UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934

Filed by the Registrant þ
Filed by a Party other than the Registrant o

Check the appropriate box:

o      Preliminary Proxy Statement

o      Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

þ      Definitive Proxy Statement

o      Definitive Additional Materials

o      Soliciting Material Pursuant to Section 240.14a-12

Insteel Industries, Inc.

 

(Name of Registrant as Specified in Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

þ      No fee required
o      Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.

			(1	)		Title of each class of securities to which transaction applies:
			(2	)		Aggregate number of securities to which transaction applies:
			(3	)		Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
			(4	)		Proposed maximum aggregate value of transaction:
			(5	)		Total fee paid:

o		Fee paid previously with preliminary materials.
o		Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

			(1	)		Amount Previously Paid:
			(2	)		Form, Schedule or Registration Statement No.:
			(3	)		Filing Party:
			(4	)		Date Filed:

January 6, 2009

Dear Shareholder:

You are cordially invited to attend the 2009 Annual Meeting of Shareholders of Insteel Industries, Inc. to be held Tuesday, February 10, 2009 at 9:00 a.m. Eastern Time. The meeting will take place at the Cross Creek Country Club, 1129 Greenhill Road, Mount Airy, North Carolina.

The attached proxy statement and formal notice of the meeting describe the matters expected to be acted upon at the meeting. We urge you to review these materials carefully and to use this opportunity to take part in the Company’s affairs by voting on the matters described in the proxy statement. At the meeting, we will also discuss our operations, fiscal year 2008 financial results and our plans for the future. Our directors and management team will be available to answer any questions you may have. We hope that you will be able to attend.

Your vote is important to us. Whether you plan to attend the meeting or not, please complete the enclosed proxy card and return it as promptly as possible. If you attend the meeting, you may elect to have your shares voted as instructed in the proxy or you may withdraw your proxy at the meeting and vote your shares in person. If you hold shares in “street name” and would like to vote at the meeting, you should follow the instructions provided in the proxy statement.

Thank you for your continued support and interest in Insteel Industries.

Sincerely,

Howard O. Woltz, Jr.
Chairman of the Board

H.O. Woltz III
Chief Executive Officer

INSTEEL INDUSTRIES, INC.
1373 Boggs Drive
Mount Airy, North Carolina 27030
(336) 786-2141

NOTICE OF ANNUAL MEETING OF SHAREHOLDERS

Date:		Tuesday, February 10, 2009
Time:		9:00 a.m., Eastern Time
Place:		Cross Creek Country Club 1129 Greenhill Road Mount Airy, North Carolina 27030

Dear Shareholder:

At our Annual Meeting, we will ask you to:

	1.		Elect two directors, each for three-year terms;
	2.		Approve the material terms of the Insteel Industries, Inc. Return on Capital Incentive Compensation Plan;
	3.		Ratify the appointment of Grant Thornton LLP as our independent registered public accounting firm for our fiscal year 2009; and
	4.		Transact such other business, if any, as may properly be brought before the meeting or any adjournment thereof.

     Only shareholders of record at the close of business on December 8, 2008 are entitled to vote at the Annual Meeting.

     If you do not plan to attend the meeting and vote your common stock in person, please mark, sign, date and promptly return the enclosed proxy card or voting instruction form in the postage-paid envelope according to the instructions printed on the card.

     Any proxy may be revoked at any time prior to its exercise by delivery of a later-dated proxy or by properly voting in person at the Annual Meeting.

     Enclosed is a copy of our Annual Report for the year ended September 27, 2008, which includes our financial statements and other information regarding our business.

		By Order of the Board of Directors
		James F. Petelle
		Secretary

Mount Airy, North Carolina
January 6, 2009

TABLE OF CONTENTS

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING			1
Why am I receiving this proxy statement and proxy card?			1
What is being voted on at the Annual Meeting?			2
Who is entitled to vote?			2
May I attend the meeting?			2
What constitutes a quorum in order to hold and transact business at the meeting?			2
How do I vote?			2
What are the Board’s recommendations?			3
Will other matters be voted on at the Annual Meeting?			3
Can I revoke or change my proxy instructions?			3
What vote is required to approve the election of directors?			3
What vote is required to approve the material terms of the Return on Capital Incentive Compensation Plan and to ratify the appointment of our independent registered public accounting firm?			4
Will my Shares be voted if I do not sign and/or return my proxy card?			4
What other information should I review before voting?			4
Where can I find the voting results of the meeting?			5
What is Householding?			5
CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS			5
The Board of Directors			5
Director Attendance at Annual Meetings			6
Committees of the Board			6
Other Board Responsibilities			7
Executive Sessions			8
Code of Business Conduct			8
Availability of Bylaws, Governance Rules, Code of Conduct and Committee Charters			8
Shareholder Recommendations and Nominations			9
Process for Identifying and Evaluating Director Candidates			9
Communications with the Board of Directors			9
VOTING SECURITIES			10
ITEM NUMBER ONE: ELECTION OF DIRECTORS			11
Introduction			11
Vote Required			11
Directors’ Recommendation			11

Information Regarding Nominees, Continuing Directors and Executive Officers			11
ITEM NUMBER TWO: APPROVAL OF THE MATERIAL TERMS OF THE INSTEEL INDUSTRIES, INC. RETURN ON CAPITAL INCENTIVE COMPENSATION PROGRAM			13
ITEM NUMBER THREE: RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP			17
EXECUTIVE COMPENSATION			19
Compensation Discussion and Analysis			19
I. Overall Objectives			19
II. Overview of FY 2008 Compensation			21
III. Process for Establishing Executive Compensation and Description of Elements			23
Benchmarking			23
Base Salaries			23
Annual Incentive			23
Long Term Incentives			24
Retirement Benefits			25
Severance and Change-in-Control Severance Agreements			26
Broad-Based Employee Benefits			27
Deductibility of Compensation			27
Executive Compensation Committee Report			28
Summary Compensation Table			29
Grants of Plan-Based Awards			30
Outstanding Equity Awards at Fiscal Year End 2008			32
Options Exercised and Stock Vested During Fiscal Year			34
Pension Benefits			34
Potential Payments Upon Termination or Change in Control			35
DIRECTOR COMPENSATION			39
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION			40
REPORT OF THE AUDIT COMMITTEE			40
SECURITY OWNERSHIP			42
Section 16(a) Beneficial Ownership Reporting Compliance			42
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			42
OTHER BUSINESS			43
SHAREHOLDER PROPOSALS FOR THE 2010 ANNUAL MEETING			43
Proposals for Inclusion in the Proxy Statement			43

Proposals of a Director Nominee and Related Procedures			44
Delivery of Notice of a Proposal			44
The Company’s Bylaws			45
EXPENSES OF SOLICITATION			45
ANNUAL REPORT AND FINANCIAL STATEMENTS			45

January 6, 2009

INSTEEL INDUSTRIES, INC.
1373 Boggs Drive
Mount Airy, North Carolina 27030
(336) 786-2141

PROXY STATEMENT

Important Notice Regarding the Availability of Proxy Materials for the Shareholder
Meeting to be held on February 10, 2009:

The Notice of Annual Meeting of Shareholders, Proxy Statement, Form of Proxy and 2008 Annual Report to the Shareholders are available on our corporate website at http://investor.insteel.com.

     This proxy statement is furnished in connection with the solicitation of proxies by our Board of Directors for use at the Annual Meeting of Shareholders to be held on Tuesday, February 10, 2009 at 9:00 a.m., Eastern Time, and at any adjournments or postponements of the Annual Meeting. The meeting will take place at the Cross Creek Country Club, 1129 Greenhill Road, Mount Airy, North Carolina. This proxy statement, accompanying proxy card and the 2008 Annual Report, which includes our financial statements, are first being mailed to our shareholders on or about January 6, 2009.

     This proxy statement summarizes certain information you should consider before you vote at the Annual Meeting. However, you do not need to attend the Annual Meeting to vote your shares. If you do not expect to attend or prefer to vote by proxy, you may follow the voting instructions on the enclosed proxy card. In this proxy statement, Insteel Industries, Inc. is generally referred to as “we,” “our,” “Insteel Industries,” “Insteel” or “the Company.”

     The attached proxy card indicates the number of shares of Insteel Industries common stock that you own as of the record date of December 8, 2008. In this proxy statement, outstanding Insteel Industries common stock (no par value) is sometimes referred to as the “Shares.”

QUESTIONS AND ANSWERS ABOUT THE ANNUAL MEETING

Why am I receiving this proxy statement and proxy card?

     You are receiving a proxy statement and proxy card from us because you owned shares of our common stock at the close of business on the December 8, 2008 record date for the 2009 Annual Meeting. This proxy statement describes matters on which we would like you, as a shareholder, to vote. It also gives you information on these matters so that you can make an informed decision.

     When you sign and return the proxy card, you appoint Howard O. Woltz, Jr. and H.O. Woltz III, and each of them individually, as your representatives at the meeting. Messrs. Woltz, Jr. and Woltz III will vote your Shares at the meeting as you have instructed them. This way, your Shares will be voted regardless of whether you attend the Annual Meeting. Even if you plan to attend the meeting, it is a good idea to complete, sign and return the enclosed proxy card in advance of the meeting just in case your plans change. Returning the proxy card will not affect your right to attend or vote at the Annual Meeting.

     If a matter comes up for vote at the Annual Meeting that is not described in this proxy statement or listed on the proxy card, Messrs. Woltz, Jr. and Woltz III will vote your Shares, under your proxy, in

their discretion. As of the date of this proxy statement, we do not expect that any matters other than those described in this proxy statement will be voted upon at the Annual Meeting.

What is being voted on at the Annual Meeting?

     At the Annual Meeting, shareholders entitled to vote will be asked to act upon the following matters as set forth in the accompanying notice of meeting:

	§		the election of two directors, each for three-year terms as discussed herein;
	§		the approval of the material terms of the Insteel Industries, Inc. Return on Capital Incentive Compensation Plan;
	§		the ratification of our appointment of Grant Thornton LLP as our independent registered public accounting firm for our fiscal year 2009; and
	§		any other matters that may properly come before the meeting or any adjournment or postponement thereof.

Who is entitled to vote?

     All holders of record of our Shares at the close of business on December 8, 2008 are entitled to receive notice of the Annual Meeting and to vote the Shares held by them on the record date. Each outstanding Share entitles its holder to cast one vote for each matter to be voted upon.

May I attend the meeting?

     All holders of record of our Shares at the close of business on the record date, or their designated proxies, are entitled to attend the Annual Meeting.

What constitutes a quorum in order to hold and transact business at the meeting?

     Consistent with state law and our bylaws, the presence, in person or by proxy, of holders of at least a majority of the total number of Shares entitled to vote is necessary to constitute a quorum for purposes of voting on a particular matter at the Annual Meeting. As of the record date, there were 17,507,435 Shares outstanding and entitled to vote at the Annual Meeting. Once a Share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and any adjournment thereof; unless a new record date is or must be set for the adjournment. Shares held of record by shareholders or their nominees who do not vote by proxy or attend the Annual Meeting in person will not be considered present or represented at the Annual Meeting and will not be counted in determining the presence of a quorum. Signed proxies that withhold authority or reflect abstentions or “broker non-votes” will be counted for purposes of determining whether a quorum is present. “Broker non-votes” are proxies received from brokerage firms or other nominees holding Shares on behalf of their clients who have not been given specific voting instructions from their clients with respect to non-routine matters. See “Will my Shares be voted if I do not sign and/or return my proxy card?”

