-----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, WCxZdGbiSIdBB5KQ2oqI8mEb8VatQZ+h9qdHT0utAoLDczIQiHU0GCn2GJNpAUWB hWp6Pl7nRIOWFQ30SHVCPg== 0000950144-99-001203.txt : 19990210 0000950144-99-001203.hdr.sgml : 19990210 ACCESSION NUMBER: 0000950144-99-001203 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990102 FILED AS OF DATE: 19990209 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-Q SEC ACT: SEC FILE NUMBER: 001-09929 FILM NUMBER: 99526380 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-Q 1 INSTEEL INDUSTRIES INC 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 2, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 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: 336-786-2141 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 [ ] The number of shares outstanding of the registrant's common stock as of February 5, 1999 was 8,442,512. 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS INSTEEL INDUSTRIES, INC. CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)
JANUARY 2, OCTOBER 3, 1999 1998 ---------- ---------- ASSETS Current assets: Cash and cash equivalents $ 565 $ 422 Accounts receivable, net 24,476 28,687 Inventories 30,710 30,566 Prepaid expenses and other 1,996 2,023 -------- -------- Total current assets 57,747 61,698 Property, plant and equipment, net 79,968 80,350 Other assets 4,849 5,083 -------- -------- Total assets $142,564 $147,131 ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 22,044 $ 28,758 Accrued expenses 5,790 6,013 Current portion of long-term debt 620 620 -------- -------- Total current liabilities 28,454 35,391 Long-term debt 36,708 35,743 Deferred income taxes 6,113 5,726 Other liabilities 1,012 1,011 Shareholders' equity: Common stock 16,885 16,885 Additional paid-in capital 38,232 38,232 Retained earnings 15,667 14,143 -------- -------- Total shareholders' equity 70,277 69,260 -------- -------- Total liabilities and shareholders' equity $142,564 $147,131 ======== ========
3 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF EARNINGS (In thousands except for per share data) (Unaudited)
THREE MONTHS ENDED ---------------------------- JANUARY 2, DECEMBER 27, 1999 1997 ---------- ------------ Net sales $62,267 $ 59,919 Cost of sales 55,701 58,444 ------- -------- Gross profit 6,566 1,475 Selling, general and administrative expense 3,554 3,080 ------- -------- Operating income (loss) 3,012 (1,605) Interest expense 593 968 Other expense 56 42 ------- -------- Earnings (loss) before income taxes 2,363 (2,615) Provision (benefit) for income taxes 839 (928) ------- -------- Net earnings (loss) $ 1,524 $ (1,687) ======= ======== Weighted average shares outstanding (basic and diluted) 8,443 8,441 ======= ======== Net earnings (loss) per share (basic and diluted) $ 0.18 $ (0.20) ======= ======== Dividends paid per share $ 0.06 $ 0.06 ======= ========
4 INSTEEL INDUSTRIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)
THREE MONTHS ENDED ----------------------------- JANUARY 2, DECEMBER 27, 1999 1997 ---------- ------------ CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES: Net earnings (loss) $ 1,524 $ (1,687) Adjustments to reconcile net earnings (loss) to net cash provided by operating activities: Depreciation and amortization 2,249 2,365 Loss on sale of assets 16 -- Net changes in assets and liabilities: Accounts receivable, net 4,237 6,658 Inventories (144) (4,005) Accounts payable and accrued expenses (6,937) (7,419) Other changes 543 (422) -------- -------- Total adjustments (36) (2,823) -------- -------- Net cash provided by (used for) operating activities 1,488 (4,510) -------- -------- CASH FLOWS FROM DISCONTINUED OPERATING ACTIVITIES: Net cash provided by discontinued operating activities -- 21 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures (1,831) (1,873) Proceeds from (payments on) notes receivable 19 (28) Proceeds from sale of property, plant and equipment 9 -- -------- -------- Net cash used for investing activities (1,803) (1,901) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from long-term debt 23,540 32,629 Principal payments on long-term debt (22,575) (26,706) Proceeds from exercise of stock options -- 44 Cash dividends paid (507) (507) -------- -------- Net cash provided by financing activities 458 5,460 -------- -------- Net increase (decrease) in cash 143 (930) Cash and cash equivalents at beginning of period 422 1,079 -------- -------- Cash and cash equivalents at end of period $ 565 $ 149 ======== ======== SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Interest $ 648 $ 1,210 Income taxes 254 485
