<PAGE>   1

                                                                  EXHIBIT 4.1(B)

              THIS DOCUMENT IS SUBJECT TO A CONFIDENTIAL TREATMENT
               REQUEST PURSUANT TO RULE 24B-2 UNDER THE SECURITIES
                        EXCHANGE ACT OF 1934, AS AMENDED.

                            AMENDMENT AGREEMENT NO. 2
                               TO CREDIT AGREEMENT


         THIS AMENDMENT AGREEMENT (this "Amendment Agreement") is made and
entered into as of this 21st day of May, 2001, by and among INSTEEL INDUSTRIES,
INC., a North Carolina corporation (herein called the "Borrower"), BANK OF
AMERICA, N.A., a national banking association (the "Agent"), as Agent for the
lenders (the "Lenders") party to the Credit Agreement dated January 31, 2000 as
amended by the Amendment Agreement No. 1 to Credit Agreement dated January 12,
2001 and by the Supplement to Amendment Agreement No. 1 to the Credit Agreement
effective January 12, 2001 (collectively the "Agreement"), among the Borrower,
the Agent, and the Lenders, and the UNDERSIGNED LENDERS.


                              W I T N E S S E T H:
                              -------------------


         WHEREAS, the parties hereto have entered into the Agreement pursuant to
which the Lenders have agreed to make loans to the Borrower in the aggregate
principal amount of up to $130,000,000 as evidenced by the Notes (as defined in
the Agreement) and to issue Letters of Credit for the benefit of the Borrower;
and

         WHEREAS, as a condition to the making of the loans pursuant to the
Agreement the Lenders have required that the Subsidiaries of the Borrower
guarantee payment of all Obligations of the Borrower arising under the
Agreement; and

         WHEREAS, the Borrower is not in compliance with certain of the
covenants contained in the Agreement and as a result Events of Default exist
under the Agreement; and

         WHEREAS, the Borrower has requested that the Lenders waive the existing
Events of Default and further amend the Agreement in the manner described
herein; and

         WHEREAS, the Lenders are willing to further amend the Agreement subject
to the terms and conditions set forth herein;

         NOW, THEREFORE, the Borrower, the Agent and the Lenders do hereby agree
as follows:

         1. Definitions. The term "Agreement" as used herein and in the Loan
Documents (as defined in the Agreement) shall mean the Agreement as hereinafter
amended and modified. Unless the context otherwise requires, all terms used
herein without definition shall have the definition provided therefor in the
Agreement.


<PAGE>   2

         2. Amendment. Subject to the conditions set forth herein, the Agreement
is hereby amended, effective as of the date of this Amendment No. 2, as follows:

                  (a) Section 1.01 is hereby amended by adding the following new
         definition thereto in the appropriate alphabetical order:

                           "Amendment No. 2" means Amendment Agreement No. 2 to
                  Credit Agreement which Amendment No. 2 is dated May 21, 2001;

                  (b) The definition of "Applicable Margin" in Section 1.1 is
         hereby amended in its entirety so that as amended it shall read as
         follows:

                           "`Applicable Margin' means for each of the periods
                  set forth below that percent per annum set forth opposite each
                  such period:

                                                                    Applicable
                                     Period                            Margin
                                     ------                         ----------

                    Date of Amendment No. 2 through June 30, 2001      2.00%

                    July 1, 2001 through September 30, 2001            2.50%

                    October 1, 2001 through December 31, 2001          2.75%

                    January 1, 2002 through April 15, 2002             3.00%"

                  (c) The definition of "Consolidated EBITDA" in Section 1.1 is
         hereby amended in its entirety so that as amended it shall read as
         follows:

                           "`Consolidated EBITDA' means, with respect to the
                  Borrower and its Subsidiaries for any fiscal quarter period
                  ending on the date of computation thereof, the sum of, without
                  duplication, (i) Consolidated Net Income, plus any losses or
                  minus any gains [*] (ii) Consolidated Interest Expense, (iii)
                  taxes on income, (iv) amortization, (v) depreciation, (vi)
                  Amendment Fees payable to Lenders when and to the extent
                  actually paid and other actual cash expenses paid in each case
                  in connection with Amendment No. 1 and Amendment No. 2 the
                  aggregate of such fees and expenses not to exceed $[*], all
                  determined on a consolidated basis in accordance with GAAP
                  applied on a Consistent Basis."