How do I vote?

     Voting by Holders of Shares Registered in the Name of a Brokerage Firm, Bank or Other Nominee. If your Shares are held by a brokerage firm, bank or other nominee (i.e., in “street name”), you should receive directions from your nominee that you must follow in order to have your Shares voted. “Street name” shareholders who wish to vote in person at the meeting will need to obtain a proxy

form, sometimes referred to as a “voting instruction form,” from the brokerage firm or other nominee that holds their common stock of record.

     Voting by Holders of Shares Registered Directly in the Name of the Shareholder. If you hold your Shares in your own name as a holder of record, you may vote in person at the Annual Meeting or instruct the proxy holders named in the enclosed proxy card how to vote your Shares by mailing your completed proxy card in the postage-paid envelope that we have provided to you. Please make certain that you mark, sign and date your proxy card prior to mailing. All valid proxies received and not revoked prior to the Annual Meeting will be voted in accordance with instructions.

What are the Board’s recommendations?

     If no instructions are indicated on your valid proxy, the representatives holding proxies will vote in accordance with the recommendations of the Board of Directors. The Board of Directors recommends a vote:

     FOR the election of the two director nominees, each for three-year terms as set forth herein;

     FOR the approval of the material terms of the Insteel Industries, Inc. Return on Capital Incentive Compensation Plan; and

     FOR the ratification of our selection of Grant Thornton LLP as our independent registered public accounting firm for our fiscal year 2009.

Will other matters be voted on at the Annual Meeting?

     We are not aware of any matters to be presented at the Annual Meeting other than those described in this proxy statement. If any other matters not described in the proxy statement are properly presented at the meeting, Messrs. Woltz, Jr. and Woltz III will vote your shares, under your proxy, in their discretion.

Can I revoke or change my proxy instructions?

     You may revoke or change your proxy at any time before it has been exercised by:

	§		notifying our Secretary at 1373 Boggs Drive, Mount Airy, North Carolina 27030 in writing before the Annual Meeting that you have revoked your proxy;
	§		delivering a later dated proxy to our Secretary prior to or at the Annual Meeting; or
	§		appearing in person and voting by ballot at the Annual Meeting.

     Any shareholder of record as of the record date attending the Annual Meeting may vote in person whether or not a proxy has been previously given, but the presence of a shareholder at the Annual Meeting without further action will not constitute revocation of a previously given proxy.

What vote is required to approve the election of directors?

     The election of directors will be determined by a plurality of the votes cast at the Annual Meeting if a quorum is present. Shareholders do not have cumulative voting rights in connection with the election of directors. This means that the two nominees receiving the highest number of “FOR” votes will be

elected as directors. Withheld votes and broker non-votes, if any, are not treated as votes cast, and therefore will have no effect on the proposal to elect directors.

What vote is required to approve the material terms of the Return on Capital Incentive Compensation Plan and to ratify the appointment of our independent registered public accounting firm?

     These proposals will pass if a majority of the votes cast at the Annual Meeting vote in favor of them. Abstentions and broker non-votes are not treated as votes cast, and therefore will have no effect on the outcome of either proposal. The vote to approve our independent registered public accounting firm is an advisory vote, the results of which will be seriously considered by our Audit Committee.

Will my Shares be voted if I do not sign and/or return my proxy card?

     If your Shares are held in “street name” and you fail to give instructions as to how you want your Shares voted (a “non-vote”), the brokerage firm, bank or other nominee who holds Shares on your behalf may, in certain circumstances, vote the Shares in their discretion.

     With respect to “routine” matters, such as the election of directors and ratification of the selection of our independent registered public accounting firm, a brokerage firm or other nominee has authority (but is not required) under the rules governing self-regulatory organizations (the “SRO rules”), including the NASDAQ Global Select Market (“NASDAQ”), to vote its clients’ Shares if the clients do not provide instructions. When a brokerage firm or other nominee votes its clients’ Shares on routine matters without receiving voting instructions, these Shares are counted both for establishing a quorum to conduct business at the meeting and in determining the number of Shares voted FOR, WITHHELD FROM, ABSTAINING or AGAINST such routine matters.

     With respect to “non-routine” matters, such as the proposal to approve the material terms of the Return on Capital Incentive Compensation Plan, a brokerage firm or other nominee is not permitted under the SRO rules to vote its clients’ Shares if the clients do not provide instructions. The brokerage firm or other nominee will so note on the vote card, and this constitutes a “broker non-vote.” “Broker non-votes” will be counted for purposes of establishing a quorum to conduct business at the meeting but not for determining the number of Shares voted FOR, AGAINST or ABSTAINING from such non-routine matters.

     In summary, if you do not vote your proxy, your brokerage firm or other nominee may either:

	§		vote your Shares on routine matters and cast a “broker non-vote” on non-routine matters; or
	§		leave your Shares unvoted altogether.

     We encourage you to provide instructions to your brokerage firm or other nominee by voting your proxy. This action ensures that your Shares will be voted in accordance with your wishes at the meeting.

What other information should I review before voting?

     Our 2008 Annual Report, including financial statements for the fiscal year ended September 27, 2008, is included in the mailing with this proxy statement. The Annual Report, however, is not part of the proxy solicitation material. A copy of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”), including the financial statements and financial statement schedules, may be obtained without charge by:

	§		writing to our Secretary at: 1373 Boggs Drive, Mount Airy, North Carolina 27030;
	§		accessing the EDGAR database at the SEC’s website at www.sec.gov;
	§		accessing our website at http://investor.insteel.com; or
	§		contacting the SEC by telephone at (800) SEC-0330.

     The contents of our website are not and shall not be deemed to be a part of this proxy statement.

Where can I find the voting results of the meeting?

     We will announce preliminary voting results at the Annual Meeting. We will publish the final results in our quarterly report on Form 10-Q for the second quarter of fiscal 2009. A copy of this quarterly report may be obtained without charge by any of the means outlined above for obtaining a copy of the Annual Report on Form 10-K.

What is Householding?

     The SEC rules allow for householding, which is the delivery of a single proxy statement and Annual Report to an address shared by two or more of our shareholders. A single copy of the Annual Report and the proxy statement will be sent to multiple shareholders who share the same address unless we have received contrary instructions from one or more of the shareholders.

     If you prefer to receive a separate copy of the proxy statement or the Annual Report, please write to Investor Relations, Insteel Industries, Inc., 1373 Boggs Drive, Mount Airy, North Carolina 27030; or telephone our Investor Relations Department at (336) 786-2141, and we will promptly send you separate copies. If you are currently receiving multiple copies of the proxy statement and Annual Report at your address and would prefer to receive only a single copy of each, you may contact us at the address or telephone number provided above.

CORPORATE GOVERNANCE PRINCIPLES AND BOARD MATTERS

The Board of Directors

     The Board of Directors is currently comprised of eight members. Our bylaws provide that our Board of Directors must have not less than seven nor more than twelve directors.

     The Board of Directors oversees our business affairs and monitors the performance of management. In accordance with basic principles of corporate governance, the Board does not involve itself in day-to-day operations. The directors keep themselves informed through discussions with the Chairman, key executive officers and our principal external advisers (legal counsel, auditors, investment bankers and other consultants), by reading reports and other materials that are sent to them and by participating in Board and committee meetings.

     The Board of Directors, at its meeting in November 2008, determined that the following members of the Board, which constitute a majority thereof, each satisfy the definition of “independent director,” as that term is defined under NASDAQ listing standards: Louis E. Hannen, Charles B. Newsome, Gary L. Pechota, W. Allen Rogers II, William J. Shields and C. Richard Vaughn. In addition to considering the objective independence criteria established by NASDAQ, the Board also made a subjective determination as to each of these directors that no transactions, relationships or arrangements exist that, in the opinion of the Board, would interfere with the exercise of the director’s independent judgment in carrying out his responsibilities as one of our directors. In making these determinations, the Board reviewed information provided by the directors and us with regard to each director’s business and personal activities as they

may relate to us and our management. Additionally, the board specifically considered Mr. Newsome’s position as Executive Vice President and General Manager of Johnson Concrete Company, which purchased approximately $1,042,000 of materials from us during fiscal 2008, and determined that this relationship did not impair or otherwise affect Mr. Newsome’s status as an independent director. See “Certain Relationships and Related Transactions” for additional information regarding this relationship.

     Directors are expected to attend all meetings of the Board of Directors and all meetings of Board committees on which they serve. The independent directors meet in executive session with no members of management present prior to each regularly scheduled meeting (see “Executive Sessions” below). The Board of Directors met four times in 2008. Each of the directors attended at least 75% of the Board of Directors meetings and meetings held by committees of the Board of Directors of which they were members.

Director Attendance at Annual Meetings

     The Board has determined that it is in our best interest for all members of the Board of Directors to attend the Annual Meeting of Shareholders. All eight of our directors attended the 2008 Annual Meeting of Shareholders.

Committees of the Board

     The Audit Committee. The Board has an Audit Committee, which assists the Board in fulfilling its responsibilities to shareholders concerning our accounting, financial reporting and internal controls, and facilitates open communication between the Board, outside auditors and management. The Audit Committee discusses the financial information prepared by management, our internal controls and our audit process with management and with outside auditors. The Audit Committee is charged with the responsibility of selecting the independent auditors. The independent auditors meet with the Audit Committee (both with and without the presence of management) to review and discuss various matters pertaining to the audit process, including our financial statements, the report of the independent auditors on the results, scope and terms of their work, and their recommendations concerning the financial practices, controls, procedures and policies we employ. The Board has adopted a written charter for the Audit Committee as well as a Pre-Approval Policy regarding all Audit, Audit-Related, Tax and other Non-Audit Related Services to be performed by the independent auditors.

     The Audit Committee is a separately-designated standing Audit Committee established in accordance with section 3(a)(58)(A) of the Securities Exchange Act of 1934 and consists of Messrs. Rogers (Chairman), Hannen and Pechota. The Board, at its meeting in November 2008, determined that each of the members of the Audit Committee meets the definition of “independent director” and certain Audit Committee-specific independence requirements under NASDAQ rules and is also independent under SEC requirements for Audit Committee members. At the same meeting, the Board also determined that each of the Committee’s members qualify as an “Audit Committee Financial Expert” as defined under SEC rules. The Board of Directors has also determined that each of the Audit Committee members is financially literate as such qualification is interpreted in the Board’s judgment. The functions of the Audit Committee are further described herein under “Report of the Audit Committee.” The Audit Committee met six times during fiscal 2008 and members of the Audit Committee consulted with management of the Company, the internal auditor and the independent auditors at various times throughout the year. The charter for the Audit Committee, as most recently revised February 19, 2008, may be found on our website at http://investor.insteel.com/documents.cfm.