5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands, except per share data) (1) BASIS OF PRESENTATION The consolidated unaudited financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations. These unaudited consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended October 3, 1998. The unaudited consolidated financial statements included herein reflect all adjustments (consisting only of normal recurring accruals) that the Company considers necessary for a fair presentation of the financial position, results of operations and cash flows for all periods presented. The results for the interim periods are not necessarily indicative of the results for the entire fiscal year. (2) INVENTORIES
JANUARY 2, OCTOBER 3, 1999 1998 --------- ---------- Raw materials $15,475 $15,514 Supplies 2,203 2,242 Work in process 1,311 1,525 Finished goods 11,721 11,285 ------- ------- Total inventories $30,710 $30,566 ======= =======
(3) EARNINGS PER SHARE In December 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 replaces the primary and fully diluted earnings per share ("EPS") computations with basic and diluted EPS. Basic EPS are computed by dividing net earnings by the weighted average number of common shares outstanding during the period. Diluted EPS are computed by dividing net earnings by the weighted average number of common shares and dilutive securities outstanding during the period. Securities that have the effect of increasing EPS are considered to be antidilutive and are not included in the computation of diluted EPS. Options to purchase 585,000 shares and 491,000 shares for the three months ended January 2, 1999 and December 27, 1997, respectively, were antidilutive and were not included in the diluted EPS computation. The reconciliation of basic and diluted EPS is as follows:
THREE MONTHS ENDED -------------------------- JANUARY 2, DECEMBER 27, 1999 1997 ---------- ------------ Net earnings (loss) $1,524 $(1,687) ====== ======= Weighted average shares outstanding: Weighted average shares outstanding (basic) 8,443 8,441 Dilutive effect of stock options -- -- ------ ------- Weighted average shares outstanding (diluted) 8,443 8,441 ====== ======= Net earnings (loss) per share (basic and diluted) $ 0.18 $ (0.20) ====== =======
6 (4) NEW ACCOUNTING PRONOUNCEMENTS In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for the reporting and display of comprehensive income and its components. The Company has adopted SFAS No. 130 as required in its interim financial statements for the first quarter ended January 2, 1999. The adoption of this statement did not impact the Company's consolidated financial statements as there were no differences between net earnings and comprehensive income. In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131, which is based on the management approach to segment reporting, establishes requirements to report selected information about operating segments and related disclosures about products and services, major customers and geographic areas. As the statement only impacts financial statement disclosures, it will not effect the Company's financial position or results of operations. Management is in the process of evaluating the effects of this change on its reporting. The Company will adopt SFAS No. 131 as required in its annual report for 1999. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. It requires that an entity recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. Management has not yet evaluated the effects of this change on its financial position or results of operations. The Company will adopt SFAS No. 133 as required in its interim financial statements for the first quarter of 2000. (5) SUBSEQUENT EVENT In January 1999, the Company announced that it had acquired a 25% interest in Structural Reinforcement Products, Inc. ("SRP"), a manufacturer of welded wire fabric products for the construction industry. Under the terms of the purchase agreement, the Company acquired 25% of the common stock in SRP for $3.3 million. In addition, the Company provided SRP with $1.5 million of debt financing and $1.9 million of collateral to support its existing credit facility in order to assume a proportionate share of SRP's debt-related obligations. The Company may be obligated to increase its investment for its equity position by up to $1.0 million depending upon SRP's future financial performance. The Company will account for its investment in SRP on an equity basis and, accordingly, will include its share of SRP's earnings in its consolidated earnings. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS STATEMENTS OF EARNINGS - SELECTED DATA ($ in thousands)
THREE MONTHS ENDED ----------------------------------- JANUARY 2, DECEMBER 27, 1999 CHANGE 1997 ---------- ------ ------------ Net sales $62,267 4% $ 59,919 Gross profit 6,566 345% 1,475 Percentage of net sales 10.5% 2.5% Selling, general and administrative expense $ 3,554 15% $ 3,080 Percentage of net sales 5.7% 5.1% Operating income (loss) $ 3,012 N/M $ (1,605) Percentage of net sales 4.8% (2.7%) Interest expense $ 593 (39%) $ 968 Percentage of net sales 1.0% 1.6% Effective income tax rate 35.5% 35.5% Net earnings (loss) $ 1,524 N/M $ (1,687) Percentage of net sales 2.4% (2.8%)