                  [*] Confidential portion has been omitted and filed separately
with the Commission.


                                       2
<PAGE>   3

                  (d) The definition of "Stated Termination Date" in Section 1.1
         is hereby amended in its entirety so that as amended it shall read as
         follows:

                           "`Stated Termination Date' means April 15, 2002."

                  (e) The definition of "Term Loan Maturity Date" in Section 1.1
         is hereby amended in its entirety so that as amended it shall read as
         follows:

                           "`Term Loan Maturity Date' means April 15, 2002."

                  (f) The table found in Section 2.1(c) is amended in its
         entirety so that as amended it reads as follows:

                         Date                 Amount
                         ----                 ------

                December 31, 2001           $2,500,000
                March 31, 2002              $4,250,000
                Term Loan Maturity Date     the entire amount of
                                            Term Loan Outstandings
                                            shall be due and payable in full

                  (g) Article IX is hereby amended by adding the following
         Section:

                           "9.22 [*]. On or before June 15, 2001 engage, at its
                  costs and expense, a [*] acceptable to the Agent and the
                  Lenders pursuant to the terms of an agreement acceptable in
                  form and substance to the Agent and the Lenders and have a [*]
                  acceptable to the Agent and the Lenders so engaged at all
                  times."

                  (h) Section 10.1(a) is hereby amended in its entirety so that
         as amended it shall read as follows:

                           "(a) Consolidated Net Worth. Permit Consolidated Net
                  Worth to be less than (i) $[*] and (ii) as at the last day of
                  each fiscal quarter of the Borrower ending after March 31,
                  2001 and until (but excluding) the last day of the next
                  following fiscal quarter of the Borrower, the sum of (A) the
                  amount of Consolidated Net Worth required to be maintained
                  pursuant to this Section 10.1(a) as at the end of the
                  immediately preceding fiscal quarter (or, in the case of the
                  computation for the quarter ended June 30, 2001, $[*], plus
                  (B) 50% of Consolidated Net Income (with no reduction for net
                  losses during any period) for the fiscal quarter of the
                  Borrower ending on such day (including within "Consolidated
                  Net Income" certain items otherwise excluded, as provided for
                  in the definition of "Consolidated Net Income"), plus (C) 100%
                  of the aggregate


                  [*] Confidential portion has been omitted and filed separately
with the Commission.


                                       3
<PAGE>   4

                  amount of all increases in the stated capital and additional
                  paid-in capital accounts of the Borrower resulting from the
                  issuance of equity securities or other capital investments."

                  (i) Section 10.1(b) is hereby amended in its entirety so that
         as amended it shall read as follows:

                           "(b) Consolidated EBITDA. Permit Consolidated EBITDA
                  for the periods set forth below to be less than that amount
                  set forth opposite each such period:

                                           Period                    Amount
                                           ------                    ------
                          3rd fiscal quarter of Fiscal Year 2001      $[*]
                          4th fiscal quarter of Fiscal Year 2001      $[*]
                          1st fiscal quarter of Fiscal Year 2002      $[*]"

                  (j) Section 11.1(c) is hereby amended by adding Section 9.22
         immediately following the reference to Section 9.20 appearing therein.

         3. Subsidiary Consents. Each Subsidiary of the Borrower that has
delivered a Guaranty to the Agent has joined in the execution of this Amendment
Agreement for the purpose of (i) agreeing to the amendment to the Agreement and
(ii) confirming its guarantee of payment of all the Obligations.

         4. Representations and Warranties. The Borrower hereby represents and
warrants that:

                  (a) Except for financial covenant violations herein waived,
         the representations and warranties made by Borrower in Article VIII of
         the Agreement are true on and as of the date hereof except that the
         financial statements referred to in Section 8.6(a) shall be those most
         recently furnished to each Lender pursuant to Section 9.1;

                  (b) Except for the financial covenant violations herein
         waived, there has been no material adverse change in the condition,
         financial or otherwise, of the Borrower and its Subsidiaries since the
         date of the most recent financial reports of the Borrower received by
         each Lender under Section 9.1 thereof, other than changes in the
         ordinary course of business, none of which has been a material adverse
         change;




         [*] Confidential portion has been omitted and filed separately with the
Commission.


