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 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY (AS PERMITTED BY
RULE 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-12
WSI Industries, Inc.
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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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):
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5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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4) Date Filed:
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[WSI LOGO]
WSI INDUSTRIES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 4, 2006
Notice is hereby given that the Annual Meeting of Shareholders of WSI
Industries, Inc. (the "Company") will be held at the Company's offices at 213
Chelsea Road, Monticello, Minnesota 55362, on Wednesday, January 4, 2006, at
1:30 p.m., local time, for the following purposes:
1. To elect five directors to hold office until the next Annual Meeting
of Shareholders or until their successors are elected.
2. To adopt the Company's 2005 Stock Plan.
3. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
The Board of Directors has fixed the close of business on November 7,
2005, as the record date for the determination of shareholders entitled to
notice of and to vote at the meeting.
By Order of the Board of Directors
Michael J. Pudil, Chairman and Chief Executive Officer
Minneapolis, Minnesota
December 1, 2005
TO ASSURE YOUR REPRESENTATION AT THE ANNUAL MEETING OF SHAREHOLDERS,
PLEASE SIGN, DATE AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT
YOU EXPECT TO ATTEND IN PERSON. SHAREHOLDERS WHO ATTEND THE MEETING MAY REVOKE
THEIR PROXIES AND VOTE IN PERSON IF THEY SO DESIRE. THIS PROXY IS SOLICITED ON
BEHALF OF THE COMPANY.
[WSI LOGO]
WSI INDUSTRIES, INC.
PROXY STATEMENT
-----------------
This proxy statement is furnished to the shareholders of WSI Industries,
Inc. (the "Company") in connection with the solicitation of proxies by the Board
of Directors of the Company to be voted at the Annual Meeting of Shareholders to
be held on January 4, 2006, or any adjournment or adjournments thereof. The
Company's offices are located at 213 Chelsea Road, Monticello, Minnesota 55362
and its telephone number is (763) 295-9202. The mailing of this proxy statement
to shareholders of the Company commenced on or about December 1, 2005.
GENERAL INFORMATION
VOTING
The Company currently has only one class of securities, common stock, of
which 2,672,630 shares were issued and outstanding and entitled to vote at the
close of business on November 7, 2005. Only shareholders of record at the close
of business on November 7, 2005 will be entitled to vote at the meeting.
Each share is entitled to one vote and shareholders have cumulative voting
rights in connection with the election of directors in the event any shareholder
gives written notice of intent to cumulate votes to any officer of the Company
before the meeting or to the presiding officer at the meeting. A shareholder may
cumulate votes for the election of directors by multiplying the number of votes
to which the shareholder may be entitled by five (the number of directors to be
elected) and casting all such votes for one nominee or distributing them among
any two or more nominees.
All shareholders are cordially invited to attend the meeting in person.
Whether or not you expect to attend the meeting, please complete, date, sign and
return the enclosed proxy as promptly as possible (or follow instructions to
grant a proxy to vote by means of telephone) in order to ensure your
representation at the meeting. A return envelope (which is postage prepaid if
mailed in the United States) is enclosed for that purpose. Even if you have
given your proxy, you may still vote in person if you attend the meeting. Please
note, however, that if your shares are held of record by a broker, bank or other
nominee and you wish to vote at the meeting, you must bring to the meeting a
letter from the broker, bank or other nominee confirming your beneficial
ownership of the shares. Additionally, in order to vote at the meeting, you must
obtain from the record holder a proxy issued in your name.
QUORUM AND VOTE REQUIREMENTS
Under Minnesota law, a quorum, consisting of a majority of the shares of
common stock entitled to vote at the Annual Meeting, must be present in person
or by proxy before action may be taken at the Annual Meeting. Votes cast by
proxy or in person at the Annual Meeting of Shareholders will determine whether
or not a quorum is present.
Shares held by brokers who do not have discretionary authority to vote on
a particular matter and who have not received voting instructions from their
customers are not counted or deemed to be present or represented for the purpose
of determining whether shareholders have approved that matter, but they are
counted as present for the purposes of determining the existence of a quorum at
the Annual Meeting of Shareholders. Abstentions will be treated as shares that
are present and entitled to vote for purposes of
1
determining the presence of a quorum, but as unvoted for purposes of determining
the approval of the matter submitted to the shareholders for a vote. If you
abstain from voting on any of the other proposals, it has the same effect as a
vote against the proposal.
A director nominee will be elected if approved by the affirmative vote of
the holders of a plurality of the voting power of the shares present, in person
or by proxy, and entitled to vote for the election of directors. You may either
vote "FOR" or "WITHHOLD" authority to vote for each nominee for the Board of
Directors. If you withhold authority to vote for the election of one of the
directors, it has the same effect as a vote against that director. You may vote
"FOR," "AGAINST" or "ABSTAIN" on any other proposal.
Each other item of business properly presented at a meeting of
shareholders generally must be approved by the affirmative vote of the holders
of a greater of: (a) a majority of the voting power of the shares present, in
person or by proxy, and entitled to vote on that item of business or (b) a
majority of the voting power of the minimum number of shares that would
constitute a quorum.
REVOKING A PROXY
Any proxy may be revoked at any time before it is voted by written notice
to the Secretary of the Company, by receipt of a proxy properly signed and dated
subsequent to an earlier proxy, or by revocation of a written proxy by request
in person at the Annual Meeting; but if not revoked, the shares represented by
such proxy will be voted.
SOLICITATION
The cost of this solicitation will be borne by the Company. In addition to
solicitation by mail, officers, directors and employees of the Company may
solicit proxies by telephone, facsimile or in person. The Company may also
request banks and brokers to solicit their customers who have a beneficial
interest in the Company's common stock registered in the names of nominees and
will reimburse such banks and brokers for their reasonable out-of-pocket
expenses. The Company may retain an outside firm to solicit proxies on the
Company's behalf.
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SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table includes information as of November 7, 2005,
concerning the beneficial ownership of common stock of the Company by (i)
shareholders known to the Company to hold more than five percent of the common
stock of the Company, (ii) each of the directors and director nominees of the
Company, (iii) each Named Executive Officer of the Company and (iv) all officers
and directors of the Company as a group. Unless otherwise indicated, all
beneficial owners have sole voting and investment power over the shares held.
The business address of each person is 213 Chelsea Road, Monticello, Minnesota
55362.
Name and Address Percent
of Beneficial Owner Amount (1) Of Class (2)
------------------- ---------- ------------
Paul Baszucki (3) 12,250 *
Melvin L. Katten (3) 44,300 1.7%
George J. Martin (3) 55,400 2.1%
Eugene J. Mora (3) 6,500 *
Michael J. Pudil (3)(4) 120,000 4.3%
Paul D. Sheely (4) 17,666 *
All Officers and Directors 256,116 9.0%
as a Group (6 persons)
----------
* Less than one percent.
(1) Includes shares which may be purchased within sixty days from the date
hereof pursuant to outstanding stock options in the amount of 6,500 shares
for each of Messrs. Baszucki, Mora and Katten; 4,000 shares for Mr.
Martin; 120,000 shares for Mr. Pudil; 16,666 shares for Mr. Sheely; and
160,166 shares for all officers and directors as a group.
(2) Shares of common stock subject to options that are currently exercisable
or exercisable within 60 days are deemed to be beneficially owned by the
person holding the options for computing such person's percentage, but are
not treated as outstanding for computing the percentage of any other
person.
(3) Serves as a director of the Company and has been nominated for
re-election.
(4) Named Executive Officer.
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PROPOSAL 1:
ELECTION OF DIRECTORS
Five directors will be elected at the Annual Meeting to serve until the
next Annual Meeting of Shareholders or until their respective successors are
elected. Proxies cannot be voted for a greater number of persons than the number
of nominees named. The Governance/Nominating Committee has nominated, and the
Board of Directors has ratified the nomination of, five persons named below. All
of the nominees are currently directors of the Company.
It is anticipated that proxies will be voted for such nominees, and the
Board of Directors has no reason to believe any nominee will not continue to be
a candidate or will not be able to serve as a director if elected. In the event
that any nominee named below is unable to serve as a director, the persons named
in the proxies have advised that they will vote for the election of such
substitute or additional nominees as the Board of Directors may propose.
The names and ages of the nominees, their principal occupations and other
information is set forth below, based upon information furnished to the Company
by the nominees.
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
Principal Occupation Director
Name and Age and Other Directorships Since
--------------------- -------------------------------------------------------------------------- --------
Paul Baszucki (65) Retired Chairman of Norstan, Inc., Minnetonka, Minnesota (communications 1988
technology); Director of G&K Services, Inc.
Melvin L. Katten (69) Senior Partner of Katten Muchin & Zavis, Chicago, Illinois (law firm). 1985
George J. Martin (68) Private Investor; Prior to October 1995, President, Chief Executive 1983
Officer and Chairman of PowCon Incorporated (manufacturer of electronic
welding systems).
Eugene J. Mora (70) Private Investor; Director of Pridestaff, Inc.; Prior to October 1996, 1985
President, Chief Executive Officer and Director of Amserv Healthcare Inc.,
LaJolla, California.
Michael J. Pudil (57) President and Chief Executive Officer of the Company; Chairman of the 1993
Company's Board of Directors; Prior to November 1993, Vice President and
General Manager of Remmele Engineering, Inc., St. Paul, Minnesota
(contract machining).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE NOMINEES FOR DIRECTOR.
