THIS AGREEMENT
(“Agreement”) is entered into as of October 7,
2009 by and between WSI Industries, Inc. (the
“Company”), and Michael J. Pudil (the
“Executive”).
WHEREAS, the
parties previously entered into an employment agreement to provide
for the Executive’s services as Chief Executive Officer and
President of the Company.
WHEREAS, the
Executive is expected to eventually retire as Chief Executive
Officer and the parties decided to establish a transition period,
by initially establishing a separate position of President, which
would provide the Company with the opportunity to proactively
implement an orderly succession plan.
WHEREAS, the
parties desire to enter into a new employment agreement to set
forth their mutual understanding and agreement on their employment
relationship including certain matters regarding the possibility
that Executive would eventually retire as Chief Executive Officer
after a transition period.
NOW, THEREFORE, in
consideration of the promises and the respective undertakings of
the Company and Executive set forth below, the Company and
Executive agree as follows:
1.
Employment . The Company hereby employs Executive and
Executive accepts such employment as an executive officer of the
Company reporting to the Company’s Board of Directors. Except
as expressly provided herein, termination of this Agreement by
either party shall also terminate Executive’s employment by
the Company.
2.
Term . Employment with the Company shall be for a term
beginning on the date of this Agreement and ending on
December 31, 2011, subject to earlier termination as provided
herein.
3.1
Service with Company . During the term of this Agreement,
Executive agrees to perform such reasonable employment duties for
the Company as shall arise in connection with his position as Chief
Executive Officer of the Company or as otherwise directed by the
Company’s Board of Directors (the “Board”).
During the term of this Agreement, for so long as Executive’s
successor continues to serve in the position of President,
Executive shall serve in a transitional role to facilitate an
orderly transition of Chief Executive Officer responsibilities to
his successor and provide such other services as may be reasonably
requested by the Board or the successor during the term.
3.2
Performance of Duties . Executive agrees to serve the
Company faithfully and to the best of his ability, and to devote
his full time attention and efforts to the business and affairs of
the Company during the term of this Agreement as is reasonably
necessary to execute his duties hereunder. The Executive agrees
that during the term of this Agreement, he will not render or
perform services for any other corporation, firm, entity or person
which are
inconsistent
with the provisions of this Agreement or which are considered in
business competition with the Company.
4.1
Base Salary . During the term of this Agreement, as
compensation for all services to be rendered by Executive under
this Agreement, the Company shall pay to Executive an annualized
Base Salary (“Base Salary”) of $222,120.00. The Company
shall pay the Base Salary in accordance with normal Company payroll
practices, subject to state and federal taxes, social security and
any other applicable withholdings. Notwithstanding the foregoing,
the annualized Base Salary would be reduced to $100,000 during any
period of the term after December 31, 2009 in which
Executive’s successor continues to serve in the position of
President.
4.2
Fringe Benefits . Executive shall be entitled to such
insurance, vacation, profit sharing and other benefits as are
currently available, subject to any limitations on such benefits to
officers, directors or highly paid employees in order that such
benefit programs qualify under federal and state law for favored
tax or other treatment. Such benefit programs may be changed from
time to time by the Board provided they are changed uniformly for
all officers of the Company. Executive shall also be entitled to
special medical benefits (as currently in effect).
4.3
Business Expenses . The Company will pay or reimburse
Executive for all reasonable and necessary out-of-pocket expenses
incurred by him for the benefit of the Company in the performance
of his duties under this Agreement, subject to compliance by
Executive with the Company’s policies for expense
reimbursements.
5.
Restrictive Covenant Agreement . In consideration of
employment, and the severance offered to Executive under
Section 6, to which the Executive was not otherwise entitled
to, the Executive agrees to execute a Restrictive Covenant
Agreement, attached hereto as Exhibit A .
6.
Termination and Payment to Executive .
6.1
Termination Date . This Agreement and Executive’s
employment hereunder shall terminate upon the occurrence of any one
or more of the following:
(a)
Death . In the event of Executive’s death, this
Agreement and Executive’s employment hereunder shall
automatically terminate on the date of death.
(b)
Disability . To the extent permitted by law, in the event of
Executive’s physical or mental disability that prevents
Executive from performing the essential functions of
Executive’s duties under this Agreement (with or without
reasonable accommodation) for a period of at least 90 consecutive
days in any 12-month period or 120 non-consecutive days in any
12-month period, Employer may terminate this Agreement and
Executive’s employment hereunder upon giving written notice
of termination to Executive.
