Paragraph 2.1(c) hereinabove
by sending a written notice to HAS, Insteel and SRP indicating that Quilni has
elected to call the Shares from Insteel. Such notice shall be made by certified
mail, postage prepaid, return receipt requested, or delivered against receipt by
hand. Upon receipt of said notice, Insteel, HAS, Quilni and SRP shall have 120
days from the date of said notice to take and complete each of the following
actions:
(i) Insteel shall deliver the Shares to Quilni, free and clear of all
liens, pledges, security interests, options and other restrictions
and endorsed in blank. Upon Insteel's delivery of the Shares to
Quilni, Quilni or HAS shall remit to Insteel the Shares Price by
wire transfer to an account designated by Insteel;
(ii) Insteel shall assign the Debts to HAS pursuant to the terms of the
Debts, and Insteel and HAS shall execute the Assignment. Upon
delivery of the assigned Debts and the Assignment to HAS, HAS shall
remit to Insteel an amount equal to the principal balance of the
Debts together with all interest accrued thereon to date, by wire
transfer to an account designated by Insteel; and
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<PAGE> 8
(iii) HAS shall substitute, or cause to be substituted, the Collateral,
which shall be pledged by HAS in favor of PNC Bank in place of the
Collateral pledged by Insteel in favor of PNC Bank pursuant to Paragraph
3.1(i) below, at which time Insteel shall immediately withdraw the
Collateral pledged by Insteel pursuant to this Agreement.
(e) Joint and Several Obligations. All of HAS's and Quilni's obligations
hereunder and any liabilities in connection herewith to pay in full the Shares
Price to Insteel, to remit to Insteel the principal balance of the Debts
together with all interest accrued, and to substitute the Collateral upon the
exercise of Insteel's put or Quilni's call and Insteel's delivery of the Shares
to Quilni as set forth herein shall be joint and several.
(f) Waiver. In the event Quilni decides to exercise its call option, it
will notify Insteel in the manner set forth above in Paragraph 2(d), and
Insteel shall have the right within 120 days of receipt of such notification to
waive its right to put the Shares and thereby terminate Quilni's right to call
the Shares. Moreover, Quilni's right to call the Shares shall terminate upon
Insteel's subsequent written commitment to establish a new structural mesh
facility in accordance with the terms of Paragraph 5.2 below.
2.2 Board Representation. Immediately following the Closing, Quilni and
Insteel shall by Unanimous Consent of the Stockholders in lieu of Special
Meeting in
8
<PAGE> 9
the form attached as Exhibit A, enlarge SRP's Board of Directors to six (6)
members, of which HAS through Quilni shall appoint four members and Insteel
shall appoint two. Upon Quilni's and HAS's fulfillment of their respective
obligations under Paragraph 2.1, Insteel's right to name two representatives to
the Board of Directors shall expire Paragraph 2.1, and Insteel shall have no
further rights to be represented on SRP's Board. In addition, the Unanimous
Consent shall provide that there shall be an Executive Committee of three
Directors, one of whom shall be appointed by Insteel and two by HAS through
Quilni.
For as long as Insteel has the right to representation on SRP's Board of
Directors, Insteel shall have the option of naming Mr. H. O. Woltz, Jr. as its
designee to be an additional Director. If Insteel so elects, Insteel and Quilni
shall execute a Unanimous Consent of Stockholders which shall: (1) enlarge SRP's
Board to eight (8) members; and (2) shall name Mr. H. O. Woltz, Jr. and Mr. H.
R. Schlatter, or their respective designees, to fill the two new Board seats.
2.3 Restrictions on Stock Transfers; Issuance of Additional Stock and
Debt.
(a) Until such time as either party shall have exercised its put or call
rights in Paragraph 2.1, after which Insteel shall no longer be a stockholder
of SRP, neither Insteel nor Quilni shall sell, transfer, assign, encumber,
pledge or hypothecate its
9
<PAGE> 10
ownership interest in any of the Shares without the prior written consent of
the other parties to this Agreement. Any transfer in violation of this
provision shall be null and void and of no force or effect, and SRP shall
refuse to reflect on its books any transfer of Shares which have been made in
violation hereof.
(b) SRP shall not issue additional shares of Common Stock without
obtaining the prior written consent of Insteel.
(c) No party shall take any action, including incurring or guaranteeing
indebtedness or extending credit, that would increase Insteel's liability under
Paragraph 3.1 without obtaining the prior written consent of Insteel.
3. Financings.
3.1 Insteel's Assumption of SRP's Liabilities. Consistent with Insteel's
ownership interest in SRP, Insteel agrees to assume a proportional share of
SRP's subordinated debt to HAS and to pledge a proportional share of the
Collateral. Initially, and for so long as Insteel owns twenty-five percent
(25%) of SRP's shares of common stock, Insteel shall be responsible for
twenty-five percent (25%) of such subordinated debt and Collateral. In the
event as contemplated in Paragraph 5.1, Insteel increases its equity ownership
interest in SRP, Insteel shall increase the level of its undertakings hereunder
proportionally. Notwithstanding anything contained herein to the contrary,
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<PAGE> 11
Insteel shall not be required to assume or secure any liability of SRP after
the date of exercise of the put or call rights provided for in Paragraph 2.1.
3.2 Initial Undertakings. Initially, Insteel shall take the following
actions:
(i) With respect to PNC Bank's grant of credit to SRP in connection with
the Pennsylvania Industrial Development Authority financing and that certain
Revolving Credit and Security Agreement dated August 31, 1998, at Closing,
Insteel shall substitute a certificate of deposit in the amount of one million
eight hundred seventy-five thousand U.S. dollars, ($1,875,000.00) in place of
certificates of deposit in said amount pledged by HAS in favor of PNC Bank,
which collateral represents twenty-five percent (25%) of seven million five
hundred thousand U.S. dollars ($7,500,000.00) of collateral currently required
to be pledged to PNC Bank by HAS, provided, however, that in the event that the
level of Collateral required to be pledged by PNC Bank shall be reduced in the
future, Insteel's pledge obligation hereunder shall be reduced proportionally;
and
(ii) With respect to the direct loan of six million U.S. dollars
($6,000,000.00) from HAS to SRP, Insteel and HAS shall enter into the
Assignment and Acceptance Agreement in the form attached hereto as Exhibit B,
under which HAS shall assign to Insteel a twenty-five percent (25%) interest in
said direct loan, that is, one million five hundred thousand U.S. dollars
($1,500,000.00), by making a payment to HAS at
11
<PAGE> 12
Closing of one million five hundred thousand U.S. dollars ($1,500,000.00) by
wire transfer to an account designated by HAS in exchange for SRP's promissory
note in the form of Exhibit C hereto (the "Insteel Loan").
SRP shall remain indebted to HAS in the amount of four million five hundred
thousand U.S. dollars ($4,500,000.00). SRP shall issue to HAS at Closing a new
note in the form of Exhibit D hereto upon surrender and cancellation of the
original note. At Closing, Insteel shall execute a subordination agreement in a
form satisfactory to PNC Bank, under which one million five hundred thousand
U.S. dollars ($1,500,000.00) of SRP's indebtedness under the Insteel Loan shall
be subordinated to SRP's indebtedness to PNC Bank.
3.3 Insteel's Support of SRP. Reference is made to that certain Support
Agreement dated as of August 31, 1998, by and among HAS, SRP and PNC Bank, under
which HAS has the obligation to maintain SRP's Cash Flow Coverage (as defined in
the Loan Agreement). In the event that HAS is required to contribute additional
equity or subordinated indebtedness to SRP thereunder, HAS shall by written
notice so inform Insteel, and Insteel shall contribute twenty-five percent (25%)
of the amounts HAS is required to contribute (or such other proportional amounts
as are called for under Paragraph 3.1 hereof). HAS and Insteel agree that any
such contribution shall take the form of subordinated indebtedness, and that the
parties shall
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<PAGE> 13
consult on the terms and conditions of such indebtedness following HAS's notice
to Insteel hereunder.
3.4 Future Financings. It is the expectation of the parties that Insteel's
equity investment in SRP will enable SRP to restructure its future bank
financing on more favorable terms. SRP and HAS will not extend or modify that
certain Revolving Credit and Security Agreement dated August 31, 1998 among SRP,
HAS and PNC Bank without the prior written consent of Insteel. With respect to
the subordinated indebtedness from SRP to Insteel and HAS, the parties shall
endeavor to repay such indebtedness in advance of the current maturity dates. If
this is not possible, however, the parties agree to work together with current
and future potential bank lenders to reduce such subordinated indebtedness to
the fullest extent possible consistent with prudent refinancing of SRP's
operations. Notwithstanding Insteel's minority representation on SRP's Board of
Directors, Insteel shall participate fully in all refinancing discussions
concerning SRP.
4. Marketing and Manufacturing Cooperation.
4.1 Structural Mesh. SRP hereby appoints Insteel as its sales
representative for SRP structural mesh products, to enable Insteel to offer
customers a wider range of structural mesh products, to serve existing customers
better, and to expand SRP's structural mesh business. SRP shall provide
engineering and customer
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<PAGE> 14
support to Insteel reasonably requested by Insteel's sales personnel; any
orders generated as a result shall be filled by SRP and invoiced directly to
customers, without compensation or remuneration to Insteel or to its sales
personnel. SRP and Insteel shall continue to establish independently the
pricing, terms, delivery conditions and manufacturing schedules of each of the
products covered by this section. The parties anticipate that increased sales
for structural mesh products will enable SRP to establish a fourth production
line at its Hazleton facilities at a cost not to exceed US two million dollars
($2,000,000).
4.2 Building Mesh. To achieve more efficient economies of manufacturing
building mesh, to provide better service to existing customers and to develop
new markets for building mesh, Insteel agrees to purchase the entire capacity
of SRP's MG 330 line. To that end, Insteel and SRP are contemporaneously
entering into the Conversion Agreement in the form of Exhibit E. SRP shall
cease any further marketing of building mesh products and provide Insteel with
all relevant information regarding customers and markets for building mesh, so
that Insteel can further develop the market for building mesh.
5. Future Expansion of SRP's Business.
5.1 Insteel's Position in SRP. The parties contemplate that Insteel will
increase its equity position in SRP in the future, but the parties acknowledge
that
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<PAGE> 15
Insteel is not obligated to increase its equity position in SRP. The terms and
conditions regarding the sale of additional equity in SRP to Insteel shall be
negotiated between the parties at the time Insteel wishes to increase its
equity participation in SRP. HAS, through Quilni, wishes to maintain its
majority ownership in SRP until such time as SRP's sales structural mesh grow
to approximately ten percent (10%) of rebar sales in the market served by SRP.
5.2 New Structural Mesh Facility. The parties shall work towards the
development of a new structural mesh facility in Texas, or elsewhere, after
SRP's financial results improve to projected levels. The parties anticipate
that Insteel will own the majority interest in such new facility ("SRP #2").
6. Representations and Warranties of Sellers. Each Seller jointly and
severally represents and warrants to Buyer as follows:
6.1 Organization. Each of the Sellers is a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite power and authority and all necessary
governmental approval to carry on its business as it has been and is now being
conducted. Each of the Sellers is duly qualified or licensed as a foreign
corporation to do business and is in good standing in each jurisdiction where
the nature of its business makes such qualification or licensing necessary,
except where the failure to be so qualified or licensed and in good standing,
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<PAGE> 16
would not (a) have a material adverse effect on the assets, business, financial
condition, operations or prospects of such Seller, (b) materially impair the
ability of such Seller to perform its obligations under this Agreement and (c)
prevent or delay the consummation of transactions contemplated under this
Agreement (each of the foregoing being a "Material Adverse Effect").
6.2 Capitalization; Options and Other Rights.
(a) The total authorized shares of capital stock of the SRP consist of
three thousand (3000) shares of its Common Stock, all of which shares are
issued and outstanding (the "Common Stock"). All the shares of Common Stock
have been duly and validly authorized and issued and are fully paid and
nonassessable. None of the shares of Common Stock has been issued in violation
of the preemptive rights of any stockholder of SRP. All of the shares of Common
Stock were issued in compliance in all material respects with all applicable
Federal and state securities laws and regulations. Quilni is the owner,
beneficially and of record, of all rights, titles and interests in and to the
Common Stock, including the Shares, and has good and marketable title thereto,
free and clear of all Liens.
(b) There are no existing agreements, subscriptions, options, warrants,
calls, commitments, trusts (voting or otherwise), or rights of any kind
whatsoever (including antidilution rights) to which SRP or Quilni is a party
providing for the issuance,
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disposition or acquisition of securities of SRP. There are no outstanding
securities of SRP or any other entity which are convertible into or
exchangeable for other securities of Sellers, nor are there any agreements,
subscriptions, options, warrants, calls, commitments or rights of any kind
(including antidilution rights) granting to any person any interest in or the
right to purchase or otherwise acquire or receive from SRP or Quilni any such
securities, nor to the knowledge of SRP or Quilni, are there any proxies,
agreements or understandings with respect to the voting of any of the shares of
Common Stock.
6.3 Authority.
(a) Sellers have full power and authority to execute, deliver and perform
this Agreement. The execution, delivery and performance of this Agreement by
HAS, Quilni and SRP have been duly authorized and approved by their respective
Boards of Directors and, no other corporate proceedings on the part of HAS,
Quilni and SRP are necessary to authorize this Agreement and the transactions
contemplated hereby. This Agreement has been duly authorized, executed and
delivered by the Sellers and is the legal, valid and binding obligation of
Sellers enforceable in accordance with its terms, except as enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, moratorium or
similar laws affecting the enforcement of creditors rights generally and by
the effect of general principles of equity (regardless of whether enforcement
is considered in a proceeding in equity or at law).
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(b) The execution, delivery and performance by HAS, Quilni and SRP of this
Agreement does not and will not (i) violate or conflict with any provision of
their respective Certificate of Incorporation (or other charter document) or
By-laws, (ii) violate any law, rule, regulation, order, writ, injunction,
judgment or decree of any court, governmental authority or regulatory agency, or
(iii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any note, bond, indenture,
Liens (as defined below), mortgage, lease, permit, guaranty or other agreement,
instrument or obligation to which HAS, Quilni or SRP is a party or by which any
of SRP's properties may be bound, except for violations, breaches or defaults
which, individually or in the aggregate, will not have a Material Adverse
Effect.