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GOVERNANCE MATTERS
BOARD ATTENDANCE AT MEETINGS
The Board of Directors met four times during fiscal year 2005. Each
nominee who served as a director in fiscal year 2005 attended at least 75% or
more of the meetings of the Board of Directors and any committee on which he
served.
The Company does not have a formal policy on attendance at meetings of the
Company's shareholders. However, the Company encourages all Board members to
attend shareholder meetings that are held in conjunction with a meeting of the
Board of Directors. Two members of the Board of Directors attended the 2005
Annual Meeting of Shareholders.
BOARD INDEPENDENCE
The Board undertook a review of director independence in October 2005. As
part of that process, the Board reviewed all transactions and relationships
between each director (or any member of his or her immediate family) and the
Company, the Company's executive officers and the Company's auditors, and other
matters bearing on the independence of directors. As a result of this review,
the Board affirmatively determined that all of the directors, except Mr. Pudil,
are independent as defined by the Nasdaq Marketplace Rules and the Securities
and Exchange Commission.
DESCRIPTION OF COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established a Governance/Nominating Committee,
a Compensation Committee and an Audit Committee. The composition and function of
these committees are set forth below.
Governance/Nominating Committee. The Company formed a
Governance/Nominating Committee in June 2004. The Governance/Nominating
Committee operates under a written charter, a copy of which was attached as
Appendix A to the Company's proxy statement for its 2005 Annual Meeting of
Shareholders. The Governance/Nominating Committee is charged with the
responsibility of identifying, evaluating and approving qualified candidates to
serve as directors of the Company, ensuring that the Company's board and
governance policies are appropriately structured, reviewing and recommending
changes to the Company's governance guidelines, and overseeing Board and
Committee evaluations. The current members of the Governance/Nominating
Committee are Messrs. Baszucki, Katten, Martin and Mora. During fiscal year
2005, the Governance/Nominating Committee met one time.
The charter of the Governance/Nominating Committee requires that this
Committee consist of no fewer than two board members who satisfy the
"independence" requirements of the Nasdaq Marketplace Rules. Each member of the
Company's Governance/Nominating Committee meets these requirements.
Compensation Committee. The Compensation Committee operates under a
written charter and reviews and approves the compensation and other terms of
employment of the Company's Chief Executive Officer and other senior management
of the Company. Among its other duties, the Compensation Committee oversees the
Company's stock-based compensation plans for executive officers, recommends
board compensation, and reviews and makes recommendations on succession plans
for the Chief Executive Officer. The Compensation Committee annually reviews the
Chief Executive Officer's compensation and evaluates the Chief Executive
Officer's performance. The current members of the Compensation Committee are
Messrs. Martin (Chair), Baszucki and Katten. During fiscal year 2005, the
Compensation Committee met three times.
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The charter of the Compensation Committee requires that the Committee
consist of no fewer than two members, each of whom must be "independent"
according to the Nasdaq Marketplace Rules and the rules of the Securities and
Exchange Commission and a non-employee director under Rule 16b-3 of the
Securities Exchange Act of 1934 (the "1934 Act"). Each member of the Company's
Compensation Committee meets these requirements. A report of the Compensation
Committee is set forth below.
Audit Committee. The Audit Committee assists the board by reviewing the
integrity of the Company's financial reporting processes and controls; the
qualifications, independence and performance of the independent auditors; and
compliance by the Company with certain legal and regulatory requirements. The
Audit Committee has the sole authority to retain, compensate, oversee and
terminate the independent auditors. The Audit Committee reviews the Company's
annual audited financial statements, quarterly financial statements and filings
with the Securities and Exchange Commission. The Audit Committee reviews reports
on various matters, including critical accounting policies of the Company,
significant changes in the Company's selection or application of accounting
principles and the Company's internal control processes. The Audit Committee
also pre-approves all audit and non-audit services performed by the independent
auditor.
The Audit Committee operates under a written charter adopted by the Board
of Directors, a copy of which was attached as Appendix B to the Company's proxy
statement for its 2005 Annual Meeting of Shareholders. The Company's Audit
Committee presently consists of Messrs. Mora (Chair), Baszucki and Katten.
During fiscal year 2005, the Audit Committee met four times.
The Board of Directors has determined that all members of the Audit
Committee are "independent" directors under the rules of the Nasdaq Stock Market
and the Securities and Exchange Commission. The Company's Board of Directors has
reviewed the education, experience and other qualifications of each of the
members of its Audit Committee. While the Board of Directors has determined that
no one person serving on the Company's Audit Committee meets the Securities and
Exchange Commission definition of an "audit committee financial expert," the
Board of Directors believes that the members comprising the Audit Committee have
the requisite attributes and abilities to allow them collectively to fulfill
their duties as Audit Committee members. A report of the Audit Committee is set
forth below.
DIRECTOR NOMINATIONS
The Governance/Nominating Committee will consider candidates for board
membership suggested by its members, other board members, as well as management
and shareholders. Shareholders who wish to recommend a prospective nominee
should follow the procedures set forth in Article II, Section 5 of the Company's
Amended and Restated Bylaws as described in the section of this proxy statement
entitled "Shareholder Proposals for Nominees."
Criteria for Nomination to the Board. The Governance/Nominating Committee
is responsible for identifying, evaluating and approving qualified candidates
for nomination as directors. The Committee has not adopted minimum
qualifications that nominees must meet in order for the Committee to recommend
them to the Board of Directors, as the Committee believes that each nominee
should be evaluated based on his or her merits as an individual, taking into
account the needs of the Company and the Board of Directors. The
Governance/Nominating Committee evaluates each prospective nominee against the
following standards and qualifications:
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- Background, including high personal and professional ethics and
integrity; and the ability to exercise good business judgment and
enhance the Board's ability to manage and direct the affairs and
business of the Company;
- Commitment, including the willingness to devote adequate time to the
work of the Board and its committees, and the ability to represent
the interests of all shareholders and not a particular interest
group;
- Board skills needs, in the context of the existing makeup of the
Board, and the candidate's qualification as independent and
qualification to serve on Board committees;
- Diversity, in terms of knowledge, experience, skills, expertise, and
other demographics which contribute to the Board's diversity; and
- Business experience, which should reflect a broad experience at the
policy-making level in business, government and/or education.
The Committee also considers such other relevant factors as it deems
appropriate. The Governance/Nominating Committee will consider persons
recommended by the shareholders in the same manner as other nominees.
Process for Identifying and Evaluating Nominees. The process for
identifying and evaluating nominees to the Board of Directors is initiated by
identifying a slate of candidates who meet the criteria for selection as a
nominee and have the specific qualities or skills being sought based on input
from members of the Board and, if the Governance/Nominating Committee deems
appropriate, a third-party search firm. The Governance/Nominating Committee
evaluates these candidates by reviewing the candidates' biographical information
and qualifications and checking the candidates' references. One or more
Committee members will interview the prospective nominees in person or by
telephone. After completing the evaluation, the Committee makes a recommendation
to the full Board of the nominees to be presented for the approval of the
shareholders or for election to fill a vacancy.
Board Nominees for the 2005 Annual Meeting. The Governance/Nominating
Committee selected the nominees for this 2005 Annual Meeting in October 2005.
All nominees served as directors during fiscal year 2005 and were elected by
shareholders at the 2004 Annual Meeting of Shareholders. The Company has not
engaged a third-party search firm to assist it in identifying potential director
candidates, but the Governance/Nominating Committee may choose to do so in the
future.
Shareholder Proposals for Nominees. The Governance/Nominating Committee
will consider written proposals from shareholders for nominees for director. Any
such nominations should be submitted to the Governance/Nominating Committee c/o
the Secretary of the Company and should include the following information: (a)
all information relating to such nominee that is required to be disclosed
pursuant to Regulation 14A under the 1934 Act (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (b) the name and record address of the shareholder and of
the beneficial owner, if any, on whose behalf the nomination will be made, and
(c) the class and number of shares of the corporation owned by the shareholder
and beneficially owned by the beneficial owner, if any, on whose behalf the
nomination will be made. As to each person the shareholder proposes to nominate,
the written notice must also state: (a) the name, age, business address and
residence address of the person, (b) the principal occupation or employment of
the person and (c) the class and number of shares of the corporation's capital
stock beneficially owned by the person. To be considered, the written notice
must be submitted in the time frames described in the Bylaws of the Company and
under the caption, "Shareholder Proposals for 2006 Annual Meeting" below.
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COMMUNICATIONS WITH DIRECTORS
Shareholders may communicate with the Board as a group, the chair of any
committee of the Board of Directors or any individual director by sending an
e-mail to lead.director@wsci.com or by directing the communication in care of
Lead Director, at the address set forth on the front page of this proxy
statement.
CODE OF ETHICS
On October 29, 2003, the Company adopted a Code of Ethics & Business
Conduct that applies to all directors and employees, including the Company's
principal executive officer and principal financial officer, or persons
performing similar functions. The Code of Ethics & Business Conduct is an
exhibit to the Company's Annual Report on Form 10-K for the year ended August
28, 2004 filed with the Securities and Exchange Commission and available at
www.sec.gov.