Net sales for the first quarter increased 4% to $62.3 million from $59.9 million in the year-ago period. The sales increase was in spite of the sale of the assets related to the Company's agricultural fencing product line in February 1998 which reduced current year sales relative to the prior year. On a comparable basis, sales rose 13%. Sales of concrete reinforcing products and nails increased sharply driven by strong construction markets. Sales of tire bead wire and welding wire rose to new highs during the quarter as the Company continued to make significant progress towards completing the required qualification process with its customers. Industrial wire sales declined from a year ago primarily due to a significant increase in the proportion of wire consumed internally to manufacture higher value products. Gross margins for the first quarter increased to 10.5% of sales compared with 2.5% in the prior year. The increase in margins was primarily caused by a widening in spreads between selling values and raw material costs for most products together with higher sales of tire bead wire and welding wire. The Company is incurring substantially all of the manufacturing costs related to these products while it operates at a low level of capacity utilization. As a result, any increases in volume significantly impact the Company's profitability. Gross margins were also favorably affected by higher shipments of most products. Selling, general and administrative expense ("SG&A expense") rose 15% for the first quarter, increasing to 5.7% of sales from 5.1% in the prior year. The increase in SG&A expense was primarily caused by higher profit-sharing and incentive plan expenses resulting from the significant improvement in the Company's financial results. Interest expense fell sharply for the first quarter compared with a year ago due to lower borrowing levels on the Company's revolving credit facility. The reduction in debt was primarily related to lower inventories and the improvement in the Company's earnings relative to the year-ago loss. 8 FINANCIAL CONDITION SELECTED FINANCIAL DATA ($ in thousands)
THREE MONTHS ENDED --------------------------------- JANUARY 2, DECEMBER 27, 1999 1997 ---------- ------------ Net cash provided by (used for) continuing operating activities $ 1,488 $ (4,510) Net cash used for investing activities (1,803) (1,901) Net cash provided by financing activities 458 5,460 Total debt 37,328 58,206 Percentage of total capital 35% 46% Shareholders' equity $ 70,277 $ 69,172 Percentage of total capital 65% 54% Total capital (total debt + shareholders' equity) $ 107,605 $ 127,378
Operating activities generated $1.5 million of cash for first quarter while using $4.5 million a year ago. The year-to-year change was principally related to a sharp reduction in the typical seasonal increase in inventories and the significant improvement in the Company's financial results. The increase in inventory levels during the current year was less pronounced as a result of unseasonable strong demand for construction-related products. During the prior year quarter, the Company had increased inventories in anticipation of potential supply disruptions resulting from the expiration of a labor agreement and scheduled downtime for maintenance at a primary raw material supplier. Investing activities used $1.8 million of cash for the first quarter compared with $1.9 million a year ago. Capital expenditures were primarily for recurring equipment maintenance and upgrades together with the tire bead wire and welding wire expansion. Financing activities provided $458,000 of cash for the first quarter compared with $5.5 million a year ago. The decrease in financing requirements resulted from the reduction in the seasonal inventory build and the improved financial performance relative to the prior year. The Company's debt to capital ratio decreased to 35% at January 2, 1999 compared with 46% at December 27, 1997. During 1998, the Company's revolving credit facility was amended, increasing the maximum availability to $60.0 million through October 3, 1998, declining to $57.5 million on October 4, 1998 and $55.0 million on January 3, 1999 and thereafter. At January 2, 1999, approximately $24.4 million was available under the facility. The Company currently expects to fund its capital expenditure requirements and liquidity needs from a combination of internally generated funds, the revolving credit facility and additional long-term sources of financing. YEAR 2000 The "Year 2000" issue refers to older computer systems and other equipment operating on software that uses only two digits to represent the year, rather than four digits. As a result, these older systems and equipment may not process information or otherwise function properly when using the year "2000", since that year will be indistinguishable from the year "1900". The Company has initiated a Year 2000 program to assess and develop plans to resolve the issue both internally and externally. During 1996, the Company began developing a plan to upgrade its business and operating systems to Year 2000 compliant software. In addition to addressing the Year 2000 issue, the systems upgrade is expected to enhance the performance of the Company's customer service, manufacturing and administrative processes. Implementation of the upgrade began in 1997 with the initial testing of the system on a limited basis prior to converting all of the Company's locations. As of January 2, 1999, the implementation had been completed at 25% of the Company's facilities with the pace of the conversion expected to accelerate for the remaining locations. The Company expects to complete the project by September 1999. In order to identify potential Year 2000 problems at key suppliers and customers, the Company has initiated external surveys to assess their level of compliance. The Company expects to complete its assessment of outside parties and develop the appropriate actions to be taken by April 1999. 9 The Company also is in the process of reviewing embedded software in its equipment and facilities to identify potential Year 2000 issues. Equipment manufacturers are being requested to certify their compliance and assist the Company in developing solutions where they are currently non-compliant. The Company expects to complete the assessment and testing process by September 1999. While reasonable actions have been taken to address the Year 2000 problem and will continue to be taken in the future to mitigate such disruption, the magnitude of all Year 2000 disturbances cannot be predicted. Failure to complete these programs as planned could result in the corruption of data, hardware or equipment failures or the inability to manufacture products or conduct other business activities, all of which could have a material impact on the Company's business, consolidated financial position or results of operations. Management believes that past or expected future capital requirements related to Year 2000 compliance issues will not have a material impact on its consolidated financial position or results of operations. The Company does not, at this time, have an overall contingency plan to address Year 2000 disturbances. Its efforts to date have been concentrated on mitigating such disturbances. As the Company proceeds forward with its assessment programs and evaluates the reasonable potential risks, it will determine the extent of contingency planning and resources that are appropriate. Any such contingency actions and resources would be planned to be in place in sufficient time for the Year 2000. OUTLOOK The Company's operating results are impacted by seasonal factors, particularly in the first quarter of the fiscal year, which has historically represented the lowest quarterly sales volume. Shipments typically increase in the second quarter and reach a high point in the third or fourth quarter, reflecting the buying patterns of the Company's customers. Market conditions for hot-rolled wire rod, the Company's primary raw material, continue to be favorable. Recent expansions in domestic production capacity together with changes in the global market environment have significantly increased supplier competition. In December 1998, domestic wire rod producers initiated a Section 201 filing with the U.S. International Trade Commission alleging that rising import levels had resulted in serious injury. The domestic producers are pursuing trade relief on a worldwide basis against all countries other than NAFTA nations through duties, quotas or other measures intended to reduce import competition. Although the impact of such actions on the Company's financial results is difficult to predict, the Company believes that rod market conditions will remain competitive in ensuing quarters until the trade actions are resolved. The Company's business strategy continues to be focused on (1) further expansion into higher value products that offer the potential to generate returns that exceed the Company's cost of capital and (2) improving the financial performance of the Company's traditional businesses to acceptable levels. During 1994 - 1997, the Company built two new production facilities and reconfigured an existing operation in order to develop the manufacturing capabilities required to enter the markets for PC strand, collated fasteners, tire bead wire and welding wire. Sales of these new products are expected to increase from $39.6 million in 1998 to $100.0 million when fully operational. The Company expects that the recently enacted federal highway spending legislation ("TEA-21") will have a favorable impact on the demand for its concrete reinforcing