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, 2007
Notice is hereby given that the Annual Meeting of Shareholders of WSI
Industries, Inc. (the "Company") will be held at 4200 IDS Center, 80 South 8th
Street, Minneapolis, Minnesota 55402, on Thursday, January 4, 2007, at 11:00
a.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 ratify the appointment of Schechter Dokken Kanter Andrews & Selcer
Ltd. as independent public accountants for the fiscal year ending
August 26, 2007.
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 6, 2006,
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, President and Chief Executive
Officer
Minneapolis, Minnesota
December 1, 2006
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, 2007, 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, 2006.
GENERAL INFORMATION
VOTING
The Company currently has only one class of securities, common stock, of
which 2,680,630 shares were issued and outstanding and entitled to vote at the
close of business on November 6, 2006. Only shareholders of record at the close
of business on November 6, 2006 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.
1
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 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.
2
SECURITY OWNERSHIP OF PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The following table includes information as of November 6, 2006, 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) 14,250 *
Melvin L. Katten (3) 46,300 1.7%
George J. Martin (3) 57,400 2.1%
Eugene J. Mora (3) 6,500 *
Michael J. Pudil (3)(4) 130,000 4.6%
Paul D. Sheely (4) 25,999 1.0%
All Officers and Directors
as a Group (6 persons) 280,449 9.8%
----------
* 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;
130,000 shares for Mr. Pudil; 24,999 shares for Mr. Sheely; and 178,499
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.
3
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 (66) Retired Chairman of Norstan, Inc., 1988
Minnetonka, Minnesota (communications
technology); Director of G&K Services,
Inc.
Melvin L. Katten (70) Of Counsel, Katten Muchin Rosenman 1985
LLP, Chicago, Illinois (law firm).
George J. Martin (69) Private Investor; Prior to October 1983
1995, President, Chief Executive
Officer and Chairman of PowCon
Incorporated (manufacturer of
electronic welding systems).
Eugene J. Mora (71) Private Investor; Director of 1985
Pridestaff, Inc.; Prior to October
1996, President, Chief Executive
Officer and Director of Amserv
Healthcare Inc., LaJolla, California.
Michael J. Pudil (58) President and Chief Executive Officer 1993
of the Company; Chairman of the
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.
4
GOVERNANCE MATTERS
BOARD ATTENDANCE AT MEETINGS
The Board of Directors met five times during fiscal year 2006. Each nominee
who served as a director in fiscal year 2006 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. Three members of the Board of Directors attended the 2006
Annual Meeting of Shareholders.
BOARD INDEPENDENCE
The Board undertook a review of director independence in October 2006.
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 2006, 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 President and 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
2006, the Compensation Committee met two times.
5
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 2006, 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 2006 Annual Meeting. The Governance/Nominating
Committee selected the nominees for this 2006 Annual Meeting in October 2006. In
selecting Mr. Mora as a nominee, the Governance/Nominating Committee determined
that, because of his valuable contributions as a board member, it is in the best
interests of the Company and its shareholders to waive the provisions of the
board's policy relating to the 70 year old maximum age of nominees. All nominees
served as directors during fiscal year 2005 and were elected by shareholders at
the 2005 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 2007 Annual Meeting" below.
7
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.
8
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 (47) 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.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the fiscal years ending August 27, 2006,
August 28, 2005 and August 29, 2004, 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 2006 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 2006 $218,300 $65,534 30,000 $8,400
Chairman; President and 2005 218,300 60,251 -- 8,200
Chief Executive Officer 2004 218,300 -- 30,000 8,000
Paul D. Sheely 2006 126,904 38,097 15,000 6,456
Vice President and 2005 125,000 34,500 -- 5,000
Chief Financial Officer 2004 123,672 -- 10,000 6,030
(1) These amounts represent Company's matching contributions to the Company's
401(k) plan on behalf of such employee.
9
STOCK OPTIONS
The following table contains information concerning grants of stock options
to the Named Executive Officers during the fiscal year ending August 27, 2006:
OPTION GRANTS IN FISCAL YEAR 2006
INDIVIDUAL GRANTS
------------------------------------------------
PERCENT OF POTENTIAL REALIZABLE VALUE AT
NUMBER OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS EXERCISE PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO OR BASE TERM (1)
OPTIONS EMPLOYEES PRICE EXPIRATION -----------------------------
NAME GRANTED (#) IN 2006 ($/SH) DATE 5% 10%
---- ----------- ---------- -------- ---------- ------- -------
Michael J. Pudil... 30,000 40% $3.44 01/04/2016 $64,900 $99,600
Paul D. Sheely..... 15,000 20% $3.44 01/04/2016 $32,500 $49,800
----------
(1) Potential realizable values shown above represent potential gains based
upon annual compound price appreciation of 5% and 10% from the date of
grant through the full option term. The actual value realized, if any, on
stock option exercises will depend upon overall market conditions and the
future performance of the Company and its common stock. There is no
assurance that the actual value realized will approximate the amounts
reflected in this table.
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 2006 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 -- -- 130,000 20,000 $20,980 --
Paul D. Sheely -- -- 24,999 10,000 $6,519 --
----------
(1) Based on a per share price of $2.892, which was the closing sale price of
the Company's common stock on August 26, 2006, 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 27, 2006 and the exercise price of the
options, multiplied by the number of options outstanding.
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.
10
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, $781,000; Mr. Sheely, $456,000; and all
current executive officers as a group, $1,237,000.
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 2006. 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.
At the 2005 Annual Meeting of Shareholders the Company's 2005 Stock Plan
was 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.
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.
11
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 2006 as they
affected Mr. Pudil, the Company's President and Chief Executive Officer, and the
other executive officers.
