-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IWKh5jyWjxoMYU8DHbYnWFFrEoIIMsR+pPuXePUpwy9BysDw8tpWEBnlqV06vlYD FXevmZ2vO6qSTcZRo2ELrQ== 0000950144-95-003569.txt : 19951226 0000950144-95-003569.hdr.sgml : 19951226 ACCESSION NUMBER: 0000950144-95-003569 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951222 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INSTEEL INDUSTRIES INC CENTRAL INDEX KEY: 0000764401 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES & ROLLING & FINISHING MILLS [3310] IRS NUMBER: 560674867 STATE OF INCORPORATION: NC FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-09929 FILM NUMBER: 95603601 BUSINESS ADDRESS: STREET 1: 1373 BOGGS DR CITY: MOUNT AIRY STATE: NC ZIP: 27030 BUSINESS PHONE: 9107862141 MAIL ADDRESS: STREET 1: 1373 BOGGS DRIVE CITY: MOUNT AIRY STATE: NC ZIP: 27030 FORMER COMPANY: FORMER CONFORMED NAME: EXPOSAIC INDUSTRIES INC DATE OF NAME CHANGE: 19880511 10-K405 1 INSTEEL INDUSTRIES 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) {X} ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 {FEE REQUIRED} FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995 { } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 {NO FEE REQUIRED} For the Transition Period From ___ to___ Commission File Number 1-9929 INSTEEL INDUSTRIES, INC. (Exact name of registrant as specified in its charter) NORTH CAROLINA 56-0674867 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1373 BOGGS DRIVE, MOUNT AIRY, NORTH CAROLINA 27030 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (910) 786-2141 Securities registered pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered COMMON STOCK (NO PAR VALUE) NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes {X} No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. [X] The aggregate market value of the common stock held by non-affiliates of the registrant as of December 15, 1995 was $41,150,855. The number of shares outstanding of the registrant's common stock as of December 15, 1995 was 8,393,270. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Company's Proxy Statement to be delivered to stockholders in connection with the 1996 Annual Meeting of Stockholders are incorporated by reference into Part III. 1 2 PART I ITEM 1. BUSINESS. GENERAL Insteel Industries, Inc. (the "Company" or "Insteel") manufactures and markets a wide range of wire products. The Company's wholly-owned subsidiary, Insteel Wire Products Company, is comprised of two divisions, Insteel Wire Products ("IWP") and Insteel Construction Systems ("ICS"). IWP produces concrete reinforcing products, industrial wire, agricultural fencing and nails for the construction, home furnishings, appliance and agricultural industries. ICS manufactures the Insteel 3-D(R) building panel for commercial and residential construction. The most significant market for both divisions is the construction industry, which represented over half of Insteel's sales in 1995. Insteel's business strategy is to attain leadership positions in the markets that it serves and continue expanding into higher value-added products that offer superior returns relative to the Company's traditional businesses. Future growth will leverage off of the Company's core competencies in the manufacture and sales of wire products. Insteel's strategic focus is on new product additions or product line extensions that offer the potential for (1) substantial barriers to entry, (2) clear differentiation from competitors and (3) significantly more attractive profit margins than the Company's commodity-type businesses. From its founding in 1953 up until its entry into the wire business in 1974, Insteel manufactured concrete building products for the construction industry. Sales of wire products expanded substantially during 1975 - 1988, as the Company attained leadership positions in a number of its product lines and markets. In 1988, the Company elected to focus its resources on the wire industry and sold its concrete products division. ICS was formed in 1989 as a joint venture with an Austrian firm, EVG. In 1992, ICS entered into a joint venture agreement that created an affiliate, Insteel Panel/MEX, to manufacture and distribute 3-D panel in Mexico. During the second quarter of 1995, the Company purchased EVG's 30% minority interest, and following the completion of the stock purchase, merged ICS into Insteel's wholly-owned subsidiary, Insteel Wire Products Company. During 1992 and 1993, the Company completed a strategic realignment program which included the redeployment of production capacity and the consolidation of the management and administrative responsibilities for its previously stand-alone wire products subsidiaries. Three manufacturing facilities were closed while three other facilities were significantly expanded. In 1993, the Company merged its Expo Wire Company, Rappahannock Wire Company, Forbes Steel & Wire Corporation and Intersteel Corporation subsidiaries into one wholly-owned subsidiary, Insteel Wire Products Company. Also during 1993, the scrap brokerage business that bought and sold steel scrap on a commissioned basis was terminated. Wire products and scrap brokerage sales for the last three years are as follows:
YEAR ENDED SEPTEMBER 30, ----------------------------------------------------------------------------- 1995 1994 1993 -------------------- ------------------- -------------------- ($ in thousands) Amount % Amount % Amount % -------- ----- -------- ----- -------- ----- Wire Products $260,344 100.0 $247,045 100.0 $211,509 86.3 Scrap Brokerage - - - - 33,507 13.7 -------- ----- -------- ----- -------- ----- Total $260,344 100.0 $247,045 100.0 $245,016 100.0 ======== ===== ======== ===== ======== =====
In January 1994, Insteel entered the prestressed concrete strand ("PC strand") business with the start-up of a new manufacturing facility. The Company has made purchase commitments for an expansion to the PC strand plant that will double its production capacity. Start-up is currently scheduled for the second half of fiscal 1996. A second major new product introduction will be collated nails. In May 1995, construction was started on a new manufacturing facility with production scheduled to commence in February 1996. 2 3 PRODUCTS Concrete reinforcing products include welded wire fabric and PC strand. Welded wire fabric is produced as both a commodity and specially engineered reinforcing product for concrete pipe, commercial construction and infrastructure construction. The product is manufactured in both rolls and mats in widths of up to 13.5 feet. PC strand is a sophisticated concrete reinforcing product used in both pretensioned and posttensioned prestressed concrete construction for structural members, bridges, buildings, parking decks, pilings, railroad ties and utility poles. Industrial wire products are primarily sold to manufacturers of springs for the bedding and furniture industries, appliances such as refrigerators, ovens and dishwashers, strapping ties, display racks, grocery carts and chain link fences. Product attributes vary with the end use and can include galvanizing for corrosion resistance and intermediate heat-treating, in addition to stringent tolerance requirements and mechanical properties. Nails include a wide variety of products such as common nails, finishing nails, box nails, sinkers, duplex nails and galvanized nails where corrosion resistance is required. The Company's collated nail product line will include standard sizes that fit all of the major pneumatic automatic power nailers currently manufactured. Agricultural products are primarily galvanized wire that is woven, welded or formed into fencing or barbed wire used on farms as well as in commercial and residential applications. Insteel 3-D(R) building panel is a steel-reinforced polysterene sandwich panel to which concrete is applied, creating an insulated continuously-reinforced concrete structure. The product is used in the construction of commercial buildings, prisons, apartments and homes. The 3-D panel is far superior to conventional building methods in terms of strength, durability, structural performance, insulation qualities, design flexibility, ease of installation and speed of construction. The most critical factor impacting customer acceptance has been, and continues to be, the cost effective application of concrete. MARKETING AND DISTRIBUTION Insteel markets its products through sales representatives who are employees of the Company. Insteel aligns its sales and marketing staff with the markets that it is servicing. IWP's sales function is organized into three customer-based units: (1) concrete reinforcing, including welded wire fabric and PC strand, (2) industrial wire and (3) nails and agricultural. ICS has its own sales and marketing organization which is focused on the promotion of the Insteel 3-D(R) building panel. 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 a portion of the Southwest. Insteel delivers its products using either its own trucking fleet, or via common or contract carriers, depending upon comparative costs and scheduling requirements. In order to minimize freight costs, the Company backhauls raw materials on its fleet whenever customer locations are in close proximity to its suppliers. RAW MATERIALS The primary raw material required in the production of Insteel's wire products is hot rolled carbon steel wire rod. The Company purchases wire rod from both domestic and foreign suppliers. Under the terms of a rod supply agreement, Insteel is committed to purchase from GS Industries, Inc. a portion of its raw material requirements. During the past three years, domestic wire rod markets have remained tight and prices have escalated as U.S. manufacturers operated near full capacity. Announced increases in domestic wire rod capacity scheduled over the next few years should have a favorable impact on the quality and availability of the Company's most significant raw material. The Company believes that raw materials and supplies are available in quantities adequate to meet the Company's current and future needs. 3 4 COMPETITION The markets in which the Company's business is conducted are highly competitive. Insteel faces formidable competition in most areas of its business activity, including competition from companies whose revenues and financial resources are much larger than the Company's. Some of its competitors are integrated steelmakers that produce both wire rod and wire products and offer multiple product lines over broad geographical areas. Other competitors are smaller independent wire mills that offer limited competition in certain markets. Market participants compete on the basis of price, quality and service. Selling prices tend to ultimately move with changes in raw material costs, although spreads can widen or narrow depending upon market conditions. Technology has become a critical factor in maintaining competitive levels of conversion costs and quality. The Company believes that it is the leading low cost producer of wire products operating the most technologically-advanced manufacturing facilities. In addition, the Company offers a broader range of products through more diverse distribution channels than any of its competitors. The Company believes that it is well-positioned to compete favorably based on the industry's critical success factors. EMPLOYEES As of September 30, 1995, the Company employed 1,023 people. The Company has a collective bargaining agreement with a labor union at its Delaware plant covering its hourly employees. The Company believes that relations with the labor union and employees are satisfactory. ENVIRONMENTAL MATTERS The Company believes that it is in compliance in all material respects with applicable environmental laws and regulations. The Company has experienced no material difficulties in complying with legislative or regulatory standards and believes that these standards have not materially impacted Insteel's financial position or results of operations. Compliance with future additional environmental requirements could necessitate capital outlays. However, the Company does not believe that these expenditures should ultimately result in a material adverse effect on Insteel's financial position or results of operations. EXECUTIVE OFFICERS OF THE COMPANY The executive officers of the Company are as follows:
Name Age Position with the Company --------------------------- --- ------------------------------------------------- Howard O. Woltz, Jr. 70 Chairman of the Board and a Director H.O. Woltz III 39 President, Chief Executive Officer and a Director Gary D. Kniskern 50 Vice President - Administration and Secretary Michael C. Gazmarian 36 Chief Financial Officer and Treasurer
Howard O. Woltz, Jr., has been Chairman of the Board since 1958 and has served in various capacities for more than 37 years. He had been President of the Company from 1958 to 1968 and from 1974 to 1989. He previously served as Vice President, General Counsel and a director of Quality Mills, Inc. (a publicly-held manufacturer of knit apparel and fabrics), for more than 35 years prior to its acquisition in December 1988 by Russell Corporation. H. O. Woltz III, a son of Howard O. Woltz, Jr., was elected Chief Executive Officer in February 1991 and has served in various capacities for more than 17 years. He was named President and Chief Operating Officer in August 1989. He had been Vice President of the Company since September 1988 and, previously, President of Rappahannock Wire Company, a subsidiary of the Company, since 1981. Mr. Woltz has been a director of the Company since 1986 and also serves as President of Insteel Wire Products Company. 4 5 Gary D. Kniskern was elected Vice President - Administration in August 1994 and has served in various capacities for more than 16 years. He had been Secretary and Treasurer since December 1984 and, previously, internal auditor since 1979. Michael C. Gazmarian was elected Treasurer in August 1994. He had joined Insteel as Chief Financial Officer in July 1994. He had been with Guardian Industries Corp. since 1986, serving in various financial capacities. Most recently, he was Vice President - Finance and Administration for Consolidated Glass & Mirror Corp., a Guardian subsidiary. The executive officers listed above were elected by the Board of Directors at its annual meeting held February 7, 1995. All officers serve until the next annual meeting of the Board of Directors or until their successors are elected and qualify. The next meeting at which officers will be elected is scheduled for February 13, 1996. ITEM 2. PROPERTIES. Insteel's corporate headquarters and IWP's divisional office are located in Mount Airy, North Carolina. ICS' divisional office is located in Brunswick, Georgia. IWP has seven manufacturing facilities located in Andrews, South Carolina; Dayton, Texas; Fredericksburg, Virginia; Gallatin, Tennessee (2 plants); Mount Airy, North Carolina; and Wilmington, Delaware. Construction is underway on a collated nail plant located in Andrews, South Carolina, scheduled to begin production in February 1996. ICS operates a manufacturing facility located in Brunswick, Georgia and a joint venture operation located in Mexicali, B.C., Mexico. The Company owns all of its properties with the exception of the Mexican joint venture facility, which is leased. The Dayton, Fredericksburg, Gallatin, and Brunswick plants are all pledged as security under long-term financing agreements. The Company owns and leases a fleet of trucks and trailers for the delivery of its products. The Company considers that its properties are in good operating condition and that its machinery and equipment have been well-maintained. Manufacturing facilities are suitable for their intended purposes and have capacities adequate for current and projected needs for existing products. ITEM 3. LEGAL PROCEEDINGS. There are no material pending legal proceedings to which the Company or any of its subsidiaries is a party or which any of their property is a subject. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. No matters were submitted to a vote of security holders during the fourth quarter of fiscal 1995. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS. The Company's common stock is listed on the New York Stock Exchange under the symbol III. At December 11, 1995, there were 785 stockholders of record. Certain of the Company's borrowing agreements contain restrictions on the payment of dividends. As of September 30, 1995, $13,953,000 of retained earnings are available for dividend payments. 5 6 FINANCIAL INFORMATION BY QUARTER (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE AND PRICE DATA)
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 1995 ---- OPERATING RESULTS Net sales $58,619 $66,003 $69,360 $66,362 Gross profit 4,674 6,943 6,698 3,592 Net earnings 684 4,026 1,596 30 PER SHARE DATA (IN DOLLARS) Net earnings .08 .48 .19 .01 Dividends declared .06 .06 .06 .06 Stock prices High 8.88 8.25 8.13 8.88 Low 6.88 7.00 7.00 7.00 1994 ---- OPERATING RESULTS Net sales $50,356 $56,128 $71,360 $69,201 Gross profit 2,842 4,668 6,611 5,633 Earnings before cumulative effect of change in accounting principle 17 706 1,580 1,469 Cumulative effect of change in accounting principle 1,325 - - - Net earnings 1,342 706 1,580 1,469 PER SHARE DATA (IN DOLLARS) Earnings before cumulative effect of change in accounting principle - .09 .19 .18 Cumulative effect of change in accounting principle .16 - - - Net earnings .16 .09 .19 .18 Dividends declared .06 .06 .06 .06 Stock prices High 11.50 12.13 10.38 9.75 Low 8.63 8.50 8.25 8.13
6 7 ITEM 6. SELECTED FINANCIAL DATA. FINANCIAL HIGHLIGHTS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Year Ended September 30, -------------------------------------------------------------- 1995 1994 1993 1992 1991 -------- -------- -------- -------- -------- Net sales $260,344 $247,045 $245,016 $239,559 $240,220 Earnings before extraordinary item and cumulative effect of change in accounting principle* 6,336 3,772 6,292 4,345 1,660 Net earnings 6,336 5,097 6,292 4,345 1,769 Earnings per share before extraordinary item and cumulative effect of change in accounting principle (primary)* .76 .45 .80 .68 .26 Net earnings per share (primary) .76 .61 .80 .68 .28 Dividends per share .24 .24 .23 .21 .19 Total assets 146,135 138,879 133,042 112,766 108,909 Long-term debt 22,089 26,797 29,188 30,433 32,130 Stockholders' equity 71,212 66,461 62,930 44,944 41,684