                                       4
<PAGE>   5

                  (c) The business and properties of the Borrower and its
         Subsidiaries are not and have not been adversely affected in any
         substantial way as the result of any fire, explosion, earthquake,
         accident, strike, lockout, combination of workers, flood, embargo,
         riot, activities of armed forces, war or acts of God or the public
         enemy, or cancellation or loss of any major contracts; and

                  (d) After giving effect to this Amendment Agreement (including
         the waivers by the Lenders set forth herein), no event has occurred and
         no condition exists which, upon the consummation of the transaction
         contemplated hereby, constitutes a Default or an Event of Default on
         the part of the Borrower under the Agreement, the Notes or any other
         Loan Document either immediately or with the lapse of time or the
         giving of notice, or both.

         5. Waiver. Each Lender party hereto by its execution of this Amendment
Agreement waives for the period beginning December 31, 2000 through the
effective date of this Amendment Agreement the Event of Default arising by
reason of the Borrower's failure to comply with Section 10.1(a) and Section
10.1(b) of the Agreement.

         6. Amendment Fee. The Borrower agrees to pay to the Agent for the pro
rata benefit of the Lenders which join in the execution of this Amendment No. 2
an amendment fee in the amount of $[*] on the date of this Amendment No. 2 and
which shall be fully-earned at the date of this Amendment No. 2.

         7. Deferral of Amendment Fee under Amendment No. 1. The provisions
regarding the Amendment Fee as set forth in paragraph 6 of Amendment No. 1 are
modified as follows: (i) the payment of $[*] that is due on July 2, 2001 is
partially deferred as follows: $[*] is due on July 2, 2001; $[*] is due on
October 1, 2001; and $[*] is due on January 31, 2002, and (ii) the payment of
$[*] that is due on September 1, 2001 is deferred until April 15, 2002. In the
event all Obligations have been paid in full by January 31, 2002 and the
Facility Termination Date shall have occurred, the January 31, 2002 and April
15, 2002 payments will be waived. In the event all Obligations have been paid in
full by April 15, 2002 and the Facility Termination Date shall have occurred,
the April 15, 2002 payment will be waived.

         8. Equity Appreciation. Borrower shall execute and deliver to the Agent
the Equity Appreciation Rights Agreement, a copy of which is attached hereto as
Exhibit A (the "Equity Appreciation Rights Agreement").

         9. Conditions. This Amendment Agreement shall become effective upon the
Borrower delivering or causing to be delivered to the Agent the following:



[*] Confidential portion has been omitted and filed separately with the
Commission.


                                       5
<PAGE>   6

                           (i) five (5) counterparts of this Amendment Agreement
         duly executed by the Borrower, the Agent and the Required Lenders and
         consented to by each of the Subsidiaries;

                           (ii) copy of resolutions adopted by the Board of
         Directors of the Borrower and each Guarantor approving this Amendment
         Agreement and authorizing its execution certified by the Secretary or
         Assistant Secretary to be a true and correct copy duly adopted;

                           (iii) all other fees and expenses due in connection
         with this Amendment Agreement;

                           (iv) five (5) counterparts of the Equity Appreciation
         Rights Agreement duly executed by the Borrower; and

                           (v) the favorable written opinion or opinions with
         respect to the Equity Appreciation Rights Agreement and the payments
         contemplated thereby of Counsel to the Borrower dated the date of this
         Amendment No. 2, addressed to the Agent and the Lenders and
         satisfactory in form and substance to Smith Helms Mulliss & Moore,
         L.L.P., special counsel to the Agent.

         10. Acknowledgment; Release. The Borrower and the Guarantors
acknowledge that they have no existing defense, counterclaim, offset,
cross-complaint, claim or demand of any kind or nature whatsoever that can be
asserted to reduce or eliminate all or any part of any of their respective
liability to pay the full indebtedness outstanding under the terms of the
Agreement and any other Loan Documents which evidence, guaranty or secure the
Obligations. The Borrower and the Guarantors hereby release and forever
discharge the Agent, the Lenders and all of their officers, directors,
employees, attorneys, consultants and agents from any and all actions, causes of
action, debts, dues, claims, demands, liabilities and obligations of every kind
and nature, both in law and in equity, known or unknown, whether matured or
unmatured, absolute or contingent.