products. As customer requirements rise, the Company expects to gradually increase the operating volumes of its recently expanded PC strand manufacturing facility to its full design capacity. During the first quarter, sales of the Company's most recent product additions, tire bead wire and welding wire, rose to new highs as the Company made significant progress towards completing the qualification process and establishing itself as a credible supplier. As the Company is currently incurring substantially all of the anticipated operating costs required to support its new businesses, the incremental impact of projected increases in sales is expected to have a significant favorable impact on its financial performance. FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that reflect management's current assumptions and estimates of future performance and economic conditions. Such statements are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to various risks and uncertainties that could cause actual results to differ materially from those projected, stated or implied by the statements. Such risks and uncertainties include, but are not limited to, general economic conditions in the markets in which the Company operates; unanticipated changes in customer demand, order patterns and inventory levels; fluctuations in the cost and availability of the Company's primary raw material, hot rolled steel wire rod; the Company's ability to raise selling prices in order to recover increases in wire rod prices; the impact of the resolution of the Section 201 filing with the U.S International Trade Commission on the cost and availability of wire rod; legal, environmental or regulatory developments that significantly 10 impact the Company's operating costs; increased demand for the Company's concrete reinforcing products resulting from increased federal funding levels provided for in the TEA-21 highway spending legislation; the success of the Company's new product initiatives, including the PC strand, collated fastener, tire bead wire and welding wire expansions; the inability of the Company to expedite the qualification process with prospective customers for tire bead wire and welding wire; and the failure of the Company to receive regular and substantial orders for its new products. PART II - OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a. Exhibits: 10 - MATERIAL CONTRACTS ------------------ 10.31 Trust Under Insteel Industries, Inc., Directors Compensation Plan/Return on Capital Plan 27 - Financial Data Schedule (for SEC use only). b. Reports on Form 8-K No reports on Form 8-K were filed by the Registrant during the quarter ended January 2, 1999. 11 SIGNATURES Pursuant to the requirements 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. ------------------------ Registrant Date: February 5, 1999 By /s/ H.O. Woltz III -------------------------------------- H.O. Woltz III President and Chief Executive Officer Date: February 5, 1999 By /s/ Michael C. Gazmarian -------------------------------------- Michael C. Gazmarian Chief Financial Officer and Treasurer EX-10.31 2 TRUST UNDER INSTEEL INDUSTRIES INC 1 EXHIBIT 10.31 TRUST UNDER INSTEEL INDUSTRIES, INC., DIRECTORS COMPENSATION PLAN/ RETURN ON CAPITAL PLAN (a) This Agreement made this 13th day of January, 1999, by and between INSTEEL INDUSTRIES, INC. (Company) and EDWIN MOORE WOLTZ (Trustee); (b) WHEREAS, Company has adopted the nonqualified deferred compensation Plans as listed in Appendix A and B; (c) WHEREAS, Company has incurred or expects to incur liability under the terms of such Plans with respect to the individuals participating in such Plans; (d) WHEREAS, Company wishes to establish a trust (hereinafter called "Trust") and to contribute to the Trust assets that shall be held therein, subject to the claims of Company's creditors in the event of Company's Insolvency, as herein defined, until paid to Plan participants and their beneficiaries in such manner and at such times as specified in the Plans; (e) WHEREAS, it is the intention of the parties that this Trust shall constitute an unfunded arrangement; (f) WHEREAS, it is the intention of Company to make contributions to the Trust to provide itself with a source of funds to assist it in the meeting of its liabilities under the Plans; NOW, THEREFORE, the parties do hereby establish the Trust and agree that the Trust shall be comprised, held and disposed of as follows: Section 1. Establishment of Trust (a) Company hereby deposits with Trustee in trust $______, which shall become the principal of the Trust to be held, administered and disposed of by Trustee as provided in this Trust Agreement. (b) The Trust hereby established shall be revocable by Company. (c) The Trust is intended to be a grantor trust of which Company is the grantor, within the meaning of subpart E, part I, subchapter J, chapter I, subtitle A of