* See Item 7, below, and Note 1 of Notes to Consolidated Financial Statements for information regarding the change in accounting principle. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS 1995 Compared With 1994 Insteel's net sales reached a new high in 1995, rising 5% to $260.3 million compared with $247.0 million in 1994. The current year was marked by dramatically different business conditions in the first and second halves of the year relative to 1994. Sales for the first half of the year were up 17% over the same period in 1994 due to strong market demand and the additional volume generated by the PC strand product line. During the second half of the year, a softening business environment and related build-up in customer inventories led to a 3% decline in sales compared to the same period in 1994. For the year, average wire selling prices per ton were up 3% over 1994 due to improved product mix and higher price levels. Wire product shipments increased 2%. Cost of sales during 1995 were 91.6% of sales, down from 92.0% in 1994. Gross profit increased 11% to $21.9 million or 8.4% of sales in 1995 compared with $19.8 million or 8.0% of sales in 1994. The PC strand plant, which incurred start-up losses during the first half of 1994, was the driving factor behind the year-to-year improvement. Strong customer demand in the first half of the year widened spreads between selling prices and raw material costs and favorably impacted gross margins. Weakening market conditions in the second half of the year led to narrower spreads and excess inventories. In response, production rates at most facilities were sharply reduced in order to realign inventories with customer demand. The resulting increase in per-unit production costs negatively impacted gross margins, particularly in the fourth quarter. 7 8 Selling, general and administrative expenses were $13.2 million or 5.1% of sales in 1995 compared with $12.5 million or 5.0% of sales in 1994. The Company's focus on cost-reduction efforts continued to minimize SG & A expenditures. Interest expense increased 9% to $2.3 million compared to $2.2 million in 1994. The increase in 1995 was due to higher interest rates and the capitalization of interest related to the construction of the PC strand plant in the first quarter of 1994. The statement of earnings for 1994 and 1993 reflected the funding of 30% of ICS losses by its former joint venture partner. As a result of the purchase of the remaining interest in ICS in the second quarter of 1995, minority interest was not applicable to the 1995 results. ICS continued to incur substantial losses in 1995 due to insufficient sales volume. The provision for income taxes included a $2.4 million deferred tax benefit recorded in the second quarter of 1995 as a result of the purchase of the 30% minority interest in ICS and subsequent merger into IWP. The Company established a deferred tax asset and reduced its income tax provision to reflect the expected usage of existing ICS net operating loss carryforwards in the future. In the first quarter of 1994, the Company adopted SFAS No. 109, "Accounting for Income Taxes," and recognized a $1.3 million benefit for previously unrecorded deferred tax assets related to other net operating loss carryforwards. Excluding the tax-related adjustments in both years, the effective income tax rate remained constant at 36.6%. 1994 Compared With 1993 Sales increased 1% for the year, rising to $247.0 million in 1994 from $245.0 million in 1993. Sales for 1993 included $33.5 million of scrap brokerage revenue, a business that was terminated in August 1993. Excluding the scrap brokerage business, sales were up 17% over 1993. Average wire selling prices per ton were up 6% over 1993 due to improved product mix and higher price levels. Wire product shipments increased 11%. Cost of sales increased to 92.0% of sales in 1994 from 91.5% in 1993. As a result, gross profit dropped 5% to $19.8 million or 8.0% of sales in 1994 compared with $20.9 million or 8.5% of sales in 1993. Operating costs for 1994 were negatively impacted by the start-ups of an automated wire rod cleaning facility, a new welding line and the PC strand operation. ICS continued to operate below breakeven volume despite the profitable performance of the Panel/MEX joint venture in the second half of the year. Selling, general and administrative expenses decreased to $12.5 million or 5.0% of sales in 1994 compared with $12.8 million or 5.2% of sales in 1993. Interest expense increased to $2.2 million from $1.1 million in 1993. Interest expense for 1993 was below recent historical levels due to: (1) the conversion of $14.0 million of subordinated debentures into equity in December 1992 and (2) partial year interest expense on the $15.0 million private placement of senior notes that were funded half in April and half in September. Higher short-term debt balances relative to recent historical levels were also responsible for the increase in interest expense for 1994. In the first quarter of 1994, the Company adopted SFAS No. 109, "Accounting for Income Taxes," and recognized a $1.3 million benefit for previously unrecorded deferred tax assets related to net operating loss carryforwards. Prior to adoption of this new accounting standard, benefits from the Company's net operating loss carryforwards were recognized for financial reporting purposes only in the year that they were used for income tax purposes. As a result of this new accounting treatment, the Company's effective tax rate increased to 36.6% in 1994 from 17.5% in 1993. FINANCIAL CONDITION Operating activities generated $4.6 million of cash during 1995 compared to $1.6 million in 1994 and $17.3 million in 1993. Increases in cash provided by receivables and improved operating performance were offset by higher inventory levels. Earnings before interest, taxes and depreciation were $16.5 million or $1.96 per share 8 9 in 1995 compared to $15.2 million or $1.83 per share in 1994 and $15.1 million or $1.92 per share in 1993. Days sales outstanding of receivables were 43.5 in 1995 compared to 45.1 in 1994 and 43.5 in 1993. The sharp increase in raw material inventories relative to shipment volumes resulted in a decrease in inventory turns to 6.3 in 1995 compared to 7.1 in 1994 and 9.1 in 1993. In 1995, the soft market conditions in the second half of the year were responsible for the inventory build-up. Management is taking action to reduce raw material inventories down to desired levels by the end of the first fiscal quarter of 1996. Inventory levels in 1994 were driven upwards by: (1) tight wire rod market conditions and longer lead times from suppliers, (2) a higher proportion of imported rod purchases with larger order sizes and (3) additional inventories required to support start-up operations with low initial sales volumes. Investing activities consumed $5.4 million of cash in 1995 compared to $11.1 million in 1994 and $20.0 million in 1993 as a result of lower capital expenditures. From 1992 - 1994, capital expenditures amounted to $40.1 million or $4.78 per share as the Company completed an extensive manufacturing realignment program. In May 1995, construction started on a new collated nail facility in Andrews, South Carolina with start-up scheduled for the second fiscal quarter of 1996. The Company has also made purchase commitments for the expansion of its PC strand plant with start-up scheduled for the second half of fiscal 1996. Total expenditures for these projects will be approximately $9.0 million. Financing activities used $200,000 of cash in 1995 compared to providing $1.5 million in 1994 and $11.6 million in 1993. Short-term debt increased in 1995 and 1994 primarily due to higher inventory levels. During 1995, the Company utilized short-term borrowings on unsecured lines of credit to fund its seasonal working capital requirements. At September 30, 1995, there was $8.3 million outstanding on lines of credit which provide total availability of $20.0 million. The Company is negotiating with a commercial bank for a five-year $35.0 million unsecured revolving credit facility that will replace the existing lines of credit. The proposed revolving credit facility would be utilized to refinance a portion of existing debt and fund working capital requirements, capital expenditures and general corporate purposes. Insteel's financial position remained strong in 1995. The Company's long-term debt to total capital ratio decreased to 24% at September 30, 1995 compared to 29% in 1994 and 32% in 1993. The Company believes that funds provided by operations and external sources of financing are sufficient to support business requirements for the foreseeable future. OUTLOOK Future trends for revenue and profitability continue to be difficult to predict. Insteel faces a number of risks and uncertainties, including business conditions and growth in the general economy, competitive pressures and wire rod market conditions. Announced increases in domestic wire rod capacity should improve the quality and availability of the Company's primary raw material. The recently completed realignment and capital investment programs have strengthened Insteel's position as the leading low cost producer of wire products operating in the most updated, technologically advanced manufacturing facilities. The Company currently offers a wider range of product lines through more diverse distribution channels than any of its competitors. Management believes that Insteel is well-positioned to benefit from future improvements in market conditions. Although ICS has failed to build sales volumes up to breakeven levels, recent developments are promising. Order levels have improved and substantial interest has been generated by the performance of the 3-D product during the recent hurricanes in the Caribbean. Management is prepared to implement alternative operating strategies should the increased interest fail to translate into substantial improvements in ICS' operating results. 9 10 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. (A) FINANCIAL STATEMENTS
Page ---- Consolidated Balance Sheets as of September 30, 1995 and 1994 11 Consolidated Statements of Earnings for the three years ended September 30, 1995 12 Consolidated Statements of Stockholders' Equity for the three years ended September 30, 1995 13 Consolidated Statements of Cash Flows for the three years ended September 30, 1995 14 Notes to Consolidated Financial Statements 16 Schedule II - Valuation and Qualifying Accounts 25 Independent Auditors' Report - KPMG Peat Marwick LLP 26 Independent Auditors' Report - Deloitte & Touche LLP 27
(B) SUPPLEMENTARY DATA Selected quarterly financial data appears under the caption "Financial Information by Quarter (Unaudited)" in Item 5 of this report. 10 11 INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS)
SEPTEMBER 30, ------------------------- 1995 1994 -------- -------- ASSETS Current assets: Cash and cash equivalents $ 263 $ 1,234 Accounts receivable, net 31,516 33,399 Inventories 40,566 28,750 Prepaid expenses and other 1,509 1,119 -------- -------- Total current assets 73,854 64,502 Property, plant and equipment, net 65,100 66,540 Other assets 7,181 7,837 -------- -------- Total assets $146,135 $138,879 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 27,471 $ 25,196 Accrued expenses 6,897 6,776 Short-term debt 8,260 4,940 Current portion of long-term debt 5,196 2,407 -------- -------- Total current liabilities 47,824 39,319 Deferred income taxes 5,010 6,302 Long-term debt 22,089 26,797 Commitments Stockholders' 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: 1995, 8,393; 1994, 8,333 16,787 16,667 Additional paid-in capital 38,033 37,730 Retained earnings 16,392 12,064 -------- -------- Total stockholders' equity 71,212 66,461 -------- -------- Total liabilities and stockholders' equity $146,135 $138,879 ======== ========
See accompanying notes to consolidated financial statements. 11 12 INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (IN THOUSANDS EXCEPT FOR PER SHARE DATA)
YEAR ENDED SEPTEMBER 30, ------------------------------------------------ 1995 1994 1993 -------- -------- -------- Net sales $260,344 $247,045 $245,016 Cost of sales 238,437 227,291 224,155 -------- -------- -------- Gross profit 21,907 19,754 20,861 Selling, general and administrative expense 13,164 12,455 12,789 -------- -------- -------- Operating income 8,743 7,299 8,072 Interest expense 2,344 2,160 1,121 Minority interest in loss of subsidiary - (625) (549) Equity in loss of affiliate 88 116 290 Other expense (income) 52 (301) (417) -------- -------- -------- Earnings before income taxes and cumulative effect of change in accounting principle 6,259 5,949 7,627 Provision (benefit) for income taxes (77) 2,177 1,335 -------- -------- -------- Earnings before cumulative effect of change in accounting principle 6,336 3,772 6,292 Cumulative effect of change in accounting principle - 1,325 - -------- -------- -------- Net earnings $ 6,336 $ 5,097 $ 6,292 ======== ======== ======== Earnings per share: Primary: Earnings before cumulative effect of change in accounting principle $ .76 $ .45 $ .80 Cumulative effect of change in accounting principle - .16 - -------- -------- -------- Net earnings $ .76 $ .61 $ .80 ======== ======== ======== Fully diluted: Earnings before cumulative effect of change in accounting principle $ .76 $ .45 $ .78 Cumulative effect of change in accounting principle - .16 - -------- -------- -------- Net earnings $ .76 $ .61 $ .78 ======== ======== ======== Cash dividends per share $ .24 $ .24 $ .23 ======== ======== ========
See accompanying notes to consolidated financial statements. 12 13 INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, ----------------------------------------------- 1995 1994 1993 ------- ------- ------- COMMON STOCK: Balance, beginning of year $16,667 $16,533 $11,618 Adjustment to reflect conversion of convertible debentures - - 3,316 Adjustment to reflect 10% stock dividend - - 1,502 Stock options exercised 120 134 97 ------- ------- ------- Balance, end of year $16,787 $16,667 $16,533 ======= ======= ======= ADDITIONAL PAID-IN CAPITAL: Balance, beginning of year $37,730 $37,434 $20,254 Adjustment to reflect conversion of convertible debentures - - 9,893 Adjustment to reflect 10% stock dividend - - 7,039 Stock options exercised 303 296 248 ------- ------- ------- Balance, end of year $38,033 $37,730 $37,434 ======= ======= ======= RETAINED EARNINGS: Balance, beginning of year $12,064 $ 8,963 $13,072 Adjustment to reflect 10% stock dividend - - (8,540) Cash dividends declared (2,008) (1,996) (1,861) Net earnings 6,336 5,097 6,292 ------- ------- ------- Balance, end of year $16,392 $12,064 $ 8,963 ======= ======= =======
See accompanying notes to consolidated financial statements. 13 14 INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, ---------------------------------------------- 1995 1994 1993 -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net earnings $ 6,336 $ 5,097 $ 6,292 -------- -------- -------- Adjustments to reconcile net earnings to net cash provided by operating activities: Cumulative effect of change in accounting principle - (1,325) - Depreciation and amortization 7,797 7,100 6,336 Minority interest in loss of subsidiary - (625) (549) Equity in loss of affiliate 88 116 290 Accounts receivable, net 1,819 (4,598) 167 Inventories (11,816) (5,040) 2,822 Accounts payable and accrued expenses 2,395 586 4,058 Other changes (1,976) 240 (2,157) -------- -------- -------- Total adjustments (1,693) (3,546) 10,967 -------- -------- -------- Net cash provided by operating activities 4,643 1,551 17,259 -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (5,554) (10,707) (19,596) Proceeds from sale of property, plant and equipment 16 980 257 Proceeds (payments) on notes receivable 226 654 (514) Increase in other investments (116) (2,000) (118) -------- -------- -------- Net cash used in investing activities (5,428) (11,073) (19,971) -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net increase in short-term debt 3,320 4,940 - Proceeds from long-term debt 1,986 1,306 20,772 Principal payments on long-term debt (3,907) (3,838) (8,234) Proceeds from stock options 423 430 345 Dividends paid (2,008) (1,996) (1,861) Capital contribution to subsidiary by minority interest - 625 536 -------- -------- -------- Net cash provided by (used in) financing activities (186) 1,467 11,558 -------- -------- -------- Net increase (decrease) in cash (971) (8,055) 8,846 Cash and cash equivalents at beginning of year 1,234 9,289 443 -------- -------- -------- Cash and cash equivalents at end of year $ 263 $ 1,234 $ 9,289 ======== ======== ========
14 15 CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, ------------------------------------------ 1995 1994 1993 ------ ------ ------- SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the year for: Interest $2,268 $1,912 $ 1,730 Income taxes $1,569 $1,424 $ 1,940 Non-cash activities: Purchase of minority interest through issuance of notes payable $ 832 - - ====== ====== ======= Conversion of accounts receivable to investment in affiliate $ 300 - - ====== ====== ======= Conversion of 7 3/4% convertible subordinated debentures (including deferred debt issuance costs of $465 and accrued interest expense of $134) to common stock - - $13,394 ====== ====== ======= Note receivable obtained in connection with the sale of assets - - $ 765 ====== ====== =======
See accompanying notes to consolidated financial statements. 15 16 INSTEEL INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 (In thousands, except as noted) (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF BUSINESS. Insteel Industries, Inc. ("Insteel" or the "Company") is a wire products manufacturer whose primary market is the construction industry. The Company produces welded wire fabric and prestressed concrete strand for concrete reinforcement, industrial wire, fencing products, nails and wire reinforced building panels. Insteel sells its products nationwide from eight plants in the U.S. and a joint venture operation in Mexico. PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include the accounts of the Company and its subsidiaries. During the second quarter of 1995, the Company purchased the remaining 30% of its joint venture subsidiary, Insteel Construction Systems, Inc. ("ICS"). Following the stock purchase, ICS was merged into Insteel's wholly-owned subsidiary, Insteel Wire Products Company ("IWP"). The Company accounted for this transaction under the purchase method and allocated the entire purchase price as a reduction of the valuation allowance for deferred tax assets. Results prior to the ICS stock purchase reflect the 30% minority interest of Insteel's joint venture partner. All significant intercompany balances and transactions have been eliminated. 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). INVESTMENT IN AFFILIATED COMPANIES. Investment in common stock of the Company's Mexican affiliate, Insteel Panel/MEX ("IPM") is accounted for by the equity method. PROPERTY, PLANT AND EQUIPMENT. Property, plant and equipment are stated at cost. Depreciation is calculated principally using the straight-line method based on the estimated useful lives of the assets. No interest costs were capitalized in 1995. Capitalized interest costs were $268 in 1994 and $414 in 1993. OTHER ASSETS. Other assets consist principally of various intangible assets, long-term notes receivable and the cash surrender value of life insurance policies. Intangible assets are amortized on a straight line basis over the expected periods to be benefited. INCOME TAXES. Effective October 1, 1993, the Company adopted Statement of Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for Income Taxes." The cumulative effect on prior years of this change in accounting principle increased net earnings by $1,325 or $.16 per share and is reported separately in the consolidated statement of earnings for 1994. Under the asset and liability method of SFAS No. 109, deferred tax assets and liabilities are recognized for the differences between the tax basis of assets or liabilities and their reported financial statement amounts. Financial statements for 1993 have not been restated to apply the provisions of SFAS No. 109 and are accounted for under SFAS No. 96. RECLASSIFICATIONS. Certain reclassifications have been made in prior years' financial statements to conform to the 1995 presentation. 16 17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except as noted) (2) DEBT AND CREDIT FACILITIES SHORT-TERM DEBT. The Company has agreements with two banks whereby one bank will advance up to $15,000 and the other bank up to $5,000 under unsecured lines of credit. These lines bear interest at a variable rate based on LIBOR and are renewable annually on December 31. There was $8,260 outstanding on the $15,000 line of credit at September 30, 1995 and $4,940 outstanding at September 30, 1994. Principal on any amounts advanced under the lines is payable in full on demand. LONG-TERM DEBT. Long-term debt consists of:
SEPTEMBER 30, ----------------------------- 1995 1994 ------- ------- 8.25% senior secured notes payable in semi-annual installments of $1,000, plus interest, beginning October 1995. $15,000 $15,000 Industrial revenue refunding bonds-interest rates range from 6.50% to 7.75%; serial bonds totaling $1,400 payable in varying annual amounts through 2000; term bonds payable in $840 installments in 2002 and 2005 3,080 3,360 Industrial development revenue refunding bonds - payable in semi- annual installments of $170 from January 1995 through January 1999, plus interest at a variable rate (4.60% at September 30, 1995) 2,720 3,060 Industrial revenue bonds - payable in quarterly installments of $115 through March 2000, plus interest at a variable rate (4.70% at September 30, 1995) 2,003 2,463 Unsecured note payable in monthly installments of $18 through February 2000, plus interest at a variable rate (6.88% at September 30, 1995) 936 1,140 7.30% secured note payable in monthly installments of $50 through March 1997, plus interest 900 1,450 7.25% secured note payable in monthly installments of $47 through August 1997, including interest 886 1,363 Unsecured note payable in quarterly installments of $109 through November 1996, imputed interest at 6.50% 522 - Mortgage notes and other 600 786 Supplemental retirement accrual 638 582 ------- ------- Total long-term debt 27,285 29,204 Less current maturities 5,196 2,407 ------- ------- Long-term debt, excluding current maturities $22,089 $26,797 ======= =======
Certain debt agreements contain restrictions on working capital, tangible net worth, debt relative to total capitalization, dividend payments and capital expenditures. Under the most restrictive of these covenants, the 17 18 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except as noted) Company must maintain tangible net worth of $52,000 plus 50% of cumulative net earnings since October 1, 1992, a liabilities to tangible net worth ratio of less than 2.0 to 1, a debt to total capitalization ratio of less than 50% and a current ratio of 1.5 to 1. Some of the agreements restrict liens on assets and certain mergers, consolidations or sales of assets. Dividend payments are restricted to a total of $3,000 plus cumulative earnings since October 1, 1992, and no dividends can be paid when a loss has been incurred in the four preceding quarters. At September 30, 1995, $13,953 of retained earnings are available for dividend payments. Property, plant and equipment with an aggregate carrying value of $46,325 is pledged as collateral under the Company's debt agreements. Aggregate maturities of long-term debt during the next five years are as follows: 1996, $5,196; 1997, $3,704; 1998, $3,296; 1999, $3,296; 2000, $3,875. The Company is negotiating with a commercial bank for a five-year $35.0 million unsecured revolving credit facility and a $17.5 million unsecured letter of credit facility. Under the proposed revolving credit agreement, interest would be paid at a variable rate based upon LIBOR and the Company would pay a commitment fee based upon the unused portion of the facility. The interest spread over LIBOR and unused commitment fee would be adjusted quarterly based upon the Company's ratio of funded debt to earnings before interest, taxes, depreciation and amortization. The proposed revolving credit facility would be utilized to refinance a portion of existing debt and fund working capital requirements, capital expenditures and general corporate purposes. (3) STOCKHOLDERS' EQUITY Shares of common stock outstanding are as follows:
YEAR ENDED SEPTEMBER 30, --------------------------------------- 1995 1994 1993 ----- ----- ----- Balance, beginning of year 8,333 8,267 5,809 Conversion of convertible debentures - - 1,658 10% stock dividend - - 751 Stock options exercised 60 66 49 ----- ----- ----- Balance, end of year 8,393 8,333 8,267 ===== ===== ===== Weighted average 8,363 8,311 7,863 ===== ===== =====
On February 2, 1993, the Board of Directors approved a 10% stock dividend that was distributed on April 12, 1993 to shareholders of record as of March 19, 1993. Primary earnings per share are computed by dividing net earnings by the weighted average number of common shares outstanding for each period. The calculation excludes the effect of common equivalent shares resulting from stock options using the treasury stock method as the effect does not exceed 3% of the shares outstanding and would not be material for 1995, 1994 or 1993. Fully diluted earnings per share in 1993 excludes interest expense (net of tax effect) on the 7 3/4% convertible subordinated debentures issued in 1986. In November 1992, the Company called the debentures for 18 19 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except as noted) redemption. The call was underwritten, with the result that 100% of the debentures were converted by December 31, 1992, thereby increasing shares outstanding by approximately 1,658 shares. Stockholders' equity was increased by the amount of debentures converted, less underwriting and original debenture issuance costs. On August 15, 1995, the Board of Directors authorized the repurchase of up to one million shares of the Company's common stock. The Board action did not specify either a time period or the price at which shares may be repurchased. (4) STOCK OPTION PLANS Under the Company's stock option plans, shares of common stock have been made available for grant to employees and directors. The exercise price of each option is 100% of 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 on September 24, 1994, no further options may be granted under these plans. Options granted under the 1994 employee and director stock option plans vest over five years and expire ten years from the date of the grant. Stock options outstanding are as follows:
YEAR ENDED SEPTEMBER 30, --------------------------------------------------------------------------- 1995 1994 1993 ---------------------- ---------------------- --------------------- PRICE PRICE PRICE SHARES RANGE SHARES RANGE SHARES RANGE ------ ----------- ------ ------------ ------ ----------- Balance, beginning of year 464 $5.21-12.25 337 $5.21l-12.25 294 $5.21-8.57 Additional options granted 95 7.50-7.88 195 8.50-10.44 96 9.60-12.25 Options exercised (100) 5.78-6.96 (67) 5.78-7.84 (53) 5.77-7.84 Options cancelled (50) 6.01-10.44 (1) 5.78-7.84 - - ----- ----------- ----- ------------ ----- ----------- Balance, end of year 409 $5.21-12.25 464 $5.21-12.25 337 $5.21-12.25 Shares reserved for future option grants 855 950 1,163 ----- ----- ----- Total shares reserved 1,264 1,414 1,500 ===== ===== ===== Total shares exercisable 204 231 202 ===== ===== =====
(5) INCOME TAXES Effective October 1, 1993, the Company adopted SFAS No. 109, "Accounting for Income Taxes." The cumulative effect on prior years of this change in accounting principle increased net earnings by $1,325 or $.16 per share and is reported separately in the consolidated statement of earnings for 1994. 19 20 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except as noted) The provision (benefit) for income taxes consists of:
YEAR ENDED SEPTEMBER 30, ----------------------------------- 1995 1994 1993 ------- ------- ------ CURRENT: Federal $ 1,219 $1,318 $1,471 State 100 222 269 ------- ------- ------ 1,319 1,540 1,740 DEFERRED: Federal (1,385) 568 (334) State (11) 69 (71) ------- ------- ------ (1,396) 637 (405) ------- ------- ------ Provision (benefit) for income taxes $ (77) $2,177 $1,335 ======= ====== ======
The provision (benefit) for income taxes differs from the amount of the income tax determined by applying the applicable federal statutory income tax rate of 34% to pretax earnings as a result of the following differences:
YEAR ENDED SEPTEMBER 30, ------------------------------------ 1995 1994 1993 ------- ------ ------- Provision for income taxes at statutory rate $ 2,128 $2,023 $ 2,593 Change in the beginning-of-the-year balance of the valuation allowance for deferred tax assets allocated to the provision for income taxes (2,368) - - Utilization of federal tax loss carryforwards - - (1,584) State income taxes, net of federal income tax benefit 66 155 178 Equity in losses of subsidiary not included in consolidated return - 534 435 Adjustments to deferred income taxes previously established - (520) (217) Other, net 97 (15) (70) ------- ------ ------- Provision (benefit) for income taxes $ (77) $2,177 $ 1,335 ======= ====== =======
20 21 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except as noted) The tax effect of temporary differences and tax credit carryforwards that give rise to significant portions of deferred tax assets and liabilities are as follows:
SEPTEMBER 30, --------------------------------- 1995 1994 ------- ------- DEFERRED TAX ASSETS: Net operating loss carryforwards $ 2,242 $ 2,924 Accrued expenses or asset reserves for financial statements not yet deductible for tax purposes 1,814 1,573 Alternative minimum tax credit carryforwards 525 415 ------- ------- Total gross deferred tax assets 4,581 4,912 Less valuation allowance - (2,924) ------- ------- Net deferred tax assets 4,581 1,988 ------- ------- DEFERRED TAX LIABILITIES: Plant and equipment principally due to differences in depreciation and capitalized interest (8,112) (7,134) Other reserves (621) (747) Prepaid expenses for financial statements that were deducted for tax purposes (346) (409) ------- ------- Total gross deferred liabilities (9,079) (8,290) ------- ------- Net deferred tax liability $(4,498) $(6,302) ======= =======
During the second quarter of 1995, the Company purchased the remaining 30% of its joint venture subsidiary, ICS. Following the completion of the stock purchase, ICS was merged into Insteel's wholly-owned subsidiary, IWP. Management expects that through the future combined operations of IWP and ICS, the Company will be able to utilize the net operating loss carryforwards generated by ICS prior to the merger. Accordingly, during the second quarter, the valuation allowance was reduced $2,368 with a corresponding reduction in the deferred provision for income taxes. The balance of the valuation allowance was reduced by the amount of the purchase price for the remaining 30% interest in ICS. Following adoption of SFAS No. 109, the balance of the valuation allowance at October 1, 1993 for net operating loss carryforwards that were not included in the Company's consolidated return was $1,970. Therefore, the valuation allowance increased $954 in 1994. The Company's IWP subsidiary has approximately $6,595 of operating loss carryforwards for tax return purposes expiring in 2004 to 2010. (6) EMPLOYEE BENEFIT PLANS RETIREMENT PLANS. Insteel has various defined benefit pension plans covering substantially all of its employees. Pension benefits are based principally on an employee's years of service and compensation level near 21 22 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except as noted) retirement. The Company's funding policy is to deposit with an independent trustee amounts at least equal to those required by law. The funded status of these plans and amounts recognized in the Company's consolidated balance sheet are as follows:
SEPTEMBER 30, --------------------------- 1995 1994 ------- ------- Actuarial present value of: Vested benefit obligation $ 8,631 $ 8,939 Nonvested benefit obligation 521 767 ------- ------- Accumulated benefit obligation 9,152 9,706 ======= ======= Projected benefit obligation 11,588 12,311 Plan assets at fair market value 10,262 10,171 ------- ------- Projected benefit obligations in excess of plan assets (1,326) (2,140) Unrecognized net (asset) obligation (333) (401) Unrecognized prior service cost (490) (492) Unrecognized net gain 437 1,310 ------- ------- Accrued pension expense included in accrued expenses $(1,712) $(1,723) ======= =======
The weighted average discount rates and long-term rates for compensation increases used for estimating the benefit obligations and the expected return on plan assets are as follows:
YEAR ENDED SEPTEMBER 30, -------------------------------------------- 1995 1994 1993 ---- ---- ---- Assumptions at year-end: Discount rate 7.5% 7.0% 7.0% Rate of increase in compensation levels 6.0% 6.0% 6.0% Expected long-term rate of return on assets 8.0% 8.0% 8.0%
Pension expense included the following:
YEAR ENDED SEPTEMBER 30, ------------------------------------------- 1995 1994 1993 ----- ----- ------- Service cost - benefits earned during the period $ 639 $ 698 $ 520 Interest cost of projected benefit obligation 793 772 686 Expected investment return on plan assets (662) (757) (1,206) Net amortization and deferral (60) (81) 417 ----- ----- ------- Net pension expense $ 710 $ 632 $ 417 ===== ===== =======
22 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except as noted) Plan assets are primarily invested in publicly traded stocks and bonds, pooled equity funds, fixed income investment funds and insurance company guaranteed investment accounts The plans hold 27 shares of Insteel common stock with a market value of $193 at September 30, 1995. Insteel has a management security program for key employees. Under the plan, participants are entitled to cash benefits upon retirement at age 65, payable annually for 15 years. The plan is funded by life insurance policies on the participants purchased by the Company. Management security program expense was $74 in 1995 compared with $49 in 1994 and $11 in 1993. PROFIT-SHARING PLANS. Insteel has a profit-sharing plan covering substantially all of its employees. Under the plan, a profit pool of 10% of earnings before income tax is paid to the employees of the Company's subsidiaries each year. The Company's corporate office employees receive a percentage of their compensation as determined by a portion of each subsidiary's overall profit-sharing percentage. Corporate officers participate in the bonus plan only after return on equity reaches a minimum of 10%. Profit sharing expense was $958 in 1995 compared with $792 in 1994 and $1,194 in 1993. ESOP. Insteel has an Employee Stock Ownership Plan (ESOP) covering substantially all of its employees. Under the plan the Company can make voluntary cash contributions which are used to purchase shares of the Company's common stock on the open market. These shares are then allocated to eligible employees once a year. During 1995, the Company contributed $85 to the ESOP. No contributions were made in 1994 or 1993. VEBA. Insteel has a Voluntary Employee Beneficiary Association (VEBA). Under the plan both employees and the Company may make contributions to pay for medical benefits. During 1995, the Company contributed $685 compared with $710 in 1994 and $840 in 1993. (7) COMMITMENTS The Company leases a portion of its machinery and equipment under principally noncancellable operating leases which expire at various dates through 2006. Under most lease agreements, the Company pays insurance, taxes and maintenance. Rental expense for operating leases for 1995 was $1,266 compared with $1,081 in 1994 and $812 in 1993. Future lease obligations for the next five years and beyond are as follows: 1996, $867; 1997, $858; 1998, $857; 1999, $348; 2000, $371; beyond, $1,645. Commitments for construction or purchase of property, plant and equipment approximate $3,765 at September 30, 1995. Under the terms of a rod supply agreement, Insteel has committed to purchase from GS Industries, Inc. a portion of the Company's raw material requirements. The supply agreement remains in effect until cancellation by either party. Should either party elect to cancel the agreement, cancellation becomes effective one year after the receipt of written notification. (8) MAJOR CUSTOMER During 1993, sales of the Company's scrap brokerage operation were entirely to one customer and amounted to $33,507. In August 1993, the Company ceased its scrap brokerage operation. 23 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (In thousands, except as noted) (9) JOINT VENTURE In May 1992, the Company's ICS subsidiary entered into a joint venture agreement for the purpose of manufacturing and distributing wire reinforced building panels in Mexico. The Company accounts for the investment in its Mexican affiliate, IPM, using the equity method of accounting. Notes receivable from the joint venture were $300 at September 30, 1995 and September 30, 1994. Notes receivable from the joint venture partner were $238 at September 30, 1995 and $244 at September 30, 1994. Trade accounts receivable from the joint venture were $382 at September 30, 1995 and $500 at September 30, 1994. (10) RELATED PARTY TRANSACTIONS Construction services amounting to $582 in 1995 and $3,806 in 1994 were provided by a company whose chairman is a Company director. (11) OTHER FINANCIAL DATA Balance sheet information:
SEPTEMBER 30, --------------------------------- 1995 1994 -------- -------- Accounts receivable: Accounts receivable $ 31,910 $ 33,655 Less allowance for doubtful accounts 394 256 -------- -------- Accounts receivable, net $ 31,516 $ 33,399 ======== ======== Inventories: Finished goods $ 13,042 $ 10,900 Work in progress 1,372 1,274 Raw materials 24,025 14,067 Supplies 2,127 2,509 -------- -------- Total inventories $ 40,566 $ 28,750 ======== ======== Property, plant and equipment: Land and land improvements $ 4,758 $ 4,681 Buildings 28,414 27,236 Machinery and equipment 74 051 71,872 Construction in progress 1,979 708 -------- -------- Total property, plant and equipment, at cost 109,202 104,497 Less accumulated depreciation (44,102) (37,957) -------- -------- Total property, plant and equipment, net $ 65,100 $ 66,540 ======== ========
24 25 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993 ALLOWANCE FOR DOUBTFUL ACCOUNTS (IN THOUSANDS)
YEAR ENDED SEPTEMBER 30, -------------------------------------------- 1995 1994 1993 ---- ----- ------- Balance, beginning of year $256 $ 366 $ 1,207 Additions charged to earnings 148 308 206 Accounts written off (10) (418) (1,047) ---- ----- ------- Balance, end of year $394 $ 256 $ 366 ==== ===== =======