         11. Costs and Expenses. The Borrower agrees to pay all costs and
expenses associated with the preparation, due diligence, administration and
enforcement of all documentation executed in connection with the Amendment
Agreement, including without limitation, the legal fees and out-of-pocket
expenses of counsel to the Agent. The Borrower also agrees to pay the expenses
of the Agent and the Lenders in connection with Collateral review, field audits
and retention of consultants.

         12. Entire Agreement. This Amendment Agreement sets forth the entire
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter. No promise, conditions, representation
or warranty, express or implied, not herein set forth shall bind any party
hereto, and no one of them has relied on any such promise, condition,



                                       6
<PAGE>   7

representation or warranty. Each of the parties hereto acknowledges that, except
as in this Amendment Agreement otherwise expressly stated, no representations,
warranties or commitments, express or implied, have been made by any other party
to the other. None of the terms or conditions of this Amendment Agreement may be
changed, modified, waived or canceled orally or otherwise, except by writing, in
the manner provided in the Agreement, specifying such change, modification,
waiver or cancellation of such terms or conditions, or of any proceeding or
succeeding breach thereof.

         13. Full Force and Effect of Agreement. Except as hereby specifically
amended, modified or supplemented, the Agreement and all of the other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.

                  [Remainder of page intentionally left blank.]


                                       7
<PAGE>   8

         IN WITNESS WHEREOF, the parties hereto have caused this Amendment
Agreement to be duly executed by their duly authorized officers, all as of the
day and year first above written.

                                    BORROWER:

                                    INSTEEL INDUSTRIES, INC.
WITNESS:

/s/ H. O. Woltz III                        /s/ Michael C. Gazmarian
_____________________________       By:____________________________________
Print Name: H. O. Woltz III         Name:      Michael C. Gazmarian
                                    Title:     CFO and Treasurer
/s/ Gary D. Kniskern
______________________________
Print Name:  Gary D. Kniskern



                                       8
<PAGE>   9

                                           GUARANTORS:

                                           INSTEEL WIRE PRODUCTS COMPANY
                                           INTERCONTINENTAL METALS CORPORATION
                                           FLORIDA WIRE AND CABLE, INC.

WITNESS:

/s/ H. O. Woltz III                             /s/ Michael C. Gazmarian
____________________________________       By:_________________________________
Print Name:  H. O. Woltz III               Name:    Michael C. Gazmarian
                                           Title:   CFO and Treasurer

/s/ Gary D. Kniskern
_____________________________________
Print Name:  Gary D. Kniskern



                                       9
<PAGE>   10

                                 BANK OF AMERICA, N.A., as Agent for the Lenders



                                 By:______________________________________
                                 Name:
                                 Title:



                                 BANK OF AMERICA, N.A., as a Lender



                                 By:______________________________________
                                 Name:
                                 Title:



                                       10
<PAGE>   11

                                        BRANCH BANKING AND TRUST COMPANY



                                        By:____________________________________
                                        Name:__________________________________
                                        Title:_________________________________




                                       11
<PAGE>   12

                                            FIRST UNION NATIONAL BANK



                                            By:________________________________
                                            Name:______________________________
                                            Title:_____________________________



                                       12
<PAGE>   13

                                                 NATIONAL BANK OF CANADA



                                                 By:___________________________
                                                 Name:_________________________
                                                 Title:________________________



                                       13
<PAGE>   14

                                    EXHIBIT A

                      EQUITY APPRECIATION RIGHTS AGREEMENT


         THIS AGREEMENT made and entered into as of this 21st day of May, 2001
by and among INSTEEL INDUSTRIES, INC., a North Carolina corporation (herein
called the "Borrower"), BANK OF AMERICA, N.A., a national banking association
(the "Agent"), as Agent for the lenders (the "Lenders") party to the Credit
Agreement dated January 31, 2000 as amended by the Amendment Agreement No. 1 to
Credit Agreement dated January 12, 2001, by the Supplement to Amendment
Agreement No. 1 to the Credit Agreement effective January 12, 2001 and Amendment
Agreement No. 2 to Credit Agreement dated of even date herewith (collectively
the "Credit Agreement"), among the Borrower, the Agent, and the Lenders, and the
UNDERSIGNED LENDERS.