(c) The execution and delivery of this Agreement by Sellers does not, and
the performance of this Agreement will not require any consent, approval,
authorization or permission of, or filing with or notification to any
governmental or regulatory authority, domestic or foreign, except for any such
consent, approval, authorization, permission, notice or filing which if not
obtained or made would not have a Material Adverse Effect.
6.4 Charter Documents. SRP has previously furnished Insteel a true,
complete and correct copy of its Certificate of Incorporation and By-laws and
such
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Certificate of Incorporation and By-laws are in full force and effect. SRP is
not in violation of any provision of its Certificate of Incorporation or its
By-laws.
6.5 Financial Statements.
(a) SRP has previously furnished to Insteel true and complete copies of
its Balance Sheets, Statements of Operations and Statements of Cash Flows as of
and for each of the years in the six year period ending December 31, 1997,
together with the notes thereto and the report prepared in connection therewith
by the independent certified public accountants of SRP (the "Financial
Statements").
(b) The Financial Statements were prepared in accordance with GAAP. The
Financial Statements were prepared on the basis of SRP's books and records and
present fairly, in all material respects, the financial position of SRP as of
the dates thereof and the results of its operations and changes in cash flows
and stockholders' equity for the periods then ended in conformity with GAAP.
6.6 Absence of Undisclosed Liabilities. Except as set forth in the notes
to the Financial Statements, SRP does not have any liability or obligation of
any nature (whether absolute, accrued or contingent or otherwise) which is in
excess of amounts shown or reserved therefor in the Financial Statements other
than (a) liabilities or obligations not required under GAAP on a basis
consistent with that of preceding
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accounting periods to be reported on such Financial Statements and (b)
liabilities or obligations incurred after the date of the Balance Sheet dated
December 31, 1997 reasonably incurred in the ordinary course of business and
consistent with past practice.
6.7 Operations and Obligations.
(a) Since December 31, 1997,
(i) there has been no event or condition relating to the business,
financial condition, operating results, earnings, customers, employee and
sales representative relations, business prospects, business condition,
financing arrangements or otherwise that has had or reasonably could be
expected to have a Material Adverse Effect on SRP (other than as a result
of business and economic conditions generally affecting the structural and
building mesh industry); and
(ii) there has been no impairment, damage, destruction, loss or claim, or
condemnation or other taking adversely affecting in any material respect
any of SRP's assets, whether or not covered by insurance.
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(b) Since December 31, 1997, SRP has conducted its business only in the
ordinary course and in conformity with past practice. Without limiting the
generality of the foregoing, since December 31, 1997, SRP has not:
(i) issued, delivered or agreed (conditionally or unconditionally) to issue
or deliver, or granted any option, warrant or other right to purchase, any
of its capital stock or other equity interest or any security convertible
into its capital stock or other equity interest;
(ii) issued, delivered or agreed (conditionally or unconditionally) to
issue or deliver any bonds, notes or other debt securities, or borrowed or
agreed to borrow any funds, other than in the ordinary course of business
consistent with past practice or entered into any lease the obligations of
which, in accordance with generally accepted accounting principles, would
be capitalized;
(iii) discharged or satisfied any Lien or paid any obligation or liability
(absolute or contingent) other than current liabilities reflected on the
1997 Balance Sheet and current liabilities incurred since December 31, 1997
in the ordinary course of business consistent with past practice;
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(iv) declared or made, or agreed to declare or make, any payment of
dividends or distributions to its stockholders, or purchased or redeemed,
or agreed to purchase or redeem, any of its Common Stock;
(v) except in the ordinary course of business consistent with past
practice entered into any lease, contract, agreement or commitment or made
or permitted any material amendment or termination of any lease, contract,
agreement or commitment to which SRP is a party or entered into any
transaction with any employee, officer, or director of any of the Sellers;
(vi) undertaken or committed to undertake capital expenditures exceeding
$100,000 for any single project or related series of projects, except as
disclosed in Schedule 6.7(b)(vi);
(vii) sold, leased (as lessor), transferred or otherwise disposed or,
mortgaged or pledged or imposed or suffered to be imposed any Lien on,
any of the assets reflected on the December 31, 1997 Balance Sheet or any
assets acquired by SRP after December 31, 1997, except for inventory and
personal property sold or otherwise disposed of for fair value in the
ordinary course of its business consistent with past practice;
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(viii) canceled any debts owed to or claims held by SRP (including the
settlement of any claims or litigation);
(ix) accelerated or delayed collection of accounts receivable in advance
of or beyond their regular due dates or the dates when the same would have
been collected in the ordinary course of its business consistent with past
practice;
(x) delayed or accelerated payment of any account payable or other
liability beyond or in advance of its due date or the date when such
liability would have been paid in the ordinary course of its business
consistent with past practice;
(xi) entered into or become committed to enter into any other material
transaction except in the ordinary course of business;
(xii) maintained the levels of supplies or other materials included in
the inventory of SRP in accordance with past practice;
(xiii) except for increases in the ordinary course of business consistent
with past practice, and as disclosed in Schedule 6.7(b)(xiii), instituted
any increase in any compensation payable to any employee or sales
representative or consultant of SRP or in any profit-sharing, bonus,
incentive, deferred compensation,
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insurance, pension, retirement, medical, hospital, disability, welfare or
other benefits made available to any such person;
(xiv) made any change in the accounting principles or made any material
change in accounting practices used by SRP, in each case, from those
applied in the preparation of the Financial Statements;
(xv) incurred intercompany charges or conducted its cash management
practices and accounting methods other than in the usual and ordinary
course of business in accordance with past practice;
(xvi) made any loans or advances to, or guarantees for the benefit of, any
person or entity;
(xvii) changed or authorized any change in its Certificate of
Incorporation or By-Laws; or
(xvii) agreed to do any of the foregoing.
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6.8 Properties.
(a) Title to Assets; Liens. SRP has good and marketable title to all of the
properties and assets (real or personal, tangible or intangible) owned by it
(including, without limitation, those properties and assets shown on the
December 31, 1997 Balance Sheet included in the Financial Statements), and a
valid leasehold or other possessory interest in all other properties and assets
used, operated or occupied by it, located on its premises or otherwise shown on
such Balance Sheet, except for tangible personal property sold or disposed of
in the ordinary course of business and consistent with past practice. All of
SRP's properties and assets (whether real or personal, tangible or intangible,
owned, leased or otherwise acquired) are free and clear of any liens, claims,
charges, security interests, mortgages, pledges or other encumbrances or
restrictions of any nature whatsoever (collectively, "Liens"), other than (i)
easements of record affecting Owned Real Property (as defined below) that do
not affect the full use and enjoyment of such Owned Real Property for the
purposes for which it is currently used or detract from its value; (ii) Liens
for taxes not yet due and payable; and (iii) Liens described in Schedule
6.8(a). There are no existing breaches or defaults under, and no events or
circumstances have occurred which, with or without notice or lapse of time or
both, would constitute a breach of or a default under, any instrument,
agreement or other document that creates, evidences or constitutes any such
Lien or that evidences, secures or governs the terms of any indebtedness or
obligation secured by any such Lien (any such instrument, agreement or other
document being referred to herein as a
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"Lien Instrument"). The sale of the Shares by Quilni to Insteel will not, with
respect to any Lien Instrument, (i) constitute a breach thereof or a default
hereunder, (ii) permit (with or without notice, lapse of time or both), cause
or result in (A) the acceleration of any indebtedness or other obligation
evidenced, secured or governed thereby or (B) the foreclosure or other
enforcement of any such Lien, (iii) permit or cause the terms thereof to be
renegotiated, or (iv) require the consent of the holder of any such
indebtedness or obligation or any third party.
(b) Real Property. Schedule 6.8(b) contains a true and correct
description of all (i) real property owned by SRP (the "Owned Real Property"),
(ii) real property leased by SRP (the "Leased Real Property"), (iii) leases
relating to the Leased Real Property (collectively, the "Real Property
Leases"), (iv) Liens upon or affecting any of the Owned Real Property, (v)
agreements, oral or written, pursuant to which any person or entity (other than
SRP) leases, subleases, occupies or has the right to occupy any Owned Real
Property or Leased Real Property, and (vi) agreements and other undertakings,
oral or written, to sell, lease, sublease, assign, encumber or otherwise
dispose of any Owned Real Property, Leased Real Property or Real Property
Lease. The Owned Real Property and the Leased Real Property are zoned for the
various purposes for which the buildings and other improvements located thereon
(the "Improvements") are presently being used, and such uses thereof are in
compliance with all applicable zoning and land use laws, ordinances and
regulations. All improvements are in good repair, and in good operating
condition, ordinary wear and
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tear excepted, and to the knowledge of SRP free from latent and patent defects.
No part of any Improvement encroaches on an real property not included in the
Owned Real Property or the Leased Real Property. Each of the Real Property
Leases is valid, binding and enforceable in accordance with its terms and is in
full force and effect, and there are no offsets or defenses by either landlord
or tenant thereunder. There are no existing breaches of or defaults under, and
no events or circumstances have occurred which, with or without notice or lapse
of time or both, would constitute a breach of or a default under, any of the
Real Property Leases.
(c) Tangible Personal Property. SRP owns or leases all buildings,
machinery, equipment and other tangible assets necessary for the conduct of its
business (the "Tangible Property"). Each item of Tangible Property is in good
operating order, condition and repair, ordinary wear and tear excepted, is
suitable for immediate use in the ordinary course of business of SRP, is free
from defects (latent and patent), is merchantable and is of a quality and
quantity usable in the ordinary course of business of SRP. No item of Tangible
Property is in need of repair or replacement, other than as part of routine
maintenance in the ordinary course of business.
6.9 Accounts Receivable. All accounts receivable and trade accounts
reflected on the December 31, 1997 Balance Sheet included in the Financial
Statements (less any such receivables collected since such date) and all
accounts receivable and trade accounts presently owing and to be owing to SRP
on the Closing
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Date (collectively, the "Receivables"), in each case net of the reserves
established and reflected on such Balance Sheet, are, and on the Closing Date
will be, legal, valid and binding obligations. All such Receivables were and
will be created in the ordinary course of business. There are no set-offs,
counterclaims or disputes asserted with respect to any Receivable, and no
discount or allowance from any Receivable has been or will be made or agreed
to. The reserves established for doubtful or uncollected accounts as shown on
such Balance Sheet, as adjusted for the passage of time through the Closing
Date in accordance with the past practice of SRP, are consistent in amount to
those historically established with respect to the accounts receivable of the
business of SRP.
6.10 Absence of Default. Each of the leases, contracts and other
agreements to which SRP is a party constitutes a valid and binding obligation of
the parties thereto and is in full force and effect and will continue in full
force and effect after the Closing, in each case, without breaching the terms
thereof or resulting in the forfeiture or impairment of any rights thereunder
and without the consent, approval or act of, or the making of any filing with,
any other person or entity. Except as set forth in Schedule 6.10, SRP has
fulfilled and performed in all material respects its obligations under each such
lease, contract or other agreement to which it is a party to the extent such
obligations are required by the terms thereof to have been fulfilled or
performed through the date hereof (except for any such lease, contract or other
agreement which, by its terms, will expire prior to the Closing, and SRP is not
alleged to be in breach or default
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under, nor is there alleged to be any basis for termination of, any such lease,
contract or other agreement. To the knowledge of SRP, no other party to any such
lease, contract or other agreement has breached or defaulted thereunder. No
event has occurred and no condition or state of facts exists which, with the
passage of time or the giving of notice or both would constitute such a default
or breach by SRP or, to the knowledge of SRP, by any such other party under any
lease, contract or other agreement. SRP is not currently renegotiating any such
lease, contract or other agreement or paying liquidated damages in lieu of
performance thereunder. Complete and correct copies of each such lease, contract
or other agreement and any amendments thereto have heretofore been made
available to Insteel.
6.11 Financial Projections. Sellers have made available to Insteel certain
financial projections with respect to its business which projections were
prepared by SRP for internal use only and based upon the assumptions reflected
therein. Sellers make no representation or warranty regarding the accuracy of
such projections or as to whether such projections will be achieved or
otherwise, except that Sellers represent and warrant that such projections were
prepared in good faith and are based on assumptions believed by it to be
reasonable.
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6.12 Litigation.
(a) Except as set forth in Schedule 6.12, as of the date hereof (i) there
are no actions, suits, arbitrations, legal or administrative proceedings or
investigations pending or, to the knowledge of SRP, threatened against SRP; and
(ii) none of SRP's assets, properties or business is subject to any judgment,
order, writ, injunction or decree of any court, governmental agency or
arbitration tribunal. Except as set forth in Schedule 6.12, SRP is neither a
plaintiff in any such proceeding nor contemplating commencing legal action
against any other party.
(b) SRP is not a party to any suit, action, arbitration or legal,
administrative, governmental or other proceeding or investigation pending or, to
its knowledge threatened, which reasonably could have a Material Adverse Effect.
(c) There is no judgment, order, writ, injunction or decree or any court,
governmental agency or arbitration tribunal to which SRP is subject which
reasonably could have a Material Adverse Effect.
(d) To the knowledge of SRP, other than disclosed in the Schedules hereto,
there are no facts or circumstances which can serve as the basis for any claim
against SRP or, by virtue of the execution, delivery and performance of this
Agreement, against Insteel.
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6.13 Compliance with Law.
(a) SRP has complied in all material respects with, and is not in
violation of, in any material respect, any laws, ordinance or governmental rule
or regulation (collectively, "Laws") to which it or its business is subject; and
(b) SRP has obtained and is in material compliance in all material
respects with all licenses, permits, certificates or other governmental
authorizations or approvals (collectively "Authorizations") necessary for the
ownership or use of its assets and properties or the conduct of its business;
and
(c) SRP has not received notice of violation of, or investigation of a
possible violation or knows of no violation of, any Laws to which it or its
business is subject or any Authorization necessary for the ownership or use of
its assets and properties or the conduct of its business.