25 26 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Insteel Industries, Inc. We have audited the accompanying consolidated balance sheet of Insteel Industries, Inc. and subsidiaries as of September 30, 1995, and the related consolidated statements of earnings, stockholders' equity, and cash flows for the year then ended. In connection with our audit of the consolidated financial statements, we also have audited the financial statement Schedule II - Valuation and Qualifying Accounts. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the 1995 financial statements referred to above present fairly, in all material respects, the financial position of Insteel Industries, Inc. and subsidiaries as of September 30, 1995, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG PEAT MARWICK LLP Charlotte, North Carolina October 24, 1995 26 27 INDEPENDENT AUDITORS' REPORT Board of Directors and Stockholders Insteel Industries, Inc. Mount Airy, North Carolina We have audited the accompanying consolidated balance sheet of Insteel Industries, Inc. and subsidiaries as of September 30, 1994, and the related consolidated statements of earnings, stockholders' equity, and cash flows for each of the two years in the period ended September 30, 1994, and the additional financial statement schedule listed at Item 14 (a)(2). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our 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 September 30, 1994, and the results of their operations and their cash flows for each of the two years in the period ended September 30, 1994 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. As discussed in Note 5 to the financial statements, the Company changed its method of accounting for income taxes effective October 1, 1993 to conform with Statement of Financial Accounting Standards No. 109. DELOITTE & TOUCHE LLP Charlotte, North Carolina October 28, 1994 27 28 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. The information required for this item has been reported by means of a Current Report on Form 8-K, dated August 15, 1995. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. Information with respect to directors and nominees appears under the caption "Election of Directors" in the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders and is incorporated by reference. Information on executive officers appears under the caption "Executive Officers of the Company" in Item 1 of this report. ITEM 11. EXECUTIVE COMPENSATION. The information required for this item appears under the captions "Executive Compensation" and "Performance Graph" in the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders and is incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information required for this item appears under the captions "Principal Shareholders" and "Security Ownership of Management" in the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders and is incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information required for this item appears under the captions "Executive Compensation - Compensation Committee Interlocks and Insider Participation" and "Transactions With Management and Others" in the Company's Proxy Statement for the 1996 Annual Meeting of Stockholders and is incorporated by reference. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (A)(1) FINANCIAL STATEMENTS The financial statements as set forth under Item 8 are filed as part of this report. (A)(2) FINANCIAL STATEMENT SCHEDULES Supplemental Schedule II - Valuation and Qualifying Accounts appears on page 25 of this report. All other schedules have been omitted because they are either not required or not applicable. (B) REPORTS ON FORM 8-K During the quarter ended September 30, 1995, the Company filed one Current Report on Form 8-K, dated August 15, 1995, reporting under Item 4 thereof a change in the Company's principal accountants. 28 29 (C) EXHIBITS See exhibit index on page 31. (D) FINANCIAL STATEMENT SCHEDULES See Item 14 (a)(2) above. 29 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 18, 1995 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 18, 1995 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 JOSEPH D. NOELL, III Director -------------------- JOSEPH D. NOELL, III MICHAEL C. GAZMARIAN Chief Financial Officer and Treasurer (Principal -------------------- Financial and Accounting Officer) MICHAEL C. GAZMARIAN THOMAS J. CUMBY Director --------------- THOMAS J. CUMBY LOUIS E. HANNEN Director --------------- LOUIS E. HANNEN FRANCES H. JOHNSON Director ------------------ FRANCES H. JOHNSON CHARLES B. NEWSOME Director ------------------ CHARLES B. NEWSOME W. ALLEN ROGERS, II Director ------------------- W. ALLEN ROGERS, II C. RICHARD VAUGHN Director ----------------- C. RICHARD VAUGHN JOHN E. WOLTZ Director ------------- JOHN E. WOLTZ
30 31 EXHIBIT INDEX TO ANNUAL REPORT ON FORM 10-K OF INSTEEL INDUSTRIES, INC., FOR YEAR ENDED SEPTEMBER 30, 1995
EXHIBIT NUMBER DESCRIPTION PAGE ------ ----------- ---- 3- ARTICLES OF INCORPORATION AND BYLAWS ------------------------------------ 3.1 Restated articles of incorporation of the registrant, as amended (Incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K, dated May 3, 1988.) 3.2 Bylaws of the registrant (as last amended February 5, 1991) incorporated by reference to the exhibit of the same number contained in the Company's Annual Report on Form 10-K for the year ended September 30, 1991. 4- INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES ------------------------------------------------------------------------- 4.2 Articles IV and VI of the registrant's restated articles of incorporation, which are incorporated herein by reference to Exhibit 3.1. 4.3 Article 2, Section 8, of the registrant's bylaws, which is incorporated herein by reference to Exhibit 3.2. *4.13 Loan Agreement dated as of September 1, 1988, between Liberty County Industrial Development Corporation ("Issuer") and Insteel Industries, Inc. ("Company") pursuant to which the Issuer agreed to loan the proceeds from its $3,400,000 Industrial Development Revenue Refunding Bonds, Series 1988 (Insteel Industries, Inc. Project) (the "Bonds") to the Company and the Company agreed to repay such loan to the Issuer. *4.14 Promissory Note dated October 26, 1988 and issued by the Company to the Issuer in the principal amount of $3,400,000, which note evidences the loan from the Issuer to the Company under the Loan Agreement (Exhibit 4.13). *4.15 Purchase Contract dated October 26, 1988, among the Issuer, the Company, Texas Department of Commerce and Federated Tax-Free Trust ("Purchaser") pursuant to which the Purchaser agreed to purchase the Bonds issued by the Issuer. *4.16 Letter of Credit and Reimbursement Agreement dated as of September 1, 1988, by and between the Company and First Union National Bank of North Carolina ("Bank") pursuant to which the Bank agreed to issue its Letter of Credit to secure payment of the Bonds and the Company agreed to reimburse the Bank for any and all drawings made under the Letter of Credit. +4.17 Loan Agreement dated as of May 1, 1989, between Brunswick and Glynn County Development Authority ("Issuer") and Insteel Industries, Inc. ("Company"), pursuant to which the Issuer agreed to loan the proceeds from its $4,500,000 Industrial Development Revenue Bonds, Series 1989 (Insteel Industries, Inc. Project) (the "Bonds") to the Company and the Company agreed to repay such loan to the Issuer. +4.18 Promissory Note dated June 27, 1989, and issued by the Company to the Issuer in the principal amount of $4,500,000 which note evidences the loan from the Issuer to the Company under the Loan Agreement (Exhibit 4.17). +4.19 Purchase Contract dated June 27, 1989, among the Issuer, the Company, and Seaboard Corporation ("Purchaser") pursuant to which the Purchaser agrees to purchase the Bonds issued by the Issuer. +4.20 Letter of Credit and Reimbursement Agreement dated as of May 1, 1989, by and between the Company and First Union National Bank of North Carolina ("Bank") pursuant to which the Bank agreed to issue its Letter of Credit to secure payment of the Bonds and the Company agreed to reimburse the Bank for any and all drawings made under the Letter of Credit. #4.24 Indenture of Trust between Industrial Development Authority of the City of Fredericksburg, Virginia and Crestar Bank as Trustee, dated as of September 1, 1990, relating to $4,205,000 Industrial Development Authority of the City of Fredericksburg, Virginia Industrial Development First Mortgage Revenue Refunding Bonds (Insteel Industries, Inc./Rappahannock Wire Company Project) Series of 1990.
31 32
EXHIBIT NUMBER DESCRIPTION PAGE ------ ----------- ---- #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. 4.31 Promissory Note and Security Agreement between Insteel Industries, Inc. and First Union National Bank of North Carolina, dated August 27, 1992, providing for $2.25 million to finance expansion of the Andrews, South Carolina plant. (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, 1992). **4.33 Promissory Note and Security Agreement between Insteel Industries, Inc. and First Union National Bank of North Carolina, dated February 23, 1993, providing for $2.4 million to refinance welding and auxilliary equipment. **4.35 Note Agreement (including formal Note, appendices and exhibits) between Insteel Industries, Inc. and Jefferson-Pilot Life Insurance Company, dated as of April 15, 1993, relating to $15,000,000 principal amount of 8.25% Senior Secured Notes due October 15, 2002. **4.36 Deed of Trust, Security Agreement, Assignment of Rents and Financing Statement, dated as of April 15, 1993, relating to the 8.25% Senior Secured Notes issued pursuant to Exhibit 4.35. **4.37 Guaranty Agreement, dated as of April 15, 1993, relating to the 8.25% Senior Secured Notes issued pursuant to Exhibit 4.35. 4.41 Loan Agreement between Insteel Industries, Inc. and Wachovia Bank of North Carolina, N.A. dated 34 February 3, 1995, providing for a $1,080,000 loan to finance an office building. 4.42 Promissory Note dated February 3, 1995 and issued by the Company to the Issuer in the principal 39 amount of $1,080,000, which note evidences the loan from the Issuer to the Company under the Loan Agreement (Exhibit 4.41). 4.43 Promissory Note between Insteel Industries, Inc. and Wachovia Bank of North Carolina, N.A. 41 dated February 3, 1995, providing for a $5,000,000 line of credit. 4.44 Promissory Note and Security Agreement between Insteel Industries, Inc. and First Union 43 National Bank of North Carolina, dated December 21, 1994, providing for a $15,000,000 revolving line of credit. UNDERTAKING: The Company agrees to file upon request of the Commission any instrument with ----------- respect to long-term debt not registered for which the total amount authorized does not exceed 10% of the total assets of the Company and its subsidiaries on a consolidated basis. 10- MATERIAL CONTRACTS ------------------ #10.4 1985 Insteel Industries, Inc. Employee Incentive Stock Option Plan (amended February 6, 1990). +10.5 Employee Stock Ownership Plan of Insteel Industries, Inc., including Employee Stock Ownership Plan Trust Agreement. 10.6 1990 Director Stock Option Plan of Insteel Industries, Inc. incorporated by reference to the exhibit of the same number contained in the Company's Annual Report on Form 10-K for the year ended September 30, 1991. **10.7 Profit Sharing Plan of Insteel Wire Products Company. **10.8 Profit Sharing Plan of Insteel Industries, Inc. ++10.9 1994 Employee Stock Option Plan of Insteel Industries, Inc. ++10.10 1994 Director Stock Option Plan of Insteel Industries, Inc. 10.11 Nonqualified Stock Option Plan 46 11- Computation of Earnings Per Share 50 21- List of Subsidiaries of Insteel Industries, Inc., at September 30, 1995. 51
32 33
EXHIBIT NUMBER DESCRIPTION PAGE ------ ----------- ----- 23- Consents of Experts and Counsel: Independent Auditors' Consent. 23.1 Consent of KPMG Peat Marwick LLP 52 23.2 Consent of Deloitte & Touche LLP 53 27- Financial Data Schedule (for SEC use only) 54 * 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
33 EX-4.41 2 TERM LOAN AGREEMENT 1 Exhibit 4.41 TERM LOAN AGREEMENT THIS AGREEMENT, made this 3rd day of February, 1995, by and between INSTEEL INDUSTRIES, INC., a North Carolina corporation (hereinafter called the Borrower); and WACHOVIA BANK OF NORTH CAROLINA, N.A. (hereinafter called the Bank); WITNESSETH: 1. In borrowing hereunder, the Borrower represents and warrants to the Bank which representations and warranties will survive the delivery of the Note and the making of the loan that: (a) The Borrower and each Subsidiary (corporations of which the Borrower owns, directly or indirectly, more than 50% of the voting stock) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it was incorporated, and has the corporate power and legal authority to own its property and to carry on its business as now being conducted and is duly qualified to do business in every jurisdiction where such qualification is necessary. The Borrower has the corporate power to execute and perform this Agreement, to borrow hereunder and to execute and deliver the Note herein referred to and that to do so will not violate any law, its charter or by-laws or any other agreement or instrument to which it is a party. (b) There is no litigation or proceeding pending against the Borrower or any Subsidiary of the Borrower nor to the knowledge of the officers of the Borrower threatened, which, if decided adversely to the Borrower or any such Subsidiary would have a material effect upon its financial condition or business. (c) The audit report of the Borrower for the fiscal year ended September 30, 1994, certified by Deloitte & Touche, LLP, independent certified public accountants, and the interim financial statements for the three-month period ended December 31, 1994 fairly reflect the financial condition of the Borrower and each Subsidiary and the results of their operations as of the dates and for the periods stated, and no material adverse changes in the financial condition, the business or operations of the Borrower or any Subsidiary have occurred. Such financial statements are consolidated and have been prepared in accordance with generally accepted accounting principles. (d) The real estate and other fixed assets of the Borrower and consolidated Subsidiaries are subject to no mortgage or lien except as shown in the audit report and interim statements referred to in paragraph 1 (c) above. (e) The Borrower and consolidated Subsidiaries have no liabilities, direct or contingent, except those disclosed in the audit report and interim statements referred to in paragraph 1 (c) above, and except those arising in the ordinary course of business since the date of such audit report and interim statements, having in the aggregate no materially adverse effect on the financial condition of the Borrower. 34 2 (f) The Borrower and consolidated Subsidiaries have made no investments in, advances to or guaranties of the obligations of any corporation, individual or other entity except those disclosed in the audit report and interim statements referred to in paragraph 1 (c) above. (g) The proceeds of all borrowings hereunder will be used for the refinance of existing obligations. 2. Relying upon the foregoing representations and warranties and the agreements and covenants hereinafter contained, the Bank agrees to lend to the Borrower, at the Borrower's option, at any time prior to February 28, 1995, the sum of One Million Eighty Thousand Dollars ($1,080,000.00). The loan shall be evidenced by a Note in the form of Exhibit "A" attached hereto and shall be payable in installments and bear interest as set out in the Note. The terms and conditions of this Agreement are incorporated in the Note by reference as though the same were written therein. 3. The Bank may, upon at least sixty (60) calendar days written notice, declare the principal and accrued interest to be due and payable in full as of August 3, 1997. 4. The obligation of the Bank to lend hereunder is subject to the following conditions precedent: (a) The Bank shall have received, on or before the date of the first borrowing hereunder, (i) a copy of the resolutions of the Board of Directors of the Borrower, certified on such date authorizing the execution and delivery of this Agreement, the borrowing hereunder and the execution and delivery of the Note and the collateral described in paragraph 7, below, and (ii) such additional documents as the Bank or counsel for the Bank may reasonably request. 5. The Borrower covenants and agrees that from the date hereof and until payment in full of the principal and interest on the Note, unless the Bank shall otherwise consent in writing, the Borrower will and will cause the Guarantor to: (a) Furnish the Bank consolidated financial statements for each fiscal year, audited by an independent certified public accountant satisfactory to the Bank, and a balance sheet and related statements of income and surplus of the Borrower for each quarter, certified by an officer of the Borrower. All financial statements will be prepared in conformity with generally accepted accounting principles and will be in a form satisfactory to the Bank. In connection with the examination, the independent certified public accountant will issue a letter stating any and all of the terms of this Agreement that are being violated or that there are no violations. Such annual audits and quarterly statements shall be delivered to the Bank within 90 days and 60 days, respectively, after the close of the fiscal period. The Borrower will furnish the Bank, within a reasonable period of time, such additional information and financial statements as the Bank may from time to time request. (b) Maintain at all times consolidated net working capital (i.e., current assets in excess of current liabilities) of not less than Six Million Dollars ($6,000,000.00), and consolidated tangible net worth (i.e., the sum of shareholders' equity plus all indebtedness subordinated to the 35 3 indebtedness owed the Bank hereunder by subordination agreements in form and substance satisfactory to the Bank, less all intangibles appearing on the balance sheet ) of not less than Fifty-Two Million Dollars ($52,000,000.00) plus 50% of cumulative net earnings since October 1, 1992 (additions to net worth arising from revaluation of assets not to be allowed), all as determined by generally accepted accounting principles. (c) Maintain consolidated current assets of not less than 1.5 times consolidated current liabilities, all as determined by generally accepted accounting principles. (d) Comply with all statutes and government regulations and pay promptly when due all taxes, assessments, governmental charges, claims for labor, supplies, rent and other obligations, which, if unpaid, might become a lien against the property of any Borrower or any Subsidiary, except liabilities being contested in good faith and against which, if requested by the Bank, the Borrowers will set up reserves satisfactory to the Bank. (e) Maintain insurance, in such amounts and against such risks, including business interruption insurance, as is satisfactory to the Bank. (f) Maintain its corporate existence and comply with all valid and applicable statutes, rules and regulations, and maintain its properties in good operating condition. (g) Comply with the requirements of the Employee Retirement Income Security Act of 1974 as amended from time to time (ERISA) with respect to each employee benefit plan and promptly notify the Bank (i) of the occurrence of any event which could cause the termination, in whole or in part, of any defined benefit plan; (ii) of any violation of ERISA with respect to any employee benefit plan; and (iii) of the occurrence of any reportable event as defined in ERISA. 