                              W I T N E S S E T H:

         WHEREAS, in order to induce the Agent and the Lenders to enter into an
Amendment No. 2 to Credit Agreement dated as of the date hereof ("Amendment No.
2") Borrower has agreed to grant to the Agent and the Lenders the equity
appreciation rights described herein;

         NOW, THEREFORE, in consideration of the entering into of the Amendment
No. 2 by the Agent and the Lenders, the Borrower does hereby agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         Section 1.01 DEFINITIONS. For purposes of this Agreement, the following
words and terms shall have the following meanings, respectively, unless the
context clearly requires otherwise:

                  "Agreement" means this Equity Appreciation Rights Agreement,
as the same may be modified, amended or supplemented from time to time;

                  "Consolidated Group" means the Borrower and its Subsidiaries;

                  "Credit Agreement" means that Credit Agreement dated January
31, 2000 by and among Borrower, Agent and Lenders as amended by the Amendment
Agreement No. 1 to Credit Agreement dated January 12, 2001, by the Supplement to
Amendment Agreement No. 1 to the Credit Agreement effective January 12, 2001,
and by Amendment No. 2, as the same may be modified, amended or supplemented
from time to time, such Credit Agreement, for purposes of this Agreement, to be
deemed to continue in effect for purposes of Section 2.05 hereof;

                  "EBITDA" means for the Consolidated Group, for the four most
recent fiscal quarters ending prior to the date of determination, the aggregate
amount of earnings from



                                       14
<PAGE>   15

continuing operations on a consolidated basis before interest expense, taxes,
depreciation, amortization, any other nonrecurring or restructuring charges
(other than any nonrecurring or restructuring charges representing expenses or
charges incurred in the ordinary course of business) and without giving effect
to any extraordinary gain or loss or gains or losses from asset sales outside of
the ordinary course of business. EBITDA shall be determined in accordance with
generally accepted accounting principles;

                  "Exercise Date" means the date of the giving of notice of the
exercise of right to receive the Rights Fee pursuant to Section 2.01 hereof;

                  "Exercise Period" means the period (a) beginning on the
earlier of (i) in the case of Section 2.02(b) and (c), the date of payment in
full of all of the Loans, (ii) April 15, 2002 or (iii) occurrence of an Event of
Default under the Credit Agreement and (b) ending on April 15, 2004;

                  "Fair Market Value" means the value of the Consolidated Group
determined by an Independent Financial Expert, using a multiple of EBITDA which
shall represent the average multiples used in valuations of comparable entities
(that is entities that are engaged in fabricated wire product manufacturing) for
the twelve month period prior to the date of determination of Fair Market Value
(or such shorter period for which such information shall be available). In
determining such average multiple, the Independent Financial Expert shall be
directed to make appropriate adjustments, if necessary, to reflect any
variations used in such valuations from the factors taken into account in
calculating EBITDA hereunder. Notwithstanding the foregoing, if the capital
stock of the Borrower is registered under the Securities and Exchange Act of
1934, as amended, and traded on a national stock exchange (including NASDAQ
National Market System), "Fair Market Value" shall be the product of (i) the
average closing bid price of such stock for the forty-five (45) day period
preceding the Exercise Date and (ii) the number of shares of capital stock of
Borrower outstanding on the Exercise Date;

                  "Independent Financial Expert" means a nationally recognized
investment banking firm (i) which does not (and whose directors, officers and
affiliates do not) have a direct or indirect financial interest in any of the
Consolidated Group, (ii) which has not been, and, at the time it is called upon
to give independent financial advice to any of the Consolidated Group, is not
(and none of whose directors, officers, employees or affiliates is) a promoter,
director or officer of any of the Consolidated Group or any of its affiliates,
or an underwriter with respect to any of the Consolidated Group's securities and
(iii) which does not provide any advice or opinions to the Borrower or any of
its affiliates except as an Independent Financial Expert. An Independent
Financial Expert may be compensated by the Borrower for opinions or services it
provides as an Independent Financial Expert;

                  "Loans" means the Loans as that term is defined in the Credit
Agreement.