the Internal Revenue Code of 1986, as amended, and shall be construed accordingly. (d) The principal of the Trust and any earning thereon shall be held separate and apart from other funds of Company and shall be used exclusively for the uses and purposes of Plan participants and general creditors as herein set forth. Plan participants and their beneficiaries shall have no preferred claim on, or any beneficial ownership interest in, any assets of the Trust. Any rights created under the Plans and this Trust Agreement shall be mere unsecured contractual rights of Plan participants and their beneficiaries against Company. Any assets held by the Trust will be subject to the claims of Company's general creditors under federal and state law in the event of Insolvency, as defined in Section 3 (a) herein. 2 (e) Company, in its sole discretion, may at any time, or from time to time, make additional deposits of cash or other property in trust with Trustee to augment the principal to be held, administered and disposed of by Trustee as provided in this Trust Agreement. Neither Trustee nor any Plan participant or beneficiary shall have any right to compel such additional deposits. Section 2. Payments to Plan Participants and Their Beneficiaries. (a) Company shall deliver to Trustee a schedule (the "Payment Schedule") that indicates the amounts payable in respect of each Plan participant (and his or her beneficiaries), that provides a formula or other instructions acceptable to Trustee for determining the amounts so, payable, the form in which such amount is to be paid (as provided for or available under the Plans), and the time of commencement for payment of such amounts. Except as otherwise provided herein, Trustee shall make payments to the Plan participants and their beneficiaries in accordance with such Payment Schedule. The Trustee shall make provision for the reporting and withholding of any federal, state or local taxes that may be required to be withheld with respect to the payment of benefits pursuant to the terms of the Plans and shall pay amounts withheld to the appropriate taxing authorities or determine that such amounts have been reported, withheld and paid by Company. (b) The entitlement of a Plan participant or his or her beneficiaries to benefits under the Plans shall be determined by Company or such party as it shall designate under the Plans, and any claim for such benefits shall be considered and reviewed under the procedures set out in the Plans. (c) Company may make payment of benefits directly to Plan participants or their beneficiaries as they become due under the terms of the Plans. Company shall notify Trustee of its decision to make payment of benefits directly prior to the time amounts are payable to participants or their beneficiaries. In addition, if the principal of the Trust, and any earnings thereon, are not sufficient to make payments of benefits in accordance with the terms of the Plans, Company shall make the balance of each such payment as it falls due. Trustee shall notify Company where principal and earnings are not sufficient. Section 3. Trustee Responsibility Regarding Payments to Trust Beneficiary When Company Is Insolvent. (a) Trustee shall cease payment of benefits to Plan participants and their beneficiaries if the Company is Insolvent. Company shall be considered "Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay its debts as they become due, or (ii) Company is subject to a pending proceeding as a debtor under the United States Bankruptcy Code. (b) At all times during the continuance of this Trust, as provided in Section 1 (d) hereof, the principal and income of the Trust shall be subject to claims of general creditors of Company under federal and state law as set forth below. (1) The Board of Directors and the Chief Executive Officer of Company shall have the duty to inform Trustee in writing of Company's Insolvency. If a person claiming to be a creditor of Company alleges in writing to Trustee that Company has become Insolvent, Trustee shall determine whether Company is Insolvent and, pending such determination, Trustee shall discontinue payment of benefits to Plan participants or their beneficiaries. 