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(c)
Termination by Employer for Cause . Employer may, at its
option, terminate this Agreement and Executive’s employment
hereunder for Cause (as defined below) upon giving written notice
of termination to Executive. “Cause” shall mean any of
the following: (i) Executive has engaged in dishonesty,
illegal or other wrongful conduct substantially detrimental to the
business or reputation of the Company or any of its subsidiaries or
affiliates; (ii) Executive has developed or pursued interests
substantially adverse to the Company or any of its subsidiaries or
affiliates; (iii) Executive has willfully and continuously
failed to substantially perform his duties with the Company (other
than any such failure resulting from Executive’s incapacity
due to physical or mental disability), after written notice of such
failure and opportunity to cure; or (iv) Executive’s
conviction of, or guilty plea or nolo contendere plea to a felony
involving moral turpitude, fraud or misrepresentation; provided
that an act of Executive shall not be deemed “willful”
unless done or omitted to be done by Executive not in good faith
and without reasonable belief that the act or omission was in the
Company’s best interests.
(d)
Without Cause by Employer . Employer may, at its option, at
any time terminate this Agreement and Executive’s employment
hereunder for no reason or for any reason whatsoever (other than
for Cause or as a result of Executive’s death or Disability)
by giving written notice of termination to Executive.
(e)
Termination by Executive. Executive may terminate this
Agreement and Executive’s employment hereunder with or
without Good Reason (as defined below) by giving thirty
(30) days prior written notice of termination to Employer.
“Good Reason” shall mean, without Executive’s
express written consent, any of the following: (i) a material
reduction in Executive’s Base Salary or benefits required
under this Agreement; (ii) a change in Executive’s
reporting directly to the Board of Directors; (iii) a material
change in the geographic location at which Executive must perform
services for the Company; and (iv) any other action or
inaction that constitutes a material violation of this Agreement by
the Company; provided that no such termination for Good Reason
shall be effective unless: (A) Executive provides written
notice to the Chair of the Compensation Committee of the Board of
the existence of a condition specified in clauses (i) through
(iv) of this sentence within 90 days of the initial
existence of the condition; (B) the Company does not remedy
such condition within 30 days of the date of such notice; and
(C) Executive terminates his employment within 90 days
following the last day of the remedial period described
above.
6.2
Termination for Cause or by Executive without Good Reason .
In the event of a termination of this Agreement and
Executive’s employment hereunder pursuant to
Sections 6.1 (c) or 6.1(e) (other than a termination for
Good Reason), then this Agreement and Executive’s employment
with Employer shall terminate and Employer’s sole obligation
under this Agreement or otherwise shall be to: (i) pay to
Executive any Base Salary earned, but not yet paid, prior to the
effective date of the termination of this Agreement and
Executive’s employment hereunder (the “ Date of
Termination ”) and any earned but unused vacation and
personal leave, payable in accordance with Employer’s
standard payroll practices; (ii) reimburse Executive for any
expenses incurred by Executive through the Date of such Termination
in accordance with Section 4.3 above; and (iii) pay
and/or provide any amounts or benefits that are vested amounts or
vested benefits or that Executive is otherwise entitled to receive
under any plan, program, policy or practice (with the exception of
those, if any, relating to severance) on
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the Date of
Termination, in accordance with such plan, program, policy, or
practice (clauses (i), (ii), and (iii) of this sentence are
collectively referred to herein as the “ Accrued
Obligations ”).
6.3
Death, Disability, Termination without “Cause” or by
Executive for “Good Reason” or End of Term . If
Executive is terminated without Cause, Executive terminates his
employment for Good Reason, Executive dies or becomes Disabled
during the term of this Agreement or Executive continues to be
employed by the Company until this Agreement terminates on
December 31, 2011, upon execution of a release of claims
against the Company similar to the attached Exhibit B
(other than in the event of death) no later than the date set forth
in that Exhibit B, and following expiration of the rescission
period described therein:
(a) the
Company will pay all Accrued Obligations as provided in
Section 6.2 above;
(b) the
Company will pay Executive a lump sum severance payment equal to
$335,000 (approximately 18 months base salary), less
applicable taxes and withholdings, on a date that is six months and
1 day after the effective date of Executive’s
termination of employment, except that, in the event of death or
Disability, payment shall be made no later than 30 days after
the date of death or determination of Disability; and
(c) except
in the event of death of Executive, the Company will continue to be
responsible to pay the same portion of the monthly premium that it
paid immediately prior to Executive’s employment (the
“Employer Premium”) towards Executive’s group
health, dental and life insurance (and special medical) for the
eighteen (18) month period following such termination,
provided Executive elects continuation of coverage following
separation and continues to be eligible for continuation coverage
under COBRA. In the event the Company’s payment of the
Employer Premium is required to be delayed under Treas. Reg.