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PROPOSAL 2:
APPROVAL OF 2005 STOCK PLAN
GENERAL INFORMATION
On October 28, 2005, the Company's Board of Directors adopted the WSI
Industries, Inc. 2005 Stock Plan (the "2005 Plan"). The purpose of the 2005 Plan
is to enable the Company and its subsidiaries to retain and attract key
employees, consultants and non-employee directors who contribute to the
Company's success by their ability, ingenuity and industry, and to enable such
key employees, consultants and non-employee directors to participate in the
long-term success and growth of the Company by giving them a proprietary
interest in the Company. The 2005 Plan authorizes the granting of awards in any
of the following forms: (i) stock options, (ii) stock appreciation rights, (iii)
restricted stock, (iv) deferred stock and (v) other rewards. A copy of the 2005
Plan is attached to this proxy statement as Appendix A.
The board of directors believes the 2005 Plan will continue to be an
important tool in attracting and retaining key personnel, especially given the
highly competitive nature of its industry. Awards under the 2005 Plan will also
allow the board to provide current and future award recipients with incentives
that directly align their interest with those of the Company's shareholders.
Additionally, there are no shares available to the Company for future issuance
under any general equity compensation plan. Therefore, if approved, the 2005
Plan would be the only general equity compensation plan available to the
Company.
SUMMARY OF THE 2005 PLAN
The principal features of the 2005 Plan are summarized below.
Shares Available Under 2005 Plan. The maximum number of shares of common
stock reserved and available under the 2005 Plan for awards is 200,000 (subject
to possible adjustment in the event of stock splits or other similar changes in
the common stock). Shares of common stock covered by expired or terminated stock
options and forfeited shares of restricted stock or deferred stock may be used
for subsequent awards under the 2005 Plan.
Eligibility and Administration. Officers and other key employees of the
Company and its subsidiaries who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company and its
subsidiaries, as well as consultants and non-employee directors, are eligible to
be granted awards under the 2005 Plan. The 2005 Plan is administered by the
Board or, in its discretion, by a committee of not less than two "non-employee
directors," as defined in the 2005 Plan (the "Committee"), who are appointed by
the Board of Directors. The term "Board" as used in the 2005 Plan refers to the
Board or, if the Board has delegated its authority, the Committee. The Board has
the power to make awards, determine the number of shares covered by each award
and other terms and conditions of such awards, interpret the 2005 Plan, and
adopt rules, regulations and procedures with respect to the administration of
the 2005 Plan. However, no person may, during any fiscal year of the Company,
receive grants of Stock Options or Stock Appreciation Rights under this Plan
that, in the aggregate, exceed 100,000 shares.
Stock Options. The Board may grant stock options that qualify as
"incentive stock options" under the Internal Revenue Code (the "Code") or those
that do not so qualify, referred to as "non-qualified stock options," in such
form and upon such terms as the Board may approve from time to time. Stock
options granted under the 2005 Plan may be exercised during their respective
terms as determined by the Board. The purchase price may be paid by tendering
cash or, in the Board's discretion, by tendering common
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stock of the Company. The optionee may elect to pay all or part of the option
exercise price by having the Company withhold upon exercise of the option a
number of shares with a fair market value equal to the aggregate option exercise
price for the shares with respect to which such election is made. No stock
option is transferable by the optionee or exercisable by anyone else during the
optionee's lifetime.
Stock options may be exercised during varying periods of time after a
participant's termination of employment, depending upon the reason for the
termination. Following a participant's death, the participant's stock options
may be exercised to the extent they were exercisable at the time of death by the
legal representative of the estate or the optionee's legatee for a period of one
year or until the expiration of the stated term of the option, whichever is
less. The same time periods apply if the participant is terminated by reason of
disability. If the participant retires, the participant's stock options may be
exercised to the extent they were exercisable at the time of retirement or for a
period of three months (or such longer period as determined by the Board at the
time of retirement) from the date of retirement or until the expiration of the
stated term of the option, whichever is less. If the participant is
involuntarily terminated without cause, the participant's options may be
exercised to the extent they were exercisable at the time of termination for the
lesser of three months or the balance of the stated term of the option. If the
participant's employment is terminated for cause, the participant's stock
options immediately terminate. The Board may reduce these exercise periods for
particular options. The Board may, in its discretion, accelerate the
exercisability of stock options that would not otherwise be exercisable upon
death, disability or retirement.
No incentive stock option may be granted under the 2005 Plan after October
28, 2015. The term of an incentive stock option may not exceed 10 years (or 5
years if issued to a participant who owns or is deemed to own more than 10% of
the combined voting power of all classes of stock of the Company, any subsidiary
or affiliate). The aggregate fair market value of the common stock with respect
to which an incentive stock option is exercisable for the first time by an
optionee during any calendar year may not exceed $100,000. The exercise price
under an incentive stock option may not be less than the fair market value of
the common stock on the date the option is granted (or, in the event the
participant owns more than 10% of the combined voting power of all classes of
stock of the Company, the option price must be not less than 110% of the fair
market value of the stock on the date the option is granted). The exercise price
for non-qualified options granted under the 2005 Plan may be less than 100% of
the fair market value of the common stock on the date of grant.
Further, the Plan provides that each non-employee director who is elected
or re-elected to the Board of Directors at a meeting of shareholders will
automatically receive a grant of an option to purchase 2,000 shares of the
Company's common stock, with the exercise price being the fair market value of a
share of common stock on the date of grant. All options vest as to 25% of the
shares underlying such option on the six-month anniversary of the date of grant
and as to an additional 25% each of the three subsequent anniversary dates of
the grant of such options. The options are exercisble for a term of five years,
unless such non-employee director ceases to be a member of the Board, in which
case the Stock Option shall expire 30 days after such non-employee director's
departure from the Board.
Stock Appreciation Rights. The Board may grant stock appreciation rights
("SARs") in connection with all or part of any stock option (with the exception
of options granted to non-employee directors), either at the time of the stock
option grant, or, in the case of non-qualified options, later during the term of
the stock option. SARs entitle the participant to receive from the Company the
same economic value that would have been derived from the exercise of an
underlying stock option and the immediate sale of the shares of common stock.
Such value is paid by the Company in cash, shares of common stock or a
combination of both, in the discretion of the Board. SARs are exercisable or
transferable only at such times and to the extent stock options to which they
relate are exercisable or
10
transferable. If an SAR is exercised, the underlying stock option is terminated
as to the number of shares covered by the SAR exercise.
Restricted Stock. The Board may grant restricted stock awards that result
in shares of common stock being issued to a participant subject to restrictions
against disposition during a restricted period established by the Board. The
Board may condition the grant of restricted stock upon the attainment of
specified performance goals or service requirements. The provisions of
restricted stock awards need not be the same with respect to each recipient. The
Company will hold the restricted stock in custody until the restrictions thereon
have lapsed. During the period of the restrictions, a participant has the right
to vote the shares of restricted stock and to receive dividends and
distributions unless the Board requires such dividends and distributions to be
held by the Company subject to the same restrictions as the restricted stock.
Notwithstanding the foregoing, all restrictions with respect to restricted stock
lapse 60 days (or less as determined by the Board) prior to the occurrence of a
merger or other significant corporate change, as provided in the 2005 Plan.
If a participant terminates employment during the period of the
restrictions, all shares still subject to restrictions will be forfeited and
returned to the Company, subject to the right of the Board to waive such
restrictions in the event of a participant's death, total disability, retirement
or under special circumstances approved by the Board.
Deferred Stock. The Board may grant deferred stock awards that result in
shares of common stock being issued to a participant or group of participants
upon the expiration of a deferral period. The Board may condition the grant of
deferred stock upon the attainment of specified performance goals. The
provisions of deferred stock awards need not be the same with respect to each
recipient.
Upon termination of employment for any reason during the deferral period
for a given award, the deferred stock in question will be forfeited by the
participant, subject to the Board's ability to waive any remaining deferral
limitations with respect to a participant's deferred stock. During the deferral
period, deferred stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered and any dividends declared with respect to the number of
shares covered by a deferred stock award will either be immediately paid to the
participant or deferred and deemed to be reinvested in additional deferred
stock, as determined by the Board. The Board may allow a participant to elect to
further defer receipt of a deferred stock award for a specified period or until
a specified event.
Other Awards. The Board may grant common stock, other common stock based
and non-common stock based awards including, without limitation, those awards
pursuant to which shares of common stock are or in the future may be acquired,
awards denominated in common stock units, securities convertible into common
stock, phantom securities and dividend equivalents. The Board shall determine
the terms and conditions of such common stock, common stock based and non-common
stock based awards provided that such awards shall not be inconsistent with the
terms of the 2005 Plan.
PLAN BENEFITS TO NON-EMPLOYEE DIRECTORS
The 2005 Plan provides for annual grants to the Company's non-employee
directors of non-qualified options to purchase 2,000 shares of the Company's
common stock. The following table sets forth the information with respect to
options that will be granted under the 2005 Plan to those non-employee directors
serving as a member of the Board of Directors of the Company immediately
following this Annual Meeting, assuming each of the nominees for director is
elected at this Annual Meeting and the 2005 Plan is approved by shareholders:
11
NAME NUMBER OF SHARES
--------------------------- ----------------
Paul Baszucki 2,000
Melvin L. Katten 2,000
George Martin 2,000
Eugene Mora 2,000
-----
All Non-Employee Directors, 8,000
as a Group
The 2005 Plan allows for awards to the Company's officers, directors,
employees, and consultants. However, other than as described above, the amount
of any other award is not determinable at this time and will be made in the
discretion of the Board or the Committee.
