EXHIBIT 10.2

 

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WSI Industries, Inc.

213 Chelsea Road

Monticello, MN 55362

 

May 19, 2017

 

Via Email Only to: Mr. Michael J. Pudil

 

Dear Mike,

 

The purpose of this letter agreement (the “Letter Agreement”) is to set forth
the agreement between you and WSI Industries, Inc. (“WSI”) in regard to
severance and change of control matters. Although your employment is “at will”
and may be terminated by you or WSI at any time for any reason, WSI has agreed
to provide you with the benefit set for in this Letter Agreement. Terms not
otherwise defined in this Letter Agreement shall have the meaning given such
terms on Schedule 1, which is incorporated herein by reference.

 

Specifically, we have agreed as follows:

 

1. Severance.

 

  (a) For the purposes of this Letter Agreement, the following terms shall have
the following respective meanings:

 

(i) “Date of Termination” shall mean the date specified in the Notice of
Termination; provided that, (A) in the case of a termination pursuant by WSI for
Cause, such date shall not be less 10 days following the date such Notice of
Termination is given; (B) in the case of a termination by you for Good Reason
following a Change in Control, such date shall not be less than 10 nor more than
30 days following the date such Notice of Termination is given; and (C) in the
case of a termination pursuant by WSI for Disability, such date shall not be
less 30 days following the date such Notice of Termination is given (provided
that you shall not have returned to the full-time performance of the your duties
during such 30 day period).

 

(ii) “Notice of Termination” shall mean a written notice which shall indicate
the specific termination provision in this Agreement relied upon and shall set
forth the facts and circumstances claimed to provide a basis for termination of
your employment.

 

   

 

 

(iii) “Severance Period” shall mean the one year period beginning on the date of
this Letter Agreement.

 

  (b) If (i) your employment is terminated by WSI without Cause during the
Severance Period, (ii) a Change in Control shall occur during the Severance
Period and your employment is terminated by you for Good Reason within sixty
(60) days after the Change of Control or (iii) your employment is terminated
during the Severance Period by reason of your death or Disability, subject to
the condition stated in Section 1(d), WSI will pay you a lump sum amount within
sixty (60) days of termination of your employment equal to the pro rata portion
of your base salary for the remainder of the Severance Period, subject to
applicable tax withholding. In addition, upon a termination of employment
described in clauses (i), (ii) or (iii), the stock option granted to you on May
19, 2017 shall vest in full on the Date of Termination and all restrictions on
the restricted stock award granted to you on May 19, 2017 shall lapse in full on
the Date of Termination, to the extent not already vested or lapsed as of such
date.         (c) If you resign for any reason other than for Good Reason
following a Change of Control or if WSI terminates your employment for Cause,
you shall be entitled to receive your base salary accrued but unpaid as of the
Date of Termination, but shall not be entitled to receive any severance or
salary continuation benefit thereafter.         (d) In case of termination as
provided in Section 1(a), you shall be entitled to receive the amounts due you
under Section 1(a) only upon your execution and delivery to WSI of a general
release (and following termination of all rescission periods) with respect to
any and all claims against WSI and its officers, directors, employees, agents
and shareholders, acceptable in form and substance to WSI in all respects, and
provided you continue to comply with the terms of the Restricted Covenant
Agreement with WSI.         (e) For purposes of this Agreement, “termination of
employment” shall be interpreted consistent with the term “separation from
service” within the meaning of Treas. Reg. §1.409A-1(h), except that your
service as a member of the Board of Directors of WSI (and any entity that is
part of a controlled group of which WSI is a member) shall be disregarded in
determining whether a separation from service has occurred.

 

2. Dispute of Termination. If, within 10 days after any Notice of Termination is
given, the party receiving such Notice of Termination notifies the other party
in good faith that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, or by a final judgement, order or
decree of a court of competent jurisdiction in accordance with Section 3 (which
is not appealable or the time for appeal therefrom having expired and no appeal
having been perfected); provided, that the Date of Termination shall be extended
by a notice of dispute only if such notice is given in good faith and the party
giving such notice pursues the resolution of such dispute with reasonable
diligence. Notwithstanding the pendency of any such dispute, WSI shall continue
to pay you full compensation in effect when the notice giving rise to the
dispute was given (including, but not limited to, base salary) and continue you
as a participant in all compensation, benefit and insurance plans in which you
were participating when the notice giving rise to the dispute was given, until
the dispute is finally resolved in accordance with this Section. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts under this
Agreement. Such payment shall continue while you are either performing services
for WSI or are willing and able to provide services during the period of such
dispute, and no “separation from service” shall occur during such period.