6.14 Tax Matters. Consistent with the advice of SRP's auditors, (i) SRP
has timely filed all tax returns required to be filed, (ii) all such tax
returns are complete and accurate in all material respects and all taxes
required to be withheld or shown to be due on such tax returns have been timely
withheld or paid; (iii) all taxes (whether or not shown on any tax return) owed
or required to be withheld by SRP have been timely
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paid or withheld; (iv) SRP has not waived or been requested to waive any
statute of limitations in respect of taxes and is not currently the beneficiary
of any extension of time for filing and has not agreed to an extension, a tax
assessment or deficiency; (v) there is no action, suit, investigation, audit,
dispute, claim or assessment pending, proposed or threatened with respect to
taxes of SRP; (vi) any deficiencies asserted or assessments made as a result of
any examination of the tax returns referred to in clause (i) have been paid in
full; (vii) there are no Liens for taxes upon the assets or SRP except Liens
relating to current taxes not yet due; (viii) all taxes which SRP are required
by law to withhold or to collect for payment have been duly withheld and
collected and have been paid or accrued, reserved against and entered on the
books of SRP in accordance with GAAP.
6.15 Employees.
(a) SRP has complied in all material respects with all applicable laws,
rules and regulations respecting employment and employment practices, terms and
conditions of employment, wages and hours, and is not liable for any arrears of
wages or any taxes or penalties for failure to comply with any such laws, rules
or regulations;
(b) SRP believes that its relation with its employees are satisfactory;
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(c) there are no charges, complaints, or controversies pending or, to the
knowledge of any of Sellers, threatened involving SRP and any of its employees,
which controversies have or could not have a Material Adverse Effect;
(d) SRP is not a party to any collective bargaining agreement or other
labor union contract or "shop agreement" applicable to persons employed by SRP;
(e) to the knowledge of any of the Sellers, there are no activities or
proceedings of any labor union to organize any employees of SRP;
(f) there are no unfair labor practice complaints pending against SRP
before the National Labor Relations Board;
(g) there is no strike, slowdown, work stoppage or lockout existing, or,
to the knowledge of any of the Sellers, threatened, by or with respect to any
employees of SRP;
(h) no charges are pending before or, to the knowledge of any of the
Sellers, threatened to be brought before or by, the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices with respect to SRP;
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(i) there are no claims pending against SRP before any workers'
compensation board;
(j) SRP has not received notice that any federal, state, local or foreign
agency responsible for the enforcement of labor or employment laws intends to
conduct an investigation of or relating to SRP and, to the knowledge of any of
the Sellers, no such investigation is planned or in progress;
(k) No key employee or senior manager of SRP has indicated a desire or
plan to resign from SRP, whether as a result of this transaction or otherwise;
and
(l) There have been no "mass layoffs" of SRP employees or any "plant
closings" by SRP, as such terms are defined in the Work Adjustment and
Retaining Notification Act ("WARN"), within the past 90 days, nor has there
been any event during the past six years which requires the giving of notice
under WARN.
6.16 Environmental Laws. SRP is not in violation of, and has not
violated, any applicable federal, state, county or local statutes, laws,
regulations, rules, ordinances, codes, licenses or permits of any governmental
authorities relating to environmental matters, including by way of illustration
and not by way of limitation the Comprehensive Environmental Response,
Compensation and Liability Act, the Resource Conservation Recovery Act, the
Clean Air Act, the Clean Water Act, the
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Occupational Safety and Health Act, the Toxic Substances Control Act, any
"Superfund" or "Superlien" law, or any other federal, state or local statute,
law, ordinance, code, rule, regulation, order, decree or guideline (whether
published or unpublished) regulating, relating to or imposing liability or
standards of conduct concerning Hazardous Materials, in each case as amended
from time to time. For purposes of this Agreement, "Hazardous Materials"
includes but is not necessarily limited to asbestos, asbestos containing
materials ("ACM"), polychlorinated biphenyls, lead-based paints, any
petroleum, petroleum by-product (including, but not limited to, crude oil,
diesel oil, fuel oil, gasoline, lubrication oil, oil refuse, used motor oil,
oil mixed with other waste, oil sludge, and all other liquid hydrocarbons,
regardless of specific gravity), natural or synthetic gas, or other hazardous
or toxic substances, materials, wastes, pollutants or contaminants defined
under or regulated by the Environmental Laws.
6.17 Subsidiaries. SRP does not own or hold, nor has it ever held or
owned, any shares of stock or any other security or interest in any other
entity, or any rights to acquire any such security or interest.
6.18 Books and Records. The minute books of SRP are true, correct,
complete and current in all material respects and contain accurate and complete
records of all material actions taken by its shareholders, its board of
directors and each committee of its board of directors, and all signatures
contained in such minute books
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are the true signatures of the persons whose signatures they purport to be. The
stock transfer books of SRP are true, correct, complete and current in all
material respects. The books and records of SRP are true, accurate and complete
in all material respects and, where appropriate, have been maintained in
accordance with GAAP applied on a consistent basis.
6.19 Inventories. All items included in the inventories of SRP (a) are in
good condition, not obsolete and noneffective, (b) are usable or saleable
in the ordinary course of business and at the current operating profit margins
of SRP, (c) are located on the premises of SRP, (d) have been acquired for SRP
only in bona fide transactions entered into in the ordinary course of business;
and (e) finished goods inventories meet applicable industry standards,
including ASTM and ACI.
6.20 Intellectual Property. Schedule 6.20 sets forth a list of all (a)
trademarks, service marks, trade names, logos and other designations owned or
used by SRP, and all United States, foreign and state registrations relating
thereto, (b) copyrighted works owned by SRP and registrations issued by the
United States Copyright Office or the office of any foreign jurisdiction for
any of the copyrights, and (c) inventions owned or used by SRP which are the
subject of United States or foreign letters patent or applications therefor,
together with the applicable patent number, application number, application
date and issue date (collectively, "Intellectual Property"). SRP owns all
right, title and interest in and to each item included in the Intellectual
Property, free and
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clear of any Liens or licenses. The Intellectual Property consists of all of
the intellectual property rights necessary to conduct the business of SRP. All
registrations relating to the Intellectual Property are validly issued and
remain in full force and effect, except as disclosed in Schedule 6.20. Each
trademark has been in continuous use on all goods described in the applicable
registrations. There are no claims or suits pending or, to the knowledge of
Sellers, threatened against SRP challenging SRP's ownership of or unencumbered
right to use any of the Intellectual Property, nor does there exist any basis
therefor. There are no claims or suits pending or, to the knowledge of Sellers,
threatened against SRP alleging that any of the Intellectual Property infringes
any rights of any third parties, nor does there exist any basis therefor.
6.21 Insurance. All insurance policies maintained by SRP with respect to
the business of SRP are valid, binding and enforceable in accordance with their
terms and are in full force and effect, and all premiums due thereon have been
paid and will be paid through the Closing Date.
6.22 Employee Benefit Plans. Except as set forth in Schedule 6.22, there are
no Plans, as defined below, contributed to, maintained or sponsored by SRP, to
which SRP is obligated to contribute or with respect to which SRP has any
liability or potential liability, whether direct or indirect, including all
Plans contributed to, maintained or sponsored by each member of the controlled
group of companies, within the meaning of Sections 414(b), 414(c), and 414(m)
of the Internal Revenue Code of 1986, as
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amended (the "Code"), of which SRP is a member to the extent SRP has any
potential liability with respect to such Plans. For purposes of this Agreement,
the term "Plans" shall mean: employee benefit plans as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
whether or not funded and whether or not terminated.
6.23 Related Party Transactions. There are no contracts, leases, or
agreements with or any commitment to (a) any officer or director of any of
Sellers, (b) any person related by blood or marriage to any such officer or
director, or (c) any corporation, partnership, trust or other entity in which
SRP or any of the foregoing persons has an equity or participating interest.
6.24 Brokers. No finder, broker, agent or other intermediary has acted for
or on behalf of any of Sellers in connection with the negotiation or
consummation of this Agreement, and there are no claims for any brokerage
commission, finder's fee or similar payment due from Sellers.
6.25 Year 2000. To the knowledge of Sellers, all Systems (as defined
below) and all components thereof will function in accordance with applicable
specifications, documentation and warranties prior to, during and after the
calendar year 2000. Prior to, during and after the calendar year 2000, each of
the Systems will accept date-related records and information for the years 2000
and following and perform
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computations respecting or based on such date-related information in a correct
and appropriate manner. No change in any calendar year shall adversely affect
the performance of any Systems nor cause any Systems or any of their components
to operate in a manner not in accordance with applicable specifications,
documentations or warranties. For the purpose of this paragraph, "Systems"
includes all proprietary and third-party software and automated machines or
systems of any kind, including but not limited to systems relating to the
operation of buildings and facilities (such as elevators, escalators,
manufacturing control systems and automated HVAC systems).
6.26 Representations and Warranties of Quilni and HAS. Quilni and HAS each
jointly and severally represents and warrants to Insteel as follows:
(a) Both Quilni and HAS have previously furnished to Insteel true and
complete copies of their respective 1996 and 1997 financial statements, together
with the notes thereto and the reports prepared in connection therewith by the
independent certified public accountants for Quilni and HAS, which in each case
have been accurately translated into English (collectively, the "Parent
Financial Statements"). The Parent Financial Statements were prepared on the
basis of the books and records of Quilni and HAS, respectively, and present
fairly, in all material respects, the financial position of Quilni and HAS,
respectively, as of the dates thereof and the results of operations and changes
in cash flows and stockholders' equity for the periods then
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ended in conformity with generally accepted accounting principles in effect in
their respective jurisdictions.
(b) Except as set forth in the notes to the Parent Financial Statements,
neither Quilni nor HAS has any liability or obligation of any nature (whether
absolute, accrued or contingent or otherwise) which is in excess of amounts
shown or reserved therefor in the Parent Financial Statements other than
(i) liabilities or obligations not required under applicable accounting
principles on a basis consistent with that of preceding accounting periods to be
reported on such Parent Financial Statements and (ii) liabilities or obligations
incurred after the date of the December 31, 1997 Balance Sheets of Quilni and
HAS, reasonably incurred in the ordinary course of business and consistent with
past practice.
6.27 Disclosure. No representation, warranty or statement made by any of
Sellers in this Agreement or any document furnished or to be furnished to
Insteel pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
necessary to make the statements contained in this Agreement or such other
document not misleading. The fact that Sellers have delivered copies of certain
documents to Insteel shall not alone constitute disclosure of facts required to
be disclosed on any Schedule to this Agreement, unless such document is
expressly referenced in such Schedule. Receipt by Insteel of such
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<PAGE> 41
documents and notice of their contents (other than by reference on a Schedule)
shall in no way limit Sellers' other obligations or Insteel's other rights
under this Agreement.
7. Representations and Warranties of Insteel. Insteel represents and
warrants to Sellers as follows:
7.1 Organization. Insteel is a corporation duly organized, validly
existing and in good standing under the laws of the State of North Carolina.
7.2 Authority.
(a) Insteel has full corporate power and authority to execute, deliver and
perform this Agreement. The execution, delivery and performance of this
Agreement by it has been duly authorized and approved by its Executive
Committee acting on behalf of and with the authority of its Board of Directors,
and no other corporate proceedings on the part of Insteel is necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by Insteel and is
the legal, valid and binding obligation of Insteel enforceable in accordance
with its terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
the enforcement of creditors rights generally and by the effect of general
principles of equity (regardless of whether enforcement is considered in a
proceeding in equity or at law).
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<PAGE> 42
(b) The execution, delivery, performance by Insteel do not, and will not,
(i) violate or conflict with any provisions of its Articles of Incorporation or
By-laws, (ii) violate any law, rule, regulation, order, writ, injunction,
judgment or decree of any court, governmental authority, or regulatory agency,
or (iii) result in a violation or breach of, or constitute (with or without due
notice or lapse of time or both) a default (or give rise to any right of
termination, cancellation or acceleration) under, any note, bond, indenture,
lien, mortgage, lease, permit, guaranty or other agreement, instrument or
obligation, oral or written, to which Insteel is a party or by which any of the
properties of Insteel may be bound, except for: (1) violations, breaches or
defaults which, individually or in the aggregate, will not have a Material
Adverse Effect on Insteel and its respective subsidiaries taken as a whole; and
(2) the consent of third parties, which consent has been obtained.
(c) The execution and delivery of this Agreement by Insteel does not, and
the performance by Insteel of this Agreement will not, require any consent,
approval, authorization or permission, or filing with or notification to, any
governmental or regulatory authority, except for any such consent, approval,
authorization, permission, notice or filing which if not obtained or made would
not have a Material Adverse Effect.
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<PAGE> 43
7.3 Litigation.
(a) Insteel is not a party to any suit, action, arbitration or legal,
administrative, governmental or other proceeding or investigation pending or,
to its knowledge threatened, which reasonably could adversely affect or
restrict its ability to consummate the transactions contemplated by this
Agreement or to perform its-obligations hereunder.
(b) There is no judgment, order, writ, injunction or decree of any court,
governmental agency or arbitration tribunal to which Insteel is subject which
might adversely affect or restrict its ability to consummate the transactions
contemplated by this Agreement or to perform its obligations hereunder.
7.4 Investment Intent. Insteel is acquiring the Shares for its own
account and not with a view to their distribution within the meaning of
applicable federal and state securities laws.
7.5 Brokers. No finder, broker, agent or other intermediary has acted
for or on behalf of Insteel in connection with the negotiation or consummation
of this Agreement, and there are no claims for any brokerage commission,
finder's fee or similar payment due from Insteel.
43
<PAGE> 44
8. Indemnification.
(a) Indemnification by Sellers. Each of Quilni and HAS (the "Seller
Indemnitors") shall jointly and severally indemnify, defend and hold harmless
Buyer and its officers, directors and affiliates (the "Buyer Indemnitees") from,
against and with respect to any and all loss, damage, claim, obligation,
liability, cost and expense (including without limitation reasonable attorneys'
fees and costs and expenses incurred in investigating, preparing, defending
against or prosecuting any litigation, claim, proceeding or demand), of any kind
or character (a "Loss') arising out of or in connection with any of the
following:
(i) any breach of any of the representations or warranties of Sellers
contained in or made pursuant to this Agreement; or
(ii) any failure by Sellers to perform or observe, or to have performed or
observed, in full, any covenant, agreement or condition to be performed or
observed by each pursuant to this Agreement, including but not limited to
Sellers' obligations under Paragraph 2.1.