6. Until payment in full of the Note and interest thereon, the Borrower covenants that it will not, nor will it permit a Subsidiary to, without the prior written consent of the Bank: (a) Permit total consolidated liabilities to exceed two times consolidated tangible net worth plus indebtedness subordinated to the indebtedness owed the Bank pursuant to this Agreement by subordination agreements satisfactory to the Bank. (b) Become a party to a merger, consolidation or other reorganization with any other corporation or entity (including a de facto merger by which all or substantially all of the property or assets of another company are acquired), except (i) a merger with a domestic Subsidiary in which the Borrower is the surviving or continuing corporation and (ii) a merger, consolidation or other reorganization through which the Borrower acquires a business which becomes a Subsidiary of the Borrower, provided that after giving pro forma effect to such merger, consolidation or other reorganization, the Borrower will be in full compliance with all of the provisions of this Agreement. (c) Declare or pay cash dividends in any fiscal year in an aggregate amount in excess of Three Million Dollars ($3,000,000.00) plus cumulative net earnings since October 1, 1992, except 36 4 that a wholly-owned Subsidiary may pay dividends to the Borrower; provided that after giving pro forma effect to the payment of any such dividends, the Borrower will be in full compliance with all of the provisions of this Agreement. (d) Declare or pay cash dividends when there has been an operating loss in the preceding four quarters. (e) Except with the prior written consent of the Bank, incur or permit to exist any encumbrances, security interest, pledge or lien against the property and improvements located at 1345 Boggs Drive, Mount Airy, North Carolina. 7. Payment of the Note and performance of this Agreement shall be collateralized and supported by a guaranty in the form of Exhibit "B" attached, executed by Insteel Wire Products Company. 8. The Borrower shall furnish at the reasonable request of the Bank opinions of legal counsel and certificates of its officers, satisfactory to the Bank regarding matters incident to this agreement. In addition, the Borrower shall give the Bank prompt written notice of the occurrence of any Event of Default under the terms of this Agreement and of a default or failure of performance under any other agreement or contract to which it is a party or by which it is bound. 9. The occurrence of any one or more of the following Events of Default will constitute a default by the Borrower under this Agreement, whereupon the Note and all indebtedness of the Borrower to the Bank will, at the option of the Bank, immediately become due and payable without presentation, demand, protest, or notice of any kind, all of which are hereby expressly waived, and the Borrower will pay the reasonable attorney's fee incurred by the Bank in connection with such default or recourse against any collateral held by the Bank as security for the indebtedness owed by the Borrower: (a) Non-payment when due, whether by acceleration or otherwise, of any principal payment on the Note; (b) Non-payment within ten days after due date of interest on the Note, or of any premium, fee or other charge under this Agreement; (c) A breach or failure of performance by the Borrower (or Subsidiary) of any provision of this Agreement which is not remedied within 30 days after written notice from the Bank; (d) A representation or warranty by the Borrower is false or erroneous; (e) The Borrower (or a Subsidiary): (i) files a petition or has a petition filed against it under the Bankruptcy Code or any proceeding for the relief of insolvent debtors; (ii) generally fails to pay its debts as such debts become due; (iii) has a custodian appointed for the Borrower or its assets; (iv) benefits from or is subject to the entry of an order for relief by any court of insolvency; (v) makes an admission of insolvency seeking the relief provided in the Bankruptcy Code or any 37 5 other insolvency law; (vi) makes an assignment for the benefit of creditors; (vii) has a receiver appointed, voluntarily or otherwise, for its property; (viii) suspends business; (ix) permits a judgment in the amount of $5,000 or more to be obtained against it which is not promptly paid or promptly appealed and secured pending appeal; (x) becomes insolvent, however otherwise evidenced; or (xi) defaults in payment of any other indebtedness, or permits the time of payment of any other indebtedness to be accelerated. 10. No failure or delay by the Bank to exercise any right, power or privilege hereunder shall operate as a waiver of any such right, power or privilege, nor shall any single or partial exercise of any right, power or privilege preclude any other or future exercise thereof. The right and remedies herein provided are cumulative and not exclusive of any rights or remedies provided by law. 11. The provisions of this Agreement shall extend to and be available to any subsequent holder of the Note, as well as to the Bank. 12. In the event that, at any time while this Agreement is in effect, the Company shall issue any indebtedness for borrowed money which is not by its terms subordinate and junior to other indebtedness of the Company ("Senior Debt") and such Senior Debt shall include, or be issued pursuant to a trust indenture or other agreement which includes, financial covenants not substantially provided for in this Agreement, the Company shall so advise the Bank. Thereupon, if the Bank shall so request by written notice to the Company, the Company and the Bank shall enter into an amendment to this Agreement providing for substantially the same financial covenants as those contained in such Senior Debt, trust indenture or other agreement. 13. The Agreement and the Note shall be deemed to be contracts made under, and for all purposes shall be construed in accordance with, the laws of the State of North Carolina. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the year and day first above written. INSTEEL INDUSTRIES, INC. By: /s/ Michael C. Gazmarian ---------------------------------------- Title: Chief Financial Officer and Treasurer ------------------------------------- WACHOVIA BANK OF NORTH CAROLINA, N.A. By: /s/ R. Alan Proctor ---------------------------------------- R. Alan Proctor Assistant Vice President 38 EX-4.42 3 PROMISSORY NOTE 1 Exhibit 4.42 WACHOVIA - ------------------------------------------------------------------------------------------------------------------------------------ NOTE Date February 3, 1995 $1,080,000.00 ------------------- ----------------------------- FOR VALUE RECEIVED, the undersigned (hereinafter called the "Borrower") hereby promises to pay to the order of WACHOVIA BANK OF NORTH CAROLINA, N.A. (hereinafter called the "Lender") at its office where borrowed, in immediately available funds, the sum of One Million eighty thousand and no/100 ---------------------------------------------------------------- dollars - ------------------------------------------------------------------------------------------------------------------------------------ together with any unpaid interest hereon from date of advance, in accordance with the terms contained in this Note. The optional provisions applicable to this Note are checked below. REPAYMENT: [ ] One payment in full of principal and unpaid interest due ---------------------------------------------------------------------- [ ] On Demand ---------------------------- [X] 60 Payments of $18,000.00 beginning March 1, 1995 and thereafter --- --------------- ----------------- -------------------------------------------------- on the first of each month. -------------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------- until February 3, 2000. ---------------------------------------------------------------------------------------------- ----------- ----- when the entire principal amount then outstanding and all accrued but unpaid interest shall be paid in full. [ ] On Demand the principal amount set forth above or the unpaid principal amount of all advances which the Lender actually makes hereunder to the Borrower, whichever amount is less. Each advance and each payment made on account of the principal thereof, shall be evidenced on an attachment hereto; provided, however, any such notation or the failure of the Lender or other holder to make any such notation shall not limit or otherwise affect the obligation of the Borrower with respect to repayment of all advances actually made hereunder. This Note and any attachment hereto shall be used to record the outstanding principal balance advanced hereunder until it is surrendered to the Borrower by the Lender, and it shall continue to be used even though there may be periods prior to such surrender when no amount of principal or interest is owing hereunder. If advances of the principal amount hereof are to be made by Lender to the Borrower after the date of this Note, Lender, at its sole discretion, is hereby authorized to make such advances under this Note upon telephonic or written communication of a borrowing request from any person representing himself or herself to be the Borrower or, in the event the Borrower is a partnership or corporation, a duly authorized officer or representative of Borrower. INTEREST: Payable: [X] in arrears: [ ] in advance. [X] in addition to the payments described above; [ ] included in the payments described above. Payable at the rate per annum of: [ ] Prime Rate plus %; [ ] % of Prime Rate; [ ] % Fixed: ------------- ------------ ---------------- [ ] Those rates which may be offered from time to time by the Lender and agreed to by the Borrower and so noted by the Lender on an attachment hereto. In the event of a good faith dispute among the parties to this Note as to rate under this rate option, the rate shall be the Prime Rate, adjusted for any changes in the Prime Rate as of the day such Prime Rate changes; [ ] The rate(s) set forth in Schedule 1 attached to this Note and incorporated herein by reference; [X] Those rates which have been offered by the Lender to the Borrower in the Loan Agreement or Commitment Letter checked below, the provisions of which shall determine such rates, the procedure for the selection of such rates and the time periods for which such rates shall apply. In no case shall interest exceed the maximum rate permitted by applicable law. To the extent not prohibited by law, a late charge not to exceed 4% of the payment amount shall be assessed on any payment remaining unpaid on the fifteenth day after the payment due date or 30 days in the case interest is payable in advance. If the interest is based upon the Prime Rate, such interest rate will be adjusted on: [ ] The day the Prime Rate changes; [ ] Other . ------------------- Due: [X] On principal payment dates; [ ] Other . ------------------------------- Interest will be calculated on the basis of [X] A year of 360 days and paid for the actual number of days elapsed; [ ] Other . ---------------------- After demand or maturity (whether by acceleration or otherwise), as applicable, interest on any unpaid balance hereof shall be payable on demand at a rate per annum equal to 150% of the Prime Rate, or if greater, 2% above the rate applicable prior to demand or maturity, adjusted for any changes in the Prime Rate as of the day such Prime Rate changes, not to exceed the maximum rate permitted by applicable law. As used herein, "Prime Rate" refers to that interest rate so denominated and set by the Lender from time to time as an interest rate basis for borrowings. The Prime Rate is one of several interest rate bases used by the Lender. The Lender lends at interest rates above and below the Prime Rate. All payments on this Note shall be applied first to accrued interest, then to principal, and then to late charges. [X] The terms and conditions in a Loan Agreement date February 3, 1995 between the parties hereto, as the same may be amended from time to time, shall be considered a part hereof to the same extent as if written herein. [X] The terms and conditions in a Commitment Letter dated February 3, 1995 from the Lender to the Borrower, as the same may be amended, extended or replaced from time to time, shall be considered a part hereof to the same extent as if written herein. No waiver by the Lender of any default shall be effective unless in writing nor operate as a waiver of any other default on a past or future occasion. To the extent not prohibited by law, the Borrower hereby grants to the Lender and to such Lender's Affiliates (as the case may be) a security interest in and security title to and does hereby assign, pledge, transfer and convey to Lender and such Lender's Affiliates (as the case may be) (i) all property of the Borrower of every kind or description now or hereafter in the possession or control of the Lender or of any of Lender's Affiliates, exclusive of any such property in the possession or control of the Lender or any of Lender's Affiliates as a fiduciary other than as agent, for any reason including, without limitation, all cash, stock or other dividends and all proceeds thereof, and all rights to subscribe for securities incident thereto and any substitutions or replacements for, or other rights in connection with, any of such collateral and (ii) any balance or deposit accounts of the Borrower, whether such accounts be general or special, or individual or multiple party, and upon all drafts, notes, or other cash deposited for collection or presented for payment by the Borrower with the Lender or the Lender's Affiliates (as the case may be), exclusive of any such property Wachovia Bank of North Carolina, N.A.
39 2 in the possession or control of the Lender or any of Lender's Affiliates as fiduciary other than as agent, and the Lender and the Lender's Affiliates (as the case may be) may at any time, without demand or notice, appropriate and apply any of such to the payment of any indebtedness, obligations and liabilities of the Borrower to the Lender or to any of Lender's Affiliates (as the case may be), now existing or hereafter incurred or arising (hereinafter sometimes referred to collectively as the "Obligations"), whether or not due, with the exception of indebtedness obligations and liabilities owing to Lender or Lender's Affiliates that constitute open-end credit under, or are subject to, the disclosure requirements of the Truth-In-Lending Act and Federal Reserve Board Regulation Z or any applicable state consumer protection laws. As used herein, "Lender's Affiliates" means any entity or entities now or hereafter directly or indirectly controlled by Wachovia Corporation or any successor thereto. All parties to this Note, including the makers, endorsers, sureties and guarantors, whether bound by this or by separate instrument or agreement, shall be jointly and severally liable for the indebtedness evidenced by this Note and hereby (1) waive presentment for payment, demand, protest, notice of nonpayment or dishonor and of protest and any and all other notices and demands whatsoever; (2) consent that at any time, or from time to time, payment of any sum payable under this Note may be extended without notice, whether for a definite or indefinite time; and (3) agree to remain liable until the indebtedness evidenced hereby is paid in full irrespective of any extension, modification or renewal. No conduct of the holder shall be deemed a waiver or release of such liability, unless the holder expressly releases such party in writing. Upon (i) any failure of any Obligor (which term shall include the Borrower and each endorser, surety or guarantor of this Note) to pay any of the Obligations when due or to observe or perform any agreement, covenant or promise hereunder or in any other agreement, note, instrument or certificate of any Obligor to the Lender, or to any of Lender's Affiliates, now existing or hereafter executed in connection with any of the Obligations, including, but not limited to, a loan agreement, if applicable, and any agreement guaranteeing payment of any of the Obligations; (ii) any default of any Obligor in the payment or performance of any other liabilities, indebtedness or obligations to any other creditor or to allow or permit any other liabilities, indebtedness, or obligations to any other creditor to be accelerated; (iii) any failure of any Obligor to furnish Lender current financial information upon request; (iv) any failure of any person to observe or perform any agreement, covenant or promise contained in any agreement, instrument or certificate executed in connection with the granting of a security interest in property to secure the Obligations; (v) any warranty, representation or statement made or furnished to the Lender by or on behalf of any Obligor in connection with the extension of credit evidenced by this Note proving to have been false in any material respect when made or furnished; (vi) the death, dissolution, change in control, termination of existence, insolvency, business failure or appointment of a receiver of any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding under any bankruptcy or insolvency laws, state or federal, by or against, the Borrower or any other Obligor; (vii) any discontinuance or termination or any guaranty of any of the Obligations by a guarantor; or (viii) the Lender deeming itself insecure, thereupon, or at any time thereafter, the Lender at its option may terminate any obligation to extend any additional credit or make any other financial accommodation to the Borrower and/or may declare all of the Obligations to be immediately due and payable. If any Obligation (including but not limited to the Note) is a demand instrument, the statement of a maturity date, the requirement for the payment of periodic interest or the recitation of defaults and the right of Lender to declare any Obligation due and payable shall not constitute an election by Lender to waive its right to demand payment under a demand at any time and in any event as Lender in its sole discretion may deem appropriate. In the event the indebtedness evidenced hereby is collected by or through an attorney, the holder shall be entitled to recover reasonable attorney's fees (15% of the then outstanding principal and interest of the indebtedness, to the extent not prohibited by law) and all other costs and expenses of collection. Time is of the essence. This Note, and the rights and obligations of the parties hereunder, shall be governed and construed in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the Borrower has executed this Note under seal and year set forth above. Witness: --------------------------------------------------------------------(Seal) (Individual Borrower) - ------------------------------------------- --------------------------------------------------------------------(Seal) (Individual Borrower) Borrower: - ------------------------------------------- Insteel Industries, Inc. -------------------------------------------------------------------- Attest: (Name of Corporation or Partnership) Gary D. Kniskern By /s/ Michael C. Gazmarian - ------------------------------------------- -----------------------------------------------------------------(Seal) Title Secretary Title Chief Financial Officer and Treasurer -------------------------------------- -------------------------------------------------------------- [Corporate Seal INSTEEL INDUSTRIES, INC.] ACCOUNT NUMBER NOTE LENDING FRB SECUR NOTE REPAY NOTE TRANSACTION PRIME RATE CLASS BRAN NUMBER OFFICER CODE CODE TYPE CODE QUAL DATE CODE-FACTOR INTEREST PAID TO INT INTEREST DISCOUNT FEES COLLECTED COMMITMENT COMMIT C TAX BILLING DATE BASE COLLECTED ACCOUNT NUMBER NUMBER BAL CODE CODE