                  "Rights" means the equity appreciation right granted to the
Agent and Lenders pursuant to this Agreement;



                                       15
<PAGE>   16

                  "Rights Fee" means the value of the Rights as at the date of
determination as provided in Section 2.02 hereof;


                                   ARTICLE II

                                     RIGHTS

         Section 2.01 GRANT. The Borrower hereby grants, transfers, conveys and
assigns to the Agent for the benefit of the Lenders the right to receive, at the
Agent's option, at anytime during the Exercise Period, the Rights Fee. The Agent
shall exercise the Rights by the giving to the Borrower of written notice of the
Exercise Date in the manner provided in Section 3.01 hereof. Such notice shall
set forth the Exercise Date and the name of an Independent Financial Expert
selected by the Agent and reasonably acceptable to the Borrower, if the Agent
shall require that an Independent Financial Expert determine the Fair Market
Value.

         Section 2.02 RIGHTS FEE. (a) The Borrower agrees to pay to the Agent
for the benefit of the Lenders the Rights Fee not later than ninety (90) days
next following the Exercise Date, provided the Agent shall have given the
Borrower notice of the Exercise Date within ten (10) business days next
following delivery by the Borrower to the Agent of the financial information
required to be delivered to the Agent pursuant to Section 9.01 of the Credit
Agreement for the period ending on such Exercise Date. The Rights Fee shall be
in a maximum amount of $[*] but in no event less than the greater of

         (i)      [*]; or
         (ii)     $[*];

                  (B) In the event all Obligations (as defined in the Credit
                  Agreement) have been paid in full by December 15, 2001 and the
                  Facility Termination Date (as defined in the Credit Agreement)
                  shall have occurred by December 15, 2001, the Rights Fee shall
                  be $[*];

                  (c) In the event all Obligations (as defined in the Credit
                  Agreement) have not been paid in full by December 15, 2001 but
                  are paid in full by April 15, 2002 and the Facility
                  Termination Date (as defined in the Credit Agreement) shall
                  have occurred by January 31, 2002, the Rights Fee shall be in
                  a maximum amount of $[*] but in no event less than the greater
                  of

         (i)      [*]; or
         (ii)     $[*]; and


[*] Confidential portion has been omitted and filed separately with the
Commission.



                                       16
<PAGE>   17

                  (d) Upon occurrence of either of the events described in
                  Section 2.02(b) and (c) above, the Agent shall be deemed to
                  have exercised its rights to receive the Rights Fee, which
                  Rights Fee shall be due and payable on the date of payment in
                  full of the Obligations (as defined in the Credit Agreement).

         Section 2.03. COMPUTATION. If the Borrower's capital stock is traded on
a national stock exchange the Fair Market Value shall be determined in the
manner set forth in the definition of such term based on the price of such
capital stock. If the Borrower's capital stock is not traded on a national stock
exchange the Agent may (in its sole discretion) require that Borrower promptly,
upon receipt of notice of the Exercise Date, retain at Borrower's expense the
Independent Financial Expert to determine the amount of the Rights Fee. The
Borrower shall furnish to Independent Financial Expert all financial
information, information regarding the Consolidated Group and access to the
books and records of the Consolidated Group as the Independent Financial Expert
shall request. The Borrower acknowledges and agrees that the prompt engagement
of the Independent Financial Expert and furnishing of requested information is
necessary for the determination of the Rights Fee. In the event the Borrower
fails to engage such Independent Financial Expert or furnish requested
information in order that the Rights Fee can be established and paid within the
period required by Section 2.02, then the Rights Fee shall be $[*].

         Section 2.04 PAYMENT. Upon establishment of the Rights Fee, the
Borrower shall pay the amount due in immediately available funds.

         Section 2.05 FINANCIAL INFORMATION. In the event the Borrower shall at
any time during the Exercise Period fail to furnish to the Agent the financial
information described in Section 9.01 of the Credit Agreement by the date
required under the Credit Agreement for furnishing such financial information,
and such default in delivery continues for thirty (30) days following notice
from the Agent, the Rights Fee shall become immediately due and payable and
shall be in the amount of $[*].

                                   ARTICLE III

                                  MISCELLANEOUS

         Section 3.01 NOTICE. Any notice or communication shall be in writing
and delivered in person or mailed by first-class mail addressed as follows:

                  If to the Borrower:       Insteel Industries, Inc.
                                            1373 Boggs Drive
                                            Mount Airy, North Carolina 27030
                                            Attention: H. O. Woltz, III


[*] Confidential portion has been omitted and filed separately with the
Commission.