(b) Indemnification by Buyer. Buyer shall indemnify, defend and hold
harmless Sellers and their officers, directors and affiliates (the "Seller
Indemnitees")
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<PAGE> 45
from, against and with respect to any Loss arising out of or in connection
with any of the following:
(i) any breach of any of the representations and warranties of Buyer
contained in or made pursuant to this Agreement; or
(ii) any failure by Buyer to perform or observe, or to have performed or
observed, in full, any covenant, agreement or condition to be performed or
observed by it pursuant to this Agreement, including but not limited to Buyer's
obligations under Paragraph 2.1.
(c) Notice of Claim. Any party seeking to be indemnified hereunder (the
"Indemnified Party") shall, within 15 days following discovery of the matters
giving rise to a Loss, promptly notify the party from whom indemnity is sought
(the "Indemnity Obligor") in writing of any claim for recovery, specifying in
reasonable detail the nature of the Loss and the amount of the liability
estimated to arise therefrom. The Indemnified Party shall provide to the
Indemnity Obligor as promptly as practicable thereafter all information and
documentation reasonably requested by the Indemnity Obligor to verify the claim
asserted.
(d) Defense. If the facts pertaining to a Loss arise out of the claim of
any third party, or if there is any claim against a third party available by
virtue of the
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<PAGE> 46
circumstances of the Loss, the Indemnity Obligor may, by giving written notice
to the Indemnified Party within 30 days following its receipt of the notice of
such claim, elect to assume the defense or the prosecution of such claim,
including the employment of counsel or accountants at its cost and expense;
provided, however, that during the interim the Indemnified Party shall use its
best efforts to take all action (not including settlement) reasonably necessary
to protect against further damage or loss with respect to the Loss. The
Indemnified Party shall have the right to employ counsel separate from counsel
employed by the Indemnity Obligor in any such action and to participate in such
action, but the fees and expenses of such counsel shall be at the Indemnified
Party's own expense, unless in the opinion of separate counsel for the
Indemnified Party a conflict of interest would prevent a single counsel from
representing both the Indemnity Obligor and the Indemnified Party, in which
case the Indemnity Obligor shall be responsible for the fees and expenses of
such separate counsel for the Indemnified Party. All the parties to this
Agreement shall cooperate in the defense or prosecution of such claim and shall
furnish such records, information and testimony and shall attend such
conferences, discovery proceedings and trials as may be reasonably requested in
connection therewith. The Indemnity Obligor shall not be liable for any
settlement of any such claim effected without its prior written consent, which
shall not be unreasonably withheld.
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<PAGE> 47
9. Closing.
9.1 Pre-Conditions to Closing.
The obligations of Insteel to consummate the transactions contemplated by
this Agreement will be subject to the satisfaction of each of the following
conditions as of the Closing: (1) there shall have been no material adverse
change in the business or financial condition of SRP since the date hereof; (2)
SRP shall not be in default of its obligations to PNC Bank under that certain
Revolving Credit and Security Agreement dated August 31, 1998; and (3) SRP's
search for a new Chief Executive Officer shall be completed, or if not
completed, shall be progressing with diligence.
9.2 Obligations at Closing.
At the Closing, the following deliveries shall occur:
(a) SRP and Buyer each shall deliver to the other an executed Conversion
Agreement in the form attached hereto as Exhibit E.
(b) Quilni shall deliver to Buyer the stock certificate(s) representing
the Shares, duly endorsed in blank or accompanied by stock powers duly executed
in blank, sufficient to transfer to Buyer ownership of the Shares on the books
of SRP.
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<PAGE> 48
(c) Each of Sellers shall deliver to Buyer (i) a copy of all corporate
resolutions authorizing the execution, delivery and performance of this
Agreement by it and the consummation of the transactions contemplated in this
Agreement, accompanied by the certification of a duly authorized officer,
director or other representative of each Seller to the effect that such
resolutions are in full force and effect and have not been amended, modified or
rescinded; (ii) a good standing certificate with respect to SRP from the
Secretary of State of Delaware; and (iii) the legal opinions of Moore & Bruce,
LLP, Stibbe Simont Monahan Duhot and Schellenberg & Haissly in the forms
attached to this Agreement as Exhibit F.
(d) Buyer shall deliver or cause to be delivered to SRP (i) a copy of all
corporate resolutions authorizing the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated in this
Agreement, accompanied by the certification of the secretary of Buyer to
the effect that such resolutions are in full force and effect and have not been
amended, modified or rescinded; (ii) the legal opinion of Womble Carlyle
Sandridge & Rice, PLLC, in the form attached hereto as Exhibit G; and (iii) the
purchase price payable as provided in Paragraph 1.1.
(e) Buyer, HAS and SRP shall execute the Assignment and Acceptance
Agreement in the form of Exhibit B hereto.
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<PAGE> 49
(f) SRP shall deliver a promissory note to Insteel in the form of Exhibit
C hereto, and Insteel shall wire transfer U.S. one million five hundred
thousand dollars ($1,500,00.00) to HAS.
(g) Quilni shall deliver to Buyer a "Certificate Regarding Stock that is
not a U.S. Real Property Interest" in the form attached hereto as Exhibit H.
10. Miscellaneous.
10.1 Amendments. This Agreement may be amended or modified only by a
written instrument executed by all the party hereto which states specifically
that it is intended to amend this Agreement.
10.2 Expenses. Except as otherwise expressly herein provided, each party
to this Agreement shall pay its own expenses, including, without limitation,
the fees and expenses of its agents, representatives, counsel and accountants,
incidental to the preparation or carrying out of this Agreement.
10.3 Assignment. Neither party may assign any right under this Agreement,
and any purported assignment will be null and void and a material breach hereof.
49
<PAGE> 50
10.4 Entire Agreement. Except as may be expressly provided otherwise
herein, this Agreement constitutes the entire agreement between the parties as
to the subject matter hereof. No prior or contemporaneous representations,
inducements, promises or agreements, oral or otherwise, between the parties will
be of any force or effect. This agreement supersedes in its entirety the
Agreement in Principle between HAS and Insteel dated March 17, 1998.
10.5 Effect of Partial Invalidity. If any one or more of the provisions
of this Agreement should be ruled wholly or partly invalid or unenforceable by
a court or other government body of competent jurisdiction, then the validity
and enforceability of all provisions of this Agreement not ruled to be invalid
or unenforceable shall be unaffected.
10.6 Applicable Law. This Agreement shall be interpreted and enforced in
accordance with the law of the Commonwealth of Pennsylvania applicable to
agreements negotiated, executed and performed in Pennsylvania.
10.7 No Waiver. The failure of either party at any time to require
performance by the other party of any provision of this Agreement shall in no
way affect the right of such party to require performance of that provision. A
waiver by either party of any breach of any provision of this Agreement shall
not be construed as a waiver of any
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<PAGE> 51
continuing or succeeding breach of such provision, a waiver of the provision
itself or waiver of any right under this Agreement.
10.8 Survival of Representations. All representations and warranties of
the parties contained in this Agreement or otherwise made in writing in
connection with the transactions contemplated by this Agreement shall survive
the execution and delivery of this Agreement.
10.9 Publicity. Each of Sellers and Insteel agrees it will not make any
press release or other announcement with respect to the transactions
contemplated by this Agreement without the prior approval of the other party,
except as required by applicable law.
10.10 Resolution of Disputes. Any controversy or claim arising out of or
relating to this Agreement shall be determined by arbitration in Charlotte,
North Carolina in accordance with The International Arbitration Rules of the
American Arbitration Association; provided, however, that if either Quilni or
HAS, or both, are parties to the dispute, the dispute shall be settled by
arbitration in Zurich, Switzerland under the commercial arbitration rules and
procedures of the International Chamber of Commerce, Paris, France. Judgment on
the award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof.
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<PAGE> 52
10.11 Severability. In the event that any provision in this Agreement
shall be determined to be invalid, illegal or unenforceable in any respect, the
remaining provisions of this Agreement shall not be in any way impaired, and
the illegal, invalid or unenforceable provision shall be fully severed from
this Agreement and there shall be automatically added a replacement provision
as similar in terms and intent to such severed provision as may be legal, valid
and enforceable.
10.12 Section Headings. The section headings contained in this Agreement
are for reference purposes only and shall not in any way control the meaning or
interpretation of this Agreement.
10.13 Counterparts. This Agreement may be signed in separate
counterparts, each of which so executed and delivered shall constitute an
original. All such counterparts shall together constitute one and the same
instrument.
10.14 Notices. All correspondence and documentation shall be in the
English language. Notices shall be sent to:
Insteel Industries, Inc.
1373 Boggs Drive
Mount Airy, NC 27030
Attention: H.O. Woltz III
President and Chief Executive Officer
Facsimile: (336) 786-2144
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<PAGE> 53
with a copy to:
Richard N. Drake, Esq.
Womble, Carlyle Sandridge & Rice, PLLC
200 West Second Street
Winston-Salem, NC 27102
Facsimile: (336) 733-8385
Schlatter AG
Brandstrasse 24
CH-8952 Schlieren
Switzerland
Attn.: Franz Buchmann
Chief Marketing Officer
Facsimile: 011-41-732-71 88
Quilni B.V.
Strawinskylaan 3105Postbos 1469NI - 1000 BI
Amsterdam
The Netherlands
Attention: L. Fricot H.J. Wirix
Managing Directors
Facsimile: 011-31-20-406-45-55
Structural Reinforcement Products, Inc.
Forest Road
Hazleton, PA 18201
Attention: CEO
Facsimile: (717) 450-2095
with a copy to:
Charles M. Bruce
1072 Thomas Jefferson Street, N.W.
Washington, DC 20007
Facsimile: (202) 965-7745
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
indicated above.
INSTEEL INDUSTRIES, INC.
By: /s/ H. O. WOLTZ III
---------------------------------
H. O. Woltz III
President and Chief Executive Officer
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<PAGE> 54
H. A. Schlatter AG
By: /s/ HANS R. SCHLATTER
----------------------
Hans R. Schlatter
Director
Quilni B.V.
By: /s/ HANS R. SCHLATTER
----------------------
Hans R. Schlatter
Per Power of Attorney
STRUCTURAL REINFORCEMENT
PRODUCTS, INC.
By: /s/ CHARLES M. BRUCE
----------------------
Charles M. Bruce
Chairman
54
<PAGE> 1
EXHIBIT 10.51
ASSET PURCHASE AGREEMENT
BY AND AMONG
INSTEEL INDUSTRIES, INC.,
NORTHWESTERN STEEL AND WIRE COMPANY,
AND
NORTHWESTERN STEEL AND WIRE COMPANY - KENTUCKY,
DATED AS OF
APRIL 6, 1999
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I............................................................1
SALE AND PURCHASE OF THE PURCHASED ASSETS.......................1
1.1 Transfer of Assets....................................1
1.2 Purchased Assets......................................1
(a) Real Estate......................................1
(b) Tangible Personal Property.......................1
(c) Contracts........................................2
(d) Permits..........................................2
(e) Records..........................................2
(f) Claims...........................................2
(g) Goodwill.........................................2
(h) Spike Machines...................................2
(i) Other Assets.....................................2
1.3 Excluded Assets.......................................2
(a) Cash.............................................2
(b) Accounts Receivable..............................2
(c) Insurance........................................3
(d) Assets of Benefit Plans..........................3
(e) Certain Records..................................3
(f) Certain Contracts................................3
(g) Other Assets.....................................3
1.4 Separately Purchased Assets...........................3
1.5 Liabilities...........................................3
ARTICLE II...........................................................4
CONSIDERATION...................................................4
2.1 Purchase Price........................................4
2.2 Allocation............................................4
2.3 Prorations............................................4
2.4 Noncompetition........................................4
2.5 Collection of Accounts Receivable.....................5
ARTICLE III..........................................................5
REPRESENTATIONS AND WARRANTIES OF SELLERS.......................5
3.1 Organization and Good Standing........................5
3.2 Authority.............................................6
3.3 Effect of Agreement...................................6
3.4 Financials; Books.....................................6
3.5 Title to and Sufficiency of Assets....................6
3.6 Real Estate...........................................7
3.7 Tangible Property.....................................7
3.8 Inventories...........................................7
<PAGE> 3
3.9 Contracts and Leases.................................. 7
3.10 Litigation............................................ 8
3.11 Compliance with Laws; Permits......................... 8
3.12 Taxes................................................. 8
3.13 Environmental Protection.............................. 8
3.14 Insurance............................................. 8
3.15 Labor and Employment Matters.......................... 9
3.16 Employees; Benefits...................................10
3.17 Absence of Changes....................................10
3.18 Related Party Transactions............................11
3.19 Disclosure............................................11
ARTICLE IV...........................................................11
REPRESENTATIONS AND WARRANTIES OF BUYER.........................11
4.1 Organization and Good Standing........................11
4.2 Authority.............................................11
4.3 Effect of Agreement...................................11
ARTICLE V............................................................11
COVENANTS OF SELLERS AND BUYER..................................11
5.1 Sellers' Covenants....................................11
(a) Conduct of Business..............................12
(b) Access and Information...........................13
(c) No Other Solicitations...........................13
(d) Employees........................................13
5.2 Buyer Covenants.......................................13
(a) Inventory Valuation..............................13
(b) Employees........................................13
ARTICLE VI...........................................................14
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.....................14
6.1 Representations, Warranties and Covenants.............14
6.2 Absence of Litigation.................................14
6.3 Absence of Change.....................................14
6.4 Consents and Approvals................................14
6.5 Title Insurance; Survey...............................14
6.6 Environmental Audit...................................14
6.7 Removal of Liens......................................15
6.8 Legal Opinion.........................................15
6.9 Rod Supply Agreement..................................15
ARTICLE VII..........................................................15
CONDITIONS PRECEDENT TO SELLERS' OBLIGATIONS....................15
7.1 Representations, Warranties and Covenants.............15
7.2 Absence of Litigation.................................15
<PAGE> 4
7.3 Consents and Approvals...............................15
7.4 Inventory Value......................................15
7.5 Legal Opinion........................................15
ARTICLE VIII.........................................................15
CLOSING.........................................................15
8.1 Closing..............................................15
8.2 Deliveries...........................................16
ARTICLE IX...........................................................16
INDEMNIFICATION.................................................16
9.1 Indemnification by Sellers...........................16
9.2 Indemnification by Buyer.............................17
9.3 Notice of Claim......................................17
9.4 Defense..............................................17
9.5 Limitations..........................................18
ARTICLE X............................................................18
MISCELLANEOUS...................................................18
10.1 Definitions..........................................18
10.2 Survival of Representations..........................19
10.3 Joint and Several Liability..........................19
10.4 Bulk Sales...........................................19
10.5 Risk of Loss.........................................19
10.6 Brokers..............................................19
10.7 Tax Filings..........................................20
10.8 Expenses.............................................20
10.9 Publicity............................................20
10.10 Best Efforts.........................................20
10.11 Notices..............................................20
10.12 Governing Law........................................21
10.13 Counterparts.........................................21
10.14 Assignment...........................................21
10.15 Third Party Beneficiaries............................21
10.16 Headings.............................................22
10.17 Amendments...........................................22
10.18 Specific Performance.................................22
10.19 Severability.........................................22
10.20 Entire Agreement.....................................22
SCHEDULES
- ---------
Schedule 1.2(a) Real Estate
Schedule 1.2(b) Tangible Personal Property
Schedule 1.2(c)(i) Contracts
<PAGE> 5
Schedule 1.2(c)(ii) Commitments
Schedule 1.2(d) Permits
Schedule 1.2(h) Spike Machines and Nail Machine
Schedule 1.3(g) Other Excluded Assets
Schedule 1.4 Inventories
Schedule 3.3 Required Consents
Schedule 3.7 Tangible Personal Property Not Immediately Suitable
Schedule 3.11 Compliance with Laws; Permits
Schedule 3.13 Environmental Protection
Schedule 3.14 Insurance
Schedule 3.15(a) Collective Bargaining Agreements
Schedule 3.15(f) Employment Agreements
Schedule 3.16 Employees; Benefits
Schedule 3.17 Absence of Changes
EXHIBITS
- --------
Exhibit 1.4 Inventory Valuation Methodology
Exhibit 2.2 Allocation of Purchase Price
Exhibit 2.3 Real Estate Tax Proration Adjustment Agreement
Exhibit 3.2 Rod Supply Agreement
Exhibit 6.8(a) and (b) Opinions of Sellers' Counsel
Exhibit 7.5 Opinions of Buyer's Counsel
<PAGE> 6
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (together with all Schedules and
Exhibits hereto, this "Agreement"), dated as of April 6, 1999, is entered into
by and among NORTHWESTERN STEEL AND WIRE COMPANY, an Illinois corporation
("Parent") and its wholly owned subsidiary, NORTHWESTERN STEEL AND WIRE COMPANY
- - KENTUCKY, a Delaware corporation ("Sub") (Parent and Sub individually being a
"Seller" and collectively referred to as, "Sellers") and INSTEEL INDUSTRIES,
INC., a North Carolina corporation ("Buyer").