40 EX-4.43 4 WACHOVIA PROMISSORY NOTE 1 Exhibit 4.43 WACHOVIA - ------------------------------------------------------------------------------------------------------------------------------------ MASTER NOTE Date February 3, 1995 $5,000,000.00 ---------------- ------------- Value Received, the undersigned (hereinafter called the "Borrower"), hereby promises to pay on demand but not later than the maturity date or dates determined herein set forth to the order of WACHOVIA BANK OF NORTH CAROLINA, N.A. (hereinafter called the "Lender"), at its office where borrowed, the principal of Five Million and no/100 ----------------------------------------- Dollars ----------------------------------------------------------------- the aggregate unpaid principal sum of all advances which the Lender actually makes hereunder to the Borrower, whichever amount is less, together with interest arrears payable on each Interest Due Date (as hereinafter defined) at a rate computed on the basis of a 360-day year for the actual number of days in each interest period, determined as herein set forth. Lender, at its sole discretion, is hereby authorized to make advances under this Note upon telephonic or written communication of a borrowing request from any person representing himself or herself to be the Borrower or, in the event Borrower is a partnership or corporation, a duly authorized officer or representative of Borrower. At the time of each advance hereunder, the Borrower and the Lender shall agree on the maturity date for the payment of the principal amount of such advance (in the absence of earlier demand), the interest rate for such advance and the dates interest on such advance shall be payable (the "Interest Due Dates"). Lender or other holder shall be and is hereby authorized by the Borrower to set forth on the reverse side of this Note, or on an attachment hereto: (1) the amount to date of each advance made hereunder; (2) the maturity date of each such advance (absent earlier demand); (3) the interest rate for each such advance; (4) the Interest Due Dates for each such advance; and (5) each payment of principal received thereon and the date of such payment; provided, however, any such notation or the failure to make any such notation shall not limit or otherwise affect the obligation of the Borrower with respect to the repayment of all advances actually made hereunder. In the event of a good faith dispute among the parties to this Note as to rate, the rate shall be the Prime Rate. Under this Note or any advance of this Note shall become due, whether on demand or otherwise, the unpaid principal of this Note shall bear interest at a rate per annum equal to 150% of the Prime Rate, or if greater, 2% above the rate applicable prior to the due date, not to exceed the maximum rate permitted by applicable law. As used herein, "Prime Rate" refers to that interest rate so denominated and set by the Lender from time to time as an interest rate basis for borrowings. The Prime Rate is one of several interest rate bases used by the Lender. The Lender lends at rates above and below the Prime Rate. Changes in the Prime Rate shall be effective as of the day of each such change. Advances made hereunder shall not be used to purchase or carry margin stock, such terms having the same meanings used in Regulation U of the Federal Reserve Board. Any payments of any advance hereunder shall be applied first to accrued interest and then to principal. The Borrower may prepay any advance hereunder prior to the maturity date specified for such advance only with the consent or upon the demand of the Lender. Any waiver by the Lender of any provision of this Note shall be effective unless in writing. To the extent not prohibited by law the Borrower hereby grants to the Lender and to such Lender's Affiliates (as the case may be) a security interest in and security title to and does hereby assign, pledge, transfer and convey to Lender and such Lender's Affiliates (as the case may be) (i) all property of the Borrower of every kind or description now or hereafter in the possession or control of the Lender of any of Lender's Affiliates, exclusive of any such property in the possession or control of the Lender or Lender's Affiliates as a fiduciary other than as agent, any reason including, without limitation, all cash, stock or other dividends and all proceeds thereof, and all rights to subscribe for securities incident thereto and any substitutions or replacements for, or other rights in connection with, any of such collateral and (ii) any balance or deposit accounts of the Borrower, whether such accounts be general or special, or individual or multiple party, and upon all drafts, notes, or other items deposited for collection or presented for payment by Borrower with the Lender or the Lender's Affiliates (as the case may be), exclusive of any such property in the possession or control of the Lender or Lender's Affiliates as a fiduciary other than as agent, and the Lender and the Lender's Affiliates (as the case may be) may at any time, without demand or notice, appropriate to apply any of such to the payment of any indebtedness, obligations and liabilities of the Borrower to the Lender or to any of Lender's Affiliates (as the case may be), now existing or hereafter incurred or arising, whether or not due, with the exception of indebtedness, obligations and liabilities owing to Lender or Lender's Affiliates that constitute open-end credit under, or are subject to, the disclosure requirements of the Truth-In-Lending Act and Federal Reserve Board Regulation or any applicable state consumer protection laws. As used herein, "Lender's Affiliates" means any entity or entities now or hereafter directly or indirectly controlled by Wachovia Corporation or any successor thereto. All parties to this Note, including makers, endorsers, sureties and guarantors, whether bound by this or by separate instrument or agreement, shall be jointly and severally liable for the indebtedness evidenced by this Note and hereby (1) waive presentment for payment, demand, protest, notice of nonpayment or dishonor and of protest and any and all other notices and demands whatsoever; (2) consent that at any time, or from time to time, payment of any sum payable under this Note may be extended without notice, whether for a definite or indefinite time; and (3) agree to remain liable until indebtedness evidenced hereby is paid in full irrespective of any extension, modification or renewal. No conduct of the holder shall be deemed a waiver or release of such liability, unless the holder expressly releases such party in writing. In the event the indebtedness evidenced hereby is collected by or through an attorney, the holder shall be entitled to recover reasonable attorneys' fees and all other costs and expenses of collection. Time is of the essence. Notwithstanding the statement of any specific maturity date for any specific advance and the requirement for the payment of interest from time to time, this Note is a demand instrument and due and payable at any time without cause or reason and is not subject to the terms of Sections 1-203 or 1-208 of the Uniform Commercial Code of North Carolina, as the same may be amended from time to time. This Note shall evidence all advances and payments of principal made hereunder until it is surrendered to the Borrower by the Lender, and it shall continue to be ? even though there may be periods prior to such surrender when no amount of principal interest is owing hereunder. This Note, and the rights and obligations of the parties hereunder, shall be governed by and construed in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, the Borrower has executed this Note under seal the day and year set forth above. Witness: ------------------------------------------------------- (Seal) (Individual Borrower) - ----------------------------------------- ------------------------------------------------------- (Seal) (Individual Borrower) - ----------------------------------------- Borrower: Insteel Industries, Inc. Attest: -------------------------------------------------------- (Name of Corporation or Partnership) Gary D. Kniskern By Michael C. Gazmarian - ----------------------------------------- ----------------------------------------------------- [Corporate Seal] Title Secretary Title Chief Financial Officer and Treasurer ----------------------------------- -------------------------------------------------- Wachovia Bank of North Carolina, N.A.
41 2
SCHEDULE FOR MASTER NOTE Date of Maturity Interest Interest Principal Advance Amount of Advance Date Rate Due Date Payment - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ - ------------------------------------------------------------------------------------------------------------------------------------ ACCOUNT NUMBER NOTE LENDING FRB SECUR NOTE REPAY NOTE TRANSACTION PRIME RATE CLASS BRAN NUMBER OFFICER CODE CODE TYPE CODE QUAL DATE CODE-FACTOR - --- --- --- -- ---- ---- --- ---- ---- ----- ---- ---- --- -- -- --- ---- ---- ---- INTEREST PAID TO INT. INTEREST/DISCOUNT FEES COLLECTED COMMITMENT COMMIT. C TAX BILLING DATE BASE COLLECTED ACCOUNT NUMBER NUMBER BAL CODE CODE - --- --- --- ---- --- ----- --- -- --- ---- --- --- --- --- ------ --- ---- ---- --- Wachovia Bank of North Carolina, N.A.
42 EX-4.44 5 FIRST UNION PROMISORY NOTE 1 Exhibit 4.44 Amended and Restated PROMISSORY NOTE AND SECURITY AGREEMENT (LOGO, FIRST UNION) $15,000,000 December 21, 1994 ----------- ----------------- (Date of Execution and Delivery) LENDER: FIRST UNION NATIONAL BANK OF NORTH CAROLINA (hereinafter termed "LENDER"), Mount Airy, North Carolina ----------- BORROWER(S): Insteel Industries, Inc., a North Carolina corporation, with its principal place of business at 1373 Boggs Drive, ---------------------------------------------------------------------------------------------------------------------- Mount Airy, North Carolina ---------------------------------------------------------------------------------------------------------------------- FOR VALUE RECEIVED: to wit, money loaned undersigned BORROWER(S) (hereinafter collectively termed "BORROWER"), jointly and severally (if more than one BORROWER), promise(s) to pay to the order of LENDER at its office in the above city, or wherever else LENDER may specify, the sum of Fifteen Million ($15,000,000 )DOLLARS* - ------------------------------------------------------------------------------------------------------------- -------------- with interest until paid * minus one hundred percent (100%) of the face amount of all import letters of credit issued by Lender for the account of Borrower other than letter of credit number L046772 in the current face amount of $9,327,890 naming International Chartering, Inc. as beneficiary. CONTRACT [ ] at the rate of percent ( %); ----------------------- ------ RATE OF [x] at the rate of LENDER'S PRIME RATE minus one quarter of one percent (0.25%) as that rate may change from time to time with changes to occur on the date the LENDER'S PRIME RATE changes or as set forth on the attached Schedule "B" which is incorporated herein by reference INTEREST [ ] at the rate of ---------------------------------------------------------------------------------------------------- to be adjusted beginning ------------------------------------------------------------------------ ------------------- TERMS [x] payable in full on January 31, 1996; OF [x] with interest payable daily commencing on December 21, 1994 and each day thereafter; PAYMENT [ ] payable in consecutive payments of principal commencing on ----------------------- , in equal payments of $ ---------------------------------- ------------ ----------------------------------------- plus an irregular payment of $ due on ------------------- ----------------------------- with interest payable commencing on and each thereafter; ------------------- --------------------- -------------------- [ ] payable in consecutive payments of principal and interest commencing on -------------------------- , in equal payments of $ ------------------------------------ ----------------------- ---------------------------- plus an irregular payment of all remaining principal and interest due on ------------------------------------------; [ ] see attached Schedule "B," terms of which are incorporated herein by reference; (TERMS ABOVE NOT COMPLETED ARE DELETED) together with a late charge of four percent (4%) of each payment past due for fifteen (15) or more days. If BORROWER fails to make a payment when due, subsequent payments shall be first applied to the past due payment. If BORROWER resumes making payments but has not paid all past due payments, then LENDER will impose a separate late payment charge for each payment that becomes due until the default is cured. Further, upon BORROWER'S Default (as hereinafter defined) and where LENDER deems it necessary or proper to employ an Attorney to enforce collection of any unpaid balance hereunder; then BORROWER agrees to pay LENDER'S reasonable Attorney's fees and collection costs. Liability for reasonable Attorney's fees and costs shall exist whether or not any suit or proceeding is commenced; BORROWER agrees and stipulates that reasonable Attorney's fees shall be deemed to be fifteen percent (15%) of the sum of all unpaid principal and interest due as permitted under the laws of the state of North Carolina. In addition to all other rights contained herein, if the original principal amount of the loan is more than Three Hundred Thousand and no/100 Dollars ($300,000.00) the contract rate of interest during any period while the loan is in Default shall be the interest rate set out above plus three percent (3%) commencing with and continuing for as long as the loan or any portion thereof is in Default. The contract rate of interest shall apply until the Note or any judgement thereon shall be paid in full. INTEREST is computed on the basis of a 360 day year for the actual number of days in the interest period (Actual/360 Computation) unless indicated below. - ----------------------------------------------------------------------------------------------------------------------------------- LENDER'S Actual/360 or 365/360 computation determines the annual effective interest yield by taking the stated (nominal) interest rate for a year's period and then dividing said rate by 360 to determine the daily periodic rate to be applied for each day in the interest period. Application of such computation produces an annualized effective interest rate exceeding that of the nominal rate. If the interest provision contained herein refers to "LENDER'S PRIME RATE", BORROWER acknowledges/that LENDER'S PRIME RATE is not represented or intended to be the lowest or most favorable rate of interest offered by LENDER. All payments received during normal banking hours after 2:00 P.M. shall be deemed received at the opening of the next banking day. At LENDER'S option, any repayments of this Note, other than by U.S. currency, will not be credited to the outstanding loan balance until LENDER receives collected funds. BORROWER'S payment will increase if the scheduled payment amount is insufficient to pay accrued interest. If the scheduled payment amount is insufficient to pay accrued interest, the scheduled payment amount shall be immediately increased as is necessary to pay all accruals of unpaid interest from previous periods. Such adjustments to the scheduled payment amount shall remain in effect for as long as the interest accruals shall exceed the original scheduled payment amount and shall be further adjusted upward or downward to reflect changes in the variable interest rate. In no event shall the scheduled payment amount be reduced below the original scheduled payment specified herein. Each of the undersigned, whether BORROWER, sureties or endorsers, and all others who may become liable for all or any part of the obligations evidenced and secured hereby, do hereby, jointly and severally; waive presentment, demand, protest, notice of protest and/or of dishonor, notice of acceleration of maturity on Default or otherwise. Further, they agree that LENDER may, from time to time, extend, modify, amend or renew this Note for any period (whether or not longer than the original period of the Note) and grant any release, compromises or indulgences with respect to the Note or any extensions, modifications, amendments or renewals thereof or any security therefor, or to any party liable thereunder or hereunder, all without notice to or consent of any of the undersigned and without affecting the liability of the undersigned hereunder. If this Note is subject to the terms of a Commitment letter and/or Loan Agreement, LENDER may advance and readvance under this Note pursuant to its terms and/or the terms of such other contractual obligations between the parties, and at the request of BORROWER, LENDER in its sole discretion may make other advances and readvances under this Note pursuant thereto. If more than one person has signed this instrument, such parties are jointly and severally obligated hereunder. Further, use of the masculine pronoun herein shall include the feminine and neuter and also the plural. If any provision of this instrument shall be prohibited of invalid under applicable law, such provision shall be ineffective but only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Note. Time is of the essence hereof. Any notices to Borrower shall be sufficiently given, if mailed or delivered to the Principal Place of Business. TO SECURE PAYMENT of this Note, all obligations of undersigned BORROWER hereunder, and all other obligations of BORROWER to LENDER, its successors and assigns, howsoever created, arising or evidenced; whether direct or indirect, absolute or contingent, or now or hereafter existing, or due to become due (the loan and debt evidenced by this Note and secured by this Security Agreement and all other present and future obligations of BORROWER owed to LENDER are hereinafter collectively termed the "OBLIGATIONS"); the undersigned BORROWER hereby mortgages, conveys, and grants to LENDER, as permitted by law, a security interest in, and herewith pledges and deposits as collateral the following described and identified personal and/or real property, and any and all additions, accessions and substitutions thereto or therefor, (including all cash, stock or other dividends and all proceeds thereof, and all rights to subscribe for securities incident thereto) are hereinafter termed the "COLLATERAL"; and a Security interest in PROCEEDS AND PRODUCTS of the COLLATERAL is granted to LENDER: [ ] If checked here, COLLATERAL is listed and described on attached SCHEDULE "A" (incorporated herein by reference). [ ] This Note is secured by a deed of Trust, Mortgage or Deed to Secure Debt (hereinafter Security Instrument) to dated ------------ 43 -------------------- BORROWER hereby warrants, covenants and agrees that: (1) Borrower's principal place of business is that shown above. If Borrower has no principal place of business in said State, the Borrower's residence in said State is shown above. (2) BORROWER's other places of business in said State or State of LENDER's office not previously stated are as follows: (3) Personal property COLLATERAL is used or being purchased for [ ] Farming Operations [X] Business Use and [ ] if checked here, COLLATERAL IS BEING ACQUIRED WITH THE PROCEEDS OF AN ADVANCE EVIDENCED BY THIS Agreement, which LENDER may disburse directly to the seller of said personal property. (4) The personal property COLLATERAL will be kept at the Principal Place of Business; otherwise [ ] if checked here at: (5) If any personal property COLLATERAL will be used in more than one State whether or not actually so used, and BORROWER has a place(s) of business in more than one State, the Principal Place of Business is that shown above unless otherwise as follows: (No. and Street) (City) (County) (State) (Zip Code) (6) [ ] If checked here personal property COLLATERAL is to be affixed to real property, a description of the real estate is as follows: full name(s) of the record owner(s) is (are):; (7) Said COLLATERAL is free and clear of all liens, security interests, claims and/or encumbrances other than any to LENDER except the following: (8)[X] If checked, this Note is subject to the terms and conditions of a commitment letter and/or loan agreement between BORROWER and LENDER dated December 28, 1993 and December 22, 1992 respectively which is incorporated herein by reference. THIS PROMISSORY NOTE AND SECURITY AGREEMENT IS SUBJECT TO THE ADDITIONAL PROVISIONS, TERMS, UNDERTAKINGS AND RIGHTS SET FORTH ON THE REVERSE SIDE HEREOF, THE SAME BEING INCORPORATED HEREIN BY REFERENCE. BORROWER agrees that LENDER shall after the occurrence of any event of default, be entitled to immediate possession of the COLLATERAL. BORROWER agrees that LENDER's interest in the COLLATERAL arose out of a Commercial Transaction. To secure payment of the Note, BORROWER grants a security interest in any collateral (other than household goods or a principal dwelling, but this exception does not apply to the collateral described in this Note) which secures any other loans of BORROWER with LENDER, now or hereafter. LENDER expressly waives as collateral for this loan any security interest in collateral BORROWER uses as a principal dwelling and household goods for any other existing or future transactions between BORROWER and LENDER, except that this waiver does not apply to the collateral described in this Note. IN WITNESS WHEREOF, the Borrower, on the day and year first written above, has caused this Note to be executed under seal by, (i) if by individuals, by hereunto setting their funds and seals or (ii) if a corporation, that adopts the facsimile seal printed hereon for such special occasion and purpose (or if an impression seal appears hereon by affixing such impression seal) by its duly authorized officer(s). CORPORATE BORROWER ATTEST INSTEEL INDUSTRIES, INC. --------------------------------------------------------------------------- Name of Corporation By: Gary D. Kniskern By: Michael C. Gazmarian ------------------------------------ ------------------------------------------------------------------------ Title: Treasurer ---------------- (Secretary) INDIVIDUAL BORROWER(S), PROPRIETORSHIPS, PARTNERSHIPS ------------------------------------------------------------------------ - ----------------------------------------------------- -------------------------------------------------------------------(Seal) - ----------------------------------------------------- -------------------------------------------------------------------(Seal) This Note amends and restates in its entirety that certain Promissory Note, dated December 31, 1993, [SEAL] as amended by First Modification thereto, dated September 26, 1994, issued by Borrower to Lender. Taxpayer Identification Number(s) 56-0674867 Ref. 301117 (3/89)