     The Executive Compensation Committee. The Executive Compensation Committee is responsible for (i) determining appropriate compensation levels for our executive officers, including any employment, severance or change in control arrangements; (ii) evaluating officer and director compensation plans,

policies and programs; (iii) reviewing benefit plans for officers and employees; and (iv) producing an annual report on executive compensation for inclusion in the proxy statement. The following directors are the members of the Executive Compensation Committee: Messrs. Shields (Chairman), Newsome and Vaughn. The Board of Directors, at its meeting in November 2008, determined that each of the Executive Compensation Committee members meets the definition of “independent director” as that term is defined under NASDAQ rules. The Executive Compensation Committee Report is included in this proxy statement. The Executive Compensation Committee also reviews, approves and administers our incentive compensation plans and equity-based compensation plans and has sole authority for making awards under such plans, including their timing, valuation and amount. In addition, the Executive Compensation Committee reviews and recommends the structure and level of outside director compensation to the full Board. The Executive Compensation Committee has the discretion to delegate any of its authority to a subcommittee, but did not do so during FY 2008. The Executive Compensation Committee met twice during fiscal 2008. The charter of the Executive Compensation Committee, as adopted on September 18, 2007, may be found on our website at http://investor.insteel.com/documents.cfm.

     The Executive Compensation Committee regularly consults with members of our executive management team regarding our executive compensation program. Our executive compensation program, including the role members of our executive management team and outside compensation consultants play in assisting with establishing compensation, is discussed in more detail below under “Compensation Discussion and Analysis.”

     The Nominating and Corporate Governance Rules. Our Board does not have a standing nominating committee or committee performing similar functions, and thus does not have a nominating committee charter. The Board believes that it is in our best interests to have all directors discuss and evaluate potential nominees. Effective August 3, 2004, the Board adopted Nominating and Corporate Governance Rules, which specify that the process of identifying and nominating new director candidates shall be performed by the full Board. Upon the close of discussions by the full Board with respect to possible director candidates, the independent directors (as defined by NASDAQ rules), by majority vote, nominate qualified individuals for election to the Board. The independent directors may further discuss candidate matters as they see fit (with or without the presence of employee-directors), but without further input from any employee-directors. In carrying out its director nomination functions, the Board’s responsibilities include seeking, identifying, screening, evaluating and recommending director candidates for nomination by the Board. The Board evaluates all director candidates, regardless of the recommending party, on an equitable basis using the same criteria. The Board evaluates any candidate’s qualifications to serve as a member of the Board based on the skills and characteristics of individual Board members as well as the composition of the Board as a whole. In addition, the Board will evaluate a candidate’s independence and diversity, age, skills and experience in the context of the needs of the Board. The Nominating and Corporate Governance Rules do not express a formal policy with respect to director recommendations from shareholders or other sources, but our Board will consider qualified candidates for director that are nominated by qualified Shareholders in accordance with our bylaws. The procedures for nomination of a director by a shareholder are discussed below under “Shareholder Recommendations and Nominations” and “Shareholder Proposals For the 2010 Annual Meeting.”

Other Board Responsibilities

     In addition to the nominating requirements under the Nominating and Corporate Governance Rules, the Board of Directors shall have sole responsibility to:

	§		Make recommendations regarding the size of the Board and the tenure and classifications of directors.
	§		Recommend the charters, structure, operations, composition and qualification for membership of the committees of the Board.

	§		Adopt corporate governance guidelines and recommend to the Board governance issues that should be considered.
	§		Review periodically our Code of Business Conduct.
	§		Obtain confirmation from management that the policies included in the Code of Business Conduct are understood and implemented.
	§		Evaluate periodically the adequacy of our conflict of interest policies.
	§		Consider other corporate governance and related issues.
	§		Consider with management public policy issues that may affect our Company.
	§		Review at least annually our succession plan.
	§		Review periodically our committee structure and operations and the working relationship between each committee.
	§		Consider, discuss and recommend ways to improve the effectiveness of the Board.

     In addition, the independent directors have sole authority to retain and terminate outside advisors to assist in the performance of Board functions, with sole authority to agree to fees and other terms of engagement.

     The Board of Directors annually evaluates the Nominating and Corporate Governance Rules. These rules may be found on the Company’s website at http://investor.insteel.com/documents.cfm.

Executive Sessions

     Pursuant to the listing standards of NASDAQ, the independent directors are required to meet regularly in executive sessions. Generally, those sessions are chaired by the lead independent director. The independent directors have determined that it is appropriate to periodically rotate the role of lead independent director. During fiscal 2008, the lead independent director was Mr. Vaughn. During these executive sessions, the lead independent director has the power to lead the meeting, set the agenda and determine the information to be provided. During fiscal 2008, the Board held four executive sessions. The lead independent director can be contacted by writing to Lead Independent Director, Insteel Industries, Inc., c/o James F. Petelle, Secretary, 1373 Boggs Drive, Mount Airy, North Carolina 27030. We screen mail addressed to the lead independent director for security purposes and to ensure that it relates to discrete business matters that are relevant to our Company. Mail that satisfies these screening criteria will be forwarded to the lead independent director.

Code of Business Conduct

     In keeping with the Board’s commitment to sound corporate governance, on August 11, 2003, the Board adopted a Code of Business Conduct (the “Code of Conduct”), which applies to our Company and all of its employees, officers and directors. The Code of Conduct incorporates an effective reporting and enforcement mechanism. The Board has adopted this Code of Conduct as its own standard. The Code of Conduct was prepared to help employees, officers and directors understand our standard of ethical business practices and to promote awareness of ethical issues that may be encountered in carrying out their responsibilities. The Code of Conduct is included in an employment manual, which is supplied to all of our employees and officers and in a Board of Director’s Manual for directors, each of whom are expected to read and acknowledge in writing that they understand such policies.

Availability of Bylaws, Governance Rules, Code of Conduct and Committee Charters

     Our Bylaws, Nominating and Corporate Governance Rules, Code of Business Conduct, Audit Committee Charter, Audit Committee Pre-Approval Policy and Executive Compensation Committee Charter are available on our website at http://investor.insteel.com/documents.cfm, and in print to any shareholder upon written request to our Secretary.

Shareholder Recommendations and Nominations

     The Nominating and Corporate Governance Rules do not contain, and the Board does not maintain, a separate policy with respect to director candidates recommended by shareholders. The Board does not believe that a formal policy is necessary because the Board will give such shareholder recommendations appropriate consideration and because our bylaws provide a means through which shareholders can make director nominations. Shareholders should submit any such recommendations in writing c/o Insteel Industries, Inc., 1373 Boggs Drive, Mount Airy, North Carolina 27030, Attention: Secretary. In addition, in accordance with our bylaws, any shareholder entitled to vote for the election of directors at the applicable meeting of shareholders may nominate persons for election to the Board if such shareholder complies with the notice procedures set forth in the bylaws and summarized in “Shareholder Proposals for the 2010 Annual Meeting” below.

Process for Identifying and Evaluating Director Candidates

     The Nominating and Corporate Governance Rules require the Board to identify candidates for election to the Board on its own as well as through recommendations from our shareholders (in accordance with our bylaws), officers and employees, and other sources the Board deems appropriate. The Board may retain a third party search firm to assist in the identification of possible candidates for election to the Board.

     The Nominating and Corporate Governance Rules require the full Board to evaluate all qualified director candidates in accordance with the nomination process set forth therein. The full Board evaluates an appropriate candidate’s qualifications to serve as a member of the Board based on the skills and characteristics of individual Board members as well as the composition of the Board as a whole. The Board evaluates all candidates based upon the totality of the merits of each candidate and not based on minimum qualifications or attributes. In addition, the full Board will assess issues with respect to the candidate’s independence, judgment, diversity and age, understanding of the Company’s industry in general and knowledge of our business in particular; all in the context of the Board’s perceived needs at that point in time. When considering a director candidate standing for re-election, in addition to the above attributes, the Board will also consider that individual’s past contribution and future commitment to us. Upon completion of discussions by the full Board, the independent directors nominate qualified individuals for election to the Board. The independent directors may further discuss candidate matters as they see fit (with or without the presence of employee-directors), but without further input from any employee-directors.

Communications with the Board of Directors

     The Board has approved a process for shareholders to send communications to the Board. Shareholders can send communications to the Board and, if applicable, to any of its committees or to specified individual directors in writing c/o Insteel Industries, Inc., 1373 Boggs Drive, Mount Airy, North Carolina 27030, Attention: Secretary.

     We screen mail addressed to the Board, its Committees or any specified individual director for security purposes and to ensure that the mail relates to discrete business matters that are relevant to our Company. Mail that satisfies these screening criteria is required to be forwarded to the appropriate director or directors.

VOTING SECURITIES

     On the record date, to our knowledge, no one other than the stockholders listed below beneficially owned more than 5% of the outstanding shares of our stock. For information regarding ownership of our common stock by our officers and directors, please see our “Security Ownership” table below.

				Percentage of
Name and Address of		Number of Shares		Shares Beneficially
Beneficial Owner		Beneficially Owned		Owned
Met Investors Advisory, LLC and		1,778,354 (1)		10.1% (1)
Met Investors Series Trust 5 Park Plaza, Suite 1900 Irvine, California 92614
Entities affiliated with Jeffrey L. Gendell		1,777,964 (2)		9.8% (2)
55 Railroad Avenue Greenwich, Connecticut 06830
Royce & Associates, LLC		1,254,504 (3)		7.2% (3)
1414 Avenue of the Americas New York, New York 10019
Tocqueville Asset Management, L.P.		935,361 (4)		5.2% (4)
40 West 57th Street, 19th Floor New York, New York 10019

ITEM NUMBER ONE: ELECTION OF DIRECTORS

Introduction

     Our bylaws, as last amended September 18, 2007, provide that the number of directors, as determined from time to time by the Board, shall be not less than seven nor more than twelve. The Board has most recently fixed the number of directors at eight. The bylaws further provide that directors shall be divided into three classes serving staggered three-year terms, with each class to be as nearly equal in number as possible.

     The Board has nominated each of the persons named below to serve a three-year term expiring at the 2012 Annual Meeting of Shareholders or until their successors are elected and qualify. All of the nominees presently serve as our directors. The remaining six directors will continue in office as indicated. It is not contemplated that any of the nominees will be unable or unwilling for good cause to serve; but, if that should occur, it is the intention of the agents named in the proxy to vote for election of such other person or persons to the office of director as the Board may recommend. If any director resigns, dies or is otherwise unable to serve out his term, or the Board increases the number of directors, the Board may fill the vacancy until the expiration of such director’s term.

Vote Required

     The directors will be elected by plurality of the votes cast at the meeting at which a quorum representing a majority of all outstanding Shares is present and voting, either by proxy or in person. This means that the two nominees receiving the highest number of votes “FOR” will be elected as directors.

Directors’ Recommendation

     The Board of Directors unanimously recommends a vote FOR the election of each of the following nominees. If you do not vote for a particular nominee on your proxy card, your vote will not count either for or be withheld from the nominee. Unless instructions are given to the contrary, it is the intention of the persons named as proxies to vote the Shares to which the proxy is related FOR the election of the slate of two director nominees.

Information Regarding Nominees, Continuing Directors and Executive Officers

     We have set forth below certain information regarding our nominees for director, our continuing directors and our executive officers. The age shown for each is his age on December 8, 2008, our record date.

     Nominees to serve until the 2012 Annual Meeting

     H. O. Woltz III, 52, was elected Chief Executive Officer in 1991 and has been employed by us and our subsidiaries in various capacities since 1978. He was named President and Chief Operating Officer in 1989. He served as our Vice President from 1988 to 1989 and as President of Rappahannock Wire Company, formerly a subsidiary of our Company, from 1981 to 1989. Mr. Woltz has been a director since 1986 and also serves as President of Insteel Wire Products Company. Mr. Woltz served as President of Florida Wire and Cable, Inc. until its merger with Insteel Wire Products Company in 2002. Mr. Woltz is the son of Howard O. Woltz, Jr. Committee Membership: Executive Committee.