R E C I T A L S:
1. Sellers, through the facility located at 3325 State Route 1099,
Hickman, Kentucky 42050 (the "Hickman Facility"), are engaged in the business
of manufacturing and distributing concrete reinforcing mesh products (the
"Business").
2. Sellers desire to sell, and Buyer desires to purchase,
substantially all of the assets of Sellers used in the operation of the
Business, on the terms and conditions set forth in this Agreement.
NOW THEREFORE, in consideration of the mutual covenants of the
parties set forth in this Agreement and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, Sellers and Buyer
hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE PURCHASED ASSETS
1.1 Transfer of Assets. Sellers agree to sell, assign, transfer
and deliver to Buyer, and Buyer agrees to purchase and accept from Sellers, at
the Closing (as defined below) certain properties and assets of Sellers as
particularly described below and used by Sellers in connection with the
operations of the Business, but excluding certain assets described in Section
1.3. The assets being sold hereunder are collectively referred to as the
"Purchased Assets," and the assets described in Section 1.3 are collectively
referred to as the "Excluded Assets."
1.2 Purchased Assets. The Purchased Assets specifically
include, but are not limited to, the following:
(a) Real Estate. The real property owned by Sellers and used in
connection with the Business, which is more particularly described on
Schedule 1.2(a), together with all easements and appurtenances thereto and
all buildings, fixtures and other improvements thereon (the "Real Estate").
(b) Tangible Personal Property. All machinery, equipment, spare
parts, furniture, office equipment, supplies, materials, vehicles and other
items of tangible personal property of every kind owned by Sellers and
used in connection with the
<PAGE> 7
Business, including without limitation those listed on Schedule 1.2(b) (the
"Tangible Personal Property"), and any additions or replacements made
between the date of this Agreement and the Closing Date (defined below),
together with any express or implied warranty by the manufacturers or
sellers of any item thereof.
(c) Contracts. All of Sellers' interests in the contracts,
purchase orders, leases of personal property, other leases and other
agreements related to the Business described on Schedule 1.2(c)(i) (the
"Contracts") and commitments (whether for the supply of wire mesh or
otherwise) related to the Business described on Schedule 1.2(c)(ii).
(d) Permits. All permits, authorizations, certificates,
approvals and licenses relating to the operation of the Business,
including, without limitation, those listed on Schedule 1.2(d) (the
"Permits"), to the extent assignable.
(e) Records. All records, technical data, asset ledgers, books
of account, inventory records, budgets, customer and supplier records,
payroll and personnel records, computer programs, correspondence and other
files of Sellers created or maintained in connection with the Business.
(f) Claims. All of Sellers' rights to any causes of action or
claims against third parties arising in connection with the Business.
(g) Goodwill. Any and all of Sellers' goodwill in and going
concern value of the Business.
(h) Spike Machines. Sellers' two spike machines and one Gladder
six inch nail machine, as listed on Schedule 1.2(h) and used in connection
with the Business.
(i) Other Assets. All other assets of any kind or description,
tangible or intangible, which are owned by Sellers and used exclusively in
the operations of the Business.
1.3 Excluded Assets. Notwithstanding anything to the contrary
contained herein, all of the assets and properties of Sellers which are not
included in the Purchased Assets or the Separately Purchased Assets shall be
retained by Sellers and shall not be sold and transferred to Buyer hereunder,
including, without limitation:
(a) Cash. All cash on hand and on deposit in banks, cash
equivalents and investments.
(b) Accounts Receivable. All accounts receivable due to Sellers
in connection with the Business (the "Receivables"), and the full benefit
of any security therefor.
2
<PAGE> 8
(c) Insurance. All insurance policies relating to the Business.
(d) Assets of Benefit Plans. Pension, profit sharing or savings
plans and trusts and the assets thereof.
(e) Certain Records. Minute books and stock books of Sellers or
any of its predecessors in interest.
(f) Certain Contracts. Any contracts entered into by Sellers or
by which Sellers or any of the Purchased Assets are bound, other than the
Contracts. Buyer specifically shall not acquire from Sellers by sale,
transfer, assignment or otherwise, or be required to assume any right,
obligation, interest in or liability related to any labor or employment
related agreement to which Sellers are a party, including, but not limited
to the CBA's (as defined in Section 3.15 below).
(g) Other Assets. The assets listed on Schedule 1.3(g).
1.4 Separately Purchased Assets. The following assets owned by
Sellers used exclusively in the Business (the "Separately Purchased Assets," and
except with respect to the Allocation of Purchase Price is shown on Exhibit 2.2,
comprising a portion of the Purchased Assets) shall be inventoried by Buyer
prior to the Closing, and purchased at the Closing by Buyer for a sum of money
separate and apart from the Purchase Price, which amount shall be calculated
using the methodology described in Exhibit 1.4, attached hereto and incorporated
herein by reference ("Inventory Valuation Methodology"):
Inventories. All inventories of the Business as of the
Effective Time (defined below), including, without limitation, all
finished goods, work in process and raw materials (said raw materials
being specifically limited to wire rod) (the "Inventory"), the location
and an approximation of which are described on Schedule 1.4, except that
Buyer shall only purchase up to 3000 tons of wire rod pursuant to this
Section 1.4.
1.5 Liabilities. The Purchased Assets shall be sold and conveyed
to Buyer free and clear of all liabilities, obligations, liens, security
interests and encumbrances whatsoever (collectively, "Liens", or individually, a
"Lien"); provided, however, that Buyer will assume at the Closing and agree to
pay, perform and discharge when due the obligations under the Contracts that are
unperformed as of the Closing Date and (a) obligations to complete jobs
requiring the furnishing of materials or services, which jobs have been accepted
in the ordinary course of business of the Business but have not been completed
as of the Closing Date, including certain commitments related to the Business
described on schedule 1.2(c)(ii), (b) obligations under purchase orders for
materials and supplies necessary to the operation of the Business, which
purchase orders have been entered into in the ordinary course of business of the
Business but have not been satisfied as of the Closing Date, and (c) the
outstanding amounts due and owing under that certain maintenance contract by and
between H.A. Schlatter and Sellers dated December 17, 1998 (the "Maintenance
Project Contract") (the items in clauses (a), (b) and (c), collectively, the
"Commitments"). All obligations and liabilities assumed by Buyer hereunder are
sometimes referred to herein as the "Assumed Liabilities." Except as
specifically set forth above, Sellers
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shall retain responsibility for all liabilities accrued as of the Effective
Time and for all liabilities arising from Sellers' ownership and operation of
the Business and the Purchased Assets prior to the Effective Time (including,
without limitation, all salaries, severance, employee benefits and all other
obligations with respect to Sellers' employees), whether or not accrued and
whether or not disclosed. All obligations and liabilities retained by Sellers
are sometimes referred to herein as the "Retained Liabilities."
ARTICLE II
CONSIDERATION
2.1 Purchase Price. The aggregate purchase price (the "Purchase
Price") for the Purchased Assets, excluding the Separately Purchased Assets,
shall be an amount equal to the sum of (a) SIX MILLION FOUR HUNDRED EIGHTY
THOUSAND AND 00/100 DOLLARS ($6,480,000.00), plus (b) the Prepaid Maintenance
Contract Amount, which shall be adjusted as of the Closing Date to reflect the
actual amount paid by Sellers under the Maintenance Project Contract as of the
Closing Date. The Purchase Price shall be payable on the Closing Date by wire
transfer of immediately available funds to a single account designated by
Sellers.
2.2 Allocation. The Purchase Price shall be allocated among the
Purchased Assets as described on Exhibit 2.2, attached hereto and incorporated
herein by this reference.
2.3 Prorations. The operation of the Business and the income and
expenses attributable thereto until the Effective Time shall be for the account
of Sellers and thereafter for the account of Buyer. Expenses which are typically
prorated between the parties, including without limitation such items as real
estate or ad valorem property taxes, prepaid items, utility charges, and rents
shall be prorated between Sellers and Buyer as of the Effective Time. Such
prorations shall be made and paid insofar as is possible at the Closing, and in
any event within 30 days thereafter. Real estate taxes for 1999 not yet due and
payable shall be prorated between the parties as of the Effective Time, based
upon the 1998 tax values and tax rates affecting the Real Estate. Sellers and
Buyer hereby agree to adjust such real estate tax proration based upon the 1999
real estate tax values and tax rates within 30 days of such information becoming
available, and to sign the Real Estate Tax Proration Adjustment Agreement in the
form attached hereto as Exhibit 2.3.
2.4 Noncompetition. As a condition to Buyer's obligation to
purchase the Purchased Assets and in order to ensure to Buyer the full benefits
of the Purchased Assets, and the Business, Sellers hereby covenant and agree
that for a period of five (5) years following the Closing Date (the "Non-Compete
Period"), they will not in any manner, directly or indirectly, whether as an
owner, manager, lender, consultant, partner or agent, engage in the business of
manufacturing or distributing concrete reinforcing mesh wire products in the
following areas: (a) east of the Mississippi River in the United States of
America, and (b) without limitation to (a), within one thousand (1,000) miles of
Hickman, Kentucky. Nothing contained in this paragraph 2.4, however, shall
preclude Sellers from consummating a Business Combination between Sellers and an
entity which, at the time of such Business Combination, is in the business of
producing and selling welded wire reinforcing mesh for concrete, which entity
shall not be subject to the restrictions set forth in this Paragraph 2.4.
Additionally, Sellers shall not sell,
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transfer or dispose of the mesh production equipment owned by Sellers and
currently located at Sterling, Illinois or Rock Falls, Illinois (the "Mesh
Equipment") to any person or entity for use within the continent of North
America without the prior written consent of Buyer. Sellers shall have the right
to sell the Mesh Equipment directly to or for export to a person or entity which
is neither located within the continent of North America, nor engaging in or
transacting business in North America, provided that Sellers obtain from any
such third party purchaser or transferee of the Mesh Equipment the written
warranty and assurance that the Mesh Equipment shall not be returned to North
America by such third party purchaser or transferee of the Mesh Equipment, and
provided further that neither Sellers, nor any subsidiary, affiliate or agent
of Sellers directly or indirectly facilitate the return of the Mesh Equipment to
North America. Sellers acknowledge that any breach of the covenants of this
Section will result in irreparable damage and continuing injury to Buyer.
Therefore, in the event of any breach or threatened breach of the covenants in
this Section, Sellers acknowledge that Buyer shall be entitled, without limiting
any other remedies available to Buyer, to an injunction restraining Sellers from
committing any such violation, and Sellers hereby consent to the issuance of
such injunction. Sellers acknowledge and agree that (a) the covenants of this
Section are reasonably necessary for the protection of Buyer and its business,
(b) such covenants are reasonably limited with respect to the activities
prohibited, the duration thereof, the geographical area thereof, the scope
thereof and the effect thereof on Sellers and the public, (c) the purpose and
effect of such covenants is solely to protect Buyer for a limited period of time
from unfair competition by Sellers and (d) the purchase of the Purchased Assets
is expressly conditioned upon Sellers agreeing to abide by and be bound by all
of the covenants and provisions of this Section. In the event that any provision
of this Section shall be determined by any court to be unenforceable, this
Section shall be interpreted to extend over the maximum time periods for which
it may be enforceable, and to the maximum extent in any and all other respects
as to which it may be enforceable, all as shall be determined by such court.
Notwithstanding anything contained herein to the contrary, the covenants and
obligations of Sellers contained within this Section 2.4 shall survive the
Closing.