2 3 (2) Unless Trustee has actual knowledge of Company's Insolvency, or has received notice from Company or a person claiming to be a creditor alleging that Company is Insolvent, Trustee shall have no duty to inquire whether Company is Insolvent. Trustee may in all events rely on such evidence concerning Company's solvency as may be furnished to Trustee and that provides Trustee with a reasonable basis for making a determination concerning Company's solvency. (3) If at any time Trustee has determined that Company is Insolvent, Trustee shall discontinue payments to Plan participants or their beneficiaries and shall hold the assets of the Trust for the benefit of Company's general creditors. Nothing in this Trust Agreement shall in any way diminish any rights of Plan participants or their beneficiaries to purse their rights as general creditors of Company with respect to benefits due under the Plans or otherwise. (4) Trustee shall resume the payment of benefits to Plan participants or their beneficiaries in accordance with Section 2 of this Trust Agreement only after Trustee has determined that Company is no longer Insolvent. (c) Provided that there are sufficient assets, if Trustee discontinues the payment of benefits from the Trust pursuant to Section 3(a) hereof and subsequently resumes such payments, the first payment following such discontinuance shall include the aggregate amount of all payments due to Plan participants or their beneficiaries under the terms of the Plans for the period of such discontinuance, less the aggregate amount of any payments made to Plan participants or their beneficiaries by Company in lieu of the payments provided for hereunder during any such period of discontinuance. Section 4. Investment Authority. (a) Trustee may invest in securities (including stock or rights to acquire stock) or obligations issued by Company. All rights associated with assets of the Trust shall be exercised by Trustee or the person designated by Trustee, and shall in no event be exercisable by or rest with Plan participants. (b) Company shall have the right at any time, and from time to time in its sole discretion, to substitute assets of equal fair market value for any asset held by the Trust. Section 5. Disposition of Income. (a) During the term of this Trust all income received by the Trust, net of expenses and taxes, shall be accumulated and reinvested. Section 6. Accounting by Trustee. Trustee shall keep accurate and detailed records of all investments, receipts, disbursements, and all other transactions required to be made, including such specific records as shall be agreed upon in writing between Company and Trustee. Within 60 days following the close of each calendar year and within 60 days after the removal or resignation of Trustee, Trustee shall deliver to Company a written account of its administration of the Trust during such year or during the period from the close of the last preceding year to the date of such removal or resignation, setting forth all investments, receipts, disbursements and other transactions effected by it, including a description of all securities and investments purchased and sold with the cost or net proceeds of such purchases or sales (accrued interest paid or receivable being shown 3 4 separately), and showing all cash, securities and other property held in the Trust at the end of such year or as of the date of such removal or resignation, as the case may be. Section 7. Responsibility of Trustee. (a) Trustee shall act with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent person acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims, provided, however, that Trustee shall incur no liability to any person for any action taken pursuant to a direction, request or approval given by Company which is contemplated by, and in conformity with, the terms of the Plans or this Trust and is given in writing by Company. In the event of a dispute between Company and a party, Trustee may apply to a court of competent jurisdiction to resolve the dispute. (b) Trustee may consult with legal counsel (who may also be counsel for Company generally) with respect to any of its duties or obligations hereunder. (c) Trustee may hire agents, accountants, actuaries, investment advisors, financial consultants or other professionals to assist it in performing any of its duties or obligations hereunder. (d) Trustee shall have, without exclusion, all powers conferred on Trustees by applicable law, unless expressly provided otherwise herein, provided, however, that if an insurance policy is held as an asset of the Trust, Trustee shall have no power to name a beneficiary of the policy other than the Trust, to assign the policy (as distinct from conversion of the policy to a different form) other than to a successor Trustee, or to loan to any person the proceeds of any borrowing against such policy. (e) Notwithstanding any powers granted to Trustee pursuant to this Trust Agreement or to applicable law, Trustee shall not have any power that could give this Trust the objective of carrying on a business and dividing the gains therefrom, within the meaning of section 301.7701-2 of the Procedure and Administrative Regulations promulgated pursuant to the Internal Revenue Code. Section 8. Compensation and Expenses of Trustee. Company shall pay all administrative and Trustee's fees and expenses. If not so paid, the fees and expenses shall be paid from the Trust Section 9. Resignation and Removal of Trustee. (a) Trustee may resign at any time by written notice to Company, which shall be effective 60 days after receipt of such notice unless Company and Trustee agree otherwise. (b) Trustee may be removed by Company on 30 days notice or upon shorter notice accepted by Trustee. (c) Upon resignation or removal of Trustee and appointment of a successor Trustee, all assets shall subsequently be transferred to the successor Trustee. The transfer shall be completed within 30 days after receipt of notice of resignation, removal or transfer, unless Company extends the time limit. 