                                       17
<PAGE>   18

                  if to the Agent:  Bank of America, N.A.
                                    One Independence Center, 13th Floor
                                    101 North Tryon Street, NC1-001-13-26
                                    Charlotte, NC 28255-0001
                                    Attention:  Michael J. Fey

         The Borrower or the Agent by notice may designate additional or
different addresses for subsequent notices or communications.

         Section 3.02 SHARING OF RIGHTS FEE. The Borrower and the Agent
acknowledge and agree that the Rights Fee shall be paid by the Borrower to the
Agent for the benefit of the Lenders. The Rights Fee shall be paid by the Agent
to the Lenders in the manner described in Section 4.7 of the Credit Agreement so
long as a Lender shall have fulfilled its obligations to the Agent, Bank of
America and the other Lenders under the Credit Agreement.

         Section 3.03 GOVERNING LAW; SEVERABILITY. THE LAW OF THE STATE OF NORTH
CAROLINA SHALL GOVERN THIS AGREEMENT BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY. IF ONE OR MORE PROVISIONS OF
THIS AGREEMENT ARE HELD TO BE UNENFORCEABLE UNDER APPLICABLE LAW, SUCH
PROVISIONS SHALL BE SEVERED FROM THIS AGREEMENT AS IF SUCH PROVISIONS WERE NOT
INCLUDED AND THE BALANCE OF THIS AGREEMENT SHALL BE ENFORCEABLE IN ACCORDANCE
WITH ITS TERMS.

         Section 3.04 JURISDICTION; CONSENT TO SERVICE OF PROCESS.

                  (a) The Borrower hereby irrevocably and unconditionally
submits, for itself and its property, to the jurisdiction of any North Carolina
State court or Federal court of the United States of America sitting in
Charlotte, North Carolina, and any Appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement or any related
documents, or for recognition or enforcement of any judgment, and each of the
parties hereto hereby irrevocably and unconditionally agrees that all claims in
respect of any such action or proceeding may be heard and determined in North
Carolina or, to the extent permitted by law, in such Federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.

                  (b) The Borrower hereby irrevocably and unconditionally
waives, to the fullest extent it may legally and effectively do so, any
objection that it may now or hereafter have to the laying of venue of any suit,
action or proceeding arising out of or relating to this Agreement in any North
Carolina State or Federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent permitted by law, the defense or any inconvenient
forum to the maintenance of such action or proceeding in any such court.



                                       18
<PAGE>   19

                  (c) Each party to this Agreement irrevocably consents to
service of process in the manner provided for notices in Section 3.01. Nothing
in this Agreement will affect the right of any party to this Agreement to serve
process in any other manner permitted by law.


                  [Remainder of page intentionally left blank.]



                                       19
<PAGE>   20

         IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have caused
this Agreement to be executed by their duly authorized offices as of the day and
year first above written.



                                    BORROWER:

                                    INSTEEL INDUSTRIES, INC.
WITNESS:
/s/ H.O. Woltz III
_____________________________       By: /s/ Michael C. Gazmarian
                                       -----------------------------------------
             H.O. Woltz III
Print Name: ___________________     Name:     Michael C. Gazmarian
                                             -----------------------------------
                                    Title:    CFO and Treasurer
/s/ Gary D. Kniskern                         -----------------------------------
______________________________

            Gary D. Kniskern
Print Name:___________________



                                       20
<PAGE>   21

                              BANK OF AMERICA, N.A., as Agent for the Lenders



                              By:
                                 ----------------------------------------------
                              Name:
                                       ----------------------------------------
                              Title:
                                       ----------------------------------------



                              BANK OF AMERICA, N.A., as a Lender



                              By:
                                 ----------------------------------------------
                              Name:
                                       ----------------------------------------
                              Title:
                                       ----------------------------------------



                                       21
<PAGE>   22

                                            BRANCH BANKING AND TRUST COMPANY



                                            By:
                                               ---------------------------------
                                            Name:
                                                     ---------------------------
                                            Title:
                                                     ---------------------------





                                       22
<PAGE>   23

                                              FIRST UNION NATIONAL BANK



                                              By:
                                                 ------------------------------
                                              Name:
                                                       ------------------------
                                              Title:
                                                       ------------------------




                                       23
<PAGE>   24


                                             NATIONAL BANK OF CANADA



                                             By:
                                                --------------------------------
                                             Name:
                                                      --------------------------
                                             Title:
                                                      --------------------------





                                       24