     Charles B. Newsome, 71, has been a director since 1982. He is Executive Vice President of Johnson Concrete Company and general manager of its affiliate, Carolina Stalite Company. Mr. Newsome has been affiliated with Johnson Concrete Company and Carolina Stalite Company for more than 25 years. Committee Membership: Executive Compensation Committee.

     Directors with terms expiring at the 2011 Annual Meeting.

     Gary L. Pechota, 59, has been a director since 1998. Since 2007, Mr. Pechota has been the majority owner, President and CEO of DT-Trak Consulting, Inc., a company which provides medical coding and other revenue enhancement services to medical facilities. From 2005 to 2007 Mr. Pechota was a private investor after having served as Chief of Staff of the National Indian Gaming Commission from 2003 to 2005. He was a private investor and consultant from 2001 to 2003. Prior to that, Mr. Pechota served as the CEO and Chairman of the Board of Giant Cement Holding, Inc. from its inception in 1994 until 2001; was CEO of Giant Cement Company, a subsidiary of Giant Cement Holding, Inc., from 1993 to 2001; and CEO of Keystone Cement Company from 1992 to 2001. Prior to joining Keystone, Mr. Pechota served as President and CEO of South Dakota Cement from 1982 to 1992. Mr. Pechota is also a director of Black Hills Corporation, a publicly-held company. Committee Membership: Audit Committee.

     W. Allen Rogers II, 62, has been a director since 1986, except for a period of time during 1997 and 1998. Mr. Rogers is a Principal of Ewing Capital Partners, LLC, an investment banking firm founded in 2003. From 2002 to 2003 he was a Senior Vice President of Intrepid Capital Corporation, an investment banking and asset management firm. From 1998 until 2002, Mr. Rogers was President of Rogers & Company, Inc., a private investment banking boutique. From 1995 through 1997, Mr. Rogers served as a Managing Director of KPMG BayMark Capital LLC, and the investment banking practice of KPMG. Mr. Rogers served as Senior Vice President-Investment Banking of Interstate/Johnson Lane Corporation from 1986 to 1995 and as a member of that firm’s Board of Directors from 1990 to 1995. Committee Membership: Audit Committee.

     William J. Shields, 76, has been a director since 1998. Mr. Shields served as Chairman of the Board and CEO of Co-Steel, Inc., an international steel producer and scrap recycling company, from 1995 to 1997. Mr. Shields also served as President and CEO of Co-Steel, Inc. from 1987 until 1995. Mr. Shields has been retired since 1997. Committee Membership: Executive Compensation Committee.

     Directors with terms expiring at the 2010 Annual Meeting:

     Howard O. Woltz, Jr., 83, has been Chairman of the Board since 1958 and was employed by us and our predecessors in various capacities for more than 50 years before retiring as an executive officer in April 2005. He continues to serve, at the pleasure of the Board, as Chairman of the Board of Directors. He had been President from 1958 to 1968 and from 1974 to 1989. Mr. Woltz also served as a 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 until its acquisition in 1988 by Russell Corporation. Mr. Woltz is the father of H. O. Woltz III. Committee Membership: Executive Committee.

     C. Richard Vaughn, 69, a director since 1991, has been employed since 1967 by John S. Clark Company, Inc., a general building contracting company. Mr. Vaughn has served as Chairman of the Board of North Carolina Granite Corporation since 1998. Mr. Vaughn served as Vice President of John S. Clark from 1967 to 1970 and President from 1970 to 1988 and has served as Chairman of the Board and CEO from 1988 to the present. He also is Chairman of the Board of Riverside Building Supply, Inc. Committee Membership: Executive Compensation Committee and Executive Committee. Mr. Vaughn currently serves as our lead director.

     Louis E. Hannen, 70, a director since 1995, served in various capacities with Wheat, First Securities, Inc., from 1975 until his retirement as Senior Vice President in 1993. Since his retirement in 1993, Mr. Hannen has been an investment advisor and consultant. Mr. Hannen had 30 years of experience in the securities analysis and research field, starting with the U. S. Securities and Exchange Commission in 1963. Mr. Hannen then worked for Craigie and Company from 1965 to 1970 and Legg Mason Wood Walker, Inc. from 1970 to 1975 before joining Wheat, First Securities. Committee Membership: Audit Committee.

     Named Executive Officers Who Are Not Continuing Directors or Nominees:

     In addition to Mr. Woltz III, the executive officers listed below were appointed by the Board of Directors to the offices indicated for a term that will expire at the next Annual Meeting of the Board of Directors or until their successors are elected and qualify. The next meeting at which officers will be appointed is scheduled for February 10, 2009, at which each of our executive officers is expected to be reappointed. Although our bylaws permit the Chairman of the Board to be designated an officer, Howard O. Woltz, Jr., the current Chairman of the Board, has not been so designated and is not otherwise an employee.

     Michael C. Gazmarian, 49, was elected Vice President, Chief Financial Officer and Treasurer in February 2007. Previously, he had served as Chief Financial Officer and Treasurer since 1994, the year he joined us. Before joining us, Mr. Gazmarian had been employed by Guardian Industries Corp., a privately-held glass manufacturer, since 1986, serving in various financial capacities.

     James F. Petelle, 58, joined us in October 2006. He was elected Vice President and Assistant Secretary on November 14, 2006 and Vice President — Administration and Secretary on January 12, 2007. Previously he was employed by Andrew Corporation, a publicly-held manufacturer of telecommunications infrastructure equipment, having served as Secretary from 1990 to May 2006, and Vice President – Law from 2000 to October 2006.

     Richard T. Wagner, 49, joined us in 1992 and has served as Vice President and General Manager of the Concrete Reinforcing Products Business Unit of the Company’s subsidiary, Insteel Wire Products Company, since 1998. In February 2007, Mr. Wagner was appointed Vice President of the parent company, Insteel Industries, Inc. Prior to 1992, Mr. Wagner served in various positions with Florida Wire and Cable, Inc., a manufacturer of PC strand and galvanized strand products, since 1977.

ITEM NUMBER TWO: APPROVAL OF THE MATERIAL TERMS OF THE INSTEEL INDUSTRIES, INC. RETURN ON CAPITAL INCENTIVE COMPENSATION PROGRAM

     The Executive Compensation Committee (the “Committee”) and the Board of Directors have approved the adoption of the current version of the Insteel Industries, Inc. Return on Capital Incentive Compensation Plan (the “ROCICP” or the “Plan”) and we are asking shareholders to approve the material

terms of the Plan. We have attached a complete copy of the ROCICP as Appendix A to this proxy statement. Following is a description of the material terms of the Plan.

Background

     We have historically provided annual incentive compensation opportunities both to our executive officers and to a broad group of our employees based on the return on capital we achieve during our fiscal year. The current version of the ROCICP was adopted by the Board of Directors in October 2006, amended in September 2007 to add a “clawback” provision (described in the “Compensation Discussion and Analysis” section, below) and further amended and restated in August 2008 to attempt to ensure compliance with Section 162(m) of the Internal Revenue Code (“Code Section 162(m)”).

     Under Code Section 162(m) and related regulations, compensation in excess of $1,000,000 paid in any one year to a public company’s “covered employees” (generally, the principal executive officer and the three most highly compensated officers, other than the principal financial officer) who are employed by the company at year end, will not be deductible on that company’s federal income tax return, unless the compensation is considered “qualified performance-based compensation” (or another exemption is met). Code Section 162(m) and related regulations require that shareholders approve the material terms of the performance goals under which compensation may be paid under a plan in order for the qualified performance-based compensation deduction exception to be available. We are therefore proposing that shareholders approve the material terms of the ROCICP, so that we can preserve, to the extent practicable, our ability to deduct compensation payable under the ROCICP to our “covered employees.” The material terms subject to shareholder approval include: (i) the employees eligible to receive compensation; (ii) a description of the business criteria upon which the performance goal is based; and (iii) the formula used to calculate the amount of compensation to be paid if the performance goal is met. These material terms are described below.

     The Committee intends to continue the ROCICP for our FY 2009. In the event that the ROCICP is not approved by our shareholders, the Committee intends to reevaluate the cash incentive structure for our executive officers for 2010, although it is anticipated that any such incentive program would continue to be performance-based.

Eligibility

     Participants in the ROCICP are certain of our (or our wholly owned subsidiaries’) employees who are selected by the Committee to participate in the Plan. At this time, all of our sales and administrative employees (96 total employees as of the end of our FY 2008) participate in the ROCICP, although participation in the Plan for one year does not guarantee that an employee will be selected to participate in a subsequent year. Target annual incentives vary from 10% to 50% of each participant’s actual base salary and wages paid during the year, with our executive officers currently having targeted incentives of 50%. Non-employee service providers and non-employee directors are not eligible to participate in the Plan.

Administration; Amendment and Termination

     The ROCICP is administered by the Committee. As required by Code Section 162(m), the Committee is comprised of at least two members who are “outside directors” as defined under Code Section 162(m). The Committee has the authority to take any action with respect to the ROCICP, including but not limited to the authority to: (i) determine all matters related to awards, including selection of individuals to be granted awards, and all terms, conditions, restrictions and limitations of an award; and (ii) construe and interpret the ROCICP and any related documents, establish and interpret rules and regulations for Plan administration and make all other determinations necessary or advisable for

administering the ROCICP. The Committee may delegate administration of the ROCICP to one or more designees, but only with respect to matters which would not affect the deductibility under Code Section 162(m) of compensation paid to covered employees (and provided that such delegation is in accordance with applicable laws, rules and regulations).

     The Committee may at any time amend or modify the ROCICP, subject to: (a) shareholder approval of any amendments if required by applicable laws, rules or regulations; and (b) participant consent if such action may adversely affect any award earned and payable under the ROCICP at that time. However, the Committee has unilateral authority to amend the ROCICP and any award (without participant consent) to the extent necessary to comply with applicable laws, rules or regulations or changes to applicable laws, rules or regulations. The Committee may at any time terminate the ROCICP if it determines in good faith that the continuation of the ROCICP is not in the best interests of us and our shareholders.

Performance Goals

     Under the ROCICP, annual incentive opportunities are based solely on the return on capital achieved by the Company during each fiscal year the Plan is in effect. The Committee annually estimates its cost of capital which serves as the basis for establishing the return on capital performance goal under the Plan. Such performance goal will be established while the outcome for the performance period is substantially uncertain and no more than 90 days after the beginning of our fiscal year. The goal is established with reference to our weighted average cost of capital, which during years when we are debt-free, would be established at an after-tax rate of return that the Board of Directors believes would be acceptable to a prudent equity investor. During our fiscal years 2007 and 2008, the targeted return on capital was 15%.

Eligibility and Target Incentives

     Currently, all our sales and administrative employees participate in the ROCICP, with targeted incentives set at 10% to 50% of actual base salary and wages paid during the fiscal year. The target incentive for our executive officers is established by the Committee, and for FY 2008 was 50% of actual base salary during the year.