4 5 (d) If Trustee resigns or is removed, a successor shall be appointed, in accordance with Section 10 hereof, by the effective date of resignation or removal under paragraph(s) (a) or (b) of this section. If no such appointment has been made, Trustee may apply to a court of competent jurisdiction for appointment of a successor or for instructions. All expenses of Trustee in connection with the proceeding shall be allowed as administrative expenses of the Trust. Section 10. Appointment of Successor. (a) If Trustee resigns or is removed in accordance with Section 9 hereof, Company may appoint any third party a successor to replace Trustee upon resignation or removal. The appointment shall be effective when accepted in writing by the new Trustee, who shall have all of the rights and powers of the former Trustee, including ownership rights in the Trust assets. The former Trustee shall execute any instrument necessary or reasonably requested by Company or the successor Trustee to evidence the transfer. (b) The successor Trustee need not examine the records and acts of any prior Trustee and may retain or dispose of existing Trust assets, subject to Sections 7 and 9 hereof. The successor Trustee shall not be responsible for and Company shall indemnify and defend the successor Trustee from any claim or liability resulting from any action or inaction of any prior Trustee or from any other past event, or any condition existing at the time it becomes successor Trustee. Section 11. Amendment or Termination. (a) This Trust Agreement may be amended by a written instrument executed by Trustee and Company. (b) The Trust shall not terminate until the date on which Plan Participants and their beneficiaries are no longer entitled to benefits pursuant to the terms of the Plans, unless sooner revoked in accordance with Section 1(b) hereof. Upon termination of the Trust any assets remaining in the Trust shall be returned to Company. Section 12. Miscellaneous. (a) Any provision of this Trust Agreement prohibited by law shall be ineffective to the extent of any such prohibition, without invalidating the remaining provisions hereof. (b) Benefits payable to Plan participants and their beneficiaries under this Trust Agreement may not be anticipated, assigned (either at law or in equity), alienated, pledged, encumbered or subjected to attachment, garnishment, levy, execution or other legal or equitable process. (c) This Trust Agreement shall be governed by and construed in accordance with the laws of North Carolina. Section 13. Effective Date. The effective date of this Trust Agreement shall be January 1, 1999. 5 6 INSTEEL INDUSTRIES, INC., GRANTOR BY: H.O. WOLTZ III --------------------------------- ATTEST: [SEAL] Gary D. Kniskern - ------------------------------- SECRETARY NORTH CAROLINA, SURRY COUNTY. I, Deborah A. Lowe, Notary Public for said County and State, certify that Gary D. Kniskern personally came before me this day and acknowledged that he/she is Secretary of INSTEEL INDUSTRIES, INC., a corporation, and that by authority duly given and as the act of the corporation the foregoing instrument was signed in its name by its President/CEO, sealed with its corporate seal, and attested by him/herself as its SECRETARY. Witness my hand and official seal, this the 13th day of January, 1999. Deborah A. Lowe ---------------------- Notary Public My Commission Expires: 9-22-99 - ----------------------- (SEAL) 6 7 Edwin M. Woltz, Trustee BY: Edwin M. Woltz ---------------------------------- NORTH CAROLINA, SURRY COUNTY. I, Rhonda B. Easter, Notary Public for said County and State, certify that Edwin M. Woltz personally came before me this day and acknowledged that he/she is Edwin M. Woltz and he/she did sign the foregoing instrument in his/her name as trustee. Witness my hand and official seal, this the 15th day of January, 1999. Rhonda B. Easter -------------------------------------- Notary Public My Commission Expires: 7-2-2003 - ---------------------- (SEAL) 7 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF INSTEEL INDUSTRIES INC. FOR THE THREE MONTHS ENDED JANUARY 2, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 3-MOS OCT-02-1999 JAN-02-1999 565 0 24,476 0 30,710 57,747 79,968 0 142,564 28,454 0 0 0 16,885 53,899 142,564 62,267 62,267 55,701 55,701 0 0 593 2,363 839 1,524 0 0 0 1,524 0.18 0.18
-----END PRIVACY-ENHANCED MESSAGE-----