FEDERAL INCOME TAX CONSEQUENCES
Stock Options. An optionee will not realize taxable income upon either the
granting or exercise of an incentive stock option. However, upon exercise of the
incentive stock option, the amount by which the fair market value of any shares
exercised exceeds the option price is an item of tax preference for purposes of
the alternative minimum tax. Upon the sale of such stock, the optionee generally
will recognize capital gain or loss if the stock has been held for at least two
years from the date of the option grant or at least one year after the stock was
purchased. If the applicable holding periods are not satisfied, then any gain
realized in connection with the disposition of such stock will generally be
taxable as ordinary income in the year in which the disposition occurred, to the
extent of the difference between the fair market value of such stock on the date
of exercise and the option exercise price. The balance of any gain will be
characterized as capital gain. The Company is entitled to a tax deduction to the
extent, and at the time, that the participant realizes compensation income.
An optionee also will not realize taxable compensation income upon the
grant of a non-qualified stock option. When an optionee exercises a
non-qualified stock option, he or she realizes taxable compensation income at
that time equal to the difference between the aggregate option price and the
fair market value of the stock on the date of exercise. Upon the disposal of
stock acquired pursuant to a Non-Qualified Option, the optionee's basis for
determining taxable gain or loss will be the sum of the option price paid for
the stock plus any related compensation income recognized by the optionee, and
such gain or loss will be long-term or short-term capital gain or loss depending
on whether the optionee has held the shares for more than one year. The Company
is entitled to a tax deduction to the extent, and at the time, that the
participant realizes compensation income.
Stock Appreciation Rights. The grant of an SAR would not result in income
for the participant or in a deduction for the Company. Upon receipt of shares or
cash from exercise of an SAR, the participant would generally recognize
compensation income, and the Company would be entitled to a deduction, measured
by the fair market value of the shares plus any cash received.
Restricted Stock and Deferred Stock. The grant of restricted stock and
deferred stock will not result in immediate income for the participant or a
deduction for the Company for federal income tax purposes, assuming the shares
are not transferable and subject to restrictions creating a "substantial risk of
forfeiture," as intended by the Company. If the shares are transferable or there
are no such restrictions or deferral periods, the participant will generally
realize compensation income upon receipt of the award. Otherwise, any
participant generally will realize taxable compensation income when any such
restriction or deferral period lapses. The amount of such income will be the
value of the common stock on that date, less any amount paid for the shares.
Dividends paid on the common stock and received by the participant during the
restricted period or deferral period would also be taxable compensation income
to the
12
participant. In any event, the Company will be entitled to a tax deduction to
the extent, and at the time, that the participant realizes compensation income.
A participant may elect, under Section 83(b) of the Internal Revenue Code, to be
taxed on the value of the stock at the time of award. If this election is made,
the fair market value of the stock at the time of the award is taxable to the
participant as compensation income and the Company is entitled to a
corresponding deduction.
Withholding. The 2005 Plan requires each participant, no later than the
date as of which any part of the value of an award first becomes includible as
compensation in the gross income of the participant, to pay to the Company any
federal, state or local taxes required by law to be withheld with respect to the
award. The Company, to the extent permitted by law, has the right to deduct any
such taxes from any payment otherwise due to the participant. With respect to
any award under the 2005 Plan, if the terms of the award so permit, a
participant may elect to satisfy part or all of the withholding tax requirements
associated with the award by (i) authorizing the Company to retain from the
number of shares of Company common stock which would otherwise be deliverable to
the participant, or (ii) delivering to the Company from shares of Company common
stock already owned by the participant that number of shares having an aggregate
fair market value equal to part or all of the tax payable by the participant. In
that case, the Company would pay the tax liability from its own funds.
REGISTRATION WITH THE SEC
Upon approval of the 2005 Plan by the shareholders, the Company intends to
file a registration statement with the Securities and Exchange Commission
pursuant to the 1933 Act covering the offering of the 200,000 shares of common
stock issuable under the 2005 Plan.
VOTE REQUIRED
Approval of Proposal 2: Approval of the 2005 Stock Plan requires the
affirmative vote of the holders of a greater of: (a) a majority of the voting
power of the shares present, in person or by proxy, and entitled to vote on
Proposal 2 or (b) a majority of the voting power of the minimum number of shares
that would constitute a quorum.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
ADOPTION OF THE 2005 STOCK PLAN.
13
ADDITIONAL INFORMATION REGARDING EQUITY COMPENSATION PLANS
The following table sets forth information regarding the Company's equity
compensation plans in effect as of August 28, 2005. Each of our equity
compensation plans is an "employee benefit plan" as defined by Rule 405 of
Regulation C of the 1933 Act.
EQUITY COMPENSATION PLAN INFORMATION
Number of shares of common
Number of shares of stock remaining available for
common stock to be issued Weighted-average future issuance under equity
upon exercise of exercise price of compensation plans (excluding
outstanding options, outstanding options, securities reflected in the
PLAN CATEGORY warrants and rights warrants and rights first column)
------------------------------ ------------------------- -------------------- ------------------------------
Equity compensation plans
approved by shareholders (1):
1987 Stock Option Plan 5,000 $ 3.88 --
1994 Stock Plan 251,499 $ 3.14 --
Equity compensation plans
not approved by
shareholders:
None
-- -- --
Total 256,499 $ 3.15 --
----------
(1) The Company's Board of Directors has approved a 2005 Stock Plan and
authorized an additional 200,000 shares for issuance thereunder. The 2005
Stock Plan is subject to approval of the Company's shareholders as
described in this proxy statement under Proposal 2: Approval of the 2005
Stock Plan.
EXECUTIVE OFFICERS
Set forth below is biographical and other information on our executive
officers. Information about Michael J. Pudil, our President and Chief Executive
Officer, may be found under the heading "Nominees for Election to the Board of
Directors" at Proposal 1: Election of Directors.
Paul D. Sheely (46) Vice President, Treasurer, and Secretary. Mr.
Sheely joined the Company in September 1998 as
Vice President of Finance. From 1996 to 1998 he
served as Chief Financial Officer of Graseby
Medical, Inc., a medical device manufacturer of
volumetric infusion pumps.
14
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending August 28, 2005,
August 29, 2004 and August 31, 2003, the cash compensation paid by the Company,
as well as certain other compensation paid or accrued for those years, to the
Company's President and Chief Executive Officer, Michael Pudil, and to the only
other executive officer of the Company whose salary and bonus earned for fiscal
year 2005 exceeded $100,000, Paul Sheely, the Company's Vice President of
Finance and Chief Financial Officer (each, a "Named Executive Officer").
SUMMARY COMPENSATION TABLE
Long Term
Compensation
-------------
Awards
-------------
Annual Compensation Securities
----------------------- Underlying All Other
Name and Principal Position Year Salary Bonus Options Compensation(1)
--------------------------- ---- --------- -------- ------------- ---------------
Michael J. Pudil 2005 $218,300 $ 60,251 -- $8,200
Chairman; President and 2004 218,300 -- 30,000 8,000
Chief Executive Officer 2003 222,498 48,636 30,000 8,000
Paul D. Sheely 2005 125,000 34,500 -- 5,000
Vice President and 2004 123,672 -- 10,000 6,030
Chief Financial Officer 2003 123,885 27,080 10,000 4,956
(1) These amounts represent Company's matching contributions to the Company's
401(k) plan on behalf of such employee.
OPTION GRANTS IN FISCAL YEAR 2005
There were no grants of stock options made to the Named Executive Officers
during fiscal year 2005.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the exercise of
options during the last fiscal year and unexercised options held as of the end
of fiscal year 2005 by the Named Executive Officers:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUES
Number of Securities Value of Unexercised In-the-
Underlying Unexercised Money Options/SARs
Options/SARs at FY-End at FY-End (1)
Shares Acquired -------------------------------- -------------------------------
Name on Exercise Value Realized Exercisable Unexercisable Exercisable Unexercisable
---------------- --------------- -------------- ----------- ------------- ----------- -------------
Michael J. Pudil 80,000 $205,600 120,000 10,000 $41,550 $6,000
Paul D. Sheely 35,001 $ 70,152 16,666 3,333 $ 9,099 $2,000
----------
(1) Based on a per share price of $3.35, which was the closing sale price of
the Company's common stock on August 26, 2005, the last trading day of the
Company's fiscal year. The value of unexercised options is calculated by
determining the difference between the fair market value of the shares
underlying the options at August 28, 2005 and the exercise price of the
options, multiplied by the number of options outstanding.
15
EMPLOYMENT AGREEMENTS
The Company has an employment agreement with Mr. Pudil as the Company's
President and Chief Executive Officer. The employment agreement provides for,
among other things, continued salary and benefits for eighteen months if Mr.
Pudil's employment is terminated without good cause.
The Company has also entered into employment (change of control)
agreements with Messrs. Pudil and Sheely as the Company's executive officers
that provide for lump sum cash severance payments and fringe benefits under
certain circumstances following a change in control of the Company. The
agreements provide for a payment of approximately one and one-half times average
respective annual compensation of these executive officers if the change of
control is approved by the Board of Directors, and approximately three times
average annual compensation if the change of control is not approved by the
Board of Directors. In general, a "change of control" would include a change
resulting from the acquisition of 50% or more of the Company's outstanding
voting stock by any person, a change in the current members of the Board of
Directors or their successors elected or nominated by such members whereby they
cease to be a majority of the Board of Directors, or the Company disposing of
75% or more of its assets, other than to an entity owned 50% or greater by the
Company or any of its subsidiaries. The agreements with the executive officers
continue in effect until January 11, 2005, with automatic renewals for
successive one-year periods thereafter unless the Company notifies the executive
of termination of the agreement at least sixty days prior to the end of the
initial term or any renewal term. However, if a change in control occurs during
the term or renewal term of the agreement, the agreement will continue in effect
for a period of 24 months from the date of the occurrence of the change in
control.