     The Committee at the same time establishes the performance thresholds at which minimum (0) and maximum (twice the target) incentives will be paid. Payments are capped at twice the targeted incentive level, so during FY 2008 annual incentives payable to our executive officers could have varied from 0% to 100% of the executive officer’s actual base salary during the year.

Calculation of Incentives

     Following the end of each fiscal year, we will calculate a “Bonus Multiplier” to be approved by the Committee. The Bonus Multiplier is determined by application of a formula that considers the actual return on capital earned by the Company relative to the targeted return on capital. The Bonus Multiplier is then multiplied by each participant’s “Target Bonus Percent” for the year to determine the participant’s “Bonus Percent.” The participant’s Bonus Percent is then multiplied by his or her base salary to determine the participant’s Bonus Award for the year. No participant may receive a bonus award for a single year exceeding $2,500,000.

Payment of Incentives

     Incentives are calculated and paid as soon as practicable following the determination of the amounts and in any event by December 15 of each year.

     Prior to the payment of the incentive to our executive officers, the Committee reviews the calculations and certifies that the amounts to be paid have been computed in accordance with the criteria established. The Committee may adjust awards as appropriate for partial achievement of goals and/or outside mitigating circumstances, and may also make necessary and appropriate adjustments in performance goals, but no such adjustment may be made to the award of a covered employee if the adjustment would cause the award to fail to qualify as deductible “performance-based compensation” for purposes of Code Section 162(m). While the Committee has the authority to make adjustments, no such adjustments have been made.

Effect of Termination

     If a participant’s employment is terminated by reason of retirement, disability or death, the participant (or the participant’s beneficiary) will be entitled to receive an incentive payment based on the participant’s actual salary and wages through the time of retirement, disability or death. A participant whose employment is terminated during the fiscal year for any other reason is not entitled to receive any incentive payment for that year.

Right to Recover Payments

     In the event of a material restatement of our financial results for any prior year (beginning with fiscal year 2007) for which incentives have been paid, the Committee may, in its discretion, recover all or part of previously-paid incentives or reduce the amount of incentives prospectively payable under the ROCICP.

Transferability

     Participants do not have the right to assign or otherwise transfer amounts to be received under the ROCICP.

Certain Federal Income Tax Consequences

     The following summary generally describes the principal U.S. federal (and not foreign, state or local) income tax consequences of awards granted under the ROCICP as of the date of this proxy statement. The summary is general in nature and is not intended to cover all tax consequences that may apply to a particular employee or to us. The provisions of the Code and regulations thereunder relating to these matters are complicated and their impact in any one case may depend upon the particular circumstances.

     In general, a participant in the ROCICP will be taxed at ordinary income tax rates on any cash incentive in the year received. Generally, we will receive a federal income tax deduction corresponding to the amount included in the participant’s income (subject to compliance with the Code Section 162(m) requirements described herein). We will withhold any amounts required by any governmental authority to be withheld with respect to incentive payments.

     Subject to Code Section 162(m) and certain reporting requirements, we will be entitled to an income tax deduction with respect to the amount of compensation includable as income to the participant.

We have no responsibility to take, or to refrain from taking, any actions in order to achieve a certain tax result for any participant.

Code Section 409A

     Code Section 409A imposes certain requirements on compensation that is deemed under its provisions to involve deferred compensation. Awards granted under the ROCICP are designed to be exempt from Code Section 409A under the so-called “short term deferral” exception for payments made within 2¹/2 months following the end of the fiscal year during which the payments are earned. However, if Code Section 409A is deemed to apply to the ROCICP or any award, and the ROCICP and award do not, when considered together, satisfy the requirements of Code Section 409A during a taxable year, the participant will recognize as ordinary income in the year of non-compliance the amount of all awards deemed to be deferred compensation that is subject to Code Section 409A to the extent that the awards are not subject to a substantial risk of forfeiture. The participant will also be subject to an additional tax of 20% on all amounts includable in income, as well as interest charges under Code Section 409A dating back to the date that the substantial risk of forfeiture lapsed.

Performance-Based Compensation – Section 162(m) Requirements

     The ROCICP is structured to comply with the requirements imposed by Code Section 162(m) and related regulations in order to preserve, to the extent practicable, our tax deduction for incentives paid under the ROCICP. As described above, Code Section 162(m) generally denies an employer a deduction for compensation in excess of $1,000,000 paid to covered employees of a publicly held corporation unless the compensation is exempt from the $1,000,000 limitation because it is “performance-based compensation” for purposes of Code Section 162(m).

New Plan Benefits

     As noted above, incentive payments under the ROCICP are based on attainment of performance goals. Since neither target incentives nor return-on-capital goals are known for future performance periods, it is not possible to determine at this time the exact amount of the awards that could be paid under the ROCICP in the future. Actual cash incentives that were paid to the executive officers for fiscal years 2007 and 2008 under the ROCICP are described in the Summary Compensation Table.

Directors’ Recommendation

     The Board of Directors unanimously recommends a vote FOR approval of the material terms of the Return on Capital Incentive Compensation Plan.

ITEM NUMBER THREE: RATIFICATION OF THE APPOINTMENT OF GRANT THORNTON LLP

Independent Registered Public Accounting Firm

     The Audit Committee of the Board has selected Grant Thornton LLP as our independent registered public accounting firm for our fiscal year ending October 3, 2009. We are submitting the selection of the independent registered public accounting firm for shareholder ratification at the Annual Meeting. We expect a representative of Grant Thornton LLP to be present at the Annual Meeting and he or she will be available to respond to appropriate questions from shareholders.

     Our organizational documents do not require that our shareholders ratify the selection of our independent registered public accounting firm. If our shareholders do not ratify the selection, the Audit

Committee will reconsider whether to retain Grant Thornton LLP, but still may retain them nonetheless. Even if the selection is ratified, the Audit Committee, in its discretion, may change the appointment at any time during the year if it determines that such a change would be in our best interests.

Directors’ Recommendation

     The Board of Directors unanimously recommends a vote FOR ratification of the appointment of Grant Thornton LLP as our independent registered public accounting firm for fiscal year 2009.

Fees Paid to Independent Registered Public Accounting Firm

     During FY 2008, the services of the independent registered public accounting firm included the audit of the annual financial statements, a review of our quarterly financial reports to the SEC, services performed in connection with the filing of our proxy statement and our Annual Report on Form 10-K with the SEC, attendance at meetings with our Audit Committee and consultation on matters relating to accounting, financial reporting and tax-related matters. Our Audit Committee approved all services performed by Grant Thornton LLP in advance of their performance. Grant Thornton LLP has acted as the independent registered public accounting firm for the Company since its appointment on July 27, 2002. Neither Grant Thornton LLP nor any of its associates have any relationship to us or any of our subsidiaries except in its capacity as auditors.

     Set forth below is certain information relating to the aggregate fees billed by Grant Thornton LLP, for professional services rendered for the fiscal years 2007 and 2008.

Type of Fee		2007		2008
Audit Fees		$255,900		$257,630
Audit-Related Fees		—		—
Tax Fees		—		—
All Other Fees		—		—
Total		$255,900		$257,630

     Audit Fees. Audit Fees include fees for the recurring annual integrated audit of our financial statements, as well as assistance with the review of the quarterly financial reports and other documents filed with the SEC.

     Tax Fees. No fees related to tax matters or other services were paid to Grant Thornton LLP, in fiscal years 2007 or 2008.

     Audit-Related Fees. No fees for audit-related activities were paid to Grant Thornton LLP in fiscal years 2007 or 2008.

     All Other Fees. No fees for “other” services were paid to Grant Thornton LLP in fiscal years 2007 or 2008.

Pre-Approval Policies and Procedures

     Our Board has adopted an Audit Committee Pre-Approval Policy whereby the Audit Committee is responsible for pre-approving all Audit, Audit-Related, Tax and other Non-Audit Related Services to be performed by the independent auditors. The Board has authorized the Audit Committee Chair to pre-approve any Audit-Related, Tax or other Non-Audit Related Services that are to be performed by the independent auditors that need to be approved between Audit Committee meetings. Such interim pre-approvals shall be reviewed with the full Audit Committee at its next meeting for its ratification.

     The Audit Committee Pre-Approval Policy is available on our website at http://investor.insteel.com/documents.cfm.

     The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the principal accountant’s independence.

EXECUTIVE COMPENSATION

Compensation Discussion and Analysis

I. Overall Objectives

     Insteel operates in an industry that is both highly competitive and cyclical. The Executive Compensation Committee (the “Committee”) believes that the success of the Company requires experienced leadership that fully understands the realities of Insteel’s challenging business environment and has demonstrated superior business judgment as well as the ability to successfully manage and operate the business. The Committee’s goal in developing its executive compensation system has been to attract, motivate and retain executives who will be successful in this environment and thus enhance the value of the business for our shareholders.

     The Company is committed to “pay for performance” at all levels of the organization and accordingly a substantial proportion of each executive officer’s total compensation is variable, meaning the executive officer’s total compensation will be determined based upon the Company’s performance. The Committee does not currently have a fixed formula to determine the percentage of pay that should be variable, but reviews annually the mix between base salary and variable compensation to ensure that its goal of paying for performance will be achieved.

     The Committee also believes it is critically important to retain executive officers who have demonstrated their value to the Company. Accordingly, several elements of our compensation system are intended to provide strong incentives for executive officers to remain employed by us.

     The Committee has developed its executive compensation system with the assistance of an independent consultant, Mercer. Mercer reports directly to the Committee and takes direction from the Committee regarding the scope of services it provides. Mercer was not engaged to review our compensation program during FY 2008, but did comprehensively review the program, including the structure of our program and its overall competitiveness, in FY 2007. We anticipate that a comprehensive review will again be provided by an independent consultant in FY 2009. Mercer did not perform any other services for Insteel during our fiscal years 2007 or 2008, and it is the Committee’s policy that its independent consultant shall not perform other services for the Company. The Committee is responsible for establishing the CEO’s compensation, and it reviews and approves recommendations from the CEO regarding the compensation of other executive officers. The Committee regularly meets in executive session without members of management present, and may consult with Mercer as necessary during its deliberations. As noted above, the Committee did not consult with Mercer during FY 2008.

     Following are the features of the compensation system that support the attainment of the Committee’s fundamental objectives:

•

Attract, motivate and retain key executives by providing total compensation opportunities competitive with those provided to executives employed by companies of a similar size and/or operating in similar industries.

In formulating our approach to total compensation, the Committee has been advised by Mercer since 2005. We believe the individuals assigned by Mercer to our account have developed an in-depth knowledge of our business and the competitive environment for executive talent. Mercer has consulted with us on peer group analysis to benchmark our compensation system against systems of other companies of a similar size and/or in similar industries and has also assisted us with the design of our overall program.

The objective of our benchmarking process is to provide total compensation opportunities to our executive officers that are near the median of our peer group. Although comparisons to compensation levels in other companies are considered helpful in assessing the overall competitiveness of our compensation practices, the Committee does not feel the need to adhere precisely to the mathematical median, and it places a relatively greater emphasis on overall compensation opportunities rather than on setting each element of compensation at or near the median for that element.