Compensation Policies For 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. During fiscal year
2006, options to purchase 30,000 shares and 15,000 shares, respectively, were
granted to Mr. Pudil and Mr. Sheely in recognition of their service for fiscal
year 2006.
On October 28, 2005, the Compensation Committee recommended, and the Board
of Directors approved, the 2006 Management Bonus Plan (the "Plan") for executive
officers. Under the Plan, executive officers are eligible for cash bonuses
ranging from zero to 50% of their respective base salaries, depending upon the
Company's fiscal year 2006 performance against goals established by the
Compensation Committee. The goals established by the Compensation Committee
relate to increased revenues from business that will diversify the customer base
and return on tangible assets. The Company's fiscal year 2006 performance must
meet minimums established for each performance goal before any bonus amounts are
payable to executive officers in respect of that performance goal. Under the
Plan, the executive officers earned cash bonuses of 30% of their respective
salaries for fiscal year 2006.
12
Chief Executive Officer Compensation. The compensation package for the
fiscal year 2006 for Michael J. Pudil, the Company's President and 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 2006, Mr. Pudil earned a cash bonus
of $65,534 under the Plan, representing 30.0% of his base salary for fiscal year
2006.
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-KSB for the
year ended August 27, 2006 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.
13
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 26, 2001 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 26, Aug 25, Aug 31, Aug 29, Aug 28, Aug 27,
2001 2002 2003 2004 2005 2006
------- ------- ------- ------- ------- -------
WSI Industries, Inc. $100 $59.51 $145.95 $120.49 $181.08 $156.32
Nasdaq Stock Market (U.S.) $100 $72.64 $ 95.23 $ 98.19 $112.21 $113.84
Nasdaq Non-Financial Stocks $100 $68.76 $ 92.36 $ 93.65 $107.81 $108.79
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.
14
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 27, 2006 all Section
16(a) filing requirements applicable to its insiders were complied with.
PROPOSAL 2:
RATIFICATION OF APPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee has reappointed Schechter Dokken Kanter Andrews &
Selcer Ltd. ("SDK") as the Company's independent registered public accountants
for the current year. Although shareholder approval is not required, the Board
of Directors has determined to request shareholder ratification of the
appointment or reappointment of independent registered public accountants.
The Board of Directors recommends that the shareholders vote "for" the
proposal to approve the reappointment of SDK, and the endorsed proxy will be so
voted unless a contrary vote is indicated. In the event the shareholders do not
approve the reappointment of SDK, the Audit Committee will make another
appointment to be effective at the earliest possible time.
SDK, independent registered public accountants, served as independent
registered public accountants of the Company for the fiscal year ended August
27, 2006. The Company's Audit Committee has selected SDK to serve as the
Company's auditors for the year ended August 26, 2007.
Representatives of SDK will be in attendance at the Annual Meeting of
Shareholders and will have the opportunity to make a statement if they desire to
do so. In addition, representatives will be available to respond to appropriate
questions.
Approval of Proposal 2: Appointment of SDK 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
RATIFICATION OF SCHECHTER DOKKEN KANTER ANDREWS & SELCER LTD.
AS INDEPENDENT PUBLIC ACCOUNTANTS.
15
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 27, 2006
and August 28, 2005, which totaled $50,300 and $47,470, 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-QSB, or other services normally
provided by SDK in connection with statutory and regulatory filings or
engagements for the fiscal years ended August 27, 2006 and August 28, 2005
totaled $44,600 and $42,970, 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 27, 2006
and August 28, 2005 totaled $5,700 and $4,500, respectively.
ALL OTHER FEES
There were no fees billed to the Company by SDK for the fiscal years ended
August 27, 2006 and August 28, 2005, other than those described above.
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 2006 were pre-approved
by the Audit Committee or a member of the Committee before SDK was engaged to
render the services.
16
SHAREHOLDER PROPOSALS FOR 2007 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. 2007 Annual Meeting of
Shareholders is expected to be held on or about January 4, 2008 and proxy
materials in connection with that meeting are expected to be mailed on or about
December 1, 2007. 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, 2007, in order to be considered for inclusion in the Board
of Directors' Proxy Statement and proxy card for the 2007 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
2007 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.
The Company's Annual Report to Shareholders for the fiscal year ended
August 27, 2006 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-KSB, 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, President and Chief Executive
Officer
17
WSI INDUSTRIES, INC.
ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, JANUARY 4, 2007
11:00 A.M.
(WSI LOGO) WSI INDUSTRIES, INC.
213 CHELSEA ROAD, MONTICELLO, MN 55362 PROXY
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON JANUARY 4, 2007.
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 6, 2006 at the Annual Meeting of Shareholders to be held at
4200 IDS Center, 80 South 8th Street, Minneapolis, Minnesota 55402 on January 4,
2007 at 11:00 a.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
02 Melvin L. Katten
03 George J. Martin
04 Eugene J. Mora
05 Michael J. Pudil
/ / VOTE FOR / / VOTE WITHHELD
all nominees from all nominees
(except as
marked to
the contrary)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE
FOR ANY INDIVIDUAL NOMINEE, STRIKE A LINE
THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
--------------------------------
2. APPROVAL OF APPOINTMENT OF SCHECHTER / / FOR / / AGAINST / / ABSTAIN
DOKKEN KANTER ANDREWS & SELCER LTD. AS
INDEPENDENT AUDITORS FOR THE COMPANY
FOR THE FISCAL YEAR ENDING AUGUST 26,
2007.
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), (2)
AND (3) IN ACCORDANCE WITH THE SPECIFICATIONS MADE AND "FOR" SUCH PROPOSAL IF
THERE IS NO SPECIFICATION.
Address Change? Mark Box / /
Indicate changes below:
Dated:
----------------------------
------------------------------------
------------------------------------
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.