If a change of control which was not approved by the Board of Directors
had occurred at the end of calendar 2005 and the executives' employment was
terminated without cause or by the executive for good reason, the executive
officers would have received the approximate payment indicated pursuant to the
employment agreements: Mr. Pudil, $718,000; Mr. Sheely, $404,000; and all
current executive officers as a group, $1,122,000.
DIRECTOR COMPENSATION
Directors who are not employees of the Company (currently all directors
except Mr. Pudil) earned an annual retainer of $10,000 for service in calendar
year 2005. Each non-employee director is paid a fee of $500 for each meeting of
the Board of Directors or any Committee attended, except that no payments are
made for Committee meetings that immediately precede or follow a Board meeting.
One of the proposals at this 2005 Annual Meeting of Shareholders is the
approval of the Company's 2005 Stock Plan. If approved, under the 2005 Stock
Plan each non-employee member of the Board of Directors will receive at the time
of election or re-election to the Board by the shareholders an option to
purchase 2,000 shares of the Company's common stock at a purchase price equal to
the fair market value of the Company's common stock on the date of such election
or reelection. The term of each director option will be five years, unless the
director leaves the Board, in which event the option expires within 30 days of
leaving the Board. Each director option will be exercisable in installments of
25% beginning six months after the date of grant, and 25% on each of the three
subsequent anniversaries of the date of grant. However, if shareholders do not
approve Proposal 2: Approval of the 2005 Stock Plan, no awards will be granted
to any person under the 2005 Stock Plan.
16
The Company established a retirement program in 1982 for directors not
covered by any other retirement plan of the Company that provides for the
payment of an annual benefit equal to the annual retainer paid to directors
during the full fiscal year preceding retirement. The retirement benefit, which
is payable to directors who have served five years or more, commences at the
time the director retires if age 65 or older, or at age 65 if the director
ceases to serve as a director prior to age 65. The retirement benefit is subject
to proportionate reduction if the director has served the Company less than 15
years. Benefits are payable during the lifetime of the retired director, but not
exceeding 10 years.
REPORTS OF COMMITTEES OF THE BOARD OF DIRECTORS
REPORT OF THE COMPENSATION COMMITTEE
Set forth below is a report submitted by the Compensation Committee
addressing the Company's compensation policies for fiscal year 2005 as they
affected Mr. Pudil, the Company's President and Chief Executive Officer, and the
other executive officers.
Compensation Policies Toward Executive Officers. The Compensation
Committee's executive compensation policies are designed to provide competitive
levels of compensation that integrate pay with the Company's annual and
long-term performance goals, reward above-average corporate performance,
recognize individual initiative and achievements and assist the Company in
attracting and retaining qualified executives.
The Company's executive compensation has historically consisted of three
components: (i) base salaries, (ii) stock options and (iii) cash bonuses paid
out pursuant to annual profitability-based plans. The Compensation Committee has
historically established the base salaries of each executive officer utilizing
compensation surveys, performance against defined goals and longevity with the
Company. With respect to cash bonuses, the Compensation Committee has
historically established on an annual basis certain profitability targets and
performance objectives at the beginning of each fiscal year, pursuant to which
cash performance bonuses of up to 50% of an executive officer's base salary can
be paid. The Company has also used stock option grants as a key ingredient of
its executive compensation plans, reflecting the Compensation Committee's
position that stock ownership by management and stock-based performance
compensation arrangements are beneficial in aligning management's and
shareholders' interests in the enhancement of shareholder value. In order to
direct the Company's executives toward steady growth and to retain the
executive's services, the stock options granted are exercisable over a ten-year
period and vest over periods of up to 36 months. No options were granted to any
executive officer in fiscal year 2005.
For 2005, the Compensation Committee recommended, and the Board of
Directors approved, the 2005 Management Bonus Plan (the "Plan") for executive
officers. Under the Plan, executive officers were eligible for cash bonuses
ranging from zero to 50% of their respective base salaries, depending upon the
Company's fiscal year 2005 performance against goals established by the
Compensation Committee. The goals established by the Compensation Committee
related to increased revenues from business that would diversify the customer
base as well as return on tangible assets. The Company's fiscal year 2005
performance was required to meet minimums established for each performance goal
before any bonus amounts were payable to executive officers in respect of that
performance goal. Under the Plan, the executive officers earned cash bonuses of
27.6% of their respective salaries for fiscal year 2005.
17
Chief Executive Officer Compensation. The compensation package for the
fiscal year 2005 for Michael J. Pudil, the Company's Chief Executive Officer,
was determined by the Compensation Committee. The compensation for Mr. Pudil was
determined using a process and philosophy similar to that used for all
executives. In fiscal 2005, Mr. Pudil earned a cash bonus of $60,251 under the
Plan, representing 27.6% of his base salary for fiscal year 2005. No options
were granted to Mr. Pudil in fiscal year 2005.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS:
George J. Martin Paul Baszucki Melvin L. Katten
(Chair)
The preceding report shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the Securities Act of 1933 (the "1933 Act") or the 1934 Act, except
to the extent the Company specifically incorporates this information by
reference, and shall not otherwise be deemed filed under the 1933 Act or the
1934 Act.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors is currently comprised of
Messrs. Mora, Baszucki and Katten. In accordance with its Charter, the Audit
Committee reviewed and discussed the audited financial statements with
management and Schechter Dokken Kanter Andrews & Selcer Ltd., the Company's
independent accountants. The discussions with Schechter Dokken Kanter Andrews &
Selcer Ltd. also included the matters required by Statement on Auditing
Standards No. 61 (Communication with Audit Committees), as amended.
Schechter Dokken Kanter Andrews & Selcer Ltd. provided to the Audit
Committee the written disclosures and the letter regarding its independence as
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees). This information was discussed with
Schechter Dokken Kanter Andrews & Selcer Ltd.
Based on the discussions with management and Schechter Dokken Kanter
Andrews & Selcer Ltd., the Audit Committee's review of the representations of
management and the report of Schechter Dokken Kanter Andrews & Selcer Ltd., the
Audit Committee recommended to the Board that the audited consolidated financial
statements be included in the Company's Annual Report on Form 10-K for the year
ended August 28, 2005 filed with the Securities and Exchange Commission.
SUBMITTED BY THE AUDIT COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS:
Eugene J. Mora Paul Baszucki Melvin L. Katten
(Chair)
The preceding report shall not be deemed incorporated by reference by any
general statement incorporating by reference this proxy statement into any
filing under the 1933 Act or the 1934 Act, except to the extent the Company
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under the 1933 Act or the 1934 Act.
18
PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company include
in this Proxy Statement a line graph presentation comparing cumulative,
five-year shareholder returns on an indexed basis with a broad market index and
either a nationally-recognized industry standard or an index of peer companies
selected by the Company. The Company has chosen to use the Nasdaq Stock Market
(U.S. Companies) Index as its broad market index and the Nasdaq Non-Financial
Stock Index as its peer group index. The table below compares the cumulative
total return as of the end of each of the Company's last five fiscal years on
$100 invested as of August 27, 2000 in the common stock of the Company, the
Nasdaq Stock Market Index and the Nasdaq Non-Financial Stock Index, assuming the
reinvestment of all dividends.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
[PERFORMANCE GRAPH]
Aug. 27, Aug. 26, Aug 25, Aug. 31, Aug. 29, Aug. 28,
2000 2001 2002 2003 2004 2005
-------- -------- ------- -------- -------- --------
WSI Industries, Inc. $100 $42.29 $ 25.17 $ 61.74 $ 50.95 $ 76.57
Nasdaq Stock Market (U.S.) $100 $47.27 $ 34.34 $ 45.01 $ 46.41 $ 53.04
Nasdaq Non-Financial Stocks $100 $43.94 $ 30.22 $ 40.58 $ 41.15 $ 47.37
Since the Company's fiscal year ends on the last Sunday of August each
year, data in the above table reflects market values for the Company's stock as
of the close of trading on the Friday preceding the Company's fiscal year end
for each year presented.
19
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the 1934 Act requires the Company's directors and
executive officers, and persons who own more than 10% of a registered class of
the Company's equity securities, to file with the Securities and Exchange
Commission initial reports of ownership and reports of changes in ownership of
common stock and other equity securities of the Company. These insiders are
required by Securities and Exchange Commission regulations to furnish the
Company with copies of all Section 16(a) forms they file, including Forms 3, 4
and 5.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, during the fiscal year ended August 28, 2005 all Section
16(a) filing requirements applicable to its insiders were complied with.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee approved the engagement of Schechter Dokken Kanter
Andrews & Selcer Ltd. ("SDK") as the Company's independent public accountant to
audit the financial statements of the Company for the fiscal year ending August
28, 2005 and to perform other accounting services as determined by the Audit
Committee.
A representative of SDK is expected to be present at the Annual Meeting of
Shareholders, will have an opportunity to make a statement if he or she desires
to do so, and will be available to respond to appropriate questions.
FEES OF INDEPENDENT PUBLIC ACCOUNTANTS
The following is an explanation of the fees billed to the Company by SDK
for professional services rendered for the fiscal years ended August 28, 2005
and August 29, 2004, which totaled $47,470 and $47,530, respectively.