•

Tightly link performance-based compensation to corporate performance.

	o		Annual Incentive. As a public company, our goal is to create shareholder value. We face short-term and long-term challenges, and attempt to focus our executive officers on overcoming both sets of challenges. To motivate our executive officers to align their interests with those of our shareholders, we provide annual incentives which are designed to reward our executive officers for the attainment of our short-term goal, and long-term incentives which are designed to reward them for increases in our shareholder value over time. The annual incentive for senior executives is based entirely on the Company’s return on capital, which is a measure that incorporates both the generation of earnings and the management of the Company’s balance-sheet and is closely correlated with long-term shareholder returns.
	o		Long-Term Incentives. At this time, our long-term incentives are entirely equity-based, comprised of 50% restricted stock and 50% options to purchase our stock. Use of these equity-based incentives ensures that their value is directly linked to changes in the price of our stock. Our long-term incentive program currently does not include a cash component.

•

Encourage long-term commitment to the Company.

We believe that the value provided by employees increases over time as they become increasingly knowledgeable about our industry, customers and competitors, as well as our business processes, people and culture. We believe that providing incentives for executive officers to remain with the Company will enhance the long-term value of the Company. Accordingly, we include programs such as Retirement Security

Agreements and Change-in-Control Severance Agreements as components of our executive compensation system to provide such incentives.

II. Overview of FY 2008 Compensation

     Our executive compensation system is composed of base salary; our Return on Capital Incentive Compensation Plan (“ROCICP”) which provides for annual incentive payments; long-term incentives (consisting of restricted stock and stock options); a supplemental retirement plan provided through Retirement Security Agreements with each executive officer; Change-in-Control Severance Agreements and (in the case of our CEO and CFO) Severance Agreements, each of which specifies payments and benefits upon, respectively, a change in control and involuntary termination; and certain other benefits such as medical, life and disability insurance and participation in the Company’s 401(k) retirement savings plan. We do not provide significant perquisites to executive officers.

A brief description of each element of our executive compensation system, as well as the objective of each element is set forth below.

Compensation Element		Description		Objective
Base Salary		Fixed cash compensation.		Provide basic level of income security. Compensate executive officers for fulfilling basic job responsibilities. Provide base pay commensurate with median salaries of peer group. Attract and retain key executive officers.
ROCICP Annual Incentive Program		Variable cash compensation paid pursuant to a plan in which all corporate office employees participate.		Align executive compensation with shareholder interests because payment of the incentive is based on the creation of shareholder value. Reward executive officers based on actual returns generated relative to the Company’s weighted average cost of capital.
Long-Term Incentives		Variable compensation granted 50% as restricted stock (vesting after three years) and 50% as stock options (vesting one-third each year for three years).		Further align executive compensation with shareholder interests, because the value of these incentives is directly linked to changes in the Company’s stock price. Aid in retention and encourage long-term commitment to the Company.
Supplemental Retirement Plan		Non-qualified retirement plan providing additional income to executive officers for 15 years following retirement.		Aid in retention and encourage long-term commitment to the Company. Compensate for federal limits on qualified retirement plans.
Severance/Change-in-Control (“CIC”) Agreements		Our CEO and CFO have severance agreements that specify payments to them in the event of involuntary termination. All executive officers have CIC agreements specifying their rights related to termination of employment following a change in control of the Company.		Encourage long-term commitment to the Company. Focus executives on shareholder interests. Provide transition assistance in the event of job loss.
Other Benefits		Medical, life and disability insurance; 401(k) savings plan.		Provide insurance and basic retirement benefits of the same nature that other Company employees receive.

III. Process for Establishing Executive Compensation and Description of Elements

     Benchmarking. In connection with its review of executive officer compensation, the Committee requested that Mercer perform a comprehensive analysis of total direct compensation provided to Insteel executive officers for FY 2007. Mercer created a custom peer group of nine publicly-traded companies in the steel and building products industries which are of roughly comparable size and complexity to Insteel. In addition, Mercer consulted a number of published surveys containing compensation data for comparable executive positions in manufacturing companies with comparable size and complexity to Insteel. The nine publicly- traded companies in the peer group, and their ticker symbols, are as follows:

UNVL Universal Stainless and Alloy Products Inc. (USAP)
NN Inc. (NNBR)
LB Foster Co. (FSTR)
Brush Engineered Materials Inc. (BW)
NS Group, Inc. (NSS)
PW Eagle, Inc. (PWEI)
Olympic Steel, Inc. (ZEUS)
Steel Technologies, Inc. (STTX)
Gibraltar Industries, Inc. (ROCK)

Since it is the general policy of the Committee to engage an outside consultant to review its compensation programs every other year, Mercer was not engaged to review our FY 2008 compensation. The Committee did review the overall structure of our compensation system, as well as specific base salaries in FY 2008, and determined that the overall structure established in FY 2007 remains competitive. The Committee also reviewed specific compensation levels and determined it would make one change in base salary, as discussed below.

     Base Salaries. Base salaries are established by the Committee and reviewed annually. The Committee does not necessarily adjust salaries annually, and did not adjust them in FY 2008, with one exception. In establishing and adjusting base salaries, the Committee considers the following factors:

	•		The executive’s performance;
	•		The responsibilities of the executive;
	•		The strategic importance of the position;
	•		Competitive market compensation information;
	•		Skills, experience and the amount of time the executive has served in the position; and
	•		The Company’s recent performance and current business outlook.

     Following the period of February 2000 to March 2005 during which salaries of executive officers were frozen, the Committee gradually increased salaries of executive officers. The Committee had recently sought to establish base salaries between the 25^th and 50^th percentile of the peer group. The Committee did not provide salary increases to our executive officers during the fiscal year, except that it provided an increase of $10,000 in annual base salary rate to Mr. Petelle, our most recently-hired executive officer. The Committee provided this increase based on competitive market conditions and to recognize Mr. Petelle’s performance during his first year with Insteel.

     Annual Incentive. For a number of years, executive officers of Insteel have earned annual incentive compensation pursuant to our ROCICP. This plan applies to all of our sales and administrative employees, with target annual incentive payments varying from 10% to 50% of annual base salary during FY 2008, and payments capped at twice the target incentive level. The target annual incentive payments for executive officers of the Company during FY 2008 were 50%of the executive’s annual base salary.

Based on peer group information, the Committee believes our annual incentive opportunity for executive officers at maximum award levels is somewhat greater than the median for peer group companies, bringing potential total cash compensation near the median for our peer group. The Committee believes this balance between base salaries and annual cash incentives is appropriate, in that our executive officers’ cash compensation will be near the median for our peer group only if our short-term goals are achieved, and will exceed the median in the event of excellent performance.

     For FY 2008, we calculated our weighted average cost of capital (“WACC”) to be 15%. Since we were debt free in FY 2008, we established the WACC as the return that we believe would be expected by a prudent investor in our stock. Attaining a return equal to our WACC would result in the payout of incentive compensation at the target bonus level. The performance level at which the maximum incentive payment would be earned was set at 20% of the beginning of the year invested capital (WACC + 5%) while the minimum threshold at which an incentive payment would be earned was set at 10% of the beginning of the year invested capital (WACC — 5%). The Company’s actual return on beginning of the year invested capital for FY 2008 was 33.1%. Since maximum incentive payments were earned for achievement of a 20% or greater return on capital, executive officers received incentive payments under the ROCICP equal to 100% (2 x 50%) of their base compensation for the prior twelve-month period.

     The Committee continues to believe that return on invested capital is an appropriate metric for the annual incentive in that it is driven off both the generation of earnings as well as responsible management of Company assets, and is highly correlated with long-term shareholder returns. The amounts earned annually under the ROCICP are established strictly by formula. The ROCICP does not provide for increasing or decreasing the annual incentive based on subjective factors.

     During FY 2007, our Board of Directors amended the ROCICP to clarify that in the event of a material restatement of earnings, the Board has the right to recover payments previously made under the ROCICP, or to reduce future payments. In making a determination whether and from whom to recover previously paid awards, or to reduce future awards, the Committee will consider the amount of the restatement, the reason for the restatement, the role played by any executive officers in the actions and decisions leading to the restatement and any other factors the Committee deems relevant.

     Long Term Incentives. Our long-term incentives are currently entirely equity-based, consisting of 50% restricted stock and 50% stock options. These incentives are granted under our 2005 Equity Incentive Plan. The targeted amount of the awards was established by the Committee, with input from Mercer in FY 2007. At that time, the targeted value of equity awards was increased to bring such awards near the median for executives holding similar positions with the peer group of companies. The targeted value of these awards remained the same in FY 2008. The ultimate value realized by executives who receive long-term incentives is directly linked to changes in the Company’s stock price.

     The restricted stock and stock options are awarded in two equal tranches effective on the date of the Company’s February annual meeting and the date that is six months after the annual meeting. These dates are typically about three weeks after release of our quarterly financial results. The Committee believes that providing these awards on predetermined dates that closely follow the reporting of our quarterly financial results is most appropriate. As noted in the section headed “Grants of Plan-Based Awards” below, the only recent exception to this policy involved an award of restricted stock in connection with the employment of Mr. Petelle in FY 2007.

     The number of shares of restricted stock and the number of stock options to be awarded to each of our executive officers on each grant date is calculated based on the closing price on such date. For example, the target value of long-term incentives granted to Mr. Woltz III during FY 2008 was established by the Committee at $600,000 based on benchmarking data provided by Mercer during FY 2007. Accordingly, he received the awards of restricted stock and stock options in the amounts shown

below on the dates indicated. Since the value of each grant of options and restricted stock is pre-determined by the Committee, and the awards occur on pre-established dates, management does not participate in the process of granting these options and restricted stock.

Date				Type of Grant		No. of Shares				Closing Price				Value
	2/19/08			Restricted Stock			13,452			$	11.15			$	149,990
	2/19/08			Stock Options			28,791			$	11.15			$	150,001
	8/19/08			Restricted Stock			8,987			$	16.69			$	149,993
	8/19/08			Stock Options			15,957			$	16.69			$	149,996

     The value of each share of Company stock subject to a stock option was established by our independent consultant for the Committee based on a Monte Carlo option valuation model. The value of each share of stock subject to a grant of option on February 19, 2008 was established at $5.21 per option share on that date, and at $9.40 per share on August 19, 2008. The values of the equity grants shown above reflect the full fair value on each award date, as compared with amounts shown in the Summary Compensation Table below, which (as required by SEC regulations) reflect the annual accounting cost to the Company of these, as well as previously awarded, equity grants in accordance with Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payment” as interpreted by Staff Accounting Bulletin No. 107 (“SFAS 123R”). Prior to FY 2008, we used a different option valuation method to determine how many option shares to grant to executive officers. We changed to the Monte Carlo valuation model in order to be consistent with the valuation method that we use for financial reporting purposes.

     Prior to FY 2008, dividends on restricted shares were reinvested, and additional shares added as a result of reinvestment were vested and paid on the same schedule as the related restricted shares. Beginning in FY 2008, dividends on restricted shares have been paid in cash. We made this change to eliminate the administrative burden associated with issuing relatively small amounts of additional restricted shares in connection with payment of our quarterly dividend.

     We have not adopted formal stock ownership guidelines for our executive officers, since our executive officers with long service have generally been significant owners of our stock.