43(a) 2 ADDITIONAL PROVISIONS BORROWER hereby further warrants, covenants, and agrees as follows (continued from front side hereof): Anything contained herein to the contrary notwithstanding, if for any reason the effective rate of interest on this Note should exceed the maximum lawful rate, the effective rate shall be deemed reduced to and shall be such maximum lawful rate, and any sums of interest which have been collected in excess of such maximum lawful rate shall be applied as a credit against the unpaid balance due hereunder. No waivers, amendments or modifications shall be valid unless in writing. No waiver by LENDER of any default(s) shall operate as a waiver of any other default or the same default on a future occasion. All rights of LENDER hereunder shall inure to the benefit of its successors and assigns, and all OBLIGATIONS of BORROWER shall bind his heirs, executors, administrators, successors and/or assigns. This Note shall be governed by and construed under the laws of the State of North Carolina. BORROWER irrevocably agrees to submit to personal jurisdiction in the State of North Carolina. Service of process on BORROWER arising out of or relating to this Note shall be effective if mailed to BORROWER at the address first above given or, if applicable at the address provided to LENDER pursuant to the terms hereof. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, BORROWER FURTHER KNOWINGLY AND VOLUNTARILY WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO THIS NOTE OR THE LOAN AGREEMENT AND AGREES THAT ALL SUCH ACTIONS OR PROCEEDINGS AT THE OPTION OF LENDER SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN THE STATE OF NORTH CAROLINA. In the case of conflict between the terms of this Note and any Commitment Letter and/or Loan Agreement issued in connection herewith, the priority of controlling terms shall be first this Note, then the Loan Agreement, then the Commitment Letter. BORROWER WILL IMMEDIATELY NOTIFY LENDER in writing of any (1) change in: BORROWER's Principal Place of Business and/or Residence; (2) change in the BORROWER's name or identity; (3) change in BORROWER's Corporate Structure. BORROWER warrants that BORROWER does not have either a record or reputation for violating Laws of the United States or of any State relating to liquor (as referred to in 18 U.S.C.A. 3617, et. seq.) or narcotics (as referred to in 21 U.S.C.A. 801, et. seq.) and/or any commercial crimes. BORROWER warrants to LENDER that all balance sheets, financial statements, profit and loss statements and all other information now or hereafter furnished to LENDER are and will be true and correct and fairly reflect the financial condition of BORROWER as of the dates thereof, and that the most recently provided financial information fairly reflects the current financial condition of BORROWER. Each BORROWER waives all claims, direct or indirect, absolute or contingent, against any other BORROWER, guarantor, endorser or surety arising from or relating to this Note or such BORROWER's performance hereunder. Without limiting the foregoing, each BORROWER waives all rights of reimbursement, exoneration, indemnification and/or contribution from any other BORROWER, guarantor, endorser or surety under or relating to this NOTE and waives all rights of subrogation to the claims of Bank which may otherwise arise from such payment. Upon the occurrence of any of the "EVENTS OF DEFAULT," as hereinafter defined, LENDER is herewith expressly authorized to exercise its right of Set-Off or Bank Lien as to any monies deposited in demand, checking, time, savings or other accounts of any nature maintained in and with if by any of the undersigned, without advance notice. Said right of Set-Off shall also be exercised and applicable where LENDER is indebted to any signer hereof by reason of any Certificate of Deposit, Note or otherwise. Upon the occurrence of any "Event of Default," all of the OBLIGATIONS evidenced herein and secured hereby shall at the option of LENDER immediately be due and payable, without notice. The parties agree that LENDER may exercise its power of sale for real property and personal property together or separately. EVENTS OF DEFAULT BORROWER shall be in default under this Note, upon the happening of any of the following events, circumstances or conditions; namely: (1) Default in the payment or performance of any of the OBLIGATIONS provided hereunder or in connection herewith or any other OBLIGATIONS of BORROWER or any affiliate (as defined in 11 U.S.C. 101(2), except that the term "debtor" therein shall be substituted by the term "BORROWER" herein, hereinafter "affiliate") or any general partner of BORROWER or any endorser, guarantor or surety for BORROWER to LENDER or any affiliate of LENDER, howsoever created, primary or secondary, whether direct or indirect absolute or contingent, now or hereafter existing, due or to become due, or of any other covenant, warranty or undertaking expressed herein, therein, or in any other document establishing said endorsement, guaranty, or surety; or (2) Any warranty, representation or statement made or furnished to LENDER by or on behalf of BORROWER, or any guarantor, in connection with this Note or to induce LENDER to make a loan to BORROWER which was false in any material respect when made or furnished or has become materially false, if such warranty of BORROWER was ongoing in nature; or (3) Death, dissolution, termination of existence, insolvency, business failure, appointment of a receiver, custodian, or trustee for any part of the property of, assignment for the benefit of creditors by, or the commencement of any proceeding under any bankruptcy or insolvency laws by or against BORROWER or any endorser, guarantor, or surety for or any general partner or majority shareholder of BORROWER; or (4) The acquisition of substantially all of BORROWER's endorser's, guarantor's or surety's business or assets, or a material portion of such business or assets if such a sale is outside BORROWER's, or guarantor's, endorser's or surety's ordinary course of business, or more than 50% of its outstanding stock or voting power in a single transaction or a series of transactions, or any acquisition of substantially all of the business or assets or more than 50% of the outstanding stock or voting power of any other entity, or should any BORROWER, endorser, guarantor, or surety enter into any transaction or merger or consolidation without prior written consent of LENDER; or (5) Failure of a corporate BORROWER or endorser, guarantor, or surety for said BORROWER to maintain its corporate existence in good standing; or (6) Upon the entry of any monetary judgment or the assessment and/or filing of any tax lien against BORROWER or any endorser, surety, or guarantor; or upon the issuance of any writ of garnishment, judicial seizure of, or attachment against any property of, debts due or rights of BORROWER or any endorser, surety or guarantor, to specifically include commencement of any action or proceeding to seize monies of BORROWER or any endorser, surety or guarantor on deposit in any bank account with LENDER or (7) Any BORROWER, endorser, guarantor, or surety shall be a debtor, either voluntarily or involuntarily, under (and as the term debtor is defined in) the Bankruptcy Code or should any BORROWER, endorser, guarantor, or surety be generally not paying their respective debts as such debts become due; or (8) Failure of said BORROWER, endorser, guarantors or sureties to furnish financial statements or other financial information reasonably requested by LENDER; or (9) The assertion or making of any seizure, vesting, or intervention by or under authority of any government by which the management of BORROWER, or any endorser, guarantor or surety is displaced of its authority in the conduct of its business(es) or its business(es) is curtailed. (10) Loss, theft, substantial damage, destruction, sale or encumbrance to or of any COLLATERAL, or the assertion or making of any levy, seizure, mechanics' or materialmen's lien or attachment thereof or thereon; or (11) If LENDER should otherwise deem itself or the debt created hereunder unsafe or insecure; or should LENDER, in good faith, believe that the prospect of payment or other performance is impaired. ADDITIONAL PROVISIONS FOR PERSONAL PROPERTY COLLATERAL BORROWER hereby further warrants, covenants, and agrees, as follows: THE COLLATERAL SHALL, AT ALL TIMES, BE AT BORROWER's risk. The loss, injury to or destruction of COLLATERAL shall release BORROWER from payment or other performance hereof. BORROWER agrees to obtain and keep in force Physical Damage and/or Property Damage Insurance on said COLLATERAL and any other insurance required by LENDER. Such insurance is to be in form and amounts satisfactory to LENDER, with the same payable to LENDER. All such policies shall provide for ten days written minimum cancellation notice to LENDER. BORROWER shall furnish to LENDER the original policies or certificates or other evidence satisfactory to LENDER of compliance with the foregoing provisions. LENDER is authorized, but not obligated, to purchase any or all of said insurance or "single interest insurance," protecting only its security interests, all at BORROWER's expense. In such event, BORROWER agrees to reimburse LENDER for the cost of such insurance to the extent that the same is not included in the principal amount of this Note. BORROWER hereby assigns to LENDER the proceeds of all such insurance to the extent of the unpaid balance hereunder, and directs any insurer to make payments directly to LENDER, BORROWER further hereby grants to LENDER his Power of Attorney, which shall be irrevocable for so long as any amount is unpaid hereunder. Said Power of Attorney gives LENDER the sole right to file Proof of Loss and/or any other forms required to collect from any insurer any amount due from any loss, damage or destruction of the COLLATERAL; to agree to and bind BORROWER as to the amount of said recovery; to designate Payee(s) of such recovery; to grant releases to payor-insurers for their liability; to grant subrogation rights to any such payor-insurer, to indorse any settlement check or draft. BORROWER further agrees not to exercise any of the foregoing Powers granted to LENDER, without the latter's written consent. In the event of any default hereunder, LENDER is authorized in its sole discretion to cancel any insurance and credit any premium refund against the unpaid balance due on BORROWER OBLIGATIONS. If, with respect to any security pledged hereunder, a stock dividend is declared or any stock split-up made or right to subscribe is issued, all the certificates for the shares representing such stock dividend or stock split-up right to subscribe will be immediately delivered, duly indorsed, to the LENDER as additional COLLATERAL security. If, at any time, the COLLATERAL shall be deemed unsatisfactory to and by LENDER or in the event LENDER shall otherwise deem itself, its security, its COLLATERAL or said debt unsafe or insecure, then and on demand of LENDER, BORROWER shall immediately furnish such further COLLATERAL or make such payment on said account as will be satisfactory to LENDER to be held by said LENDER as it originally pledged hereunder. At its option, LENDER may discharge taxes, liens security interest or other encumbrances at any time levied or placed on said COLLATERAL, may pay for insurance and for the maintenance and preservation of same. BORROWER agrees to reimburse LENDER, on demand, for any such payment made, or any such expense incurred by LENDER pursuant to the foregoing authorization, any amounts so advanced, paid or expanded shall be deemed principal advances under this Note (even though when added to other advances the sum thereof may exceed the face amount of the Note), shall bear interest from time advanced, paid or expanded at the rate prescribed in this Note and be secured by the personal property Collateral and its payment endorced as if it were part of the original debt. Any sum expended, paid or advanced under this paragraph shall be at LENDER's sole option and not constitute a waiver of any default or right arising from the breach by BORROWER of any covenant or agreement contained in this Note. Until default, as hereinafter defined, BORROWER shall have the right to retain possession of the COLLATERAL, unless otherwise agreed by the parties hereto, and to use it in any lawful manner not inconsistent with this Note. LENDER may, with or without notice, before or after maturity of this Note, transfer or register in the name of its nominee(s) all or any part of the COLLATERAL and also exercise any or all rights of collection, conversion, or exchange and other similar rights, priviliges and options pertaining to the COLLATERAL; but shall have no duty to exercise any such rights, privileges or options or to sell or otherwise realize upon any of the COLLATERAL as herein authorized or to preserve the same and shall not be responsible for any failure to do so or delay in so doing. As to any COLLATERAL consisting of instruments or chattel paper, it is agreed that LENDER shall not be required to take any steps whatever to preserve any rights against prior Parties. LENDER shall have no custodial or ministerial duties to perform with regard to COLLATERAL pledged except for its safekeeping; and by way of explanation and not by way of limitation thereof. LENDER shall incur no liability for any of the following: either loss or depreciation of the COLLATERAL unless caused by its willful misconduct; its failure to present any paper for payment or protest or to protest or to give notice of non-payment or any other notice with respect to any paper or COLLATERAL; or failure to present or surrender for redemption, conversion or exchange any bond, stock, paper, or other Security whether in connection with any merger, consolidation, recapitalization, reorganization or arising out of the intendment or refunding of the original Security; or its failure to notify any party hereto that the COLLATERAL should be so presented or surrendered. Upon any transfer of this Note, the LENDER may deliver the property held as security or any part thereof, to the transferee, as well as any subsequent holder hereof, who shall there upon become vested with all the powers and rights herein given to the LENDER in respect to the property so transferred and delivered; and the LENDER shall thereafter be forever relieved and fully discharged from any liability or responsibilty with respect to such property so transferred but with respect to any property not so transferred, the LENDER shall retain all rights and powers hereby given. With prior written assent of the LENDER, other COLLATERAL may be substituted for the original COLLATERAL herein, in which event all rights, duties, obligations, remedies and security interests provided for, created or granted shall apply fully to such substitute COLLATERAL. If the COLLATERAL is attached to real estate prior to the perfection of the security interest granted herein and hereby. BORROWER will, on demand of LENDER, furnish the latter with a disclaimer(s) duly executed by all persons having any interest in the real estate, or any interest in or claim against the COLLATERAL which is prior to LENDER's interests. Borrower will not use any COLLATERAL in any jurisdiction other than a State in which BORROWER shall have previously advised LENDER to be properly protected and perfected. Absent advance written consent of LENDER, the COLLATERAL therein described will not be used outside the territorial limits of the U.S.A. BORROWER (or one or more of undersigned) has, or forthwith will acquire, full title to COLLATERAL, and will at all times keep same free of all liens, security interests, attachments, and/or claims whatsoever, other than the security interests hereunder. BORROWER has good indefeasible marketable title hereto and will warrant and defend same against all claims. BORROWER is not to and will not attempt to transfer, sell or encumber the COLLATERAL or use it for hire or in violation of any statute or ordinance. BORROWER further agrees to pay promptly all taxes and assessments upon the COLLATERAL and/or for its use or operation, and/or on the Agreement to keep use and maintain said COLLATERAL in a reasonably careful manner so as not to unreasonably or unnecessarily expose the same to waste, damage, wear or depreciation, and to keep the same in good order and repair. LENDER may examine and inspect COLLATERAL or any part thereof, wherever located at any reasonable time(s). All equipment, accessories and parts shall become part of said