AUDIT FEES
The aggregate fees billed to the Company for professional services related
to the audit of the Company's annual financial statements, review of financial
statements included in the Company's Form 10-Q, or other services normally
provided by SDK in connection with statutory and regulatory filings or
engagements for the fiscal years ended August 28, 2005 and August 29, 2004
totaled $42,930 and $39,400, respectively.
TAX FEES
The aggregate fees billed to the Company by SDK for professional services
related to tax compliance, tax advice, and tax planning, including federal,
state and local income tax matters, for the fiscal years ended August 28, 2005
and August 29, 2004 totaled $4,500 and $7,475, respectively.
ALL OTHER FEES
The aggregate fees billed to the Company by SDK for professional services
or products not previously disclosed, including miscellaneous consulting
services for the fiscal year ended August 29, 2004 totaled $475.
20
AUDIT COMMITTEE PRE-APPROVAL PROCEDURES
The Company has adopted pre-approval policies and procedures for the Audit
Committee that require the Audit Committee to pre-approve all audit and all
permitted non-audit engagements and services (including the fees and terms
thereof) by the independent auditors, except that the Audit Committee may
delegate the authority to pre-approve any engagement or service less than $5,000
to one of its members, but requires that the member report such pre-approval at
the next full Audit Committee meeting. The Audit Committee may not delegate its
pre-approval authority for any services rendered by the Company's independent
auditors relating to internal controls. These pre-approval policies and
procedures prohibit delegation of the Audit Committee's responsibilities to
Company management. Under the policies and procedures, the Audit Committee may
pre-approve specifically described categories of services which are expected to
be conducted over the subsequent twelve months on its own volition, or upon
application by management or the independent auditor.
All of the services described above for fiscal year 2005 were pre-approved
by the Audit Committee or a member of the Committee before SDK was engaged to
render the services.
SHAREHOLDER PROPOSALS FOR 2006 ANNUAL MEETING
The proxy rules of the Securities and Exchange Commission permit
shareholders of a company, after timely notice to the company, to present
proposals for shareholder action in the company's proxy statement where such
proposals are consistent with applicable law, pertain to matters appropriate for
shareholder action and are not properly omitted by company action in accordance
with the proxy rules. The WSI Industries, Inc. 2006 Annual Meeting of
Shareholders is expected to be held on or about January 4, 2007 and proxy
materials in connection with that meeting are expected to be mailed on or about
December 1, 2006. Shareholder proposals prepared in accordance with the
Commission's proxy rules must be received at the Company's corporate office on
or before August 4, 2006, in order to be considered for inclusion in the Board
of Directors' Proxy Statement and proxy card for the 2006 Annual Meeting of
Shareholders. Any such proposals must be in writing and signed by the
shareholder.
Pursuant to the Company's Bylaws, in order for any other proposal to be
properly brought before the next annual meeting by a shareholder, including a
nominee for director to be considered at such annual meeting, the shareholder
must give written notice of such shareholder's intent to bring a matter before
the annual meeting, or nominate the director, in a timely manner. To be timely
under the Company's Bylaws, the notice must be given by such shareholder to the
Secretary of the Company not less than 45 days nor more than 75 days prior to a
meeting date corresponding to the previous year's annual meeting. Each such
notice must set forth certain information with respect to the shareholder who
intends to bring such matter before the meeting and the business desired to be
conducted, as set forth in greater detail above under "Director Nominations" and
in the Company's Bylaws. In addition, if the Company receives notice of a
shareholder proposal less than 45 days before the date on which the Company
first mailed its materials for the prior year's annual meeting, such proposal
also will be considered untimely pursuant to Rules 14a-4 and 14a-5(e) and the
persons named in proxies solicited by the Board of Directors for the Company's
2006 Annual Meeting of Shareholders may exercise discretionary voting power with
respect to such proposal.
GENERAL
The Board of Directors of the Company knows of no matters other than the
foregoing to be brought before the meeting. However, the enclosed proxy gives
discretionary authority in the event that any additional matters should be
presented.
21
The Company's Annual Report to Shareholders for the fiscal year ended
August 28, 2005 is being mailed to shareholders with this Proxy Statement.
Shareholders may receive without charge a copy of the Company's Annual Report on
Form 10-K, including financial statements and schedules thereto, as filed with
the Securities and Exchange Commission, by writing to: WSI Industries, Inc., 213
Chelsea Road, Monticello, MN 55362, Attention: Paul D. Sheely, or by calling the
Company at (763) 295-9202.
By Order of the Board of Directors,
Michael J. Pudil, Chairman and Chief Executive Officer
Appendix A: WSI Industries, Inc. 2005 Stock Plan
22
Appendix A
WSI INDUSTRIES, INC.
2005 STOCK PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS
The name of this plan is the WSI Industries, Inc. 2005 Stock Plan (the
"Plan"). The purpose of the Plan is to enable WSI Industries, Inc. (the
"Company") and its Subsidiaries to retain and attract executives and other key
employees, consultants and directors who contribute to the Company's success by
their ability, ingenuity and industry, and to enable such individuals to
participate in the long-term success and growth of the Company by giving them a
proprietary interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a participant or the failure of
a participant to contest prosecution for a felony, or a
participant's willful misconduct or dishonesty, any of which is
directly and materially harmful to the business or reputation of the
Company.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Committee" means the Committee referred to in Section 2 of the
Plan. If at any time no Committee shall be in office, then the Board
shall exercise the functions of the Committee specified in the Plan,
unless the Plan specifically states otherwise.
e. "Company" means WSI Industries, Inc., a corporation organized under
the laws of the State of Minnesota (or any successor corporation).
f. "Deferred Stock" means an award made pursuant to Section 8 below of
the right to receive Stock at the end of a specified deferral
period.
g. "Disability" means permanent and total disability as determined by
the Committee.
h. "Early Retirement" means retirement, with consent of the Committee
at the time of retirement, from active employment with the Company
and any Subsidiary or Parent Corporation of the Company.
i. "Fair Market Value" means the value of the Stock on a given date as
determined by the Committee in accordance with Section 422(c)(7) of
the Code and any applicable Treasury Department regulations
promulgated thereunder.
j. "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of
Section 422 of the Code.
k. "Non-Employee Director" shall have the meaning set forth in Rule
16b-3(g)(3) as promulgated by the Securities and Exchange Commission
under the Securities Exchange Act of 1934, or any successor
definition adopted by the Commission.
l. "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option, and is intended to be and is designated as a
"Non-Qualified Stock Option."
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m. "Normal Retirement" means retirement from active employment with the
Company and any Subsidiary or Parent Corporation of the Company on
or after age 65.
n. "Parent Corporation" means any corporation (other than the Company)
in an unbroken chain of corporations ending with the Company if, at
the time of the granting of a Stock Option, each of the corporations
(other than the Company) owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the
other corporations in the chain as provided in Section 424(e) of the
Code.
o. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 7 below.
p. "Retirement" means Normal Retirement or Early Retirement.
q. "Stock" means the Common Stock, $.10 par value per share, of the
Company.
r. "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Company all or a
portion of a Stock Option in exchange for an amount equal to the
difference between (i) the Fair Market Value, as of the date such
Stock Option or such portion thereof is surrendered, of the shares
of Stock covered by such Stock Option or such portion thereof, and
(ii) the aggregate exercise price of such Stock Option or such
portion thereof.
s. "Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5 below.
t. "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, at the
time of the granting of a Stock Option, each of the corporations
(other than the last corporation in the unbroken chain) owns stock
possessing 50% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain as
provided in Section 424(f) of the Code.
SECTION 2. ADMINISTRATION
The Plan shall be administered by the Board of Directors or by a Committee
of not less than two Outside, Non-Employee Directors, who shall be appointed by
the Board of Directors of the Company and who shall serve at the pleasure of the
Board.
The Committee shall have the power and authority to grant to eligible
persons, pursuant to the terms of the Plan: (i) Stock Options; (ii) Stock
Appreciation Rights; (iii) Restricted Stock; or (iv) Deferred Stock awards.
In particular, the Committee shall have the authority:
(i) to select the officers and other key employees of the Company and
its Subsidiaries, members of the Board of Directors and consultants
and other persons having a contractual relationship with the Company
or its Subsidiaries, to whom Stock Options, Stock Appreciation
Rights, Restricted Stock and/or Deferred Stock awards may from time
to time be granted hereunder;
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(ii) to determine whether and to what extent Incentive Stock Options,
Non-Qualified Stock Options, Stock Appreciation Rights, Restricted
Stock or Deferred Stock awards, or a combination of the foregoing,
are to be granted hereunder;
(iii) to determine the number of shares to be covered by each such award
granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder (including, but
not limited to, any restriction on any Stock Option or other award
and/or the shares of Stock relating thereto), and to amend such
terms and conditions (including, but not limited to, any amendment
which accelerates the vesting of any award); and
(v) to determine whether, to what extent and under what circumstances
Stock and other amounts payable with respect to an award under this
Plan shall be deferred either automatically or at the election of
the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. STOCK SUBJECT TO PLAN
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 200,000. Such shares shall consist, in
whole or in part, of authorized and unissued shares.
Subject to paragraph (b)(iv) of Section 6 below, if any shares that have
been optioned ceased to be subject to Options, or if any shares subject to any
Restricted Stock or Deferred Stock award granted hereunder are forfeited or such
award otherwise terminates without a payment being made to the participant, such
shares shall again be available for distribution in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding options granted under the Plan, and in the number of
shares subject to Restricted Stock or Deferred Stock awards granted under the
Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of shares subject to any award shall always
be a whole number. Such adjusted option price shall also be used to determine
the amount payable by the Company upon the exercise of any Stock Appreciation
Right associated with any Option.