2.5 Collection of Accounts Receivables. After the Closing, on a weekly
basis, Sellers agree to pay to Buyer any payments on Buyer's accounts
receivable remitted to Sellers. On a weekly basis, Buyer agrees to pay to
Sellers any payments on Sellers' accounts receivable remitted to Buyer. With
respect to any payments on accounts receivable received by Buyer or Sellers
relating to customers common to both Buyer and Sellers, if the remittance
relating to such accounts receivable payment does not specify which account
receivable such payment relates to, such payment shall not be deposited by the
recipient thereof until the application thereof has been mutually agreed to by
Buyer and Sellers. Buyer and Sellers shall provide each other with reasonable
access to their respective books and records for the purposes of reconciling
the accounts receivable relating to the Business.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLERS
Sellers represent and warrant to Buyer as follows:
3.1 Organization and Good Standing. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Illinois and Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Sellers have
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all requisite corporate power and authority to own, operate and lease the
Purchased Assets and to conduct the operations of the Business as presently
conducted and each Seller is duly qualified to do business as a foreign
corporation and is in good standing in the state of Kentucky.
3.2 Authority. Sellers have all requisite power and authority to
execute and deliver this Agreement and the Rod Supply Agreement, substantially
in the form attached hereto as Exhibit 3.2 (collectively, the "Seller
Agreements"), and to perform the transactions contemplated thereby. The
execution, delivery and performance of the Seller Agreements, and the
consummation of the transactions contemplated thereby, have been duly
authorized by all necessary corporate and shareholder action on the part of
Sellers. The Seller Agreements have been duly executed and delivered by Sellers
and each constitutes a valid and binding obligation of Sellers, enforceable
against Sellers in accordance with its terms, except as enforceability may be
limited by bankruptcy, insolvency, moratorium, reorganization and other similar
laws affecting the enforcement of creditors' rights generally or by general
principles of equity limiting the availability of equitable remedies.
3.3 Effect of Agreement. The execution, delivery and performance of
the Seller Agreements do not and will not: (a) conflict with the Articles of
Incorporation or Bylaws of Sellers; (b) to Sellers' Knowledge violate any law
or any rule or regulation of any governmental body or administrative agency, or
conflict with any judicial or administrative order or decree relating to the
Business or the Purchased Assets; (c) constitute a breach or default under any
Contract or any other agreement or instrument by which Sellers are bound or the
Purchased Assets are affected, except to the extent that individually or in the
aggregate would not have a material adverse effect on the Business or the
Purchased Assets; (d) create any Lien on any of the Purchased Assets; or (e)
except as set forth on Schedule 3.3, require any consent, notice to or filing
with any governmental authority or administrative agency or any third party on
behalf of Sellers relating to the Business which, if not obtained or made,
would have a material adverse effect on the Business or the Purchased Assets.
The matters described on Schedule 3.3 are referred to as the "Required
Consents".
3.4 Financials; Books. The audited consolidated balance sheet of
Parent as of July 31, 1997 and July 31, 1998 and the related statements of
operations, stockholders' equity and cash flows for the fiscal years then ended
(collectively, the "Financial Statements"), true and complete copies of which
have been delivered to Buyer, (a) are true, complete and correct; (b) are in
accordance with the books and records of the Sellers; (c) present fairly the
assets, liabilities and financial condition of Sellers as of the respective
dates thereof, and the results of operations for the periods then ending; and
(d) have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved.
Sellers have no liability or obligation relating to the Business or the
Purchased Assets that is not reflected or reserved against in Parent's
consolidated balance sheet as of July 31, 1998, except for those that are not
required by generally accepted accounting principles to be included therein.
The books and records of Sellers relating to the Purchased Assets are true,
accurate and complete and have been maintained in accordance with generally
accepted accounting principles applied on a consistent basis.
3.5 Title to and Sufficiency of Assets. Sellers have good and
marketable title to all of the Purchased Assets, free and clear of any Liens,
all of which shall be removed on or before the Closing Date, except for: (a)
easements of record affecting the Real Estate that do not affect the full use
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and enjoyment of the Real Estate for the purposes for which it is currently
used or detract from its value; (b) Liens for taxes not yet due and payable;
(c) Liens related to the Assumed Liabilities; (d) mechanic's, material mans,
repair man's and other similar Liens related to the Commitments; and (e) any
minor imperfection of title or similar Lien which individually or in the
aggregate with other such Liens does not impair the value or marketability of
the property subject to such Lien or interfere with the use of such
property in the conduct of the Business. ((a), (b), (c), (d), and (e)
collectively, the "Permitted Liens"). The Purchased Assets constitute
substantially all of the assets of any nature required to operate the Business
in the manner presently operated by Sellers. There are no applicable sales
taxes, recording fees or filing fees required to be paid on the transfer of the
Purchased Assets.
3.6 Real Estate. Schedule 1.2(a) contains true and correct
descriptions of all real property owned by Sellers and used in connection with
the Business, and all buildings, fixtures and improvements thereon (the
"Improvements"). To Sellers' Knowledge, all Improvements conform to all
applicable state and local laws, health and safety ordinances and zoning and
building ordinances. To Sellers' Knowledge, none of the Improvements encroach on
the property of any third person. The Real Estate is zoned for the purposes for
which it is presently being used. Sellers do not lease any real property used in
connection with the Business.
3.7 Tangible Property. All Improvements, all other tangible
property included in the Purchased Assets and all items of tangible property
leased under leases to be assumed by Buyer (a) are in good operating order,
condition and repair, ordinary wear and tear excepted, (b) are suitable for
immediate use in the ordinary course of business of the Business, except for
those items of tangible property listed on Schedule 3.7, and (c) to Sellers'
Knowledge are free from defects.
3.8 Inventories. All items included in the Inventory (a) are
useable within the ordinary course of business of the Business, except for
obsolete items and items of below-standard quality (including scraps that are
not saleable in the ordinary course of business of the Business) (b) are located
on the premises described on Schedule 1.4 and (c) have been acquired by Sellers
only in bona fide transactions entered into in the ordinary course of business
of the Business. All of the Inventory which are finished goods comply with and
meet all standards set by ASTMA-185. All of the Inventory which are wire rod
inventories are in such condition as to be immediately suitable for the
production of concrete reinforcing mesh in the ordinary course of Sellers'
Business.
3.9 Contracts and Leases. Schedule 1.2(c) lists all contracts,
commitments, agreements (including agreements for borrowing of money or the
extension of credit), leases, licenses, understandings and obligations, whether
written or oral, to which Sellers are a party, or by which the Purchased Assets
are bound or affected, that are material to the operation of the Business.
Sellers have delivered to Buyer true and complete copies of all written
Contracts and Commitments, and true and complete memoranda of all oral
Contracts, including any and all amendments thereto. Each of the Contracts and
Commitments is valid and enforceable in accordance with its terms and is in full
force and effect. There are no existing defaults, and no events or circumstances
have occurred which, with or without notice or lapse of time or both, would
constitute defaults, under any of the Contracts or Commitments in any material
respect. The assignment of the Contracts and Commitments by Sellers to Buyer
will not, with respect to any Contract or Commitment (i) constitute a default or
accelerate the
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obligations thereunder, (ii) require the consent of any person or party, except
for the Required Consents, or (iii) affect the continuation, validity and
effectiveness thereof or the terms thereof.
3.10 Litigation. There are no claims, actions, suits or investigations
("Claims") pending, or to Sellers' Knowledge, threatened, against Sellers or the
Business or affecting the Purchased Assets, nor does there exist any basis for a
Claim. No Claim, either individually or when considered in the aggregate with
other Claims, if resolved adversely to Sellers, will materially and adversely
affect the financial condition, properties (including without limitation the
Purchased Assets) or business of Sellers or the Business.
3.11 Compliance with Laws: Permits. Except as set forth in Schedule 3.11:
(i) there is not outstanding or to Sellers' Knowledge, threatened, any order or
decree of any court, governmental agency or arbitration tribunal against or
involving Sellers in connection with the Business or the Purchased Assets; (ii)
Sellers are currently, and to Sellers' Knowledge, have been at all times, in
substantial compliance with all laws, rules, regulations and licensing
requirements of all federal, state, local and foreign authorities applicable to
the properties and operations of the Business; (iii) Sellers have obtained all
permits, certificates and licenses that are material to the conduct of the
Business and the ownership of the Purchased Assets, all of which are described
on Schedule 1.2(d); (iv) There is no fact or circumstance peculiar to Sellers
which would cause any permit, certificate or license to be revoked or not be
reissued to Buyer on the same terms and conditions in all material respects that
are currently set forth in said permits; and (v) Sellers are not in violation of
any of the Permits in any material respect, and no proceedings are pending or,
to Sellers' Knowledge, threatened to revoke or limit any Permit.
3.12 Taxes. Sellers have properly completed and timely filed all tax
returns and reports required to be filed by it (the "Tax Returns"). All Tax
Returns are accurate, complete and correct as filed, and Sellers have paid in
full or made adequate provision in the Financial Statements for all amounts
shown to be due thereon. Sellers have not been notified by any governmental
authority that an audit or review of any tax matter is contemplated.
3.13 Environmental Protection. Except as set forth in Schedule 3.13:(i)
no substances that are defined by laws or regulations as toxic materials,
hazardous wastes or hazardous substances or otherwise a danger to health or the
environment (including without limitation any asbestos, oils, petroleum-derived
compounds in a liquid state at normal temperature and pressure or pesticides)
(collectively, "Hazardous Materials") have been or are generated, located in, on
or about the Real Estate, the Improvements or other Purchased Assets; (ii) the
Real Estate has not been used for the storage, manufacture or disposal of
Hazardous Materials, and no Hazardous Materials have been transported off site
from the Real Estate; (iii) specifically, but without limitation, there are and
have been no underground storage tanks located on the Real Estate; and (iv)
Sellers have complied in all material respects with all federal, state and local
environmental laws and regulations.
3.14 Insurance. Schedule 3.14 describes all insurance policies maintained
by Sellers with respect to the Business and the Purchased Assets. Such policies
are valid and enforceable in accordance with their terms, are in full force and
effect, and all premiums due thereon have been paid and will be paid through the
Effective Time.
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3.15 Labor and Employment Matters. With respect to employment matters:
(a) Certain employees of Sellers who work in the Business are covered
under the Collective Bargaining Agreements described on Schedule 3.15(a) of the
Disclosure Schedule (the "CBA's"). Sellers have provided to Buyer true, correct
and complete copies of the executed CBA's, including true, correct and complete
copies of any and all written modifications and interpretations thereof and
descriptions of any and all oral modifications and interpretations thereof.
(b) There is no labor strike, dispute, slowdown, stoppage or similar labor
difficulty pending or, to Sellers' Knowledge, threatened against or affecting
the Business, nor have there been any such events pending or threatened during
the six months prior to the effective date of this Agreement.
(c) Sellers are in substantial compliance with all federal, state and
local laws and regulations respecting employment and employment practices, terms
and conditions of employment and wages and hours, and there are no unfair labor
practice, employment discrimination, wage-hour, occupational safety and health,
or other labor or employment related charges, grievances, complaints or other
administrative claims or proceedings against Sellers pending or, to Sellers'
Knowledge, threatened.
(d) No union representation question or issue is pending with respect to
any of the employees of Sellers employed in the Business.
(e) Sellers employ less than fifty (50) employees at the Hickman Facility,
as the same are defined by the Worker Adjustment and Retraining Notification Act
of 1988, as amended and the rules and regulations thereunder (the "WARN Act"),
and no WARN Act notices are required to be issued to employees employed at the
Hickman Facility in connection with transactions contemplated hereby.
(f) Except as set forth on Schedule 3.15(f) no employee employed in the
Business has any written employment agreement nor any agreement as to the length
of notice required to terminate his or her employment, other than those
disclosed by Sellers in Schedule 3.15(f), or than such as results by law from
the employment and termination of employment of an employee without agreement as
to such notice.
(g) All levies, assessments and penalties under relevant workers'
compensation legislation in respect of the employees employed in the Business
have been paid or to Sellers' Knowledge reflected and accrued in the books and
records of Sellers. All claims, potential claims, current assessment rates and
special assessments under such legislation have been disclosed to Buyer.
(h) All vacation pay (including accrued vacation pay), bonuses,
commissions and other employee compensation payments (except for executive
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incentive compensation) in respect of employees employed in the Business
are reflected and have been accrued in the books and records of Sellers.
3.16 Employees; Benefits. Schedule 3.16 sets forth (or Sellers
have previously delivered to Buyer) a list of the name, age, position, rate of
compensation and any incentive compensation arrangements, bonuses or
commissions, of each person who is employed by or associated with the Business.
Except as set forth on Schedule 3.16, there are no Plans, as defined below,
contributed to, maintained or sponsored by Sellers with respect to the employees
at the Hickman Facility, to which Sellers are obligated to contribute or with
respect to which Sellers have any liability or potential liability, whether
direct or indirect, including all Plans contributed to, maintained or sponsored
by each member of the controlled group of companies, within the meaning of
Sections 414(b), 414(c), and 414(m) of the Code, of which Sellers are members to
the extent Sellers have any potential liability under such Plans. For purposes
of this Agreement, the term "Plans" shall mean: (a) employee benefit plans as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), whether or not funded and whether or not terminated, (b)
employment agreements, and (c) personnel policies or fringe benefit plans,
policies, programs and arrangements, whether or not subject to ERISA, whether or
not funded, and whether or not terminated, including without limitation, stock
bonus, deferred compensation, pension, severance, bonus, vacation, travel,
incentive, and health, disability and welfare plans.
3.17 Absence of Changes. Except as set forth on Schedule 3.17, since
July 31, 1998, Sellers have conducted the operations of the Business only in
the ordinary course, and have not:
(a) Suffered any material damage to any asset of the Business, whether
or not covered by insurance;
(b) Sold or disposed of any assets used in the operation of the
Business other than in the ordinary course of business consistent with past
practices;
(c) Made any general wage increase for its employees as a group other
than in the ordinary course of business consistent with past practices or
pursuant to the terms of the CBA's;
(d) Amended or terminated any material contract, lease or agreement
relating to the conduct of the Business or the Purchased Assets;
(e) Incurred any obligation or liability relating to the conduct of the
Business, except normal trade or business obligations incurred in the ordinary
course of business;
(f) Introduced any new method of management, operations or accounting
relating to the conduct of the Business;
(g) Suffered any material adverse change in the condition (financial
or otherwise), results of operations of the Business or the Purchased Assets; or
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(h) Agreed, whether in writing or otherwise, to take any action
described in this Section, other than pursuant to this Agreement.