 

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3. Funding of Payments. In order to assure the performance by WSI or its
successor of its obligations under this Agreement, WSI shall, no later than
immediately prior to the closing of the transaction that constitutes an
Unapproved Change in Control, deposit in a so-called “rabbi trust” or similar
escrow arrangement an amount equal to the maximum payment that will be due you
under the terms hereof. Under a written trust instrument, the trustee shall be
instructed to pay to you (or your legal representative, as the case may be) the
amount to which you shall be entitled under the terms hereof, and the balance,
if any, of the trust not so paid or reserved for payment shall be repaid to WSI.
If and to the extent there are not amounts in trust sufficient to pay you under
this Agreement, WSI shall remain liable for any and all payments due to you. In
accordance with the terms of such trust, at all times during the term of this
Agreement you shall have no rights, other than as an unsecured general creditor
of WSI, to any amounts held in trust and all trust assets shall be general
assets of WSI and subject to the claims of creditors of WSI. With respect to an
Approved Change in Control, WSI’s obligations in this Section 3 shall not be
mandatory but rather shall be permissive.     4. Arbitration. All disputes or
claims arising out of or in any way related to this Letter Agreement, including
the making of this Letter Agreement, shall be submitted to and determined by
final and binding arbitration under the American Arbitration Association Rules
for Resolution of Employment Disputes. Arbitration proceedings may be initiated
by either of us upon notice to the other and to the American Arbitration
Association, and shall be conducted by one arbitrator in Minneapolis, Minnesota
who has experience in employment matters. Unless we agree to have the person to
serve as arbitrator within thirty (30) days of delivery of the list of proposed
arbitrators by the American Arbitration Association, then, at the request of
either of us, the single arbitrator shall be selected at the discretion of the
American Arbitration Association. The arbitrator shall provide a reasoned
decision and may award any remedy available at law or equity, including
reasonable attorneys’ fees to the prevailing party (subject to the paragraph
below). WSI shall pay the costs of the arbitrator. The decision of the
arbitrator shall be enforceable in any court of competent jurisdiction.       In
the event WSI fails to pay you any amounts owing to you under this Agreement or
to provide you any benefits to which you are ultimately determined, by
settlement, mediation, arbitration, or by any court or other decision making
body with jurisdiction, to be entitled to under this Agreement, WSI shall pay
the legal expenses (including reasonable attorneys’ fees, court costs and other
out-of-pocket expenses), incurred by you to enforce your rights under this
Agreement and collect or obtain such amounts or benefits.

 

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5. Entire Agreement. This Letter Agreement constitutes our entire agreement and
supersedes all prior discussions, understandings and agreements with respect to
the severance and change in control benefits which WSI has agreed to provide to
you. This Letter Agreement shall be governed and construed by the laws of the
State of Minnesota and may be amended only in writing signed by both of us.    
6. Successors. This Letter Agreement shall not be assignable, in whole or in
part, by you. This Letter Agreement shall be binding upon and inure to the
benefit of WSI and its successors and assigns and upon any person acquiring, by
merger, consolidation, purchase of assets or otherwise, all or substantially all
of the assets and business of WSI, and the successor shall be substituted for
WSI under this Letter Agreement. WSI will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of WSI to expressly assume and
agree to perform this Agreement in the same manner and to the same extent that
WSI would be required to perform it if no such succession had taken place.
Failure of WSI to obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this Agreement and
shall entitle you to compensation from WSI in the same amount and on the same
terms as you would be entitled hereunder if you terminated your employment for
Good Reason following a Change in Control, except that for purposes of
implementing the foregoing, the date on which any such succession becomes
effective shall be deemed the Date of Termination.     7. Amendment and
Termination. It is the intention of the parties that this Agreement be exempt
from Code §409A as separation pay to the greatest extent possible. Accordingly,
all provisions herein shall be construed and interpreted consistent with that
intent, but that, to the extent any payment constitutes nonqualified deferred
compensation, WSI shall amend any such provision pertaining to such payment to
comply with Code §409A and the regulations thereunder, in the least restrictive
manner necessary without any diminution in the value of the payments to you.    
8. Delay for Specified Employees. Notwithstanding the foregoing, if on the date
of your “separation from service” (within the meaning of Treas. Reg.
§1.409A-1(h)), you are a “specified employee” within the meaning of Treas. Reg.
§1.409-1(i), then payment of any amount under this Agreement that constitutes
nonqualified deferred compensation shall be delayed until the earlier of (i) the
first day of the seventh month following your separation from service provided
that WSI has receive an executed release from you as provided in Section 1(d),
(ii) the first date on which such payment would not be non-deductible as a
result of Section 162(m) of the Code, or (iii) your death and in the event any
such payment is so delayed, the amount of the first payment shall be increased
for interest earned on the delayed payment based upon interest for the period of
delay, compounded annually, equal to the prime rate (as published in the Wall
Street Journal) in effect as of the date the payment should otherwise have been
provided. Notwithstanding the foregoing, in the event any such payment is
delayed, WSI will deposit, no later than the effective date of the Change in
Control, an amount equal to the aggregate of all delayed payments into the
so-called “rabbi trust” referred to in Section 3 to be paid in accordance with
the terms of this Agreement.