     Retirement Benefits. Our executive officers each participate in the 401(k) “defined contribution” plan that is available to substantially all Company employees. Under this plan the Company will match 50% of a participant’s contribution up to 7% of the participant’s eligible compensation. However, certain IRS regulations place significant limits on the ability of our executive officers to defer the same portion of their compensation as other participants and to receive a Company match at the same rate as other participants. To help compensate for these limits, and also to provide significant incentives for executives to remain employed by the Company, the Committee has established a supplemental retirement plan (“SRP”) in which certain Company executives, including all its executive officers, participate. An executive officer is eligible for the full benefit under the SRP if he remains employed by us for a period of at least 30 years. In that case, we will pay the executive officer, during the 15-year period following the later of (i) retirement, or (ii) reaching age 65, a supplemental retirement benefit equal to 50% of the executive officer’s average annual base salary for the five consecutive years in which he received the highest base salary in the 10 years preceding retirement.

     An executive officer may receive reduced benefits under our SRP if he retires prior to completing 30 years of service, so long as the executive has reached at least age 55 and has completed at least 10 years of service. In this event, the amount of the benefit will be reduced by 1/360^th for each month short of 360 months that he was employed by us.

     In the case of Mr. Woltz III, we have agreed that, if he retires at age 65 or later, the annual payment to him for the 15 years following such retirement will not be less than $221,523 which is the level of benefit originally provided for him at the inception of the plan in 1984.

     Under the SRP, we also provide for pre-retirement disability and death benefits. The disability benefit is payable to an executive officer if, due to disability, his employment terminates before reaching age 65 or completing 30 years of service. In this event, we would pay him, during the 10-year period following the date of disability, a supplemental retirement benefit that, when added to the benefits received (if any) by the executive officer under our long-term disability insurance plan for employees, is equal to 100% of the executive officer’s highest average annual base salary for five consecutive years in the 10-year period preceding the date on which his disability occurred. If the long-term disability insurance payments end prior to the end of the 10-year period, the Pre-retirement Disability Benefit will continue for the remainder of the 10-year period in an amount equal to 50% of his highest average annual base salary for five consecutive years in the 10-year period preceding the date on which his disability occurred.

     The death benefit is payable in the event that the executive officer dies while employed by us. In this event, we will pay to the executive officer’s beneficiary, for a term of 10 years following his death, a supplemental death benefit in an amount equal to 50% of his highest average annual base salary for five consecutive years in the 10-year period preceding the date of his death.

Severance and Change-in-Control Severance Agreements.

     Severance Agreements. We have entered into Severance Agreements with each of Mr. Woltz III and Mr. Gazmarian. The Severance Agreements provide certain termination benefits in the event that the employment of Mr. Woltz or Mr. Gazmarian is terminated without cause (as defined in each Severance Agreement) by us. Each Severance Agreement provides for automatic one-year renewal terms unless we or Mr. Woltz or Mr. Gazmarian provide prior notice of termination.

     Neither Mr. Woltz nor Mr. Gazmarian would be entitled to termination benefits under a Severance Agreement (i) if his employment with us is terminated for cause, or (ii) if he is entitled to receive benefits under the Change-in-Control Severance Agreement described in the following section.

     Under the terms of the Severance Agreements, if Mr. Woltz or Mr. Gazmarian were terminated without cause, each would receive a lump sum severance payment equal to one and one-half times his annual base salary, and the continuation of health and welfare benefits (including payments of premiums for “COBRA” coverage), for 18 months following termination. In addition, all stock options and restricted stock awards outstanding immediately prior to termination would vest and, in the case of options, become exercisable for the remainder of the term provided for in the original agreement relating to each grant of options. Finally, we would pay up to $15,000 for outplacement services for Mr. Woltz or Mr. Gazmarian.

     Any termination benefits payable under a Severance Agreement are subject to reduction if necessary to avoid the application of the “golden parachute” rules of Section 280G and the excise tax imposed under Section 4999 of the Internal Revenue Code.

     Change-in-Control Severance Agreements. We have entered into Change-in-Control Severance Agreements with each of our executive officers. These agreements specify the terms of separation in the event that termination of employment occurs following a change in control. The initial term of each agreement is two years and the agreements provide for subsequent automatic one-year renewal terms unless we or the executive officer provides notice of termination. The agreements do not

provide assurances of continued employment, nor do they specify the terms of an executive officer’s termination should the termination occur in the absence of a change in control.

     Under the terms of these agreements, in the event of termination within two years of a change of control, Messrs. Woltz III and Gazmarian would receive severance benefits equal to two times base salary, plus two times the average bonus for the prior three years and the continuation of health and welfare benefits (including payment of premiums for “COBRA” coverage) for two years following termination. Messrs. Wagner and Petelle would receive severance benefits equal to one times base salary, plus one times the average bonus for the prior three years and the continuation of health and welfare benefits (including payment of premiums for “COBRA” coverage) for one year following termination. In addition, all stock options and restricted stock awards outstanding immediately prior to termination would vest and, in the case of options, become exercisable for the remainder of the term provided for in the original agreement relating to each grant of options. Finally, we would pay up to $15,000 for outplacement services for Messrs. Woltz III, Gazmarian, Wagner and Petelle.

     Any termination benefits payable under a Change-in-Control Severance Agreement are subject to reduction if necessary to avoid the application of the “golden parachute” rules of Section 280G and the excise tax imposed under Section 4999 of the Internal Revenue Code.

     We believe the Severance Agreements and Change-in-Control Severance Agreements encourage long-term commitment to us and help focus executives on shareholder interests.

     Broad-Based Employee Benefits. Our executive officers participate in employee benefit plans that are offered to all employees, such as health, life and disability insurance and our 401(k) retirement savings plan. Our salaried employees are entitled to designate a beneficiary who will receive a death benefit in the event of the employee’s death while he is employed by us. The amount of the death benefit is determined by the employee’s salary grade. The death benefit payable to beneficiaries of each of our executive officers is $500,000. We maintain “split dollar” life insurance policies on a broad group of employees, including each of our executive officers, to fund the payment of the death benefit. Proceeds of these policies are payable to us.

     Our broad-based employee benefit programs are reviewed periodically to ensure that these programs are adequate based on competitive conditions as well as cost considerations.

     Deductibility of Compensation. Section 162(m) of the Internal Revenue Code generally disallows a tax deduction to publicly held companies for compensation paid to certain executive officers, to the extent that compensation exceeds $1 million per officer in any year, although certain “performance-based” compensation is not subject to the deduction limit. We generally seek to maximize the deductibility for tax purposes of all elements of compensation. Taxable compensation paid to our CEO for FY 2008 did exceed the $1 million limit by about $30,000 and it is possible that the compensation to be paid to the CEO or other executive officers could exceed the limit in future years.

     The Board has decided at this time to amend the ROCICP and to submit it to our shareholders for approval, as set forth in Proposal No. 2, in order to ensure full deductibility under Section 162(m) of the annual incentive compensation we pay our executive officers. The Committee periodically reviews applicable tax provisions, such as Section 162(m), and may revise compensation plans from time to time to maximize deductibility. In addition, although the Committee’s current intention is to ensure full deductibility of future compensation, it retains the flexibility to take actions it deems necessary to attract, motivate and retain executive officers who will help us achieve our business goals.

Executive Compensation Committee Report

     The Executive Compensation Committee of the Company’s Board of Directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with Company management. Based on this review and discussion, the Executive Compensation Committee has recommended to the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated by reference in our Annual Report on Form 10-K for the year ended September 27, 2008.

     This Executive Compensation Committee report shall be deemed furnished in our Annual Report on Form 10-K for the year ended September 27, 2008, is otherwise not incorporated by reference into any of our previous filings with the SEC and is not to be deemed “soliciting material” or incorporated by reference into any of our future filings with the SEC, irrespective of any general statement included in any such filing that incorporates the Annual Report on Form 10-K referenced above or this proxy statement by reference, unless such filing explicitly incorporates this report.

The Executive Compensation Committee
William J. Shields, Chairman
Charles B. Newsome
C. Richard Vaughn

Summary Compensation Table

     The following table and accompanying footnotes provide information regarding compensation of our Chief Executive Officer, Chief Financial Officer and our two other executive officers for the fiscal year ended September 27, 2008.

SUMMARY COMPENSATION TABLE

																						Change in
																						Pension Value
																						And
																		Non-Equity				Nonqualified
																		Incentive				Deferred
Name and										Stock				Option				Plan				Compensation				All Other
Principal						Salary				Awards3				Awards3				Compensation4				Earnings5				Compensation6				Total
Position		Year				($)				($)				($)				($)				($)				($)				($)
H. O. Woltz III			2008				430,000				212,482				216,155				430,000				-0-				15,711				1,304,348
President and CEO			2007				421,346				145,602				161,702				421,346				9,600				14,242				1,173,838
Michael C. Gazmarian			2008				250,000				96,446				97,392				250,000				3,500				9,434				706,772
Vice President, CFO and Treasurer			2007				244,808				65,414				71,710				244,808				18,700				7,814				653,254
James F. Petelle			2008				156,154				34,828				30,794				156,154				13,400				24,784				416,114
Vice President — Administration and Secretary1.			2007				141,346				15,696				9,209				141,346				14,700				31,899				354,196
Richard T. Wagner			2008				220,000				96,446				97,392				220,000				4,500				8,651				646,989
Vice President — General Manager, Insteel Wire Products2			2007				213,077				65,414				71,710				192,308				16,600				7,858				566,967

		Dividends Paid								401(k)								Tax Gross-up
		on Restricted				Death Benefit				Matching				Relocation				of Expense
		Shares				Value				Payments				Expenses				Reimbursement
Name		($)				($)				($)				($)				($)
H. O. Woltz III			4,956				1,134				9,621				-0-				-0-
Michael C. Gazmarian			2,245				958				6,231				-0-				-0-
James F. Petelle			709				2,340				4,370				9,000				8,365
Richard T. Wagner			2,245				891				5,515				-0-				-0-

Grants of Plan-Based Awards

     The following table provides information regarding (1) annual incentive compensation payments to our executive officers under our ROCICP, and (2) the value of stock options and restricted stock awarded to our executive officers during FY 2008 under our 2005 Equity Incentive Plan.

     Under the ROCICP, the maximum incentive was earned during FY 2008, and therefore the amounts under the column headed “maximum” were paid to the executive officers subsequent to the close of the fiscal year.

     Beginning with our FY 2006, our practice has been to grant equity awards (stock options and restricted stock) on two dates each fiscal year: the date of our annual shareholders’ meeting and the date that is six months after the shareholders’ meeting. The one exception to this practice occurred in FY 2007 when we granted 1,695 shares of restricted stock to Mr. Petelle in connection with the commencement of

his employment with us. This grant was made on November 14, 2006, the date Mr. Petelle was elected an executive officer by our Board of Directors.

     Stock options have a 10-year term and vest in equal annual increments of one-third of the amount of each grant on the first, second and third anniversaries of the grant date. Options are priced at the closing price of our stock on the date of grant, as reported on NASDAQ. The restrictions on restricted stock lapse three years after the date of award. During the restricted period, our executives may vote the shares, but may not sell or transfer them or use them as collateral. Prior to and throughout FY 2007, our practice with respect to dividends on restricted stock was that the dividends were used to purchase additional shares of restricted stock. Beginning in FY 2008, dividends on restricted shares were paid in cash.

