EXHIBIT 10.5
GUARANTY BY CORPORATION
Minneapolis, Minnesota
August 26, 2008
          For good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and to induce M&I Marshall & Ilsley Bank, a
Wisconsin State banking corporation (herein, with its participants, successors
and assigns, called “Bank”), at its option, at any time or from time to time to
make loans or extend other accommodations to or for the account of WSI
Industries, Inc., a Minnesota corporation (herein called “Borrower”) or to
engage in any other transactions with Borrower, the undersigned hereby
absolutely and unconditionally guarantees to the Bank the full and prompt
payment when due, whether at maturity or earlier by reason of acceleration or
otherwise, of the debts, liabilities and obligations described as follows:
     The undersigned guarantee(s) to Bank the payment and performance of each
and every debt, liability and obligation of every type and description which
Borrower may now or at any time hereafter owe to Bank (whether such debt,
liability or obligation now exists or is hereafter created or incurred, and
whether it is or may be direct or indirect, due or to become due, absolute or
contingent, primary or secondary, liquidated or unliquidated, or joint, several
or joint and several, all such debts, liabilities and obligations being
hereinafter collectively referred to as the “Indebtedness”) without limitation,
this Guaranty includes the following described obligations: That certain
Promissory Note, Loan Agreement, and Security Agreement executed by Borrower in
favor of Bank of even date herewith and any extensions, renewals or replacements
thereof (hereinafter referred to as the “Indebtedness”).
     The term “Indebtedness” as used in this guaranty shall not include any
obligations entered into between Borrower and Bank after the date hereof
(including any extensions, renewals or replacements of such obligations) for
which Borrower meets the Bank’s standard of creditworthiness based on Borrower’s
own assets and income without the addition of a guaranty, or for which a
guaranty is required but Borrower chooses someone other than the joint
undersigned to guaranty the obligation.
     The undersigned further acknowledges and agrees with Bank that:
     1. No act or thing need occur to establish the liability of the undersigned
hereunder, and no act or thing, except full payment and discharge of all
Indebtedness, shall in any way exonerate the undersigned or modify, reduce,
limit or release the liability of the undersigned hereunder.
     2. This is an absolute, unconditional and continuing guaranty of payment of
the Indebtedness and shall continue to be in force and be binding upon the
undersigned, whether or not all Indebtedness is paid in full, until this
guaranty is revoked by written notice actually received by the Bank, and such
revocation shall not be effective as to Indebtedness existing or committed for
at the time of actual receipt of such notice by the Bank, or as to any renewals,
extensions and refinancings thereof. The undersigned represents and warrants to
the Bank that the undersigned has a direct and substantial economic interest in
Borrower and expects to derive substantial benefits therefrom and from any loans
and financial accommodations resulting in the creation of Indebtedness
guaranteed hereby, and that this guaranty is given for a corporate purpose. The
undersigned agrees to rely exclusively on the right to revoke this guaranty
prospectively as to future transactions by written notice actually received by
the Bank if at any time, in the opinion of the directors or officers of the
undersigned, the corporate benefits then being received by the undersigned in
connection with this guaranty are not sufficient to warrant the continuance of
this guaranty as to future Indebtedness. Accordingly, so long as this guaranty
is not revoked prospectively in accordance with this guaranty, the Bank may rely
conclusively on a continuing warranty, hereby made, that the undersigned
continues to be benefited by this guaranty and the Bank shall have no duty to
inquire into or confirm

 