 

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If this Letter Agreement accurately sets forth our agreement and understanding
in regard to these matters, will you please sign this Letter Agreement where
indicated below and return the executed letter to me for our files. A separate
copy is enclosed for your records.

 

WSI INDUSTRIES, INC.       /s/ Jack R. Veach   Jack R. Veach   Chair of the
Compensation Committee of the   Board of Directors of WSI Industries, Inc.      
READ AND AGREED:       /s/ Michael J. Pudil   Michael J. Pudil       Dated as of
May 19, 2017  

 

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SCHEDULE 1

 

Definition of “Cause”:

 

(i) your willful and continued failure to perform your essential duties;

 

(ii) the willful engaging by you in illegal conduct; or

 

(iii) willful misconduct materially injurious to WSI

 

which, in the case of clause (i) and (iii), you have not cured, in the sole
opinion of the Board of Directors, determined in good faith, within 10 days of
receipt of the Notice of Termination.

 

Your act shall not be deemed “willful” unless done or omitted to be done by you
not in good faith and without reasonable belief that the act or omission was in
WSI’s best interests.

 

Definition of “Change in Control”:

 

A “Change in Control” of WSI shall be deemed to occur when and if any of the
following occur:

 

(i) any “person” (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) becomes a “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of WSI representing 50% or
more of the combined voting power of WSI’s then outstanding securities;

 

(ii) there ceases to be a majority of the Board of Directors comprised of: (A)
individuals who on the date hereof constituted the Board of WSI, and (B) any new
director (other than a director whose initial assumption of office is in
connection with an actual or threatened contest, including but not limited to a
proxy or consent solicitation, relating to the election of directors of WSI or a
settlement of such contest or consent solicitation) who subsequently was elected
or nominated for election by a majority of the directors who held such office
immediately prior to a Change in Control (the individuals designated in (A) and
(B) shall be referred to as the “Incumbent Directors”); or

 

(iii) WSI disposes of at least 75% of its assets, other than to an entity owned
50% or greater by WSI or any of its subsidiaries.

 

A Change in Control which arises from a transaction or series of transactions
which are not authorized, recommended or approved by formal action taken by a
majority of the Incumbent Directors shall be referred to as an “Unapproved
Change in Control.” A Change in Control which has been authorized, recommended
or approved by a majority of the Incumbent Directors shall be referred to as an
“Approved Change in Control.” The formal action to approve (or the failure to
approve) a transaction by a majority of disinterested Directors shall constitute
the objective determination of an “Approved Change in Control” or “Unapproved
Change in Control.”

 

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Definition of “Disability”

 

If, as a result of incapacity due to physical or mental illness, you shall have
been absent from the full-time performance of your duties with WSI for six
consecutive months, and within 30 days after written Notice of Termination is
given you shall not have returned to the full-time performance of the your
duties, WSI may terminate your employment for “Disability.” Any question as to
the existence of your Disability upon which you and WSI cannot agree shall be
determined by a qualified independent physician selected by you (or, if you are
unable to make such selection, it shall be made by any adult member of the your
immediate family), and approved by WSI. The determination of such physician made
in writing to WSI and to you shall be final and conclusive for all purposes of
this Agreement. Further, the term “Disability” shall have the meaning under
Treas. Reg. § 1.409A-3(i)(4).

 

Definition of “Good Reason”:

 

(i) the assignment to you of any duties inconsistent with your status or
position with WSI, or a substantial reduction in the nature or status of your
responsibilities from those in effect immediately prior to the Change in
Control;

 

(ii) a reduction by WSI in your annual base salary in effect immediately prior
to a Change in Control;

 

(iii) the relocation of WSI’s principal executive offices to a location more
than fifty miles from WSI’s principal office prior to the Change in Control,
except for required travel on WSI’s business to an extent substantially
consistent with your prior business travel obligations;

 

(iv) the failure by WSI to continue to provide you with benefits substantially
similar to those enjoyed by you under any of WSI’s pension, life insurance,
medical, health and accident, disability, deferred compensation, incentive
awards, incentive stock options, or savings plans in which you were
participating at the time of the Change in Control, the taking of any action by
WSI which would directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed at the time of the Change in
Control, or the failure by WSI to provide you with the number of paid vacation
days to which you are entitled at the time of the Change in Control, provided,
however, that WSI may amend any such plan or programs as long as such amendments
do not reduce any benefits to which you would be entitled upon termination;

 

(v) the failure of WSI to obtain a satisfactory agreement from any successor to
assume and agree to perform this Agreement, as contemplated in Section 6; or

 

(vi) if an Unapproved Change in Control occurs.

 

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