     Generally, stock options and restricted stock are subject to forfeiture if an executive officer leaves our employ for reasons other than death, disability or retirement prior to vesting or lapse of restrictions. Pursuant to the Severance Agreements we have with Messrs. Woltz III and Gazmarian, vesting of stock options and lapse of restrictions on restricted stock will accelerate in connection with a termination without cause. For all of our executive officers, if employment with us terminates due to death, disability or retirement, or without cause in connection with a change in control pursuant to the terms of our Change-in-Control Severance Agreements, the vesting of stock options and lapse of restrictions on restricted stock will accelerate.

																						All Other
																		All				Option
																		Other				Awards:								Grant
																		Stock				Number								Date Fair
																		Awards:				of				Exercise				Value of
						Estimated Possible Payouts												Number				Securities				or Base				Stock
						Under Non-Equity Incentive Plan												of				Under-				Price of				and
						Awards2												Shares				lying				Option				Option
		Grant																of Stock				Options				Awards				Awards
Name		Date1				Threshold ($)				Target ($)				Maximum ($)				(#)				(#)3				($/share)				($)4
H. O. Woltz III			N/A								215,000				430,000
			2/19/08																13,452				28,791				11.15				299,895
			8/19/08																8,987				15,957				16.69				290,787
Michael C. Gazmarian			N/A								125,000				250,000
			2/19/08																6,166				13,196				11.15				137,457
			8/19/08																4,119				7,314				16.69				133,280
James F. Petelle			N/A								78,077				156,154
			2/19/08																2,466				5,278				11.15				54,976
			8/19/08																1,648				2,926				16.69				53,321
Richard T. Wagner			N/A								110,000				220,000
			2/19/08																6,166				7,314				11.16				137,457
			8/19/08																4,119								16.69				133,280

     Our equity-based compensatory awards for FY 2008 were issued pursuant to our 2005 Equity Incentive Plan, which was previously approved by our shareholders. The maximum number of shares issuable under that plan may not exceed 1,770,000 shares, and awards settled in cash and shares subject to awards that were forfeited, canceled, terminated, expire or lapse for any reason do not count against this limit. Awards that may be granted under the plan include incentive options and non-qualified options, restricted stock awards and restricted units, and performance awards. The number of shares reserved for issuance under the plan and the terms of awards may be adjusted upon certain events affecting our capitalization. The plan is administered by our Executive Compensation Committee. Subject to the terms of the plan, the Executive Compensation Committee has authority to take any action with respect to the plan, including selection of individuals to be granted awards, the types of awards and the number of shares of common stock subject to an award, and determination of the terms, conditions, restrictions and limitations of each award.

     Additional discussion regarding factors that may be helpful in understanding the information included in the Summary Compensation Table and Grants of Plan-Based Awards table is included above under “Compensation Discussion and Analysis.”

Outstanding Equity Awards at Fiscal Year End 2008

     The following table provides information regarding unexercised stock options and unvested stock awards held by our executive officers as of September 27, 2008, the last day of our fiscal year 2008. All values in the table are based on a market value of our common stock of $14.01, the closing price reported on NASDAQ on September 26, 2008, the last trading day during FY 2008.

		Option Awards																Stock Awards
																						Market
		Number of				Number of												Number of				Value of
		Securities				Securities												Shares or				Shares or
		Underlying				Underlying												Units of				Units of
		Unexercised				Unexercised				Option				Option				Stock That				Stock That
		Options (#)				Options (#)				Exercise				Expiration				Have Not				Have Not
Name		Exercisable1				Unexercisable1				Price ($)				Date				Vested (#)2				Vested ($)
H. O. Woltz III			17,826				-0-				9.12				3/4/2015				47,913				671,261
			11,532				-0-				6.89				7/26/2015
			6,096				3,048				15.64				2/14/2016
			4,246				2,123				20.26				8/14/2016
			4,799				9,596				17.11				2/13/2017
			3,960				7,918				20.27				8/13/2017
			0				28,791				11.15				2/19/2018
			0				15,957				16.69				8/19/2018
Michael C. Gazmarian			5,301				-0-				9.12				3/4/2015				21,847				306,076
			3,430				-0-				6.89				7/26/2015
			2,720				1,360				15.64				2/14/2016
			1,894				947				20.26				8/14/2016
			2,200				4,398				17.11				2/13/2017
			1,815				3,629				20.27				8/13/2017
			-0-				13,196				11.15				2/19/2018
			-0-				7,314				16.69				8/19/2018
James F. Petelle			880				1,759				17.11				2/13/2017				8,786				123,092
			726				1,452				20.27				8/13/2017
			-0-				5,278				11.15				2/19/2018
			-0-				2,926				16.69				8/19/2018
Richard T. Wagner			5,301				-0-				9.12				3/4/2015				21,847				306,076
			3,430				-0-				6.89				7/26/2015
			2,720				1,360				15.64				2/14/2016
			1,894				947				20.26				8/14/2016
			2,200				4,398				17.11				2/13/2017
			1,815				3,629				20.27				8/13/2017
			-0-				13,196				11.15				2/19/2018
			-0-				7,314				16.69				8/19/2018

		2/14/09				8/14/09				11/18/09				2/13/10				8/13/10				2/19/11				8/19/11
H.O. Woltz III			5,242				4,036				—				8,796				7,400				13,452				8,987
Michael C. Gazmarian			2,338				1,801				—				4,031				3,392				6,166				4,119
James F. Petelle			—				—				1,703				1,612				1,357				2,466				1,648
Richard T. Wagner			2,338				1,801				—				4,031				3,392				6,166				4,119

Options Exercised and Stock Vested During Fiscal Year

     The following table provides information regarding compensation earned by our executive officers as a result of vesting of restricted stock during FY 2008. No executive officer exercised stock options during FY 2008.

		Option Awards					Stock Awards
		No. of
		Shares
		Acquired on		Value			No. of Shares
		Exercise		Realized on			Acquired on		Value Realized on
Name		(#)		Exercise ($)			Vesting (#)		Vesting ($)
H. O. Woltz III		0		0			18,207		200,095
Michael C. Gazmarian		0		0			8,122		89,261
James F. Petelle		0		0			0		0
Richard T. Wagner		0		0			8,122		89,261

Pension Benefits

     Through individual agreements, we provide supplemental retirement benefits to our executive officers which provide for payments to them for a 15-year period beginning on the later of (i) retirement or (ii) reaching age 65. The maximum annual benefit payable under the supplemental retirement plan provided through each executive officer’s Retirement Security Agreement (each, an “SRP”) is equal to 50% of the executive officer’s annual base salary for the five consecutive years in which he received the highest salary during the 10 years prior to retirement. Only base salary is included in the calculation of the benefit under the SRP.

     To receive the maximum benefit under the SRP, the executive officer must be employed by us for at least 30 years. An executive officer will receive reduced benefits under the SRP if he is employed by us for at least 10 years and retires at or after reaching age 55. None of our executive officers currently meet the minimum qualification for reduced retirement benefits under the SRPs. For more information regarding the SRPs, see the discussion above under the heading “Retirement Benefits” in the “Compensation Discussion and Analysis” section of this proxy statement.

     The following table shows the present value of the accumulated benefit as of September 27, 2008 payable at, following or in connection with retirement to each of our executive officers, including the number of years of service credited to each.

		PENSION BENEFITS
						Present Value of
				Number of Years		Accumulated				Payments During
Name		Plan Name		Credited Service (#)		Benefit ($)				Last Fiscal Year ($)
H. O. Woltz III		Retirement Security Agreement		30			868,600			-0-
Michael C. Gazmarian		Retirement Security Agreement		14			180,900			-0-
James F. Petelle		Retirement Security Agreement		2			28,100			-0-
Richard T. Wagner		Retirement Security Agreement		16			175,300			-0-

Potential Payments Upon Termination or Change in Control

     The discussion and tables below describe the potential payments that could be received by each of the executive officers if the executive officer’s employment was terminated on September 26, 2008, the last business day of our fiscal year. The amounts in the tables for stock options and restricted stock represent the value of the awards that vest as a result of the termination of the executive officer’s employment. For purposes of valuing the stock options and restricted stock, the amounts below are based on a per share price of $14.01, which was our closing price as reported on NASDAQ on September 26, 2008, the last trading day during FY 2008.

		Benefits and Payments Upon Termination
										Termination
										without Cause
										or for Good
						Termination				Reason after
		Voluntary				without				Change
		Termination				Cause				in Control				Retirement				Death				Disability
H. O. Woltz III
Salary Continuation1		$	0			$	0			$	860,000			$	0			$	0			$	1,350,277
Severance Payment2			0				645,000				418,526				0				0				0
Stock Options3			0				82,342				82,342				82,342				82,342				82,342
Restricted Stock4			0				671,261				671,261				671,261				671,261				671,261
Benefits5			0				28,004				37,338				0				0				0
Outplacement			0				15,000				15,000				0				0				0
Supplemental Retirement Plan6			0				0				868,600				0				1,231,100				1,231,100
Death Benefit7			0				0				0				0				500,000				0
Total		$	0			$	1,441,607			$	2,953,067			$	753,603			$	2,484,703			$	3,334,980

										Termination
										without Cause
										or for Good
										Reason after
		Voluntary				Termination				Change
		Termination				without Cause				in Control				Retirement				Death				Disability
Michael C. Gazmarian
Salary Continuation1		$	0			$	0			$	500,000			$	0			$	0			$	1,469,393
Severance Payment2			0				375,000				243,141				0				0				0
Stock Options3			0				37,741				37,741				37,741				37,741				37,741
Restricted Stock4			0				306,076				306,076				306,076				306,076				306,076
Benefits5			0				28,004				37,338				0				0				0
Outplacement			0				15,000				15,000				0				0				0
Supplemental Retirement Plan6			0				0				180,900				0				788,664				788,664
Death Benefit7							0				0				0				500,000				0
Total		$	0			$	761,821			$	1,320,196			$	343,817			$	1,632,481			$	2,601,874

										Termination
										without Cause
										or for Good
						Termination				Reason after
		Voluntary					without			Change
		Termination				Cause				in Control				Retirement				Death				Disability
James. F. Petelle
Salary Continuation1		$	0			$	0			$	160,000			$	0			$	0			$	591,331
Severance Payment2			0				0				160,000				0				0				0
Stock Options3			0				0				15,095				15,095				15,095				15,095
Restricted Stock4			0				0				123,092				123,092				123,092				123,092
Benefits5			0				0				10,819				0				0				0
Outplacement			0				0				15,000				0				0				0
Supplemental Retirement Plan6			0				0				28,100				0				544,328				544,328
Death Benefit7			0				0				0				0				500,000				0
Total		$	0			$	0			$	512,106			$	138,187			$	1,182,515			$	1,273,846

										Termination
										without
										Cause or for
						Termination				Good Reason
		Voluntary					without			after Change
		Termination				Cause				in Control				Retirement				Death				Disability
Richard T. Wagner
Salary Continuation1		$	0			$	0			$	220,000			$	0			$	0			$	1,310,053
Severance Payment2			0				0				184,103				0				0				0
Stock Options3			0				0				37,741				37,741				37,741				37,741
Restricted Stock4			0				0				306,076				306,076				306,076				306,076
Benefits5			0				0				7,029				0				0				0
Outplacement			0				0				15,000				0				0				0
Supplemental Retirement Plan6			0				0				175,300				0				708,026				708,026
Death Benefit7			0				0				0				0				500,000				0
Total		$	0			$	0			$	945,249			$	343,817			$	1,551,843			$	2,361,896