§1.409A-3(i)(2), the Executive shall be responsible to pay any
COBRA premium due during such delay, and the Company shall
reimburse to the Executive, in a lump sum, at the same time as the
payment set forth in Section 6.3(b) the cumulative Employer
Premiums that the Executive paid prior to that date, and thereafter
the Company shall pay the Employer Premium at such time as such
premiums are due. Upon the expiration of the eighteen (18) month
period following termination, the Company shall pay Executive a
lump sum payment in an amount equal to the Employer Premium
multiplied by the number of months in the period starting with the
first month immediately following the eighteen (18) month
period following termination and ending with the month in which the
earlier of the following dates occurs: (i) the date Executive
reaches age 65 or (ii) the date Executive is expected to
qualify for Medicare; and
(d) the
unvested portion of all outstanding stock options shall become
fully vested as of the last day of Executive’s employment and
Executive shall have the ability to exercise all vested stock
options during such eighteen (18) month period following
Executive’s termination; provided no stock option shall be
exercisable after its original expiration date, and (b) the
restrictions on all outstanding restricted stock awards shall lapse
as of the last day of the Executive’s employment. The
provisions of this Section 6.3 shall supersede any provisions
of the stock option and restricted stock award agreement that is
inconsistent herewith, and shall be deemed an amendment to any such
agreement executed by the Company and the Executive. The terms of
this Agreement have been approved by the Compensation Committee of
the Board in
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compliance with
the terms of the Company’s 2005 Stock Plan.
The Company and
the Executive shall take all steps necessary (including with regard
to any post-termination services by Executive) to ensure that any
termination of employment described in this Section 6.3
constitutes a “separation from service” within the
meaning of Section 409A of the Internal Revenue Code of 1986,
as amended (the “Code”), and notwithstanding anything
contained herein to the contrary, the date of such separation from
service shall be the date of termination of employment under this
Agreement.
6.4
Effect of Termination . Notwithstanding any termination of
this Agreement, Executive, in consideration of his employment
thereunder to the date of such termination shall remain bound by
the provisions of this Agreement which specifically relate to
periods, activities or obligations upon or subsequent to the
termination of Executive’s employment.
6.5
Surrender of Records and Property . Upon termination of his
employment with the Company, Executive shall deliver promptly to
the Company all records, manuals, books, blank forms, documents,
letters, memoranda, notes, notebooks, reports, data, tables,
calculations or copies thereof, computers, cellular phones or any
other equipment which are the property of the Company or which
relate in any way to the business products, practices or techniques
of the Company, and all other property, trade secrets and
confidential information of the Company, including, but not limited
to, all documents which in whole or in part contain any trade
secrets, proprietary or Confidential Information of the Company,
which in any of the cases are in his possession or under his
control.
6.6
No Additional Pay/Benefits . Except as specifically set
forth above, no post-termination payments or benefits will be
provided to Executive following the termination of
Executive’s employment, including any incentive pay or other
bonus, during which the severance pay is paid, unless otherwise
provided under law or agreed to by the parties in writing and such
agreement is not contrary to or otherwise prohibited by a plan
document.
6.7
Board Status . Nothing herein shall be construed as a
contractual right of the Executive to serve as a Chairman or as a
member of the Board of Directors.
6.8
Grantor Trust . No later than 5 business days following the
earlier of (i) a “change in control” of the
Company (as defined in Treas. Reg. §1.409A-3(i)(5)),
(ii) the termination of Executive by the Company without
Cause, (iii) the termination by Executive of his employment
for Good Reason or (iv) December 31, 2011, provided
Executive continues to be employed by the Company through such
date, the Company shall establish an irrevocable grantor trust in a
form substantially similar to the form of trust set forth in Rev.
Proc. 92-64, as modified by Notice 2000-56, and deposit the amounts
required to be paid Executive under the terms of Section 6.3(b) and
Section 6.3(c) in cash with the trustee in trust, which will
be the initial principal of the trust to be held, administered and
disposed of by trustee as provided in such trust agreement and this
Agreement.
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7.1
Governing Law . This Agreement is made under and shall be
governed by and construed in accordance with the laws of the state
of Minnesota other than its law dealing with conflicts of
law.
7.2
Venue . Any action at law, suit in equity, or judicial
proceeding arising directly, indirectly, or otherwise in connection
with, out of, related to or from this Agreement or any provision
hereof, shall be litigated only in the courts of the state of
Minnesota, County of Hennepin, or the Federal District Court,
District of Minnesota, Fourth Division. Executive waives any right
Executive may have to transfer or change the venue of any
litigation brought against Executive by the Company. Executive also
waives any claim of inconvenient forum.
7.3
Severability . To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted
therefrom and the remainder of such provision and of this Agreement
shall be unaffected and shall continue in full force and effect. In
furtherance and not in limitation of the foregoing, should the
duration or geographical extent of, or business activities covered
by, a
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