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the receipt of any such benefits, and this guaranty shall be effective and
enforceable by the Bank without regard to the receipt, nature of value of any
such benefits.
     3. If the undersigned shall be dissolved or shall be or become insolvent
(however defined) then the Bank shall have the right to declare immediately due
and payable, and the undersigned will forthwith pay to the Bank, the total
amount of all Indebtedness, whether due and payable or unmatured. It the
undersigned voluntarily commences or there is commenced involuntarily against
the undersigned a case under the United States Bankruptcy Code, the full amount
of all Indebtedness, whether due and payable or unmatured, shall be immediately
due and payable without demand or notice thereof.
     4. The liability of the undersigned hereunder shall be limited to a
principal amount of $ UNLIMITED (if unlimited or if no amount is stated, the
undersigned shall be liable for all Indebtedness, without any limitation as to
amount), plus accrued interest thereon and all attorneys’ fees, collection costs
and enforcement expenses referable thereto. Indebtedness may be created and
continued in any amount, whether or not in excess of such principal amount,
without affecting or impairing the liability of the undersigned hereunder. The
Bank may apply any sums received by or available to the Bank on account of the
Indebtedness from Borrower or any other person (except the undersigned), from
their properties, out of any collateral security or from any other source to
payment of the excess. Such application of receipts shall not reduce, affect or
impair the liability of the undersigned hereunder. If the liability of the
undersigned is limited to a stated amount pursuant to this paragraph 4, any
payment made by the undersigned under this guaranty shall be effective to reduce
or discharge such liability only if accompanied by a written transmittal
document, received by the Bank, advising the Bank that such payment is made
under this guaranty for such purpose.
     5. The undersigned shall pay or reimburse the Bank for all costs and
expenses (including reasonable attorneys’ fees and legal expenses) incurred by
the Bank in connection with the protection, defense or enforcement of this
guaranty in any litigation or bankruptcy or insolvency proceedings.
     6. Whether or not any existing relationship between the undersigned and
Borrower has been changed or ended and whether or not this guaranty has been
revoked, the Bank may, but shall not be obligated to, enter into transactions
resulting in the creation or continuance of Indebtedness, without any consent or
approval by the undersigned and without any notice to the undersigned. The
liability of the undersigned shall not be affected or impaired by any of the
following acts or things (which the Bank is expressly authorized to do, or
suffer from time to time, both before and after revocation of this guaranty,
without notice to or approval by the undersigned): (i) any acceptance of
collateral security, guarantors, accommodation parties or sureties for any or
all Indebtedness; (ii) any one or more extensions or renewals of Indebtedness
(whether or not for longer than the original period) or any modification of the
interest rates, maturities or other contractual terms applicable to any
Indebtedness; (iii) any waiver, adjustment, forbearance, compromise or
indulgence granted to Borrower, any delay or lack of diligence in the
enforcement of Indebtedness, or any failure to institute proceedings, file a
claim, give any required notices or otherwise protect any Indebtedness, (iv) any
full or partial release of, settlement with, or agreement not to sue, Borrower
or any other guarantor or other person liable in respect of any Indebtedness;
(v) any discharge of any evidence of Indebtedness or the acceptance of any
instrument in renewal thereof of substitution therefor; (vi) any failure to
obtain collateral security (including rights of setoff) for Indebtedness, or to
see to the proper or sufficient creation and perfection thereof, or to establish
the priority thereof, or to protect, insure, or enforce any collateral security;
or any release, modification, substitution, discharge, impairment,
deterioration, waste or loss of any collateral security; (vii) any foreclosure
or enforcement of any collateral security; (viii) any transfer of any
Indebtedness or any evidence thereof; (ix) any order of application of any
payments or credits upon Indebtedness; (x) any election by the Bank under
§1111(b)(2) of the United States Bankruptcy Code.