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SECTION 4. ELIGIBILITY
Officers, other key employees of the Company or its Subsidiaries, members
of the Board of Directors and consultants and other persons having a contractual
relationship with the Company or its Subsidiaries who are responsible for or
contribute to the management, growth and/or profitability of the business of the
Company and its Subsidiaries are eligible to be granted Stock Options, Stock
Appreciation Rights, Restricted Stock or Deferred Stock awards under the Plan.
The optionees and participants under the Plan shall be selected from time to
time by the Committee, in its sole discretion, from among those eligible, and
the Committee shall determine, in its sole discretion, the number of shares
covered by each award.
Notwithstanding the foregoing, no person may, during any fiscal year of
the Company, receive grants of Stock Options or Stock Appreciation Rights under
this Plan which, in the aggregate, exceed 100,000 shares.
SECTION 5. STOCK OPTIONS
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after October 28, 2015.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non-Qualified Stock Options, or both types of options (in each
case with or without Stock Appreciation Rights). To the extent that any option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this Plan
relating to Incentive Stock Options shall be interpreted, amended or altered,
nor shall any discretion or authority granted under the Plan be so exercised, so
as to disqualify either the Plan or any Incentive Stock Option under Section 422
of the Code. The preceding sentence shall not preclude any modification or
amendment to an outstanding Incentive Stock Option, whether or not such
modification or amendment results in disqualification of such Option as an
Incentive Stock Option, provided the optionee consents in writing to the
modification or amendment.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The Committee shall determine the option price per share
of Stock purchasable under a Stock Option at the time of grant. In no event
shall the option price per share of Stock purchasable under an Incentive Stock
Option be less than 100% of the Fair Market Value of the Stock on the date of
the grant of the option. If an employee owns or is deemed to own (by reason of
the attribution rules applicable under Section 424(d) of the Code) more than 10%
of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the option price shall be no less than 110% of the Fair Market
Value of the Stock on the date the option is granted.
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(b) Option Term. The Committee shall fix the term of each Stock Option,
but no Incentive Stock Option shall be exercisable more than ten years after the
date the option is granted. If an employee owns or is deemed to own (by reason
of the attribution rules of Section 424(d) of the Code) more than 10% of the
combined voting power of all classes of stock of the Company or any Parent
Corporation or Subsidiary and an Incentive Stock Option is granted to such
employee, the term of such option shall be no more than five years from the date
of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its sole discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time. Notwithstanding the foregoing, unless the Stock Option Agreement
provides otherwise, any Stock Option granted under this Plan shall be
exercisable in full, without regard to any installment exercise provisions, for
a period specified by the Company, but not to exceed sixty (60) days, prior to
the occurrence of any of the following events: (i) dissolution or liquidation of
the Company other than in conjunction with a bankruptcy of the Company or any
similar occurrence, (ii) any merger, consolidation, acquisition, separation,
reorganization, or similar occurrence, where the Company will not be the
surviving entity or (iii) the transfer of substantially all of the assets of the
Company or 75% or more of the outstanding Stock of the Company.
(d) Method of Exercise. Stock Options may be exercised in whole or in part
at any time during the option period by giving written notice of exercise to the
Company specifying the number of shares to be purchased. Such notice shall be
accompanied by payment in full of the purchase price, either by certified or
bank check, or by any other form of legal consideration deemed sufficient by the
Committee and consistent with the Plan's purpose and applicable law, including a
properly executed exercise notice together with irrevocable instructions to a
broker acceptable to the Company to promptly deliver to the Company the amount
of sale proceeds to pay the exercise price. As determined by the Committee, in
its sole discretion, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or, in the case of the exercise
of a Non-Qualified Stock Option, Restricted Stock or Deferred Stock subject to
an award hereunder (based, in each case, on the Fair Market Value of the Stock
on the date the option is exercised, as determined by the Committee), provided,
however, that in the event payment is made in the form of shares of Restricted
Stock or a Deferred Stock award, the optionee will receive a portion of the
option shares in the form of, and in an amount equal to, the Restricted Stock or
Deferred Stock award tendered as payment by the optionee. If the terms of the
option so permit, an optionee may elect to pay all or part of the option
exercise price by having the Company withhold from the shares of Stock that
would otherwise be issued upon exercise that number of shares of Stock having a
Fair Market Value equal to the aggregate option exercise price for the shares
with respect to which such election is made. No shares of Stock shall be issued
until full payment therefor has been made. An optionee shall generally have the
rights to dividends and other rights of a shareholder with respect to shares
subject to the option when the optionee has given written notice of exercise,
has paid in full for such shares, and, if requested, has given the
representation described in paragraph (a) of Section 12.
(e) Non-transferability of Options. No Stock Option shall be transferable
by the optionee otherwise than by will or by the laws of descent and
distribution, and all Stock Options shall be exercisable, during the optionee's
lifetime, only by the optionee.
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(f) Termination by Death. If an optionee's employment by the Company and
any Subsidiary or Parent Corporation terminates by reason of death, the Stock
Option may thereafter be immediately exercised, to the extent then exercisable
(or on such accelerated basis as the Committee shall determine at or after
grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of one year (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after one year (or such shorter period as the
Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is the shorter. In the event of termination of employment by reason of
Disability, if an Incentive Stock Option is exercised after the expiration of
the exercise periods that apply for purposes of Section 422 of the Code, the
option will thereafter be treated as a Non-Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after three months (or such longer period as the Committee shall
specify at Retirement) from the date of such termination of employment or the
expiration of the stated term of the option, whichever period is the shorter. In
the event of termination of employment by reason of Retirement, if an Incentive
Stock Option is exercised after the expiration of the exercise periods that
apply for purposes of Section 422 of the Code, the option will thereafter be
treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee, if an
optionee's employment by the Company and any Subsidiary or Parent Corporation
terminates for any reason other than death, Disability or Retirement, the Stock
Option shall thereupon terminate, except that the option may be exercised to the
extent it was exercisable at such termination for the lesser of three months (or
such shorter period as the Committee shall specify at grant) or the balance of
the option's term, provided, however, that if the optionee's employment is
terminated for Cause, all rights under the Stock Option shall terminate and
expire upon such termination.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Stock with
respect to which an Incentive Stock Option under this Plan or any other plan of
the Company and any Subsidiary or Parent Corporation is exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000.
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(k) Directors who are not Employees. Each Non-Employee Director of the
Company or any Subsidiary who, on or after the date this Plan is approved by the
shareholders of the Company, (A) is elected or re-elected as a director of the
Company at any annual meeting of the shareholders of the Company, or (B) is
elected as a director of the Company at any special meeting of the shareholders
of the Company, shall as of the date of such election or re-election
automatically be granted a Stock Option to purchase 2,000 shares of Stock at the
option price per share equal to 100% of the Fair Market Value of a share of
Stock on such date. In the case of a special meeting, the action of the
shareholders in electing such director shall constitute the granting of the
Stock Option to such director, and, in the case of an annual meeting, the action
of the shareholders in electing or re-electing such director shall constitute
the granting of a Stock Option to such director; and the date when the
shareholders take such action shall be the date of grant of the Stock Option.
All such Stock Options shall be designated as Non-Qualified Stock Options and
shall be subject to the same terms and provisions as are then in effect with
respect to the granting of Non-Qualified Stock Options to officers and key
employees of the Company, except that (i) the term of each such Stock Option
shall be equal to five (5) years, unless such director ceases to be a member of
the Board, in which case the Stock Option shall expire 30 days after such
director's departure from the Board; (ii) the Stock Option shall be exercisable
as to 25% of the shares subject to the Stock Option six months after the date
the Stock Option is granted and as to an additional 25% each of the three
subsequent anniversary dates of the grant of such options; and (iii) no Stock
Appreciation Rights may be granted to any director under this paragraph (k) or
in any other manner under this Plan. Subject to the foregoing, all provisions of
this Plan not inconsistent with the foregoing shall apply to Stock Options
granted to directors.
SECTION 6. STOCK APPRECIATION RIGHTS
(a) Grant and Exercise. Except as set forth in paragraph (k) of Section 5,
Stock Appreciation Rights may be granted in conjunction with all or part of any
Stock Option granted under the Plan. In the case of a Non-Qualified Stock
Option, such rights may be granted either at or after the time of the grant of
such Option. In the case of an Incentive Stock Option, such rights may be
granted only at the time of the grant of the option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, except that a
Stock Appreciation Right granted with respect to less than the full number of
shares covered by a related stock Option shall not be reduced until the exercise
or termination of the related Stock Option exceeds the number of shares not
covered by the Stock Appreciation Right.
An optionee may exercise a Stock Appreciation Right by surrendering the
applicable portion of the related Stock Option in accordance with paragraph (b)
of this Section 6. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(b) of this Section 6. Stock Options that have been so surrendered, in whole or
in part, shall no longer be exercisable to the extent the related Stock
Appreciation Rights have been exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject to
such terms and conditions, not inconsistent with the provisions of the Plan, as
shall be determined from time to time by the Committee, including the following:
(i) Stock Appreciation Rights shall be exercisable only at such time
or times and to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the provisions of Section 5 and
this Section 6 of the Plan.