3.18 Related Party Transactions. The Contracts and Commitments do
not include any agreement with, or any other commitment to (a) any officer or
director of Sellers; (b) any person related by blood or marriage to any such
officer or director; or (c) any corporation, partnership, trust or other entity
in which Sellers or any such officer, director or related person has an equity
or participating interest.
3.19 Disclosure. No representation, warranty or statement made by
Sellers in the Seller Agreements contains or will contain any untrue statement
of a material fact, or omits or will omit to state any material fact necessary
to make the statements contained herein or therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Sellers as follows:
4.1 Organization and Good Standing. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
North Carolina.
4.2 Authority. Buyer has all requisite power and authority to
execute and deliver this Agreement and the Rod Supply Agreement (collectively,
the "Buyer Agreements") and to perform the transactions contemplated thereby.
The execution, delivery and performance of the Buyer Agreements, and the
consummation of the transactions contemplated thereby, have been duly and
validly authorized by all necessary corporate and shareholder action on the part
of Buyer. The Buyer Agreements have been duly executed and delivered by Buyer
and each constitutes a valid and binding obligation of Buyer, enforceable
against Buyer in accordance with its terms.
4.3 Effect of Agreement. The execution, delivery and performance
of the Buyer Agreements do not and will not (a) conflict with the Articles of
Incorporation or Bylaws of Buyer; (b) To Buyer's Knowledge, violate any law or
any rule or regulation of any governmental body or administrative agency, or
conflict with any judicial or administrative order or decrees relating to Buyer;
(c) require any consent, notice to or filing with any governmental authority on
behalf of Buyer; or (d) constitute a breach or default under any contract or any
other agreement or instrument by which Buyer is bound, except to the extent that
individually or in the aggregate would not have a material adverse effect on the
ability of the Buyer to consummate the transactions contemplated herein.
ARTICLE V
COVENANTS OF SELLERS AND BUYER
5.1 Sellers' Covenants. Sellers covenant and agree with Buyer as
follows:
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(a) Conduct of Business. Between the date of this Agreement and the
Effective Time, Sellers shall:
(i) Conduct the operations of the Business in the normal
and customary manner in the ordinary course of business;
(ii) Maintain the tangible Purchased Assets and any tangible
assets leased under leases to be assumed by Buyer in good operating order,
repair and condition;
(iii) Keep in full force and effect the insurance described
in Section 3.14;
(iv) Perform all of its obligations under all Contracts and
Commitments and not amend any provision thereof;
(v) Use their best efforts to preserve Sellers' corporate
organizations intact and maintain their relationships with their employees,
suppliers and customers;
(vi) Promptly advise Buyer of any material adverse change in
the condition (financial or otherwise) of the Business or the Purchased Assets;
(vii) Promptly advise Buyer of the occurrence of any event or
circumstance which affects the consummation of the transactions contemplated by
this Agreement or which, if in existence on the date of this Agreement, would
have been required to have been disclosed in a Schedule to this Agreement;
(viii) Not create or permit to exist any Lien with respect to
any of the Purchased Assets, except for the Permitted Liens;
(ix) Not sell or dispose of any Purchased Assets, except in
the ordinary course of business of the Business;
(x) Promptly advise Buyer of any change in the list of
employees referred to in Section 3.16 or in the compensation payable to any such
employee;
(xi) Not borrow any funds related to the Purchased Assets
and secured by the Purchased Assets except as reasonably necessary for the
ordinary operation of business in a manner, and in amounts, in keeping with
historical practices; and
(xii) Extend credit terms to its customers in the ordinary
course of business consistent with past practices.
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(xiii) Provide to Buyer employment records and, where
appropriate, I-9 forms, as set forth in 29 C.F.R. Section
274a.2(b)(1)(viii)(7), for all of Sellers' hourly employees employed
at the Business.
(b) Access and Information. Sellers shall permit Buyer and its
counsel, accountants and other representatives full access during normal
business hours to all the properties, assets, books, records, agreements and
other documents of Sellers relating to the Business. Sellers shall furnish to
Buyer and its representatives all information concerning the Purchased Assets or
the Business as Buyer may reasonably request. Sellers shall permit and
facilitate communications between Buyer and Sellers' suppliers, customers and
other persons having relationships with the Business.
(c) No Other Solicitations. Until the earlier of the Closing Date
or the termination of this Agreement, Sellers and their managers and
representatives shall not solicit or encourage any offer, proposal or inquiry
from, or engage in any discussions or negotiations with, any person regarding
the sale or lease of the Purchased Assets or the Business.
(d) Employees. Sellers shall retain and shall assume, bear and
discharge all liabilities for claims incurred with respect to all of their Plans
other than liabilities for claims incurred by their employees on and after the
date they become employees of Buyer. For purposes of this Section 5.1(d), a
claim will be deemed "incurred" on the date that the event that gives rise to
the claim occurs.
5.2 Buyer Covenants. Buyer covenants and agrees with Sellers as
follows:
(a) Inventory Valuation. Buyer (i) shall use its best efforts to
complete the physical inventory of the Inventory no less than four (4) business
days prior to Closing; (ii) shall use its best efforts to deliver to Sellers, at
least two (2) business day prior to the scheduled Closing, its good faith
calculation, in accordance with the Inventory Valuation Methodology, of the
Inventory Value; (iii) agrees to allow Sellers and their representatives to
participate with Buyer in Buyer's physical inventory of the Inventory; and (iv)
agrees to give access to Sellers and its representatives to all of Buyer's
books, records and other documentation used in connection with Buyer's
determination of the Inventory Value. Notwithstanding anything contained herein
to the contrary, the Inventory Value shall be adjusted as of the Closing Date to
reflect the actual Inventory being purchased by Buyer hereunder as of the
Closing Date.
(b) Employees. Buyer will not and does not agree to accept and
abide by any obligation imposed by virtue of the CBA's. Buyer does, however,
covenant and agree to offer employment on the Closing Date, under terms and
conditions initially established by Buyer, to all of Sellers' hourly bargaining
unit employees who are employed by Sellers at the Hickman Facility as of the
Closing Date. In the event that Buyer's offers of employment are accepted by a
sufficient number of employees to render Buyer a successor employer to Sellers,
then Buyer shall recognize the United Steelworkers of America as the bargaining
representative for the Hickman Facility production and maintenance employees.
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ARTICLE VI
CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
The obligations of Buyer to consummate the transactions contemplated
by this Agreement are subject to the satisfaction of the following conditions
on or before the Closing Date.
6.1 Representations, Warranties and Covenants. The representations and
warranties of Sellers contained in this Agreement shall have been true and
correct on the date of this Agreement and shall be true and correct on the
Closing Date as though made on and as of the Closing Date, and Sellers shall
deliver to Buyer certificates duly executed by authorized officers of Sellers
evidencing compliance with this condition. Sellers shall have duly performed and
complied with all covenants and obligations required by this Agreement to be
performed or complied with by it on or prior to the Closing.
6.2 Absence of Litigation. No action or proceeding shall be pending by
or before any court or other governmental body or agency seeking to restrain,
prohibit or invalidate the transactions contemplated by this Agreement or which
would materially adversely affect the right of Buyer to own, operate or control
the Purchased Assets or the Business after the Closing Date.
6.3 Absence of Change. Between the date of this Agreement and the
Closing, no material adverse change shall have occurred in the business,
operations or financial or other condition of the Business or the Purchased
Assets, nor shall there have occurred any material casualty loss or destruction
of, or damage to, any of the Purchased Assets.
6.4 Consents and Approvals. All Required Consents of Sellers and all
consents, approvals, authorizations or notifications of any other third
parties, without which Sellers would not be able to consummate the transactions
contemplated by this Agreement, shall have been made or obtained by Sellers or
shall have occurred.
6.5 Title Insurance; Survey; Transfer Tax. Sellers shall order prior
to Closing, for delivery to Buyer at Sellers' own expense, a title commitment
binder for all of the Real Estate. Buyer shall have obtained at its own expense
a title insurance policy in amount no less than $2,278,000.00 insuring good and
marketable title in fee simple absolute to all the Real Estate, free and clear
of all title defects or objections, Liens or other encumbrances of any nature
whatsoever. Correct surveys shall have been obtained at Buyer's sole expense and
certified to Buyer, showing the boundaries of and the location of the Real
Estate and the locations of all Improvements, showing no encroachment by the
Improvements on property of others. Sellers shall pay the cost of any transfer
taxes or documentary stamps related to the transfer of the Purchased Assets.
6.6 Environmental Audit. Buyer shall have obtained at its own expense
a Phase I environmental audit of the Real Estate and Improvements, including an
environmental sampling of monitoring wells existing at the Hickman Facility, to
be performed by an environmental engineering firm of Buyer's choice, and the
results of such audit shall be satisfactory in all respects to Buyer.
14
<PAGE> 20
6.7 Removal of Liens. All Liens indicated to exist by record
searches made by Buyer prior to the Closing Date, except the Permitted Liens,
shall have been removed, and Sellers shall have provided evidence satisfactory
to Buyer of such removal.
6.8 Legal Opinion. Buyer shall have received from the law firm of
Katten Muchin & Zavis, counsel to Sellers, opinions, dated the Closing Date, in
the forms of Exhibit 6.8(a) and 6.8(b).
6.9 Rod Supply Agreement. Sellers shall duly execute and deliver to
Buyer a Rod Supply Agreement substantially in the form attached hereto as
Exhibit 3.2.
ARTICLE VII
CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
The obligations of Sellers to consummate the transaction contemplated
by this Agreement are subject to the satisfaction of each of the following
conditions on or before the Closing Date.
7.1 Representations, Warranties and Covenants. The representations
and warranties of Buyer contained in this Agreement shall have been true and
correct on the date of this Agreement, and shall be true and correct on the
Closing Date as through made on and as of the Closing Date, and Buyer shall
have duly performed and complied with all covenants and obligations required by
this Agreement to be performed or complied with by it on or before the Closing
Date.
7.2 Absence of Litigation. No action or proceeding shall be pending
by or before any court or other governmental body or agency seeking to restrain,
prohibit or invalidate the transactions contemplated by this Agreement.
7.3 Consents and Approvals. All Required Consents shall have been
obtained prior to or at the Closing.
7.4 Inventory Value. Prior to the Closing, Buyer shall have
performed in accordance with Section 1.4, the physical inventory of the
Inventory, and shall have delivered to Sellers Buyer's good faith calculation,
in accordance with the Inventory Valuation Methodology, of the Inventory Value,
and such calculation shall be mutually acceptable to Buyer and Sellers.
7.5 Legal Opinion. Sellers have received from Womble Carlyle
Sandridge & Rice, PLLC, counsel to Buyer, an opinion, dated the Closing Date,
in the form of Exhibit 7.5.
ARTICLE VIII
CLOSING
8.1 Closing. The closing of the sale of the Purchased Assets (the
"Closing") shall take place at the offices of Womble Carlyle Sandridge & Rice,
Winston-Salem, North Carolina at 10:00
15
<PAGE> 21
a.m., local time, on April 30, 1999, or such other date as may be mutually
agreed upon by the parties hereto (the "Closing Date"). For purposes of passage
of title, risk of loss, allocation of expenses and other economic effects, the
Closing when completed shall be deemed to have occurred at 12:01 a.m., local
time, on the Closing Date (the "Effective Time").
8.2 Deliveries. At the Closing, Buyer shall execute and deliver
to Sellers the Buyer Agreements, and Sellers shall execute and deliver to Buyer
the Seller Agreements. Further, each party shall execute and deliver to the
other such instruments of conveyance or assumption and other documents as may be
required or contemplated by this Agreement, all of which shall be in form and
substance satisfactory to the other party.
ARTICLE IX
INDEMNIFICATION
9.1 Indemnification by Seller. Sellers shall jointly and
severally indemnify, defend and hold harmless Buyer and its officers, directors
and affiliates (the "Buyer Indemnitees") from, against, and with respect to
any and all loss, damage, claim, obligation, liability, cost and expense
(including without limitation reasonable attorney's fees and costs and expenses
incurred in investigating, preparing, defending against or prosecuting any
litigation, claim, proceeding or demand), of any kind or character (a "Loss")
arising out of or in connection with any of the following:
(a) any breach of any of the representations or warranties of
Sellers contained in or made pursuant to this Agreement;
(b) except as provided in Section 2.4, any failure by Sellers to
perform or observe, in full, any covenant, agreement or condition to be
performed or observed by it pursuant to this Agreement;
(c) the Retained Liabilities, and all other liabilities and
obligations of Sellers, or any kind or nature whatsoever, whether accrued,
absolute, contingent or otherwise, known or unknown, except for (i)
obligations under the Contracts arising on or after the Effective Time, and
(ii) the Assumed Liabilities;
(d) noncompliance by Sellers with the provisions of any applicable
bulk sales laws (if applicable) or Sellers' covenants contained in Section
10.3 hereinbelow;
(e) any transportation of Hazardous Materials or any handling,
storage, treatment, release or disposal of Hazardous Materials in any way
related to the Business or the Purchased Assets by or on behalf of Seller
or its predecessors before the Effective Time;
(f) Sellers' violation of, Sellers' alleged violation of, or
Sellers' liability under any federal, state or local environmental laws and
regulations occurring before
16
<PAGE> 22
the Effective Time, even if such violation, alleged violation or liability
is not discovered, or a claim with respect thereto is not asserted until
after the Effective Time; or
(g) the exposure of (and resulting consequences to) any persons,
including, without limitation, employees of Sellers, to any Hazardous
Materials in connection with the conduct of the Business by Sellers, or
any of its predecessors before the Effective Time, including, without
limitation, any such exposure to Hazardous Materials resulting from
contact with products sold by the Business before the Effective Time.
9.2 Indemnification by Buyer. Buyer shall indemnify, defend and
hold harmless Sellers and their officers, directors and affiliates (the "Seller
Indemnitees") from, against and with respect to any Loss arising out of or in
connection with any of the following:
(a) any breach of any of the representations and warranties of
Buyer contained in or made pursuant to this Agreement;
(b) any failure by Buyer to perform or observe, in full, any
covenant, agreement or condition to be performed or observed by it
pursuant to this Agreement;
(c) all obligations under the Contracts arising on or after the
Effective Time, and the Assumed Liabilities; or
(d) Buyer's ownership and operation of the Business and the
Purchased Assets on and after the Effective Time.