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     7. The undersigned waive(s) any and all defenses, claims and discharges of
Borrower, or any other obligor, pertaining to Indebtedness, except the defense
of discharge by payment in full. Without limiting the generality of the
foregoing, the undersigned will not assert, plead or enforce against the Bank
any defense of waiver, release, statute of limitations, res judicata, statute of
frauds, fraud, incapacity, minority, usury, illegality or unenforceability which
may be available to Borrower or any other person liable in respect of any
Indebtedness, or any setoff available against the Bank to Borrower or any such
other person, whether or not on account of a related transaction. The
undersigned expressly agree(s) that the undersigned shall be and remain liable,
to the fullest extent permitted by applicable law, for any deficiency remaining
after foreclosure of any mortgage or security interest securing Indebtedness,
whether or not the liability of Borrower or any other obligor for such
deficiency is discharged pursuant to statute or judicial decision. The
undersigned shall remain obligated, to the fullest extent permitted by law, to
pay such amounts as though the Borrower’s obligations had not been discharged.
     8. The undersigned further agrees that the undersigned shall be and remain
obligated to pay Indebtedness even though any other person obligated to pay
Indebtedness, including Borrower, has such obligation discharged in bankruptcy
or otherwise discharged by law. “Indebtedness” shall include post-bankruptcy
petition interest and attorneys’ fees and any other amounts which Borrower is
discharged from paying or which do not otherwise accrue to Indebtedness due to
Borrower’s discharge, and the undersigned shall remain obligated to pay such
amounts as though Borrower’s obligations had not been discharged.
     9. If any payment applied by the Bank to Indebtedness is thereafter set
aside, recovered, rescinded of required to be returned for any reason
(including, without limitation, the bankruptcy, insolvency or reorganization of
Borrower or any other obligor), the Indebtedness to which such payment was
applied shall for the purposes of this guaranty be deemed to have continued in
existence, notwithstanding such application, and this guaranty shall be
enforceable as to such Indebtedness as fully as if such application had never
been made.
     10. Until the Indebtedness is irrevocably paid in full, the undersigned
waive(s) any claim, remedy or other right which the undersigned may now have or
hereafter acquire against Borrower or any other person obligated to pay
Indebtedness arising out of the creation or performance of the undersigned’s
obligation under this guaranty, including, without limitation, any right of
subrogation, contribution, reimbursement, indemnification, exoneration, and any
right to participate in any claim or remedy the undersigned may have against the
Borrower, collateral, or other party obligated for Borrower’s debts, whether or
not such claim, remedy or right arises in equity, or under contract, statute or
common law.
     11. The undersigned waive(s) presentment, demand for payment, notice of
dishonor or nonpayment, and protest of any instrument evidencing Indebtedness.
The Bank shall not be required first to resort for payment of the Indebtedness
to Borrower or other persons or their properties, of first to enforce, realize
upon or exhaust any collateral security for Indebtedness, before enforcing this
guaranty.
     12. The liability of the undersigned under this guaranty is in addition to
and shall be cumulative with all other liabilities of the undersigned to the
Bank as guarantor or otherwise, without any limitation as to amount unless the
instrument or agreement evidencing or creating such other liability specifically
provides to the contrary.
     13. The undersigned represents and warrants to the Bank that (i) the
undersigned is a corporation duly organized and existing in good standing and
has full power and authority to make and deliver this guaranty; (ii) the
execution, delivery and performance of this guaranty by the undersigned have
been duly authorized by all necessary action of its directors and shareholders
and do not and will not violate the provisions of, or constitute a default
under, any presently applicable law or its articles of incorporation or by-laws
or any agreement presently biding on it; (iii) this guaranty has been duly
executed and delivered by the authorized officers of the undersigned

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and constitutes its lawful, binding and legally enforceable obligation (subject
to the United States Bankruptcy Code and other similar laws generally affecting
the enforcement of creditors’ rights); and (iv) the authorization, execution,
delivery and performance of this guaranty do not require notification to,
registration with, or consent or approval by, any federal, state or local
regulatory body or administrative agency.
     14. This guaranty shall be enforceable against each person signing this
guaranty, even it only one person signs and regardless of any failure of other
persons to sign this guaranty. If there be more than one signer, all agreements
and promises herein shall be construed to be, and are hereby declared to be,
joint and several in each of every particular and shall be fully binding upon
and enforceable against either, any or all the undersigned. This guaranty shall
be effective upon delivery to the Bank, without further act, condition or
acceptance by the Bank, shall be binding upon the undersigned and the heirs,
representatives, successors and assigns of the undersigned and shall inure to
the benefit of the Bank and its participants, successors and assigns. Any
invalidity or unenforceability of any provision or application of this guaranty
shall not affect other lawful provisions and application hereof, and to this end
the provisions of this guaranty are declared to be severable. Except as
authorized by the terms herein, this guaranty may not be waived, modified,
amended, terminated, released or otherwise changed except by a writing signed by
the undersigned and the Bank. This guaranty shall be governed by the laws of the
State of Minnesota. The undersigned waive(s) notice of the Bank’s acceptance
hereof and waive(s) the right to a trial by jury in any action based on or
pertaining to this guaranty.
     15. This guaranty is security agreement dated of even date herewith.
          IN WITNESS WHEREOF, this guaranty has been duly executed by the
undersigned the day and year first above written.

                  WSI ROCHESTER, INC., a Minnesota corporation    
 
           
 
  By:   /s/ Paul D. Sheely    
 
     
 
     Paul D. Sheely    
 
           
 
  Its:   Vice President/Chief Financial Officer    
 
           

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