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(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive up to, but not more than, an
amount in cash or shares of Stock equal in value to the excess of the
Fair Market Value of one share of Stock over the option price per
share specified in the related option multiplied by the number of
shares in respect of which the Stock Appreciation Right shall have
been exercised, with the Committee having the right to determine the
form of payment.
(iii) Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be
transferable under Section 5 of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right
is related shall be deemed to have been exercised for the purpose of
the limitation set forth in Section 3 of the Plan on the number of
shares of Stock to be issued under the Plan, but only to the extent
of the number of shares issued or issuable under the Stock
Appreciation Right at the time of exercise based on the value of the
Stock Appreciation Right at such time.
(v) A Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the market
price of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Option.
SECTION 7. RESTRICTED STOCK
(a) Administration. Shares of Restricted Stock may be issued either alone
or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in respect
of shares of Restricted Stock awarded under the Plan. Such certificate
shall be registered in the name of the participant, and shall bear an
appropriate legend referring to the terms, conditions, and restrictions
applicable to such award, substantially in the following form:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions
(including forfeiture) of the WSI Industries, Inc. 2005 Stock Plan
and an Agreement entered into between the registered owner and WSI
Industries, Inc. Copies of such Plan and Agreement are on file in
the offices of WSI Industries, Inc., 213 Chelsea Road, Monticello,
Minnesota 55362."
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(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award agreement,
during a period set by the Committee commencing with the date of such
award (the "Restriction Period"), the participant shall not be permitted
to sell, transfer, pledge or assign shares of Restricted Stock awarded
under the Plan. In no event shall the Restriction Period be less than one
(1) year. Within these limits, the Committee may provide for the lapse of
such restrictions in installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 7, the
participant shall have, with respect to the shares of Restricted Stock,
all of the rights of a shareholder of the Company, including the right to
vote the shares and the right to receive any cash dividends. The
Committee, in its sole discretion, may permit or require the payment of
cash dividends to be deferred and, if the Committee so determines,
reinvested in additional shares of Restricted Stock (to the extent shares
are available under Section 3). Certificates for shares of unrestricted
Stock shall be delivered to the grantee promptly after, and only after,
the period of forfeiture shall have expired without forfeiture in respect
of such shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and paragraph
(c)(iv) of this Section 7, upon termination of employment for any reason
during the Restriction Period, all shares still subject to restriction
shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a participant
whose employment is terminated (other than for Cause), including death,
Disability or Retirement, or in the event of an unforeseeable emergency of
a participant still in service, the Committee may, in its sole discretion,
when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all remaining restrictions with respect
to such participant's shares of Restricted Stock.
(v) Notwithstanding the foregoing, all restrictions with respect to
any participant's shares of Restricted Stock shall lapse, on the date
determined by the Committee, prior to, but in no event more than sixty
(60) days prior to, the occurrence of any of the following events: (i)
dissolution or liquidation of the Company, other than in conjunction with
a bankruptcy of the Company or any similar occurrence; (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar
occurrence, where the Company will not be the surviving entity; or (iii)
the transfer of substantially all of the assets of the Company or 75% or
more of the outstanding Stock of the Company.
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SECTION 8. DEFERRED STOCK AWARDS
(a) Administration. Deferred Stock may be awarded either alone or in
addition to other awards granted under the Plan. The Committee shall determine
the officers and key employees of the Company and Subsidiaries to whom and the
time or times at which Deferred Stock shall be awarded, the number of shares of
Deferred Stock to be awarded to any participant or group of participants, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred, and the terms and conditions
of the award in addition to those contained in paragraph (b) of this Section 8.
The Committee may also condition the grant of Deferred Stock upon the attainment
of specified performance goals. The provisions of Deferred Stock awards need not
be the same with respect to each recipient.
(b) Terms and Conditions.
(i) Subject to the provisions of this Plan and the award agreement,
Deferred Stock awards may not be sold, assigned, transferred, pledged or
otherwise encumbered during the Deferral Period. In no event shall the
Deferral Period be less than one (1) year. At the expiration of the
Deferral Period (or Elective Deferral Period, where applicable), share
certificates shall be delivered to the participant, or his legal
representative, in a number equal to the shares covered by the Deferred
Stock award.
(ii) Amounts equal to any dividends declared during the Deferral
Period with respect to the number of shares covered by a Deferred Stock
award will be paid to the participant currently or deferred and deemed to
be reinvested in additional Deferred Stock or otherwise reinvested, all as
determined at the time of the award by the Committee, in its sole
discretion.
(iii) Subject to the provisions of the award agreement and paragraph
(b)(iv) of this Section 8, upon termination of employment for any reason
during the Deferral Period for a given award, the Deferred Stock in
question shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a participant
whose employment is terminated (other than for Cause) including death,
Disability or Retirement, or in the event of an unforeseeable emergency of
a participant still in service, the Committee may, in its sole discretion,
when it finds that a waiver would be in the best interest of the Company,
waive in whole or in part any or all of the remaining deferral limitations
imposed hereunder with respect to any or all of the participant's Deferred
Stock.
(v) A participant may elect to further defer receipt of the award
for a specified period or until a specified event (the "Elective Deferral
Period"), subject in each case to the Committee's approval and to such
terms as are determined by the Committee, all in its sole discretion.
Subject to any exceptions adopted by the Committee, such election must
generally be made prior to completion of one half of the Deferral Period
for a Deferred Stock award (or for an installment of such an award).
(vi) Each award shall be confirmed by, and subject to the terms of,
a Deferred Stock agreement executed by the Company and the participant.
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SECTION 9. TRANSFER, LEAVE OF ABSENCE, ETC.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent
Corporation or Subsidiary, or from a Parent Corporation or Subsidiary to
the Company, or from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the
Company if the period of such leave does not exceed ninety (90) days (or
such longer period as the Committee may approve, in its sole discretion);
and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment
is guaranteed either by a statute or by contract, and provided that, in
the case of any leave of absence, the employee returns to work within 30
days after the end of such leave.
SECTION 10. AMENDMENTS AND TERMINATION
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option, Stock Appreciation Right,
Restricted Stock, Deferred Stock or other Stock-based award theretofore granted,
without the optionee's or participant's consent; or (ii) which without the
approval of the stockholders of the Company would cause the Plan to no longer
comply with Rule 16b-3 under the Securities Exchange Act of 1934, Section 422 of
the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted options,
including previously granted options having higher option prices.
SECTION 11. UNFUNDED STATUS OF PLAN
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 12. GENERAL PROVISIONS
(a) The Committee may require each person purchasing shares pursuant to a
Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
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All certificates for shares of Stock delivered under the Plan pursuant to
any Restricted Stock, Deferred Stock or other Stock-based awards shall be
subject to such stock-transfer orders and other restrictions as the Committee
may deem advisable under the rules, regulations, and other requirements of the
Securities and Exchange Commission, any stock exchange upon which the Stock is
then listed, and any applicable Federal or state securities laws, and the
Committee may cause a legend or legends to be put on any such certificates to
make appropriate reference to such restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock,
Deferred Stock and other Stock-based awards under the Plan (other than Stock
Options) are not required to make any payment or provide consideration other
than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any Subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part of
the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant; or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 12(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
SECTION 13. EFFECTIVE DATE OF PLAN
The Plan shall be effective on October 28, 2005 (the date of approval by
the Board of Directors), subject to approval by a vote of the holders of a
majority of the Stock present and entitled to vote at the Annual Meeting of the
Company's Shareholders on January 4, 2006, and shall expire (unless terminated
earlier) as of October 28, 2015. Awards may be granted under the Plan prior to
Shareholder approval, provided such awards are made subject to Shareholder
approval.
A-12
WSI INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
WEDNESDAY, JANUARY 4, 2006
1:30 P.M.
WSI INDUSTRIES, INC.
(WSI LOGO) 213 CHELSEA ROAD, MONTICELLO, MN 55362 PROXY
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON JANUARY 4, 2006
The undersigned hereby appoints Michael J. Pudil, as proxy with full power of
substitution to vote in his discretion cumulatively all shares of stock of WSI
Industries, Inc. of record in the name of the undersigned at the close of
business on November 7, 2005 at the Annual Meeting of Shareholders to be held at
the Company's offices in Monticello, Minnesota on January 4, 2006 at 1:30 p.m.,
local time, or at any adjournment(s) or postponement(s) thereof, hereby revoking
all former proxies.
See reverse for voting instructions.
- Please detach here -
1. ELECTION OF DIRECTORS: 01 Paul Baszucki 04 Eugene J. Mora [ ] VOTE FOR [ ] VOTE WITHHELD
02 Melvin L. Katten 05 Michael J. Pudil all nominees from all nominees
03 George J. Martin (except as marked
to the contrary)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
WRITE THE NUMBER(S) OF THE NOMINEE(S) IN THE BOX PROVIDED TO THE RIGHT.)
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2. APPROVAL OF 2005 STOCK PLAN: [ ] FOR [ ] AGAINST [ ] ABSTAIN
3. IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON ANY OTHER MATTERS COMING BEFORE THE MEETING.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED ON PROPOSALS (1) AND (2)
IN ACCORDANCE WITH THE SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE
PROXY WILL BE VOTED FOR EACH NOMINEE AND FOR EACH OTHER PROPOSAL.
Address Change? Mark Box [ ] Indicate changes below:
Dated:
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Signature(s) in Box
Please sign name(s) exactly as shown at left. When
signing as executor, administrator, trustee or
guardian, give full title as such; when shares
have been issued in names of two or more persons,
all should sign.