9.3 Notice of Claim. Any party seeking to be indemnified
hereunder (the "Indemnified Party") shall, within twenty (20) days following
discovery of the matters giving rise to a Loss, notify the party from whom
indemnity is sought (the "Indemnity Obligor") in writing of any claim for
recovery, specifying in reasonable detail the nature of the Loss and the amount
of the liability estimated to arise therefrom.
9.4 Defense. If the facts pertaining to a Loss arise out of the
claim of any third party, or if there is any claim against a third party
available by virtue of the circumstances of the Loss, the Indemnity Obligor
may, by giving written notice to the Indemnified Party within thirty (30) days
following its receipt of written notice of such claim, elect to assume the
defense or the prosecution thereof, including the employment of counsel or
accountants at its cost and expense; provided, however, that during the interim
the Indemnified Party shall use its best efforts to take all action (not
including settlement) reasonably necessary to protect against further damage or
loss with respect to the Loss. The Indemnified Party shall have the right to
employ counsel separate from counsel employed by the Indemnity Obligor in any
such action and to participate therein, unless the claim involves Taxes, but
the fees and expenses of such counsel shall be at the Indemnified Party's own
expense. Whether or not the Indemnity Obligor chooses so to defend or prosecute
such claim, all the parties hereto shall cooperate in the defense or
prosecution thereof. The Indemnity Obligor shall not be liable for any
settlement of any such claim effected without its prior written consent. The
Indemnity Obligor shall have the right to settle, compromise or discharge a
third party claim (other than any third party claim in which
17
<PAGE> 23
criminal conduct is alleged) without the Indemnified Party's consent if such
settlement, compromise or discharge (a) constitutes a complete and
unconditional discharge and release of the Indemnified Party, (b) provides for
no relief other than the payment of monetary damages, and (c) such monetary
damages are paid in full by the Indemnity Obligor.
9.5 Limitations.
(a) Notwithstanding anything to the contrary set forth in this
Agreement, Sellers shall not be required to indemnify and hold harmless
Buyer pursuant to this Agreement for any Losses, until such Losses shall
exceed, in the aggregate, $50,000.00 (the "Basket Exclusion"), at which
time Sellers shall be required to jointly and severally indemnify and hold
harmless Buyer for all such Losses subject only to the limitations
specified hereafter.
(b) Sellers shall not be required to indemnify and hold harmless
Buyer pursuant to this Agreement for any Losses, if and to the extent such
Losses, in the aggregate, exceed the Purchase Price.
(c) The amount of any Losses payable hereunder shall be net of any
tax benefit derived (or reasonably expected to be derived) by the
Indemnified Party on account of or in connection with such Losses.
(d) Any Indemnified Party shall use reasonable efforts to collect
the proceeds of any insurance which would have the effect of reducing
Losses (in which case such proceeds shall reduce such Losses) and if
indemnification payments have been received prior to the collection of such
proceeds, shall remit to the Indemnity Obligor the amount of such proceeds
(net of the cost of collection thereof) to the extent of indemnification
payments received in respect of such Losses.
(e) Except as otherwise provided in Section 2.4, the
indemnification provided in this Article IX shall be the sole and exclusive
remedy and recourse for any and all claims relating to or arising out of
Losses incurred pursuant to this Article IX by any party.
ARTICLE X
MISCELLANEOUS
10.1 Definitions.
For purposes of this Agreement, the following terms have the meanings
specified:
"BUSINESS COMBINATION" - means any merger or consolidation of a corporation
with or into any other corporation, or the sale or lease of all or any
substantial part of the corporation's assets to, or any payment, sale or lease
to the corporation or any subsidiary thereof in exchange for securities of the
corporation of any assets of any other entity.
18
<PAGE> 24
"BUYER'S KNOWLEDGE" - means (i) the actual knowledge of H.O. Woltz III,
Michael Gazmarian and Gary Kniskern and (ii) the existence of facts, events,
occurrences or matters with respect to which any of the persons referred to
above should reasonably be expected to have knowledge in the ordinary conduct
of his duties.
"INVENTORY VALUE" - means Buyer's good faith calculation, in accordance
with the Inventory Valuation Methodology, of the Inventory as of the Closing
Date.
"PREPAID MAINTENANCE CONTRACT AMOUNT" - means the amount of money prepaid
by Seller as of the Closing Date under that certain Maintenance Project
Contract in the amount of $83,920.00, subject to adjustment, if any, as set
forth in Section 2.1.
"SELLER'S KNOWLEDGE" - means (i) the actual knowledge of Michael S. Venie,
Tom Vercillo, Andrew Moore, Tom Reddington and Frederick Rocchio and (ii) the
existence of facts, events, occurrences or matters with respect to which any of
the persons referred to above should reasonably be expected to have knowledge in
the ordinary conduct of his duties.
10.2 Survival of Representations. All representations and
warranties of the parties hereto contained in this Agreement or otherwise made
in writing in connection with the transactions contemplated hereby shall survive
the execution and delivery of this Agreement for a period of two (2) years,
except with respect to Section 3.12 concerning taxes and except with respect to
Section 3.13 concerning the environment, both of which shall survive the
Closing for the applicable statute of limitations periods concerning such tax
and environmental matters.
10.3 Joint and Several Liability. Sellers expressly acknowledge
and agree that all statements, representations and warranties of Sellers
contained in the Seller Agreements are the statements, representations and
warranties of each of Parent and Sub. Sellers further acknowledge and agree
that both Parent and Sub shall be jointly and severally obligated to comply
with and perform all undertakings, obligations and covenants of Sellers
contained in the Seller Agreements, and that both Parent and Sub shall be
jointly and severally liable for all losses, damages, costs and fees of any
kind and nature whatsoever incurred by Buyer, for either Parent's or Sub's
failure to perform said undertakings, obligations and covenants.
10.4 Bulk Sales. The parties agree to waive the requirements, if
any, of all applicable bulk sales laws. As an inducement to Buyer to enter into
such waiver, Sellers expressly covenant that (a) they will not be rendered
insolvent by the transactions contemplated by this Agreement, and (b) all
debts, obligations and liabilities relating to the Business that are not
expressly assumed by Buyer under this Agreement will be promptly paid and
discharged by Sellers as and when they become due.
10.5 Risk of Loss. The risk of loss, damage or condemnation of
any of the Purchased Assets from any cause whatsoever shall be borne by Sellers
at all times prior to the Effective Time.
10.6 Brokers. Each party represents and warrants to the other (a)
that no brokers or agents have been retained or employed by it, and (b) that
there are no claims for any brokerage
19
<PAGE> 25
commission, finder's fee or similar payment due or claimed to be due from it
with respect to this transaction.
10.7 Tax Filings. Each of the parties acknowledges its
understanding of the requirement under Section 1060 of the Internal Revenue
Code for the filing by each of Form 8594 for its respective tax year in which
the Closing occurs. Each of Sellers and Buyer agrees to allocate the Purchase
Price among the Purchased Assets in accordance with Exhibit 2.2.
10.8 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense, whether or not the sale of the Purchased
Assets is consummated.
10.9 Publicity. Any press releases or other announcements
concerning the transactions contemplated by this Agreement shall be approved by
Buyer and Sellers prior to their issuance.
10.10 Best Efforts; Cooperation. Each party agrees to use its best
efforts to satisfy the conditions to the Closing set forth in this Agreement
and otherwise to consummate the transactions contemplated by this Agreement.
Each party further agrees to furnish the other party with such cooperation and
assistance after the Closing Date with respect to matters related to the
Business or the Purchased Assets as the other party may reasonably request from
time to time.
10.11 Notices. All notices, demands and other communications made
hereunder shall be in writing and shall be given either by personal delivery,
by nationally recognized overnight courier (with charges prepaid) or by
telecopy (with telephone confirmation), and shall be deemed to have been given
or made when personally delivered, the day following the date deposited with
such overnight courier service or when transmitted to telecopy machine and
confirmed by telephone, addressed to the respective parties at the following
addresses (or such other address for a party as shall be specified by like
notice):
If to the Sellers (which shall constitute notice to both Parent and
Sub):
Northwestern Steel and Wire Company
121 Wallace Street
P.O. Box 618
Sterling, IL 61081-0618
Attention: Mr. Michael S. Venie
Telephone: 815/625-2500 ext. 2649
Telecopy: 815/625-0440
With a copy (which shall not constitute notice) to:
Katten Muchin & Zavis
525 West Monroe Street, Suite 1600
Chicago, IL 60661-3693
Attention: Mr. Herb Wander
20
<PAGE> 26
Telephone: 312/902-5267
Telecopy: 312/902-1061
If to Buyer:
Insteel Industries, Inc.
1373 Boggs Drive
Mt. Airy, NC 27030
Attention: Mr. H.O. Woltz III
Telephone: 336/786-2141 ext. 3041
Telecopy: 336/786-2144
With a copy (which shall not constitute notice) to:
Womble Carlyle Sandridge & Rice, PLLC
1600 BB&T Financial Center
200 West Second Street
Winston-Salem, NC 27102
Attention: Mr. Richard N. Drake
Telephone: 336/721-3592
Telecopy: 336/733-8385
With a separate copy (which shall not constitute notice) to:
McGuire Woods Battle and Boothe
3700 NCNB Plaza
Charlotte, NC 28280
Attention: Mr. Richard Kane
Telephone: 704/373-8957
Telecopy: 704/332-2611
10.12 Governing Law. This agreement shall be governed by the laws
of the State of North Carolina without regard to the principles of conflicts of
laws.
10.13 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.14 Assignment. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned by any of the parties
hereto without the prior written consent of all other parties hereto, and any
purported assignment without such consent shall be void.
10.15 Third Party Beneficiaries. None of the provisions of this
Agreement or any document contemplated hereby is intended to grant any right or
benefit to any person or entity which is not a party to this Agreement.
21
<PAGE> 27
10.16 Headings. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of this
Agreement and shall not in any way affect the meaning or interpretation of this
Agreement.
10.17 Amendments. Any waiver, amendment, modification or
supplement of or to any term or condition of this Agreement shall be effective
only if in writing and signed by all parties hereto, and the parties hereto
waive the right to amend the provisions of this Section orally.
10.18 Specific Performance. Sellers acknowledge that the
Purchased Assets are unique and that if Sellers fail to consummate the
transactions contemplated by this Agreement such failure will cause irreparable
harm to Buyer for which there will no adequate remedy at law. Buyer shall be
entitled, in addition to its other remedies at law, to specific performance of
this Agreement if Sellers shall, without cause, refuse to consummate the
transactions contemplated by this Agreement.
10.19 Severability. In the event that any provision in this
Agreement shall be determined to be invalid, illegal or unenforceable in any
respect, the remaining provisions of this Agreement shall not be in any way
impaired, and the illegal, invalid or unenforceable provision shall be fully
severed from this Agreement and there shall be automatically added in lieu
thereof a provision as similar in terms and intent to such severed provision
as may be legal, valid and enforceable.
10.20 Entire Agreement. This Agreement and the Schedules and
Exhibits hereto, constitute the entire contract between the parties hereto
pertaining to the subject matter hereof, and supersede all prior and
contemporaneous agreements and understandings between the parties with respect
to such subject matter, including without limitation the letter of intent dated
January 18, 1999, which are hereby expressly terminated.
[Signature page to follow]
22
<PAGE> 28
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be signed by its duly authorized officer as of the date first
above written.
SELLERS: NORTHWESTERN STEEL AND WIRE
COMPANY, an Illinois corporation
By:/s/ Michael S. Venie
------------------------------
Title: Sr. Vice President
---------------------------
NORTHWESTERN STEEL AND WIRE
COMPANY - KENTUCKY, a Delaware corporation
By:/s/ Michael S. Venie
------------------------------
Title: Sr. Vice President
---------------------------
BUYER: INSTEEL INDUSTRIES, INC., a North Carolina
Corporation
By:/s/ H. O. Woltz III
-----------------------------
Title: President
--------------------------
23
<PAGE> 1
EXHIBIT 21
LIST OF SUBSIDIARIES OF INSTEEL INDUSTRIES, INC.
The following is a list of subsidiaries of the Company as of October 2, 1999,
each of which is wholly owned by the Company:
<TABLE>
<CAPTION>
STATE OR OTHER JURISDICTION OF
NAME INCORPORATION
- --------------------------------- -------------------------------
<S> <C>
Insteel Wire Products Company North Carolina
Intercontinental Metals Corporation North Carolina
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ARTHUR ANDERSEN LLP
The Board of Directors and Shareholders
Insteel Industries, Inc.:
We consent to incorporation by reference in the registration statements on Forms
S-8 (Nos. 33-01032, 33-40410, 33-35316, 33-61887, 33-61889 and 333-48011) of
Insteel Industries, Inc. of our reports dated October 15, 1999, relating to the
consolidated balance sheets of Insteel Industries, Inc. and subsidiaries as of
October 2, 1999 and October 3, 1998, and the related consolidated statements of
earnings, shareholders' equity and cash flows for the three years ended October
2, 1999, October 3, 1998 and September 30, 1997, and related schedule for the
years ended October 2, 1999, October 3, 1998 and September 30, 1997, which
reports appear in the October 2, 1999 annual report on Form 10-K of Insteel
Industries, Inc.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
December 15, 1999.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K OF
INSTEEL INDUSTRIES, INC. FOR THE FISCAL YEAR ENDED OCTOBER 2, 1999, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-02-1999
<PERIOD-START> OCT-04-1998
<PERIOD-END> OCT-02-1999
<CASH> 827
<SECURITIES> 0
<RECEIVABLES> 31,429
<ALLOWANCES> 375
<INVENTORY> 36,360
<CURRENT-ASSETS> 71,253
<PP&E> 149,951
<DEPRECIATION> 64,422
<TOTAL-ASSETS> 167,896
<CURRENT-LIABILITIES> 35,620
<BONDS> 0
0
0
<COMMON> 16,914
<OTHER-SE> 60,415
<TOTAL-LIABILITY-AND-EQUITY> 167,896
<SALES> 270,992
<TOTAL-REVENUES> 270,992
<CGS> 235,345
<TOTAL-COSTS> 235,345
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,482
<INCOME-PRETAX> 15,677
<INCOME-TAX> 5,691
<INCOME-CONTINUING> 9,986
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,986
<EPS-BASIC> 1.18
<EPS-DILUTED> 1.18
</TABLE>