COLLATERAL by accession. Borrower will at all times keep LENDER's security interest properly protected and hereby designates LENDER as its attorney in fact to do any acts or deeds or execute such documents reasonably appropriate to accomplish said perfection. Said designation shall be irrevocable as long as any obligation of Borrower is outstanding. REMEDIES ON DEFAULT (Including Powers of Sale) FOR PERSONAL PROPERTY COLLATERAL) Lender shall have all rights and remedies of a SECURED PARTY under the Uniform Commercial Code, as adopted by the State of LENDER's office as set forth herein. Without limitation thereto, LENDER shall have the following specific rights and remedies: (1) To take immediate possession of the COLLATERAL without notice or resort to legal process; and for such prupose, to enter upon any premises on which the COLLATERAL or any part thereof may be situated and remove the same therefrom; or, at its option, to render the COLLATERAL unusable. Furhter, also at its option, to dispose of said COLLATERAL on BORROWER's premises. (2) To require BORROWER to assemble the COLLATERAL and make it available to LENDER, which is reasonably convenient to both parties. (3) To exercise its rights of Set-Off by applying any monies of BORROWER on deposit with LENDER toward payment of the OBLIGATIONS evidenced or referred to herein or secured hereby, without notice. If any process is issued or ordered to be served on LENDER, seeking to seize BORROWER rights and/or interest in any bank account maintained with LENDER; the balance in any said account shall immediately be deemed to have been and shall be set-off against any and all OBLIGATIONS of BORROWER to LENDER, as of the time of issuance of any such writ or process; whether or not BORROWER and/or LENDER shall then have been served therewith. (4) To dispose of COLLATERAL as allowed by the Uniform Commercial Code, as adopted by the State of LENDER's office as set forth herein to any County or place selected by LENDER (5) To make or have made any repairs deemed necessary or desirable at time or repossession , possession or sale, the cost of which is to be charged against BORROWER. (6) To apply the proceeds realized from disposition of the COLLATERAL to satisfy the following items in the order here listed: (a) The cost of reimbursing any person whose interest in the premises is physically damaged by the entry and removal of the COLLATERAL, upon BORROWER's failure to do so; next to (b) The expenses of taking, removing, holding for sale, repairing or otherwise preparing for sale and selling of said COLLATERAL, specifically including the LENDER reasonable Attorney's fees and both legal and collection expenses. BORROWER herewith stipulates and agrees that 15% of the sum of the unpaid principal and all interest due thereon as permitted under state law shall be deemed reasonable Attorney's fees of said LENDER, next to (c) The expense of liquidating any liens, security interest, attachments or encumbrances superior to the security interest herein created; and, finally to (d) The unpaid principal and all accumulated interest hereunder and to any other debt owed to LENDER by any signer hereof. Any surplus, after the satisfaction of the foregoing items (a) through (d) shall be paid to BORROWER or to any other PARTY lawfully entitled thereto and know to this LENDER. Further, if proceeds realized from disposition of the COLLATERAL shall fail to satisfy any of the foregoing items (a) through (d), BORROWER shall forthwith pay deficiency balance to LENDER. All items and expressions contained herein which are defined in Article 1, 3, or 9, of the Uniform Commercial Code of the State of North Carolina shall have the same meaning herein as in said Articles of said Code. ADDITIONAL PROVISIONS AS TO REAL PROPERTY COLLATERAL BORROWER hereby further warrants, covenants and agrees, as follows: This note is secured by a Security Instrument and such instrument is incorporated herein by reference. BORROWER will discharge all of BORROWER's duties and obligations as stated in any Security Instrument to LENDER for any debt of BORROWER to Lender and any other Instrument, including a Commitment Letter and/or Loan Agreement, if any, evidencing and securing the obligations in this Note. REMEDIES ON DEFAULT FOR REAL PROPERTY COLLATERAL All remedies upon default for real property Collateral encumbered to Lender by the Security Instrument will be determined according to the terms of such Security Instrument. (SEE OTHER SIDE FOR SIGNATURES AND SEALS)
44(a) 3 SCHEDULE B TO PROMISSORY NOTE AND SECURITY AGREEMENT DATED DECEMBER 21st, 1994. IN THE AMOUNT OF $15,000,000 BETWEEN FIRST UNION NATIONAL BANK OF NORTH CAROLINA AND INSTEEL INDUSTRIES, INC. - -------------------------------------------------------------------------------- Borrower may elect from time to time to select the rate of interest under this Note which shall be either the LIBOR Rate (as hereinafter defined) or Lender's Prime Rate (as defined in this Note). As used herein, "LIBOR Rate" shall mean the rate per annum (adjusted for the costs of maintaining reserves, insurance, and any other costs as may become applicable) at which deposits in the United States dollars would be offered to Lender at approximately 10:00 a.m., London time for an amount equal to the principal balance outstanding under this Note for any thirty (30) day period for which the LIBOR Rate is chosen for settlement in immediately available funds by major banks in London Interbank Market plus three quarters percent (0.75%) per annum. Executed this 21st day of December, 1994. ATTEST: INSTEEL INDUSTRIES, INC. /s/ Gary D. Kniskern By: /s/ Michael C. Gazmarian - --------------------------- -------------------------- Secretary Title: Treasurer --------------- ------------------- [CORPORATE SEAL] 45 EX-10.11 6 STOCK OPTION PLAN 1 Exhibit 10.11 INSTEEL INDUSTRIES, INC. STOCK OPTION AGREEMENT THIS AGREEMENT is made the 7th day of February, 1995, between Insteel Industries, Inc., a North Carolina corporation, with its principal office in Mount Airy, North Carolina (hereinafter called the "Company"), and Louis E. Hannen (hereinafter called the "Optionee"); As authorized by the Company's Board of Directors, the Company and the Optionee hereby agree as follows: 1. Grant of Option. (a) The Company grants to the Optionee as a matter of separate inducement and agreement in connection with his agreeing to serve as a member of the Company's Board of Directors, which service will help enhance the efficiency, soundness, profitability, growth and shareholder value of the Company, and not in lieu of any salary or other compensation for his services, the right and option to purchase all or any part of an aggregate of NINETEEN THOUSAND NINE HUNDRED SIXTY-FIVE (19,965) shares of the Common Stock of the Company, no par value, at the purchase price of 7 7/8 Dollars ($7.875) per share. (b) Except as otherwise expressly provided herein regarding exercise of the option in the event of Optionee's death while serving as a director (Paragraphs 2(d) and 3) and discretionary acceleration of exercise rights in the event of termination of Optionee's status as a nonemployee director (Paragraph 2(d)), all rights of the Optionee with respect to the unexercised portion of the option shall terminate upon termination of the Optionee's status as a director of the Company. 2. Period of Option and Certain Limitations on Right to Exercise. (a) The period during which the option may be exercised (the "option period") shall be ten years from the date hereof. The option shall become exercisable in installments as follows: 20 percent of the number of shares covered hereby at any time prior to the first anniversary of the date hereof, and an additional 20 percent of such number of shares annually following the first, second, third and fourth anniversaries of the date hereof, with each such installment to be cumulative. Any portion of the option not exercised before the expiration of the option period shall terminate. (b) The option may be exercised by giving written notice of at least ten days to the Company at such place as the Board shall direct. Such notice shall specify the number of shares to be purchased pursuant to the option and the aggregate purchase price to be paid therefor, and shall be accompanied by the payment of such purchase 46 2 price. Such payment shall be in the form of cash or shares owned by the Optionee at the time of exercise, or in any combination of cash and shares. (c) Shares tendered in payment of the exercise of the option shall be valued at their fair market value on the date of exercise, which shall be determined in good faith by the Board and shall be (i) the price per share of the last sale of such shares on the New York Stock Exchange as reported in The Wall Street Journal for the last trading day nearest preceding the date on which the option is exercised; or (ii) if the Common Stock is not listed and traded on the New York Stock Exchange or another recognized securities exchange but is traded in the over the counter market, then the fair market value shall be the closing sales price of such Common Stock as reported in the NASDAQ National Market System on the last trading day nearest preceding the date of exercise; or (iii) if the shares of the Company cease to be traded on the open market, then in accordance with the applicable provisions of Section 20.2031-2 of the Federal Estate Tax Regulations, or in any other manner consistent with the Internal Revenue Code of 1986, as amended, and accompanying regulations. (d) The option shall not be exercised unless the Optionee is, at the time of exercise, a nonemployee member of the Board of Directors and has been a nonemployee member of the Board of Directors continuously since the date hereof; provided, however, that the option shall be exercisable following the death of the Optionee in accordance with Paragraph 3. If the status of the Optionee as a nonemployee director is terminated, the option may be exercised only to the extent exercisable on the date of such termination, except that the Board may in its discretion accelerate the date for exercising all or any part of the option that was not otherwise exercisable on the date of such termination. (e) The Optionee or his legal representative, legatees or distributees shall not be deemed to be the holder of any shares subject to the option unless and until certificates for such shares are issued to him or them under the plan. 3. Nontransferability of Option. During the Optionee's lifetime, the option shall be exercisable only by him and shall not be transferable (including by pledge or hypothecation); provided, however that the option may be transferred upon the death of the Optionee in accordance with the Optionee's will or the laws of descent and distribution. 4. Dilution or Other Adjustments. If there is any change in the outstanding shares of Common Stock of the Company as a result of a merger, consolidation, reorganization, stock dividend, stock split to holders of shares that is distributable in shares, or other change in the capital stock structure of the Company, the Board shall make such adjustments to the option as the Board in its sole discretion deems equitable to prevent dilution or enlargement of the option or otherwise advisable to reflect such change. 5. Surrender of Options. The Board may, in its sole discretion and subject to such terms and conditions as it deems appropriate, accept the surrender by the Optionee of all or a part of the option and authorize payment in consideration therefor of an amount equal 47 3 to the difference between the option price and the fair market value of the shares remaining subject to the option (determined pursuant to Paragraph 2(c) hereof) on the date of such surrender. Such payment shall be made in shares valued at such fair market value on the date of such surrender, or in cash, or partly in such shares and partly in cash as the Board shall determine; provided, that the Board determines that such settlement is consistent with the purpose set forth in Paragraph 1 hereof. The surrender of the option under this Paragraph 5 shall be permitted only to the extent that the option is exercisable under Paragraph 2(a) on the date of surrender. The right to surrender the option under this Paragraph 5 shall not be transferable (including by pledge or hypothecation) and such right of surrender shall be exercisable during the Optionee's lifetime only by him. In no event shall the Optionee surrender this option under this Paragraph 5 if the fair market value of the shares at the time of such surrender is less than the option price. 6. Investment Purpose. (a) This option is granted on the condition that all purchases of stock hereunder shall be for investment purposes and not with a view to resale or distribution. (b) Unless the option granted pursuant to this Agreement and shares of stock underlying such option shall have been registered with the Securities and Exchange Commission under a then effective registration statement on an appropriate form, each certificate for shares issued under exercise of the option granted hereunder shall bear a legend in substantially the following form: "The shares represented by this certificate have not been registered with the Securities and Exchange Commission and may not be transferred in the absence of an effective registration statement with respect thereto or an opinion of counsel satisfactory to the Company that such registration is not required." 7. Termination. This Agreement and the option granted under it shall terminate upon the first of the following events to occur: exercise in full of the option granted hereunder; termination of Optionee's status as a director of the Company; or the close of business on February 6, 2005. 8. Binding Agreement. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective executors, administrators, next-of-kin, successor and assigns. 9. Governing Law. This Agreement shall be interpreted, construed and enforced in accordance with the laws of the State of North Carolina. IN WITNESS WHEREOF, this Agreement has been executed in behalf of the Company by its officers thereunto duly authorized, and the Optionee, in acceptance of the 48 4 above-mentioned option, subject to the terms of this Agreement, has set forth his hand and seal all on the day and year first above written. INSTEEL INDUSTRIES, INC. By: /s/ H. O. Woltz III ------------------------------- President ATTEST: /s/ Gary D. Kniskern - -------------------------- Secretary [Corporate Seal] OPTIONEE /s/ Louis E. Hannen ----------------------------------- Name: Louis E. Hannen 49 EX-11 7 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 INSTEEL INDUSTRIES, INC. COMPUTATION OF PRIMARY EARNINGS PER COMMON SHARE (IN THOUSANDS EXCEPT PER SHARE DATA)
YEARS ENDED SEPTEMBER 30, ------------------------------------------------- 1995 1994 1993 ------ ------ ------ Earnings Before Cumulative Effect of Change in Accounting Principle $6,336 $3,772 $6,292 Cumulative Effect of Change in Accounting Principle - 1,325 - ------ ------ ------ Net Earnings $6,336 $5,097 $6,292 ====== ====== ====== Earnings Per Common Share: Weighted Average Shares Outstanding 8,363 8,311 7,863 ====== ====== ====== Earnings Before Cumulative Effect of Change in Accounting Principle $ .76 $ .45 $ .80 Cumulative Effect of Change in Accounting Principle - .16 - ------ ------ ------ Net Earnings Per Share $ .76 $ .61 $ .80 ====== ====== ======
INSTEEL INDUSTRIES, INC. COMPUTATION OF FULLY DILUTED EARNINGS PER COMMON SHARE (IN THOUSANDS EXCEPT PER SHARE DATA)
YEARS ENDED SEPTEMBER 30, -------------------------------------------------- 1995 1994 1993 ------ ------ ------ Earnings from Operations $6,336 $3,772 $6,292 Interest on Convertible Debentures (Net of Tax) - - 137 ------ ------ ------ Earnings Before Cumulative Effect of Change in Accounting Principle $6,336 $3,772 $6,429 Cumulative Effect of Change in Accounting Principle - 1,325 - ------ ------ ------ Net Earnings $6,336 $5,097 $6,429 ====== ====== ====== Earnings Per Common Share: Weighted Average Shares Outstanding 8,363 8,311 7,863 Shares Issuable Upon Conversion of Debentures - - 387 ------ ------ ------ Total Weighted Average Common Shares 8,363 8,311 8,250 ====== ====== ====== Earnings Before Cumulative Effect of Change in Accounting Principle $ .76 $ .45 $ .78 Cumulative Effect of Change in Accounting Principle - .16 - ------ ------ ------ Net Earnings Per Share $ .76 $ .61 $ .78 ====== ====== ======
All share and per-share data reflect the 10% stock dividend that was distributed on April 12, 1993. Primary earnings per share is computed by dividing net earnings by the weighted average number of common shares outstanding for each period. The calculation excludes the effect of common equivalent shares resulting from stock options using the treasury stock method as the effect would not be material. Fully diluted earnings per share are computed based on the weighted average number of common shares and common equivalent shares outstanding for each period. 50 EX-21 8 LIST OF SUBSIDARIES 1 EXHIBIT 21 LIST OF SUBSIDIARIES OF INSTEEL INDUSTRIES, INC. The following is a list of subsidiaries of the Company as of September 30, 1995, each of which is wholly owned by the Company:
STATE OR OTHER JURISDICTION OF NAME INCORPORATION -------------------------------------------------------- ---------------------------------- Insteel Wire Products Company North Carolina Intercontinental Metals Corporation North Carolina
51 EX-23.1 9 CONSENT OF KPMG 1 EXHIBIT 23.1 CONSENT OF KPMG PEAT MARWICK LLP The Board of Directors and Stockholders Insteel Industries, Inc. We consent to incorporation by reference in the registration statements on Forms S-8 (Nos. 33-01032, 33-40410, 33-35316, 33-61887, and 33-61889) of Insteel Industries, Inc. of our report dated October 24, 1995, relating to the consolidated balance sheet of Insteel Industries, Inc. and subsidiaries as of September 30, 1995, and the related consolidated statements of earnings, stockholders' equity and cash flows and related schedule for the year then ended which report appears in the September 30, 1995 annual report on Form 10-K of Insteel Industries, Inc. KPMG PEAT MARWICK LLP Charlotte, North Carolina December 21, 1995 52 EX-23.2 10 CONSENT OF DELOITTE & TOUCHE 1 EXHIBIT 23.2 CONSENT OF DELOITTE & TOUCHE LLP The Board of Directors and Stockholders Insteel Industries, Inc. We consent to incorporation by reference in the registration statements on Form S-8 (Nos. 33-01032, 33-40410, 33-35316, 33-61887, and 33-61889) of Insteel Industries, Inc. of our report dated October 28, 1994, relating to the consolidated balance sheet of Insteel Industries, Inc. and subsidiaries as of September 30, 1994, and the related consolidated statements of earnings, stockholders' equity and cash flows and related schedule for each of the two years in the period then ended which report appears in the annual report on Form 10-K of Insteel Industries, Inc. for the year ended September 30, 1995. DELOITTE & TOUCHE LLP Charlotte North Carolina December 21, 1995 53 EX-27 11 FINANCIAL DATA SCHEDULE
5 EXHIBIT 27 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K OF INSTEEL INDUSTRIES, INC. FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR SEP-30-1995 OCT-01-1994 SEP-30-1995 263 0 31,910 394 40,566 73,854 109,202 44,102 146,135 47,824 0 0 0 16,787 54,425 146,135 260,344 260,344 238,437 238,437 0 0 2,344 6,259 (77) 6,336 0 0 0 6,336 .76 .76
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